UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
( ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1996
OR
( TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number 0-22888
CAI WIRELESS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
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Connecticut 06-1324691
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation)
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18 Corporate Woods Blvd., Third Floor, Albany, NY 12211
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (518) 462-2632
Securities Registered Pursuant to Section 12(b) of the Securities Exchange Act
of 1934:
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Title of Each Class Name of Each Exchange on Which Registered
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None
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Securities Registered Pursuant to Section 12(g) of the Securities Exchange Act
of 1934:
Common Stock, No Par Value
(Title of Each Class)
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. (
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 past 90 days. YES X NO ____.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant at June 14, 1996 was approximately $308,600,000.
The number of shares of Registrant's Common Stock outstanding on June 14,
1996 was 40,311,472.
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PART I
ITEM 1. BUSINESS
OVERVIEW
CAI Wireless Systems, Inc. (the "Company" or "CAI"), directly and through
its subsidiaries, is a leading developer, owner and operator of wireless cable
television systems in terms of the number of subscribers, the number of
estimated line-of-sight ("LOS") households and total capitalization. CAI is
the first wireless cable company to enter into a strategic partnership with any
of the Regional Bell Operating Companies ("RBOCs") through its strategic
business relationship with affiliates of Bell Atlantic Corporation ("Bell
Atlantic") and NYNEX Corporation ("NYNEX"). See "The BANX Transactions." CAI
is the largest wireless cable television company in the United States in terms
of television households and LOS households. CAI's 14 markets, concentrated in
the mid-Atlantic and northeast regions of the United States and which are
situated within the operating regions of Bell Atlantic and NYNEX, respectively,
encompass approximately 18.9% (18.0 million) of all U.S. television households,
approximately 13.1 million of which are LOS households. CAI provided wireless
cable television services to approximately 85,100 subscribers as of March 31,
1996. In addition, a 54%-owned subsidiary of the Company, CS Wireless Systems,
Inc. ("CS Wireless"), provided wireless cable television service to
approximately 56,500 as of March 31, 1996.
The Company consummated a series of transactions during the fiscal year
ended March 31, 1996, including the acquisition of ACS Enterprises, Inc.
("ACS") and other transactions, consolidating the acquisitions of major
wireless properties in the northeastern and mid-Atlantic regions, and in that
connection, concluded certain financing and operating agreements with
affiliates of Bell Atlantic and NYNEX. The consummation of the ACS acquisition
significantly expanded CAI's wireless cable systems. The relationship with
Bell Atlantic and NYNEX provides CAI with an important strategic partner, as
well as access to capital and the ability to deploy new technology.
Additionally, on February 23, 1996, the Company and Heartland Wireless
Communications, Inc. ("Heartland") closed the transactions contemplated by the
Participation Agreement (as defined below) among the Company, CS Wireless and
Heartland. CAI and Heartland each contributed wireless cable assets and channel
rights or the stock of subsidiaries owning wireless cable assets to CS Wireless
in exchange for stock of CS Wireless, in the case of CAI, and stock, cash and
notes, in the case of Heartland. CAI currently owns approximately 54% of CS
Wireless.
Wireless cable programming is transmitted through the air via microwave
frequencies from a transmission facility to a small receiving antenna at each
subscriber's location, which generally requires an unobstructed LOS from the
transmission facility to the subscriber's receiving antenna. Traditional hard-
wire cable television systems also transmit signals from a central transmission
facility, but deliver the signal to a subscriber's location through an
extensive network of fiber optic and/or coaxial cable and amplifiers. Since
wireless cable systems do not require a network of fiber optic and coaxial
cable, wireless cable operators such as CAI can provide subscribers with a high
quality picture with fewer transmission disruptions at a significantly lower
capital cost per installed subscriber than traditional hard-wire cable systems.
In addition, not having to maintain a hard-wire transmission system results in
lower ongoing maintenance costs for wireless cable systems. As a result of the
generally low capital expenditure requirements and low maintenance costs, CAI
believes it should be able to achieve positive cash flow at lower levels of
subscriber penetration than hard-wire cable companies.
CAI provides its subscribers with a variety of programming choices,
including local television broadcast stations; cable television networks such
as CNN, ESPN, A&E, MTV, Nickelodeon, Discovery, HBO, Showtime and Disney; pay-
per-view programming services; and various feature films and sporting events.
CAI currently offers variations of such programming packages in its six
operating markets. The majority of CAI's subscribers are equipped with fully
addressable converter boxes which enables CAI to offer pay-per-view and other
pay video services to such subscribers. The channels that CAI offers vary in
each market depending upon subscribers' viewing preferences.
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ITEM 1. BUSINESS (CONTINUED)
Overview, (continued)
The executive offices of the Company are located at 18 Corporate Woods
Boulevard, Third Floor, Albany, New York 12211, and its telephone number is
(518) 462-2632. Unless the context indicates otherwise, all references to the
"Company" or "CAI" refer collectively to CAI Wireless Systems, Inc. and its
subsidiaries.
THE ACS MERGER AND OTHER ACQUISITIONS
THE ACS MERGER
On September 29, 1995, CAI merged with ACS pursuant to an Agreement and
Plan of Merger dated March 28, 1995 (the "ACS Merger Agreement"), in which CAI
acquired each share of common stock of ACS for $20.00 consisting of $3.50 in
cash and the remainder in shares of common stock, without par value, of CAI
(the "CAI Common Stock") at the ratio of 1.65 shares of CAI Common Stock for
each share of ACS common stock. The total cash consideration paid approximated
$41.0 million, excluding acquisition costs, and the total value of the CAI
Common Stock issued approximated $190.6 million.
At the acquisition date, ACS operated wireless cable systems in
Philadelphia, Pennsylvania; Cleveland, Ohio; and Bakersfield, California. CAI
continues to operate the wireless cable system in Philadelphia. The Cleveland
and Bakersfield systems were contributed by CAI to CS Wireless in connection
with the closing of the transactions contemplated by the Participation
Agreement in February 1996. See "The CAI-Heartland Transactions".
OTHER ACQUISITIONS
Eastern Cable Networks of Washington, Inc. CAI, Eastern Cable Networks
Corp., a Connecticut corporation ("ECN"), and Eastern Cable Networks of
Washington, Inc., a Delaware corporation and wholly-owned subsidiary of ECN
("ECNW") that operated a wireless cable system in Washington, D.C. (the
"Washington System"), entered into an Agreement and Plan of Merger dated as of
March 28, 1995 (the "Washington Merger Agreement"), pursuant to which CAI
acquired all of the issued and outstanding common stock of ECNW in a merger
transaction (the "Washington Merger") on September 29, 1995. The merger
consideration paid by CAI in the Washington Merger was $28.2 million, of which
approximately $18.7 million was paid by issuance of CAI Common Stock and the
balance in cash and prior deposits. In addition, CAI paid an aggregate amount
of $500,000 in cash pursuant to non-competition agreements between CAI and each
of ECN and its principals. The Washington System has approximately 1.2 million
LOS households and currently serves approximately 3,300 gross subscribers.
BALTIMORE ASSETS. CAI, ECN, and Eastern Cable Networks of Michigan II,
Inc., a Delaware corporation ("ECNMII"), entered into an Asset Purchase
Agreement dated as of March 28, 1995 (the "Baltimore Purchase Agreement")
pursuant to which ECNMII sold to CAI the wireless cable television assets in
the Baltimore, Maryland market (the "Baltimore Assets") on September 29, 1995
for $16.4 million, subject to adjustments as contemplated by the Baltimore
Purchase Agreement. The Baltimore Assets include (i) leases and licenses for
wireless cable frequency rights for wireless cable channels transmitting within
the greater Baltimore, Maryland metropolitan area, including but not limited to
Kenton/ Townsend, Delaware, (ii) leases for tower sites, and (iii) certain
related equipment. The Baltimore Assets represent approximately 741,000 LOS
households in the Baltimore, Maryland market.
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ITEM 1. BUSINESS (CONTINUED)
THE ACS MERGER AND OTHER ACQUISITIONS (CONTINUED)
PITTSBURGH ASSETS. CAI purchased certain assets relating to wireless
cable assets in the Pittsburgh, Pennsylvania market. The assets consisted of
rights to 18 licensed channels; leases for 8 additional channels, as yet
applied for at the FCC; 4 tower leases and certain items of related equipment
(the "Pittsburgh Assets"). The assets were owned by a joint venture of
Wireless Cable TV Associates #37, a California general partnership ("WCTV"),
and American Wireless Systems, Inc., a Delaware corporation ("AWS"). CAI
entered into purchase agreements, dated as of March 28, 1995, with both WCTV
and AWS, purchasing their respective joint venture interests for $1.3 million
and $11.0 million on September 29, 1995.
HAMPTON ROADS WIRELESS. On July 13, 1995, the Company acquired the 49
percent minority interest in Hampton Roads Wireless, Inc. ("HRW"), which
acquisition resulted in the Company owning 100 percent of HRW. The
consideration paid to the minority shareholders of HRW was 652,523 shares of
CAI Common Stock, valued at $8.0 million. CAI acquired its initial 51 percent
interest in HRW in February 1994.
THE BANX TRANSACTIONS
CAI entered into the Securities Purchase Agreement dated as of March 28,
1995 (the "Purchase Agreement"), with BANX Partnership ("BANX"), a Delaware
general partnership formed to enter into the Purchase Agreement, and a Business
Relationship Agreement dated as of March 28, 1995 (the "BR Agreement") with
MMDS Holdings, Inc. and NYNEX MMDS Company, each a Delaware corporation. The
general partners of BANX are subsidiaries of Bell Atlantic and NYNEX. In this
Form 10-K, Bell Atlantic and MMDS Holdings, Inc. are sometimes referred to as
"Bell Atlantic"; NYNEX and NYNEX MMDS Company are sometimes referred to as
"NYNEX"; and Bell Atlantic and NYNEX are sometimes referred to as the "BANX
Affiliates."
CAI has entered into a number of arrangements with the BANX Affiliates,
the consummation of which were conditions to the consummation of an offering
(the "Senior Notes Offering") of $275.0 million aggregate principal amount of
12 1/4 % Senior Notes due 2002 (the "Senior Notes") of CAI. See "Senior Notes
Offering." The arrangements are reflected in the Purchase Agreement, the Term
Notes, the Senior Preferred Stock, the Stage I and Stage II Warrants, the
Voting Preferred Stock and the BR Agreement (collectively, the "BANX
Documents"). These arrangements are further discussed below:
Purchase Agreement. In accordance with the terms of the Purchase
Agreement, on May 9, 1995 (the "Stage I Closing"), BANX paid CAI $30.0 million
in cash to purchase term notes due May 9, 2005 (the "Term Notes"), in the
aggregate principal amount of $30.0 million and the Stage I Warrants. Interest
on the Term Notes is payable semi-annually commencing after the fifth
anniversary of issue and at maturity at an initial annual rate of 12.5%. The
Term Notes initially were collateralized by a security interest in and pledge
of substantially all of the assets of CAI and its subsidiaries. Upon the
occurrence of the Senior Notes Offering on September 29, 1995, the Term Notes
became unsecured obligations of CAI, subordinated to the Senior Notes and
certain other senior indebtedness of CAI, containing covenants similar to the
covenants contained in the indenture governing the Senior Notes. From and
after the September 29, 1995 closing of the Senior Notes Offering (the "Senior
Notes Closing"), the Term Notes accrue interest at 14% (subject to a 2% penalty
rate until certain channel license matters are resolved) per annum through 2000
(with cash interest payable thereafter), and are convertible into shares of 14%
Senior Preferred Stock, par value $10,000 per share (the "Senior Preferred
Stock") of CAI.
On September 29, 1995 (the "Stage II Closing"), concurrently with the
Senior Notes Closing, BANX purchased from CAI for $70.0 million (a) 7,000
shares of Senior Preferred Stock, which shares are convertible at the option of
the holder at any time on or after the date of issuance of such shares and
prior to the fifth anniversary of the original issue date into shares of
Convertible Voting Preferred Stock, without par value (the "Voting Preferred
Stock"), of CAI and (b) the Stage II Warrants.
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ITEM 1. BUSINESS (CONTINUED)
THE BANX TRANSACTIONS (CONTINUED)
The Stage I Warrants entitle the holder to purchase from CAI from time to
time the number of shares of Voting Preferred Stock equal to $30 million
divided by the Tier 1 Exercise Price as defined in, and as adjusted from time
to time in accordance with, the Stage I Warrants; provided, however, that the
number of shares of Voting Preferred Stock issuable upon exercise of the State
I Warrant shall not exceed 43,353, subject to adjustment. The Stage I
Warrants, to the extent not exercised, expire and become null and void on the
fifth anniversary of the Stage II Closing.
The Stage II Warrants entitle the holder to purchase from CAI from time
to time the number of shares of Voting Preferred Stock at varying exercise
prices, as such may be adjusted from time to time in accordance with the
provisions of the Stage II Warrants. The Stage II Warrants, to the extent not
exercised, expire and become null and void on the sixth anniversary of the
Stage II Closing.
If the BANX Affiliates fully exercise all of their purchase and
conversion rights under the Warrants, and the Senior Preferred Stock (including
the stock issuable upon full conversion of the Term Notes into Senior Preferred
Stock), then the BANX Affiliates would hold approximately 45% of the fully
diluted outstanding CAI Common Stock. CAI currently anticipates that if all
securities held by the BANX Affiliates were currently converted into shares of
CAI Common Stock then the BANX Affiliates would acquire approximately 27% of
the fully diluted CAI Common Stock at a price of $6.01 per share of CAI Common
Stock, approximately 9% of the fully diluted CAI Common Stock at a price of
$8.27 per share of CAI Common Stock, approximately 4.5% of the fully diluted
CAI Common Stock at a price of $12.78 per share of CAI Common Stock and
approximately 4.5% of the fully diluted CAI Common Stock at a price of $17.29
per share of CAI Common Stock. The aggregate purchase price for such shares by
the BANX Affiliates, including the consideration originally paid for the Term
Notes, the Senior Preferred Stock and the Stage I and Stage II Warrants, would
be approximately $302.0 million.
BR AGREEMENT. The BR Agreement is structured as an election by Bell Atlantic
and NYNEX to utilize CAI's transmission systems in specified service areas in
their respective operating territories in which CAI currently has an operating
wireless system or wireless spectrum rights including system or rights held by
CAI after the ACS Merger and the Other Acquisitions located in the Bell
Atlantic and NYNEX territories. The BR Agreement identifies several phases in
the relationship between the parties: (i) a study phase during which a
technology and operating plan is developed; (ii) after Bell Atlantic or NYNEX,
as the case may be, gives notice of its election to implement the BR Agreement
in a particular market, a preparatory phase for such market; and (iii) an
implementation phase for each market in which a BANX Affiliate has elected to
implement the BR Agreement, during which CAI commences transmission services.
CAI will receive contractual monthly revenues for use, by the BANX
Affiliates, of its transmission system services. Revenues are based on the
number of serviceable homes and subscribers in each service area, subject to
certain minimums, which range from $28.0 million to $34.0 million during the
initial five-year term, assuming implementation of the BR Agreement. If the
election has been made with respect to less than all of the service areas in
both the Bell Atlantic or NYNEX territories, the minimum service revenues are
adjusted on the basis of the ratio of the number of serviceable homes in the
service areas where the election has been made as compared with the total
number of serviceable homes in all of the service areas identified in the
agreement.
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ITEM 1. BUSINESS (CONTINUED)
THE BANX TRANSACTIONS (CONTINUED)
CAI's initial Bell Atlantic and NYNEX service areas are as follows:
BELL ATLANTIC SERVICE AREAS NYNEX SERVICE AREAS
Baltimore, Maryland Albany, New York
Norfolk/Virginia Beach, Virginia Boston, Massachusetts
Northern New Jersey Buffalo, New York
Philadelphia, Pennsylvania Long Island, New York
Pittsburgh, Pennsylvania New York City, New York
Washington, D.C. Providence, Rhode Island
Syracuse, New York
During the term of the BR Agreement, with respect to any service area
where the election to implement the BR Agreement has been made, Bell Atlantic
or NYNEX, as the case may be, will be the provider of video services to
subscribers using CAI's transmission system. CAI will become a wholesale
provider of the transmission service and cease to maintain a direct subscriber
relationship in such markets. Bell Atlantic or NYNEX, as appropriate, will
assume all costs associated with subscriber installation and service in that
market. The BANX Affiliates have the right to transfer subscribers to an
alternative delivery system during the term, and CAI would receive no payment
for any former CAI subscriber so transferred. In addition, upon termination of
the BR Agreement, the BANX Affiliates will have the right to transfer
subscribers to CAI and to require CAI to purchase subscriber equipment and
receivables. The BANX Affiliates have agreed to provide CAI with financing for
such purchases on commercially reasonable market-based terms. The BR Agreement
requires CAI to maintain and upgrade the transmission system during the term,
and provides for joint cooperation in several areas.
It is not anticipated that an election will be made by Bell Atlantic or
NYNEX before the technology is in place that permits digitizing channels using
not less than a four-to-one compression ratio of six MHz analog channels at
each CAI antenna site. CAI is obligated to provide, at times specified in the
BR Agreement, a spectrum of not less than 150 MHz in each service area capable
of supporting 64/256 QAM-modulated compressed digital signals.
The BR Agreement has an initial five-year term for each market beginning
on the date transmission services commence pursuant to an election in such
market and is renewable by the BANX Affiliates on a market-by-market basis for
successive five-year terms on one year's prior notice if (i) service revenues
paid to CAI have exceeded certain specified minimum service revenues in the
applicable market and (ii) the BANX Affiliates have converted Senior Preferred
Stock to Voting Preferred Stock or exercised Warrants for Voting Preferred
Stock in an aggregate amount of at least 25% of the aggregate number of shares
of Voting Preferred Stock issuable upon such conversion or exercise. Bell
Atlantic or NYNEX, as the case may be, may extend the initial five-year term
for any of their respective markets by a period of 1 or 2 additional years by
written notice given to the Company not later than the end of the fourth year
of the initial term. A price adjuster based on the GDP Implicit Price Deflator
applies to increase the minimum service revenue schedule in a renewal period.
CAI believes that there are significant advantages to its strategic
relationship with the BANX Affiliates since each of the parties is committed
to building a leading video services business. Both Bell Atlantic and NYNEX
have substantial financial, engineering and marketing resources not otherwise
available to CAI. The BANX Affiliates have indicated that their investment in
CAI was based, in large part, on CAI's cost-efficient systems, which have the
potential to rapidly deploy a delivery system for quality digital video signals
in their respective markets. CAI views the BANX Affiliates' investment as an
endorsement of CAI's business strategy and wireless cable technology, and CAI
believes that this investment significantly improves CAI's access to additional
capital, state-of-the-art technologies and other operating synergies.
SENIOR NOTES OFFERING. On September 29, 1995, the Company also closed an
offering of $275.0 million aggregate principal amount of its Senior Notes.
Interest on the Senior Notes is payable semi-annually on March 15 and September
15 of each year, and commenced on March 15, 1996. The Senior Notes mature on
September 15,
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ITEM 1. BUSINESS (CONTINUED)
THE BANX TRANSACTIONS (CONTINUED)
2002. The net proceeds of the Senior Notes Offering, after deducting
underwriting costs and interest, were $265.9 million, and were used to fund an
escrow account containing funds that together, with the proceeds from the
investment thereof will be sufficient to pay three years' interest on the
Senior Notes, to consummate the ACS Merger and other acquisitions, to repay
interim financing obtained by the Company and to pay for budgeted and other
capital expenditures, working capital and general corporate expenses.
FCC AUCTIONS. CAI participated in the Federal Communications
Commission's ("FCC") auctions (the "FCC Auction") for awarding available
commercial wireless spectrum in 493 markets (the "Auction Markets") throughout
the United States, identified as Basic Trading Areas( in accordance with
material copyrighted by Rand McNally & Company. The winner of an Auction
Market has the right to develop the vacant MMDS frequencies throughout the
Auction Market, consistent with certain specified interference criteria that
protect existing ITFS and MMDS channels. Existing ITFS and MMDS channel right
holders also must protect the Auction Market winner's spectrum from power
increases or tower relocations. CAI was the successful bidder for 32 Auction
Markets costing CAI a total of $48.8 million. Pursuant to an agreement with CS
Wireless, CAI will transfer 7 Auction Markets located in CS Wireless' operating
regions and for which CAI was the successful bidder, costing an aggregate of
$12.6 million, to CS Wireless at cost.
THE CAI-HEARTLAND TRANSACTIONS
Pursuant to the terms of a Participation Agreement dated December 12,
1995 between CAI, CS Wireless and Heartland, CAI and Heartland agreed to
contribute to CS Wireless certain wireless cable assets, including related
operating liabilities, or the stock of subsidiaries owning wireless cable
assets for systems located principally in the Midwestern and Southwestern
regions of the country. The combination of these assets into CS Wireless
resulted in a company with approximately 5.7 million LOS households and 56,500
subscribers, as of March 31, 1996, making it one of the largest wireless cable
companies in the United States in terms of subscribers and LOS households.
The transaction closed on February 23, 1996 (the "CS Closing"). CAI owns
approximately 54% of CS Wireless, Heartland approximately 35%, and affiliates
of Bell Atlantic and NYNEX own approximately 10%. The remaining 1% equity
interest was sold to purchasers of an aggregate of 100,000 units ("the "Unit
Offering"), each unit consisting of four $1,000 principal amount at maturity of
11 3/8% Senior Discount Notes due 2006 and 1.1 shares of common stock of CS
Wireless in a private placement closing contemporaneously with the CS Closing.
The notes will accrete in value for five years and cash interest will be paid
beginning 2001. The gross proceeds to CS Wireless were approximately $230.0
million. The net proceeds of the Unit Offering were used in part to make the
cash payment to Heartland at the CS Closing, as required under the
Participation Agreement, and the remaining net proceeds will be used by CS
Wireless for capital expenditures to build-out its systems and to add
subscribers, for certain formation costs, working capital, and general
corporate purposes.
Prior to the contributions contemplated by the Participation Agreement,
CS Wireless, a wholly-owned subsidiary of the Company, operated a wireless
cable system in Cleveland, Ohio. Under the Participation Agreement, CS
Wireless acquired, or had contributed to it, stock of subsidiaries of CAI
owning wireless cable systems or channel rights, and operating wireless cable
systems or wireless channel rights held by CAI in Bakersfield, CA, Charlotte,
NC, and Stockton/Modesto, CA and held by Heartland in Dallas, Fort Worth, and
San Antonio, TX, Dayton, OH, Maysville and Sweet Springs, MO, Minneapolis, MN,
Grand Rapids, MI, and Salt Lake City, UT. The CAI assets contributed in the
transactions consisted of the above-mentioned four properties located outside
the operating territories of Bell Atlantic and NYNEX. The Heartland
contribution was valued at approximately $138,663,000, the estimated fair
value. Heartland received 3,578,834 shares of CS Wireless common stock,
approximately $28.3 million of cash, and $40.0 million of notes from CS
Wireless.
FUTURE ACQUISITIONS
It is likely that CAI will consider acquisitions of wireless cable
companies or licenses from time to time, subject to the covenants and
restrictions imposed by the BANX Affiliates and Senior Notes. These
acquisitions, if
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ITEM 1. BUSINESS (CONTINUED)
FUTURE ACQUISITIONS (CONTINUED)
any, would be financed by the sale or exchange of securities of CAI, borrowings
from existing lenders or others, or a combination thereof. It is CAI's policy
not to discuss or comment upon negotiations regarding such acquisitions until a
definitive agreement is signed, unless the law otherwise requires. There can
be no assurance that CAI will be successful in identifying, negotiating and
completing such transactions.
INDUSTRY OVERVIEW
SUBSCRIPTION TELEVISION INDUSTRY
The subscription television industry began in the late 1940s to serve the
needs of residents in predominantly rural areas with limited access to local
broadcast television stations. The industry expanded to metropolitan areas due
to, among other things, the fact that it offered better reception and more
programming. Currently, such systems offer various types of programming, which
generally include basic service, enhanced basic, premium service and, in some
instances, pay-per-view service.
A subscription television customer generally pays an initial connection
charge and a fixed monthly fee for basic service. The amount of the monthly
basic service fee varies from one area to another and is a function, in part,
of the number of channels and services included in the basic service package
and the cost of such services to the television system operator. In most
instances, a separate monthly fee for each premium service and certain other
specific programming is charged to customers, with discounts generally
available to customers receiving multiple premium services. Monthly service
fees for basic, enhanced basic and premium services constitute the major source
of revenue for subscription television systems. Converter rentals, remote
control rentals, installation charges and reconnect charges for customers who
were previously disconnected are also included in a subscription television
system's revenues, but generally are not a major component of such revenues.
Traditional cable systems, as defined in Section 602 of the Communications Act
of 1934 (the "Communications Act"), are subject to both federal and local
regulation. In addition, the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") imposed strict federal and local
rules governing aspects of cable prices for programming and equipment. See
"Industry Overview 3/4 Regulation."
WIRELESS CABLE INDUSTRY BACKGROUND
In 1983, the FCC reallocated a portion of the electromagnetic radio
spectrum located between 2.5 and 2.7 GHz, permitted this spectrum to be used
for commercial purposes, and modified its rules on the usage of the remaining
portion of such spectrum. Regulatory and other obstacles nevertheless impeded
the growth of the wireless cable industry through the remainder of the 1980s.
In addition, before the 1992 Cable Act became effective, wireless cable
operators' ability to obtain programming from cable-controlled, hard-wire cable
owned programmers was not assured. The factors contributing to the increasing
growth of wireless cable systems since that time include (i) regulatory reforms
by the FCC to facilitate competition with hard-wire cable, (ii) federal
legislation that increased the availability of programming for wireless cable
systems, (iii) consumer demand for alternatives to traditional hard-wire cable
service, (iv) enhanced ability of wireless cable operators to aggregate a
sufficient number of channels in each market to create a competitive product,
and (v) increased availability of capital to wireless cable operators in the
public and private markets. According to Paul Kagan Associates, Inc.
("Kagan"), there were approximately 200 wireless cable systems currently
operating in the United States, serving approximately 850,000 subscribers at
the end of 1995.
Wireless cable systems can provide subscribers with the same or superior
video television signal as that of traditional hard-wire systems. Both hard-
wire cable systems and wireless cable systems receive programming at a headend.
Wireless cable programming, however, is then retransmitted by microwave
transmitters from an antenna
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
WIRELESS CABLE INDUSTRY BACKGROUND (CONTINUED)
located on a tower associated with the headend to a small receiving antenna
located on a subscriber's rooftop. At the customer's location, the signals are
converted to frequencies that can pass through conventional coaxial cable into
a descrambling converter located on top of a television set. Wireless cable
requires a clear LOS, because the microwave frequencies used will not pass
through dense foliage, hills, buildings or other obstructions. To ensure the
clearest line-of-sight possible in CAI's markets, CAI has placed, and plans to
place, such towers on top of tall buildings or accessible mountain tops located
in such markets. There exists, in each of CAI's operating and targeted
markets, a number of acceptable locations for the placement of its towers, and
CAI does not believe that the failure to secure any one location for such
placement in any single market will materially affect CAI's operations in such
market. Additionally, some LOS obstructions can be overcome with the use of
signal repeaters and beam benders which retransmit an otherwise blocked signal
over a limited area. CAI believes that its coverage will be further enhanced
upon the implementation of digital technology and/or cellularization. Since
wireless cable systems do not require an extensive cable plant, wireless cable
operators can provide customers with a high quality picture resulting in a
reliable signal with few transmission disruptions at a significantly lower
system capital cost per installed customer than traditional hard-wire cable
systems.
