<PAGE>



                          SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C. 20549

                                    FORM 10-K
                                   ___________
(Mark One)
   [X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934

                     FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

                                       OR

   [ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934

                 For the transition period from __________ to __________

                        COMMISSION FILE NUMBER 0-26140

                      HIGHWAYMASTER COMMUNICATIONS, INC.
             (Exact name of Registrant as specified in its charter)

          DELAWARE                                    51-0352879
(State or other jurisdiction of                    (I.R.S. Employer
 incorporation or organization)                  Identification Number)

                        16479 DALLAS PARKWAY, SUITE 710
                              DALLAS, TEXAS 75248
          (Address of principal executive offices, including zip code)

       (Registrant's telephone number, including area code): (972) 732-2500

         Securities Registered Pursuant to Section 12(b) of the Act: NONE

           Securities Registered Pursuant to Section 12(g) of the Act:

                           COMMON STOCK, $.01 PAR VALUE
                              (Title of each Class)

    Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the last 90 days.  YES  X   NO     .
                                                   -----   -----

    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

    The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 21, 1997 was $91,860,599.*

    The number of shares outstanding of Registrant's Common Stock was 24,853,808
as of March 21, 1997.


<PAGE>
                     DOCUMENTS INCORPORATED BY REFERENCE

    Portions of Registrant's definitive Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A in connection
with the 1997 annual meeting of stockholders are incorporated herein by
reference into Part III of this Report.  Such proxy statement will be filed
with the Securities and Exchange Commission not later than 120 days after the
Registrant's fiscal year ended December 31, 1996.

    Certain exhibits filed with the Registrant's Registration Statement on
S-1 (Registration No. 33-91486), as amended, the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995, the Registrant's
Form 10-Q Quarterly Report for the quarterly period ended June 30, 1996, the
Registrant's Current Report on Form 8-K filed on October 7, 1996, and the
Registrant's Form 10-Q Quarterly Report for the quarterly period ended
September 30, 1996 are incorporated herein by reference into Part IV of this
Report.

-------------------
    *Excludes the Common Stock held by executive officers, directors and
stockholders whose ownership exceeds 5% of the Common Stock outstanding at
March 21, 1997.  Exclusion of such shares should not be construed to indicate
that any such person possesses the power, direct or indirect, to direct or
cause the direction of the management or policies of the Registrant or that
such person is controlled by or under common control with the Registrant.






<PAGE>

                      HighwayMaster Communications, Inc.

                                  FORM 10-K
                 For the Fiscal Year Ended December 31, 1996

                                    INDEX
                                                                        PAGE
                                                                        ----
PART I
  ITEM 1.  BUSINESS.....................................................   1
           GENERAL......................................................   1
              The Company...............................................   1
              Trucking Industry Overview................................   1
              Mobile Communications Needs in the Trucking Industry......   2
              The HighwayMaster Products and Services...................   3
              Infrastructure............................................   6
              Strategic Service Alliances of the Company................   9
              Product Manufacturing and Supply..........................  11
              Marketing and Distribution................................  11
              Customer Service and Warranty.............................  11
              Current Installed Base....................................  12
              Additional Growth Opportunities...........................  13
              Competition...............................................  15
              Patents and Proprietary Technology........................  17
              Regulation................................................  18
              Employees.................................................  18
           RECENT FINANCING TRANSACTIONS................................  19
              SBW Transactions..........................................  19
              Recapitalization Transactions.............................  19
           RISK FACTORS.................................................  20
              Forward Looking Statements................................  20
              Limited Operating History; History of Losses..............  20
              Status of AT&T Contract; Network Services Center..........  20
              Operational Difficulties..................................  21
              AT&T Litigation...........................................  21
              Dependence on Cellular Infrastructure.....................  22
              Dependence on Clearinghouse Services......................  22
              Product Supply Arrangements...............................  23
              Lack of Capitalization and Other Resources Required
                for Growth..............................................  23
              Amended Stockholders' Agreement; Control of the Company...  23
              Common Stock Available for Purchase by SBW................  24
              Certain Rights of SBW.....................................  24
              Competition and Technological Change......................  25
              Billing Discrepancies.....................................  26
              Uncertainty Regarding Patents and Proprietary Rights......  26
              Uncertainty of Government Regulation......................  27
              Dependence on Key Personnel...............................  28
              Product Liability.........................................  28
              Dividend Policy...........................................  28
              Shares Eligible for Future Sale...........................  28
              Volatility of Stock Price.................................  29
  ITEM 2.  PROPERTIES...................................................  29
              Real Property and Leases..................................  29
  ITEM 3.  LEGAL PROCEEDINGS............................................  29
  ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........  30

                                      i
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PART II
  ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
             STOCKHOLDER MATTERS........................................  30
  ITEM 6.  SELECTED FINANCIAL DATA......................................  31
  ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
             CONDITION AND RESULTS OF OPERATIONS........................  32
  ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................  37
  ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
              ACCOUNTING AND FINANCIAL DISCLOSURE.......................  38

PART III
  ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...........  39
  ITEM 11. EXECUTIVE COMPENSATION.......................................  39
  ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
              AND MANAGEMENT............................................  39
  ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............  39

PART IV
  ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
              ON FORM 10-K .............................................  40


                                      ii

<PAGE>

                                        PART I

ITEM 1.  BUSINESS

GENERAL

    THE FOLLOWING DISCUSSION IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO)
APPEARING ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K.  STOCKHOLDERS SHOULD
CAREFULLY CONSIDER THE INFORMATION PRESENTED UNDER "RISK FACTORS" BELOW.

THE COMPANY

    HighwayMaster Communications, Inc., a Delaware corporation, was originally
incorporated as HM Holding Corporation on January 28, 1994.  HighwayMaster
Communications, Inc. holds all of the outstanding shares of its operating
subsidiary, HighwayMaster Corporation (hereinafter, jointly with HighwayMaster
Communications, Inc., referred to as "HighwayMaster" or the "Company").  The
Company operates a wireless enhanced services network with both voice and data
capabilities in 99% of the available cellular coverage areas in the United
States and 100% of the A-Side cellular coverage areas in Canada.  This network
covers approximately 95% of the United States interstate highway system and
consists of a unique integration of Company provided on-board equipment and
software with various transmission, long distance, switching, tracking and other
services and facilities provided by certain telecommunications companies and
more than 70 cellular carriers.  Through this private network, the Company
provides integrated mobile voice, data, tracking, and fleet management
information services to trucking fleets and other operators in the long-haul
segment of the transportation industry.

    The HighwayMaster system includes a Mobile Communication Unit (the "Mobile
Communication Unit" or "Unit") installed in each truck and a proprietary
dispatch software package developed by the Company for use by trucking
companies.  The Mobile Communication Unit transmits and receives voice and data
communication to and from long-haul trucks through the Company's private
network.  In addition, the Unit contains a sophisticated navigational tracking
device that enables dispatchers to obtain accurate position reports for trucks
located anywhere in the United States and Canada.  The Company's dispatch
software package enables a trucking company to optimize the use of its fleet by
processing data transmitted by Mobile Communication Units and performing a
variety of fleet management functions.

    The Company is in the process of expanding its services to include a
broader range of information management systems and services for the
trucking industry, as well as offering access to its proprietary network and
technology for use in automotive security systems.  See "--Additional Growth
Opportunities."

TRUCKING INDUSTRY OVERVIEW

    Industry publications indicate that there were 16.2 million commercial
vehicles registered in the United States in 1993.  A 1992 survey published by
the United States Census Bureau showed approximately 2.6 million commercial
trucks were in larger-size categories likely to be traveling on interstate
highways.  Although the Company expects to generate business from all sectors
of the trucking industry and related industries, the Company is currently
focusing on a core group of trucking fleets and other operators who own or
operate approximately 700,000 to 800,000 trucks.

                                      1
<PAGE>

    The Company's initial target market consists of private and for-hire fleet
operators, owner-operators and other operators of larger-size trucks that
utilize the United States and Canadian highway systems.  FOR-HIRE CARRIERS are
companies whose primary business is trucking and whose revenues are from
transporting goods on a for-hire basis.  PRIVATE FLEETS are operated by
non-trucking firms that haul their own freight.  OWNER/OPERATORS are individuals
who own and operate their own trucks.  Some owner-operators work for a single
company under a lease agreement, while others work with transportation brokers
to find loads or operate their own small transportation businesses.

    Partial deregulation in 1980 has resulted in lower barriers to entry and
increased competition in the long-haul trucking industry.  Greater efficiency
and lower prices have attracted customers away from other modes of land
transportation to the trucking industry.  Between 1983 and 1993, the number of
miles driven by medium and heavy duty trucks increased by 41%, and the number of
tractor registrations increased by 4%.  Total gross freight revenue of the
trucking industry reported by the ICC in 1993 was approximately $345.0 billion.

    Management believes that enhancing efficiency through cost-effective
mobile communication will be an important component of improved profitability
for trucking companies.  As a result, management believes that there is
strong demand in this market for cost-effective communications systems that
enable voice and data messages to be transmitted to and from long-haul
trucks. Management estimates that approximately 5% of larger size commercial
trucks and approximately 25% of trucks operated by the core group of trucking
fleets and other operators on which the Company is focusing are currently
equipped with any form of nationwide two-way mobile communications, including
satellite systems and traditional cellular communications.

MOBILE COMMUNICATIONS NEEDS IN THE TRUCKING INDUSTRY

    The Company believes that demand for the HighwayMaster system will continue
to grow as trucking companies experience increased industry competition and face
mounting internal and external pressures to adopt mobile communications systems.

    External pressures include competition from the increasing number of
trucking companies that are installing mobile communications systems, demands
placed on the long-haul trucking industry to meet just-in-time inventory
demands, and regulatory and environmental requirements.  The Company
estimates that long-haul trucking fleets have installed approximately 160,000
mobile communications systems since 1988 in the United States and the Company
believes that this will increasingly place those fleets without service at a
competitive disadvantage. Furthermore, as just-in-time delivery inventory
control becomes more prevalent, manufacturers increasingly will require that
materials arrive immediately before incorporation into the manufacturing
process.  The resulting pressure on trucking companies has stimulated demand
for more efficient two-way communications systems to assure on-time pick-up
and delivery, improved load matching within a widely dispersed fleet and
current tracking of shipment location.  In fact, certain large shippers
require all new contracting trucking companies to be equipped with on-board
communications and tracking equipment. Additionally, trucking companies must
maintain detailed records relating to miles driven by state, hours driven by
each driver and other information.  Some hazardous substances may only be
transported over certain routes.  The HighwayMaster system automatically
gathers required information and aids in the optimal routing of trucks.

                                      2
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    Internal pressures include containing costs through improved operating
efficiency, improving driver quality of life thereby reducing critical
turnover rates, and increasing the safety of drivers, capital equipment and
cargo by reducing the likelihood of accidents.  The HighwayMaster system
assists trucking companies in improving efficiency by increasing the
utilization of equipment and reducing the number of empty miles and
out-of-route miles. With the HighwayMaster system,  it is not necessary for
truck drivers to make frequent stops to place telephone calls to dispatchers.
In addition, the Company's system allows swift and efficient matching of
drivers with shipments, thereby reducing layovers and fuel costs associated
with empty miles.

    With driver turnover approaching 100% in the trucking industry today, the
Company believes that trucking companies can increase driver satisfaction and be
more successful in attracting and retaining competent drivers by giving a driver
the ability to contact or be contacted by family and friends while on the road.
Furthermore, since driver bonuses are often calculated based on loaded miles
driven and overall efficiency, drivers benefit from a system that allows them to
be more efficient and avoid unnecessary stops.

    Finally,  by allowing a driver to communicate using "hands free"
voice-activated equipment while traveling, as the HighwayMaster system does, the
distractions and hazards of placing or receiving a call while on the road are
minimized.  Voice commands spoken into a microphone clipped to the visor and
synthesized voice responses from the Units provide a safety advantage over
traditional cellular telephones, which must be grasped with one hand during
operation and over full keyboard typing necessary to operate competing
satellite-based systems, which drivers are not permitted to use while the
vehicle is in motion.  Further, by enabling the driver to communicate while
traveling in his vehicle, the HighwayMaster system reduces stops to make
telephone calls at truck stops, where management believes a large percentage of
all trucking accidents occur.  The HighwayMaster system also automatically
reports time, speed and routes driven by each truck to the dispatcher, which can
be used to enhance safety troubleshooting and driver safety counseling, and the
tracking service enables the trucking company to locate stolen trucks or trucks
involved in a roadside emergency.

THE HIGHWAYMASTER PRODUCTS AND SERVICES

    The Company believes that the HighwayMaster system represents the most
complete and cost-effective package of mobile communication services and
products currently available to the long-haul trucking industry.  The
Company's private enhanced services network provides the link between the
dispatcher and each truck.  The dispatcher and truck can maintain contact by
voice and data communication, and the dispatcher can obtain automated reports
regarding the location of each truck, generally accurate to within 100 yards.

    PRICING.  The Company's products and services are economically priced to
appeal to virtually all participants in the long-haul trucking industry.  The
Company offers the on-board Mobile Communication Unit at a retail price of
$1,995, with tiered discounts for larger volume purchases.  The Company's
customers are charged a flat fee of $0.53 per minute for voice communication
within the United States and $0.64 per minute for cross-border communication
with Units in Canada, which includes all cellular air time and long-distance
charges, $0.48 per minute for data transmission within the United States and
$0.59 for cross-border data transmissions and $41 per month per installed
Mobile Communication Unit to utilize the system.  In addition, callers are
charged a fee for each call billed to a separate account, such as a credit
card, calling card or HighwayMaster account.  The Mobile Communication Unit
is installed in the customer's trucks, and the dispatcher is

                                      3
<PAGE>

equipped with mapping and management software at no additional charge. This
software can be integrated into the host computer systems operated by the
Company's customers or can be installed and operated on a personal computer
equipped with a hard disk and a modem.

    MOBILE COMMUNICATION UNIT DESCRIPTION.  HighwayMaster equipment mounted in
each truck includes the following: (i) a menu-driven display module which
provides two large lines of scrollable text on the dashboard; (ii) a microphone
which clips on the sun visor for "hands free" communication utilizing
voice-recognition and voice-synthesis technologies; (iii) a modified cellular
telephone handset and cradle; (iv) a cellular antenna; (v) a GPS navigational
antenna; and (vi) a computerized system module in the vehicle which contains the
positional reporting device, the cellular transceiver and the on-board computer.
The system module also houses voice-activation and voice-synthesis software,
data storage capability and unique technology that effectively eliminates the
risk of cellular roaming fraud.  The module provides ports to allow for
incorporation of current and future peripheral equipment, such as a fax machine,
scanner, printer, engine monitoring equipment and trailer temperature
monitoring.  The Mobile Communication Unit was designed to be "user-friendly,"
to have installation times that are shorter than competing satellite unit
installations, and to limit driver training to an average of one hour.  The
system module is remotely programmable from the host computer by the trucking
company and by HighwayMaster.

    VOICE COMMUNICATIONS.  The Company provides nationwide voice
communications services at a rate of $0.53 per minute for calls within
the United States. By comparison, currently available cellular long-distance
call delivery systems require the payment of rates that are significantly
higher than those charged by the Company.  The driver controls the functions
of the Mobile Communication Unit by an enhanced cellular telephone handset.
A microphone clipped to the truck's visor and voice-recognition capability
also allow the system to be controlled by the driver's voice commands.  While
in a cellular region covered by HighwayMaster, a driver may initiate
telephone calls to any phone number pre-approved by the dispatcher, and the
dispatcher may initiate telephone calls to the driver.  Drivers may be issued
calling card accounts by HighwayMaster or use selected credit cards, for
units operating under the Company's Network Services Center (the "NSC"), or
may be issued calling cards by AT&T Corp. ("AT&T"), for units operating under
the AT&T Complex (as defined herein), that allow them to place personal
telephone calls to any telephone number.  Such calls are billed separately to
the drivers' home addresses.  See "--Infrastructure -- Enhanced Service
Complexes."  The nationwide call delivery feature, combined with
calling-party payment for calls, sets the Company's product apart from
conventional cellular service.

    DATA TRANSMISSION.  The Mobile Communication Unit permits the
transmission and receipt of data between a truck and a dispatcher.  The $0.48
per minute charge for data transmissions within the United States translates
into costs as low as $0.0007 per character for a typical dispatch message of
between 600 and 700 characters.  The dispatcher may type free form data
messages, which appear on the driver's data display screen on the dashboard
and can be stored for future reference.  The driver may send up to 99
pre-programmed status messages with accompanying numerical data such as "At
Dock Loading" or "Trailer Number 21" that automatically update the trucking
company's host computer, eliminating the data entry function a dispatcher
must perform at the trucking company.  The driver also may enter status
messages by voice command or through the telephone handset keypad.  Certain
options allow the Mobile Communication Unit to monitor engine speed and
temperature, automatically transmitting the data to the trucking company.
Future enhancements may allow for trailer temperature monitoring and other
features.

                                      4
<PAGE>

    FACSIMILE TRANSMISSION.  The Company provides nationwide facsimile
communications services at a rate of $0.53 per minute for either local or
long-distance fax transmissions.  Fax Interface is a recent product advancement
which assists customers in transmission and receipt of documents such as bills
of lading, permits and detailed instructions that a truck driver might need on
an immediate basis.

    FLEET TRACKING.  Precise position and historical route reports are
automatically provided to the dispatcher's PC with each call to or from the
truck.  For the cost of $0.48 per minute of data transmission time within the
United States and $0.59 per minute for cross-border data transmissions, the
dispatcher can obtain a real-time position report from a specific truck by
keyboard request.  Reports are generally accurate to within 100 yards.  These
reports include position logs, which are stored internally by each Mobile
Communication Unit, providing historical route information even if the truck
travels out of cellular coverage.  A trucking company's use of these tracking
capabilities can improve management and facilitate better customer service.
The navigational tracking capabilities of the HighwayMaster system reduce the
number of out-of-route miles and facilitate efficient matching of drivers
with loads, thereby reducing expenses and empty miles driven.

    INTEGRATED FLEET MANAGEMENT SOFTWARE.  The Company's software package
enables a trucking company to optimize the use of its fleet by processing data
transmitted by its Mobile Communication Units, managing dispatch records, driver
logs, state fuel tax calculations, route planning and other functions.  The
dispatch software can be loaded on to a PC equipped with a modem, or the system
can be interfaced directly to be networked with a midrange or a mainframe
computer for access by the dispatcher or a shipper.  The software performs
essentially three functions: (i) order entry, (ii) dispatch and tracking, and
(iii) truck reconciliation and mapping.  The order entry function stores and
manages the ordering information related to each shipment, including the
assignment of loads to specific trucks, required delivery times and bills of
lading.  The dispatch and tracking function utilizes GPS location information
along with data entered by the driver, to provide information for any truck
within the fleet, including destination, load, drivers' identification and
mileage driven.  The truck reconciliation and mapping application provides
historical information such as percentage of on-time deliveries and miles driven
per state for fuel tax calculation.  An online interstate highway map can be
used to graphically plot the routes traveled by each truck.  The system can
highlight trucks that are running behind schedule or are available for load
pick-ups.

    ROLLING ETA.  Rolling ETA-TM- is an enhancement to the Company's Model 5000
Series which instructs the HighwayMaster system's microprocessor mounted inside
the truck to calculate the estimated arrival time based upon average speed,
hours per day and delivery parameters and alerts the driver and dispatcher
automatically if the truck is going to miss an arrival time.

    HighwayMaster is continuing the development of its operational software.
The principal software suppliers that currently market full feature software
application programs to trucking companies offer interfaces to the HighwayMaster
system (which allow data communication directly between the trucking company's
existing mainframe computer and the Company's Mobile Communication Units).
These third party software suppliers generally offer the customized
HighwayMaster interface at reasonable cost directly to their customers.
HighwayMaster provides some custom interface development to very large
customers.


                                      5
<PAGE>

    Although HighwayMaster software operating on a host PC is necessary to send
and receive data messages and to access tracking and mapping information, it is
not necessary for use of the voice communication functions of the Mobile
Communication Unit.  In sales to small owner/operators, voice communication
appears to be the primary selling factor for the system, with some purchasers
opting to receive periodic reports from a host operated by the Company instead
of installing a host PC in their dispatch offices.

INFRASTRUCTURE

    CONFIGURATION OF THE HIGHWAYMASTER SYSTEM.  The diagram below depicts the
configuration of the HighwayMaster system and relationships among the various
participants:

    [Diagram of HighwayMaster System, which illustrates the connections among
(1) the Mobile Communication Unit, (2) the cellular carrier, (3) GTE-TSI,
(4) EDS, (5) the switching complex, (6) long distance and local exchange
carriers, (7) the dispatcher's PC, (8) all other telephones and (9) GPS
satellites]

    The processes illustrated above are fully automated, allowing
communication with drivers from any telephone in the United States and
Canada.  As the driver enters a new cellular coverage area, the Mobile
Communication Unit (1) automatically sends an identifying signal to the
cellular carrier (2).  This cellular carrier information is sent via
specialized hardware and software provided by GTE-TSI (3) and occasionally
EDS (4) to a switching complex owned and operated by HighwayMaster or AT&T
(5) so such switching complex will be able to direct future incoming calls
for that driver to the appropriate cellular carrier.  In the third quarter of
1996, the Company began commercial service with its own switching complex,
the NSC.  For new customers commencing service since July 1, 1996, all
transmissions are routed through the NSC. For most customers commencing service
prior to such time, transmissions continue to be routed through a switching
complex maintained and operated by AT&T (the "AT&T Complex").  See "-- Enhanced
Service Complexes."

    When the driver makes a phone call, the Mobile Communication Unit (1) is
connected to a switching complex (5) via the cellular carrier (2) and
existing long distance lines (6), and such switching complex switches the
call to the appropriate destination, which may be the Dispatcher PC for data
(7) or any other telephone for voice (8).  The Company's NSC requires entry
of a personal billing account or  selected credit card number, and the AT&T
Complex requires entry of an AT&T Calling Card number, for separate billing
of personal calls.  See "-- Enhanced Service Complexes."

    When dispatchers or outside callers desire to call a driver, their calls
are switched by the switching complex (5) directly over existing long distance
lines and local exchange carriers (6) to the appropriate

                                      6
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cellular carrier (2), which completes the call to the driver (1).  Data
messages are first stored in the switching complex (5) and then passed to or
from the Dispatcher PC (7) and the Mobile Communication Unit (1).

    The Mobile Communication Unit (1) automatically records a precise
position report obtained from GPS satellites (9) on a continuous basis.  This
log of reports and any other stored data is uploaded to the appropriate
switching complex with every business voice or data call made to or from the
Mobile Communication Unit.  Additionally, the Dispatcher PC (7) can initiate
a call at any time to obtain an immediate position report from any truck.

    CELLULAR INDUSTRY.  Cellular communication has emerged as the dominant
service in wireless voice communication.  The cellular infrastructure utilized
by the Company is already in place.  By contrast, the Company's satellite and
SMR competitors must expend substantial amounts of capital and several years of
development time to construct networks capable of transmitting and receiving
voice messages from customers nationwide.