REGULATION
GENERAL. The wireless cable industry is subject to regulation by the FCC
pursuant to the Communications Act of 1934, as amended (the "Communications
Act"). The Communications Act empowers the FCC, among other things, to issue,
revoke, modify and renew licenses within the spectrum available to wireless
cable; to approve the assignment and/or transfer of control of such licenses;
to approve the location of wireless cable system headends; to regulate the
kind, configuration and operation of equipment used by wireless cable systems;
and to impose certain equal employment opportunity and other obligations and
reporting requirements on wireless cable channel license holders and operators.
The FCC has determined that wireless cable systems are not "cable
systems" for purposes of the Communications Act. Accordingly, a wireless cable
system does not require a local franchise and is subject to fewer local
regulations than a hard-wire cable system. Moreover, all transmission and
reception equipment for a wireless cable system can be located on private
property; hence, there is no need to make use of utility poles or dedicated
easements or other public rights of way. Although wireless cable operators
typically have to lease the right to use wireless cable channels from the
holders of channel licenses, unlike hard-wire cable operators they do not have
to pay local franchise fees. Recently, legislation has been introduced in some
states, including Illinois, Maryland, Pennsylvania and Virginia, to authorize
state and local authorities to impose on all video program distributors
(including wireless cable operators) a tax on the distributors' gross receipts
comparable to the franchise fees cable operators pay. Similar legislation might
be introduced in several other states. While the proposals vary among states,
the bills all would require, if passed, as much as 5.0% of gross receipts to be
paid by wireless distributors to local authorities. Efforts are underway by the
industry trade association to preempt such state taxes through federal
legislation. In addition, the industry is opposing the state bills as they are
introduced, and, in Virginia, it has succeeded in being exempted from the video
tax that was eventually enacted into law. However, it is not possible to
predict whether new state laws will be enacted which impose new taxes on
wireless cable operators.
In 50 large markets, 33 analog channels are available for wireless cable
(in addition to any local broadcast television channels that are not
retransmitted over the microwave channels). The FCC licenses and regulates the
use of channels by license holders and system operators. In each geographic
service area of all other markets, 32 analog channels are available for
wireless cable (in addition to any local broadcast television channels that are
not retransmitted over the microwave channels). Except in limited
circumstances, 20 wireless cable channels in each of these geographic service
areas are generally licensed to qualified non-profit educational organizations
(commonly referred to as ITFS channels). In general, each of these channels
must be used a minimum of 20 hours per week for instructional programming. The
remaining "excess air time" on an ITFS channel may be leased to wireless cable
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
REGULATION (CONTINUED)
operators for commercial use, without further restrictions (other than the
right of the ITFS license holder, at its option, to recapture up to an
additional 20 hours of air time per week for educational programming, or such
other restrictions, including the recapture of additional hours of air time, as
may be included in any lease). Lessees of ITFS' "excess air time," including
the Company, generally have the right to transmit to their customers the
educational programming provided by the lessor at no incremental cost. The FCC
recently amended its rules to permit ITFS license holders to consolidate their
educational programming on one or more of their ITFS channels, thereby
providing wireless cable operators leasing such channels, including the
Company, with greater flexibility in their use of ITFS channels. The remaining
13 analog channels available in most of the Company's operating and targeted
markets are made available by the FCC for full-time usage without programming
restrictions.
LICENSING PROCEDURES. The actual number of wireless cable channels
available for licensing in any market is determined by the FCC's interference
protection and channel allocation rules. The FCC awards ITFS and MMDS licenses
based upon applications demonstrating that the applicant is legally,
financially and technically qualified to hold the license and that the
operation of the proposed station will not cause interference to other stations
or proposed stations entitled to interference protection.
The FCC recently conducted the FCC Auction of available commercial
wireless cable spectrum in 493 Auction Markets around the country. The winner
of an Auction Market has the right to develop the vacant MMDS frequencies
throughout the Auction Market, consistent with certain specified interference
criteria that protect existing ITFS and MMDS channels. Existing ITFS and MMDS
channel rights holders also must protect the Auction Market winner's spectrum
from interference caused by power increases or tower relocations. CAI was the
successful bidder in the FCC Auction with respect to 32 Auction Markets for
$48.8 million, including 7 Auction Markets located in CS Wireless' operating
regions at a cost of $12.6 million that will be transferred to CS Wireless at
cost. The Company's obligation of $36.2 million ($48.8 million less the $12.6
million for which CS Wireless is obligated) is payable to the FCC 5 days after
issuance of a Public Notice by the FCC stating that the Auction Market
authorization is ready to be issued.
In order to be eligible for the FCC Auction, CAI, prior to the start of
the auctions, was required to file applications and make up-front payments in
accordance with the rules of the FCC Auction. CAI, as the winning bidder, is in
the process of fulfilling certain post-auction filing obligations, including,
but not limited to, applications that propose new transmission facilities,
exhibits concerning its involvement in bidding consortia, and its plans to
build-out two-thirds of the market over a five-year period. Due to the unique
nature of the FCC Auction, there is no prior regulatory history regarding the
scope and nature of the information the FCC will require, or how the FCC will
treat the information.
Under rules and policies for applications for new MMDS facilities filed
before the FCC Auction, the FCC would generally issue a conditional license
that permits the conditional licensee to commence construction of its
facilities upon the satisfaction of specified conditions. Construction of MMDS
stations generally must be completed within one year of grant of the
conditional license.
In February 1995, the FCC amended its rules and established "windows" for
the filing of new ITFS applications or major modifications to authorized ITFS
facilities. The first filing "window" was October 16-20, 1995. Where two or
more ITFS applicants file applications for the same channels and the proposed
facilities could not be operated without impermissible interference, the FCC
employs a set of comparative criteria to select from among the competing
applicants. Construction of ITFS stations generally must be completed within 18
months of the date of grant of the authorization.
If construction of MMDS or ITFS stations is not completed within the
authorized construction period, the licensee must file an application with the
FCC seeking additional time to construct the station and demonstrate therein
compliance with certain FCC standards. If the extension application is not
filed or is not granted, the license
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
REGULATION (CONTINUED)
will be deemed forfeited. ITFS and MMDS licenses generally have terms of 10
years. Licenses must be renewed thereafter, and may be revoked for cause in a
manner similar to other FCC licenses. FCC rules prohibit the sale for profit of
a conditional MMDS license or a controlling interest in the conditional
licensee prior to construction of the station or, in certain circumstances,
prior to the completion of one year of operation. However, the FCC does permit
the leasing of 100% of an MMDS licensee's spectrum to a wireless cable operator
and the granting of options to purchase a controlling interest in a license
even before such holding period has lapsed.
Wireless cable transmissions are subject to FCC regulations governing
interference and reception quality. These regulations specify important signal
characteristics such as modulation (i.e., AM/FM) or encoding formats (analog or
digital). Current FCC regulations require wireless cable systems to transmit
only analog signals and those regulations will have to be modified, either by
rulemaking or by individual application, to permit the use of digital
transmissions. CAI is a party to a pending petition for declaratory ruling
filed in July 1995 seeking adoption of interim regulations authorizing digital
transmission. When granted, the declaratory ruling will permit the Company to
commence installation and operations in a digital mode under existing FCC
technical interference criteria. It is likely that, in the longer term, the
FCC will consider adopting both new technical and service rules tailored to
digital operations. The service rules could modify the respective rights and
obligations of the ITFS lessors and their commercial lessees of "excess air
time" in light of the increased capacity that would result from digital
compression. Even if the FCC does adopt new service rules governing the
allocation of "excess air time" in a digital environment, it is anticipated
that there would be a dramatic increase in the number of channels that will be
available to the Company following the conversion to digital transmission. The
Company intends to demonstrate transmission of digital satellite television
programming and digital local broadcast television signals in its Rochester, NY
market in June 1996. The Company believes that the necessary FCC approvals
will be obtained to permit use of digital compression by the time it becomes
commercially available; however, there can be no assurance that these approvals
will be forthcoming or timely. In addition, such modifications filed with the
FCC after the FCC Auction will be subject to the interference protection rights
of adjacent FCC Auction winners.
The FCC also regulates transmitter locations and signal strength. The
operation of a wireless cable television system requires the co-location of a
commercially viable number of transmitting antennas and operations with
transmission characteristics (such as power and polarity). In order to commence
the operations of certain of the Company's markets, applications have been or
will be filed with the FCC to relocate and modify existing transmission
facilities.
Under current FCC regulations, a wireless cable operator generally may
serve subscribers anywhere within the LOS of its transmission facility,
provided that it complies with interference standards. Under new rules adopted
by the FCC on June 15, 1995, an MMDS channel license holder generally has a
protected service area of 35 miles around its transmitter site. The new rules
became effective on September 15, 1995. An ITFS channel license holder has
protection as to all of its receive sites, but the same protected service area
during excess capacity use by a wireless cable operator as an MMDS license
holder. In launching or upgrading a system, the Company may wish to relocate
its transmission facility or increase its height or power. If such changes
cause the Company's signal to violate interference standards with respect to
the protected area of other wireless license holders, the Company would be
required to obtain the consent of such other license holders; however, there
can be no assurance that such consents would be received.
INTERFERENCE ISSUES. Interference from other wireless cable systems can
limit the ability of a wireless cable system to serve any particular point. In
licensing ITFS and MMDS systems, a primary concern of the FCC is avoiding
situations where proposed stations are predicted to cause interference with the
reception of previously proposed stations. Pursuant to FCC rules, a wireless
cable system is generally protected from interference within a radius of 35
miles of the transmission site. In addition, modification applications
submitted after the FCC Auction will be required to protect FCC Auction winners
from interference. The FCC's interference protection standards may
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
REGULATION (CONTINUED)
make one or more of these proposed modifications or new grants unavailable. In
such event, it may be necessary to negotiate interference agreements with the
licensees of the systems which would otherwise block such modifications or
grants. There can be no assurance that the Company will be able to negotiate
all necessary interference agreements that are on terms acceptable to the
Company. In the event the Company cannot obtain interference agreements
required to implement the Company's plans for a market, the Company may have to
curtail or modify operations in that market, utilize a less optimal tower
location, or reduce the height or power of the transmission facility, any of
which could have a material adverse effect on the growth of the Company in that
market. In addition, while the Company's leases with ITFS and MMDS licensees
require their cooperation, it is possible that one or more of the Company's
channel lessors may hinder or delay the Company's efforts to use the channels
in accordance with the Company's plans for the particular market.
THE 1992 CABLE ACT. On October 5, 1992, Congress enacted the 1992 Cable
Act, which compels the FCC to, among other things, (i) adopt comprehensive
federal standards for the local regulation of certain rates charged by hard-
wire cable operators, (ii) impose customer service standards on hard-wire cable
operators, (iii) govern carriage of certain broadcast signals by all multi-
channel video providers, and (iv) compel non-discriminatory access to
programming owned or controlled by vertically-integrated cable operators.
The rate regulations adopted by the FCC do not regulate cable rates once
other multi-channel video providers serve, in the aggregate, at least 15% of
the households within the cable franchise area. The customer service rules
adopted by the FCC establish certain minimum standards to be maintained by
traditional hard-wire cable operators. These standards include prompt responses
to customer telephone inquiries, reliable and timely installations and repairs,
and readily understandable billing practices. These rules do not apply to
wireless cable operators, although the Company believes that it provides and
will continue to provide customer service superior to its hard-wire cable
competitors.
Under the retransmission consent provisions of the 1992 Cable Act and the
FCC's implementing regulations, all multi-channel video providers (including
both hard-wire and wireless cable) seeking to retransmit certain commercial
broadcast signals must first obtain the permission of the broadcast station.
Hard-wire cable systems, but not wireless cable systems, are required under the
1992 Cable Act and the FCC's "must carry" rules to retransmit a specified
number of local commercial television or qualified low power television
signals. See "Retransmission Consent."
The 1992 Cable Act and the FCC's implementing regulations impose limits
on exclusive programming contracts and prohibit programmers in which a cable
operator has an attributable interest from discriminating against cable
competitors with respect to the price, terms and conditions of programming.
Certain provisions of the 1992 Cable Act and the FCC's implementing regulations
have been challenged in the courts and before the FCC. Under the
Telecommunications Act of 1996 (the "1996 Act"), Congress has directed the FCC
to eliminate cable rate regulations for "small systems," as defined in the 1996
Act, and for large systems under certain prescribed circumstances, and for all
cable systems effective three years after enactment of the 1996 Act.
While current FCC regulations are intended to promote the development of
a competitive subscription television industry, the rules and regulations
affecting the wireless cable industry may change, and any future changes in FCC
rules, regulations, policies and procedures could have a material adverse
effect on the Company. In addition, a number of legal challenges to the 1992
Cable Act and the regulations promulgated thereunder have been filed, both in
the courts and before the FCC. These challenges, if successful, could result in
increases in the Company's operating costs and otherwise have a material
adverse effect on the Company. The Company's costs to acquire satellite-
delivered programming may be affected by the outcome of those challenges. Other
aspects of the 1992 Cable Act that have been challenged, the outcome of which
could adversely affect the Company, include the 1992 Cable Act's provisions
governing rate regulation to be met by traditional hard-wire cable companies.
The 1992
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
REGULATION (CONTINUED)
Cable Act empowered the FCC to regulate the basic subscription rates charged by
traditional hard-wire cable operators. The FCC recently issued rules requiring
such cable operators, under certain circumstances, to reduce the rates charged
for non-premium services by as much as 17%. Should these regulations withstand
court and regulatory challenges, the extent to which wireless cable operators
may continue to maintain a price advantage over traditional hard-wire cable
operators could be diminished. On the other hand, continued strict rate
regulation of cable rates would tend to impede the ability of hard-wire cable
operators to upgrade their cable plant and gain a competitive advantage over
wireless cable.
Due to the regulated nature of the subscription television industry, the
Company's growth and operations may be adversely impacted by the adoption of
new, or changes to existing, laws or regulations or the interpretations
thereof.
COPYRIGHT. Under the federal copyright laws, permission from the
copyright holder generally must be secured before a video program may be
retransmitted. Under Section 111 of the Copyright Act, certain "cable systems"
are entitled to engage in the secondary transmission of programming without the
prior permission of the holders of copyrights in the programming. In order to
do so, a cable system must secure a compulsory copyright license. Such a
license may be obtained upon the filing of certain reports with and the payment
of certain fees to the U.S. Copyright Office. In 1994, Congress enacted the
Satellite Home Viewers Act of 1994 which enables operators of wireless cable
television systems to rely on the cable compulsory license under Section 111 of
the Copyright Act.
RETRANSMISSION CONSENT. Under the retransmission consent provisions of
the 1992 Cable Act, wireless and hard-wire cable operators seeking to
retransmit certain commercial television broadcast signals must first obtain
the permission of the broadcast station in order to cover their signal.
However, wireless cable systems, unlike hard-wire cable systems, are not
required under the FCC's "must carry" rules to retransmit a specified number of
local commercial television or qualified low power television signals. Although
there can be no assurances that the Company will be able to obtain requisite
broadcaster consents, the Company believes in most cases it will be able to do
so for little or no additional cost.
THE 1996 ACT
The 1996 Act will result in comprehensive changes to the regulatory
environment for the telecommunications industry as a whole. The 1996 Act will,
among other things, substantially reduce regulatory authority over cable rates.
The legislation affords hard-wire cable operators greater flexibility to offer
lower rates to certain of their customers and will thereby permit hard-wire
cable operators to target discounts to the Company's current or prospective
subscribers.
The legislation will permit telephone companies to enter the video
distribution business, subject to certain conditions. The entry of telephone
companies in the video distribution business, with greater access to capital
and other resources, could provide significant competition to the wireless
cable industry, including the Company.
In addition, the legislation will afford relief to wireless cable
operators and DBS by exempting them from local restrictions on reception
antennae and preempting the authority of local governments to impose certain
taxes.
The Company cannot reasonably predict the substance of rules and policies
to be adopted by the FCC in implementing the provisions of the legislation.
OTHER REGULATIONS
Wireless cable license holders are subject to regulation by the FAA with
respect to the construction, marking, and lighting of transmission towers and
to certain local zoning regulations affecting construction of towers and other
facilities. There may also be restrictions imposed by local authorities. There
can be no assurance that the Company will not be required to incur additional
costs in complying with such regulations or restrictions.
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
COMPETITION
Wireless cable television operators face competition from a number of
sources, including potential competition from emerging technologies in the
subscription television industry, some of which are described below. While CAI
believes that its value pricing strategy provides a competitive advantage,
aggressive price competition by other companies in the subscription television
industry could have a material adverse effect on CAI's results of operations
and financial condition.
HARD-WIRE CABLE. CAI's principal subscription television competitors in
each market are traditional hard-wire cable operators. Hard-wire cable
companies are generally well established and known to potential customers and
have significantly greater financial and other resources than CAI. The hard-
wire cable companies competing in CAI's markets generally offer between 34 to
82 channels to their subscribers, compared to between 22 to 42 channels
(consisting of between 17 and 33 wireless cable channels and between 5 and 10
local off-air VHF/UHF broadcast channels) generally offered by CAI in its
markets.
DIRECT-TO-HOME ("DTH"). DTH satellite television services originally were
available via satellite receivers which generally were 7-to-12 foot dishes
mounted in the yards of homes to receive television signals from orbiting
satellites. Until the implementation of encryption, these dishes enabled
reception of any and all signals without payment of fees. Having to purchase
decoders and pay for programming has reduced their popularity, although CAI
will to some degree compete with these systems in marketing its services.
DIRECT BROADCAST SATELLITE ("DBS"). DBS involves the transmission of an
encoded signal direct from a satellite to the customer's home. Because the
signal is at a higher power level and frequency than most satellite-transmitted
signals, its reception can be accomplished with a relatively small (18-inch)
dish mounted on a rooftop or in the yard. DBS cannot, for technical and legal
reasons, provide local VHF/UHF broadcast channels as part of its service,
although many DBS subscribers receive such channels via standard over-the air
receive antennas. Moreover, DBS may provide subscribers with access to
broadcast network distant signals only when such subscribers reside in areas
unserved by any broadcast station. The cost to a DBS subscriber for equipment
and service is generally substantially higher than the cost to wireless cable
subscribers. Three DBS services currently are available nationwide, and two
more are expected to commence service in 1996. AT&T Corp. has invested $137.5
million in DirecTv Inc., a leading provider of DBS service, and MCI
Communications Corp. has announced that it has entered into a DBS joint venture
arrangement with The News Corporation Limited, using a license that MCI won at
a FCC auction for which it is paying a reported $682.5 million. DBS currently
has approximately 2.3 million subscribers nationwide.
PRIVATE CABLE. Private cable is a multi-channel subscription television
service where the programming is received by satellite receiver and then
transmitted via coaxial cable throughout private property, often MDUs, without
crossing public rights of way. Private cable operates under an agreement with
a private landowner to service a specific MDU, commercial establishment or
hotel. The FCC amended its rules to provide point-to-point delivery of video
programming by private cable operators and other video delivery systems in the
18 GHz band. Private cable operators compete with CAI for exclusive rights of
entry into larger MDUs.
TELEPHONE COMPANIES. The Communications Act prohibits local exchange
carriers ("LECs"), including the RBOCs from providing video programming
directly to subscribers in their respective telephone service areas. This
restriction does not apply to wireless cable, however, certain federal courts
have held that this cross-ownership ban abridges the First Amendment rights of
LECs to free expression under the U.S. Constitution. Such rulings cover nearly
all the approximately 1,300 LECs in the United States. The United States
Supreme Court has decided to hear an appeal on this issue. A final
determination of unconstitutionality of the cross-ownership ban would eliminate
federal barriers to telephone company provision of video service. Both the
United States Senate and House of Representatives have passed legislation that
would, if enacted, lift barriers to the provision of video service by telephone
companies. The FCC already permits LECs to provide "video dialtone" service,
thereby allowing LECs to make available to multiple service providers, on a
nondiscriminatory common carrier basis, a basic platform
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
COMPETITION (CONTINUED)
that will permit end users to access video program services provided by others.
Several large telephone companies have announced plans to either (i) enhance
their existing distribution plant to offer video dialtone service, (ii)
construct new plants in conjunction with a local cable operator to offer video
dialtone service, or (iii) acquire or merge with existing hard-wire cable
systems outside their telephone service areas. Some LECs have indicated that
they intend to construct or acquire separate hard-wire cable systems within
their telephone service areas if authorized. While the competitive effect of
the entry of telephone companies into the video programming business is still
uncertain, the Company believes that wireless cable systems will continue to
maintain a cost advantage over video dialtone service and fiber optic
distribution technologies. In July 1995, Pacific Telesis Group ("PacTel"), an
LEC based in California, acquired Cross Country Wireless, Inc., a wireless
cable system operator in southern California, for approximately $175 million.
PacTel announced that its acquisition of Cross Country will allow PacTel to
enter the market for consumer video services on an expedited basis. In
November 1995, PacTel announced it would acquire Wireless Holdings, Inc. and
Videotron Bay Area Inc., which operate wireless cable systems in San Francisco,
California, Tampa, Florida and Spokane, Washington, and own channel rights in
San Diego, California and Greenville, South Carolina, for approximately $170
million. The competitive effect of the entry of telephone companies into the
subscription television business, including wireless cable, is still uncertain.
LOCAL OFF-AIR VHF/UHF BROADCASTS. Local off-air VHF/UHF broadcast
television stations (such as ABC, NBC, CBS and Fox) provide free programming to
the public. Previously, subscription television operators could retransmit
these broadcast signals without permission. However, effective October 6,
1993, pursuant to the 1992 Cable Act, local broadcasters may require that
subscription television operators obtain their consent before retransmitting
local television broadcasts. The Company has obtained such consents for its
operating systems. See "Risk Factors--Restrictions Imposed by Government and
Community Regulation." The Company will be required to obtain such consents in
certain of its markets to re-broadcast any such channels. The Company believes
that it will be able to obtain such consents, but no assurance can be given
that it will be able to obtain all such consents. The FCC also has recently
permitted broadcast networks to acquire, subject to certain restriction,
ownership interests in hard-wire cable systems. In some areas, several low
power television ("LPTV") stations authorized by the FCC are used to provide
multi-channel subscription television service to the public. LPTV transmits on
conventional VHF/UHF broadcast channels, but is restricted to very low power
levels, which limits the area where a high-quality signal can be received.
LOCAL MULTI-POINT DISTRIBUTION SERVICE ("LMDS"). In 1993, the FCC
initially proposed to redesignate the 28 GHz band to create a new video
programming delivery service referred to as LMDS. In July 1995, the FCC
proposed to award licenses in each of 493 Auction Markets pursuant to auctions.
Sufficient spectrum for up to 49 analog channels has been designated for the
LMDS service. The FCC has not determined how many licenses it will award in
each Auction Market. Final rules for LMDS have not been established.
THE COMPANY'S MARKETPLACE
BUSINESS AND OPERATING STRATEGIES
CAI's objective is to become a leading regional provider of subscription
television services by penetrating its markets and expanding into additional
markets within its current regions. CAI believes that its relationship with
Bell Atlantic and NYNEX will enhance its ability to achieve its objective.
CAI believes that with respect to subscription television services,
subscribers are generally indifferent to the delivery technology employed, but
are concerned with such features as programming, price, service and
reliability. CAI's operating strategy focuses on (i) competitive programming
offerings, (ii) responsive customer service, (iii) value pricing, (iv) signal
quality and reliability, (v) targeted marketing, (vi) commitment to technology,
(vii) geographic concentration and (viii) exploitation of digital technology.
This operating strategy is designed to attract and retain subscribers, enabling
CAI to compete effectively with other video providers.
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
BUSINESS AND OPERATING STRATEGIES (CONTINUED)
COMPETITIVE PROGRAMMING OFFERINGS. CAI provides its subscribers with a
variety of programming choices, including local broadcast television stations;
cable television networks such as CNN, ESPN, A&E, MTV, Nickelodeon, Discovery,
HBO, Showtime and Disney; pay-per-view programming services; and various
feature films and sporting events. CAI has assembled channel rights and
programming agreements that it believes will allow it to provide programming
packages competitive with those offered by other video providers.
Additionally, CAI has the capacity to offer pay-per-view programming to all of
its subscribers utilizing addressable converter technology. CAI believes that
the expected introduction of digital video services in late 1996 will increase
the variety of programming choices it may offer as well as increase the depth
and breadth of additional services to subscribers.
RESPONSIVE CUSTOMER SERVICE. CAI's objective is to provide its
subscribers with a high level of efficient and responsive customer service.
CAI believes that the quality of its customer service provides it with a
competitive advantage. CAI seeks to achieve a high level of customer service
through numerous initiatives, including maintaining extended hours of service,
providing extensive training of its customer service representatives,
implementing an automated response unit that provides after-hour assistance
(e.g., billing inquiries, account balance information) and developing other
computer-assisted customer service efficiency programs.
VALUE PRICING. CAI believes that its lower capital requirements and low
operating costs allow it to compete effectively with hard-wire cable operators
based on price. CAI's experience indicates that its subscribers prefer premium
service, but are reluctant to pay additional charges for premium services at
prevailing prices. CAI's pricing strategy is to offer subscribers basic
service plus a premium programming channel at the same general price level that
its competitors charge for their basic services. In this way, CAI competes on
value, while achieving an average revenue per subscriber comparable to that of
other video service providers.
SIGNAL QUALITY AND RELIABILITY. CAI strives to achieve the highest level
of quality and reliability afforded by available technology. CAI believes its
microwave transmission equipment delivers a signal to its subscribers that
meets or exceeds the signal quality generally available from hard-wire cable
service. CAI's wireless transmission system eliminates the need for cascading
signal amplifiers that degrade television signal quality. Since there are
fewer network components, CAI's wireless system achieves greater reliability
and fewer outages as compared to most hard-wire cable systems. This
reliability results in lower operating costs and fewer customer complaints from
loss of service.
TARGETED MARKETING. CAI targets its marketing efforts in specific
neighborhoods identified as being particularly attractive and well-suited for
its services. Once selected, the marketing campaign is effected by means of
cost-effective local advertising (including billboards and local print-media),
door-to-door campaigns, direct mail and customer-referral promotions. This
targeted approach allows CAI to control its rollout and its marketing costs.
In the future, CAI may include mass marketing strategies in conjunction with
its targeted marketing strategy.