    The Federal Communications Commission (the "FCC") has provided for a
two-operator duopoly in each cellular market. Only two licenses are awarded
to provide cellular service in any specific cellular MSA or RSA.  One of the
two licenses in each market is initially awarded to a company or group that
is affiliated with a local landline telephone carrier in the market (the
"Wireline" or "B-Side" license) and the other license in each market is
initially awarded to a company, individual or group not affiliated with any
landline telephone carrier (the "Non-Wireline" or "A-Side" license).  The
HighwayMaster system utilizes both the A-Side and B-Side carriers in its
coverage areas, and has agreements with both carriers in approximately 30% of
its markets, allowing system redundancy and greater flexibility. In addition
to cellular licenses, the FCC may issue up to six licenses in each market to
personal communications services ("PCS") providers. At the present time, PCS
is  generally available only in certain metropolitan markets but is expected
to create increased competition for cellular operators where available.

    Increased demand for cellular service is driving investment in cellular
networks and improving service coverage.  Cumulative capital investment
within the cellular industry has reached $32.5 billion as of December 1996,
up from $6.3 billion in December 1990.  Total number of cell sites increased
to 30,045 in December 1996 up from 10,307 in December 1992.  Total cellular
customers reached more than 44.0 million in December 1996.

    Management believes that ordinary cellular subscribers utilizing services
outside of their home market will continue to be assessed roamer and long-
distance surcharges, although roaming rates are expected to decline. Another
shortcoming in current roamer usage of cellular services is that the cellular
industry has failed to provide an effective and universal incoming call delivery
system to subscribers on a nationwide basis.  Current autonomous-registration
call delivery systems are generally available in urban areas and are becoming
more prevalent in rural markets.  These shortcomings in nationwide cellular
coverage have been overcome in the HighwayMaster system, because it offers
nationwide call delivery in coverage areas which include approximately 95% of
the United States interstate highway system, and air time rates that are free
of roamer and variable long-distance surcharges.

    Management believes that due to the large number of existing cellular
subscribers, consumer ownership of many cellular telephones and the extensive
capital investment by cellular carriers in the existing cellular
infrastructure, it is unlikely that the existing cellular network will be
abandoned or replaced by SMR or other competing technologies.  A number of
cellular carriers are in the process of upgrading from existing analog
cellular systems to enhanced systems utilizing digital technology.  However,
management believes that the large number of analog telephones already owned
by cellular subscribers will ensure that cellular telephone operators
continue to

                                      7
<PAGE>

offer services to existing analog users concurrently with digital users, over
an extended or indefinite phase-in period that exceeds the expected useful
life of the Mobile Communication Units.

    ENHANCED SERVICE COMPLEXES.  From 1993 to 1996, the Company and AT&T were
parties to a contract (the "AT&T Contract") pursuant to which AT&T provided
enhanced call processing and data management services and long-distance
transport for the Company and its customers through the AT&T Complex.  AT&T
terminated the AT&T Contract effective as of June 29, 1996.  In the third
quarter of 1996, the Company began commercial service with its own switching
complex, the NSC, which was designed and constructed for the Company by IEX
Corporation ("IEX").  For new customers commencing service after June 29,
1996, the NSC has fully replaced the AT&T Complex.  For most customers
commencing service prior to such time, AT&T continues to provide services
through the AT&T Complex without a formal contract  with the Company in
fulfillment of AT&T's obligations under existing service agreements entered
into with each customer.

    Both the NSC and the AT&T Complex provide switching services among each
Mobile Communication Unit, the HighwayMaster nationwide cellular network, the
dispatcher PC and the nationwide landline telephone network.  Each switching
complex is capable of processing, storing and transmitting voice and data
transmissions.  Voice communications are routed from each Mobile Communication
Unit through the HighwayMaster nationwide cellular network to the appropriate
switching complex.  The switching complex automatically completes the call
through the public telephone network to the end user.  Voice communications from
the dispatcher or personal calls for the driver are routed through a toll-free
telephone number to the appropriate switching complex, which completes the call
through the appropriate wireless cellular system for the region in which the
truck is operating.  Data packets from the host or a Mobile Communication Unit
are stored in the switching complex, then transmitted in cost-effective batches.
Time critical information, as determined by the trucking company, is immediately
transmitted to the receiving party.  The switching complex records data from
each transmission, generates a call record and processes the information into
customer billing records.  HighwayMaster can increase capacity of the NSC as
needed to meet growing caller demands by increasing the line capacity and number
of modems and controllers.

   The Company believes that the NSC has certain advantages over the AT&T
Complex. This facility generally incorporates more advanced architecture and
offers additional functions not available through the AT&T Complex. In
addition, the NSC gives HighwayMaster increased flexibility to add new
features and services without having to negotiate contract modifications with
AT&T and also enhances the Company's ability to monitor operations and
perform diagnostic functions to identify problems.

    CALL ROUTING.  Each time a Mobile Communication Unit travels into a new MSA
or RSA, it automatically registers with the cellular carrier under contract with
the Company.  The cellular carrier routes the message to GTE-TSI or EDS, which
are also under contract with the Company and provides the switching complex with
call delivery information necessary for the switching complex to deliver calls
to the Mobile Communication Unit as it travels through the new MSA or RSA.
Subsequent telephone calls or data transmissions originating from the Mobile
Communication Unit are recognized by the local cellular carrier and screened to
allow call routing only through the switching complex, where additional
screening is conducted.

    Before a call originating from a Mobile Communication Unit is received by
the switching complex, the Mobile Communication Unit must establish an encoded
electronic "handshake" with the switching complex.  The effective elimination of
roamer fraud is a factor in the Company's ability to contract with local
cellular carriers throughout the country.

    NAVIGATION TECHNOLOGY.  GPS allows users to identify the location of any
truck at any time via satellite.  GPS is operated by the United States
government and broadcasts navigational information from a network of dedicated
satellites orbiting the earth.  GPS navigational receivers interpret signals
from

                                      8
<PAGE>

multiple satellites to determine the receiver's geographical coordinates,
elevation and velocity.  GPS units available for civilian use are generally
accurate within 100 yards.  GPS navigational signals can be received
worldwide, without adaptation of the receiver unit to foreign standards.
Management believes that the network of GPS navigational satellites will be
maintained by the United States Defense Department in an operational status
for the foreseeable future.  Although stand-alone GPS units are available for
purchase by any consumer at relatively low cost, raw navigational information
is of little use to trucking companies unless the GPS receiver is integrated
with a computer system, such as the Mobile Communication Unit, to record
routes traveled relative to mapped roadways or to transmit position reports
to a central dispatcher.

    The Company's use of government-operated GPS satellites differs
substantially from competitors' use of satellites for two-way communications.
GPS satellites send one-way signals to mobile receivers, allowing the mobile
unit to plot its geographical coordinates.  GPS satellites are not capable of
two-way communication, and no charges are assessed to users of the GPS services.
For two-way mobile communications, the Company relies exclusively on earth-based
cellular systems.  The Company's primary competitors utilize leased or owned
communications satellites for two-way data communications, incurring costs
associated with ownership or leasing of satellite communication capacity.

STRATEGIC SERVICE ALLIANCES OF THE COMPANY

    LOCAL CELLULAR CARRIERS.  HighwayMaster has established a network for
United States-based trucking operators that offers mobile communication
coverage in 99% of the available cellular coverage in the United States
(which covers approximately 95% of the United States interstate highway
system) and 100% of the A-Side coverage in Canada.  The Company has
agreements in place with more than 70 cellular carriers, including all seven
regional Bell operating companies, GTE, and Rogers Cantel, Inc., in more than
720 markets in the United States and Canada.  The Company has entered into
contracts with both A-side and B-side carriers in approximately 30% of United
States cellular coverage regions.  Management expects its back-up coverage to
continue to increase as more relationships are established.  Management
believes that local cellular carriers are motivated to make capacity
available to the Company for various reasons, including (i) increases in
volume of air time usage, (ii) no customer service expense, (iii) the
inability of customers using the HighwayMaster system to switch to another
cellular carrier, (iv) no customer acquisition costs, (v) access to a
national customer base not otherwise available to local cellular carriers,
(vi) use of the HighwayMaster system by long-haul truckers who typically
travel through less dense cellular coverage areas, (vii) use of the
HighwayMaster system by truckers typically during off-peak time periods and
(viii) no expenses associated with fraudulent usage as a result of the
security protection afforded by the HighwayMaster system.  Current terms of
contracts between the Company and each of its cellular carriers are generally
for one year, with automatic one-year successive renewal terms unless either
party elects to terminate the contract upon 30-days' notice prior to June 30
of each year.  Although the cellular carriers are not obligated to renew the
contracts, management believes these relationships will continue to be in the
best interest of cellular carriers because of the factors discussed above.

    AT&T.  From 1993 to 1996, the Company and AT&T were parties to the AT&T
Contract pursuant to which they offered certain combined telecommunications
services to their joint customers in the long-haul trucking industry.  Under
the AT&T Contract, AT&T agreed to provide certain enhanced call processing,
data management services and long-distance network transport to the joint
customers of the Company and AT&T.  The call processing and data management
functions performed by AT&T are housed in the AT&T Complex, which was
developed by AT&T specifically for this application utilizing the Company's
confidential trade secrets.  The AT&T Contract was scheduled to expire on
June 29, 1998, unless terminated as of June 29,

                                      9
<PAGE>

1996 or June 29, 1997 at the option of AT&T upon 180 days prior written
notice to the Company.

    In March 1996, the Company learned that AT&T intended to terminate its
exclusive agreement with HighwayMaster and offer use of the AT&T Complex and
confidential HighwayMaster trade secrets to one or more of the Company's
competitors.  In February 1996, the Company filed suit in Federal District Court
against AT&T seeking, among other things, preliminary and permanent injunctive
relief restraining AT&T from using and disclosing HighwayMaster's trade secrets
and proprietary information relating to its mobile communications technology.
See "Legal Proceedings".  On March 12, 1996, AT&T notified the Company that it
was terminating the AT&T contract as of June 29, 1996.  AT&T indicated that upon
the effective date of cancellation it will no longer honor the prior
contractual restrictions which prohibited it from marketing enhanced services
from the AT&T Complex directly to the long-haul trucking industry or in
conjunction with competitors of HighwayMaster.  AT&T did, however, expressly
state its intention to honor continuing contractual obligations with existing
joint customers of it and HighwayMaster until those third party agreements'
current expiration dates.  See "Risk Factors -- Status of AT&T Contract; Network
Services Center."

    IEX CORP.  IEX designed, tested, constructed and serves as facility
manager for the NSC.  The NSC constitutes a critical link in providing
certain enhanced call processing, data management services and is necessary
for the Company to receive, store and route voice and data transmissions to
and from its customers. See "-- Infrastructure -- Configuration of the
HighwayMaster System," "--Infrastructure -- Enhanced Service Complex", and
"Risk Factors -- Status of AT&T Contract; Network Services Center."

    GTE MOBILECOMM, GTE-TSI AND EDS.  GTE MobileComm indirectly provides a
significant amount of cellular coverage for the HighwayMaster system and pays
all cellular carriers in the HighwayMaster system for HighwayMaster, billing
the Company on a monthly basis.  The term of the current agreement with GTE
MobileComm expires in March 1999.

    GTE-TSI and EDS provide clearinghouse functions to the cellular industry,
creating the data link between a foreign network and a roamer's home cellular
service area, performing credit checking functions and facilitating roamer
incoming call delivery functions.  The Company's contract with GTE-TSI covers
certain functions that are critical to the Company's ability to instantly
deliver calls nationwide.  It covers an initial term of three years ending
March 14, 1998, with an extension of up to one year at existing rates, at the
Company's option.  In addition, the Company is guaranteed the right to renew the
contract for up to 10 one-year periods beyond the primary term, at a reasonable
rate to be determined by GTE-TSI.  The agreement provides for mutual exclusivity
by the Company and GTE-TSI with respect to the provision and use of certain
critical call delivery features to provide service to the trucking industry.
The agreement between the Company and EDS involves the provision by EDS of
certain clearinghouse functions in connection with non-wireline cellular
carriers.  Fewer data processing functions are conducted by EDS due to the
Company's consolidation of certain common data processing functions with
GTE-TSI.  The agreement with EDS expires on July 15, 1998 and is renewable for
subsequent one-year terms unless 60-days' notice is provided prior to the
termination date of the agreement.  See "Risk Factors -- Dependence on
Clearinghouse Services."

                                      10
<PAGE>

PRODUCT MANUFACTURING AND SUPPLY

    Comptronix Corporation assembled the Mobile Communication Units for the
Company pursuant to the Company's specifications until the third quarter of
1996 when it sold substantially all of its assets and assigned its customer
purchase orders to Sanmina Corporation ("Sanmina").  After the sale, Sanmina
has continued production of Units for the Company under the same prices and
terms as its prior arrangement with Comptronix Corporation.  The various
components used by Sanmina in the assembly of the Units (including GPS
components and cellular transceivers) are obtained from certain other
manufacturers such as Motorola ("Motorola").  See "Risk Factors -- Product
Supply Arrangements."

MARKETING AND DISTRIBUTION

    The Company sells its mobile communication and information system to
fleet buyers primarily through its direct sales force located throughout the
nation. National marketing support for the sales teams includes print
advertising in industry journals, direct mail, radio networks popular with
truckers, industry trade shows and on-site marketing promotions.  The Company
sponsors a racing team on the Sports Car Club of America (SCCA) Trans-Am Tour
and entertains trucking company executives in its hospitality trailer at
races. The Company's goal for its sales, service and distribution network is
to establish a high level of responsiveness and convenience.

CUSTOMER SERVICE AND WARRANTY

   HighwayMaster operates a 24-hour, seven days a week customer support
service center to handle customer questions and requests. Regional
installation and customer service offices have been established in Atlanta,
Chicago, Dallas, Philadelphia and Salt Lake City. In addition, HighwayMaster
assigns account service representatives to each account of 20 or more trucks
to give personalized training and to assist in configuring the system to
provide the greatest possible economic impact. A one-year limited warranty is
provided to all purchasers of Mobile Communications Units, inclusive of
parts, labor and diagnostic work.

   The Company has trained personnel in authorized service centers to perform
installations and warranty of Mobile Communication Units at locations
nationwide, with additional locations to be activated pending training.
Independent contractors in strategic locations throughout the United States
have also been trained to perform installations, charging a fixed rate for
each Mobile Communication Unit installed.

                                     11

<PAGE>

CURRENT INSTALLED BASE

    The number of Mobile Communication Units installed in customer vehicles has
grown steadily since commercial operations began in September 1993.

    As of December 31, 1996, the Company had installed approximately 20,354
Units (including 478 Units installed on a test basis), and had orders to
install an additional 12,584 Units (including approximately 1,333 units to be
installed upon successful completion of test programs).  Not included in
these orders are approximately 3,000 Units that may be ordered by Wal*Mart
Stores Inc. in the event of a successful completion of their test currently
underway on 353 Units.  The Company's order backlog is based on signed
contracts, which do not specify delivery dates. Accordingly, in some cases
the timing of installation is uncertain, and the Company expects that not all
of the Units on order at December 31, 1996 will necessarily be shipped and
installed within the next twelve months.  Since July 1, 1996, the Company has
offered mobile communications services to its customers under the terms of a
service contract which generally commit the Company to provide services for
one year.  Customers typically may terminate their contracts during the
initial term only in the event of a material breach by the Company.  At the
expiration of the initial term, the contracts continue in effect on a
month-to-month basis unless terminated upon 30-days' notice by either party.

    Prior to June 29, 1996, the Company and AT&T offered mobile communications
services to their customers under the terms of joint service contracts, signed
by the Company, AT&T and their joint customers.  Customer contracts generally
commit the Company and AT&T to provide services for a one-year term, but in some
cases contracts entered into before July 1994 commit the Company and AT&T to
provide services for a five-year term.  Customers typically may terminate their
contracts during the initial term only in the event of a material breach by
either the Company or AT&T.  At the expiration of the initial term, the
contracts continue in effect on a month-to-month basis unless terminated upon 30
days notice by either party.

                                     12

<PAGE>

AT&T invoices customers directly for all enhanced telecommunications and
cellular services, and the Company and AT&T generally may raise their rates
upon 30 days notice.

ADDITIONAL GROWTH OPPORTUNITIES

    AUTOLINK.  In the fourth quarter of 1996, HighwayMaster entered into a
strategic business alliance with Prince ("Prince") to develop and provide
AutoLink-Registered Trademark- service for motorists in the United States and
Canada.  The basic AutoLink product will provide an intelligent communications
link from the car to an information services complex in order to provide
emergency assistance, roadside assistance and information services to the
occupants of the car, including remote tracking of stolen or missing vehicles.
The intelligent mobile unit in the car is to be equipped with a GPS (global
positioning system) receiver, processor, modem, and a wireless transceiver.
HighwayMaster will be responsible for managing the network, providing software
for the intelligent mobile unit, assisting in managing various information
services providers and billing the customer.  Prince and Motorola,
which is slated to manufacture the hardware, are currently involved with product
demonstrations and integration projects with several automakers and production
of the AutoLink product is expected to begin in early 1998.

    The AutoLink business alliance is currently in its preliminary stages.
In January 1997,  HighwayMaster and Prince entered into a joint development
and marketing agreement defining their respective roles and responsibilities
with respect to the AutoLink system.  To date, HighwayMaster has not signed a
definitive agreement with Motorola regarding its role in the business
alliance. At the present time it is contemplated that HighwayMaster will not
be a party to such an agreement, relying instead on Prince to negotiate and
sign a contract with Motorola or another hardware supplier.  Various future
events or capabilities must occur or be further developed in order for the
AutoLink alliance to proceed as planned.  These include such events as the
exercise by cellular carriers of their option to offer this service to
consumers, the placement of orders by sufficient numbers of automakers, the
testing of final versions of the software and hardware and the production of
the AutoLink product in mass quantities.  If any of these or similar events
fail to occur, there can be no assurance that the AutoLink alliance will
proceed on the basis described herein, if at all. In addition, certain other
companies are already offering services similar to AutoLink, including
"OnStar" by General Motors Corporation and "Lincoln Rescue" by Ford Motor
Company, which could create substantial competition for the AutoLink business
alliance.

    BURLINGTON CONTRACT.  In 1997, HighwayMaster entered into a memorandum of
understanding with Burlington Motor Carriers ("Burlington"), one of the
largest truckload carriers and logistics providers in North America, which
contemplates the installation of 2,000 Mobile Communication Units in
Burlington's fleet of long-haul trucks.  As part of

                                     13

<PAGE>

the transaction, the Company would purchase exclusive ownership rights to
Burlington's proprietary fleet operating and management information software
and assume the operation of its data center and computer systems.  If the
transactions with Burlington are completed, HighwayMaster intends to add
capacity to the Burlington data center in order to provide a broad range of
data processing services to other trucking companies which would essentially
replace such companies' existing management information systems department
with services, software and hardware to be provided by HighwayMaster.  Added
capacity would enable HighwayMaster to use the Burlington software and data
center in conjunction with the HighwayMaster mobile communications system to
offer its customers levels of integration not previously available in the
trucking industry.  HighwayMaster is currently negotiating the terms of a
definitive agreement with Burlington, and there can be no assurance that such
agreement will be reached by the parties on the terms described herein, if at
all.  HighwayMaster is not currently providing these services, and there can
be no assurance that it will be successful in marketing its information
management solutions to other trucking companies.

    OTHER OPPORTUNITIES.  The Company believes that substantial expansion
opportunities exist within international markets that are served by cellular
service. The Company currently provides certain mobile communications
services to Canadian-based operators who provide a remote call forwarding
line (also known as a foreign exchange line) from their dispatcher PC to the
United States. The Company's ability to provide such services to
owner-operators and operators of small fleets in Canada is limited given that
they cannot easily afford the expense of a remote call forwarding line. There
are approximately 200,000 larger-size trucks operating in Canada, many of
which travel extensively in the United States. Mexico offers another avenue
for expansion if agreements with cellular carriers and installation of
necessary infrastructure interfaces can be established. There are
approximately 250,000 medium and larger sized trucks and buses operating in
Mexico. Management believes that expansion into Europe may prove to be viable
for the Company because trucking companies in Europe face many of the same
demands as companies in the United States and the European cellular
infrastructure is highly developed. However, engineering changes would be
necessary to build a HighwayMaster system adapted to European cellular
technology and multiple languages. A data-only satellite-based competitor of
the Company currently is operating in Europe, Japan and certain other
developed countries.

    The most recent Truck Inventory and Use Survey published by the United
States Census Bureau indicated that in 1992 there were 2.6 million medium and
heavy commercial trucks in the United States, presumably operated primarily
by regional and local carriers. Future refinements, which may eventually
provide city street map detail, should allow the HighwayMaster system to be
used by intra-city courier services, local bus companies and police, fire and
ambulance services. In addition to these software enhancements, it will be
necessary for the Company to revise its working relationships with the
affected local cellular carriers before the Company attempts to expand its
customer base to include localized intra-city users and to provide certain
changes to its Company Complex to service a more localized market.  See "--
Infrastructure --Enhanced Service Complexes."


    In addition to the mobile communications services currently provided by the
Company to the long-haul trucking industry, the Company is developing and
intends to market additional wireless voice and data solutions, network
services, logistics software and wireless computer communications devices to
other freight and field service operations on a local and national basis (some
of which may require modifications to equipment and existing contracts with
cellular carriers and other parties). Management has identified several
potential markets, some of which would require modification to the Mobile
Communication Unit or

                                     14

<PAGE>

HighwayMaster system's infrastructure. For example, management believes the
Company could develop an additional market opportunity in the tracking and
dispatching of commercial trailers, which numbered 3.8 million in the United
States in 1992. Trailers would not require two-way voice communication, so a
lower cost version of the Mobile Communication Unit could be developed.


    Management also believes interstate bus companies could benefit from the
HighwayMaster system in its present configuration in order to contact drivers
to bypass small town bus stops with no passengers for pickup. The Company
also intends to market the HighwayMaster system to railroads for use in
locomotives and railcars. In addition, management believes that the more than
5 million recreational vehicles in the United States constitute a potential
market for the Company's services.

COMPETITION

    Although the Company believes the HighwayMaster system is the most complete
and cost-effective package of mobile communication services currently available
to the trucking industry, there are a number of other companies that offer or
plan to offer some form of two-way mobile communication using a variety of
different technologies which may be eventually used by long-haul truckers. These
companies primarily utilize satellite-based communications technologies, SMR,
and enhanced specialized mobile radio (ESMR), and satellite-based communications
technologies.

    CONVENTIONAL SATELLITE COMMUNICATIONS.  Satellite communication is
accomplished through transmission of a signal from an earth-based transmitter to
a satellite, which automatically retransmits the signal to an earth-based
receiver. Many communication satellites are geo-stationary, and remain over a
single point over the equator by orbiting the earth in the same direction and at
the same speed as the rotation of the earth. Mobile equipment designed for
satellite communication is equipped with highly specialized rotating antennae
which are continuously directed toward the satellite, and utilize highly complex
data or voice compression systems to minimize demands on satellite capacity.
This type of mobile communication equipment broadcasts over the radio frequency
spectrum, and the FCC regulates and limits the number of satellite
communications systems that may be placed in service.

    Satellite communication available to the transportation industry generally
utilizes a single earth station to transmit and receive data via satellite to
and from mobile units installed in trucks. Messages created by truck drivers on
an onboard keyboard can be stored, compressed and transmitted in short bursts.
Although voice communication is theoretically possible for mobile communication
systems that utilize satellite transmissions, to date the limited capacity and
high cost of satellite communication have tended to limit offerings to data-only
services.

    Satellite systems currently cover 100% of the continental United States,
and their comprehensive coverage may be perceived by truckers and trucking
companies as an advantage over the cellular system. The Company believes that
any marketing or operational advantage derived from satellite coverage, as
compared to the HighwayMaster system (which covers approximately 95% of the
United States interstate highway system), is mitigated by the fact that
satellite systems are more costly and do not currently offer voice communication
on an economical basis and by the fact that users experience queuing delays
during peak periods between transmission and receipt of messages.  In addition,
because geo-stationary satellites stay over the equator, transmission and
receipt of data in North America is sometimes interrupted or rendered impossible
by obstacles on the southern horizon, such as nearby tall buildings or
mountains.

                                     15

<PAGE>

    At the present time, the Company's primary satellite competitor in the
long-haul trucking market is Qualcomm, Inc. ("Qualcomm"). Qualcomm, which
markets its products and services primarily to large fleets, offers two
international satellite-based communication systems called OmniTRACS, which
provides two-way data messaging and tracking services, and TrailerTRACS,
which provides trailer monitoring. Drivers access and utilize the system
through an onboard keyboard and data display screen. Qualcomm offers or plans
to offer its products and services in certain of the international markets
targeted by the Company, including Canada, Mexico and Europe. Qualcomm
reported that as of January 1997 it had delivered over 200,000 mobile
communication units worldwide. The Company believes that the satellite-based
communication products and services offered by Qualcomm are generally more
expensive than the Company's products and services. However Qualcomm has
recently offered lower prices for quantity purchases and reduced-cost trial
periods in an effort to improve its competitiveness.

    At least one other entity offers or plans to offer satellite-based data
communication and tracking services to the long-haul trucking industry.
AMSC, a geo-stationary system which is owned by a consortium of satellite
and communications companies offers a satellite-based system that is similar
to the Qualcomm system in that the mobile communications equipment consists
of a keyboard and data screen mounted in each truck. Recent enhancements
allow dual SMR or satellite communication in a single unit. The AMSC system
will include voice communications services, although projected voice air time
rates are substantially higher than the Company's rates.

    MIDDLE AND LOW EARTH ORBIT SATELLITES.  In order to maintain a stationary
position over the earth, communication satellites currently in use must maintain
a very high orbit, which requires earth stations to generate relatively high
powered transmissions for communication with the satellite. Certain entities,
including Qualcomm, are participating in the development of MEO and LEO
satellite networks, which are designed to employ multiple satellites in
relatively lower earth orbits, rapidly circling the earth. The lower earth
orbits should facilitate both voice and data communication services and will be
accessible through relatively lower powered transmitters and receivers, allowing
them to be installed in portable communication equipment. In terms of product
and service offerings, MEO and LEO systems can be expected to compete directly
with cellular services, including the HighwayMaster products and services, and
will offer coverage in remote areas and foreign countries currently unserved by
cellular carriers. However, due to the substantial capital investment required
to place these systems in service, the MEO and LEO-based voice call rates are
expected to be substantially higher than the $0.53 per minute rate charged to
HighwayMaster's customers.

    SPECIALIZED MOBILE RADIO.  SMR has traditionally been used to serve the
needs of local dispatch services such as taxis and couriers, which typically
broadcast short messages to a large number of units. SMR wireless communication
systems rely on high-powered voice or data transmissions among widely-spaced
receiver/transmitter sites within a discrete local or regional area. These
systems generally have lower capacity to support simultaneous transmissions in a
given area than do cellular systems, which transmit and receive radio
communications from numerous closely-spaced cell sites. The radio hardware
currently used to operate

                                     16

<PAGE>

the various SMR systems varies widely, making it impossible for a customer to
"roam" into a neighboring region that is served by a carrier with a different
hardware configuration.

    ENHANCED SPECIALIZED MOBILE RADIO.  Several regional SMR operators are
currently developing and implementing ESMR digital technology to offer
relatively low-cost mobile telephone services, with construction expected to be
completed in several years. One operator in particular, Nextel, Inc., has
announced acquisitions of other ESMR operators to further increase its coverage
area. Many of the ESMR providers intend to rely on proprietary hardware and
technology developed by Motorola. If the various local and regional ESMR
operators develop uniform standards and a coordinated infrastructure, they
eventually will be able to offer region-to-region calling and call delivery
services which could compete with the Company's services.

    PAGING SERVICES.  At considerably less cost than full two-way mobile
communication, several long-haul truckers and fleet operators have purchased
or leased paging systems that allow a dispatcher to send a message to a
driver. Management believes that pagers are used by trucking companies as a
"temporary fix," since pagers do not offer full-function two-way
communications services and cannot track vehicle locations. Some paging
companies have begun to offer limited time-delayed two-way messaging
capabilities, although initial shortcomings in coverage, voice service and
tracking capabilities are likely to limit their use in the long-haul trucking
market.

    TELECOMMUNICATIONS ACT OF 1996.  The Telecommunications Act of 1996 (the
"Telecommunications Act") encourages competition in virtually every arena of
communications and eliminates many regulatory barriers to new competitors.  See
"Risk Factors -- Uncertainty of Government Regulation".  It is unknown at this
time what effect this legislation will have on the Company's ability to compete
in the marketplace.

PATENTS AND PROPRIETARY TECHNOLOGY

    The Company has obtained nine domestic patents and has applied for
additional domestic and foreign patents relating to the Mobile Communication
Units and communications network. In general, the Company's existing patents
relate to certain functions of the HighwayMaster system for locating and
communicating with vehicles utilizing the cellular communications network. The
Company's software is also entitled to certain protections under state trade
secret law and federal copyright law. In connection with the recapitalization,
the Company assumed By-Word Technology, Inc.'s ("By-Word") rights and
obligations under a certain License Agreement, dated as of April 23, 1992,
between By-Word and Voice Control Systems ("VCS"). Pursuant to the License
Agreement, the Company has a license to use VCS' speech recognition technology
in exchange for royalties of $15,000 plus certain per-item fees for each
12-month period. Such royalties may be adjusted based on the current consumer
price index. The term of the contract ends annually in August, and the Company
has an option to renew for successive 12-month periods until the year 2001.

                                     17

<PAGE>

REGULATION

    The Company's products and services are subject to various regulations
promulgated by the FCC which apply to the wireless communications industry
generally. The Company's Mobile Communication Units must meet certain radio
frequency emission standards and not cause unallowable interference to other
services. The Company has relied on the manufacturer of the cellular
transceiver component of the Mobile Communication Units, which is currently
Motorola, to carry out appropriate testing and regulatory compliance
procedures regarding the radio emissions of the cellular transceiver
component.

    The FCC also controls several other aspects of the wireless industry that
affect the Company's ability to provide services. The FCC controls the amount of
radio spectrum available to cellular carriers, which could eventually limit
growth in cellular carrier capacity. Management expects the FCC to expand
capacity available to the cellular industry as it becomes necessary in order to
maintain current levels of service, although there is no assurance that such
expansion will occur.

    The Company believes that the nature of its services does not require that
the Company be classified as a common carrier for either wireless or
long-distance regulatory purposes. This conclusion is based on several
alternative regulatory interpretations, such as classification of the Company as
an enhanced services provider or a private network and the reliance on the
Company's long-distance provider to comply with any applicable long-distance
regulatory requirements. However because of the unique structure of the
Company's network and its relationship with existing telecommunications
providers, the Company does not fit clearly into any of the various wireless
regulatory categories established to date. Furthermore, because of ongoing
regulatory change in the wireless arena, the Company is engaging in continual
re-evaluation and examination of laws and regulations applicable to its
operations. If the Company's current interpretation of its regulatory status
proves to be incorrect and it were deemed to be a common carrier, the Company
may be required to offer its services on a non-discriminatory basis and, in
certain states, comply with various other regulatory procedures, including the
filing of informational tariffs. Upcoming regulation of cellular common carriers
may also require equal access by customers to the long-distance provider of
their choice. Although regulations applicable to common carriers would add
certain administrative costs and possible complications in the Company's
relationships with its long-distance provider and cellular carriers, the Company
believes common carrier status would not require the Company to make substantial
changes to its current services. There can be no assurance, however, that any
necessary changes could be accomplished without a material adverse effect on the
Company's results of operations.

    Long-distance providers face regulatory schemes similar to cellular
carriers, with greater state involvement in requiring posting of bonds as
security against customer deposits and in other matters. The Company believes
current long-distance regulations apply to the companies providing
long-distance services directly to Company customers, without long-distance
regulatory involvement by the Company.

EMPLOYEES

    As of December 31, 1996 the Company employed approximately 295 individuals,
of whom 47 are engaged in engineering and product development, 119 in customer
service, 59 in sales and marketing and 70 in administrative or executive
functions. None of the Company's employees are represented by a labor union and
management considers its relationship with its employees to be generally good.

                                     18

<PAGE>

RECENT FINANCING TRANSACTIONS

SBW TRANSACTIONS

    On September 27, 1996, the Company (i) sold 1,000 shares of its Series D
Participating Preferred Stock, par value $.01 per share ("Series D Preferred
Stock"), to Southwestern Bell Wireless Holdings, Inc. ("SBW") in exchange for a
payment of $20.0 million in cash and (ii) issued warrants (the "Warrants") to
SBW that initially entitle it to purchase an aggregate of 5,000,000 shares of
common stock, par value $.01 per share ("Common Stock"), of the Company.

    The shares of Series D Preferred Stock issued to SBW are initially
convertible into an aggregate of 1,600,000 shares of Common Stock at the option
of SBW.  In addition, at such time as SBW and its affiliates obtain certain
Regulatory Relief (as defined herein), all of the outstanding shares of Series D
Preferred Stock will automatically convert into an equal number of shares of
Class B Common Stock, par value $.01 per share ("Class B Common Stock"), of the
Company.  The holders of shares of Series D Preferred Stock are entitled to
receive dividends and distributions equal to the dividends and distributions
payable on the number of shares of Common Stock into which such shares are
convertible.  Except as required by law and except in connection with the
approval rights granted to the holders of Series D Preferred Stock with respect
to specified transactions, the holders of Series D Preferred Stock are not
entitled to vote on any matters submitted to the stockholders of the Company.

    The Warrants entitle SBW to purchase from the Company (i) 3,000,000 shares
of Common Stock at an exercise price of $14.00 per share and (ii) 2,000,000
shares of Common Stock at an exercise price of $18.00 per share, in each case
subject to adjustment to prevent dilution.  The Warrants will expire on
September 27, 2001.

RECAPITALIZATION TRANSACTIONS

    On September 27, 1996, in conjunction with the transactions consummated
with SBW, the Company entered into a Recapitalization Agreement (the
"Recapitalization Agreement") with the Erin Mills Stockholders (as defined
herein), the Carlyle Stockholders (as defined herein) and certain other
holders of outstanding securities of the Company.  Upon the terms and
conditions set forth in the Recapitalization Agreement, (i) the Company
issued an aggregate of 800,000 shares of Common Stock to two Erin Mills
Stockholders in exchange for aggregate cash payments in the amount of $10.0
million, (ii) the Company issued an aggregate of 864,000 shares of Common
Stock to three Erin Mills Stockholders and two other persons in exchange for
the surrender to the Company for cancellation of all outstanding shares of
Series B Preferred Stock, par value $.01 per share, of the Company, (iii) the
Company paid to the Carlyle Stockholders a portion of the accrued and unpaid
interest on certain promissory notes in the aggregate principal amount of
approximately $12.7 million (the "Carlyle Notes") executed in favor of the
Carlyle Stockholders, and (iv) the Company issued an aggregate of 1,018,018
shares of Common Stock in exchange for the surrender of the Carlyle Notes for
cancellation.  As used herein, (a) the term "Erin Mills Stockholders" means
Erin Mills International Investment Corporation, The Erin Mills Development
Corporation and The Erin Mills Investment Corporation, (b) the term "Carlyle
Stockholders" means the Clipper Stockholders (as defined below),
Carlyle-HighwayMaster Investors, L.P., Carlyle-HighwayMaster Investors II,
L.P., TC Group, L.L.C., Mark D. Ein, Chase Manhattan Investment Holdings,
Inc., H.M. Rana Investments Limited, Archery Partners, and (c) the term
"Clipper Stockholders" means Clipper Capital Associates, L.P.,
Clipper/Merban, L.P. and Clipper/Merchant Partners, L.P.

                                     19

<PAGE>

RISK FACTORS

FORWARD LOOKING STATEMENTS

    This Annual Report on Form 10-K ("Form 10-K") contains forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act that are based upon management's beliefs, as well as
assumptions made by and information currently available to management.  When
used in this Form 10-K, the words "anticipate," "believe," "estimate" or
"expect" and similar expressions are intended to identify forward-looking
statements.  The Company's actual results could differ materially from those
projected in the forward-looking statements.  Factors that could cause or
contribute to such differences include those discussed in this section, as well
as those discussed elsewhere in this Form 10-K or in the documents incorporated
herein by reference.

LIMITED OPERATING HISTORY; HISTORY OF LOSSES

    The Company commenced its operations in April 1992 and has a limited
operating history.  The Company began offering the HighwayMaster system on a
commercial basis in September 1993.  Since its inception, the Company has
experienced significant operating losses.  In particular, the Company
experienced operating losses of $19.1 million, $22.2 million and $28.6 million
in the years ended December 31, 1994, 1995 and 1996, respectively.  As of
December 31, 1996, the Company had an accumulated deficit of $109.9 million.  In
order to achieve a profitable level of operations, the Company must
significantly increase its installed base of Mobile Communication Units and
generate greater service and air time revenues.  Although the Company's
installed base of Mobile Communications Units has increased significantly in
each of the past three years, the number of Units sold by the Company decreased
from 9,322 in the year ended December 31, 1995 to 7,038 in the year ended
December 31, 1996, as a result of various factors, including concerns on the
part of prospective customers relating to the Company's financial condition
during the first three quarters of 1996 and uncertainties related to the
termination effective June 29, 1996 of the Company's contract with AT&T relating
to the design and operation of the AT&T Complex.  The likelihood of the
long-term success of the Company must be considered in light of the expenses,
difficulties and delays frequently encountered in connection with the early
stages of the development and marketing of telecommunications products and
services, as well as the competitive environment in which the Company operates
and the other risks and uncertainties discussed in this section. There can be no
assurance that the Company's future operations will generate operating or net
income.

STATUS OF AT&T CONTRACT; NETWORK SERVICES CENTER

    From 1993 to 1996, the Company and AT&T were parties to the AT&T Contract
pursuant to which AT&T provided enhanced call processing and data management
services and long-distance network transport for the Company and its customers
through the AT&T Complex.  AT&T terminated the AT&T Contract effective as of
June 29, 1996.  However, AT&T continues to provide services for existing
customers of the Company and AT&T without a formal contract in fulfillment of
AT&T's obligations under existing service agreements entered into with each
customer.  At the present time, a substantial majority of the Company's
customers are receiving services provided through the AT&T Complex.  In order
for the Company and AT&T to continue to provide services to these customers, it
will be necessary for them to cooperate with respect to a number of operational
and other matters.  There can be no assurance that the Company and AT&T will
cooperate with respect to these matters or that AT&T's failure or refusal to
cooperate on terms

                                     20

<PAGE>

acceptable to the Company would not have a material adverse effect on the
Company's business, financial condition or results of operations.

    In the third quarter of 1996, the Company began commercial service with
its own switching complex, the NSC, which was designed and constructed for
the Company by IEX.  For new customers commencing service since July 1, 1996,
the NSC has fully replaced the AT&T Complex.  The future growth of the
Company's business will depend to a significant on its ability to continue to
expand the NSC and to resolve technical and operational issues which may
arise from time to time in connection with the operation, management and
expansion of a switching complex of this complexity.

OPERATIONAL DIFFICULTIES

    Under the terms of the AT&T Contract, AT&T was obligated to maintain the
AT&T Complex in operational status.  However, from inception of service, the
AT&T Complex experienced various service impairments, including occasional
"downtime" periods ranging from several minutes to several hours in duration.
In general, although in recent months AT&T has made modifications to the AT&T
Complex which are intended to improve its performance, there can be no
assurance that the AT&T Complex will not experience performance problems in
the future.

    As noted above, the NSC began commercial service in the third quarter of
1996.  Other than the normal operational issues encountered in placing in
service a complex facility of this type, the addition of new customers to the
NSC has been progressing in an orderly fashion.  However, there also can be
no assurance that the NSC will not experience performance and other
operational problems in the future.

    Any significant performance or other operational problems affecting
either the AT&T Complex or the NSC could have a material adverse effect on
the Company's business, financial condition and results of operations.

AT&T LITIGATION

    On February 16, 1996, the Company filed a lawsuit against AT&T in the
U.S. District Court, Northern District of Texas, Dallas Division.  The
Company is seeking preliminary and permanent injunctive relief restraining
AT&T from using and disclosing the Company's trade secrets and proprietary
information relating to its mobile communications technology.  In July 1996,
AT&T filed counterclaims essentially mirroring the Company's claims.

    In September and October 1996, both the Company and AT&T amended their
pleadings and filed additional claims against each other related to breach of
contract and various tortious activities.  AT&T seeks an injunction, a
declaratory judgment defining the parties' intellectual property rights,
actual and punitive damages and attorneys' fees in connection with its
counterclaims. The Company seeks a declaration that the patents issued to
AT&T using the Company's proprietary information are invalid or,
alternatively, should be transferred from AT&T to the Company.  The Company
also brought claims against AT&T pursuant to the Texas Deceptive Trade
Practices Act ("DTPA") and seeks actual, punitive and treble damages and
attorneys' fees in connection with its claims. Additionally, the Company's
amended complaint added another defendant, Lucent Technologies, Inc.
("Lucent"), to which AT&T transferred certain of the patents at issue in the
lawsuit.

                                     21
<PAGE>

    In November 1996, AT&T filed a partial motion to dismiss the Company's
DTPA claims, various tort claims and the patent invalidity charges.
Additionally, in November 1996, Lucent filed a motion to dismiss all of the
Company's claims against Lucent.  In December 1996, the Company filed a
response to AT&T's partial motion to dismiss and a response to Lucent's
motion to dismiss.  A hearing on the parties' motions is currently scheduled
for May 1997.

DEPENDENCE ON CELLULAR INFRASTRUCTURE

    The Company utilizes the existing cellular telephone infrastructure, with
certain enhancements, as the wireless segment of the HighwayMaster
communications link. Current terms of contracts between the Company and each
of its cellular carriers are generally for one year, with automatic one-year
successive renewal terms, unless either party elects to terminate the
contract upon 30-days' notice prior to June 30 of each year. In order to
continue to provide wireless communications to its customers, the Company
must continue to renew its agreements with individual cellular carriers. If
the Company is unable to renew or replace its contracts with cellular
carriers at competitive rates, the Company may be forced to absorb the costs
of increased cellular air time rates, or increase rates to customers where
allowed by individual contracts. In general, a failure on the part of the
Company to renew or replace its contracts with cellular carriers on favorable
terms could have a material adverse effect on its business, financial
condition and results of operations.

    The HighwayMaster system relies on the continued interconnectivity of its
cellular service providers. Currently, cellular carriers utilize analog
technology, although an increasing number of carriers have upgraded or are
in the process of upgrading their service to digital technology. If in the
future cellular carriers do not continue to offer service to analog
telephones, the Company would be required to dedicate financial resources and
engineering staff to integrate a digital cellular telephone transceiver into
the Mobile Communication Unit. Furthermore, if substantial changes to the
methods of interconnection utilized by cellular carriers occur, such as a
discontinuance of the existing out-of-area call clearing system or a decision
by cellular carriers to eliminate analog service and employ several diverse
digital technologies rather than a common digital technology, the Company may
be required to undertake costly system redesign or may encounter difficulty
in providing seamless nationwide coverage.

DEPENDENCE ON CLEARINGHOUSE SERVICES

    GTE-TSI performs certain "clearinghouse" functions for the Company, which
include, among other things, validation and verification of roaming numbers
and provision of call delivery information. The Company's agreement with
GTE-TSI is effective through March 14, 1998, with certain renewal options by
the Company after that date. The agreement provides for mutual exclusivity in
the trucking industry for the initial three-year term with respect to certain
key call delivery features. The agreement with GTE-TSI may be renewed by the
Company for up to 10 additional one-year terms after expiration at a
reasonable price to be determined solely by GTE-TSI. There can be no
assurance that the renewal price determined by GTE-TSI after the initial
three-year term will be acceptable to the Company.

    A subsidiary of EDS also performs certain "clearinghouse" functions for
the Company which include, among other things, the validation of roaming
numbers and routing of call delivery information. The agreement with EDS
expires on July 15, 1998 with successive automatic renewal terms of one year
thereafter, unless terminated at the option of either party upon 60-days'
notice prior to any expiration date. There can be no assurance that the EDS
agreement will be renewed upon expiration.

                                     22
<PAGE>

    If the Company is unable to renew its agreement with GTE-TSI or, to a
lesser extent, EDS, the Company may be required to make substantial and
costly design changes to the HighwayMaster system in order to ensure
continued availability of the Company's services. Because of the unique
position of GTE-TSI and EDS as industry-wide clearinghouses and the
difficulty associated with their replacement, there can be no assurance that
full functionality of the system could be maintained if such a redesign were
necessitated.

PRODUCT SUPPLY ARRANGEMENTS

    Since the fourth quarter of 1996, Sanmina has manufactured Mobile
Communications Units in accordance with specifications provided by the
Company. Although all of the Units sold by the Company are currently being
produced by Sanmina, the Company  is continuing to evaluate its options with
respect to the production of Units.  There can be no assurance that
HighwayMaster will be able to continue its current supply arrangements with
Sanmina or establish alternative supply arrangements with other third parties
without experiencing technical, logistical or other difficulties.  The
failure to establish or maintain satisfactory arrangements for the production
of Units could have a material adverse effect on the Company's business,
financial condition and results of operations.

LACK OF CAPITALIZATION AND OTHER RESOURCES REQUIRED FOR GROWTH

    The expansion of the Company's business over the past few years has
placed a significant strain on its management, operational and financial
resources. The Company's ability to achieve future growth is dependent, among
other things, upon its ability to raise sufficient capital to fund the
expansion of its business.  Based on its projected operating results, the
Company believes that it is likely that it will need to secure additional
equity or debt financing during 1997 in order to fund its currently
anticipated operating needs and capital expenditure requirements.  In
addition, the Company must maintain its inventories of Mobile Communications
Units at appropriate levels and must expand the capacity and increase the
efficiency of its sales, distribution and installation network.  If the
Company is not able to obtain adequate financial resources or otherwise
manage growth effectively, the Company's business, financial condition and
results of operation may be adversely affected.