COMMITMENT TO TECHNOLOGY. CAI is committed to deploying cost-effective
state-of-the-art technology as it is developed in order to provide its
customers with incremental video services, including interactive services. To
that end, CAI has installed addressable converters in 100% of its subscriber-
homes, allowing desirable and revenue enhancing pay-per-view services to be
delivered. Nationally, only 40% of all hard-wire cable subscribers are
addressable, according to the 1994 Cable TV Financial Databook published by
Kagan. CAI will continue to evaluate new technologies and services, including
anticipated developments in interactive services.
GEOGRAPHIC CONCENTRATION. CAI will continue to develop and acquire
markets in targeted regions. Through regional clustering, CAI expects to
achieve additional revenue opportunities, such as regional advertising and
operating efficiencies, including shared customer service, sales and
administrative functions.
<PAGE>
ITEM 1. BUSINESS (continued)
BUSINESS AND OPERATING STRATEGIES (CONTINUED)
DIGITAL TECHNOLOGY. CAI intends to implement wireless digital video
compression technology ("Digital") in Norfolk/Virginia Beach, Virginia, and
Boston, Massachusetts and in more of its operating and targeted markets as
circumstances permit. CAI estimates that Digital converter boxes could be
commercially available by late 1996. Digital is expected to permit between
four and 10 video channels to be transmitted over each analog wireless channel.
Digital will allow a wireless cable operator to offer between 132 and 330
channels of video programming utilizing 33 analog wireless channels. Further,
CAI believes Digital potentially may allow alternative uses of its wireless
spectrum. Some alternative uses of CAI's wireless spectrum would be subject to
certain regulatory approval. Finally, Digital may also allow CAI to utilize a
cellular-type architecture by deploying additional transmit sites in a given
market in order to increase the number of serviceable households.
CAI'S MARKETS
CAI operates six analog-based wireless cable systems in New York City,
Rochester and Albany, NY, Philadelphia, PA, Washington, DC, and
Norfolk/Virginia Beach, VA. In addition, CAI has a portfolio of wireless cable
channel rights in eight additional markets, including Long Island, Buffalo and
Syracuse, NY, Providence, RI, Hartford, CT, Boston, MA, Baltimore, MD, and
Pittsburgh, PA. The Company's principal competitors in each of its markets are
the hard-wire cable companies, and include Comcast Corp., Tele-Communications,
Inc., Cox Cable Communications, Time Warner Cable and Cablevision Systems Corp.
The table below outlines as of March 31, 1996, the characteristics in
which CAI is currently operating or where CAI expects to launch systems.
<TABLE>
<CAPTION>
Estimated
Total New Monthly
Service Estimated Number of Channels Approximate Revenue
DMA Area LOS Channels APPLIED System Number of Per Premium
MARKET RANK HOUSEHOLDS HOUSEHOLDS AVAILABLE FOR STATUS SUBSCRIBERS SUBSCRIBER PENETRATION
(1) (2) (2) (3) (4) (4)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mid-Atlantic Markets/
Bell Atlantic Region
Philadelphia 4 2,333,000 1,750,000 40 2 Operational 50,700 $38.83 147%
Washington, DC 7 1,547,000 1,160,000 29 4 Operational 3,300 11.84 33%
Pittsburgh 17 1,033,000 775,000 22 10 Planned --- --- ---
Baltimore 23 988,000 741,000 31 2 Planned --- --- ---
Norfolk/
Virgini Beach 40 574,000 431,000 27 6 Operational 3,000 29.87 124%
</TABLE>
<TABLE>
<CAPTION>
NORTHEAST MARKETS/NYNEX REGION
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
New York City 1 5,563,000 4,173,000 36 0 Operational 16,300 46.27 199%
Boston 6 1,710,000 1,283,000 30 3 Planned --- --- ---
Long Island(6) N/A 619,000 464,000 20 13 Planned --- --- ---
Buffalo 36 544,000 408,000 27 6 Planned --- --- ---
Providence 46 671,000 503,000 23 10 Planned --- --- ---
Albany 52 442,000 332,000 32 0 Operational 9,500 29.41 133%
Syracuse 67 371,000 278,000 17 8 Planned --- --- ---
OTHER MARKETS
Hartford 26 1,012,000 525,000 19 4 Planned --- --- ---
Rochester 71 388,000 323,000 27 6 Operational 2,300 27.27 87%
17,795,000 13,146,000 85,100
</TABLE>
<TABLE>
<CAPTION>
(1) DMA is the Designated Market Area as determined by A.C. Nielsen
Company as of December 1994.
(2) The Estimated Total Service Area Households for each market
represents CAI's estimate of the number of households within the
service area of the primary transmitter in each market based on 1990
Census Data. The Estimated LOS Households for each market represent
the approximate number of Estimated Total Service Area Households
within the service area that can receive an unobstructed signal, as
estimated by CAI, based on engineering analyses of each individual
market. Under the business relationship agreement, CAI has agreed to
deliver at least 75% LOS households in each market covered by the BR
Agreement. The service area for a
<S><S>
</TABLE>
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
CAI'S MARKETS (CONTINUED)
<TABLE>
<CAPTION>
market varies from 25 to 40 miles based on transmitter height,
transmitter power, and the proximity of adjacent wireless systems.
The number of Estimated Total Service Area Households and Estimated
LOS Households for Boston, Providence, Hartford, New York City, Long
Island, Washington, D.C. and Baltimore have been adjusted to eliminate
overlapping regions.
(3) The Number of Channels Available comprises wireless cable channels
and local broadcast channels that can be received by subscribers.
Wireless cable channels are either licensed to CAI or leased to CAI
from other license holders. The Number of Channels Available includes
10 off-air channels in Boston and 11 in New York. The Number of
Channels Available is as of March 31, 1996 and includes certain
channels that are subject to FCC approvals or third party interference
agreements. CAI has pending FCC applications concerning co-location of
transmission sites and/or an increase in broadcast power with respect
to 4 channels in Philadelphia, 5 channels in Hartford, 4 channels in
New York City, 16 channels in Washington, D.C., 4 channels in
Pittsburgh, 24 channels in Rochester, 16 channels in Syracuse, 23
channels in Providence, 3 channels in Buffalo and substantially all
channels in Boston and Long Island. The Number of Channels Available
includes ITFS channels that may not be available for commercial
programming by CAI.
(4) Beginning in November 1995 and ending on March 28, 1996, the FCC
held the FCC Auction. CAI was the successful bidder in 32 markets,
seven of which will be transferred to CS Wireless at cost. As the
successful bidder in such markets, CAI is applying to the FCC for 127
channel licenses. In addition, CAI has pending FCC applications
concerning issuances of licenses for 2 channels in Boston, MA; 6
channels in Long Island, NY; 8 channels in Pittsburgh, PA; 8 channels
in Providence, RI; 6 channels in Syracuse, NY and 4 channels in
Washington, DC. Although there is no assurance that the FCC will
grant these applications, many have been accepted for filing by the
FCC and posted on Public Notice. CAI is also completing negotiations
for the lease of 4 channels in Norfolk, VA.
(5) Premium penetration is the ratio of the total number of premium
channels received by subscribers in a market divided by the number of
subscribers in that market. In most markets, the basic subscription
service includes one premium channel.
(6) The Long Island market includes Nassau and Suffolk counties in New
York State.
<S><S>
</TABLE>
The table below outlines certain characteristics of the Auction Markets
for which CAI was the successful bidder during the recent FCC Auction
(excluding Auction Markets transferred to CS Wireless and the Auction Markets
included in the above table).
<TABLE>
<CAPTION>
Estimated Channels Estimated Total
Available from Service Area Estimated LOS
FCC AUCTION HOUSEHOLDS HOUSEHOLDS
<S> <C> <C> <C> <C>
Dover, DE 3 127,000 82,000
Glens Falls, NY 13 55,000 35,000
Hyannis, MA 8 101,000 65,000
Ithaca, NY 8 2,000 1,000
Manchester, VT 10 249,000 161,000
New Haven, CT 13 15,000 9,853
New London, CT 6 106,000 68,000
Pittsfield, MA 5 52,000 34,000
Poughkeepsie, NY 6 162,000 105,000
Springfield, MA 5 130,000 84,000
Utica, NY 6 120,000 77,000
Worcester, MA 5 50,000 2,000
Totals 1,169,000 724,000
</TABLE>
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
EMPLOYEES
As of June 15, 1996, CAI had a total of 352 employees, of which none were
subject to collective bargaining agreements. CAI has never experienced a work
stoppage and believes that employee relations are good.
ITEM 2. PROPERTIES
CAI leases various office sites in Albany, New York; Arlington, Virginia;
and in each region in which an operating system exists. CAI also leases
transmission tower sites in the regions of its operating systems. CAI believes
adequate office space and tower sites are readily available in all markets.
CAI owns substantially all of the equipment which is necessary to conduct
its operations, except certain vehicles, test equipment, and office equipment.
A significant portion of CAI's investment in plant and equipment consists of
subscriber equipment, which includes antennas, block downs, converters and
remotes, and related installation costs, principally located at the
subscribers' premises, and the reception and transmitter equipment located at
the transmitter sites.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings with respect to CAI.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to stockholders during the last three months of
the fiscal year ended March 31, 1996.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The principal market in which CAI Common Stock is traded is the NASDAQ
National Market System under the ticker symbol "CAWS". The approximate number
of stockholders of record on June 14, 1996 was 537. The high and low sales
prices for the Common Stock on the NASDAQ are as follows:
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
FISCAL YEAR ENDED MARCH 31, 1995
First Quarter $13.00 $10.00
Second Quarter 13.00 10.00
Third Quarter 12.00 7.00
Fourth Quarter 16.25 7.25
FISCAL YEAR ENDED MARCH 31, 1996
First Quarter 13.75 9.75
Second Quarter 13.00 8.38
Third Quarter 10.50 7.25
Fourth Quarter 10.38 7.25
FISCAL YEAR ENDING MARCH 31, 1997
First Quarter (through June 14, 1996) 17.50 6.25
</TABLE>
DIVIDENDS
The Company has never paid cash dividends on the CAI Common Stock and
does not currently intend to pay cash dividends on the CAI Common Stock in the
foreseeable future.
Since the Company generally conducts, and in the future intends to
conduct, operations through subsidiaries, the Company's ability to declare or
pay cash dividends will depend in part on the ability of the Company's present
and future subsidiaries to declare or pay cash dividends to the Company.
Any future determination by the Company to pay cash dividends on the CAI
Common Stock will be within the discretion of the Company's Board of Directors
and will depend upon the earnings of the Company, the Company's financial
condition and capital requirements and other financial factors which are
considered relevant by the Company's Board of Directors.
The Company has accrued dividends of $5,812,562 on all classes of its
preferred stock as of March 31, 1996. The Company is not required to pay
dividends on the Senior Preferred Stock until December 1, 1998. The Company
began paying quarterly dividends on the 8% Redeemable Convertible Series A
Preferred Stock, no par value (the "Series A Preferred Stock"), of CAI in March
1996.
Pursuant to certain restrictive covenants contained in the Term Notes and
the Senior Notes, the Company cannot declare or pay any dividends or make any
distributions on shares of the Company except for dividends required to be paid
on the Series A Preferred Stock and Senior Preferred Stock. Also, the Company
may not purchase or redeem any of its shares, including warrants and options
therefor.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following summary should be read in conjunction with the consolidated
financial statements and related notes contained elsewhere herein. (in
thousands, except share data)
<TABLE>
<CAPTION>
Eight-month Seven-month
Inception to Year ended Period ended Period Ended Year Ended Year Ended
December 31, December 31, August 31, March 31, March 31, March 31,
1991 1992 1993 1994 1995(2) 1996(3)
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations:
Revenue $ - $ - $ - $ 918 $ 5,148 $ 30,682
Net loss (74) (189) (1,378) (7,521) (14,107) (40,986)
Preferred dividend
requirement - - - - 328 5,879
Ratio of earnings to
fixed charges(1) - - - - - -
Per Share Data:
Loss per common
share (.01) (.02) (.12) (.61) (.93) (1.73)
Weighted average number
of shares outstanding 11,777,431 11,777,431 11,777,431 12,278,220 15,456,540 27,075,578
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31, August 31, March 31, March 31, March 31,
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Financial Condition:
Wireless channel rights -net $ - $ - $ 1,350 $ 10,791 $ 46,192 $ 205,974
Investment in CS Wireless - - - - - 113,054
Property and equipment - net - - 763 2,434 21,840 52,569
Total assets 157 395 2,499 41,047 78,461 698,795
Notes payable 61 312 3,511 3,130 29,532 318,435
Redeemable preferred stock - - - - 18,378 92,882
Shareholders' equity 96 75 (1,597) 34,346 22,115 192,611
</TABLE>
(1) In calculating the ratio of earnings to fixed charges, earnings consists of
losses prior to income tax benefit, minority interest in loss, and fixed
charges. Fixed charges consists of interest expense, amortization of debt
issuance costs and one-third of rental payments on operating leases (such
amount having been deemed by CAI to represent the interest portion of such
payments). Earnings were inadequate to cover fixed charges by the amount of
$74, $189, $1,378, $7,552, $15,004 and $53,307 for the periods ended in
1991, 1992, 1993, 1994, 1995, and 1996, respectively.
(2) The Company acquired the New York System on January 9, 1995 (see Note 2 to
the Financial Statements).
(3) The Company acquired ACS and ECNW on September 29, 1995 (see Item 1).
Also, the Company closed a series of transactions with Heartland wherein the
Company's subsidiary, CS Wireless, received certain assets from Heartland in
exchange for CS Wireless common stock and cash (see Item 1).
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This section should be read in conjunction with the Consolidated
Financial Statements of the Company, the notes thereto and other information
presented elsewhere herein. Except for the historical information contained
herein, the matters discussed in this Management's Discussion and Analysis of
Financial Condition and Results of Operations contain forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. Such forward-looking statements are accompanied by
cautionary factors which could cause CAI's actual results to differ materially
from those in the forward-looking statement. The cautionary factors presented
should not be construed as exhaustive.
LIQUIDITY AND CAPITAL RESOURCES
The wireless cable industry requires significant capital. CAI's plan for
continued expansion requires substantial capital investment on a continuing
basis and availability of sufficient financing is essential to that plan.
Funds are required for the lease or acquisition of channel rights, the
acquisition of wireless cable systems, the construction of system head-end and
transmission equipment, start-up costs related to the commencement of
operations and subscriber installation costs. CAI has financed its capital
requirements since inception through a combination of the issuance of debt and
equity securities, the incurrence of loans and the assumption of debt and other
liabilities in connection with acquisitions. CAI has incurred operating losses
since inception and its cash flow from operating activities has to date been
insufficient to cover its operating expenses.
CAI estimates that the launch of a new analog wireless cable system in a
typical market (assuming 23 or more channels per market) requires the
expenditure of approximately $2.2 million of start-up costs, consisting of
approximately $1.2 million for system head-end and transmission equipment and
approximately $1.0 million for the other pre-operational and start-up expenses,
and incremental installation costs of approximately $450-500 per subscriber for
equipment and labor at subscriber locations. The Company has made the decision
to convert some of its analog systems to Digital, as it is doing with the
Norfolk/Virginia Beach system, and to initially set up Digital systems as with
the Boston, Massachusetts market. A Digital wireless cable system will cost
much more than analog, including higher incremental installation costs per
subscriber when subscriber equipment becomes available. The head-end and
transmission expenditures must be made before programming can be delivered to
subscribers. Labor installation costs for a subscriber are incurred only after
that subscriber signs up for services.
During the year ended March 31, 1995, CAI expended approximately $15.0 million
to purchase equipment, $8.1 million to fund operating activities, $9.9 million
to acquire the New York System, and $1.3 million to acquire wireless channel
rights. During this period CAI funded its cash requirements out of existing
cash balances, an issuance of equity securities generating net proceeds of
approximately $7.1 million, debt proceeds of $9.8 million, and the disposition
of equipment generating net proceeds of approximately $0.6 million. At March
31, 1995, CAI had unrestricted cash and cash equivalents of approximately $1.2
million.
Since March 31, 1995, CAI has raised an additional $1.5 million of equity
capital through the issuance of 179,765 shares of common stock. On May 9,
1995, at the Stage I Closing CAI received $30.0 million from Bell Atlantic and
NYNEX, the proceeds of which were used to retire $21.3 million of short-term
notes issued in connection with the purchase of the New York System, provide a
required $4.0 million cash deposit under the ACS Merger Agreement, and to pay
$3.0 million of cost associated with the short-term debt issued for the
acquisition of the New York System and for transaction expenses and working
capital. In June 1995, CAI received $12.0 million from an affiliate of Smith
Barney pursuant to a term note, the proceeds of which were used for working
capital.
On September 29, 1995, the Company received $265.9 million from the
Senior Notes Offering, net of $9.1 million in underwriting costs and interest,
of which $90.6 million was placed in escrow to cover three years of interest,
plus $70 million from the sale of 7,000 shares of Senior Preferred Stock and
the Stage II Warrants to BANX. These funds were used in part to pay the cash
portions of the following acquisitions: ACS ($41.1 million), ECNW ($8.9
million), the Baltimore Assets ($11.3 million) and the Pittsburgh Assets ($6.4
million). The non-cash portion of the purchase prices was satisfied with CAI
Common Stock or debt, primarily notes.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (continued)
Additionally, the Company loaned ACS $22.3 million to pay off ACS bank
debt and another $11.3 million to pay other costs incurred by ACS relating to
the ACS acquisition and for other corporate purposes. CAI also used $12.4
million to repay the interim financing it received from Smith Barney Holdings,
Inc., including interest, and another $2.1 million to pay legal and other fees
relating to the merger, Stage II Closing and the offering of the Senior Notes.
During the year ended March 31, 1996, CAI expended approximately $14.5
million to purchase equipment, $34.6 million to fund operating activities and
$24.5 million to acquire wireless channel rights in addition to the mergers and
acquisitions mentioned previously. During fiscal 1996, CAI funded its cash
requirements out of existing cash balances and the financings more fully
described above. At March 31, 1996, CAI had cash and cash equivalents of
approximately $103.3 million.
Pursuant to the terms of the Participation Agreement, CAI and Heartland
agreed to contribute to CS Wireless certain wireless cable assets, including
related operating liabilities, or the stock of subsidiaries owning wireless
cable assets for systems located principally in the Midwestern and Southwestern
regions of the country. The transaction closed on February 23, 1996. CAI owns
approximately 54% of CS Wireless, Heartland approximately 35%, and affiliates
of Bell Atlantic and NYNEX own approximately 10%. The remaining 1% equity
interest was sold to purchasers in the Unit Offering. The combination of these
assets into CS Wireless resulted in a company with approximately 5.7 million
LOS households and 56,500 subscribers, making it one of the largest wireless
cable companies in the United States in terms of subscribers and LOS
households.
Through fiscal 1997 the Company plans to spend $60 million primarily for
the purchase and installation of digital compatible head-end (transmission)
equipment in connection with a BR Agreement with BANX (the BR Agreement). CAI
is committed through open purchase orders to expend approximately $22.3 million
primarily for capital expenditures associated with the development of the
Boston and Norfolk/Virginia Beach Digital transmission facilities as of March
31, 1996. In addition, during that period, the Company is obligated to pay
minimum license fees and lease payments of approximately, $6.5 million.
Management believes that the Company's growth plan will require additional
funds during the 1997 fiscal year, especially if CAI determines to effect
additional acquisitions or to accelerate its anticipated growth rate or system
launch rate, and/or if BANX fails to exercise its options with respect to
markets as contemplated by the BR Agreement. Such additional funds may take the
form of debt or equity securities issuances, borrowings under loan arrangements
or sales of assets including channel rights or wireless cable systems. CAI's
ability to engage in financings, asset sales or acquisition transactions is
limited by the contractual arrangements entered into with BANX, and significant
transactions likely will require its prior consent. In addition, the Senior
Notes impose similar restrictions on the incurrence of additional debt and on
the ability to effect asset sales. There is no assurance that any additional
financings will be available to the Company on satisfactory terms and
conditions, if at all.
In the event that such additional financings are not available to the
Company, management can and will defer capital expenditures and other costs
currently contemplated, including the deployment of Digital head-end equipment
which will affect the Company's ability to implement its obligations under the
BR Agreement. The present revenue stream and cash resources available to the
Company are adequate to sustain the Company's needs through mid 1997 if such
actions were taken. However, expansion plans would be adversely impacted. There
is no assurance that any additional financings will be available to the Company
on satisfactory terms and conditions, if at all.
COMPARISON OF OPERATING RESULTS
SEVEN MONTHS ENDED MARCH 31, 1994 COMPARED TO EIGHT MONTHS ENDED AUGUST
31, 1993
The Company started operating the Albany System effective September 1,
1993 from which the Company generated all of its revenues, $0.9 million. The
Company had a net loss of $7.5 million for the seven months ended
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS (continued)
March 31, 1994. The loss resulted primarily from a $2.5 million non-cash
compensation charge associated with stock sales to employees, approximately
$1.5 million of corporate general and administrative expenses associated with
developing a corporate administration and additional markets (Hartford,
Rochester and Virginia Beach), and $3.4 million of interest expense.
Costs and expenses for the seven-month period ended March 31, 1994
totaled $5.2 million versus $0.3 million in the prior eight-month period ended
August 31, 1993. The 1994 costs and expenses included $0.4 million of
programming and license fees, $36,000 of marketing, and $0.3 million of
depreciation and amortization expense. Such costs had not been incurred prior
to the commencement of operations as of September 1, 1993.
General and administrative expenses for the seven-month period ended
March 31, 1994 increased to $2.0 million from $247,000 during the eight-month
period ended August 31, 1993. General and administrative expense consist
primarily of salaries and related payroll costs. Such costs increased to $1.4
million during the seven-month period ended March 31, 1994 from $186,000 during
the eight-month period ended August 31, 1993 due to increases associated with
the development and management of a multisystem operation.
Interest expense for the seven-month period ended March 31, 1994 was $3.4
million. Such expense was comprised of $2.7 million ($1.0 million imputed
interest expense attributed to 1,840,000 shares of CAI Common Stock issued in
conjunction with a $0.6 million short-term loan, $1.5 million of non-cash
interest expense related to certain warrants issued in regard to bridge
financing at exercise prices below market; and $0.2 million of loan discounting
amortization), of non-cash interest expense, $0.7 million of bridge financing
interest expense, and approximately $50,000 of other interest expense,
primarily related party interest.
In aggregate, the non-cash charges to interest expense and compensation
totaled approximately $5.1 million in the seven-month period ended March 31,
1994 compared to the eight-month period ended August 31, 1993 total of $1.1
million. All such non-cash charges were reflected as additional paid-in
capital.
YEAR ENDED MARCH 31, 1995 COMPARED TO SEVEN MONTHS ENDED MARCH 31, 1994
Revenues were $5.1 million for the year ended March 31,
1995, compared to $0.9 million for the seven month period ended March 31, 1994.
The revenues consisted of $4.8 million in television subscription revenue, $0.2
million in installation revenue and other revenue, and $0.1 million in pay-per-
view revenues for the year ended March 31, 1995 and $850,000, $53,000 and
$15,000, respectively, for the seven month period ended March 31, 1994.
CAI's television subscription revenue of $4.8 million for the year ended
March 31, 1995 resulted from the following systems: Albany ($1.9 million), New
York City ($2.6 million), Hartford VDT ($0.1 million), Rochester ($0.1
million), Hampton Roads ($0.1 million) and Providence SMATV ($0.1 million).
Such revenue of $0.9 million for the seven months ended March 31, 1994 was from
the Albany System only.
CAI had a net loss of $14.1 million for the year ended March 31, 1995
primarily due to operating costs and interest expense and expenses associated
with the development of CAI's Hartford, Rochester, Hampton Roads, and Albany
markets.
Programming and license fees were $2.0 million for the year ended March
31, 1995 compared to $0.4 million for the seven month period ended March 31,
1994. These costs are primarily attributable to the Albany System acquired in
August 1993 and have increased with the growth of subscribers and the
acquisition of the New York System.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS (continued)
CAI's general and administrative expenses increased to $11.1 million for
the year ended March 31, 1995 from $2.0 million for the seven month period
ended March 31, 1994. The increased general and administrative expenses are
due primarily to costs associated with increased staffing levels, facility
expenses, supplies, utilities, equipment, and other costs associated with four
new systems being started and larger corporate headquarters.
Depreciation and amortization increased to $3.6 million for the year
ended March 31, 1995 from $0.3 million for the seven month period ended March
31, 1994. Depreciation and amortization expenses for the year ended March 31,
1995 are comprised of approximately $2.5 million of depreciation related to
property and equipment, most of which was acquired in 1994, and approximately
$1.1 million of amortization of primarily wireless channel rights compared to
approximately $0.2 million and $0.1 million, respectively, for the seven month
period ended March 31, 1994, during which time the Company only operated the
Albany System.
Interest income increased to $0.6 million for the year ended March 31,
1995 compared to $0.1 million for the seven month period ended March 31, 1994.
The increase in interest income is attributable to the interest income earned
on the proceeds received from CAI's initial public offering that occurred in
February 1994.
Other income increased to $0.3 million for the year ended March 31, 1995
compared to no other income for the seven month period ended March 31, 1994.
The increase in other income is primarily attributable to a gain on the sale of
transmission equipment, made available after the May 1994 Albany System
equipment upgrade.
Interest expense decreased to $1.7 million for the year ended March 31,
1995 from $2.2 million for the seven month period ended March 31, 1994. The
1995 interest expense is primarily associated with notes issued in the
acquisition of the New York System in January 1995. The 1994 interest is
primarily associated with bridge notes issued prior to CAI's initial public
offering.
Interest expense-related parties decreased to $18,000 for the year ended
March 31, 1995 from $1.2 million for the seven month period ended March 31,
1994. The 1995 related party interest expense is associated with a $0.2
million outstanding note payable to a shareholder. The 1994 related party
interest expense is primarily due to shares of CAI Common Stock issued in
conjunction with a short-term borrowing originating in August 1993.
YEAR ENDED MARCH 31, 1996 COMPARED TO YEAR ENDED MARCH 31, 1995
CAI's total revenue was $30.7 million for the year ended March 31, 1996
as compared to $5.1 million for the year ended March 31, 1995 primarily due to
the ACS acquisition on September 29, 1995 and a full year of operations for the
New York System. ACS contributed $15.0 million to the overall increase of
$25.6 million for its six months of operations included since the date of
acquisition. The New York System contributed $7.5 million of the increased
revenue. The remaining increase of $3.1 million is attributable to the growth
of subscribers in the other systems.
CAI's television subscription revenue was $28.1 million for the year
ended March 31, 1996 as compared to $4.9 million for the year ended March 31,
1995 resulted from the following systems: Albany ($3.1 vs. $1.9 million),
Rochester ($0.7 vs. $0.1 million), New York City ($9.2 vs. $2.6 million),
Hampton Roads ($0.8 vs. $0.1 million), Philadelphia ($10.8 vs. 0 million) ,
Cleveland ($2.1 vs. 0 million), Bakersfield ($0.9 vs. 0 million), Washington
($0.2 vs. 0 million), Hartford VDT ($0.1 vs. $0.1 million), and Providence
SMATV ($0.2 vs. $0.1 million). The systems with zero for the prior year were
acquired in the current year.
The increase in the New York City television subscription revenue is due
to a full year of operations for the year ended March 31, 1996 as compared to
only three months of operations included in the year ended March 31, 1995.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS (continued)
The television subscription revenue for Cleveland and Bakersfield
totaling $3.0 million is for the period that these two systems were part of
CAI. Cleveland and Bakersfield were acquired as part of the ACS acquisition and
subsequently contributed to CS Wireless. CS Wireless was consolidated with CAI
until the CS Closing (February 23, 1996). CS Wireless' revenue and expenses
are not included in CAI's consolidated financial statements after that date.
Through December 31, 1995, CAI will account for CS Wireless on a three-month
lag that corresponds with CS Wireless' December 31 fiscal year end.
CAI's net loss of $41.0 million for the year ended March 31, 1996 is
higher than the net loss of $14.1 million for the year ended March 31, 1995 by
$26.9 million due primarily to substantial increases in depreciation and
amortization ($21.1 million) and interest expense ($22.9 million) offset by a
deferred income tax benefit of $12.0 million and increased interest income of
$5.4 million.
The operating loss increased to $34.8 million for the year ended March
31, 1996 from $14.2 million for the year ended March 31, 1995, a change of
$20.6 million, which approximated the depreciation and amortization increase of
$21.1 million. The increase is primarily due to the depreciation and
amortization associated with property and equipment, wireless channel rights,
and goodwill acquired in connection with the ACS and ECNW acquisitions and to a
lesser extent on additional investment in property and equipment.
Programming and license fees were up six times from $2.0 million for the
year ended March 31, 1995 to $12.6 million for the year ended March 31, 1996 in
line with television subscription revenue also up almost six times. Marketing
expenses were up slightly from $2.5 million for the year ended March 31, 1995
to $3.5 million for the year ended March 31, 1996 reflecting less emphasis on
marketing and more on acquisitions during the year. General and administrative
expenses went from $11.1 million for the year ended March 31, 1995 to $24.7
million for the year ended March 31, 1996, primarily due to the general and
administrative expenses of then-newly acquired ACS and ECNW ($6.3 million) and
a full year of the New York System (net increase of $5.2 million). General and
administrative costs should stabilize due to the combination of ACS' and CAI's
administrative operations.
General and administrative expenses, other than those associated with new
acquisitions and the New York System, increased $2.1 million over the prior
year primarily due to increased salaries, personnel and professional fees
incurred to develop, acquire, integrate and manage new systems.
Interest expense increased to $24.6 million for the year ended March 31,
1996 from $1.7 million for the year ended March 31, 1995, a change of $22.9
million, primarily due to interest expense incurred on the Senior Notes issued
on September 29, 1995 and the Term Notes issued on May 9, 1995. Interest
expense will continue to increase next year by approximately $18.0 million to
reflect the first full year of interest expense on the Senior Notes.
Interest income was $6.0 million for the year ended March 31, 1996 as
compared to $0.6 million for the year ended March 31, 1995. The increase is
primarily due to income earned on the debt service escrow for the Senior Notes
and on funds remaining from the issuance of the Senior Notes which are invested
until used.
The operating loss of $34.8 million for the year ended March 31, 1996
includes $1.8 million for the Cleveland and Bakersfield systems which are now
part of CS Wireless. While CAI will no longer include those systems' revenue
and expenses in its statements of operations, CAI will include its share of CS
Wireless's net loss to the extent of its 54% ownership. Based on an unaudited
pro forma condensed combined statement of operations for CS Wireless for the
year ended December 31, 1995 (prepared as if the contributions contemplated by
the Participation Agreement had occurred on January 1, 1995), CS Wireless' net
loss would have been $35.0 million, of which CAI's share would approximate
$18.9 million. CAI will record its share of CS Wireless' loss with a
corresponding reduction in its investment in CS Wireless. CAI has not
guaranteed any debt or commitments of CS Wireless.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INFLATION
Management does not believe that inflation has had or will have a
material impact on the Company's results of operations. Management believes it
will be able to increase subscriber rates to keep pace with inflationary
increases in costs without a significant decline in the number of subscribers.
SEASONALITY OF INSTALLATION ACTIVITIES
The rate at which new subscriber installations occur can be affected by
severe winter or other weather conditions and limited daylight hours in the
winter months in certain markets. Therefore, CAI may experience lower than
average subscriber growth and capital expenditures primarily during the winter
season.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121 -- Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of is
effective for fiscal years beginning after December 15, 1995. The Company will
adopt this statement on April 1, 1996. CAI believes this statement will not
have a material effect on CAI's financial position or results of operations.
Statement of Financial Accounting Standards No. 123 -- Accounting for
Stock-Based Compensation is effective for fiscal years beginning after December
15, 1995. CAI intends to continue using the intrinsic value based method of
accounting for employee stock compensation and intends to implement the
disclosure requirements required by FASB 123 as of April 1, 1996. CAI believes
this statement will not have a material effect on CAI's financial position or
results of operations.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
Page No.
IN FORM 10-K
<S> <C>
FINANCIAL STATEMENTS
Report of Independent Accountants 29
Consolidated Balance Sheets - March 31, 1995 and 1996 30
Consolidated Statements of Operations - Seven-Month Period Ended
March 31, 1994, and Years Ended March 31, 1995 and 1996 31
Consolidated Statements of Shareholders' Equity - Seven-Month Period
Ended March 31, 1994 and Years Ended March 31, 1995 and 1996 32
Consolidated Statements of Cash Flows - Seven-Month Period Ended
March 31, 1994 and Years Ended March 31, 1995 and 1996 33
Notes to Consolidated Financial Statements 36
</TABLE>
<PAGE>
REPORT OF INDEPENDENT
ACCOUNTANTS
REPORT OF INDEPENDENT ACCOUNTANTS
Shareholders and Board of Directors
CAI Wireless Systems, Inc.
Albany, New York
We have audited the accompanying consolidated balance sheets of CAI Wireless
Systems, Inc. and Subsidiaries as of March 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the years ended March 31, 1996 and 1995 and for the seven-month period ended
March 31, 1994. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CAI Wireless
Systems, Inc. and Subsidiaries as of March 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for the years
ended March 31, 1996 and 1995 and for the seven-month period ended March 31,
1994 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Albany, New York
June 21, 1996
<PAGE>
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1995 1996
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,201,932 $103,263,094
Subscriber accounts receivable, less allowance for
bad debts of $135,383 for 1995 and $1,296,282
for 1996 63,248 1,432,674
Prepaid expenses 296,296 698,482
Property and equipment, net 21,840,328 52,568,619
Wireless channel rights, net 46,192,083 205,973,840
Investment in CS Wireless Systems, Inc. - 113,054,069
Debt service escrow - 77,621,088
Goodwill - 131,282,996
Loan acquisition costs, net 1,012,536 10,631,263
Other assets 7,854,452 2,268,847
Total Assets $78,460,875 $698,794,972
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable $ 4,513,908 $ 8,244,577
Accrued expenses 2,518,845 10,186,374
Senior debt 21,250,000 275,000,000
Notes payable 8,282,147 43,434,667
Wireless channel rights obligations 963,648 41,025,866
Deferred income taxes - 35,410,000
37,528,548 413,301,484
Commitments
Minority interest 438,963 -
Mandatorily redeemable preferred stock
14% Senior convertible preferred stock
(liquidation value $70,000,000) - 69,020,002
Series A 8% redeemable convertible preferred stock
(liquidation value $18,050,000) 18,050,000 18,050,000
Accrued preferred stock dividends 328,011 5,812,562
18,378,011 92,882,564
Shareholders' Equity
Preferred stock
Common stock, shares issued and outstanding
March 31, 1995 - 15,754,018
March 31, 1996 - 37,829,482 40,341,043 257,701,130
Additional paid-in-capital 5,042,643 -
Accumulated deficit (23,268,333) (65,090,206)
22,115,353 192,610,924
Total Liabilities and Shareholders' Equity $78,460,875 $698,794,972
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SEVEN-MONTH
PERIOD ENDED Year ended Year ended
MARCH 31, March 31, March 31,
1994 1995 1996
<S> <C> <C> <C>
Revenues $ 917,762 $ 5,147,510 $30,682,486
Costs and expenses
Programming and license fees 361,714 2,024,943 12,582,750
Marketing 36,252 2,529,623 3,525,396
General and administrative 4,475,422 11,139,693 24,689,572
Depreciation and amortization 294,945 3,639,643 24,718,341
5,168,333 19,333,902 65,516,059
Operating loss (4,250,571) (14,186,392) (34,833,573)
Other income (expense)
Interest income 70,749 641,021 6,047,081
Other income - 275,579 87,268
Interest expense (3,372,313) (1,733,745) (24,608,258)
(3,301,564) (817,145) (18,473,909)
Loss before provision for income tax
benefit and minority interest (7,552,135) (15,003,537) (53,307,482)
Provision for income tax benefit - - 12,000,000
Loss before minority interest (7,552,135) (15,003,537) (41,307,482)
Minority interest in los 31,266 896,700 321,910
Net loss (7,520,869) (14,106,837) (40,985,572)
Preferred stock dividend - (328,011) (5,878,960)
Loss applicable to common stock
shareholders $(7,520,869) $(14,434,848) $(46,864,532)
Loss per common share $ (0.61) $ (0.93) $ (1.73)
Average common and equivalent shares
outstanding 12,278,220 15,456,540 27,075,578
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SEVEN-MONTH PERIOD ENDED MARCH 31, 1994 AND YEARS ENDED MARCH 31, 1995 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 1, 1993 9,200,000 $ 20 $ 43,571 $ (1,640,627) $ (1,597,036)
Sale of common stock 2,300,000 12,000 12,000
Additional value assigned to shares of
common stock sold to employees at a price
below fair market value 2,465,000 2,465,000
Value assigned to detachable warrants and
bonus interest on issued debt 2,660,000 2,660,000
Sale of common stock - IPO 3,910,000 43,010,000 43,010,000
Less issuance costs (4,599,477) (4,599,477)
Additional acquisition costs of Master
Sublease adjusted to historical cost (83,855) (83,855)
Net loss for the seven-month period _________ _________ _________ (7,520,869) (7,520,869)
Balance at March 31, 1994 15,410,000 38,422,543 5,084,716 (9,161,496) 34,345,763
Value assigned to warrants exercised 72,279 18,500 (18,500)
Preferred stock converted to common stock 271,739 1,900,000 1,900,000
Value assigned to detachable warrants 304,438 304,438
Preferred stock dividends accrued (328,011) (328,011)
Net loss for the year _________ __________ _________ (14,106,837) (14,106,837)
Balance at March 31, 1995 15,754,018 40,341,043 5,042,643 (23,268,333) 22,115,353
Net proceeds from sale of common stock 179,765 1,470,329 1,470,329
Value assigned to detachable warrants 1,350,000 1,350,000
Common stock issued to acquire 49% minority
interest in Hampton Roads Wireless, Inc. 652,523 8,000,000 8,000,000
Less issuance costs (47,058) (47,058)
Common stock issued in ACS Merger 19,362,611 190,600,700 190,600,700
Less registry costs (1,316,743) (1,316,743)
Common stock issued in ECNW Merger 1,880,565 18,652,859 18,652,859
Senior preferred stock issuance costs (1,349,984) (1,349,984)
Preferred stock dividends accrued (5,042,659) (836,301) (5,878,960)
Net loss for the year _________ ___________ _________ (40,985,572) (40,985,572)
Balance at March 31, 1996 37,829,482 $257,701,130 $ - $(65,090,206) $192,610,924
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SEVEN-MONTH
PERIOD ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31,
1994 1995 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (7,520,869) $ (14,106,837) $ (40,985,572)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and Amortization 294,945 3,639,643 24,718,341
Non-cash compensation related to employees
stock purchases 2,465,000 - -
Non-cash interest expense 2,450,000 - -
Deferred income tax benefit - - (12,000,000)
Loan costs and discounts amortization 400,000 415,460 1,778,893
Minority interest in loss (31,266) (896,700) (321,910)
Other - (282,343) (193,890)
Changes in assets and liabilities, net of effects
from acquisitions:
Subscriber accounts receivable (6,839) 185,689 (111,677)
Other assets (50,149) (173,370) (128,117)
Accounts payable and accrued expenses (100,871) 3,146,463 (7,404,356)
Net cash used in operating activities (2,100,049) (8,071,995) (34,648,288)
Cash flows from investing activities
Cash paid for businesses acquired, net of cash (1,095,143) (9,916,889) (77,407,837)
Purchase of wireless channel rights (1,009,640) (1,308,678) (24,489,840)
Purchase of property and equipment (958,727) (14,961,633) (14,498,395)
Proceeds from sale of property and equipment - 617,950 140,330
Purchase of investments - (6,004,297) (250,000)
Proceeds from sale of investments - 6,000,000 13,461,558
Other - (1,792,324) (1,166,123)
Net cash used in investing activities (3,063,510) (27,365,871) (104,210,307)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of senior notes, other debt and
warrants 3,420,000 9,769,863 308,062,500
Payment of senior and other debt (5,163,178) (2,309,130) (42,369,042)
Cash paid for debt service escrow - - (90,638,756)
Proceeds from issuance of senior preferred stock and
warrants - - 70,000,000
Debt financing costs paid - - (2,581,183)
Proceeds from issuance of common stock 34,662,000 7,114,300 1,545,979
Registry and other stock issuance costs paid (3,852,427) (351,350) (2,775,336)
Payment of related party debt (1,547,636) - -
Other - - (324,405)
Net cash provided by financing activities 27,518,759 14,223,683 240,919,757
Net increase (decrease) in cash and cash equivalents 22,355,200 (21,214,183) 102,061,162
Cash and cash equivalents, beginning 60,915 22,416,115 1,201,932
Cash and cash equivalents, ending $22,416,115 $ 1,201,932 $ 103,263,094
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL INFORMATION ON NON-CASH
INVESTING AND FINANCING ACTIVITIES
1. In the fiscal periods ended March 31, 1994 and 1995, the Company
issued warrants to bridge lenders which were valued at $210,000 and $304,000,
respectively.
2. During the seven-month period ended March 31, 1994 and the years ended
March 31, 1995 and 1996, in connection with certain wireless channel rights
acquisitions, the Company accrued obligations of $2,764,000 $2,942,258, and
$47,256,113, respectively.
3. The Company issued 250,000 shares of common stock in settlement of
$2,250,000 of wireless channel rights obligations and $500,000 of other debt on
February 24, 1994.
4. The Company acquired three corporations with assets (principally
wireless channel rights), approximating $3,910,000, for a cash payment of
$1,000,000 and seller financed long-term debt obligations of $2,910,000 on
March 31, 1994.
5. The Company accrued $5,214,300 of stock subscription receivable for
510,000 shares of common stock subscribed for on March 24, 1994 in accordance
with the underwriter's agreement for the IPO of stock. The stock subscription
receivable was collected on April 8, 1994.
6. During the years ended March 31, 1995 and 1996, in connection with
property and equipment acquisitions, the Company accrued obligations of
$394,275 and $3,673,925, respectively.
7. In January 1995, the Company acquired the New York System. In
conjunction with the acquisition, the Company issued $18,050,000 of Series A
preferred stock and $11,000,000 of short-term notes as follows:
<TABLE>
<CAPTION>
Fair value of assets acquired,
<S> <C> <C>
net of cash acquired $ 40,691,463
Liabilities assumed (1,724,574)
Preferred stock issued (18,050,000)
Short term notes issued (11,000,000)
Cash paid $ 9,916,889
</TABLE>
8. On March 29, 1995, the Company issued three notes payable aggregating
$5,000,000 relating to acquisition deposits and accrued obligations of
approximately $401,000 relating to acquisition costs.
9. On July 13, 1995, the Company purchased the 49% minority interest in
Hampton Roads Wireless, Inc. for $8,000,000 in CAI common stock.
10. The underwriter's discount of $8,937,500 was subtracted from the
senior notes offered on September 29, 1995.
<PAGE>
}3
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL INFORMATION ON NON-CASH
INVESTING AND FINANCING ACTIVITIES
11. On September 29, 1995, the Company issued CAI common stock in two
merger acquisitions as follows:
<TABLE>
<CAPTION>
TOTAL ACS ECNW
<S> <C> <C> <C>
Fair value of assets acquired $284,375,604 $255,674,388 $28,701,216
Less:
Cash portion of purchase price 49,438,203 41,072,206 8,365,997
Liabilities assumed 22,672,180 22,367,053 305,127
Acquisition costs and fees 1,882,229 1,634,429 247,800
Note and interest receivable offset 1,129,433 - 1,129,433
Value of CAI common stock issued $209,253,559 $190,600,700 $18,652,859
</TABLE>
In addition, as part of the ACS acquisition, the Company paid ACS bank
debt of $22,334,298 and also advanced ACS $11,345,095 which is reflected in
ACS's cash balance of $8,250,488 at the date of acquisition.
In connection with the ECNW acquisition, the Company paid $500,000 for a
non-compete agreement.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Cash payments for interest
$750,863 $271,427 $18,541,227
</TABLE>
See notes to consolidated financial statements.
<PAGE>
}4
{CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS. CAI Wireless Systems, Inc. (the "Company" or "CAI") was
incorporated in August 1991, to invest in, lease, and purchase wireless
channel rights (including multi-channel, multi-point distribution services
("MMDS") licenses and instructional television fixed services ("ITFS")
licenses) and develop wireless cable systems. The Company operates six analog-
based wireless cable systems providing service to approximately 85,100
subscribers in New York City, Rochester, and Albany, NY, Philadelphia, PA,
Washington, DC, and Norfolk/Virginia Beach, VA. In addition, CAI has a
portfolio of wireless cable channel rights in eight additional markets,
including Long Island, Buffalo and Syracuse, NY, Providence, RI, Hartford, CT,
Boston, MA, Baltimore, MD, and Pittsburgh, PA.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries (HRW 51% owned prior
to July 13, 1995) and CS Wireless Systems, Inc. ("CS Wireless") until February
23, 1996, when as a result of the CAI-Heartland closing, it became a 54% owned
subsidiary. As of that closing date, CS Wireless is accounted for on the equity
method of accounting. All material inter-company accounts and transactions
have been eliminated in consolidation.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
CASH EQUIVALENTS. For purposes of reporting cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents. Cash equivalents consist primarily of money
market type funds. The Company has a concentration of credit risk with regard
to its cash in excess of the amount subject to federal insurance and money
market type funds. The Company has mitigated its risk by depositing its cash
in high credit quality financial institutions and by investing in low risk,
high grade money market type funds which invest in U.S. government securities
or high grade commercial paper.
PROPERTY AND EQUIPMENT. Property and equipment are carried at cost.
Depreciation and amortization is calculated by the straight-line method over
the estimated useful lives of the related assets. The Company capitalizes
subcontractor and direct employee labor costs incurred in connection with the
installation of its television reception equipment on subscriber premises.
Amortization of such costs is based on the estimated subscriber turnover rate
for each system. These turnover rates range from 2 to 3 years. In addition,
projects in process are carried at cost including capitalized interest
amounting to $144,899 for the year ended March 31, 1996.
ACQUISITIONS. All acquisitions of companies have been accounted for on the
purchase method of accounting and the purchase prices have been "pushed down"
to the acquired companies, primarily to wireless channel rights and goodwill,
including provisions for deferred income taxes where applicable. Some
acquisitions required issuance of CAI common stock which was recorded at the
average market price per share as defined in the purchase agreements, usually
over a ten day period. Also, direct acquisition costs were included as part of
the purchase price. Costs to register CAI common stock in connection with an
acquisition were treated as a reduction of the fair market value of shares
issued for that acquisition in the common stock account.
INVESTMENT IN CS WIRELESS SYSTEMS, INC. The investment in CS Wireless is
recorded at cost and the difference between CAI's cost and the pro-rata
ownership of the underlying equity is being amortized over 15 years,
commensurate with goodwill and wireless channel rights amortization periods to
which the investment primarily
<PAGE>
}5
{CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
relates. CAI will record its share of CS Wireless' net loss, adjusted for the
amortization of its investment, in the statement of operations as a separate
line item because the Company's majority stock ownership of CS Wireless is
expected to be temporary and voting control is limited. CS Wireless was a
wholly-owned subsidiary until February 23, 1996. The Company's share of
unconsolidated operations from February 23, 1996 to March 31, 1996 is not
material. CS Wireless has adopted a December 31 fiscal year and accordingly the
Company records its proportionate share of the results of CS Wireless'
operations based on a fiscal period ending three months earlier than that of
the Company.
INTANGIBLES.
WIRELESS CHANNEL RIGHTS.Wireless channel rights are carried at cost and
amortized over their estimated useful lives, generally 15 years. Wireless
channel rights placed in service prior to April 1, 1995 were amortized over 10
years. Upon reevaluation, the Company changed its estimate of useful life to
15 years and accordingly will amortize the balance over the remaining life.
The effect of this change was not material. The Company periodically reviews
wireless channel rights and other long-lived assets whenever events or changes
in circumstances indicate that the carrying amount of such assets may not be
recoverable. When such circumstances occur, the Company will evaluate the
possible effects on the carrying amount of such assets.
GOODWILL. Goodwill, consisting of the acquisition costs in excess of the
amounts allocated to assets and liabilities of the companies acquired, is
amortized over 15 years.
LOAN ACQUISITION COSTS. Costs incurred to obtain financing for the
acquisitions and for general corporate purposes are amortized over the
respective terms of the debt, primarily seven years.
INVESTMENTS IN DEBT SERVICE ESCROW. Investments in the debt service escrow,
consisting of debt instruments maturing over three years to coincide with the
interest payment dates of the senior notes, are carried at cost since they will
be held to maturity. Each investment is adjusted for accretion of discounts and
amortization of premiums which are reflected in interest income.
REVENUE RECOGNITION. Revenues from subscribers are recognized in the period
that service is rendered. Installation fees are recognized as revenues upon
subscriber hook-up to the extent of costs to obtain subscribers.
INCOME TAXES. The Company files a consolidated federal income tax return with
its subsidiaries in which it owns 80% or more of the outstanding common stock.
Deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable for future
years to the difference between the financial statement and tax basis of
existing assets and liabilities. The effect of tax rate changes on deferred
taxes is recognized in the income tax provision in the period that includes the
enactment date. A valuation allowance is established to reduce deferred tax
assets if it is more likely than not that all, or some portion, of such
deferred tax asset will not be realized.
LOSS PER SHARE. Loss per share has been calculated on the basis of weighted
average number of shares outstanding during each period presented. The
weighted average number of shares outstanding were 12,278,220 shares,
15,456,540 shares and 27,075,578 shares for the periods ended March 31, 1994 ,
1995 and 1996, respectively. Pursuant to Securities and Exchange Commission
Staff Accounting Bulletin (SAB) No. 83, common
<PAGE>
}6
{CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
and common equivalent shares issued at prices below the anticipated public
offering price during the twelve months immediately preceding the filing date
of the initial public offering have been included in the calculation of common
and common equivalent shares as if they were outstanding for all periods
presented (using the treasury stock method and the public offering price). For
the periods subsequent to the public offering, outstanding options and warrants
are not considered for the purposes of calculating the weighted average shares
of common stock outstanding, since these securities are anti-dilutive.
RECLASSIFICATION. The Company has reclassified certain items in prior years'
financial statements to make them comparative to the current year presentation.
The reclassification had no effect on results from operations.
CHANGE IN YEAR-END. The Company changed its fiscal year-end to March 31, as of
March 1994. Previously, the Company had used August 31, 1993 as its fiscal
period ending date. Accordingly, the period ended March 31, 1994 is for a seven
month period.
OTHER DEVELOPMENTS. Statement of Financial Accounting Standards No. 121 --
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of is effective for fiscal years beginning after December 15, 1995.
The Company will adopt this statement on April 1, 1996. CAI believes this
statement will not have a material effect on CAI's financial position or
results of operations.
Statement of Financial Accounting Standards No. 123 -- Accounting for
Stock-Based Compensation is effective for fiscal years beginning after December
15, 1995. CAI intends to continue using the intrinsic value based method of
accounting for employee stock compensation and intends to implement the
disclosure requirements required by FASB 123 as of April 1, 1996. CAI believes
this statement will not have a material effect on CAI's financial position or
results of operations.
NOTE 2-ACQUISITIONS
HAMPTON ROADS WIRELESS, INC. On July 13, 1995, the Company acquired the
remaining 49% minority interest for $8,000,000 in CAI common stock.In
accordance with the purchase method of accounting, the excess (approximately
$7,890,000) over the book value of the minority interest acquired has been
allocated to the wireless channel rights acquired.
TWO BOTT CORPORATIONS. On January 12, 1996, the Company acquired two
corporations (Chenango Associates, Inc. and Onondaga Wireless, Inc.) from
George Bott and the a related Bott trust. The two corporations had no revenues
or operations and hold wireless channel rights in Buffalo and Syracuse, NY,
respectively. The purchase price for the two corporations was $2,480,000 of
which $1,430,000 is payable without interest over six years with a balloon
payment of $1,029,500 as the 72nd payment. This six year note has been recorded
at a present value of $757,000 using a 12.25% imputed interest rate.In
accordance with the purchase method of accounting, the excess (approximately
$1,439,000) of the purchase price over the carrying value (approximately
$368,000) of the net assets acquired (principally wireless channel rights) has
been allocated to the wireless channel rights acquired.
<PAGE>
}7
{CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - ACQUISITIONS (CONTINUED)
NEW YORK SYSTEM. As of January 9, 1995, the Company, through its wholly-owned
subsidiary, New York Choice Television, Inc., acquired assets and assumed
certain liabilities, of the New York City wireless cable system of The
Microband Companies, Inc. ("Microband") an unaffiliated entity under protection
of Chapter 11 of the Bankruptcy Code at that date. The New York System has
been included in the Company's operations since January 10, 1995. The Company
funded the acquisition price of $39,050,000 with $18,050,000 of Series A
preferred stock, $11,000,000 of short-term notes, and $10,000,000 in cash.In
accordance with the purchase method of accounting, the excess (approximately
$31,700,000) of the acquisition cost over the fair value of the tangible assets
and liabilities has been allocated to wireless channel rights.
ACS ENTERPRISES, INC. On September 29, 1995 , the Company acquired ACS
Enterprises, Inc. and Subsidiaries ("ACS"), a public company with operating
wireless cable systems in Philadelphia, PA, Cleveland, OH and Bakersfield, CA
and has wireless channel rights in Stockton/Modesto, CA, for $3.50 per ACS
common share and 1.65 CAI common shares for each ACS common share. This
acquisition required $41,072,206 in cash and 19,362,611,shares of CAI common
stock valued at $190,600,700. The purchase price including direct acquisition
costs in excess of ACS's book value were allocated to wireless channel rights
and the remainder to goodwill. (See also Note 5). ACS has been included in
the Company's operations since September 29, 1995.
EASTERN CABLE NETWORKS OF WASHINGTON, INC. On September 29, 1995, the Company
acquired Eastern Cable Networks of Washington, Inc. ("ECNW") which operates a
wireless cable system in the Washington, DC area for approximately $8,366,000
in cash and 1,880,565 shares of CAI common stock valued at approximately
$18,653,000. ECNW was merged into a subsidiary of CAI which was renamed
Washington Choice Television, Inc. The purchase price including direct
acquisition costs in excess of book value was allocated to wireless channel
rights. ECNW has been included in the Company's operations since September 29,
1995.