AMENDED STOCKHOLDERS' AGREEMENT; CONTROL OF THE COMPANY

    The Company, SBW, the Erin Mills Stockholders, the Carlyle Stockholders,
the By-Word Stockholders and certain other persons are parties to an Amended
and Restated Stockholders' Agreement, dated as of September 27, 1996 (the
"Amended Stockholders' Agreement") which amends and restates in its entirety
the Stockholders' Agreement dated February 4, 1994.  The parties to the
Amended Stockholders' Agreement beneficially own an aggregate of 19,625,129
shares of Common Stock, representing approximately 79.0% of the shares
outstanding as of December 31, 1996.

    The Amended Stockholders' Agreement contains provisions relating to,
among other things, the election of members of the Company's Board of
Directors.  In particular, this agreement provides that the parties will take
all action (including the voting of shares of Common Stock owned by them)
necessary to ensure that the Board of Directors of the Company consists of
(i) two directors designated by the Erin Mills Stockholders, (ii) one
director designated by the Carlyle Stockholders, (iii) two directors
designated by the By-Word Stockholders and (iv) two independent directors
(except that the addition of a second independent director to the Board of
Directors need not occur until the date of the 1997 annual meeting of the
stockholders of the Company).  Prior to the receipt of regulatory relief
permitting SBW to

                                     23
<PAGE>

provide landline, interLATA long-distance service pursuant to the
Communications Act of 1934, as amended by the Telecommunications Act
("Regulatory Relief"), SBW will not be entitled to designate a director, but
will have the right to designate a non-voting delegate who will attend all
meetings of the Board of Directors and receive all materials distributed to
directors of the Company.  In addition, if SBW and its affiliates
beneficially own 20% or more of the outstanding Common Stock on a fully
diluted basis (including shares issuable upon conversion or exercise of
outstanding options, warrants or rights, but excluding shares issuable upon
the conversion or exercise of the Warrants or of options, warrants or rights
issued by any person other than the Company), SBW will under certain
circumstances be entitled to designate a second member of the Board of
Directors.

     As a result of the provisions of the Amended Stockholders' Agreement and
the ownership of Common Stock by the stockholders of the Company who are
parties thereto, these stockholders, if they choose to act together, have the
ability to control the management and policies of the Company.

COMMON STOCK AVAILABLE FOR PURCHASE BY SBW

    Pursuant to a Purchase Agreement dated September 27, 1996 (the "Purchase
Agreement"), and certain agreements and instruments related thereto, the
Company issued to SBW (i) 1,000 shares of Series D Preferred Stock and (ii) the
Warrants. The shares of Series D Preferred Stock issued to SBW are initially
convertible into an aggregate of 1,600,000 shares of Common Stock at the
option of SBW.  The Warrants generally entitle SBW to purchase from the
Company (i) 3,000,000 shares of Common Stock at an exercise price of $14.00
per share and (ii) 2,000,000 shares of Common Stock at an exercise price of
$18.00 per share, in each case subject to adjustment to prevent dilution.  If
all of the shares of Series D Preferred Stock were converted into Common
Stock and all the Warrants were exercised by SBW, SBW would hold
approximately 26.6% of the outstanding shares of Common Stock (based on the
total number of shares of Common Stock outstanding as of December 31, 1996).
See "Recent Financing Transactions -- SBW Transactions."

CERTAIN RIGHTS OF SBW

    The Purchase Agreement and certain of the other agreements and
instruments related thereto afford various rights to SBW that are not
available to the other stockholders of the Company.  For example, the Company
has granted to SBW, as the holder of Series D Preferred Stock, the right to
approve certain actions on the part of the Company, including (i) mergers or
consolidations involving the Company that require stockholder approval under
the General Corporation Law of the State of Delaware (the "DGCL"), (ii) sales
of all or substantially all of the assets of the Company that require
stockholder approval under the DGCL, (iii) amendments to the Company's
Certificate of Incorporation, (iv) the dissolution of the Company, (v) the
adoption, implementation or acceptance by the Company of certain
anti-takeover provisions, (vi) the issuance by the Company of equity
securities, including securities convertible into equity securities (subject
to specified exceptions), and the incurrence by the Company of debt
obligations in an amount exceeding $5.0 million in any year, (vii) the
Company entering into any line of business other than it existing line of
business or entering into joint ventures, partnerships or similar
arrangements which would require expenditures of more than $3.0 million,
(viii) the disposition by the Company in any 12-month period of assets (other
than assets sold in the ordinary course of business) of which the fair market
value exceeds $3.0 million and (ix) any amendment, alteration or repeal of
the terms of the Series D Preferred Stock.  See "Recent Financing
Transactions -- SBW Transactions."

                                     24
<PAGE>

COMPETITION AND TECHNOLOGICAL CHANGE

    The Company faces competition in the long-haul trucking industry from
various other suppliers of mobile communications services. Currently, the
Company's primary competitors in the long-haul trucking market offer
data-only, two-way communications via satellite. Other companies that compete
or are planning to compete with the Company in its target market also offer
or plan to offer satellite-based voice and data communication systems. The
primary advantage of satellite-based communication over the Company's
cellular-based system is that satellite coverage is available in certain
remote areas and foreign countries that have not developed cellular networks,
enabling data transmissions in areas not served by cellular systems.

    Certain technological advances and future product offerings could
substantially change the nature of the Company's competition. For example,
geo-stationary orbit, MEO and LEO satellite systems are expected to offer
voice and data communications that could compete directly with existing
cellular-based services, including the HighwayMaster system. One of the
Company's current competitors, AMSC, launched a geo-stationary satellite in
early April 1995 and offers both data and voice communications to the
long-haul trucking industry. In addition, networks of MEO and LEO satellites
are in the early implementation stage, funded by consortiums of companies
that intend to provide worldwide voice communication capability. A useable
portion of one or more of such networks is projected to be in place by the
year 2000. The addition of voice capability to satellite systems may reduce
the Company's competitive advantage over certain of its competitors, and it
is possible that satellite owners may, at least on a temporary basis, offer
rates at or below the Company's rates.

    Several conventional mobile radio and SMR providers are expanding
transmission coverage areas and are planning technological enhancements to
offer digital services that could be competitive with current cellular
services, including the HighwayMaster system. If SMR providers expand
coverage and establish a significant degree of uniformity, through uniform
use of proprietary digital technology or otherwise, SMR providers could
eventually develop an integrated network to allow nationwide roaming. SMR
operators also intend to offer dispatching services, data transmission and
other services through their expanding networks that could compete with the
Company's services.

    Although current nationwide autonomous-registration incoming call
delivery systems offered by the cellular industry are costly and are
unavailable in some rural areas, the cellular industry may eventually develop
a uniform standard for incoming call delivery at a reduced cost. If
inexpensive autonomous-registration incoming call delivery systems for
cellular roamers become standard, this feature of the Company's services may
provide less of a competitive advantage. Moreover, if cellular carriers were
to develop additional standard protocol and hardware for inexpensive data
transmission and fraud control or if the cost of roaming services were to
significantly decline, other competitive advantages of the Company's system
would be reduced.

    In general, technology in the wireless communications industry is in a
rapid and continuing state of change as new technologies and enhancements to
existing technologies continue to be introduced. The Company believes that
its future success will depend upon its ability to develop and market
products and services that meet changing customer needs and which anticipate
or respond to technological changes on a timely and cost-effective basis.
There can be no assurance that the Company will be able to keep pace with
technological developments.

                                     25
<PAGE>

    Certain of the Company's competitors have significantly greater name
recognition, financial and other resources than the Company. Among other
things, it appears that certain of these resources have been or are being
used by competitors of the Company to subsidize initial hardware purchases
and provide extended periods of free services in an attempt to achieve rapid
penetration of the Company's target market.

BILLING DISCREPANCIES

    The Company's ability to operate its business on a profitable basis will
depend in part upon whether it is able to monitor and control effectively the
direct costs of providing services to its customers, including cellular air
time charges. The Company must periodically monitor and reconcile the charges
billed to the Company by GTE MobileComm on behalf of cellular carriers and
the charges billed by AT&T to customers serviced through the AT&T Complex and
by the Company to customers served through the NSC in order to obtain the
appropriate amount of credit for any air time usage charges billed to the
Company that represent calls dropped by cellular carriers or blocked,
incorrectly switched or dropped by the AT&T Complex. In addition, the Company
incurs certain costs for air time usage that are not billable to customers
under current billing practices.  There can be no assurance that the Company
will not incur significant costs in the future in connection with billing
discrepancies or the reconciliation process or that the costs will not have
an adverse impact on the Company's ability to achieve and maintain
satisfactory profit margins.

UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS

    The Company holds nine domestic patents and has applied for several
additional domestic and foreign patents relating to its Mobile Communication
Units and communications network.  In general, the Company's existing patents
relate to certain methods and apparatus of the HighwayMaster system for
locating and communicating with vehicles utilizing the cellular
communications network. The Company's software is also entitled to certain
protections under state trade secret law and federal copyright law. The
patents and other intellectual property rights of the Company cannot prevent
competitors from developing competing systems using other land-based wireless
communications systems or using the cellular system through a different
method. While the Company believes that the nature and scope of the
HighwayMaster communications system, including the Company's strategic
business and technological relationships, would be difficult for a competitor
to duplicate, there can be no assurance that a competitor would consider
these hindrances to be material in light of the market potential. A
competitor could invest time and resources in an attempt to duplicate certain
key features of the Company's products and services, which could result in
competition and have a material adverse effect on the Company's business.

    Several of the Company's competitors have obtained and can be expected to
obtain patents that cover products or services directly or indirectly related
to those offered by the Company. There can be no assurance that the Company
is aware of all patents containing claims that may pose a risk of
infringement by its products or services. In addition, patent applications in
the United States are confidential until a patent is issued and, accordingly,
the Company cannot evaluate the extent to which its products or services may
infringe on future patent rights held by others. In general, if it were
determined that any of the Company's products, services or planned
enhancements infringed valid patent rights held by others, the Company would
be required to cease marketing such products or services or developing such
enhancements, to obtain licenses to develop and market such products,
services or enhancements from the holders of the patents or to redesign such
products or services to avoid infringement. There can be no assurance that
the Company would be able to obtain licenses on commercially reasonable
terms, or that it would be able to design and incorporate alternative
technologies, without a material adverse effect on its business.

                                     26
<PAGE>

    AT&T has filed applications for patent protection with respect to certain
functions of the AT&T Complex and has obtained certain patents which appear
to overlap with patents issued to the Company, two of which have been
assigned by AT&T to Lucent.  In addition, AT&T has asserted that it has
certain other proprietary rights relating to the AT&T Complex.  In connection
with the pending litigation between the Company and AT&T, neither AT&T nor
Lucent has asserted any patent claims against the Company.  However, there
can be no assurance that they will not attempt to do so in the future.  In
connection with the operation of the NSC or other future activities of the
Company, there can be no assurance that the Company (if it were required to
do so pursuant to patent or other purported rights of AT&T) would be able to
obtain licenses from AT&T on commercially reasonable terms, or that it would
be able to design and incorporate alternative technologies, without a
material adverse effect on its business, financial condition and results of
operations.  The Company has filed a lawsuit against AT&T and Lucent with
respect to these proprietary rights and AT&T has countersued the Company.
See "-- AT&T Litigation."

UNCERTAINTY OF GOVERNMENT REGULATION

    COMMON CARRIER STATUS.  The Company believes that the nature of its
services does not require that the Company be classified as a common carrier
for either wireless or long-distance regulatory purposes. However, because of
the unique structure of the Company network and its relationship with
existing telecommunications providers, the Company does not fit clearly into
any of the various wireless regulatory categories established to date.
Furthermore, the wireless telecommunications industry is currently
experiencing significant regulatory changes, which may require a
re-examination of laws and regulations applicable to the Company's
operations. If the Company's interpretation of its regulatory status proves
to be incorrect and it is deemed to be a common carrier, the Company may be
required to offer its services on a non-discriminatory basis and, in certain
states, comply with various other regulatory procedures, including the filing
of informational tariffs. Upcoming regulation of cellular common carriers may
also require equal access by customers to the long-distance provider of their
choice. Although regulations applicable to common carriers would add certain
administrative costs and possible complications in the Company's
relationships with its long-distance provider and cellular carriers, the
Company believes common carrier status would not require the Company to make
substantial changes to its current services. There can be no assurance,
however, that any necessary changes could be accomplished without a material
adverse effect on the Company's business.

    LONG-DISTANCE SERVICES.  Long-distance providers face regulatory
provisions similar to cellular carriers, with greater state involvement in
requiring the posting of bonds as security against customer deposits and in
other matters. The Company believes current long-distance regulations apply
to the companies providing long-distance services directly to Company
customers, without long-distance regulatory involvement by the Company. There
can be no assurance, however, that the Company will not become subject to
regulations as a long-distance carrier and that such regulation would not
have a material adverse effect on the Company's business.

    TELECOMMUNICATIONS ACT.  In February 1996, the Telecommunications Act
was signed into law.  This is the most comprehensive set of telecommunications
laws to be enacted since the original Communications Act of 1934 was passed.
The Telecommunications Act encourages competition in virtually every arena of
communications and eliminates many regulatory barriers to new competitors by,
in some instances, preempting state and local restrictions.  The
Telecommunications Act requires the FCC to extensively revise many of the
rules and regulations under which the telecommunications industry has been
operating.  The FCC has estimated that it may need to implement as many as 80
different proceedings in

                                     27
<PAGE>

order to accomplish this task.  At this time, it is unclear how the
Telecommunications Act will affect the activities of the Company, its
strategic business relationships with other communications companies, or its
customers. There can be no assurance that the relaxing of barriers to
competition in the industry will not hinder the Company's growth and
viability in the marketplace.

DEPENDENCE ON KEY PERSONNEL

    The Company is dependent on the efforts of William C. Kennedy, Jr.,
Chairman of the Board, William C. Saunders, President and Chief Executive
Officer, Gordon C. Quick, Chief Operating Officer, and a group of employees
with technical knowledge regarding the Company's systems. The loss of
services of one or more of these individuals could materially and adversely
affect the business of the Company and its future prospects. The Company has
employment agreements with Messrs. Kennedy, Saunders and Quick.  Each of
Messrs. Kennedy and Saunders may terminate such agreements upon one-year's
written notice. Mr. Quick may terminate his agreement at any time upon
90-days' written notice. The Company does not maintain key man life insurance
on any of the Company's officers or employees. The Company's future success
will also depend on its ability to attract and retain additional management
and technical personnel required in connection with the growth and
development of its business.

PRODUCT LIABILITY

    Testing, manufacturing and use of the Company's products entail the risk
of product liability. Although management believes the Mobile Communication
Unit offers safety advantages over conventional cellular telephones, it is
possible that operation of the product may give rise to product liability
claims.  In addition, as the Company expands its business to include the
provision of automotive security and similar systems such as those
contemplated by the AutoLink business alliance, the larger number of
consumers utilizing the Company's products may expose the Company to an
increased risk of litigation regarding various safety, performance and other
matters.  Product liability claims or recalls which exceed policy limits
applicable to the Company's liability insurance or which are excluded from
the policy coverage could have a material adverse effect on the business or
financial condition of the Company.

DIVIDEND POLICY

    The Company has never paid cash dividends on its Common Stock and has no
plans to do so in the foreseeable future. The Company intends to retain
earnings, if any, to develop and expand its business.

SHARES ELIGIBLE FOR FUTURE SALE

    The Company had 24,838,530 shares of Common Stock outstanding as of
December 31, 1996.  Approximately 4,134,848 shares of Common Stock are freely
tradable by persons other than "affiliates" of the Company, as that term is
defined under the Securities Act, without restrictions or further
registration under the Securities Act. The remaining shares are deemed
"restricted securities" within the meaning of the Securities Act as a result
of the issuance thereof in private transactions prior to the Company's
initial public offering in June 1995.  These "restricted securities" may be
publicly sold only if registered under the Securities Act or sold in
accordance with an applicable exemption from registration, such as those
provided by Rules 144 and 144A promulgated under the Securities Act.

                                     28
<PAGE>

    In addition, the Company has granted certain registration rights under
the Amended Stockholders' Agreement.  Among other things, the Company has
agreed to register an aggregate of 1,818,018 shares of Common Stock held by
the Erin Mills Stockholders and the Carlyle Stockholders for sale during the
three-month periods beginning March 31, 1997 and June 30, 1997.  In addition,
the Company has granted certain demand and piggyback registration rights to
the Erin Mills Stockholders, the Carlyle Stockholders, SBW and certain other
stockholders.

    The sale of a substantial number of shares of Common Stock or the
availability of a substantial number of shares for sale may adversely affect
the market price of the Common Stock and could impair the Company's ability
to raise additional capital through the sale of its equity securities.

VOLATILITY OF STOCK PRICE

    Historically, the market prices for securities of emerging companies in
the telecommunications industry have been highly volatile. Future
announcements concerning the Company or its competitors, including results of
technological innovations, new commercial products, government regulations,
proprietary rights or product or patent litigation may have a significant
impact on the market price of the Company's Common Stock.  The Company's
stock price has been highly volatile in recent periods.

ITEM 2.  PROPERTIES

REAL PROPERTY AND LEASES

    The Company does not own any real property. The Company leases
approximately 54,323 square feet of office space for its corporate
headquarters in Dallas, Texas, at an average price of $14.60 per square foot
per year, pursuant to a short-term lease agreement. The Company leases a
small amount of commercial office space for each of its five regional
customer service offices.

ITEM 3.  LEGAL PROCEEDINGS

    AT&T LITIGATION.  As previously reported, on February 16, 1996, the
Company filed a lawsuit against AT&T in the U.S. District Court, Northern
District of Texas, Dallas Division.  The Company is seeking preliminary and
permanent injunctive relief restraining AT&T from using and disclosing the
Company's trade secrets and proprietary information relating to its mobile
communications technology.  In July 1996, AT&T filed counterclaims
essentially mirroring the Company's claims.

    In September and October 1996, both the Company and AT&T amended their
pleadings and filed additional claims against each other related to breach of
contract and various tortious activities.  AT&T seeks an injunction, a
declaratory judgment defining the parties' intellectual property rights,
actual and punitive damages and attorneys' fees in connection with its
counterclaims. The Company seeks a declaration that the patents issued to
AT&T using the Company's proprietary information are invalid or alternatively
should be transferred from AT&T to the Company.  The Company also brought
DTPA claims against AT&T and seeks actual, punitive and treble damages and
attorneys' fees in connection with its claims.  Additionally, the Company's
amended complaint added Lucent as an additional defendant, to which AT&T
transferred certain of the patents at issue in the lawsuit.

                                     29
<PAGE>

    In November 1996, AT&T filed a partial motion to dismiss the Company's
DTPA claims, various tort claims and the patent invalidity charges.
Additionally, in November, 1996, Lucent filed a motion to dismiss all of the
Company's claims against Lucent.  In December 1996, the Company filed a
response to AT&T's partial motion to dismiss and a response to Lucent's
motion to dismiss.  A hearing on the parties' motions is currently scheduled
for May 1997.

    The Company and AT&T were parties to the AT&T Contract under which AT&T
provides enhanced call processing, data management services and long-distance
network transport services through the AT&T Complex.  The AT&T Contract was
terminated effective June 29, 1996.  AT&T continues to provide services for
the Company without a formal contract pursuant to AT&T's obligations with
respect to its existing service agreements with customers, although there can
be no assurance that AT&T will continue to do so.

    OTHER LITIGATION.  The Company is involved in other litigation matters
that normally arise in the course of conducting its business, although these
matters are not considered to be of a material nature nor would they have a
material effect on the business activities or continued operations of the
Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal year 1996.

                                  PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

    The Company's Common Stock was initially offered to the public on June
22, 1995, and is quoted on the Nasdaq National Market ("Nasdaq NMS") under
the symbol "HWYM".  Prior to that offering there was no public market for the
Common Stock of the Company.  The following table sets forth the range of
high and low trading prices on Nasdaq NMS for the Common Stock for the
periods indicated, as reported by Nasdaq NMS.  Such price quotations
represent inter-dealer prices without retail markup, markdown or commission
and may not necessarily represent actual transactions.

                                     30
<PAGE>

                                       PRICE RANGE
                                   ----------------------
                                    HIGH            LOW
                                   -------        -------
          1995
          Second Quarter
           (beginning
           June 22)...........     $22 3/4        $15
          Third Quarter ......     $16 3/4        $10
          Fourth Quarter .....     $13 1/2        $ 7 1/2

          1996
          First Quarter ......      $11 1/4       $ 5 3/8
          Second Quarter .....      $14           $ 5 3/4
          Third Quarter ......      $16 1/2       $ 9
          Fourth Quarter .....      $21 5/8       $15 5/8

    The Company had approximately 89 shareholders of record as of March 21,
1997.   The last sales price for HighwayMaster's Common Stock as reported on
March 21, 1997 was $11-5/8.  The Company did not pay dividends on its Common
Stock for the year ended December 31, 1996 and presently intends to follow a
policy of retaining all earnings to finance the continued growth of the
Company's business and does not anticipate paying cash dividends or making
other cash distributions to stockholders in the foreseeable future.

ITEM 6.  SELECTED FINANCIAL DATA

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth from inception of the
Partnership (April 24, 1992) to December 31, 1992 and for each
of the years 1993, 1994, 1995, and 1996 has been derived from audited financial
statements, including the consolidated balance sheets at December 31, 1996 and
1995 and the related consolidated statements of operations, of cash flows and of
changes in partners' and stockholders' equity for each of the three years in the
period ended December 31, 1996 and notes thereto appearing elsewhere herein.

<TABLE>
                                                                                         April 24, 1992
                                                                                         (Inception) to
                                                                                          December 31,
                                                1996        1995        1994       1993       1992
                                              --------    --------    --------    -------    -------
                                                          (In thousands, except per share)
<S>                                           <C>         <C>         <C>         <C>        <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA -
Revenues:
  Product                                     $ 14,645    $ 16,946    $ 11,075    $ 1,665    $   ---
  Service                                       16,056       9,908       2,436        ---        ---
                                              --------    --------    --------    -------    -------
    Total revenues                             30,701       26,854      13,511      1,665        ---
                                              --------    --------    --------    -------    -------
Cost of revenues:
  Product                                       15,099      17,730      11,867      1,792        ---
  Service                                       11,489       9,172       2,099        ---        ---
  Writedown of inventory                         1,943         ---       1,658        ---        ---
                                              --------    --------    --------    -------    -------
    Total cost of revenues                      28,531      26,902      15,624      1,792        ---
                                              --------    --------    --------    -------    -------
  Gross profit (loss)                            2,170         (48)     (2,113)      (127)       ---
General and administrative expenses              9,479       7,299       6,577      2,981      1,554
Sales and marketing expenses                     9,139       6,273       3,890      3,222        838
Engineering expenses                             4,094       2,868       1,900      1,274        520
Customer service expenses                        8,089       5,727       4,587        915        ---
                                              --------    --------    --------    -------    -------
  Operating loss                               (28,631)    (22,215)    (19,067)    (8,519)    (2,912)
Interest income                                    809       1,041         279        ---        ---
Interest expense to related parties             (1,691)     (5,106)     (5,999)      (547)      (235)
Recapitalization costs                             ---         ---        (733)       ---        ---
Other income (expense)                            (230)       (117)       (361)        (9)        10
                                              --------    --------    --------    -------    -------
  Loss before income taxes and
   extraordinary item                          (29,743)    (26,397)    (25,881)    (9,075)    (3,137)
Income tax provision                               ---         ---         ---        ---        ---
                                              --------    --------    --------    -------    -------
Loss before extraordinary item                 (29,743)    (26,397)    (25,881)    (9,075)    (3,137)
Extraordinary item - loss on
 extinguishment of debt                           (317)     (6,980)        ---        ---        ---
                                              --------    --------    --------    -------    -------
  Net loss                                    $(30,060)   $(33,377)   $(25,881)   $(9,075)   $(3,137)
                                              --------    --------    --------    -------    -------
                                              --------    --------    --------    -------    -------
Per share data:
  Loss per share before extraordinary item      ($1.39)     ($1.39)
  Extraordinary item                             (0.01)      (0.34)
                                              --------    --------
  Net loss per share                            ($1.40)   $  (1.73)
                                              --------    --------
                                              --------    --------
  Weighted average number of shares
   outstanding                                  22,763      20,407
                                              --------    --------
                                              --------    --------
Pro forma per share data (unaudited):
  Pro forma net loss per share                                          ($1.50)
                                                                      --------
                                                                      --------
Weighted average number of shares
 outstanding used in the pro forma
 net loss per share calculation                                         18,259
                                                                      --------
                                                                      --------

                                     31
<PAGE>



                                            DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
                                                1996         1995         1994         1993         1992
                                            ------------ ------------ ------------ ------------ ------------
CONSOLIDATED BALANCE
SHEET DATA:
    Cash and cash equivalents                 $19,725      $23,969      $ 4,158      $   630       $   292
    Property and equipment -- net               7,756        3,927        1,386          593           166
    Total assets                               42,929       42,369       16,430        5,928         1,575
    Long-term debt and
         notes payable                            ---       11,488       36,247        7,225         6,045
    Redeemable preferred stock                    ---        8,126        6,149          ---           ---
    Stockholders' equity (deficit)             34,664       13,101      (34,773)      (3,816)       (5,241)
</TABLE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

    HighwayMaster operates a wireless, enhanced services network with both
voice and data capabilities in 99% of the available cellular coverage in the
United States and 100% of the A-Side cellular coverage in Canada. This
network covers approximately 95% of the United States interstate highway
system and consists of a unique integration of Company provided on-board
equipment and software with various transmission, long distance, switching,
tracking and other services and facilities provided by certain
telecommunications companies and more than 70 cellular carriers. Through this
private network, the Company provides integrated mobile voice, data,
tracking, and fleet management information services to trucking fleets and
other operators in the long-haul segment of the transportation industry.

    The Company commenced operations in April 1992 and has a limited operating
history.  The Company began offering the HighwayMaster system on a commercial
basis in September 1993.  In order to achieve a profitable level of operations,
the Company must significantly increase its installed base of Mobile
Communications Units and generate substantially greater service revenues.  The
likelihood of the long-term success of the Company must be considered in light
of the expenses, difficulties and delays frequently encountered in connection
with the early stages of the development and marketing of

                                     32

<PAGE>

telecommunications products and services, as well as the competitive
environment in which the Company operates.  There can be no assurance that the
Company's future operations will generate operating or net income.  See "Risk
Factors -- Limited Operating History; History of Losses."

    The Company's revenues are derived from sales and installation of Mobile
Communication Units and charges for its services. The Company currently
offers its Mobile Communication Units to customers at a retail price of
approximately $1,995 per Unit, with tiered discounts for larger volume
purchases. Customers that operate Units installed in their trucks are charged
(i) a flat fee of $0.53 per minute for all voice calls for communications
within the United States and $0.64 per minute for cross-border communications
with Units in Canada, and (ii) a flat fee of $0.48 per minute for all data
transmissions within the United States and $0.59 per minute for cross-border
data transmissions. Such flat fees include all cellular air time rates and
long-distance charges. In addition, callers are charged a fee for each call
billed to a separate account, such as a credit card, calling card or
HighwayMaster account. In the case of customers served through the NSC,
placed into service by the Company in the third quarter of 1996, the Company
retains and recognizes as revenue the full amount of these service charges,
but must bear all costs associated with providing the related services.  In
the case of customers served through the AT&T Complex, these service charges
are collected by AT&T.  The Company receives payment from AT&T for the
portion of these service charges recognized by the Company as revenue and the
remainder is retained by AT&T as compensation for the call processing,
enhanced long distance and customer collection services performed by AT&T.
The Company also assesses a fixed monthly service fee of $41 for each Unit
installed.

    The Company and AT&T were parties to the AT&T Contract under which AT&T
provided enhanced call processing, data management services and long-distance
network transport services through the AT&T Complex.  The AT&T Contract was
terminated by AT&T effective June 29, 1996.  However, AT&T continues to
provide services for certain Company customers without a formal contract with
the Comapny pursuant to AT&T's obligations with respect to its existing
service agreements with such customers.  See "Risk Factors -- Status of AT&T
Contract; Network Services Center" and " -- AT&T Litigation."

    In the third quarter of 1996, the Company placed into service the NSC.  The
NSC provides enhanced call processing services that were previously provided on
an exclusive basis by AT&T.  All new customers of the Company are provided
services through the NSC.  Accordingly, the Company provides customer billing,
credit, and collection activities with respect to those customers.  Existing
customers who are currently being provided services by AT&T are eligible to
begin receiving service provided through the NSC upon the expiration of their
respective joint service agreements.

    The Company generally recognizes revenue from the sale of Mobile
Communication Units at the time the Units are shipped to customers. However, in
some cases, the Company has installed Units in customers' trucks on a trial
basis, permitting customers to return such Units with limited or no penalty. In
such cases, the Company does not recognize revenue from the sale of the Units
until the trial period has expired.

    The principal components of cost of revenues are the cost of the Mobile
Communication Unit, warranty and obsolescence provisions, cost of installation,
charges for the cost of cellular air time used by the Unit (which charges are
paid by GTE MobileComm to cellular carriers and reimbursed by the Company),
charges by GTE-TSI and EDS for the cost of validation and call delivery
information from the Mobile Communication Unit and the cost of installation of
the Mobile Communication Unit.

                                     33

<PAGE>

    As of December 31, 1996, the Company had installed 20,354 Mobile
Communication Units (including 478 Units installed on a test basis) and had
orders to install an additional 12,584 Units (including approximately 1,333
Units to be installed upon successful completion of test programs).  Not
included in these orders are approximately 3,000 Units that may be ordered by
Wal*Mart Stores Inc. in the event of the successful completion of their test
currently underway on 353 Units.  In comparison, the Company had installed
14,751 Units at December 31, 1995.  The Company's order backlog is based on
signed contracts, which do not specify delivery dates.  Accordingly, in some
cases the timing of installation is uncertain, and the Company expects that
not all of the Units on order at December 31, 1996 will be shipped and
installed within the next twelve months.

    The Company leases its products to certain customers under contracts that
are accounted for as sales-type leases.  As of December 31, 1996, the
Company's balance sheet reflected a total receivable balance of approximately
$1,468,000 related to such leases. In March 1997, a customer who represents
$1,239,000 of the total receivable balance notified the Company that it
intended to terminate its long-term lease commitment.  Although the lease
agreement contains termination penalties, the Company believes that it may be
necessary to write-off a portion of the receivable as a result of the lease
termination.  The Company estimates that the amount of the write-off may
range from approximately $500,000 to $1,000,000, although the Company is
continuing to evaluate its position under the lease and no final decision has
been reached. Any write-off of a portion of the receivable would be reflected
as a charge to results of operations in 1997.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

    Revenues for 1996 were $30.7 million compared to $26.9 million for 1995.
Product revenues for 1996 were $14.6 million compared to $17.0 million for 1995.
The principal reason for the decrease in product revenues from 1995 to 1996 is
a 24.5% decrease in the number of Mobile Communication Units sold. The decrease
in Units sold was due to, among other things, (i) prospective customers
postponing their decision to purchase until they were comfortable that the
Company could deliver service through the NSC, (ii) prospective customers'
concerns about the Company's financial condition and (iii) adverse economic
conditions affecting the trucking industry.  Service revenues for 1996 were
$16.1 million compared to $9.9 million for 1995.  The increase in service
revenues in  1996 is primarily attributable to the increase in the number of
Mobile Communication Units in service.

    Cost of revenues for 1996 was $28.5 million compared to $26.9 million for
1995.  This relationship reflects the decrease in the number of Units sold in
1996 compared to 1995 offset by increased cost of service revenues in 1996 as a
result of the increase in the number of Mobile Communication Units in service.
Cost of revenues for 1996 was 92.9% (86.6% exclusive of the inventory write-
down) of revenues compared to 100.2% of revenues for 1995.  Cost of revenues for
1996 included a $1.9 million inventory write-down to adjust the carrying value
of used earlier generation mobile unit component parts inventory to its
estimated net realizable value.  Cost of product revenues for 1996 was 116.4%
(103.1% exclusive of the inventory write down) of product revenues compared to
104.6% of revenues for 1995.  Excluding the effect of the inventory write down,
product margin improved as a result of higher average selling prices and lower
average cost per Unit in 1996 as compared to 1995.  However, this margin
improvement was offset by costs incurred on the earlier generation Mobile
Communication Units in order to make them compatible with the NSC and costs of
upgrading earlier generation Mobile Communication Units.  Cost of service
revenues for 1996 was 71.6% of service revenues compared to 92.6% of service
revenues in the 1995 period.  The improvement from 1995 to 1996 is primarily
due to (i) the effect of lower costs as a result of renegotiated rates with the
Company's

                                     34

<PAGE>

service providers that were in effect during 1996 and (ii) improvement in the
Company's ability to monitor and control charges for air time usage.

    General and administrative expenses for 1996 were $9.5 million compared to
$7.3 million for 1995.  The increase from 1995 to 1996 is primarily attributable
to rent expense, depreciation expense, and professional fees.  Rent expense
increased as a result of (i) additional office space and equipment under lease
due to the growth in the number of employees from 241 at the end of 1995 to 295
at the end of 1996 and (ii) increased cost per square foot in the lease
agreement for the Company's office space.  Depreciation expense increased as a
result of additions to machinery and equipment, computers and office equipment,
and the NSC which was placed in service during the third quarter of 1996.  The
increase in professional fees was primarily due to legal fees in connection with
the AT&T and shareholder suit litigation.

    Sales and marketing expenses for 1996 were $9.1 million compared to $6.2
million for 1995.  The increase from 1995 to 1996 is primarily related to growth
in the number of employees.

    Engineering expenses for 1996 were $4.1 million compared to $2.9 million
for 1995.  The increase is primarily attributable to increases in payroll
related costs, and operating expenses for the NSC.

    Customer service expenses for 1996 were $8.1 million compared to $5.7
million for 1995.  The increase from 1995 to 1996 is primarily attributable to
(i) payroll related costs as a result of growth in the number of employees, (ii)
customer support costs in response to the increased number of Units in service,
and (iii) concessions granted on amounts owed by a major customer that was
downsizing its fleet.

    Interest income was $0.8 million in 1996 compared to $1.0 million in 1995.
The decrease from 1995 to 1996 reflects the lower average cash balances
available for temporary investments.

    Interest expense to related parties was $1.7 million in 1996 compared to
$5.1 million in 1995. The decrease from 1995 to 1996 reflects the lower average
outstanding indebtedness.

    The 1996 and 1995 extraordinary item, loss on extinguishment of debt,
represents the write-off of the unamortized balances of debt discount and debt
issue costs associated with the early retirement of notes payable to related
parties.  See notes 3 and 8 to the Consolidated Financial Statements.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

    Revenues for 1995 were $26.9 million compared to $13.5 million for 1994.
Product revenues for 1995 were $17.0 million compared to $11.1 million for 1994.
Service revenues for 1995 were $9.9 million compared to $2.4 million for 1994.
The increase in product revenues and service revenues in the 1995 period is
primarily attributable to the increase in the number of Mobile Communication
Units sold and in service, respectively.

    Cost of revenues for 1995 was $26.9 million compared to $15.6 million for
1994.  This increase is consistent with the number of Units sold and in
service. Cost of revenues for 1995 was 100.2% of revenues compared to 115.6%
(103.4% exclusive of the inventory write-down) of revenues for 1994.  Cost of
revenues for 1994 included a $1.7 million inventory write-down for LORAN-C
radio receivers reflecting the Company's decision to change to the use of GPS
satellite receivers in its Units.  Cost of product revenues for 1995 was
104.6% of product revenues compared to 122.1% (107.2% exclusive

                                     35

<PAGE>

of the inventory write down) of revenues for 1994.  Cost of revenues from
products exceeded revenues from products during both years for several
reasons, including higher costs associated with manufacturing small quantities
and being unable to take advantage of economies of scale, initial
implementation of a product installation infrastructure with excess capacity
to support anticipated increases in sales, and equipment price discounts to
certain early customers.  Although revenues from services exceeded cost of
revenues from services during both the 1995 and 1994 periods, results for
both periods have been affected by (i) technical difficulties with the AT&T
Complex and (ii) differences between the billing procedures of cellular
carriers and the Company, which resulted in the Company paying cellular
carriers for more minutes of cellular air time than were billed to the
Company's customers.

    General and administrative expenses for 1995 were $7.3 million compared to
$6.6 million for 1994.  During 1995, the Company's general and administrative
functions were increased to meet the growth in revenues as well as for the
additional administrative requirements of a public company.  Accordingly,
virtually all categories of expenses increased primarily as a result of the
growth in the number of employees from 188 at the end of 1994 to 241 at the end
of 1995.  The most significant increases, aggregating approximately $2.0
million, were payroll related costs, occupancy costs and insurance.  These
increases were partially offset by decreases, in the aggregate amount of $1.4
million, as a result of reductions from the 1994 amounts for amortization
expense related to the deferred debt issue costs (see Notes 3 and 8 of the Notes
to the Consolidated Financial Statements), bad debt expense (see Note 10 of the
Notes to the Consolidated Financial Statements), and professional fees.

    Sales and marketing expenses for 1995 were $6.3 million compared to $3.9
million for 1994.  The increase from 1994 to 1995 period is related to increases
in advertising and promotion of the Mobile Communication Units, the creation of
a distribution network for sales of Units and growth in the number of employees.

    Engineering expenses for 1995 were $2.9 million compared to $1.9 million
for 1994.  This increase is primarily attributable to payroll related costs as a
result of both growth in the number of employees and outside contractors from
1994 to 1995 to enable the Company to design and develop the second generation
of the HighwayMaster Mobile Communication Unit while maintaining and enhancing
its system software.

    Customer service expenses for 1995 were $5.7 million compared to $4.6
million for 1994.  This increase is primarily attributable to (i) payroll
related costs as a result of both growth in the number of employees and outside
contractors and (ii) customer support costs in response to the increased number
of Units sold and in service.

    The changes in interest income and interest expense to related parties
between 1995 and 1994 reflects the income from temporary investments made with a
portion of the proceeds from the initial public offering and lower average
outstanding indebtedness in the 1995 period as a result of the debt repayments
made with a portion of the proceeds from the initial public offering.

    Recapitalization costs in the amount of $0.7 million for the 1994 period
were expended in connection with the Recapitalization.

LIQUIDITY AND CAPITAL RESOURCES

                                     36

<PAGE>

    As more fully described in Notes 8 and 10 to the Consolidated Financial
Statements, on September 27, 1996, the Company (i) issued Series D Preferred
Stock to a new investor for cash of $20.0 million and issued Warrants to
purchase 5.0 million shares of Common Stock, (ii) issued 800,000 shares of
Common Stock to certain existing stockholders in exchange for cash of $10
million, and (iii) issued an aggregate of 1,882,018 shares of Common Stock in
exchange for the cancellation of notes payable to related parties in the
aggregate principal amount of $12,662,000 and cancellation of all outstanding
shares of Series B Preferred Stock of the Company.  The effect of these
transactions was to increase cash by $29,688,000 (net of offering costs), to
eliminate all outstanding indebtedness of the Company and to increase
stockholders equity by approximately $52 million.

    The Company's business historically has not required substantial capital
expenditures.  However, during 1996 the Company completed and placed into
service the new NSC at a cost of $4.8 million.  At December 31, 1996 the Company
is committed to build another switching complex (the "Additional Complex") in
connection with its contract with Prince for the AutoLink product offering.
Construction of the Additional Complex is scheduled for the fourth quarter of
1997 at a cost estimated to range from $2.0 to $3.0 million.  In the event the
Company elects to expand its local service business or to pursue other business
opportunities, the Company will need to build additional complexes.

    Net cash used in operating activities for the year ended December 31, 1996
was $29.8 million due primarily to a net loss of $30.1 million.

    At December 31, 1996 the Company had cash on hand of $19.7 million and
working capital of $24.6 million. Based on the Company's projected operating
results, the Company believes that it is likely that it will need to secure
additional equity or debt financing during 1997 in order to fund its currently
anticipated operating needs and capital expenditure requirements.  The amount
and timing of the additional financing that will be required depends upon, among
other things, the Company's 1997 cash flow from operations, which may vary
depending on a number of factors, including the rate of installation of Mobile
Communication Units, the level of competition and general economic conditions
and other factors beyond the Company's control. The Company is actively
evaluating its alternatives with respect to obtaining additional equity or debt
financing, although, at the present time, the Company does not have any
commitments in place.  While the Company believes there are alternative sources
of financing available, there can be no assurance that the Company will be able
to consummate a financing arrangement on terms that would be satisfactory.

INFLATION

    The Company believes that to date inflation has not had a material effect
on its results of operations.  Although inflation may in the future affect the
cost of the Mobile Communication Units sold by the Company, the Company expects
that economies of scale and engineering improvements are likely to offset any
foreseeable cost increases.



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   The Company's consolidated financial statements at December 31, 1995 and
1996, and for each of the three years in the period ended December 31, 1996
and the Report of Price Waterhouse LLP, independent accountants, are included
in this Annual Report on Form 10-K on pages F-1 through F-22.

                                     37


<PAGE>

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

    None.













                                          38
<PAGE>
                                       PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

    Information regarding Directors and Executive Officers is incorporated by
reference to the section entitled "Election of Directors" in the Registrant's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Annual Meeting of Stockholders to be held
on May 20, 1997 (the "Proxy Statement").

ITEM 11.  EXECUTIVE COMPENSATION.

    The information required by this item is incorporated by reference from the
Proxy Statement under the heading "Executive Compensation."

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

    The information required by this item is incorporated by reference from the
Proxy Statement under the heading "Security Ownership of Certain Beneficial
Owners and Management."

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

    The information required by this item is incorporated by reference from the
Proxy Statement under the heading "Certain Transactions."






                                           39

<PAGE>

                                       PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K.

                                                                         PAGE
                                                                        NUMBER
                                                                        ------
(a) Documents filed as part of the report:

    (1)  Report of Independent Accountants   .........................    F-1
         Consolidated Balance Sheets as of December 31, 1996
              and 1995  ..............................................    F-2
         Consolidated Statements of Operations for the Years Ended
              December 31, 1996, 1995 and 1994 .........................  F-3
         Consolidated Statements of Cash Flows for the Years Ended
              December 31, 1996, 1995 and 1994..........................  F-4
         Consolidated Statements of Changes in Partners' and Stockholders'
              Equity (Deficit) for the Years Ended December 31, 1996,
              1995 and 1994............................................   F-5
         Notes to Consolidated Financial Statements...................    F-6
 .

    (2)  Consolidated Financial Statement Schedule
         Schedule II Valuation and Qualifying Accounts...............     S-1

Financial statement schedules other than those listed above have been omitted
because they are either not required, not applicable or the information is
otherwise included.

(3) Exhibits

      3.1  -    Certificate of Incorporation of the Company,
                as amended.(1)
      3.2  -    Form of Amended By-Laws of the Company.(7)
      4.1  -    Specimen of certificate representing Common Stock, $.01 par
                value, of the Company.(1)
      4.2  -    Warrant Certificate, dated September 27,
                1996, issued to SBW.(7)
      4.3  -    Recapitalization Agreement, dated September
                27, 1996, by and among the Company, the Erin Mills
                Stockholders, the Carlyle Stockholders and the other
                persons named therein. (7)
      4.4  -    Amended and Restated Stockholders' Agreement,
                dated September 27, 1996, by and among the Company,
                SBW, the Erin Mills Stockholders, the Carlyle
                Stockholders, the By-Word Stockholders and the other
                persons named therein. (7)
     10.1  -    License Agreement, dated April 23, 1992, by
                and between Voice Control Systems and the Company (as
                successor to By-Word Technologies, Inc.)(1)
     10.2  -    Agency Agreement, dated February 1, 1993,
                between the Company and Saunders, Lubinski & White,
                Inc.(1)

                                          40
<PAGE>

     10.3  -    Employment Agreement, dated February 4, 1994,
                by and between HighwayMaster Corporation and William C.
                Kennedy, Jr., as amended.(1)(5)
     10.4  -    Employment Agreement, dated February 4, 1994,
                by and between HighwayMaster Corporation and William C.
                Saunders, as amended. (1)(5)
     10.5  -    Employment Agreement, dated November 23,
                1994, by and between HighwayMaster Corporation and
                Gordon D. Quick.(1)(5)
     10.6  -    Amended and Restated 1994 Stock Option Plan
                of the Company, dated February 4, 1994, as amended.(1)(5)(6)
     10.7  -    Purchase Agreement, dated September 27, 1996,
                between the Company and SBW. (7)
     10.8  -    Mobile Communications (Voice and Data)
                Services Agreement, dated as of July 15, 1993, between
                the Company and EDS Personal Communications
                Corporation.(1)(2)
     10.9  -    Services Agreement, dated March 14, 1995,
                between the Company and GTE Telecommunications Services
                Incorporated.(1)(2)
    10.10  -    Services Agreement, dated March 20,
                1996, between the Company and GTE-Mobile Communications
                Service Corporation.(3)(4)
    10.11  -    Agreement, dated June 8, 1994, between
                the Company and Truckstops of America, Inc.(1)
    10.12  -    Amendment dated November 16, 1995 to
                that certain Mobile Communications (Voice and Data)
                Services Agreement, dated as of July 15, 1993, between
                the Company and EDS Personal Communications
                Corporation. (3)(4)
    10.13  -    Letter Agreement, dated April 5, 1995,
                between the Company and IEX Corporation.(1)
    10.14  -    Product Development Agreement, dated
                December 21, 1995, between the Company and IEX
                Corporation.(3)(4)
    10.15  -    Technical Services Agreement, dated
                September 27, 1996, between the HM Corporation and SBW.(7)
    10.16  -    Letter Agreement, dated February 19,
                1996, between the Company and IEX Corporation.(3)
    10.17  -    Form of Adoption Agreement, Regional
                Prototype Cash or Deferred Profit-Sharing Plan and
                Trust Sponsored by McKay Hochman Co., Inc., relating to
                the HighwayMaster Corporation 401(k) Plan.(1)
    10.18  -    Agreement,  dated December 3, 1996,
                between the Company and Pickett Racing.(9)
    11     -    Statement re Computation of Per Share Earnings. (9)
    21     -    Subsidiaries of Registrant. (1)
    23.1   -    Consent of Price Waterhouse LLP.(9)
    27     -    Financial Data Schedule (9)
_________

         (1)  Filed in connection with the Company's Registration Statement on
              Form S-1, as amended (No. 33-91486) effective June 22, 1995.