OTHER ACQUISITIONS. On September 29, 1995, concurrent with the ACS and ECNW
acquisitions mentioned above, the Company purchased the non-operating assets,
primarily wireless channel rights, of the Baltimore and Pittsburgh wireless
systems for approximately $16,381,000 and $12,272,000, respectively, including
direct acquisition costs. The Company incurred debt of $8,350,000 with the
balance paid in cash.
<PAGE>
}8
{CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - ACQUISITIONS (continued)
PRO FORMA SUMMARY RELATING TO THE ACS AND ECNW ACQUISITIONS. The following
unaudited pro forma summary presents the condensed consolidated statement of
operations information of the Company, the ACS and ECNW acquisitions as if the
operations had been combined as of the beginning of year ended March 31, 1995:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1995 1996
<S> <C> <C> <C>
Revenues
$ 27,484,403 $ 48,343,807
Costs and expenses, excluding depreciation
and amortization 39,465,821 71,619,582
Depreciation and amortization 34,015,656 42,920,977
Operating loss (45,997,074) (66,196,752)
Other income ( expense )
Interest expense (11,533,745) (29,491,980)
Other income 883,827 6,071,408
</TABLE>
<TABLE>
<CAPTION>
Loss before income tax benefit and minority
interest (56,646,992) (89,617,324)
Income tax benefit 14,336,600 22,238,000
<S> <C> <C> <C>
Minority interest in loss 896,700 321,910
Net loss $(41,413,692) $(67,057,414)
Net loss per common share $ (1.13) $ (1.78)
Average common and equivalent shares
outstanding 36,699,716 37,639,125
Pro forma assumptions :
</TABLE>
<TABLE>
<CAPTION>
(a) The one-time merger fees and debt extinguishment costs totaling approximately $ 3.1 million incurred by
ACS have been eliminated from other income (expense) for the year ended March 31, 1996.
<S><S>
(b) Interest expense on the applicable portion of senior notes used to complete both acquisitions including
paying the ACS bank debt has been recorded in place of existing ACS and ECNW interest expense for the years
ended March 31, 1995 and 1996.
(c) Deferred tax benefit is recorded at a composite rate of 40 % of the loss adjusted for goodwill
amortization.
(d) Preferred stock dividend requirements are not included in this presentation.
</TABLE>
The unaudited pro forma information does not reflect the elimination of
the Cleveland and Bakersfield divisions of CS Wireless which with CAI's
reduction in ownership constitute a disposition. Cleveland and Bakersfield
revenue approximated $12.0 million with net loss approximating $6.4 million for
the year ended December 31, 1995.
The unaudited pro forma information shown above does not purport to be
indicative of the results of operations that actually would have been obtained
if the companies were combined during the periods presented, or results of
operations which may occur in the future.
<PAGE>
}9
{CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
Useful
LIFE 1995 1996
<S> <C> <C> <C>
Transmission equipment 3-7 years $ 7,116,364 $ 9,542,449
Subscriber equipment 3-5 years 14,446,640 41,950,370
Leasehold improvements 5-20 years 1,023,217 939,090
Office furniture and equipment 5-7 years 1,617,226 3,056,631
Vehicles 3 years 239,754 584,761
24,443,201 56,073,301
Less accumulated depreciation
and amortization 2,602,873 14,063,102
21,840,328 42,010,199
Projects in process - 10,558,420
$21,840,328 $52,568,619
</TABLE>
Depreciation and amortization for the seven-month period ended March 31,
1994 and for the years ended March 31, 1995 and 1996 was $222,922, $2,518,239
and $12,922,021, respectively.
The projects in process primarily represent costs incurred to date
relative to establishing digital systems in Norfolk/Virginia Beach, VA and
Boston, MA.
NOTE 4 - WIRELESS CHANNEL RIGHTS
The company has acquired wireless channel rights through direct
negotiation with license holders and with sub-lessors of certain licenses and
through business acquisitions. The company's wireless channel rights are
predominately lease arrangements, however, the company is the direct licensee
to certain licenses and has purchase options on others. The Company's wireless
channel rights are principally located in the New York City, Albany, Long
Island, and Rochester, New York; Hartford, Connecticut; Norfolk/Virginia Beach,
Virginia; Boston, Massachusetts; Philadelphia and Pittsburgh, Pennsylvania;
Washington, D.C., and Baltimore, Maryland markets.
The lease and sub-lease agreements frequently require initial fees
followed by certain monthly fees based on subscriber volume, subject to certain
minimum fees. Certain agreements require profit sharing with the license
holders. The lease and sub-lease periods generally follow the periods
corresponding to the actual FCC license dates with provisions for extensions
upon license renewal from the FCC. The FCC licenses are typically granted for a
ten-year period. The Company is obligated to pay, as of March 31, 1996, minimum
fees to license holders or sub-lessors in future years as follows:
<TABLE>
<CAPTION>
Years ending
MARCH, 31
<S> <C> <C>
1997 $ 3,809,000
1998 4,622,000
1999 4,834,000
2000 5,012,000
2001 5,151,000
Thereafter 15,564,000
Total $38,992,000
</TABLE>
<PAGE>
}10
{CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - WIRELESS CHANNEL RIGHTS (CONTINUED)
Lease expense for the year ended March 31, 1996 was approximately
$1,700,000. The Company capitalizes the wireless channel rights acquisition
costs and initial fees and amortizes such costs when operations commence in the
market to which they relate. The non-operating wireless channel rights,
totaling approximately $9,500,000 as of March 31, 1995 and $89,000,000 as of
March 31, 1996, will be amortized when placed in service. The following is a
summary of wireless channel rights:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Cost of wireless channel rights $47,373,711 $212,691,464
Less accumulated amortization 1,181,628 6,717,624
$46,192,083 $205,973,840
</TABLE>
Amortization for the seven-month period ended March 31, 1994 and for the
years ended March 31, 1995 and 1996 was $70,000, $1,111,628 and $6,467,996,
respectively.
Wireless channel rights obligations are due within one year without
interest. The amount due as of March 31, 1996 includes $35,101,033 due on the
successful bids at FCC Auction and is net of $12.6 million due from CS Wireless
for rights acquired by CAI (for which CAI is obligated) on behalf of CS
Wireless.
NOTE 5 - INVESTMENT IN CS WIRELESS SYSTEMS, INC.
CAI closed a series of transactions on February 23, 1996 with Heartland
Wireless Communications, Inc. ("Heartland") and CS Wireless pursuant to a
participation agreement between CAI and Heartland dated December 12, 1995. CAI,
after the transactions, owns approximately 54% of CS Wireless, Heartland
approximately 35%, the BANX Partnership approximately 10% and the unit holders
approximately 1%. The cable systems, wireless channel rights and other assets
of CS Wireless with the exception of Charlotte, NC were acquired by CAI through
the ACS acquisition.
CS Wireless, which had been a wholly owned subsidiary of CAI (see Note 2)
and the operator of a wireless cable system in Cleveland, OH, acquired or had
contributed to it, under the participation agreement, operating wireless cable
systems or wireless channel rights held by CAI in Bakersfield, CA, Charlotte,
NC, and Stockton/Modesto, CA and held by Heartland in Dallas, Fort Worth, and
San Antonio, TX, Dayton, OH, Maysville and Sweet Springs, MO, Minneapolis, MN,
Grand Rapids, MI and Salt Lake City, UT. The Heartland contribution was valued
at approximately $138,663,000, the estimated fair value. Heartland received
3,578,834 shares of CS Wireless common stock, approximately $28,300,000 of
cash, and $40,000,000 of notes from CS Wireless.
CS Wireless also closed an offering of $400,000,000 face amount of units
with gross proceeds approximating $230,000,000 which were used in part to make
the cash payment to Heartland on February 23, 1996. Each unit consisted of four
$1,000 face amount 11.375% senior discount notes, due March 1, 2006 and 1.1
shares of CS Wireless common stock. CAI has not guaranteed this or any other CS
Wireless debt.
<PAGE>
}11
{CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INVESTMENT IN CS WIRELESS SYSTEMS, INC. (CONTINUED)
The following is an Unaudited Pro Forma Condensed Combined Balance Sheet
of CS Wireless as of December 31, 1995 as if all above described transactions
had occurred on that date.
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash and cash equivalents $168,302,000
Other current assets 1,136,000
Systems and equipment, net 30,511,000
Wireless channel rights, net 135,659,000
Excess of cost over fair value of net assets acquired 51,335,000
Net assets held for sale 27,609,000
Other assets, net 9,242,000
$423,794,000
LIABILITIES AND EQUITY
Accounts payable and accrued expenses $ 5,626,000
Long-term debt 397,000
Heartland long-term note 15,000,000
Senior discount notes 228,684,000
Deferred income taxes 14,556,000
Equity 159,531,000
$423,794,000
</TABLE>
The following is an Unaudited Pro Forma Condensed Combined Statement of
Operations for CS Wireless for the year ended December 31, 1995 utilizing
historical operating statements of the constituent systems adjusted for the
above transactions as if they had occurred on January 1, 1995.
<TABLE>
<CAPTION>
<S> <C>
Total revenues $ 16,618,000
Operating expenses:
Systems operations 8,233,000
Selling, general and administrative 10,829,000
Depreciation and amortization 18,526,000
Total operating expenses 37,588,000
Operating loss (20,970,000)
Interest expense (29,319,000)
Interest income and other 765,000
Loss before income tax benefit (49,524,000)
Income tax benefit 14,556,000
Net loss $(34,968,000)
</TABLE>
<PAGE>
}12
{CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - DEBT SERVICE ESCROW
The debt service escrow relating to the senior notes is being used to pay
the first three years of interest on the senior notes. The escrow is held in
trust by Chemical Bank and consists of marketable government debt instruments
that mature as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED COST GAINS LOSSES MARKET VALUE
Maturing in fiscal year ending:
<S> <C> <C> <C> <C>
March 31, 1997 $28,591.935 $27,206 $ - $28,619,141
March 31, 1998 31,989,268 43,335 - 32,032,603
March 31, 1999 16,382,674 - 36,833 16,345,841
Total invested 76,963,877 $70,541 $36,833 76,997,585
Cash balance 2,554 2,554
Accrued interest 654,657 654,657
Total escrow balance $77,621,088 $77,654,796
</TABLE>
The Company received $13,275,000 upon maturity of a security in the
escrow account with no gain or loss. Also the Company has a concentration of
credit risk with respect to the investments in the escrow account which is
mitigated by investing in marketable U.S. government debt instruments.
NOTE 7 - OTHER ASSETS
Other assets at March 31, consist of :
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Acquisition deposits $6,000,000 $ -
Other assets 1,854,452 2,268,847
$7,854,452 $ 2,268,847
</TABLE>
NOTE 8 - DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
SENIOR DEBT 1995 1996
<S> <C> <C>
12.25% senior notes due 2002 (a) $ - $275,000,000
12% notes payable - New York System acquisition debt (b) 21,250,000 -
NOTES PAYABLE
Term notes due May 9, 2005 (c) - 29,753,550
Acquisitions (d) 3,062,337 12,138,186
Acquisition deposits 5,000,000 -
Employee notes - 1,063,156
Vehicles, equipment and other 219,810 479,775
$ 29,532,147 $318,434,667
</TABLE>
<PAGE>
}13
{CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - DEBT (CONTINUED)
Scheduled maturities of debt at March 31, 1996, are as follows:
<TABLE>
<CAPTION>
YEARS ENDING MARCH 31
<S> <C>
1997 $ 5,251,356
1998 451,225
1999 257,878
2000 232,560
2001 7,048,579
Thereafter 305,193,069
$318,434,667
</TABLE>
(a) CAI's offering of $275,000,000 of 12 1/4% Senior Notes due 2002
closed on September 29, 1995. The proceeds were used in part to pay
the cash portions of certain acquisitions and to fund a debt
service escrow account (Escrow) with approximately three years of
interest pursuant to the indenture. The indenture calls for semi-
annual interest payments (March and September) from Escrow with the
principal due in full on September 15, 2002. The Senior Notes are
general unsecured obligations of CAI except for a first priority
security interest in the Escrow and its equal rank with the other
senior debt and senior rank to the other debt with respect to right
of payment. The Senior Notes are effectively subordinated to all
collateralized debt to the extent of the value of assets
collateralizing such debt. The indenture also imposes certain
limitations and restrictions on CAI including the ability of CAI to
incur additional indebtedness, pay dividends, make investments,
consummate certain asset sales, enter into certain transactions
with affiliates, incur liens, engage in unrelated businesses, and
enter into mergers and/or consolidations without express consent.
(b) On January 9, 1995, the Company issued various short-term notes to
finance the acquisition of the New York System. These notes,
including accrued interest and a five percent success fee, were
repaid on May 9, 1995 from proceeds of the Term Notes mentioned in
(c) below. The success fee of $1,062,500 was charged to interest
expense over the period January 9, 1995 to May 9, 1995.
(c) Two $15,000,000 term notes issued to affiliates of NYNEX and Bell
Atlantic are due on May 9, 2005 with interest at 16%, accruing
semi-annually on both principal and unpaid accrued interest.
Interest will be paid semi-annually on March 1 and September 1 of
each year, commencing on March 1, 1999. The term notes contain
maintenance and compliance covenants including compliance with the
Business Relationship Agreement and the covenants mentioned in (a)
above. The original discount of $300,000 represents the value of
the Warrants issued with the term notes and is amortized over the
term note period as interest expense. In addition, the term notes
interest rate increased to 16% from 14% per annum pursuant to an
adjunct agreement with BANX regarding licensing issues, which
amounted to an additional interest expense of $354,000 for the
applicable period of September 29, 1995 to March 31, 1996. For the
year ended March 31, 1996, interest expense on the term notes
approximated $4,000,000, which is included in accrued expenses.
The term notes are convertible into 14% Senior Preferred Stock at
the initial Conversion Price of $10,000 per Senior Preferred Share
until September 29, 2000. The 14% Senior Preferred Shares are
convertible into Voting Preferred Stock based on a formula
prescribed in the terms of the Senior Preferred Stock. The Stage I
Warrants entitle the holder to purchase Voting Preferred Shares
from the Company from time to time based on formulas prescribed in
the terms of the Stage I Warrant until September 29, 2000. The
Voting Preferred Stock is convertible into common stock. Together,
the terms and intent of the Term Notes, 14% Senior Preferred Stock,
and the Stage I and Stage II Warrants allow NYNEX and Bell Atlantic
through their affiliates to maintain a constant 45% common stock
position in CAI, assuming exercising the Warrants and full
conversion of all shares to common shares.
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - DEBT (CONTINUED)
(d) The notes payable for acquisitions consist of (1) a note in the
amount of $3,525,000 relating to the Pittsburgh Asset purchase, due
on September 30, 1996 with interest payable semi-annually at 8% per
annum; (2) a note in the amount of $4,725,000 relating to the
Baltimore Asset purchase due on September 29, 2000 with interest
payable quarterly at 8% per annum for the first three years and 12%
per annum thereafter to maturity. Both notes are subordinated to
all other CAI obligations for borrowed money unless by its terms
such obligations are not Senior Indebtedness and all other
obligations collateralized by liens or a security interest on CAI
property and (3) acquisition notes payable reflecting the notes
issued to Bott and the Bott Family Trust in connection with the
purchase of five corporations with wireless channel rights. Three
Bott corporations were acquired on March 31, 1994 resulting in
notes with a face value of $3,750,000 discounted to $2,910,000
based on an imputed interest rate of 8.5%. Another two Bott
corporations were acquired in January 1996 resulting in a note with
a face value of $1,430,000 discounted to $757,000 based on an
imputed interest rate of 12.25%. Each of the notes is
collateralized by the common stock of the company acquired.
NOTE 9 - INCOME TAXES
The components of the consolidated income tax benefit for the
period ended March 31, 1994 and the years ended March 31, 1995 and 1996
are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Current $ - $ - $ -
Deferred - - 12,000,000
Total $ - $ - $12,000,000
</TABLE>
The primary items giving rise to the difference between the
federal statutory tax rate and the Company's effective tax rate is the
recognition of certain tax benefits associated with acquisitions as a
reduction to goodwill under the purchase accounting rules for the year
ended March 31, 1996, the establishment of a valuation allowance
against deferred tax assets for the year ended March 31, 1995 and
certain nondeductible stock transactions for the period ended March
31, 1994.
The significant components of deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Net operating loss carryovers $ 7,630,000 $ 24,915,000
Intangibles (1,580,000) (34,841,000)
Investment in CS Wireless - (24,000,000)
Property and equipment (462,000) (1,434,000)
Other, net 402,000 (50,000)
Total net deferred tax asset (liability) 5,990,000 (35,410,000)
Less: Valuation allowance (5,990,000) -
Net deferred tax asset (liability) $ - $(35,410,000)
</TABLE>
<PAGE>
}14
{CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES (CONTINUED)
Approximately $47,410,000 of the change in deferred taxes
from March 31, 1995 to March 31, 1996 was recorded as a net
increase in goodwill incident to the purchase accounting of
certain acquisitions.
A valuation allowance is provided to reduce deferred tax
assets to a level which, more likely than not, will be
realized. The deferred tax assets recorded reflects
management's estimate of the amount which will be realized
based upon current operating results and contingencies. During
the year ended March 31, 1996 the valuation allowance of
$5,990,000 was eliminated.
The Company has available as of March 31, 1996
approximately $62 million of net operating loss carryforwards
which begin to expire in 2009. The use of these carryforwards
may be limited on an annual basis pursuant to the Internal
Revenue Code due to certain changes in ownership and equity
transactions.
NOTE 10 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to
estimate the fair value of each class of financial instruments
for which it is practicable to estimate that value:
CASH AND CASH EQUIVALENTS. The carrying amount approximates
fair value because of the short maturity of those instruments.
DEBT SERVICE ESCROW. The fair values of the investments in the
debt service escrow are estimated based on market values or
comparable interest rates, creditworthiness, and maturities of
other debt instruments.
DEBT. The fair value of the Company's debt is primarily based
on quoted market prices for its publicly traded senior notes
and for the remaining debt, estimated based on quoted market
prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining
maturities. The fair value of debt maturing within twelve
months is estimated to be its carrying value.
<TABLE>
<CAPTION>
Carrying Fair
AMOUNT VALUE
<S> <C> <C>
Cash and cash equivalents $103,263,094 $103,263,094
Debt service escrow 77,621,088 77,654,796
Debt
Senior notes 275,000,000 292,187,500
Term notes and other 43,434,667 45,556,117
</TABLE>
NOTE 11 - COMMITMENTS
CONSULTING AGREEMENTS. As of March 31, 1996, the Company is
obligated under five consulting agreements, expiring in
September 1996 through April 2000, for certain business, system
design and other consulting services to be provided. These
agreements provide that the consultants shall be paid fees
aggregating $607,000.
<PAGE>
}15
{CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - COMMITMENTS (continued)
PURCHASE COMMITMENTS. As of March 31, 1996, the Company had
approximately $22.3 million of outstanding purchase orders,
primarily relating to equipment and technical work for the
Boston and Norfolk/Virginia Beach Projects.
PROGRAMMING CONTRACTS. In connection with its distribution of
television programming, the Company has fixed-term contracts
with various program suppliers, such as HBO, Showtime, CNN,
MTV, USA, and A&E. Contract terms range in length from one year
to ten years and expire at various dates through 2003. Most
contracts are subject to automatic renewal upon expiration
unless notice is given, by either party, of intent not to
renew. These contracts require the Company to pay fees to
programmers based on the number of subscribers.
Expansion. Management believes that the foregoing commitments
and its expansion plans will require the Company to raise
additional funds during the year ending March 31, 1997. Such
additional funds my take the form of debt or equity securities
issuances, borrowings under loan arrangements or sales of
assets including channel rights or wireless cable systems. Any
such financings must conform to the requirements contained in
the agreements with BANX and the restrictions imposed by the
Senior Notes. In the event that such additional financings are
not available to the Company, management can and will defer the
acquisition of capital expenditures and other costs. The
present revenue stream and cash resources available to the
Company are adequate to sustain the Company's needs through
mid-1997 if such actions were taken. However, expansion plans
would be adversely impacted.
Due to the regulated nature of the subscription
television industry, the Company's growth and operations may
be adversely impacted by the adoption of new, or changes to
existing, laws or regulations or the interpretations thereof.
NOTE 12 - REDEEMABLE PREFERRED STOCKS
As part of the BANX Transactions (see Note 17) the BANX
Partnership purchased 7,000 shares of Senior Convertible
Preferred Stock (Senior Preferred) and Stage II Warrants to
purchase Voting Preferred Stock, without par value, of CAI. The
Senior Preferred has a 14% cumulative dividend, payable
quarterly (optionally before December 1, 1998 and Mandatorily
after December 1, 1998). Additionally, the dividend is
increased by an amount calculated at a rate of 14% per annum,
compounded semi-annually, on any accrued dividends remaining
unpaid. In addition, the Company is subject to an additional
dividend at the rate of 0.5% per quarter on the par value plus
unpaid accrued dividends pursuant to an adjunct agreement with
BANX regarding licensing issues. As of March 31, 1996,
dividends accrued to BANX approximated $5,800,000.
The Senior Preferred is convertible into Voting Preferred
Stock, based on a formula prescribed in the terms of the Senior
Preferred for a period of five years commencing on September
29, 1995, the date of issue. In turn, the Voting Preferred
Stock is convertible into common stock, initially at the rate
of 100 shares of common stock for one share of Voting
Preferred Stock. The terms and intent of the Senior Preferred
and the Term Notes together with the Stage I and Stage II
Warrants held by affiliates of NYNEX and Bell Atlantic are to
allow them the ability to maintain a 45% common stock
ownership position at all times, assuming exercise and
conversion of all warrants and preferred shares. The Senior
Preferred Stock also provides for mandatory redemption at par
plus any accrued dividends on the tenth anniversary date of the
Original Issue Date which was September 29, 1995, absent any
conversion.
<PAGE>
}16
{
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - REDEEMABLE PREFERRED STOCKS (CONTINUED)
In conjunction with the January 9, 1995 acquisition of
the New York System, the Company issued 180,500 shares of
Series A preferred stock. The Series A preferred stock has an
8% cumulative dividend which restricts other dividend payments,
and the shares are convertible through January 9, 1998, into
common stock based on the Series A preferred stock having a
$100 redemption and liquidation value and a conversion price of
the lesser of $11 or the average of the ten day market price
prior to conversion. The shares have certain registration
rights. The Company must redeem all Series A shares by January
9, 2000, or earlier. The Company has authorized 350,000 shares
of Series A preferred stock, of which 180,500 shares were
issued and outstanding at March 31, 1995 and 1996.
Through the month of May 1996, a total of 174,725 shares
of the Series A 8% Redeemable Convertible Preferred Stock was
converted into 2,481,991 shares of CAI common stock.
NOTE 13 - SHAREHOLDERS' EQUITY
In September 1993, the Company sold 703,900 shares to
certain officers and employees at less than fair market value.
The Company recorded $2,465,000 as additional compensation
expense and additional paid-in-capital. In addition, as part of
a restructuring of ownership, the Company issued 1,596,100
shares to certain owners of the Company.
In September 1994, 74,000 warrants were exercised on a
non-cash basis at $.25 by an officer for 72,279 shares of
common stock. The value of the aggregate exercise price was
$18,500.
On March 8, 1995, the Company authorized and issued
20,000 shares of Series B preferred stock for $2,000,000 gross
proceeds before a $100,000 placement fee. The Series B
preferred stock has a 6% cumulative dividend provision, are
redeemable and are also convertible to common stock based on
the Series B preferred stock having a $100 liquidation value
and a conversion price of $7.36 unless the market price is less
than $9.20 on the conversion date, at which point there is an
adjustment based on 80% of the market price. All 20,000 shares
of Series B preferred stock were converted into 271,739 shares
of common stock in April 1995, which pursuant to conversion are
considered cancelled as of March 31, 1995. These shares of
Series B preferred stock cannot be reissued. The 271,739 shares
of common stock issued in April 1995 pursuant to the conversion
feature on the 20,000 shares of Series B preferred stock were
considered outstanding as of March 31, 1995.
On September 29, 1995, the Company amended and restated
its Certificate of Incorporation with shareholder approval to
increase the authorized number of CAI no par Common Shares
available for issuance from 45,000,000 to 100,000,000, and to
authorize 15,000 shares of a new class of 14% Senior Preferred
Stock, par value $10,000 per share and 2,000,000 shares of a
new class of Voting Preferred Stock, no par value. The Senior
Preferred Stock is convertible into Voting Preferred Stock and
the Voting Preferred Stock is convertible into common stock.
(see Note 12).
<PAGE>
}17
{CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - SHAREHOLDERS' EQUITY (CONTINUED)
The stock capitalization is as follows:
<TABLE>
<CAPTION>
Shares Authorized Shares Issued and Outstanding
CLASS OF STOCK AS OF MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1996
<S> <C> <C> <C>
Preferred stock
14% Senior convertible preferred stock,
par value $10,000 per share 15,000 - 7,000
Series preferred stock
Series A 8% redeemable convertible 350,000 180,500 180,500
preferred stock, no par value
Undesignated 4,650,000 - -
Total series preferred stock 5,000,000 180,500 180,500
Voting preferred stock, no par value 2,000,000 - -
Total preferred stock 7,015,000 180,500 187,500
Common stock, no par value 100,000,000 15,754,018 37,829,482
</TABLE>
NOTE 14 - OPTIONS AND WARRANTS
STOCK OPTION PLANS
INCENTIVE AND NONQUALIFIED STOCK OPTION PLANS. The Company's
1995 Incentive Stock Plan (the "1995 Plan") provides for the
grant of incentive stock options (qualifying under Section 422
of the Internal Revenue Code), non-qualified stock options,
stock appreciation rights, performance shares and restricted
stock or any combination of the foregoing, as the Committee may
determine. The 1995 Plan will expire on March 27, 2005. The
number of shares available for grants is 1,200,000 shares and
the 1995 Plan is administered by the Board of Director's
Compensation Committee. Vesting and the per share exercise
price for stock options granted under the 1995 Plan, which will
not be less than 100% of the fair market value per share of
common stock on the date the option is granted, is determined
by the Compensation Committee at the time of grant.
In November 1993, the Company adopted its 1993 Stock
Option and Incentive Plan (the "1993 Plan"). Under the 1993
Plan, options to purchase an aggregate of not more than
1,000,000 shares of common stock may be granted, from time to
time, to key employees (including officers), advisors and
independent consultants to the Company or to any of its
subsidiaries. Options granted to officers and employees may be
designated as incentive stock options ("ISOs") or nonqualified
stock options ("NQSOs"). Options granted to independent
consultants and other nonemployees may only be designated
NQSOs.
The 1993 Plan is administered by a committee established
by the Board of Directors. Vesting and the per share exercise
price for stock options granted under this Plan, which will not
be less than 100% of the fair market value per share of common
stock on the date the option is granted, is determined by the
Compensation Committee at the time of grant.