                                        41
<PAGE>

         (2)  Certain confidential portions deleted pursuant to Order Granting
              Application for Confidential Treatment issued in connection with
              Registration Statement on Form S-1 (No. 33-91486) effective June
              22, 1995.

         (3)  Filed in connection with the Company's Annual Report on Form 10-K
              for the fiscal year ended December 31, 1995.

         (4)  Certain confidential portions deleted pursuant to Application for
              Confidential Treatment filed in  connection with the Company's
              Annual Report on Form 10-K for the fiscal year ended December
              31, 1995.

         (5)  Indicates management or compensatory plan or arrangement required
              to be identified pursuant to Item 14(a)(4).

         (6)  Filed in connection with the Company's Form 10-Q Quarterly Report
              for the quarterly period ended June 30, 1996.

         (7)  Filed in connection with the Company's Current Report on Form 8-K
              filed on October 7, 1996.

         (8)  Filed in connection with the Company's Form 10-Q Quarterly Report
              for the quarterly period ended September 30, 1996.

         (9)  Filed herewith.

(b) Reports on Form 8-K

    On October 7, 1996, the Company filed a Current Report on Form 8-K relating
to certain transactions that were consummated on September 27, 1996 involving
SBW and certain existing stockholders of the Company.

(c) Exhibits

    The exhibits required by this Item are listed under Item 14(a)(3).

(d) Financial Statements Schedules

    The consolidated financial statement schedules required by this Item are
listed under Item 14(a)(2).




                                     42

<PAGE>

                                      SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.

March 27, 1997

                                       HIGHWAYMASTER COMMUNICATIONS, INC.


                                       By:  /s/  WILLIAM C. SAUNDERS
                                          -------------------------------------
                                          William C. Saunders,
                                          President and Chief Executive Officer























                                     43
<PAGE>

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10K for the fiscal year ended December 31, 1996, has
been signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.

            SIGNATURE                             TITLE               DATE
            ---------                             -----               ----


   /s/  WILLIAM C. KENNEDY, JR.         Chairman of the Board     March 27, 1997
---------------------------------
     William C. Kennedy, Jr.


    /s/  WILLIAM C. SAUNDERS        President, Chief Executive    March 27, 1997
---------------------------------      Officer, and Director
      William C. Saunders           (Principal Executive Officer)


     /s/  STEPHEN P. TACKE           Vice President, Controller   March 27, 1997
---------------------------------   and Acting Chief Financial
       Stephen P. Tacke             Officer (Principal Financial
                                      and Accounting Officer)


       /s/  TRACY GRIFFIN              Senior Vice President      March 27, 1997
---------------------------------          and Treasurer
         Tracy Griffin


       /s/  TERRY PARKER                      Director            March 27, 1997
----------------------------------
         Terry Parker


      /s/  STEPHEN GREAVES                    Director            March 27, 1997
----------------------------------
        Stephen Greaves


      /s/  GERRY C. QUINN                     Director            March 27, 1997
----------------------------------
        Gerry C. Quinn



                                      44
<PAGE>

                     REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of HighwayMaster
 Communications, Inc.

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 40 present fairly, in all
material respects, the financial position of HighwayMaster Communications,
Inc. and its subsidiary at December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits.  We conducted our audits of
these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation.  We believe that
our audits provide a reasonable basis for the opinion expressed above.




PRICE WATERHOUSE LLP
Dallas, Texas
February 10, 1997


















                                     F-1
<PAGE>

              HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
                        CONSOLIDATED BALANCE SHEETS
                  (in thousands, except share information)

                                  ASSETS

<TABLE>
                                                                               December 31,
                                                                          --------------------
                                                                             1996       1995
                                                                          ---------   --------
<S>                                                                          <C>         <C>
Current assets:
  Cash and cash equivalents                                               $  19,725   $ 23,969
  Accounts receivable, net of allowance for doubtful accounts
   of $774 and $815, respectively                                             8,537      5,949
  Other short-term receivables                                                  919        803
  Inventory                                                                   3,458      4,199
  Prepaid expenses                                                              231        506
                                                                          ---------   --------
    Total current assets                                                     32,870     35,426
Property and equipment, net of accumulated depreciation
 of $1,776 and $800, respectively                                             7,756      3,927
Long-term receivables                                                         1,045      1,394
Deposits                                                                        309        112
Other assets, net of accumulated amortization
 of $1,024 and $1,125, respectively                                             949      1,510
                                                                          ---------   --------
                                                                          $  42,929   $ 42,369
                                                                          ---------   --------
                                                                          ---------   --------

                     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                                        $   3,450   $  5,028
  Telecommunications costs payable                                            2,805      1,984
  Accrued interest payable to related parties                                   ---        345
  Accrued warranty                                                              273        876
  Accrued loss on short-term contracts                                          570        ---
  Other current liabilities                                                   1,167      1,421
                                                                          ---------   --------
    Total current liabilities                                                 8,265      9,654
Notes payable to related parties                                                ---     11,488
Commitments and contingencies (Note 12)
                                                                          ---------   --------
    Total liabilities                                                         8,265     21,142
                                                                          ---------   --------
Series B redeemable preferred stock, $.01 par value, 10,000 shares
 authorized; zero and 1,080 shares issued and outstanding, respectively         ---      8,126
                                                                          ---------   --------
Stockholders' equity:
  Series D participating convertible preferred stock, $.01 par value,
   1,000 shares authorized; 1,000 and zero shares issued and outstanding
   at December 31, 1996 and 1995, respectively                                  ---        ---
  Common stock, $.01 par value, 50,000,000 shares authorized;
   25,150,527 and 22,333,661 shares issued; 24,838,530 and 22,021,664
   shares outstanding at December 31, 1996 and 1995, respectively               251        223
  Additional paid-in capital                                                144,829     90,560
  Accumulated deficit                                                      (109,869)   (77,135)
  Treasury stock, 311,997 shares, at cost                                      (547)      (547)
                                                                          ---------   --------
    Total stockholders' equity                                               34,664     13,101
                                                                          ---------   --------
                                                                          $  42,929   $ 42,369
                                                                          ---------   --------
                                                                          ---------   --------
</TABLE>


                   See accompanying notes to consolidated financial statements.


                                              F-2

<PAGE>

              HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
                  CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share)

                                                    Year ended December 31,
                                                ------------------------------
                                                  1996       1995       1994
                                                --------   --------   --------
Revenues:
  Product                                       $ 14,645   $ 16,946   $ 11,075
  Service                                         16,056      9,908      2,436
                                                --------   --------   --------
    Total revenues                                30,701     26,854     13,511
                                                --------   --------   --------
Cost of revenues:
  Product                                         15,099     17,730     11,867
  Service                                         11,489      9,172      2,099
  Writedown of inventory                           1,943        ---      1,658
                                                --------   --------   --------
    Total cost of revenues                        28,531     26,902     15,624
                                                --------   --------   --------
Gross profit (loss)                                2,170        (48)    (2,113)
General and administrative expenses                9,479      7,299      6,577
Sales and marketing expenses                       9,139      6,273      3,890
Engineering expenses                               4,094      2,868      1,900
Customer service expenses                          8,089      5,727      4,587
                                                --------   --------   --------
  Operating loss                                 (28,631)   (22,215)   (19,067)
Interest income                                      809      1,041        279
Interest expense to related parties               (1,691)    (5,106)    (5,999)
Recapitalization costs                               ---        ---       (733)
Other (expense)                                     (230)      (117)      (361)
                                                --------   --------   --------
  Loss before income taxes and
   extraordinary item                            (29,743)   (26,397)   (25,881)
Income tax provision                                 ---        ---        ---
                                                --------   --------   --------
  Loss before extraordinary item                 (29,743)   (26,397)   (25,881)
Extraordinary item -- loss on
 extinguishment of debt                             (317)    (6,980)       ---
                                                --------   --------   --------
  Net loss                                      $(30,060)  $(33,377)  $(25,881)
                                                --------   --------   --------
                                                --------   --------   --------
Primary per share data:
  Loss before extraordinary item                  $(1.39)    $(1.39)
  Extraordinary item                               (0.01)     (0.34)
                                                --------   --------
  Net loss per share                              $(1.40)    $(1.73)
                                                --------   --------
                                                --------   --------
  Weighted average number of shares outstanding   22,763     20,407
                                                --------   --------
                                                --------   --------
Pro forma per share data (unaudited):
  Pro forma net loss per share                                          $(1.50)
                                                                      --------
                                                                      --------
  Weighted average number of shares outstanding used
   in the pro forma net loss per share calculation                      18,259
                                                                      --------
                                                                      --------

     See accompanying notes to consolidated financial statements.

                                    F-3

<PAGE>

              HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)

<TABLE>
                                                                                       Year ended December 31,
                                                                                 -----------------------------------
                                                                                   1996         1995         1994
                                                                                 ---------    ---------    ---------
<S>                                                                                 <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                       $(30,060)    $(33,377)    $(25,881)
  Adjustments to reconcile net loss to cash used in
   operating activities:
     Depreciation and amortization                                                  1,651          886          825
     Amortization of discount on notes payable                                        871        2,296        2,410
     Interest paid-in-kind                                                            ---          ---          457
     Payment of debt issue costs                                                      ---          ---       (1,000)
     Extraordinary item                                                               317        6,980          ---
     (Increase) decrease in accounts receivable                                    (2,588)      (1,127)      (4,169)
     (Increase) decrease in other receivables                                         233       (1,146)      (1,051)
     (Increase) decrease in inventory                                                 741         (669)        (182)
     (Increase) decrease in prepaid expenses and deposits                              78         (386)          (3)
     Increase (decrease) in accounts payable                                       (1,578)        (906)       3,942
     Increase (decrease) in accrued expenses and other current liabilities            189        1,753        2,346
     Other                                                                            329          (74)         219
                                                                                  -------      -------      -------
       Net cash used in operating actitivies                                      (29,817)     (25,770)     (22,087)
                                                                                  -------      -------      -------
CASH FLOWS FROM INVESTING ACTITIVIES:
     Additions to property and equipment                                           (4,877)      (2,990)      (1,098)
     Additions to capitalized software                                               (262)      (1,086)        (515)
                                                                                  -------      -------      -------
       Net cash used in investing activities                                       (5,139)      (4,076)      (1,613)
                                                                                  -------      -------      -------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from issuance of common stock, net                                   10,000       72,774          ---
     Proceeds from issuance of preferred stock and warrants, net                   19,688          ---          ---
     Proceeds from notes payable to related parties                                 5,000        4,122       35,000
     Payments on loans from related parties                                        (5,000)     (27,239)      (7,225)
     Proceeds from exercise of stock options                                        1,024          ---          ---
     Purchase of treasury shares                                                      ---          ---         (547)
                                                                                  -------      -------      -------
       Net cash provided by financing activities                                   30,712       49,657       27,228
                                                                                  -------      -------      -------
Increase (decrease) in cash                                                        (4,244)      19,811        3,528
Cash and cash equivalents, beginning of period                                     23,969        4,158          630
                                                                                  -------      -------      -------
Cash and cash equivalents, end of period                                          $19,725      $23,969      $ 4,158
                                                                                  -------      -------      -------
                                                                                  -------      -------      -------


Supplemental cash flow information:
     Interest paid                                                                $ 1,056      $ 3,267      $ 2,451
                                                                                  -------      -------      -------
                                                                                  -------      -------      -------
</TABLE>

                    See accompanying notes to consolidated financial statements.

                                               F-4

<PAGE>
                HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
               CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' AND
                              STOCKHOLDERS' EQUITY

                   (in thousands, except share information)
<TABLE>
                                                                                 Preferred Stock       Common Stock     Additional
                                                           General   Limited     ---------------    -------------------  Paid-in
                                                          Partners   Partners    Shares   Amount      Shares     Amount  Capital
                                                          -------------------    ---------------    -------------------  --------
<S>                                                        <C>       <C>         <C>      <C>       <C>          <C>     <C>
Partners' deficit at December 31, 1993                     $(5,193)   $ 1,377      ---    $  ---           ---    $---   $    ---
  Recapitalization                                           5,193     (1,377)     929       ---    13,650,000     137     (2,194)
  Issuance of common stock                                                                           4,154,329      41      9,571
  Purchase of treasury stock
  Accretion of discount -- Series B reedeemable
   preferred stock
    Net loss for year
                                                           ------------------    ---------------    ------------------   --------
Stockholders' equity (deficit) at December 31, 1994            ---        ---      929       ---    17,804,329     178      7,377
  Issuance of common stock -- Initial public offering                                                4,000,000      40     72,734
  Issuance of common stock -- Note exchange                                                            529,332       5     10,449
  Accretion of discount -- Series B redeemable
   preferred stock
  Cancellation of Series C preferred stock                                        (929)      ---
  Net loss for year
                                                           ------------------    ---------------    ------------------   --------
Stockholders' equity (deficit) at December 31, 1995            ---        ---      ---       ---    22,333,661     223   $ 90,560
  Issuance of common stock                                                                           1,818,018      18     22,707
  Issuance of Series D preferred stock                                           1,000       ---                           19,688
  Exchange of Series B preferred stock for common stock                                                864,000       9     10,791
  Accretion of discount -- Series B redeemable
   preferred stock
  Exercise of stock options                                                                            134,848       1      1,083
  Net loss for year
                                                           ------------------    ---------------    ------------------   --------
Stockholders' equity (deficit) at December 31, 1996        $   ---    $   ---    1,000    $   ---    25,150,527   $251   $144,829
                                                           ------------------    ---------------    ------------------   --------
                                                           ------------------    ---------------    ------------------   --------

<CAPTION>
                                                            Treasury Stock
                                                            -----------------    Accumulated
                                                            Shares     Amount      Deficit       Total
                                                            -----------------    ----------    --------
<S>                                                         <C>        <C>       <C>           <C>
Partners' deficit at December 31, 1993                          ---    $  ---     $     ---    $ (3,816)
  Recapitalization                                                                  (14,665)    (12,906)
  Issuance of common stock                                                                        9,612
  Purchase of treasury stock                                311,997      (547)                     (547)
  Accretion of discount -- Series B reedeemable
   preferred stock                                                                   (1,235)     (1,235)
    Net loss for year                                                               (25,881)    (25,881)
                                                            -----------------    ----------    --------
Stockholders' equity (deficit) at December 31, 1994         311,997      (547)      (41,781)    (34,773)
  Issuance of common stock -- Initial public offering                                            72,774
  Issuance of common stock -- Note exchange                                                      10,454
  Accretion of discount -- Series B redeemable
   preferred stock                                                                   (1,977)     (1,977)
  Cancellation of Series C preferred stock                                                          ---
  Net loss for year                                                                 (33,377)    (33,377)
                                                            -----------------    ----------    --------
Stockholders' equity (deficit) at December 31, 1995         311,997    $ (547)    $ (77,135)   $ 13,101
  Issuance of common stock                                                                       22,725
  Issuance of Series D preferred stock                                                           19,688
  Exchange of Series B preferred stock for common stock                                (843)      9,957
  Accretion of discount -- Series B redeemable
   preferred stock                                                                   (1,831)     (1,831)
  Exercise of stock options                                                                       1,084
  Net loss for year                                                                 (30,060)    (30,060)
                                                            -----------------    ----------    --------
Stockholders' equity (deficit) at December 31, 1996         311,997    $(547)     $(109,869)   $ 34,664
                                                            -----------------    ----------    --------
                                                            -----------------    ----------    --------
</TABLE>
           See accompanying notes to consolidated financial statements.

                                       F-5
<PAGE>

HIGHWAYMASTER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   RECAPITALIZATION AND BUSINESS OVERVIEW



RECAPITALIZATION

    On April 24, 1992, By-Word Joint Venture L.P., a Delaware limited
partnership, was formed with one general partner, By-Word Technologies, Inc.
("By-Word") and one limited partner, the FBR Eighteen Corporation ("FBR").
FBR was wholly-owned by the Eighteen Wheeler Corporation ("Eighteen
Wheeler"). On April 27, 1992, By-Word Joint Venture L.P. changed its name to
HighwayMaster L.P. (the "Partnership").  At December 31, 1993, the
approximate percentages of interest in the Partnership were as follows:

    By-Word                                           39.55%
    FBR                                               58.99%
    Robert Hayes                                       1.08%
    Robert Folsom                                      0.38%

    On February 4, 1994, the Company was recapitalized in a transaction
whereby, (i) holders of the stock of Eighteen Wheeler contributed such stock
to a newly formed entity, HM Holding Corporation, in exchange for promissory
notes in the aggregate principal amount of $9,291,050; 8,052,330 shares of
common stock; and 929.105 shares of Series A Preferred Stock, (ii) individual
partners contributed their interests in the Partnership to HM Holding
Corporation in exchange for promissory notes in the aggregate principal
amount of $1,508,950; 198,900 shares of common stock; and 150.895 shares of
Series A Preferred Stock and (iii) By-Word contributed its interest in the
Partnership and the residual rights to certain intellectual property
previously licensed to the Partnership in exchange for 5,398,770 shares of
common stock. The shares of Series A Preferred Stock were subsequently
canceled in exchange for which the prior holders of stock in Eighteen Wheeler
received 929.105 shares of Series B Preferred Stock and 929.105 shares of
Series C Preferred Stock, and the individual partners received 150.895 shares
of Series B Preferred Stock. As a result of the foregoing transactions,
Eighteen Wheeler became a wholly-owned subsidiary of HM Holding Corporation.
FBR and the Partnership were merged with and into Eighteen Wheeler, and the
name of the surviving corporation was changed to HighwayMaster Corporation.
By virtue of the merger, HighwayMaster Corporation became the successor in
interest to the Partnership. These transactions are collectively referred to
as the "Recapitalization."

    In connection with the Recapitalization, the Company paid an aggregate of
$733,000 in transaction and legal fees which were charged to earnings during
1994.  Approximately $465,000 of these fees were paid to a stockholder of the
Company.

    From February 4, 1994 to December 31, 1994, certain stockholders of the
Company contributed a total of $35.0 million in cash in exchange for the
Company's common stock and notes payable (see Note 8).

    In February 1995, HM Holding Corporation changed its name to
HighwayMaster Communications, Inc. (the "Company"). Since the operations were
conducted solely by the Partnership and the Company and no other party to the
Recapitalization conducted operating activities, there was no change in the
historical cost basis of the Company's assets and liabilities. Unless
otherwise stated, references to the "Company" shall include HighwayMaster
Communications, Inc. (formerly HM Holding Corporation) and its subsidiary and
its predecessors, including the Partnership.

                                     F-6
<PAGE>

BUSINESS OVERVIEW

    From April 24, 1992 (inception) through June 1993, the Company was in the
development stage and its primary activities related to the design and
development of its products. The Company began selling its products in the
third quarter of 1993.

    The Company operates a wireless enhanced-services network with both voice
and data capabilities in 99% of the available cellular coverage areas in the
United States and 100% of the A-Side cellular coverage areas in Canada. The
Company's private network covers approximately 95% of the United States
interstate highway system. Through this private network, the Company provides
integrated mobile voice, data, tracking, and fleet management information
services to trucking companies and private truck operators in the long-haul
segment of the transportation industry.

    The HighwayMaster system includes a Mobile Communication Unit (the
"Mobile Communication Unit" or "Unit") installed in each truck and a
proprietary dispatch software package developed by the Company for use by
trucking companies. The Mobile Communication Unit transmits and receives
voice and data communication to and from long-haul trucks through the
Company's private network. In addition, the Unit contains a sophisticated
navigational tracking device that enables dispatchers to obtain accurate
position reports for trucks located anywhere in the United States and Canada.
The Company's dispatch software package enables a trucking company to
optimize the use of its fleet by processing data transmitted by Mobile
Communication Units and performing a variety of fleet management functions.

    In the fourth quarter of 1996, the Company entered into a strategic
business alliance with Prince ("Prince") to develop and provide AutoLink
service for motorists in the United States and Canada.  The basic AutoLink
product will provide an intelligent communications link from the car to an
information services complex in order to provide emergency assistance,
roadside assistance and information services to the occupants of the car,
including remote tracking of stolen or missing vehicles.  HighwayMaster will
be responsible for managing the network, providing software for the
intelligent mobile unit in the car, assisting in managing various information
services providers and billing the customer.  The AutoLink business alliance
is currently in its preliminary stages and no revenues will be realized by
the Company from AutoLink in 1997.

 2.  STOCK SPLIT

    On May 26, 1995, the Company's board of directors authorized, and a
majority of stockholders approved, a one thousand nine hundred and
fifty-for-one (1,950 for 1) common stock split effected in the form of a
stock dividend, payable to shareholders of record on May 26, 1995.  The stock
split has been given retroactive effect to January 1, 1994 (the year in which
the Recapitalization to a corporate structure took place) in the accompanying
financial statements.

 3.  COMPLETION OF INITIAL PUBLIC OFFERING AND NOTE EXCHANGE

    On June 28, 1995, the Company completed its initial public offering (the
"Offering") of 4,000,000 shares of common stock at a price of $19.75 per
share. Proceeds from the Offering totaled $72,774,000, net of underwriters'
discounts and other offering expenses totaling $6,226,000.

    A portion of the proceeds from the Offering was used to retire notes
payable to related parties in the aggregate principal amount of $27,239,000
(see Note 8).  In addition, 529,332 shares of common stock were issued to
retire notes payable to related parties (the "Note Exchange") in the
aggregate principal amount of $10,454,000.  In connection with the foregoing,
the unamortized balances of debt discount and debt issue costs associated
with the indebtedness retired, in the aggregate amount of $6,980,000, were
charged to expense and are reported in the accompanying consolidated
statements of operations as an extraordinary item, "loss on extinguishment of
debt."

                                     F-7
<PAGE>

4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

    The consolidated financial statements include those of HighwayMaster
Communications, Inc. and HighwayMaster Corporation. All significant
intercompany accounts and transactions have been eliminated in consolidation.

ESTIMATES INHERENT IN THE PREPARATION OF FINANCIAL STATEMENTS

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.  Actual results could differ from those estimates.

REVENUE RECOGNITION

    Revenues from equipment sales and licensing of equipment software are
generally recognized at the time the Units are shipped to customers. In
certain cases the Company has installed Units in customers' trucks on a trial
basis, permitting customers to return the Units with limited or no penalty.
In such cases, the Company recognizes revenue when the trial period expires.
Revenues generated from voice and data communications services are recognized
upon customer usage. Until 1996, AT&T invoiced and collected payments from
all of the Company's customers for voice and data communication services
associated with the Company's equipment. The Company records as revenue an
amount equal to the payments received from AT&T, and the remainder of these
service charges, including amounts for call processing, enhanced long
distance services and customer collection fees, is retained by AT&T under the
terms of the AT&T Contract (see Note 11).  Beginning in the third quarter of
1996, the Company started providing customer billing, credit and collection
activities for voice and data communication services for certain customers.

CASH AND CASH EQUIVALENTS

    Cash and cash equivalents include cash on hand and investments with
purchased original maturities of three months or less.  Such investments
consist of short-term commercial paper, U.S. Government and U.S. Government
Agency obligations, and money-market accounts.  The Company has approximately
$19,500,000 of cash and cash equivalents in excess of FDIC insured limits at
December 31, 1996.  The Company has not experienced any losses on its cash
and cash equivalents.

BUSINESS AND CREDIT CONCENTRATIONS

    The majority of the Company's business activities and related accounts
receivable are with customers in the interstate trucking industry. The
receivables generated from equipment sales are generally secured by the
respective Units shipped to the customer.  Allowances have been provided for
amounts which may eventually become uncollectible and to provide for any
disputed charges.  No customer accounted for more than 10% of total
consolidated revenues for the years ended December 31, 1996 and 1995.  During
1994, one interstate trucking company accounted for approximately $2.8
million, or 21%, of total consolidated revenues.

INVENTORY

    Inventory consists primarily of component parts and finished products
which are valued at the lower of cost or market. Cost is determined using the
first-in, first-out (FIFO) method.

                                     F-8
<PAGE>

PROPERTY AND EQUIPMENT

    Property and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful lives of the various classes of
assets, which range from three to five years. Maintenance and repairs are
charged to operations while renewals or betterments are capitalized.

ACCRUED LOSS ON SHORT-TERM CONTRACTS

    The Company contracts with existing customers to upgrade previously
installed earlier generation Mobile Communication Units to current generation
Units.  In the event the cost of the equipment to be provided for upgrade
contracts is expected to exceed the sum of the upgrade contract price and the
estimated fair market value of the equipment to be returned as a result of
the upgrade, a loss is recognized.

RESEARCH AND DEVELOPMENT COSTS

    The Company expenses research and development costs as incurred.  During
1996, 1995 and 1994, the Company expensed $1,294,000, $1,539,000 and
$1,211,000 in research and development costs for hardware and software that
are reflected in Engineering Expenses in the Consolidated Statements of
Operations.

SOFTWARE DEVELOPMENT COSTS

    Purchased computer software costs are amortized using the straight-line
method over expected useful lives which range from 18 to 60 months.  Payments
to the Company's service providers for software enhancements, to which the
service providers retain ownership, are capitalized as software development
costs. These costs are amortized over the lives of the service contracts,
varying from 12 to 36 months.

    Costs related to the research, design and development of computer
software are charged to research and development expense as incurred. During
1996, 1995, and 1994, the Company expensed $673,000, $804,000, and $330,000,
respectively, in research and development costs that are reflected in
Engineering Expenses in the Consolidated Statements of Operations. Software
development costs that meet the capitalization requirements of Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed" are capitalized.
Software development costs are amortized using the straight line method over
eighteen months or the estimated economic life of the product, whichever is
less.

    As of December 31, 1996 and 1995, the unamortized portion of computer
software costs was $873,000 and $1,199,000, respectively. Amortization of
such costs charged to expense during 1996, 1995, and 1994 was $504,000,
$278,000, and $223,000, respectively.

ADVERTISING COSTS

    Advertising costs are expensed as incurred.  During 1996, 1995, and 1994
the Company expensed $1,637,000, $2,041,000 and $941,000, respectively, in
advertising costs that are reflected in Sales and Marketing Expenses in the
Consolidated Statements of Operations.

INCOME TAXES

    The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting For Income Taxes" ("SFAS 109").
Deferred income taxes are calculated using an asset and liability approach
wherein deferred taxes are provided for the tax effects of basis differences
for assets and liabilities arising from differing treatments for financial
and income tax reporting purposes. Valuation allowances against deferred tax
assets are provided where appropriate.

                                     F-9
<PAGE>

EARNINGS PER SHARE

    Net loss per share for the years ended December 31, 1996 and 1995
("primary loss per share") was computed by dividing the net loss, increased
by the accretion of discount on the Series B Preferred Stock ($1,831,000 and
$1,977,000 in 1996 and 1995, respectively), by the weighted average number of
shares outstanding during the year.

    Stock options granted with exercise prices below the $19.75 initial
public offering price and shares of common stock issued during the
twelve-month period preceding the initial filing date of the Offering have
been included in the calculation of weighted average shares outstanding
through the date of the Offering (June 28, 1995).  The stock options were
included in the calculation of common stock equivalents using the treasury
stock method.  Stock options are excluded from the calculation of weighted
average shares outstanding subsequent to the date of the Offering since their
effect would be anti-dilutive.

    Pro forma net loss per share (unaudited) was computed by dividing the pro
forma net loss for the year ended December 31, 1994 by the pro forma weighted
average number of shares outstanding during the year.   Pro forma net loss
was calculated by increasing the net loss for 1994 by $1,481,000,
representing interest expense on the $10.8 million of notes payable related
to the Recapitalization for the period January 1, 1994 to February 4, 1994
($134,000) and the accretion of discount on the Series B Preferred Stock for
the period from January 1, 1994 to December 31, 1994 ($1,347,000).  The pro
forma weighted average number of shares was calculated assuming that all
shares issued in the Recapitalization were issued as of January 1, 1994.

    Supplemental net loss per share (unaudited) is presented below to show
what loss per share would have been for 1996 assuming the shares issued in
September 1996 to retire indebtedness and the Series B Preferred Stock had
been issued as of January 1, 1996 and the associated indebtedness and Series
B Preferred Stock had been retired as of January 1, 1996.  Supplemental net
loss per share (unaudited) for the year ended December 31, 1996 is based on
the weighted average number of shares of common stock used in the primary
loss per share calculation plus the number of additional weighted average
shares (1,384,648) that would have been outstanding had $12,662,000 of
indebtedness and $10,800,000 of Series B Preferred Stock been retired at
January 1, 1996.  For the purposes of computing supplemental net loss per
share (unaudited), the net loss for the year ended December 31, 1996 was
increased by $1,831,000 for the accretion of discount on the Series B
Preferred Stock and was reduced by $1,659,000 and $1,831,000 for the interest
expense on the indebtedness and the accretion of discount on the Series B
Preferred Stock, respectively.  Supplemental net loss per share (unaudited)
for the year ended December 31, 1996 is as follows:

    Supplemental net loss before extraordinary item                 ($1.17)
    Extraordinary item                                                (.01)
                                                                    ------
    Supplemental net loss per share                                 ($1.18)
                                                                    ------
                                                                    ------
    Weighted average number of shares outstanding used
      in the supplemental net loss per share calculation        24,147,512
                                                                ----------
                                                                ----------


FAIR VALUE OF FINANCIAL INSTRUMENTS

    The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximates fair value because of
their short-term maturity.

RECLASSIFICATIONS

    Certain operating expenses for 1994 and 1995 have been reclassified to
conform to the 1996 presentation.

                                      F-10
<PAGE>

5.   LEASING OPERATIONS

    The Company leases its products to certain customers with terms ranging
from three to five years. The related contracts are accounted for as sales-
type leases. As of December 31, 1996, minimum future lease payments expected
to be received were:

    1997                                           $  513,000
    1998                                              513,000
    1999                                              445,000
    2000                                              154,000
                                                   ----------
      Total minimum future lease payments           1,625,000
    Less: unearned interest income                   (157,000)
                                                   ----------
      Total receivable balance                     $1,468,000
                                                   ----------
                                                   ----------

    Of the receivable balance above, $423,000 is included in other short-term
receivables and $1,045,000 is included in long-term receivables in the
Consolidated Balance Sheet at December 31, 1996.

    In March 1997, a customer who represents $1,239,000 of the total
receivable balance notified the Company that it intended to terminate its
long-term lease commitment.  Although the lease agreement contains
termination penalties, the Company believes that it may be necessary to
write-off a portion of the receivable as a result of the lease termination.
The Company estimates that the amount of the write-off may range from
approximately $500,000 to $1,000,000, although the Company is continuing to
evaluate its position under the lease and no final decision has been reached.
No provision for loss has been recorded in the Consolidated Financial
Statements.

6.  INVENTORY

    Inventory consisted of the following:

                                                       DECEMBER 31
                                              ------------------------------
                                                 1996                1995
                                              ----------          ----------
    Complete systems                          $1,265,000          $1,968,000
    Component parts                            2,193,000           2,231,000
                                              ----------          ----------
                                              $3,458,000          $4,199,000
                                              ----------          ----------
                                              ----------          ----------

    During 1996, the Company recorded a write-down of approximately $1.9
million to adjust the carrying value of used earlier generation mobile unit
component parts inventory to its estimated net realizable value.

7.  PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

                                                       DECEMBER 31
                                              ------------------------------
                                                 1996                1995
                                              ----------          ----------
    Machinery and equipment                   $2,234,000          $1,692,000
    Vehicles                                     370,000             370,000
    Computers and office equipment             2,087,000           1,166,000
    Network Services Center                    4,841,000                 ---
    Construction-in-progress                         ---           1,499,000
                                              ----------          ----------
                                               9,532,000           4,727,000
    Less: accumulated depreciation            (1,776,000)           (800,000)
                                              ----------          ----------
                                              $7,756,000          $3,927,000
                                              ----------          ----------
                                              ----------          ----------

                                       F-11
<PAGE>

    Total depreciation expense charged to operations during 1996, 1995 and 1994
was $1,041,000, $395,000 and $296,000, respectively.

8.   NOTES PAYABLE TO RELATED PARTIES

    As a part of the Recapitalization, the Company issued promissory notes in
the amount of $10.8 million, 13,650,000 shares of common stock, 1,080 shares of
Series B Preferred Stock and 929 shares of Series C Preferred Stock (see
Note 1).

    Also as part of the Recapitalization, the holders of the stock of Eighteen
Wheeler contributed such stock to the Company in exchange for notes in the
aggregate principal amount of approximately $9.3 million, 8,052,330 shares of
common stock and 929.1 shares of Series A Preferred Stock; individual partners
contributed their interest in the Partnership to the Company in exchange for
notes in the aggregate principal amount of approximately $1.5 million, 198,900
shares of common stock and 150.895 shares of Series A Preferred Stock; and
By-Word contributed its interest in the Partnership and the residual rights to
certain intellectual property previously licensed to the Partnership in exchange
for 5,398,770 shares of common stock. The Company also entered into a
Subscription Agreement dated February 4, 1994 (the "Subscription Agreement")
providing for the sale by the Company of up to $45 million aggregate principal
amount of promissory notes and up to an aggregate of 5,850,000 shares of common
stock of the Company. Pursuant to the Subscription Agreement, (i) on February 4,
1994, the Company issued $10.0 million aggregate principal amount of promissory
notes and 975,000 shares of common stock of the Company for $10.0 million;
(ii) on March 28, 1994, the Company issued $20.0 million aggregate principal
amount of promissory notes and 2,437,500 shares of common stock for
$20.0 million; and (iii) on October 17, 1994, the Company issued $5.0 million
aggregate principal amount of promissory notes and 741,848 shares of common
stock for $5.0 million. The coupon interest rate on the outstanding principal
amount of the notes was 8% per annum. The notes were discounted using an
effective borrowing rate of approximately 18%.

    Pursuant to the Note Exchange Agreement entered into in May 1995, the
Company and noteholders agreed to modify the requirements for repayment of the
notes upon closing of a public offering.  Accordingly, upon completion  of the
Offering (see Note 3) (i) 50% of the outstanding principal amount of the notes
held by members of the Carlyle Group, Clipper and Chase were paid in cash from
proceeds of the Offering, an aggregate of $5.0 million of the principal amount
of such notes were exchanged for common stock at the Offering price (but not
registered for sale in the Offering), and the remaining principal balance of the
notes held by such noteholders continue to be held by such noteholders after the
Offering; (ii) 50% of the outstanding principal amount of the notes held by Erin
Mills affiliates were paid in cash from the proceeds of the Offering, and the
remaining principal balance of the notes held by Erin Mills affiliates were
exchanged for common stock at the Offering price (but not registered for sale in
the Offering); (iii) 50% of the notes held by Mr. Folsom and Mr. Hayes were paid
in cash from the proceeds of the Offering, and the remaining principal balance
of the notes held by Mr. Folsom and Mr. Hayes were exchanged for common stock at
the Offering price (but not registered for sale in the Offering) and; (iv) the
maturity date for the principal amount of the notes was changed to December 31,
1996.

    In April 1995, May 1995 and June 1995, certain stockholders of the Company,
other than certain management stockholders, entered into Note Purchase
Agreements with the Company pursuant to which such stockholders purchased pro
rata, in proportion to their stock ownership, short-term 9% promissory notes
from the Company in the aggregate principal amount of $1.6 million, $1.4 million
and $1.1 million, respectively.  These notes, together with accrued interest
thereon, were repaid in June, 1995 with proceeds from the Offering.

    Pursuant to the Note Exchange Agreement and the Note Purchase Agreements an
aggregate principal amount of $27,239,000 of notes payable to related parties
were repaid with proceeds from the Offering.  In addition, 529,332 shares of
common stock were issued to retire notes payable to related parties (the "Note
Exchange") in the aggregate principal amount of $10,454,000.  In connection with
the foregoing, the unamortized balances of debt discount and debt issue costs
associated with the indebtedness retired, in the aggregate amount of $6,980,000
were charged to expense

                                     F-12
<PAGE>

and are reported in the accompanying consolidated statements of operations as
an extraordinary item, "loss on extinguishment of debt."

    After the above repayments, $12,662,000 principal amount of notes payable
to related parties remained outstanding at December 31, 1995.  These notes
had an 8% per annum coupon rate and a maturity date of December 31, 1996.
The notes were discounted using an effective borrowing rate of approximately
18%.

    On March 29, 1996, the Company and the noteholders entered into a Note
Extension Option Agreement (the "Extension Option").  Under the Extension
Option, the Company had the unilateral right to elect to extend the maturity
date of the notes to June 30, 1997.  Because of the availability of the
Extension Option to the Company, the notes were classified as a long-term
liability at December 31, 1995.

    On September 27, 1996, the Company, the Erin Mills Stockholders, the
Carlyle Stockholders and certain other holders of outstanding securities of
the Company entered into a Recapitalization Agreement (the "1996
Recapitalization Agreement"), and consummated the 1996 Recapitalization
Transactions contemplated thereby.  In particular, upon the terms and
conditions set forth in the 1996 Recapitalization Agreement, (i) the Company
repaid in full the principal amount of and interest accrued on certain
promissory notes in the aggregate principal amount of $5.0 million executed
in favor of an Erin Mills  Stockholder in order to repay certain advances
made by such Erin Mills Stockholder in August and September 1996 to enable
the Company to meet its short-term working capital and other requirements,
(ii) the Company issued an aggregate of 800,000 shares of Common Stock to two
Erin Mills Stockholders in exchange for aggregate cash payments in the amount
of $10.0 million, (iii) the Company issued an aggregate of 864,000 shares of
Common Stock to three Erin Mills Stockholders and two other persons in
exchange for the surrender to the Company for cancellation of all outstanding
shares of Series B Preferred Stock, (iv) the Company paid to the Carlyle
Stockholders a portion of the accrued and unpaid interest on certain
promissory notes in the aggregate principal amount of $12,662,000 (the
"Carlyle Notes") executed in favor of the Carlyle stockholders, and (v) the
Company issued an aggregate of 1,018,018 shares of Common Stock in exchange
for the surrender of the Carlyle Notes for cancellation.  In connection with
the foregoing, the unamortized balances of debt discount and debt issue costs
associated with the indebtedness retired, in the aggregate amount of
$317,000, were charged to expense and are reported in the accompanying
consolidated statements of operations as an extraordinary item, "loss on
extinguishment of debt."























                                     F-13
<PAGE>

9.  INCOME TAXES

    As discussed in Note 1, the Company's predecessor business activities
prior to February 4, 1994 were conducted as a Partnership which was not
subject to income tax. The profits and losses of the Partnership were
reflected on the tax returns of the individual partners. Accordingly, the
financial statements of the Partnership for periods prior to February 4, 1994
do not include any provision for income taxes.

    Effective with the Recapitalization on February 4, 1994, the Company
became a corporation and the consolidated financial statements reflect the
tax effects of the Company's activities from that date. The tax effects for
the period January 1 to February 4, 1994 and arising from the Company's
conversion to a corporation on February 4, 1994 were not material.

    The components of the Company's net deferred tax asset were as follows:

                                                 DECEMBER 31
                                       ------------------------------
                                           1996              1995
                                       ------------      ------------
Deferred tax assets
  Step-up of tax basis in assets        $ 1,543,000       $ 1,183,000
  Research and development credit           254,000           340,000
  Accrued warranty                           93,000           298,000
  Recapitalization costs                    266,000           369,000
  Allowance for doubtful accounts           263,000           277,000
  Accrued interest                          332,000           590,000
  Inventory                                 104,000           146,000
  Accrued vacation                           67,000            89,000
  Net operating loss carryforwards       32,352,000        18,457,000
                                       ------------      ------------
  Gross deferred tax assets              35,274,000        21,749,000
  Valuation allowance                   (34,745,000)      (21,551,000)
                                       ------------      ------------
  Net deferred tax asset                    529,000           198,000
Deferred tax liability
  Depreciation                             (460,000)         (158,000)
  Other                                     (69,000)          (40,000)
                                       ------------      ------------
Net deferred tax asset                 $        ---      $        ---
                                       ------------      ------------
                                       ------------      ------------


         The following is a reconciliation of the provision for income taxes
at the U.S. federal income tax rate to the income taxes reflected in the
Consolidated Statements of Operations:

                                                 DECEMBER 31
                                 ------------------------------------------
                                     1996           1995           1994
                                 ------------    -----------    -----------
Income tax benefit at
  Federal statutory rate         $(10,220,000)   $(8,784,000)   $(8,800,000)
Net operating losses not
  benefitted                       10,146,000      8,735,000      8,761,000
Other                                  74,000         49,000         39,000
                                 ------------    -----------    -----------
    Income tax benefit           $        ---    $       ---    $       ---
                                 ------------    -----------    -----------
                                 ------------    -----------    -----------

                                      F-14
<PAGE>

    At December 31, 1996, the Company had net operating loss carryforwards
aggregating approximately $95.2 million which expire in various years between
2007 and 2011.  Due to the issuance of certain notes payable in connection
with the Recapitalization discussed in Note 8, there was a change in
ownership under the Internal Revenue Code which limits the annual utilization
of these carryforwards and will cause some amount of the carryforwards to
expire unutilized. Any additional changes in ownership subsequent to the
Recapitalization could also result in additional limitations of loss
carryforwards.

10.  PARTNERS'/STOCKHOLDERS' EQUITY INSTRUMENTS AND RELATED MATTERS

ISSUANCE OF SERIES D PREFERRED STOCK

    On September 27, 1996, the Company and Southwestern Bell Wireless
Holdings, Inc. ("SBW"), a wholly owned subsidiary of SBC Communications Inc.
("SBC"), consummated certain transactions, including but not limited to (i)
the issuance of 1,000 shares of a new series of preferred stock, par value
$0.01 per share, designated as Series D Participating Convertible Preferred
Stock ("Series D Preferred Stock") in consideration of a cash payment in the
amount of $20.0 million and (ii) the issuance to SBW of certain Warrants.

    Each outstanding share of Series D Preferred Stock is convertible into
1,600 shares of Common Stock at the option of SBW.  In addition, at such time
as SBW obtains certain regulatory relief required in order for it to offer
long-distance telephone services, all outstanding shares of Series D
Preferred Stock will automatically convert into an equal number of shares of
a new series of common stock designated as Class B Common Stock.

    Each outstanding share of Class B Common Stock will be convertible into
1,600 shares of Common Stock at the option of SBW.  The holders of Class B
Common Stock will be entitled to receive dividends and liquidating distributions
in an amount equal to the dividends and liquidating distributions payable on or
in respect of the number of shares of Common Stock into which such shares of
Class B Common Stock are then convertible.  The holders of Common Stock and
Class B Common Stock will generally have identical voting rights and will vote
together as a single class, with the holders of Class B Common Stock being
entitled to a number of votes equal to the number of shares of Common Stock into
which the shares of Class B Common Stock held by them are then convertible.  In
addition, the holders of Class B Common Stock will be entitled to elect one
director of the Company (or two directors if SBW and its affiliates beneficially
own at least 20% of the outstanding shares of Common Stock on a fully diluted
basis) and will have the right to approve certain actions on the part of the
Company.

    The Warrants issued to SBW entitle the holder thereof to purchase (i)
3,000,000 shares of Common Stock at an exercise price of $14.00 per share and
(ii) 2,000,000 shares of Common Stock at an exercise price of $18.00 per share.
The Warrants will expire on September 27, 2001.

SERIES B PREFERRED STOCK

    As part of the Recapitalization described in Note 1, the Company issued
1,080 shares of its Series A Preferred Stock. On February 28, 1994, all shares
of the Series A Preferred Stock were reacquired by the Company and the
respective holders were issued shares of Series B and Series C Preferred Stock.
The Preferred Stock was recorded at its fair value as of the date of issuance.
The Series C Preferred Stock was canceled in 1995.

    The Series B Preferred Stock was required to be redeemed by the Company at
a price of $10,000 per share ($10,800,000 in the aggregate) if the purchasers of
the notes and common stock under the Subscription Agreement had realized a
certain required return (as defined) on their investment in the Company.  In
contemplation of the transactions consumated on September 27, 1996, it was
determined that the Series B Preferred Stock would qualify for redemption at its
maturity date, February 4, 1997.  Accordingly, the Series B Preferred Stock was
extinguished pursuant to the 1996 Recapitalization Agreement by the issuance of
864,000 shares of Common Stock (see Note 8).


                                      F-15
<PAGE>

SETTLEMENT AGREEMENT AND BY-WORD EXCHANGE AGREEMENT

    In connection with a lawsuit brought by a former employee of By-Word and
the employee's spouse (collectively, the "Plaintiffs") against By-Word, the
Company and certain of its stockholders and affiliates (collectively, the
"Defendants"), in which the Plaintiffs alleged certain claims for, among other
things, breach of employment and personal injury, the Plaintiffs entered into a
Compromise Settlement and Mutual Release, in September 1994 (the "Settlement
Agreement"), pursuant to which the plaintiffs rescinded the original purchase of
the shares of By-Word, and the Plaintiffs settled all claims against the
Defendants in exchange for $1,653,000 (the "Settlement Amount"). The Company
loaned By-Word the Settlement Amount pursuant to a promissory note dated
September 30, 1994, in the amount of $1,653,000 (the "By-Word Note") to pay the
Plaintiffs under the Settlement Agreement.