OUTSIDE DIRECTORS' OPTION PLAN. In October 1993, the Company
adopted the Outside Directors' Option Plan (the "Directors'
Plan"). Under the Directors' Plan, options to purchase an
aggregate of not more than 30,000 shares of common stock may be
granted from time to time to nonemployee directors. These
options will vest at the rate of 20% a year over five years,
beginning one year after date of grant and are exercisable for
a period of seven years. The exercise price for stock options
granted under the Directors' Plan will not be less than 100% of
the fair market value of the common stock on the grant date. As
of March 31, 1996, the Company has granted options under this
plan to purchase 8,334 shares of common stock at $11 per share.
<PAGE>
}18
{CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - OPTIONS AND WARRANTS (CONTINUED)
OPTION ACTIVITY. Information on options for the above described
plans is summarized as follows:
<TABLE>
<CAPTION>
Exercise NUMBER OF OPTIONS
PRICE RANGE TOTAL Exercisable
<S> <C> <C> <C>
Outstanding, September 1, 1993 - -
Granted $11.00 452,667
Outstanding, March 31, 1994 $11.00 452,667 205,000
Granted $11.00-15.00 743,834
Canceled $11.00-15.00 (254,667)
Outstanding, March 31, 1995 $11.00-15.00 941,834 454,500
Granted(1) $7.50-11.00 997,300
Canceled(1) $11.00-15.00 (665,000)
Outstanding, March 31, 1996 $7.50-11.00 1,274,134 550,501
</TABLE>
(1) Employees submitted and the Company reissued
repriced options for 959,500 shares.
The average purchase price of outstanding stock options
at March 31, 1994, 1995 and 1996 was $11.80 per share, $12.27
per share and $7.75 per share, based on an aggregate purchase
price of $5,321,000, $11,733,500 and $9,850,000, respectively.
Outstanding stock options will expire over a period ending no
later than March 2002.
WARRANTS
THE BANX WARRANTS. The BANX Partnership holds warrants to the
Stage I and Stage II financings which are exercisable for an
aggregate of $201,000,000 and which entitle BANX to common
stock aggregating 45% of the then total outstanding shares of
the Company if exercised along with the conversion provisions
of the term notes and senior preferred stock for which CAI has
already received $100,000,000.
COMMON STOCK WARRANTS. Outstanding warrants, except for those
issued to the BANX Partnership, are as follows:
<TABLE>
<CAPTION>
Exercising Number of
PRICE RANGE Warrants
<S> <C> <C>
Outstanding, April 1, 1994 $0.25-14.85 1,214,000
Issued(1) $7.50-10.00 880,578
Exercised $0.25 (74,000)
Outstanding, March 31, 1995 $0.25-14.85 2,020,578
Issued(2) $5.56-11.00 289,963
Outstanding, March 31, 1996 $0.25-11.00 2,310,541
</TABLE>
(1) The warrants were issued to bridge lenders in
connection with the acquisition of the New York System.
(2) The warrants issued and certain warrant exercise
prices revised during the year ended March 31, 1996
were pursuant to anti-dilutive clauses in agreements
relating to the warrants.
<PAGE>
}19
{
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - OPTIONS AND WARRANTS (CONTINUED)
The average purchase price of outstanding warrants at
March 31, 1995 and 1996 was $9.51 and $7.72 per share, based on
an aggregate purchase price of $20,639,050 and $17,829,083,
respectively. Outstanding warrants will expire over a period
ending no later than January 2000.
NOTE 15 - OPERATING LEASES
The Company leases office space in each market it
currently operates in under non-cancelable agreements which
expire through November 30, 2000, and requires various minimum
monthly payments and payment of property taxes, certain
maintenance, and insurance.
The Company leases towers, land and/or building space in
each of its operating markets and certain other markets for
broadcasting purposes. The leases are non-cancelable agreements
expiring through December 2012. Most of the leases have
provisions for renewal periods. The leases require various
minimum monthly payments and are subject to periodic fixed and
inflationary increases.
The Company leases vehicles for customer service and
other corporate use. The agreements are non-cancelable, expire
through April 1997 and require various monthly payments. The
company is responsible for normal maintenance and insurance.
Additionally, the Company leases certain office and
broadcast test equipment under various lease agreements for
periods up to thirty-six months. The company pays various
monthly payments and is required to maintain and insure such
equipment.
The approximate minimum rental commitments for operating
leases as of March 31, 1996 due in future years is as follows:
<TABLE>
<CAPTION>
YEARS ENDING MARCH 31,
<S> <C>
1997 $ 2,655,000
1998 2,528,000
1999 1,739,000
2000 1,301,000
2001 1,009,000
Thereafter 2,681,000
Total $11,913,000
</TABLE>
Total rent expense for the seven-month period ended March
31, 1994 and years ended March 31, 1995 and 1996 was
approximately $122,000, $1,080,000 and $2,511,000, respectively.
NOTE 16 - RELATED PARTY TRANSACTIONS
The Company has entered into various transactions with
the BANX Partnership. (See Note 17).
On May 8, 1995 CAI sold, subject to an option to
repurchase exercisable at any time prior to January 1, 1996,
all of the issued and outstanding stock of TelQuest, Inc.
("TelQuest") (with a negative net book value of approximately
<PAGE>
}20
{CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - RELATED PARTY TRANSACTIONS (CONTINUED)
$70,000) to Wave Holdings, L.L.C., a Delaware limited liability
company controlled by Jared E. Abbruzzese, CAI's Chairman and
Chief Executive Officer, for $25,000.The gain on this sale of
approximately $23,000 was deferred and was not included in
income. TelQuest has entered into a Joint Venture and Capital
Commitment Agreement with Corotoman pursuant to which Corotoman
will fund TelQuest's developmental wireless transmission
projects. Those projects could result in TelQuest's
involvement in interLATA operations that could violate the MJF,
if engaged in by an RBOC or an affiliated enterprise. In May
1996, CAI relinquished its option to repurchase TelQuest for a
2% equity interest in TelQuest Systems, Inc., the operating
successor of TelQuest's business.
In consideration of Mr. Abbruzzese's guaranteeing the
obligation of CAI to MMDS Holdings, which permitted CAI to
complete the Microband acquisition in January 1995, the CAI
Board of Directors awarded options to acquire 150,000 CAI
Common Shares at $11.00 per share to Mr. Abbruzzese.
As of March 31, 1996, the Company has a note payable
outstanding of $119,810 owed to Hope Carter. CAI must make a
$100,000 principal payment on January 31, 1997, and pay the
remaining principal and interest on July 31, 1997. The loan
carries a simple annual interest rate of 8%.
Additionally, CAI periodically chartered an airplane owned by
Wave Air, Inc., which is primarily owned by Mr. Abbruzzese, in
order to carry out business when airline schedules were not
compatible. Transactions with Wave Air, Inc. amounted to
approximately $103,000 for the year ended March 31, 1996 (none
for prior periods).
NOTE 17 - TRANSACTIONS AND AGREEMENTS WITH BELL ATLANTIC AND
NYNEX
CAI financed the cash consideration of various
acquisitions through the issuance of $30,000,000 of Term Notes
and Warrants ("Stage I") and $70,000,000 (7,000 shares) of
Senior Preferred Stock and Warrants ("Stage II") to BANX
Partnership ("BANX") which consists of Bell Atlantic
Corporation ("Bell Atlantic") and NYNEX Corporation ("NYNEX").
The Term Notes are convertible into 3,000 shares of Senior
Preferred Stock effective with the Stage II closing. The
Senior Preferred Stock is convertible into Convertible Voting
Preferred Stock, no par value ("Voting Preferred Stock"). The
Stage I and Stage II Warrants also relate to the purchase of
Voting Preferred Stock which is convertible into common shares
on the ratio of 100 common shares to one share of Voting
Preferred Stock. The formula to convert Senior Preferred Stock
and the Stage I and II Warrants into Voting Preferred Stock is
intended to maintain a 45% common stock position for BANX,
assuming conversion of all common stock equivalents, including
the Voting Preferred Stock.
CAI also entered into a Business Relationship Agreement
(the "BR Agreement") and a Securities Purchase Agreement (the
"Purchase Agreement") with BANX dated March 28, 1995.
The BR Agreement is structured as an election by Bell
Atlantic and NYNEX to utilize CAI's transmission systems in
specified service areas in their respective operating
territories in which CAI currently has an operating wireless
system or wireless spectrum rights. The BR Agreement
identifies several phases in the relationship between the
parties: (I) a study phase during which a technology and
operating plan is developed, (ii) after Bell Atlantic or NYNEX,
as the case may be, gives notice of its election to implement
the BR Agreement in a particular market, a preparatory phase
for such market, and (iii) an implementation phase for each
market in which a BANX affiliate has elected to implement the
BR Agreement, during which CAI commences transmission services.
<PAGE>
}21
{CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - TRANSACTIONS AND AGREEMENTS WITH BELL ATLANTIC AND
NYNEX (CONTINUED)
CAI will receive contractual monthly revenues for use, by
the BANX Affiliates, of its transmission system service.
Revenues are based on the number of serviceable homes and
subscribers in each area, subject to certain minimums which
range from $28,000,000 to $34,000,000 (assuming implementation
of the BR Agreement in all markets within one year of the Stage
II Closing) during the initial five-year term. If the election
has been made with respect to less than all of the service
areas in both the Bell Atlantic or NYNEX territories, the
minimum service revenues are adjusted on the basis of the ratio
of the number of serviceable homes in the service areas where
the election has been made as compared with the total number of
serviceable homes in all of the service areas identified in the
agreement.
The BR Agreement is renewable by the BANX affiliates on a
market-by-market basis for successive five-year terms on one
year's prior notice if (i) service revenues paid to CAI have
exceeded certain specified minimums in the applicable market
and (ii) the BANX Affiliates have converted Senior Preferred
Stock to Voting Preferred Stock or exercised Warrants for
Voting Preferred Stock in an aggregate amount of at least 25%
of the aggregate number of shares of Voting Preferred Stock
issued upon such conversion or exercise. A price adjuster
based on the GDP Implicit Price Deflater applies to increase
the minimum service revenue schedule in the renewal period.
<PAGE>
}22
{PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF CAI WIRELESS
SYSTEMS, INC.
The following table sets forth certain information
concerning each of the Company's directors and executive
officers:
<TABLE>
<CAPTION>
NAME Age Position with Company
<S> <C> <C> <C>
Jared E. Abbruzzese 41 Chairman, Chief Executive Officer and Director (1)
John J. Prisco 40 President, Chief Operating Officer and Director (1)
George M. Williams 55 Chief Administrative Officer, Secretary, Treasurer and
Director(1)
Timothy J. Santora 41 Executive Vice President (1)
James P. Ashman 42 Executive Vice President, Chief Financial Officer and
Director
Craig J. Kessler 39 Vice President and Controller
Arthur C. Belanger 70 Director(2)
Harold A. Bouton 52 Director(3)
David M. Tallcott 50 Director(3)
Alan Sonnenberg 44 Director
Robert D. Happ 54 Director(2)(3)
</TABLE>
(1) Member of Executive Committee. The Executive Committee
conducts the affairs and business of the Company between
meetings of the Board of Directors.
(2) Member of Audit Committee. The Audit Committee assists the
Board of Directors in fulfilling its responsibilities with
respect to the Company's accounting and financial reporting
activities.
(3) Member of Compensation Committee. The Compensation
Committee determines the compensation to be paid by the
Company to its officers and administers the 1995 and 1993
Stock Option Plans and Outside Directors' Option Plan.
The Certificate of Incorporation and the Bylaws of the
Company provide for a minimum of three and a maximum of eleven
members of the Company's Board of Directors (the "Board") and
permit the Board to specify the number of directors within that
range by resolution. The Board has currently established the
size of the Board at nine members. All directors hold office
until their successors have been elected and qualified. The
Company has agreed with Gerard Klauer Mattison & Co., LLC, the
representative of the Underwriters of the Company's initial
public offering of Common Stock (the "Representative"), that
for the five-year period ending February 1999, the Company will
use its best efforts to cause, if requested by the
Representative, an individual selected by the Representative
and reasonably acceptable to the Company to be elected to the
Board who may be an officer, director or affiliate of the
Representative. To date, the Representative has made no such
request.
JARED E. ABBRUZZESE has been the Chairman, Chief
Executive Officer and a director of the Company since its
formation in August 1991. On August 28, 1992 Tri-Mark
Communications, Ltd. ("Tri-Mark") named Mr. Abbruzzese as
acting President of Tri-Mark and its subsidiary, Capital
Wireless, in order to guide Capital Wireless through its
Chapter 11 bankruptcy proceeding. He served as acting
President through September 1993. Prior to that, Mr.
Abbruzzese served as President of The Diabetes Institute
Foundation in Virginia Beach, Virginia from October 1988 until
August 1991.
JOHN J. PRISCO has been President, Chief Operating
Officer and a director of CAI as of March 1, 1996. Mr. Prisco
came to CAI from Bell Atlantic Network Services, Inc., where he
spent the last three years as a corporate officer, most
recently as President of CellularVision of New York, the only
LMDS (28 GHz) wireless cable operator in the U.S. In 1986, Mr.
Prisco founded Penn Access Corporation , which operated a fiber
optic network in the greater Pittsburgh, PA area. Mr. Prisco
served as President and Chief Executive Officer of Penn Access
until its sale in 1993 to TCI. Penn Access currently operates
as part of the Teleport Communications Group.
<PAGE>
}23
{ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF CAI WIRELESS
SYSTEMS, INC. (CONTINUED)
GEORGE M. WILLIAMS has been Chief
Administrative Officer and Corporate Analyst, Treasurer and
Secretary of the Company since December 1995. Previously, he
was Executive Vice President of Finance and Chief Financial
Officer since August 1993. Mr. Williams has been a director
of the Company since August 1993 and was Treasurer from March
1994 through September 1994. Mr. Williams was a financial
consultant to the Company from September 1992 until his current
appointment. From 1986 until August 1993 he was a partner in
Cable Management Services providing management consultation to
the hard-wire and wireless cable industries in both the
domestic and international markets. He was involved in the
start-up of Schomann Entertainment, Inc., a small hard-wire
cable multiple systems operator, as a partner and controller
with operational responsibilities from 1987 until August 1993.
He also has been a consultant in the cable television industry
since 1986. Mr. Williams is currently a 20% shareholder and
officer of Hamilton County Cable TV, Inc., a hard-wire cable
system operator.
TIMOTHY J. SANTORA has been Executive Vice President of
the Company since November 21, 1995. Previously, Mr. Santora
was Senior Vice President, Secretary and director of the
Company since May 1993 and Treasurer from May 1993 until
February 1994. Since September 1992 to the present, Mr.
Santora has been Vice President and a director of Tri-Mark.
From August 1991 to September 1992, Mr. Santora consulted with
the Company. From 1985 to August 1991, he was Corporate
Officer of Manufacturer's Hanover Trust Company.
JAMES P. ASHMAN has been Executive Vice President and
Chief Financial Officer of CAI since December 1995.
Previously, he was Senior Vice President and Treasurer of the
Company since September 1994. He has been a director since
March 1994. From November 1992 to September 1994, he was a
senior advisor of, and independent consultant affiliated with,
Carolina Barnes Capital, Inc. ("CBC"), a registered broker
dealer. CBC served as a financial advisor to the Company and
Tri-Mark from January 1993 until September 1994. Mr. Ashman
was Vice President of Richter & Co., Inc. from June 1990 to
November 1992.
CRAIG J. KESSLER has been Vice President and Controller
of CAI since March 1994. From June 1989 until joining CAI, he
was a manager and assistant director of quality control at
Urbach, Kahn, and Werlin, PC, a public accounting firm,
responsible for the firm's continuing professional education,
client service, and compliance with professional standards.
Mr. Kessler is a certified public accountant and member of the
American Institute of Certified Public Accountants, New York
State Society of Certified Public Accountants, and the
Missouri Society of Certified Public Accountants.
ARTHUR C. BELANGER has been a director of the Company
since March 1994. From December 1979 to 1984, Mr. Belanger
served as Vice President and General Manager of GE Cablevision.
GE Cablevision merged with United Artists Communications, Inc.
("UA") in 1979. In 1984, Mr. Belanger became UA's Executive
Vice President and Chief Operating Officer and held that
position until his retirement in January 1992. At that time,
UA served approximately 3 million subscribers.
HAROLD A. BOUTON has been a director of the Company
since September 1994. Mr. Bouton is the President and General
Manager of WTVI, Channel 42, the Public Broadcast Service
(PBS) affiliate in Charlotte, North Carolina, positions he has
held since 1983.
DAVID M. TALLCOTT has been a director of the Company
since March 1995. Since 1990, Mr. Tallcott has been President
of Lortech Corporation, a full service large mainframe
commercial data center serving the insurance industry, labor
unions and direct mailers.
ALAN SONNENBERG has been a director of the Company since
September 29, 1995. Mr. Sonnenberg served as President of CAI
from September 29, 1995, when ACS was acquired by the Company,
until February 23, 1996, when he became President of CS
Wireless. Currently, Mr. Sonnenberg serves as Vice Chairman
of CS Wireless. Previously, Mr. Sonnenberg served as Chairman
of the Board of Directors of ACS and its Chief Executive
Officer since 1988, and as its President since 1987. Since
1989, Mr. Sonnenberg has been a director of the Wireless Cable
Association International, Inc.
<PAGE>
}24
{ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF CAI WIRELESS
SYSTEMS, INC. (CONTINUED)
ROBERT D. HAPP has been a director of CAI since
September 1995. Mr. Happ served as Managing Partner of the
Boston, Massachusetts office of KPMG Peat Marwick ("KPMG"), an
accounting firm, from 1985 until his retirement in 1994.
Prior to that, he served in various capacities with KPMG. Mr.
Happ is also a member of the Board of Directors of Galileo
Electro-Optics Corporation.
SECTION 16 REPORTS.Under the securities laws of the
United States, the Company's directors, its executive officers
and any persons holding ten percent or more of the common
stock are required to report their ownership of the Common
Stock and any changes in that ownership to the Securities and
Exchange Commission. Specific due dates for the reports have
been established. Jared E. Abbruzzese failed to timely file
one report relating to one transaction in Common Stock
beneficially owned by him and two grants of options to
purchase Common Stock of the Company pursuant to a Rule 16b-3
stock plan. Messrs. Happ, Bouton and Tallcott each failed to
timely file a report upon being elected a director of the
Company, and Mr. Tallcott failed to timely file a report
relating to one transaction in the Common Stock of the
Company. Finally, Hope Carter, Joseph Abbruzzese and The
Corotoman Company, LLC each failed to timely file one report
relating to one transaction in Common Stock of the Company
beneficially owned by Mrs. Carter and Mr. Joseph Abbruzzese
and directly owned by The Corotoman Company LLC. In making
these statements, the Company has relied on the written
representations of its incumbent directors and officers and
its ten percent holders and copies of the reports that they
have filed with the Securities and Exchange Commission.
<PAGE>
}25
{
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation
The following table discloses three fiscal periods of
compensation received by the Company's Executive Officers
receiving compensation in excess of $100,000 for the year ended
March 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
Securities
NAME AND PRINCIPAL POSITION Fiscal Other Annual Underlying All Other
PERIOD SALARY BONUS COMPENSATION OPTIONS COMPENSATION
<S> <C> <C> <C> <C> <C> <C>
Jared E. Abbruzzese 1996 $277,300 $155,000 0(1) 0 $ 0
Chief Executive Officer 1995 206,000 0 0(1) 525,000 0
1994 97,500 10,000 0(1) 0 0
<S> <C> <C> <C> <C> <C> <C>
George M. Williams 1996 147,000 0 0(1) 40,000 0
Chief Administrative Officer 1995 124,900 0 0(1) 28,000 0
1994 53,750 0 0(1) 48,000 402,500(2)
Timothy J. Santora 1996 144,500 0 0(1) 40,000
Executive Vice President 1995 112,600 0 0(1) 28,000 0
1994 41,667 0 0(1) 36,000 161,000(2)
James P. Ashman 1996 140,100 0 0(1) 40,000 0
Chief Financial Officer 1995 54,400 0 0(1) 37,000 0
Alan Sonnenberg 1996 117,400 500,000 0(1) 300,000 13,750(3)
President(3)
</TABLE>
_____________________________
(1) Other annual compensation, including Company provided
vehicle or allowances, life insurance, or membership
dues, less than the lesser of 10% of total annual salary
and bonus or $50,000 is not presented.
(2) The Company recorded additional compensation expense in the
seven-month period ended March 31, 1994 related to shares of
CAI common stock sold to employees. Such compensation for
Messrs. Williams and Santora amounted to $402,500 and $161,000,
respectively, using an estimated value of $3.50 per share.
(3) Mr. Sonnenberg was President of CAI from September 29, 1995,
upon the acquisition of ACS until February 23, 1996 (upon the
consummation of the CS Wireless transaction), under which Mr.
Sonnenberg entered a consulting arrangement with CAI whereby
CAI will pay $75,000 per year through August 1998.
COMPENSATION OF DIRECTORS
Directors who are not officers, excluding Mr.
Sonnenberg, are paid an annual fee of $6,000 and a fee of $750
per Board meeting attended and $250 per committee meeting
attended, plus out-of-pocket expenses, effective November 21,
1995. Prior to that date, the annual fee was $5,000 and a fee
of $750 per Board meeting attended plus out-of-pocket
expenses. Officers who also serve as directors do not receive
fees for serving as directors.
<PAGE>
}26
{ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS (CONTINUED)
Under the Company's Outside Directors' Option Plan (the
"Directors' Plan") each new director who is not otherwise an
employee will receive options to purchase 1,667 shares on the
first anniversary of their election to the Board. Any
director having received options will automatically receive an
additional 1,667 options on the following two anniversaries of
their initial receipt of options, provided there are
sufficient shares remaining in the Directors' Plan and that
they continue to be an eligible director. Options are
exercisable for a period of seven years following the date of
grant. The exercise price of options granted under the
Directors' Plan may not be less than the greater of the fair
market value on the grant date or the Company's initial public
offering price of $11. During the year ended March 31, 1995,
Mr. Belanger received options to purchase 1,667 shares of CAI
Common Stock at an exercise price of $11 per share. During
the year ended March 31, 1996, Messrs. Belanger, Bouton and
Tallcott were each granted options to purchase 1,667 shares of
CAI Common Stock at an exercise price of $11 per share under
the Directors' Plan.
Options granted under the Directors' Plan are not
transferable other than by will or the laws of descent and
distribution. In the event the grantee ceases to be a
director for any reason, each unexpired option may be
exercised to the extent exercisable on the date of such
cessation at any time prior to the date specified in such
option. Notwithstanding the foregoing, in the event of
cessation by reason of death, each unexpired option shall
become exercisable in full and may be exercised at any time
during the following 12 months. If the director is terminated
for cause, outstanding options shall be terminated.
Options granted under the Directors' Plan become
immediately exercisable upon the occurrence of certain events,
including the death or disability of a director or certain
business combinations.
OPTION GRANTS IN LATEST FISCAL YEAR
The following table provides information on options to
purchase shares of CAI Common Stock granted during the fiscal
year ended March 31, 1996 to the persons named in the
Compensation Table above.
<TABLE>
<CAPTION>
Potential realizable value
Number of % of Total at assumed annual rates of
Securities Options Granted Exercise stock price appreciation
Underlying to Employees Price Expiration FOR OPTION TERM ($)
NAME OPTIONS IN FISCAL YEAR ($/SH) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Jared E. Abbruzzese --- --- --- --- --- ---
Alan Sonnenberg 300,000 30.2 11.00 9/29/02 1,132,400 2,838,500
James P. Ashman 40,000 4.0 9.13 12/31/03 148,600 346,400
George M. Williams 40,000 4.0 9.13 12/31/03 148,600 346,400
Timothy J. Santora 40,000 4.0 9.13 12/31/03 148,600 346,400
</TABLE>
In addition, John J. Prisco was awarded options to
purchase 200,000 shares of CAI Common Stock at an exercise
price of $7.75 per share. The options were awarded under
the Company's 1995 Stock Incentive Plan and expire on
March 7, 2006.
<PAGE>
}27
{ITEM 11. EXECUTIVE COMPENSATION
AGGREGATE OPTION EXERCISES IN LATEST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information
with regard to the outstanding options to purchase shares
of CAI Common Stock as of the end of the fiscal year
ended March 31, 1996 for the persons named in the
Compensation Table above and John J. Prisco.
<TABLE>
<CAPTION>
Number of Securities VALUE OF UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED ON Underlying Unexercised OPTIONS AT
EXERCISE (#) VALUE REALIZED Options at March 31, 1996 MARCH 31, 1996 (1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Jared E. Abbruzzese --- --- 225,000 --- $ --- $ ---
John J. Prisco --- --- --- 200,000 --- ---
Alan Sonnenberg --- --- --- --- --- ---
George M. Williams --- --- 60,000 56,000 --- ---
Timothy J. Santora --- --- 52,000 52,000 --- ---
James P. Ashman --- --- 37,000 40,000 --- ---
</TABLE>
(1) The value of unexercised in-the-money options at
March 31, 1996 is based on the difference between the
March 31, 1996 closing price per share of CAI Common
Stock on NASDAQ NM of $7.56 and the exercise prices
of the in-the-money options.
EMPLOYMENT AGREEMENTS
The Company has entered into employment
agreements with Messrs. Abbruzzese, Prisco,
Williams and Santora. Such agreements continue in
effect until October 1, 1996, in the case of
Messrs. Santora and Williams; until March 21,
1998, in the case of Mr. Abbruzzese; and until
January 3, 1998 in the case of Mr. Prisco. The
employment agreements are automatically renewed
for successive one year terms, unless otherwise
terminated. Pursuant to his employment agreement,
Mr. Abbruzzese serves as Chairman and Chief
Executive Officer of the Company and is entitled
to an annual base salary of $350,000. Pursuant to
his employment agreement, Mr. Prisco serves as
President and Chief Operating Officer of the
Company and is entitled to a base salary of
$200,000. Mr. Santora serves as Executive Vice
President and is entitled to an annual base salary
of $170,000. Mr. Williams serves as Chief
Administrative Officer and Corporate Analyst,
Secretary and Treasurer and is entitled to an
annual base salary of $160,000. Each of the
foregoing executive officers will be entitled to
an annual bonus to be determined by the
Compensation Committee.
Pursuant to their respective employment
agreements, Mr. Abbruzzese, Mr. Prisco, Mr.
Santora and Mr. Williams agree to devote
substantially all of their working time to the
business of the Company. Mr. Abbruzzese has
agreed to devote not less than 75% of his working
time to the Company. Mr. Williams, however, may
continue to perform his duties as Treasurer of
Hamilton County Cable TV, as long as such
activities can be accomplished outside of his
normal working time for the Company and do not
otherwise interfere with his duties under his
employment agreement.
If their employment is terminated without
cause, Mr. Williams and Mr. Santora will be
entitled to their base salary and certain benefits
for 12 months following termination of employment.
Mr. Abbruzzese and Mr. Prisco would be entitled to
a severance amount equal to the greater of such
executive's then-current base salary or the total
base salary that would have been payable for the
balance of the term of his employment in the event
such executive's employment is terminated without
cause.
<PAGE>
}28
{
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
EMPLOYMENT AGREEMENTS (CONTINUED)
Mr. Abbruzzese has been granted options to
purchase 525,000 shares of CAI Common Stock, of
which options to purchase 225,000 shares of Common
Stock of CAI were granted to Mr. Abbruzzese during
the fiscal year ended March 31, 1995. Mr.
Abbruzzese surrendered options to purchase 300,000
shares of CAI Common Stock. Mr. Abbruzzese
currently holds options to purchase 225,000 shares
of CAI Common Stock at an exercise price of $7.75
per share, all of which are fully vested.
Mr. Williams has been granted options to
purchase a total of 116,000 shares of CAI Common
Stock at an exercise price of $7.75 per share, of
which options to purchase 40,000 shares were
granted to Mr. Williams during the fiscal year
ended March 31, 1996. Of the 116,000 option
shares, 60,000 are fully vested, 20,000 vest in
January 1997, 16,000 vest in February 1997, and
20,000 vest in January 1998.
Mr. Santora has been granted options to
purchase a total of 104,000 shares of CAI Common
Stock at an exercise price of $7.75 per share, of
which options to purchase 40,000 shares were
granted to Mr. Santora during the fiscal year
ended March 31, 1996. Of the 104,000 option
shares, 52,000 are fully vested, 20,000 vest in
each of January 1997 and 1998, and 12,000 vest in
February 1997.
Mr. Ashman has been granted options to
purchase a total of 77,000 shares of Common Stock
of CAI at an exercise price of $7.75 per share, of
which options to purchase 40,000 shares of Common
Stock of CAI were granted to Mr. Ashman during the
fiscal year ended March 31, 1996. Of the 77,000
option shares, 37,000 are fully vested, and 20,000
vest in each of January 1997 and 1998.
Mr. Prisco has been granted options to
purchase a total of 200,000 shares of Common Stock
of CAI, all of which were granted during the
fiscal year ended March 31, 1996. The options are
exercisable in varying amounts commencing on
December 31, 1996, and annually thereafter on each
January 1 through January 1, 2001. The exercise
price for the options granted to Mr. Prisco is
$7.75 per share.
Mr. Abbruzzese, Mr. Prisco and Mr. Williams
are subject to nondisclosure agreements with
respect to the confidential information of CAI and
are subject to a noncompetition provision in each
of their employment agreements. In the case of
Mr. Abbruzzese, the noncompetition provisions
provide that, if he is terminated for cause of
voluntarily terminates his employment or does not
renew his employment with the Company, for a
period of 12 months following such termination, or
if Mr. Abbruzzese's empIoyment is terminated and
he is receiving the severance amount as provided
in his employment agreement, for a period not to
exceed 12 months during such severance period, he
will not engage in any business directly
competitive with CAI in any market serviced by CAI
or any "Service Area," as defined in the BR
Agreement, or engage in any MMDS license-based
subscription television business or wireline
franchise cable business in any market in which
the Company has licenses or leases at the time of
termination. In the case of Mr. Prisco, the
noncompetition provisions provide that, if he is
terminated for cause or voluntarily terminates his
employment or does not renew his employment with
the Company, for a period of 12 months following
such termination, or if employment is terminated
and he is receiving the severance amount as
provided in the employment agreement, for a period
not to exceed 12 months during such severance
period, he will not engage in any business
directly competitive with CAI in any market
serviced by CAI or any "Service Area," as defined
in the BR Agreement, or be employed by or provide
consulting services to any person in the wireless
cable or pay television industry within 25 miles
of any city in which CAI does business, has rights
or licenses related to the broadcast or
transmission of television programming or in which
CAI is providing transport services to affiliates
of Bell Atlantic or NYNEX. In the case of Mr.
Williams, the noncompetition provisions provide
that, if he is terminated for cause, for a period
of 18 months following termination he will not
engage in any business directly competitive with
CAI in any market serviced by CAI or be employed
or provide consulting services to any person in
the wireless cable or pay television industry
within 25 miles of Albany, Buffalo, Rochester,
Boston, Hartford or Norfolk/Virginia Beach or of
any other city or community in which CAI operates
or has rights or licenses related to the broadcast
or transmission of television programming or in
which CAI has had, within the preceding 12-month
period, active negotiations regarding the
acquisition of such rights or licenses.
<PAGE>
}29
{ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
EMPLOYMENT AGREEMENTS (CONTINUED)
Mr. Sonnenberg, President of CAI from
September 29, 1995 until February 23, 1996,
entered into a three-year Employment Agreement
with CAI pursuant to which he became President of
CAI and Chief Executive Officer of the Wireless
Operating Group of CAI effective September 29,
1995. Mr. Sonnenberg also serves as a director of
CAI. He served as Vice Chairman of the CAI Board
of Directors from September 29, 1995 until
February 23, 1996. Under Mr. Sonnenberg's
employment agreement, Mr. Sonnenberg was entitled
to receive a base salary of $275,000 per year,
received options to purchase 300,000 shares of CAI
Common Stock at an exercise price of $11.00 per
share and received a signing bonus of $500,000
upon execution of such agreement. Upon the
closing of the transactions contemplated by the
Participation Agreement, Mr. Sonnenberg entered
into a Termination Agreement with the Company
pursuant to which his employment agreement was
terminated, he surrendered options to purchase
300,000 shares of CAI Common Stock, and agreed to
certain noncompetition provisions similar to those
imposed upon Mr. Prisco. The Company also entered
into a Consulting Agreement with Mr. Sonnenberg
pursuant to which he agreed to provide CAI with
certain consulting services for a thirty-month
period beginning on February 23, 1996 for an
annual fee of $75,000.
<PAGE>
}30
{
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth as of May 24,
1996 (i) each stockholder who based on public
filings, is known to the Company to be the
beneficial owner of more than 5% of the
outstanding shares of CAI Common Stock, (ii) each
Director and Executive Officer and (iii) all
Directors and Officers of CAI as a group:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
Percentage of Outstanding
NUMBER OF SHARES
SHARES
<S> <C> <C> <C>
The Corotoman Company, LLC ("Corotoman") 6,141,000(1) 15.3%
c/o Jared E. Abbruzzese
18 Corporate Woods Blvd., Third Floor
Albany, NY 12211
Jared E. Abbruzzese 7,212,700(2)(3)(5) 17.9%
18 Corporate Woods Blvd., Third Floor
Albany, NY 12211
Hope Carter 6,577,600(2)(5) 16.4%
18 Corporate Woods Blvd., Third Floor
Albany, NY 12211
Joseph E. Abbruzzese 6,186,300(2) 15.4%
18 Corporate Woods Blvd., Third Floor
Albany, NY 12211
Edward P. Swyer dba SPI Comtech 2,139,000(4) 5.3%
c/o The Swyer Companies
Executive Park
Albany, NY 12203
BANX Partnership 36,751,083(6) 47.9%
3900 Washington Street
Wilmington, DE 19802
John J. Prisco 5,000 *
Timothy J. Santora 276,500(7) *
George M. Williams 175,000(8) *
James P. Ashman 184,279(9) *
Craig J. Kessler 33,000(10) *
Arthur C. Belanger 3,334(11) *
Harold A. Bouton 1,914(12) *
Robert D. Happ 1,000 *
Alan Sonnenberg 759,227(13) 1.9%
David M. Tallcott 2,000(14) *
All directors and officers as a group
(11 persons) 8,653,954 21.3%
</TABLE>
_______________________________
* less than 1%
<PAGE>
}31
{
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT (CONTINUED)
(1) Jared E. Abbruzzese and Hope Carter and
Joseph Abbruzzese, the aunt and brother of
Jared E. Abbruzzese, respectively, own
46.5%, 46.5% and 4%, respectively, of the
membership interests in Corotoman. Those
individuals are the sole directors of
Corotoman.
(2) Includes 6,141,000 shares held by Corotoman.
(3) Includes 263,000 shares held by relatives
over which shares Jared E. Abbruzzese
retains voting control and 225,000 shares
issuable upon exercise of options granted
under the 1995 Incentive Stock Plan.
(4) Includes 200,000 shares held by a family
trust over which shares Mr. Swyer retains voting
control.
(5) Includes 20,000 shares held by The Corotoman
Foundation, Inc., of which Jared E. Abbruzzese and
HopeCarter are directors and over which shares
they retain voting control.
(6) Consists of 36,751,083 shares issuable upon
the exercise of warrants to purchase Common
Stock, the conversion of the Company's
senior preferred stock, the exercise of
warrants to purchase voting preferred stock
and upon conversion of such voting preferred
stock to Common Stock. The general partners
of BANX Partnership are MMDS Holdings (as
defined herein) and NYNEX MMDS Holding (as
defined herein), which are subsidiaries of
Bell Atlantic Corporation and NYNEX
Corporation, respectively. The address of
MMDS Holdings and Bell Atlantic Corporation
is 1717 Arch Street, Philadelphia, PA 19103,
and the address of NYNEX MMDS Holding and
NYNEX Corporation is 1113 Westchester
Avenue, White Plains, NY 10604.
(7) Includes 52,000 shares issuable upon the
exercise of options exercisable currently or
within 60 days of May 24, 1996, and 6,000
shares given to relatives over which shares
Mr. Santora retains voting control.
(8) Includes 60,000 shares issuable upon the
exercise of options exercisable currently or
within 60 days of May 24, 1996.
(9) Includes 37,000 shares issuable upon the
exercise of options exercisable currently or
within 60 days of May 24, 1996, and 75,000
shares issuable upon the exercise of
warrants exercisable currently or within 60
days of March 31, 1996.
(10) Includes 33,000 shares issuable upon the
exercise of options exercisable currently or
within 60 days of May 24, 1996.
(11) Consists of 3,334 shares issuable upon the
exercise of options exercisable currently or
within 60 days of May 24, 1996.
(12) Includes 127 shares held by an immediate
family member and 1,667 shares issuable upon
the exercise of options exercisable
currently or within 60 days of May 24, 1996.
(13) Includes 33,000 shares held by the
Sonnenberg Foundation over which Alan
Sonnenberg retains voting control and 98
shares held by an immediate family member.
(14) Includes 1,000 shares held by Lortech Corp.
over which Mr. Tallcott retains voting
control.
<PAGE>
}32
{
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
THE BANX TRANSACTIONS.
Reference is made to the description of The
BANX Transactions contained in Item 1 - Business -
The BANX Transactions appearing in Part I of this
Annual Report on Form 10-K.
DIVESTITURE.
In connection with the investment by the
BANX Affiliates in CAI, CAI has agreed to comply
with the restrictions placed on Regional Bell
Operating Companies, such as Bell Atlantic and
NYNEX ("RBOCs"), and their affiliated enterprises
by the Modification of Final Judgment entered by
the United States District Court for the District
of Columbia on August 24, 1982 (the "MFJ"). Among
its restrictions, the MFJ prohibits RBOCs and
affiliated enterprises from providing
telecommunications services between Local Access
and Transport Areas ("LATAs"). Because certain
transmission and reception facilities used by CAI
transmit or receive signals to or from other
LATAs, as a condition to the Stage I Closing, CAI
divested itself of those facilities and ceased
providing transmission and reception services
between LATAs. Upon the restrictions being
lifted, CAI exercised its option to reacquire all
assets sold.
OTHER.
On May 8, 1995 CAI sold, subject to an
option to repurchase exercisable at any time prior
to January 1, 1996, all of the issued and
outstanding stock of TelQuest, Inc. ("TelQuest")
(with a negative net book value of approximately
$40,000) to Wave Holdings, L.L.C., a Delaware
limited liability company controlled by Jared E.
Abbruzzese, CAI's Chairman and Chief Executive
Officer, for $25,000. The gain on this sale of
approximately $23,000 was deferred and was not
included in income. TelQuest has entered into a
Joint Venture and Capital Commitment Agreement
with Corotoman pursuant to which Corotoman will
fund TelQuest's developmental wireless
transmission projects. Those projects could
result in TelQuest's involvement in interLATA
operations that could violate the MJF, if engaged
in by an RBOC or an affiliated enterprise. In May
1996, CAI relinquished its option to repurchase
TelQuest for a 2% equity interest in Telquest
Systems, Inc., the operating successor of
Telquest's business.
In consideration of Mr. Abbruzzese
guaranteeing the obligation of CAI to MMDS
Holdings, which permitted CAI to complete the
Microband acquisition in January 1995, the CAI
Board of Directors awarded options to acquire
150,000 shares of CAI Common Stock at $11.00 per
share to Mr. Abbruzzese.
As of March 31, 1996, the Company has a note
payable outstanding of $119,810 owed to Hope
Carter. CAI must make a $100,000 principal
payment on January 31, 1997, and pay the remaining
principal and interest on July 31, 1997. The loan
carries a simple annual interest rate of 8%.
Additionally, CAI periodically chartered an
airplane owned by Wave Air, Inc., which is
primarily owned by Mr. Abbruzzese, in order to
carry out business when airline schedules were not
compatible. Transactions with Wave Air, Inc.
amounted to approximately $103,000 for the year
ended March 31, 1996 (none for prior periods).
<PAGE>
}33
{
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
The financial statements and schedules
listed in the accompanying index to
financial statements and Schedules are filed
as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K
The Company filed a Current Report on Form
8-K dated March 8, 1996, that reported under
Item 2 the closing of the CS Wireless
transactions on February 23, 1996, as
contemplated by the previously reported
Participation Agreement dated December 12,
1995 among the Company, Heartland and CS
Wireless.
In connection with the transactions reported
on the Company's Current Report on Form 8-K
dated March 8, 1996 described above, the
Company filed a Current Report on Form 8-K/A
dated March 29, 1996, to submit under Item 7
the financial statements and pro forma
information required for the reported
transactions.
The Company filed a Current Report on Form
8-K/A dated February 23, 1996 (filed April
1, 1996), to amend an exhibit previously
filed with the Company's March 29, 1996
Current Report on Form 8-K.
(c) Exhibits
See index to exhibits filed as part of this
annual report on Form 10-K.
(d) Schedules
Schedules, specified under Regulation S-X,
are omitted because of the absence of
conditions under which they are required or
because the required information is included
in the financial statements submitted. In
accordance with Rule 3-09(a), separate
financial statements of CS Wireless Systems,
Inc. are not required to be filed.
<PAGE>
}34
<TABLE>
{INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<CAPTION>
Page No.
IN FORM 10-K
<S> <C>
FINANCIAL STATEMENTS
Report of Independent Accountants 29
Consolidated Balance Sheets - March 31, 1995 and 1996 30
Consolidated Statements of Operations - Seven-
Month Period Ended March 31, 1994,and Years Ended
March 31, 1995 and 1996 31
Consolidated Statements of Shareholders' Equity
- - Seven-Month Period Ended March 31, 1994,
and Years Ended March 31, 1995 and 1996 32
Consolidated Statements of Cash Flows - Seven-
Month Period Ended March 31, 1994
and Years Ended March 31, 1995 and 1996 33
Notes to Consolidated Financial Statements 36
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934,
CAI Wireless Systems, Inc. has duly caused this
annual report on Form 10-K to be signed on its
behalf by the undersigned thereunto duly
authorized.
CAI WIRELESS SYSTEMS, INC.
(Registrant)
BY: /S/ JARED E. ABBRUZZESE
Jared E. Abbruzzese, Chairman,
Date: JUNE 28, 1996 Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of CAI Wireless Systems, Inc. and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
/S/ JARED E. ABBRUZZESE Chairman, Chief Executive Officer June 28, 1996
Jared E. Abbruzzese and Director
(Principal Executive Officer)
/S/ JOHN J. PRISCO President, Chief Operating Officer June 28, 1996
John J. Prisco and Director
/S/ JAMES P. ASHMAN Executive Vice President, Chief June 28, 1996
James P. Ashman Financial Officer and Director
(Principal Financial Officer)
/S/ GEORGE M. WILLIAMS Chief Administrative Officer, June 28, 1996
George M. Williams Secretary,Treasurer and Director
/S/ CRAIG J. KESSLER Vice President and Controller June 28, 1996
Craig J. Kessler (Principal Accounting Officer)
/S/ ARTHUR C. BELANGER Director June 28, 1996
Arthur C. Belanger
<S><S>
</TABLE>
<PAGE>
{SIGNATURES (continued)
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
\s\ HAROLD A. BOUTON Director June 28, 1996
Harold A. Bouton
/S/ DAVID M. TALLCOTT Director June 28, 1996
David M. Tallcott
/S/ ROBERT D. HAPP Director June 28, 1996
Robert D. Happ
/S/ ALAN SONNENBERG Director June 28, 1996
Alan Sonnenberg
<S><S>
</TABLE>
<PAGE>
{INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Incorporation
Exhibit no. Description By Reference PAGE NO
(see legend) No.
2.1 Asset Purchase Agreement-New York System 5-Exhibit 2
2.2 Bott Acquisition Agreement 2-Exhibit 2
2.3 Agreement and Plan of Merger, as amended,
by and among CAI CAI Merger SUB and ACS 7-Exhibit 2.1
2.4 Agreement and Plan of Merger by and among
CAI, ECN and ECNW dated as of March 28,1995 7-Exhibit 2.2
2.5 Asset Purchase Agreement by and among
CAI, ECN and ECNMII dated as of March 28, 1995 7-Exhibit 2.3
2.6 Option Agreement dated March 28, 1996 7-Exhibit 2.4
2.7 Purchase Agreement by and between CAI and WCTV
dated as of March 28, 1995 7-Exhibit 2.5
2.8 Purchase Agreement by and between CAI and AWS
dated as of March 28,1995 7-Exhibit 2.6
2.9 Agreement and Plan of Merger by and among CAI, HRW and 7-Exhibit 2.7
the Minority Shareholders named therein, dated as of
March 28, 1995
2.10 Participation Agreement among Heartland Wireless 9-Exhibit 2.1
Communications, Inc., CAI Wireless Systems, Inc. and
CS Wireless Systems, Inc. dated as of December 12, 1995.
2.11 Amendment No. 1 to Participation Agreement among 12-Exhibit 2.2
Heartland Wireless Communications, Inc., CAI Wireless
Systems, Inc., and CS Wireless Systems, Inc. dated as of
December 12, 1995.
3.1 Amended and Restated Certificate of Incorporation of 9-Exhibit 3.1
CAI
3.2 Amended and Restated Bylaws of CAI 9-Exhibit 3.2
4.1 Form of Indenture for Senior Notes 6-Exhibit 4.1
4.2 First Supplemental Indenture 11-Exhibit 4.1
4.3 Form of Escrow Agreement among CAI and Chemical Bank 6-Exhibit 4.30
4.4 Subordinated Unsecured Promissory Note dated August 31, 1-Exhibit 4.7
1993 by and between CAI and Hope E. Carter
4.5 Promissory Note-Bott Family Trust 2-Exhibit 4.1
4.6 Guaranty and Security Agreement-Bott Family Trust 2-Exhibit 4.2
4.7 Promissory Note-Bott 2-Exhibit 4.3
4.8 Guaranty and Security Agreement-Bott 2-Exhibit 4.4
<dagger>4.9 Term Note due May 9, 2005 in the principal amount of 73
$15.0 million issued to MMDS Holdings II, Inc.
<dagger>4.10 Term Note due May 9, 2005 in the principal amount of 92
$15.0 million issued to NYNEX Holding Company
10.1 1993 Stock Option and Incentive Plan 1-Exhibit 10.1,3
10.2 Form 1993 Incentive Stock Option Agreement 1-Exhibit 10.2,3
10.3 Form of 1993 Non-Qualified Stock Option Agreement 1-Exhibit 10.3,3
10.4 Outside Director's Stock Option Plan 1-Exhibit 10.4,3
10.5 Form of Outside Director's Stock Option Agreement 1-Exhibit 10.5,3
<dagger>10.6 Employment Agreement dated March 21, 1996 by and 111
between Jared E. Abbruzzese and CAI
10.7 Letter Agreement dated October 13, 1993 by and between 1-Exhibit 10.10
Hampton Roads Wireless, Inc. and CAI
10.8 Employment Agreement dated October 1, 1993 by and 1-Exhibit 10.9,3
between George M. Williams and CAI and Amendment to
Employment Agreement dated December 15, 1993
10.9 Master Sublease dated June 19, 1993 by and between Tri- 1-Exhibit 10.11
Mark Communications, Ltd. and George Bott
10.10 Agreement between CAI and SNET 1-Exhibit 10.14
10.11 Consulting Agreement dated May 15, 1993 between Jared 1-Exhibit 10.7
E. Abbruzzese and CAI
<S><S>
</TABLE>
<PAGE>
}4{
<TABLE>
<CAPTION>
INDEX TO EXHIBITS (CONTINUED)
Incorporated
Exhibit NO. Description by Reference Page
(see legend) No.
10.12 Business Relationship Agreement among CAI, its Subsidiaries 7-Exhibit 10.13
and BANX Affiliate dated as of March 28, 1995, as
amended by Amendment Agreement No. 1
10.13 Securities Purchase Agreement dated as of March 28, 1995 4-Exhibit 2
among CAI, its Subsidiaries and BANX Partnership, including
forms of Stage I and Stage II Warrants
10.14 Stage I Warrant 8-Exhibit 4.19
<dagger>10.15 Stage II Warrant 117
<dagger>10.16 1995 Incentive Stock Plan 140
<dagger>10.17 Consulting and Employment Agreement dated as of January 1, 147
1996 between the Company and John Prisco
<dagger>10.18 Termination Agreement dated February 23, 1996 between CAI 156
and Alan Sonnenberg
<dagger>10.19 Consulting Agreement dated February 23, 1996 between the 159
Company and Alan Sonnenberg
10.20 Form of Lenders Warrant Agreement for James P. Ashman with 1-Exhibit 4.2
Form of Warrant Certificate attached thereto
10.21 Form of Representative's Warrant Agreement with Form of 1-Exhibit 4.3
Warrant Certificate attached thereto
10.22 Warrant Agreement dated August 30, 193 between CAI and 1-Exhibit 4.13
Richard McKenzie
10.23 Warrant Agreement dated August 30, 1993 between CAI and Phil 1-Exhibit 4.14
Hempleman
10.24 Warrant Agreement dated September 10, 1993 between CAI and 1-Exhibit 4.15
John Oppenheimer
10.25 Warrant Agreement dated August 30, 1993 between CAI and Marc 1-Exhibit 4.16
Howard
10.26 Warrant Agreement dated September 10, 1993 between CAI and 1-Exhibit 4.17
Les Alexander
10.27 Warrant Agreement dated November 9, 1993 between CAI and 1-Exhibit 4.26
Phil Hempleman
10.28 Warrant Agreement dated November 9, 1993 between CAI and 1-Exhibit 4.27
Marc Howard
10.29 Warrant Agreement dated November 9, 1993 between CAI and 1-Exhibit 4.28
Richard McKenzie
10.30 Warrant Agreement dated November 9, 1993 between CAI and 1-Exhibit 4.29
John Oppenheimer
10.31 Warrant Agreement dated November 9, 1993 between CAI and Les 1-Exhibit 4.30
Alexander
<dagger>11.1 Schedule Regarding Computation of Loss Per Share 160
<dagger>11.2 Schedule Regarding Computation of Fully Diluted Loss Per 162
Common Share
12. Statements re Computation of Ratios 13
<dagger>21. Subsidiaries of the Registrant 163
<dagger>23.2 Consent of Coopers & Lybrand L.L.P. 164
<S><S>
</TABLE>
<PAGE>
}5
{INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
LEGEND
1 Incorporated by reference to the exhibits to the Registration Statement on Form S-1 (No. 33-71662).
2 Incorporated by reference to exhibits to the Current Report on Form 8-K dated March 23, 1994 (0-22888).
3 Management contract or compensation plan or arrangement.
4 Incorporated by reference to the exhibits to the Schedule 13D of BANX Partnership dated March
29, 1995, filed with the Commission on April 10, 1995.
5 Incorporated by reference to the exhibit to the Current Report on Form 8-K dated January 9,1995 (0-22888).
6 Incorporated by reference to the exhibits to the Registration Statement on Form S-1 (No. 33-93062).
7 Incorporated by reference to the exhibits to the Registration Statement on Form S-4 (No. 33-94222).
8 Incorporated by reference to the exhibits to the Annual Report on Form 10-K for March 31,1995
9 Incorporated by reference to the exhibits to the Quarterly Report on Form 10-Q for September 30, 1995.
10 Incorporated by reference to the exhibits to the Current Report on Form 8-K dated December 12, 1995.
11 Incorporated by reference to the exhibits to the Quarterly Report on Form 10-Q for December 31, 1995.
12 Incorporated by reference to the exhibits to the Current Report on Form 8-K dated February 23, 1996.
13 The information is not included because the ratio is less than 1 and the earnings deficiency is
included in the Selected Financial Data of CAI.
<dagger> Filed herewith.
<S><S>
</TABLE>
<PAGE>
}6{
Exhibit 4.9
THIS NOTE AND THE SECURITIES
TO BE ISSUED UPON CONVERSION HEREOF
(I) HAVE BEEN ACQUIRED
FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TO OR
FOR RESALE IN CONNECTION
WITH THE DISTRIBUTION
HEREOF, AND (II) HAVE NOT
BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933,
AS AMENDED (THE
"SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY
STATE AND MAY NOT BE
OFFERED, SOLD,
TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE
DISPOSED OF EXCEPT
PURSUANT TO (A) AN
EFFECTIVE REGISTRATION
STATEMENT UNDER THE
SECURITIES ACT, (B) TO
THE EXTENT APPLICABLE,
RULE 144 UNDER THE
SECURITIES ACT (OR ANY
SIMILAR RULE UNDER THE
SECURITIES ACT RELATING
TO THE DISPOSITION OF
SECURITIES), OR (C) AN
OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE
REASONABLY SATISFACTORY
TO COUNSEL TO THE ISSUER,
THAT REGISTRATION UNDER
THE SECURITIES ACT IS NOT
REQUIRED.
No. SB-3
TERM NOTE
DUE MAY 9, 2005
$15,000,000.00
May 9,
1995
FOR VALUE RECEIVED,
CAI WIRELESS SYSTEMS, INC., a
Connecticut corporation
(hereinafter referred to as the
"COMPANY"), hereby promises to pay
to MMDS HOLDINGS II, INC., a
Delaware corporation, having an
address at 1717 Arch Street,
Philadelphia, PA 19103 (the
"PAYEE"), or registered assigns, on
or before May 9, 2005, the
principal sum of Fifteen Million
Dollars ($15,000,000.00), together
with interest thereon at the rate
provided herein, and payable on the
terms set forth below.