    Pursuant to an agreement dated October 1, 1994, between the Company and
By-Word (the "By-Word Exchange Agreement"), By-Word contributed 5,398,770 shares
of the Company's common stock to the Company in exchange for which the Company
issued 5,086,773 shares of the Company's common stock to By-Word and assumed
By-Word's obligations under the By-Word Note. The Company recorded the
transaction as an increase in treasury shares. The obligations assumed from
By-Word by the Company were in excess of the fair value of the stock received;
therefore, the amount of $1,106,000 of obligations assumed over the fair value
of the stock was recorded as an expense that is reflected in General and
Administrative Expenses in the 1994 Consolidated Statement of Operations.
By-Word instituted dissolution proceedings on November 30, 1994 and distributed
its shares of common stock of the Company then held by By-Word pro rata to the
former shareholders by By-Word.

INCENTIVE PLAN AND OTHER

    Pursuant to a 1994 Stock Option Plan, as amended,(the "Plan") options may
be granted to employees for the purchase of an aggregate of up to 2,474,462
shares of the Company's common stock. The Plan requires that the exercise price
for each stock option be not less than 100% of the fair market value of common
stock at the time the option is granted. Both nonqualified stock options and
incentive stock options, as defined by the Internal Revenue Code of 1986, as
amended, may be granted under the Plan. Options granted under the Plan vest 20%
on the date of grant and 20% on each of the following four anniversary dates of
the date of grants and expire six years from the date of grant.

    The Company applies APB Opinion No. 25 and related interpretations in
accounting for the Plan.  Accordingly, no compensation cost has been recognized
for options issued under the Plan.  Had compensation cost been determined based
on the fair market value at the grant dates for awards under the Plan consistent
with the method provided by SFAS 123, the Company's net loss and net loss per
share would have been increased to the pro forma amounts indicated below:

                                            FOR THE YEAR ENDED DECEMBER 31,
                                            -------------------------------
                                                1996              1995
                                            ------------      -------------
Net loss                    As reported     $(30,060,000)     $(33,377,000)
                            Pro forma       $(30,584,000)     $(33,458,000)

Primary net loss per share
                            As reported     $      (1.40)     $      (1.73)
                            Pro forma       $      (1.42)     $      (1.74)


                                      F-16
<PAGE>

    The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants during the years ended December 31, 1996 and 1995:

                                            FOR THE YEAR ENDED DECEMBER 31,
                                            -------------------------------
                                                1996                1995
                                                ----                ----
Dividend                                          --                  --
Expected volatility                            74.02%              70.90%
Risk free rate of return                        6.24%               6.80%
Expected life in years                          6.00                6.00

    A summary of the status of the Companys's Plan as of December 31, 1996,
1995 and 1994, and changes during the years ended on those dates is presented
below:

<TABLE>
                                         1996                       1995                        1994
                                         ----                       ----                        ----
                                        Weighted                   Weighted                   Weighted
                                        Average                    Average                     Average
                                        Exercise                   Exercise                   Exercise
                             Shares      Price       Shares         Price       Shares         Price
                             ------      -----       ------         -----       ------         -----
<S>                         <C>          <C>       <C>             <C>         <C>             <C>

Outstanding at
   beginning of year        1,974,462     $7.58    1,947,144         $7.58            --           --
Granted                       266,000      7.73       27,318          7.58      1,947,144       $7.58

Exercised                    (134,848)     7.59           --            --            --           --

Forfeited                     (62,316)     7.62           --            --            --           --
                            ---------     -----     ---------         -----     ---------       -----
Outstanding at
   end of year              2,043,298     $7.61     1,974,462         $7.58     1,947,144       $7.58
                            ---------     -----     ---------         -----     ---------       -----
                            ---------     -----     ---------         -----     ---------       -----

Options exercisable
  at end of year            1,565,165     $7.58     1,496,496         $7.58     1,338,994       $7.58
                            ---------     -----     ---------         -----     ---------       -----
                            ---------     -----     ---------         -----     ---------       -----

Weighted average
  value of options granted
  during the year                         $5.51                      $12.77
                                          -----                      ------
                                          -----                      ------

</TABLE>

                                        F-17
<PAGE>

     The following table summarizes information about stock options
outstanding under the Plan at December 31, 1996:

                                        Options               Options
                                     Outstanding            Exercisable
                                     -----------            -----------

Number of options                      2,043,298               1,565,165
Range of exercise prices          $7.58 to $7.75          $7.58 to $7.75
Weighted average remaining
   contractual life in years                 3.8                     3.6
Weighted average exercise price            $7.61                   $7.58




    During April 1995, the Company granted options outside of the Plan to a
director of the Company to purchase 3,798 shares of common stock. The options
were immediately exercisable for a term of six years at a price of $7.58 per
share.  The fair value of the option grant was estimated to be approximately
$12.79 per option on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions: no expected dividend
yield; an expected life of six years; expected volatility of 70.09 percent;
and a risk free interest rate of 7.00 percent.  Approximately $32,000 was
charged to compensation cost during 1995 for the options.  All such options
were unexercised at December 31, 1996.

RETIREMENT PLAN

    In December 1994, the Company established the 401(k) Retirement Investment
Profit-Sharing Plan covering substantially all employees.  The Company did not
make matching contributions to the Plan in either 1996, 1995 or 1994.

PARTNER'S DEFICIT AND OTHER

    Capital account allocations for financial reporting purposes, which are
different than capital account allocations for tax purposes, reflect the net
profits and losses from operations allocated each year as defined in the
Partnership Agreement.

11. TERMINATION OF AT&T CONTRACT

         The Company and AT&T were parties to a contract (the "AT&T
Contract") under which AT&T provided enhanced call processing, data
management services and long-distance network transport services through a
switching complex owned and operated by AT&T.  The AT&T Contract was
terminated by AT&T effective June 29, 1996.  However, AT&T continues to
provide services for certain Company customers without a formal contract
pursuant to AT&T's obligations with respect to its existing service
agreements with such customers.

12.  COMMITMENTS AND CONTINGENCIES

LITIGATION

         On February 16, 1996, the Company filed a lawsuit against AT&T Corp.
("AT&T") in the U.S. District Court, Northern District of Texas, Dallas
Division.  The Company is seeking preliminary and permanent injunctive relief
restraining AT&T from using and disclosing the Company's trade secrets and
proprietary information relating to its mobile communications technology.  In
July 1996, AT&T filed counterclaims essentially mirroring the Company's claims.


                                      F-18
<PAGE>

         In September and October 1996, both the Company and AT&T filed
additional claims against each other related to breach of contract and
various tortious activities.  AT&T seeks an injunction, a declaratory
judgment defining the parties' intellectual property rights, actual and
punitive damages and attorneys' fees in connection with its counterclaims.
The Company seeks a declaration that the patents issued to AT&T using the
Company's proprietary information are invalid and should be transferred from
AT&T to the Company. The Company also brought Texas Deceptive Trade Practices
Act ("DTPA") claims against AT&T and seeks actual, punitive and treble
damages and attorneys' fees in connection with its claims. Additionally, the
Company's amended complaint added Lucent Technologies, Inc. ("Lucent") as an
additional defendant, to which AT&T transferred certain of the patents at
issue in the lawsuit.

   In November 1996, AT&T filed a Partial Motion to Dismiss the Company's
DTPA claims, various tort claims and the patent invalidity charges.
Additionally, in November, 1996, Lucent filed a motion to dismiss all of the
Company's claims against Lucent. In December 1996, the Company filed a
response to AT&T's partial motion to dismiss and a response to Lucent's
motion to dismiss. A hearing on the parties' motions is currently scheduled
for May 1997.

     On December 14, 1995 and on February 23, 1996, lawsuits were filed by
certain plaintiffs against the Company and its directors, along with the lead
underwriters for the Company's Offering. The plaintiff in each suit sought
securities class-action certification and purported to represent all similarly
situated shareholders, who bought stock in the Company pursuant to its Offering
in June 1995 or immediately thereafter.  The plaintiffs sought unspecified
damages and alleged that the Company's registration statement, prospectus and
other communications in its Offering contained false and materially misleading
statements.  The two lawsuits were consolidated into one.  On November 4, 1996,
the Court entered a Stipulation and Order of Dismissal which was signed by all
parties, including proposed plaintiffs-in-intervention.  This action dismissed
the pending litigation with prejudice, precluding these same plaintiffs from
refiling the same claims in the future.  The dismissal of this action did not
involve any payment on the part of the Company or any other defendant.

    The Company is involved in other litigation matters that normally arise in
the course of conducting its business. These matters are not considered to be of
a material nature nor would they have a material effect on the business
activities or continued operations of the Company.

GTE AND EDS CONTRACTS

         A subsidiary of GTE, GTE Telecommunications Services, Inc.
("GTE-TSI"), and a subsidiary of Electronic Data Systems, Inc. ("EDS"),
perform certain "clearinghouse" functions for the Company which include,
among other things, validation and verification of roaming numbers and
provision and routing of call delivery information. The Company's agreement
with GTE-TSI expires in March 1998, with certain renewal options by the
Company after that date. The agreement with GTE-TSI may be renewed by the
Company for up to ten additional one-year terms after expiration at a
reasonable price to be determined solely by GTE-TSI. The agreement with EDS
expires in August 1998 with successive automatic renewal terms of one-year
thereafter, unless terminated at the option of either party upon 60 days'
notice prior to any expiration date. Another subsidiary of GTE, GTE
MobileComm, indirectly provides a significant amount of cellular coverage for
the HighwayMaster system and pays all cellular carriers in the HighwayMaster
system for HighwayMaster, billing the Company on a monthly basis.  The term
of the current agreement with GTE MobileComm expires in March 1999.  The
aggregate future minimum payments associated with these agreements were as
follows as of December 31, 1996:

             1997                               $1,080,000
             1998                                  680,000
             1999                                  120,000
                                                ----------
                                                $1,880,000
                                                ----------
                                                ----------

    Costs related to these contracts are included as cost of service revenues
in the Consolidated Statements of Operations.

                                       F-19
<PAGE>

EMPLOYMENT AGREEMENTS

    Two officers of the Company entered into employment contracts with
HighwayMaster Corporation effective February 1994 and continuing through the
fifth anniversary of the consummation of the Offering (see Note 3), unless
terminated earlier in the event of death, permanent disability, for "cause" or,
under certain conditions, voluntarily. Under the employment contracts, either
HighwayMaster Corporation or the individuals may terminate employment, without
liability, at any time after February 1996 upon one year's written notice to the
other party. The terms of the contracts provide for an annual base salary
($399,300 at December 31, 1996) for each officer, with annual increases each
year equal to 10%. Each officer shall also receive annual bonuses during the
term of his contract, calculated as defined in the contracts. In addition, the
officers may receive discretionary bonuses at the sole discretion of the board
of directors of HighwayMaster Corporation. During 1996, 1995 and 1994, no
bonuses were earned by the employees. The employment contracts provide for a
severance payment equal to the remaining amount of salary payable under the
contract in the event of termination other than for "cause". The employment
contracts also provide that each of the officers is subject to a covenant not to
compete during the period that compensation is paid under his employment
agreement and for 24 months thereafter.

    A third officer of the Company entered into an employment contract with
HighwayMaster Corporation effective November 1994 and continuing through the
fifth anniversary of the consummation of the Offering, unless terminated earlier
in the event of death, permanent disability, for "cause" or, under certain
conditions, voluntarily. Pursuant to the employment contract, the officer
receives an annual base salary ($302,500 at December 31, 1996), with annual
increases, annual bonuses and discretionary bonuses set on similar terms as
above. During 1996, 1995 and 1994 no such bonuses were earned. In the event of a
termination of employment by the Company with notice or by the officer due to
the Company's breach, the officer will be entitled to the remaining amount of
salary and the minimum bonus that would be payable under the employment contract
absent the termination. In the event of a termination by the officer with notice
(other than as set forth in the preceding sentence), the officer will be
entitled to the salary payable for the remaining term of the contract or
90 days, whichever is less. Other than in the case of a termination by the
officer due to a breach by the Company, or a termination by the Company with
notice, the contract provides that the officer is subject to a covenant not to
compete for a period of 12 months after the termination of his employment.

LEASES

    The Company leases certain office facilities and furniture and equipment
under noncancelable operating leases. The future minimum lease payments
associated with such leases were as follows as of December 31, 1996:


    1997                                       $1,056,000
    1998                                          699,000
    1999                                          141,000
    2000                                           50,000
    2001                                            8,000
                                               ----------
                                               $1,954,000
                                               ----------
                                               ----------


    During 1996, 1995, and 1994, total rent expense charged to operating
expenses was approximately $1,388,000, $941,000, and $613,000, respectively.

                                       F-20

<PAGE>

PICKETT RACING CONTRACT

    The Company is obligated under a promotional Sports Car Club of America
("SCCA") racing team sponsorship agreement with Pickett Racing to pay ten
consecutive monthly payments of $65,000 each, which commenced in January
1997.

TRUCKSTOPS OF AMERICA, INC. CONTRACT

    In June 1994, the Company entered into a three-year operating agreement
with Truckstops of America, Inc. to sell, install, and service Mobile
Communication Units through a national network of truckstop sites. Truckstops
of America, Inc. is required to purchase minimum levels of inventory and
parts for each sales location, and the Company is obligated to repurchase
inventory in the event it becomes unsalable. At December 31, 1996, the amount
of inventory subject to return was approximately $150,000.

CAPITAL EXPENDITURES

    The Company is committed to build another Network Switching Center
(the "additional Complex") in connection with its contract with Prince for the
AutoLink product offering.  Construction of the additional Complex is
scheduled for the fourth quarter of 1997 at a cost estimated to range from
$2.0 to $3.0 million.

13.  RELATED PARTY TRANSACTIONS

    In connection with the Recapitalization, the Company assumed the rights
and obligations of the Partnership under a certain Agency Agreement, dated as
of February 1, 1993, by and between the Partnership and Saunders, Lubinski  &
White, Inc. (the "Agency").  During 1996, 1995, and 1994, the Company paid
$435,000, $1,405,000, and $1,231,000, respectively, under the Agency
Agreement, which includes the pass-through of actual third-party expenses
incurred by the Agency on the Company's behalf. The Agency Agreement provides
that in consideration for its advertising services, the Agency will receive a
5% profit based on the Agency's internal costs on all services provided to
the Company, subject to future negotiation, in addition to actual third-party
media, production and other reasonable expenses. The Agency Agreement may be
terminated, with or without cause, at any time by either party, with 90 days'
notice. An officer of the Company was a principal stockholder and officer of
the Agency until January 1, 1997.

    The Company leases office space from a stockholder for $57,000 per month
plus maintenance and repairs, at an average rate of $14.60 per square foot per
year. Total rent paid under this agreement during 1996, 1995 and 1994 was
approximately $699,000, $311,000, and $194,000, respectively.

    Two stockholders of the Company and certain of their affiliates own a
minority interest in Truckstops of America, Inc. (see Note 12). During 1996,
1995 and 1994, the Company recorded revenues of approximately zero, $428,000 and
$687,000, respectively, from sales to Truckstops of America, Inc.



                                      F-21

<PAGE>

14.  QUARTERLY RESULTS OF OPERATIONS  (UNAUDITED)

    Unaudited consolidated quarterly results of operations for 1996 and 1995
are as follows (in thousands, except per share amounts):

<TABLE>
                                  First         Second         Third            Fourth
1996                             Quarter        Quarter        Quarter          Quarter
----                             -------        -------        -------          -------
<S>                             <C>           <C>              <C>             <C>
Total revenues                  $ 6,291        $ 7,581         $7,524          $9,305
Gross profit (loss) (1)           1,003          1,052          1,375          (1,260)
Operating loss                   (6,136)        (6,484)        (6,718)         (9,293)
Loss before
    extraordinary item           (6,368)        (6,899)        (7,463)         (9,013)
Extraordinary item                  ---            ---           (317)           ---
Net loss                         (6,368)        (6,899)        (7,780)         (9,013)
Primary loss per share: (2)
    Before extraordinary item    ($0.32)        ($0.34)        ($0.37)         ($0.36)
    Extraordinary item              ---            ---          (0.01)           ---
    Net loss                     ($0.32)        ($0.34)        ($0.38)         ($0.36)
Weighted average shares
    outstanding                   22,022         22,035         22,178         24,801


1995
----

Total revenues                  $ 5,681        $ 6,032        $ 7,654         $ 7,487
Gross profit (loss)                (238)           226            472            (508)
Operating loss                   (5,432)        (4,826)        (5,175)         (6,782)
Loss before
    extraordinary item           (7,243)        (6,786)        (5,268)         (7,100)
Extraordinary item                  ---         (6,980)           ---            ---
Net loss                         (7,243)       (13,766)        (5,268)         (7,100)
Primary loss per share: (2)
    Before extraordinary item    ($0.41)        ($0.39)        ($0.26)         ($0.34)
    Extraordinary item              ---         ($0.37)           ---            ---
    Net loss                     ($0.41)        ($0.76)        ($0.26)         ($0.34)
Weighted average shares
    outstanding                   18,711         18,820         22,022         22,022

</TABLE>

(1) Fourth quarter includes $1,943,000 inventory writedown related to used
    earlier generation mobile unit component parts.

(2) Net loss per share is computed independently for each of the quarters
    presented.  Therefore, the sum of the quarterly net loss per share amounts
    will not necessarily equal the total for the year.

                                        F-22


<PAGE>
                                                                   SCHEDULE II

                       HIGHWAYMASTER COMMUNICATIONS INC.
                       VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
                                                       ADDITONS
                                       BALANCE AT     CHARGED TO
                                      BEGINNING OF     COSTS AND                                BALANCE AT
DESCRIPTION                              PERIOD        EXPENSES     DEDUCTIONS      OTHER      END OF PERIOD
-----------                           ------------    ----------    ----------     -------     -------------
<S>                                   <C>             <C>           <C>            <C>         <C>
Year ended December 31, 1994
  Allowance for doubtful accounts    $         0         217,000             0           0      $   217,000
  Inventory reserves                           0       1,828,000    (1,658,000)          0          170,000
  Valuation allowance against
    deferred tax asset                         0      12,490,000             0           0       12,490,000

Year ended December 31, 1995
  Allowance for doubtful accounts        217,000         604,000        (6,000)          0          815,000
  Inventory reserves                     170,000         551,000      (291,000)          0          430,000
  Valuation allowance against
    deferred tax asset                12,490,000       9,061,000             0           0       21,551,000


Year ended December 31, 1996
  Allowance for doubtful accounts        815,000         160,000      (201,000)          0          774,000
  Inventory reserves                     430,000       2,223,000      (405,000)          0        2,248,000
  Valuation allowance against
    deferred tax asset               $21,551,000      12,816,000             0     378,000      $34,745,000
</TABLE>






                                      S-1
<PAGE>

                              INDEX TO EXHIBITS
<TABLE>

EXHIBIT
NUMBER                                TITLE
-------                               -----
<C>         <S>
 3.1    --  Certificate of Incorporation of the Company, as amended.(1)

 3.2    --  Form of Amended By-Laws of the Company.(7)

 4.1    --  Specimen of certificate representing Common Stock, $.01 par
            value, of the Company.(1)

 4.2    --  Warrant Certificate, dated September 27, 1996, issued to SBW.
            (7)

 4.3    --  Recapitalization Agreement, dated September 27, 1996, by and
            among the Company, the Erin Mills Stockholders, the Carlyle
            Stockholders and the other persons named therein. (7)

 4.4    --  Amended and Restated Stockholders' Agreement, dated September
            27, 1996, by and among the Company, SBW, the Erin Mills
            Stockholders, the Carlyle Stockholders, the By-Word Stockholders
            and the other persons named therein. (7)

10.1    --  License Agreement, dated April 23, 1992, by and between Voice
            Control Systems and the Company (as successor to By-Word
            Technologies, Inc.)(1)

10.2    --  Agency Agreement, dated February 1, 1993, between the Company
            and Saunders, Lubinski & White, Inc.(1)

10.3    --  Employment Agreement, dated February 4, 1994, by and between
            HighwayMaster Corporation and William C. Kennedy, Jr., as
            amended.(1)(5)

10.4    --  Employment Agreement, dated February 4, 1994, by and between
            HighwayMaster Corporation and William C. Saunders, as
            amended.(1)(5)

10.5    --  Employment Agreement, dated November 23, 1994, by and between
            HighwayMaster Corporation and Gordon D. Quick.(1)(5)

10.6    --  Amended and Restated 1994 Stock Option Plan of the Company,
            dated February 4, 1994, as amended.(1)(5)(6)

10.7    --  Purchase Agreement, dated September 27, 1996, between the
            Company and SBW. (7)

10.8    --  Mobile Communications (Voice and Data) Services Agreement,
            dated as of July 15, 1993, between the Company and EDS
            Personal Communications Corporation, as amended.(1)(2)

10.9    --  Services Agreement, dated March 14, 1995, between the Company
            and GTE Telecommunications Services Incorporated.(1)(2)

10.10   --  Agreement, dated March 20, 1996, between the Company and
            GTE-Mobile Communications Service Corporation.(3)(4)

10.11   --  Agreement, dated June 8, 1994, between the Company and
            Truckstops of America, Inc.(1)

10.12   --  Amendment dated November 16, 1995 to that certain Mobile
            Communications (Voice and Data) Services Agreement, dated
            as of July 15, 1993, between the Company and EDS Personal
            Communications Corporation.(3)(4)

10.13   --  Letter Agreement, dated April 5, 1995, between the Company
            and IEX Corporation.(1)

10.14   --  Product Development Agreement, dated December 21, 1995,
            between the Company and IEX  Corporation.(3)(4)

10.15   --  Technical Services Agreement, dated September 27, 1996,
            between the HM Corporation and SBW.(7)


<PAGE>

10.16   --  Letter Agreement, dated February 19, 1996, between the
            Company and IEX Corporation.(3)

10.17   --  Form of Adoption Agreement, Regional Prototype Cash or
            Deferred Profit-Sharing Plan and Trust Sponsored by McKay
            Hochman Co., Inc., relating to the HighwayMaster
            Corporation 401(k) Plan.(1)

10.18   --  Agreement dated December 3, 1996, between the Company and
            Pickett Racing.(9)

11      --  Statement re Computation of Per Share Earnings.(9)

21      --  Subsidiaries of the Registrant.(1)

23.1    --  Consent of Price Waterhouse LLP.(9)

27      --  Financial Data Schedule(9)
</TABLE>
----------------------
(1)  Filed in connection with the Company's Registration Statement on Form S-1,
     as amended (No. 33-91486) effective June 22, 1995.

(2)  Certain confidential portions deleted pursuant to Order Granting
     Application for Confidential Treatment issued in connection with
     Registration Statement on Form S-1 (No. 33-91486) effective June 22,
     1995.

(3)  Filed in connection with the Company's Annual Report on Form 10-K for
     the fiscal year ended December 31, 1995.

(4)  Certain confidential portions deleted pursuant to Application for
     Confidential Treatment filed in connection with the Company's Annual
     Report on Form 10-K for the fiscal year ended December 31, 1995.

(5)  Indicates management or compensatory plan or arrangement required to be
     identified pursuant to Item 14(a)(4).

(6)  Filed in connection with the Company's Form 10-Q Quarterly Report for
     the quarterly period ended June 30, 1996.

(7)  Filed in connection with the Company's Current Report on Form 8-K filed
     on October 7, 1996.

(8)  Filed in connection with the Company's Form 10-Q Quarterly Report for the
     quarterly period ended September 30, 1996.

(9)  Filed herewith.