This Note is one of an
issue of Term Notes due May 9, 2005
of the Company in an aggregate
principal amount of $30,000,000
(collectively, the "NOTES") issued
pursuant to a certain Securities
Purchase Agreement, dated as of
March 28, 1995 between the Company
and the Payee (the "SECURITIES
PURCHASE AGREEMENT"). Through the
Change Date (as defined in SECTION
7 hereof), but not after such date,
this Note is secured by, and the
performance by the Company of its
obligations hereunder is guaranteed
by, a Security Agreement and Pledge
Agreement, of even date herewith,
between the Company and the Payee,
and those certain Guarantee
Agreements and Security Agreements,
of even date herewith, between the
Payee and certain subsidiaries of
the Company. Each registered
holder ("HOLDER") of this Note will
be deemed, by its acceptance
hereof, (I) to have agreed to the
confidentiality provisions set
forth in SECTION 12 of the
Securities Purchase Agreement and
(II) to have made the
representation set forth in SECTION
5.2 of the Securities Purchase
Agreement.
Certain capitalized
terms used in this Note are defined
in SECTION 7 hereof. Other
capitalized terms, used in this
Note but not defined herein, shall
have the meanings ascribed to them
in the Securities Purchase
Agreement. Without limiting the
generality of the foregoing, for
purposes of this Note, the term
"SUBSIDIARY" shall include, without
limitation, any Acquired Company
effective, except as provided in
Section 3.2(ad) hereof, as of the
time such Acquired Company was
acquired by the Company.
SECTION . PAYMENT OF PRINCIPAL AND
INTEREST.
. PRINCIPAL. The
outstanding principal balance of
this Note shall be paid in full on
the tenth anniversary hereof.
. INTEREST.
() Interest shall accrue
semi-annually at the Applicable
Rate on the unpaid principal sum
due hereunder and previous unpaid
accruals of interest. Interest
shall be computed on the basis of a
360-day year of twelve 30-day
months. Interest shall be paid
semi-annually on March 1 and
September 1 of each year,
commencing on the First Payment
Date.
() This Note shall bear
interest following the occurrence
and during the continuance of any
Event of Default on the unpaid
principal amount, including any
overdue payment or prepayment of
principal and premium, if any, and
on any overdue installment of
interest at the Overdue Rate. If
the Company shall have paid or
agreed to pay any interest or
premium on this Note pursuant to
the terms hereof in excess of that
permitted by law, then it is the
express intent of the Company and
the Holder that all excess amounts
previously paid or to be paid by
the Company be applied to reduce
the principal balance of this Note,
and the provisions hereof
immediately be deemed reformed and
the amounts thereafter collectible
hereunder reduced, without the
necessity of the execution of any
new document, so as to comply with
the then applicable law, but so as
to permit the recovery of the
fullest amount otherwise called for
hereunder.
. PREPAYMENTS.
() The Company shall,
without notice, prepay, without
premium, on the 180th day after the
payment in full of all outstanding
obligations under the Senior Notes,
this Note with all interest accrued
on the principal amount of this
Note, including the amount to be
prepaid. Notwithstanding anything
contained in this SECTION 1.3, on
the maturity date of this Note, the
aggregate outstanding principal
amount of this Note, together with
all interest accrued thereon, shall
be due and payable.
() If there is more than
one Note outstanding, the aggregate
principal amount of the prepayment
of Notes shall be allocated among
the Holders of the Notes then
outstanding and being so prepaid in
proportion, as nearly as
practicable, to the respective
unpaid principal amounts of such
Notes, with adjustments, to the
extent practicable, to compensate
for any prior prepayments not made
in exactly such proportion.
() Except as otherwise
provided in SECTION 1.3(A), there
shall be no prepayment, in whole or
in part, of the principal amount of
all or any of the Notes.
. MANNER OF PAYMENT.
All payments of principal and
interest shall be made in lawful
money of the United States of
America at the time of any such
payment, at the election of the
Holder from time to time, either by
wire transfer of immediately
available funds to the account
designated by the Holder for such
purpose from time to time, or by
check mailed to the Holder at the
address designated by the Holder
for such purpose from time to time.
. PAYMENT ON NON-
BUSINESS DAYS. Whenever any
payment to be made on the Notes
shall be due on a Saturday, Sunday
or a public holiday under the laws
of the State of New York, such
payment may be made, together with
interest thereon at the interest
rate provided for in SECTION 1.2(A)
hereof, on the next succeeding day
on which banks in New York City are
open for business with the same
effect as if made on the nominal
date for payment.
. MANDATORY REDEMPTION
ON CHANGE OF CONTROL. Upon the
occurrence of a Change of Control,
the Holder will have the right to
require the Company to repurchase
all or any portion of this Note at
a purchase price equal to 101% (or
such higher percentage as shall
then be applicable to any right of
the holders of the Senior Notes or
the holders of any other
Indebtedness to put such Notes or
Indebtedness or any part thereof to
the Company upon a Change in
Control as defined in the Senior
Notes or the Senior Notes Indenture
or upon the occurrence of any
similar event pursuant to the terms
of such other Indebtedness) of the
unpaid principal amount of this
Note plus accrued interest hereon.
Notwithstanding the foregoing, for
so long as the Senior Notes are
outstanding, in no event shall the
Company's obligation to make such
redemption arise earlier than the
date which is 15 days after the
date the Company is obligated to
purchase Senior Notes pursuant to
the Senior Notes Indenture
following a Change of Control (as
defined therein).
() "CHANGE OF CONTROL"
during the period that any Senior
Notes are outstanding shall have
the meaning ascribed to such term
in the Senior Notes Indenture, and
during any period that no Senior
Notes are outstanding shall mean
the occurrence of one or more of
the following events:
() any sale,
lease, exchange or other
transfer (in one transaction
or a series of related
transactions) of assets of
the Company or any
Subsidiary to any person,
other than to the Purchaser
or any Affiliate thereof,
which assets are either
material to the ownership
and operation of a Wireless
Cable Television System
which is subject to the
Business Relationship
Agreement or which have a
fair market value at the
time of sale in excess of
30% of the fair market value
of the Company and the
Subsidiaries; or
() during any
consecutive two-year period,
individuals who at the
beginning of such period
constituted the Board of
Directors of the Company
(together with any new
directors whose election to
such Board of Directors or
whose nomination for
election by the stockholders
of the Company was approved
by a vote of a majority of
the directors of the Company
then still in office who
were either directors at the
beginning of such period or
whose election or nomination
for election was previously
so approved) cease for any
reason to constitute a
majority of the Board of
Directors of the Company
then in office, excluding
for all purposes of this
subsection (ii) any
directors elected by the
Senior Preferred Shares or
the Voting Preferred Shares;
or
() any person or
group of related persons for
purposes of Section 13(d) of
the Exchange Act or any
Subsidiary (a "GROUP"),
excluding the Purchaser, The
Corotoman Company L.L.C. and
their respective Affiliates
(each a "PERMITTED
PURCHASER"), either (1) is
or becomes, by purchase,
tender offer, exchange
offer, open market
purchases, privately
negotiated purchases or
otherwise, the "beneficial
owner" (as defined in Rules
13d-3 and 13d-5 under the
Exchange Act, whether or not
applicable, except that a
person shall be deemed to
have "beneficial ownership"
of all securities that such
person has the right to
acquire, whether such right
is exercisable immediately
or after the passage of time
only), directly or
indirectly, of more than 50%
of the total then
outstanding Voting Stock of
the Company (for the purpose
of this clause (iii), such
person or Group will be
deemed to "beneficially own"
(determined as aforesaid)
any Voting Stock of a
corporation (the "specified
corporation") held by any
other corporation (the
"parent corporation") if
such person or Group
"beneficially owns,"
directly or indirectly, a
majority of the voting power
of the Voting Stock of such
parent corporation), or (2)
otherwise has the ability to
elect, directly or
indirectly, a majority of
the members of the Board of
the Company; or
() the Company
consolidates with or merges
into another person (other
than the Purchaser or an
Affiliate thereof) and the
stockholders immediately
prior to such merger or
consolidation, or a
Permitted Purchaser and the
stockholders immediately
prior to such merger or
consolidation, hold less
than a majority of the
Voting Stock of the
resulting entity; or
() any person or
Group, excluding the
Purchaser and its
Affiliates, either (x) is or
becomes, by purchase, tender
offer, exchange offer, open
market purchases, privately
negotiated purchases or
otherwise, the "beneficial
owner" of more of the
outstanding Voting Stock
than The Corotoman Company
L.L.C. and its Affiliates or
(y) commences, within the
meaning of Rule 14d-1 under
the Exchange Act, a tender
offer with respect to more
than 30% of the total then
outstanding Voting Stock of
the Company.
() "VOTING STOCK" means,
with respect to any person,
securities of any class or classes
of capital stock in such person
entitling the holders thereof
(whether at all times or only so
long as no senior class of stock
has voting power by reason of any
contingency) to vote in the
election of members of the Board of
such person.
SECTION . REGISTRATION, TRANSFER
AND REPLACEMENT.
. REGISTRATION. The
Company shall maintain at its
principal office a register of the
Notes and shall record therein the
names and addresses of the Holders
of the Notes, the address to which
notices are to be sent and the
address to which payments are to be
made as designated by the Holder if
other than the address of the
Holder, and the particulars of all
transfers, exchanges and
replacements of Notes. No transfer
of a Note shall be valid unless the
Holder or his or its duly appointed
attorney requests such transfer to
be made on such register, upon
surrender thereof for exchange as
hereinafter provided, accompanied
by an instrument in writing, in
form and execution reasonably
satisfactory to the Company. Each
Note issued hereunder, whether
originally or upon transfer,
exchange or replacement of a Note,
shall be registered on the date of
execution thereof by the Company.
The Holder of a Note shall be that
person or entity in whose name the
Note has been so registered by the
Company. A Holder shall be deemed
the owner of a Note for all
purposes, and the Company shall not
be affected by any notice to the
contrary.
. TRANSFER AND EXCHANGE.
The Holder of any Note or Notes
may, prior to maturity or
redemption thereof, surrender such
Note or Notes at the principal
office of the Company for transfer
or exchange. Within a reasonable
time after notice to the Company
from a Holder of its intention to
make such exchange and without
expense (other than applicable
transfer taxes, if any) to such
Holder, the Company shall issue in
exchange therefor another Note or
Notes dated the date to which
interest has been paid on, and for
the unpaid principal amount of, the
Note or Notes so surrendered,
containing the same provisions and
subject to the same terms and
conditions as the Note or Notes so
surrendered; provided, however,
that unless the transferee is an
Affiliate of the Purchaser, the new
Note or Notes shall omit SECTION
3.2 hereof. Subject to the
restrictions on transfer set forth
in Section 2.1 hereof, each new
Note shall be made payable to such
person or entity, as the Holder of
such surrendered Note or Notes may
designate. Notes issued upon any
transfer or exchange shall be only
in authorized denominations, which
shall be $1,000,000 and integral
multiples of $500,000 in excess
thereof or, in the event of partial
redemption by the Company of any
Notes or partial conversion of such
Notes pursuant to SECTION 5 hereof
or the surrender of such Notes in
connection with the exercise of the
Warrants, such lesser amount as
shall constitute the entire
remaining principal amount of such
Note.
. REPLACEMENT. Upon
receipt of evidence satisfactory to
the Company of the loss, theft,
destruction or mutilation of any
Note and, if requested by the
Company in the case of any such
loss, theft or destruction, upon
delivery of an indemnity bond or
other agreement or security
reasonably satisfactory to the
Company, or, in the case of any
such mutilation, upon surrender and
cancellation of such Note, the
Company will issue a new Note, of
like tenor, in the amount of the
unpaid principal of such Note, and
dated the date to which interest
has been paid, in lieu of such
lost, stolen, destroyed or
mutilated Note.
SECTION . COVENANTS.
. COVENANT EFFECTIVE
DATES. Through the period ending
on and including the earlier of (i)
the Change Date or (ii) the date on
which the Holder receives final
payment of all amounts payable
under this Note, the Company and
its Subsidiaries shall comply with
all of the covenants and agreements
set forth in SECTION 3.2. If the
Change Date occurs, then the
Company and its Subsidiaries shall
no longer be bound, with respect to
the period following the Change
Date, by their covenants and
agreements set forth in SECTION
3.2. Immediately after the Change
Date, the Company and its
Subsidiaries shall become bound to
perform, on behalf of the Holders,
all of their covenants and
agreements (the "COVENANTS")
contained in the Senior Notes
Indenture governing, and the Senior
Notes evidencing, the Anticipated
Financing, and shall comply
therewith as they may be amended,
modified, supplemented or replaced
after the Change Date with the
prior written approval of the
Required Holders. If the Change
Date has occurred and thereafter
the Senior Notes are repaid in full
at any time while any Note remains
outstanding, the Covenants as in
effect immediately prior to such
termination shall be deemed to be
incorporated herein by reference
and shall continue in effect for
all purposes hereof.
. INITIAL COVENANTS.
Subject to SECTION 3.1, so long as
any Notes are held by the Purchaser
or an Affiliate thereof or a
successor to any of the foregoing
(the "PURCHASER GROUP"), the
Company shall comply with the
following covenants unless its
first obtains the approval (by vote
or written consent) of the Holders
of a majority of the then
outstanding Stage I Warrants, Stage
II Warrants, Senior Preferred Stock
and Voting Preferred Stock (voting
together as one class on the basis
of the number of Voting Preferred
Shares for or into which each such
security is then exercisable or
convertible) held by the Purchaser
Group (a "Purchaser Group
Approval"). Notwithstanding the
foregoing, the parties intend that
no provision of this Section 3.2
shall operate to limit or impair
the Company's full responsibility
for and control of the FCC Licenses
and its operations conducted
pursuant to those Licenses, if such
provision, as so applied, shall
violate applicable law.
() MAINTENANCE OF EXISTENCE
AND CONDUCT OF BUSINESS. The
Company shall, and shall cause each
of its Subsidiaries to, (i) at all
times preserve and keep in full
force and effect such entity's
corporate or partnership existence,
as the case may be, and rights and
franchises material to such
entity's business and (ii) comply
at all times with the provisions of
all franchises, permits, licenses
or other similar authorizations
relating to such entity's business,
including, without limitation, the
FCC Licenses, Channel Leases and
any obligations or agreements with
respect to signal interference,
certifications and permits, and all
other material agreements, licenses
and sublicenses, leases and
subleases to which it is a party,
and will suffer no loss or
forfeiture thereof or thereunder
except for losses or forfeitures
which in the aggregate would not
have a Material Adverse Effect.
() MAINTENANCE OF BUSINESS
RELATIONSHIPS. The Company shall,
and shall cause each of its
Subsidiaries to, maintain and
preserve its relationships with
equipment vendors, programmers,
lessors (including without
limitation MMDS, MDS, POFS and ITFS
lessors and lessors of headend and
antennae sites), licensors and
others having business
relationships with it except for
losses or replacements of
relationships which individually or
in the aggregate would not have a
Material Adverse Effect.
() MAINTENANCE OF
PROPERTIES. The Company shall, and
shall cause each of its
Subsidiaries to, maintain and keep,
or cause to be maintained and kept,
their respective properties
(including without limitation,
intellectual property and
properties acquired in accordance
with the terms of the Business Plan
or in accordance with the Loan
Documents) in good repair, working
order and condition (other than
ordinary wear and tear), and from
time to time shall make or cause to
be made all appropriate repairs,
renewals and replacements thereof,
so that the business carried on in
connection therewith may be
properly conducted at all times,
except where the failure to do so
would not have a Material Adverse
Effect.
() MAINTENANCE OF LICENSES
AND OTHER MATERIAL AGREEMENTS. The
Company shall, and shall cause each
of its Subsidiaries to, use its
best efforts to keep in full force
and effect all of the FCC Licenses,
Channel Leases, any obligations or
agreements with respect to signal
interference, certifications and
permits, and all other material
agreements, licenses and
sublicenses, leases and subleases
to which it or any of the
Subsidiaries is a party or to which
it or any of the Subsidiaries shall
become a party hereafter except for
losses thereof which individually
or in the aggregate would not have
a Material Adverse Effect. The
foregoing notwithstanding, the
Company shall, and shall cause each
of its Subsidiaries to, keep in
full force and effect sufficient
FCC Licenses and Channel Leases in
each Wireless Distribution System
covered by the Business
Relationship Agreement to comply
with the obligations of the Company
under the Business Relationship
Agreement.
() USE OF PROCEEDS.
Proceeds advanced pursuant to the
Purchase Agreement and pursuant to
the Anticipated Financing shall be
used only as expressly provided by
Section 1.5(a) and 1.5(b) of the
Purchase Agreement or, in respect
of the Anticipated Financing, as
provided in the Business Plan.
() PERFORMANCE OF LOAN
DOCUMENTS AND ANTICIPATED FINANCING
DOCUMENTS. The Company shall, and
shall cause each of its
Subsidiaries to, duly and
punctually perform, pay and
discharge or cause to be performed,
paid or discharged, all of their
respective obligations, as defined
herein, of every nature arising or
owed under the Loan Documents and
under the documents related to the
Anticipated Financing, whether
absolute or contingent. The
Company shall comply with each of
the covenants set forth in the
documents related to the
Anticipated Financing (without
regard to any waivers or consents
obtained in respect thereof from
the holders of the notes issued in
the Anticipated Financing).
() COMPLIANCE WITH LAW.
The Company shall, and shall cause
each of its Subsidiaries to, comply
in all material respects with all
applicable laws, rules,
regulations, orders or ordinances
to which each of them is or will be
subject, including, without
limitation, the Communications Act,
the Copyright Act and all
Environmental Laws, and shall
obtain and maintain in effect at
all times all licenses,
certificates, permits, franchises
and other governmental or other
authorizations necessary to the
ownership of their respective
properties or to the conduct of
their respective businesses,
including, without limitation, all
FCC Licenses, Channel Leases and
obligations or agreements with
respect to signal interference, in
each case to the extent necessary
to ensure that non-compliance with
such laws, ordinances or
governmental rules or regulations
or failures to obtain or maintain
in effect such licenses,
certificates, permits, franchises
and other governmental
authorizations could not,
individually or in the aggregate,
reasonably be expected to have a
Material Adverse Effect.
() COMPLIANCE WITH BUSINESS
PLAN AND BUSINESS RELATIONSHIP
AGREEMENT. The Company shall, and
shall cause each of the
Subsidiaries to, use its best
efforts to achieve the build-out of
the Wireless Distribution Systems
contemplated by the Business Plan,
in each case subject to the
availability of financing and the
anticipated development of certain
technology, and, except as
expressly permitted hereunder,
shall not enter into any material
transaction which is not
contemplated by the Business Plan
or the Loan Documents. The Company
shall, and shall cause each of its
Subsidiaries to, comply in all
respects with the Business
Relationship Agreement.
() INSURANCE. The Company
shall, and shall cause each of its
Subsidiaries to, maintain, with
financially sound and reputable
insurers, insurance with respect to
their respective properties and
businesses against such casualties
and contingencies, of such types,
on such terms and in such amounts
(including deductibles, co-
insurance and self-insurance, if
adequate reserves are maintained
with respect thereto) as is
customary in the case of entities
engaged in the same or a similar
business and similarly situated.
The Company shall maintain key-
person insurance on the life of
Jared E. Abbruzzese in the amount
of $2,000,000, which policy names
the Company as the owner and sole
beneficiary thereof.
() PAYMENT OF TAXES AND
CLAIMS; CONSOLIDATION.
() The Company shall,
and shall cause each of the
Subsidiaries to, timely file
all Tax Returns required to
be filed in any jurisdiction
and to pay and discharge all
Taxes shown to be due and
payable on such returns and
all other Taxes imposed on
them or any of their
properties, assets (wherever
used herein, the term
"ASSETS" includes without
limitation the properties,
licenses, permits,
franchises, stock of
Subsidiaries and contract
rights of the Company and
its Subsidiaries), income or
franchises, to the extent
such Taxes have become due
and payable and before they
have become delinquent; and
to pay and discharge all
claims for which sums have
become due and payable that
have or might become a Lien
on properties or assets of
the Company or any of their
respective Subsidiaries,
PROVIDED that the Company or
any of the Subsidiaries need
not pay any such Tax or
claim if (i) the amount,
applicability or validity
thereof is contested by the
Company or such Subsidiary
on a timely basis in good
faith and in appropriate
proceedings, and the Company
or such Subsidiary has
established adequate
reserves therefor in
accordance with GAAP on the
books of the Company or such
Subsidiary or (ii) the
nonpayment of all such Taxes
and claims in the aggregate
could not reasonably be
expected to have a Material
Adverse Effect.
() The Company shall
not, and shall not permit
any of the Subsidiaries to,
file or consent to the
filing of any consolidated
or combined income tax
return with any Person
(other than the Company or
any of the Subsidiaries).
() EMPLOYEE BENEFIT PLANS.
() The Company
shall, and shall cause each
ERISA Affiliate to, ()
comply in all material
respects with the provisions
of ERISA to the extent
applicable to any Benefit
Plan maintained by it and
cause all Benefit Plans
maintained by it to satisfy
the conditions under the
Code for tax qualification
of all such plans intended
to be tax qualified; and ()
avoid () any material
accumulated funding
deficiency (within the
meaning of ERISA '302 and
Code '412(a)) (whether or
not waived); (B) any act or
omission on the basis of
which it or an ERISA
Affiliate might incur a
material liability to the
PBGC (other than for the
payment of required
premiums) or to a trust
established under former
ERISA '4049; (C) any
transaction with a principal
purpose described in ERISA
'4069; and (D) any act or
omission that might result
in the assessment by any
Multiemployer Plan of
withdrawal liability against
the Company or any ERISA
Affiliate, but only to the
extent that the liability
arising from a failure to
comply with any covenant set
forth in (i) or (ii) could
reasonably be expected to
result in a liability to it
or a Subsidiary or an ERISA
Affiliate for any one such
event in excess of $100,000;
provided however that this
covenant will not apply to
the employee benefit plans
assumed by the Company or a
Subsidiary pursuant to any
acquisition contemplated by
the Loan Documents until the
120th day after such
acquisition is completed.
() The Company
shall not, directly or
indirectly, and shall not
permit its Subsidiaries or
any ERISA Affiliate to
directly or indirectly by
reason of an amendment or
amendments to, or the
adoption of, one or more
Benefit Plans subject to
Title IV or ERISA, permit
the present value of all
benefit liabilities, as
defined in Title IV of ERISA
(using the actuarial
assumptions utilized by the
PBGC upon termination of a
plan), to increase by more
than $100,000; PROVIDED that
this limitation shall not be
applicable to the extent
that the fair market value
of assets allocable to such
benefits, all determined as
of the most recent valuation
date for each such Benefit
Plan, is in excess of the
benefit liabilities, or to
increase to the extent
security must be provided to
any Benefit Plan under
Section 401(a)(29) of the
Code. Neither the Company
nor any of its Subsidiaries
shall establish or become
obligated to any new Retiree
Welfare Plan, or modify any
existing Retiree Welfare
Plan, which could result in
an increase in annual cost,
or could result in an annual
increase in liability to the
Company, in either case by
more than $50,000. Neither
the Company nor any of its
Subsidiaries shall establish
or become obligated to any
new unfunded Benefit Plan,
or modify any existing
unfunded Benefit Plan,
without the prior written
approval by the Holder. The
Company shall not, directly
or indirectly, and shall not
permit its Subsidiaries or
any ERISA Affiliate to (i)
satisfy any liability under
any Benefit Plan by
purchasing annuities from an
insurance company or (ii)
invest the assets of any
Benefit Plan with an
insurance company, unless,
in each case, such insurance
company is rated AA by
Standard & Poor's
Corporation and the
equivalent by each other
nationally recognized rating
agency at the time of the
investment.
() With respect to
other than a Multiemployer
Plan, for each Benefit Plan
hereafter adopted or
maintained by the Company,
any of its Subsidiaries or
any other ERISA Affiliate
and which is intended to be
qualified under Section
401(a) of the Code, the
Company shall (i) seek, or
cause its Subsidiaries or
other ERISA Affiliates to
seek, and receive
determination letters from
the IRS to the effect that
such Benefit Plan is
qualified within the meaning
of Section 401(a) of the
Code; and (ii) from and
after the adoption of any
such Benefit Plan, cause
such plan to be qualified
within the meaning of
Section 401(a) of the Code
and to be administered in
all material respects in
accordance with the
requirements of ERISA and
Section 401(a) of the Code.
() With respect to
each Benefit Plan hereafter
adopted or maintained by the
Company, any of its
Subsidiaries or any other
ERISA Affiliate and which is
a welfare plan within the
meaning of Section 3(1) of
ERISA, the Company shall
comply, or cause its
Subsidiaries or other ERISA
Affiliates to comply, with
the notice and continuation
coverage requirements of
Section 4980B of the Code
and the regulations
thereunder to the extent
noncompliance could result
in a material liability.
() The foregoing
notwithstanding, the
provisions of this SECTION
3.2(K) shall not apply to an
Acquired Company for a
period of six months from
the time of its acquisition
by the Company or a
Subsidiary, if information
disclosed by such Acquired
Company to the Company or a
Subsidiary on a schedule to
its Acquisition Documents
indicates that such Acquired
Company would, at the time
of its acquisition by the
Company or a Subsidiary, be
in violation of this SECTION
3.2(K), and such violation
would not have a Material
Adverse Effect.
() ENVIRONMENTAL LAWS.
The Company shall, and shall cause
each of its Subsidiaries to,
conduct its business so as to, and
maintain a system to assure that it
will, comply with all applicable
Environmental Laws and shall
promptly take corrective action to
remedy any non-compliance with any
Environmental Law, except for non-
compliances which individually or
in the aggregate would not have a
Material Adverse Effect.
() FURTHER ASSURANCES.
From time to time, upon the request
of the Holder, the Company shall,
and shall cause each of the
Subsidiaries to, make such filings
and seek such consents, approvals,
permits and waivers as may be
necessary or desirable in the
reasonable judgment of the Holder
to permit the Holder to exercise
all of its rights under each of the
Loan Documents, including without
limitation the right to exercise
the Stage I Warrants and the Stage
II Warrants, to convert the Notes,
the Senior Preferred Shares and the
Voting Preferred Shares and to
enforce all the covenants
thereunder and under the Business
Relationship Agreement and the
terms of the Voting Preferred
Shares.
() OTHER AFFIRMATIVE
COVENANTS. The Company shall cause
each of its Subsidiaries to comply
with Section 2 of the Purchase
Agreement and this SECTION 3.2.
() SOLVENCY. The Company
and the Subsidiaries shall, on a
consolidated basis, and Atlantic on
a standalone basis shall, be and
remain Solvent. "SOLVENT" means
that the aggregate present fair
saleable value of such Person's
assets is in excess of the total
cost of its probable liability on
its existing debts to third parties
as they become absolute and
matured, such Person has not
incurred debts beyond its
foreseeable ability to pay such
debts as they mature, and such
Person has capital adequate to
conduct the business in which it is
presently employed.
() INDEBTEDNESS. The
Company shall not, nor shall it
permit any of the Subsidiaries to,
directly or indirectly, remain
liable, create, incur, assume,
guaranty, or otherwise become or
remain directly or indirectly
liable with respect to any
Indebtedness except:
() the Company and
the Subsidiaries may become
and remain liable with
respect to the Obligations;
() the Company and
the Subsidiaries may become
and remain liable with
respect to the Anticipated
Financing created and
incurred pursuant to Section
2.4 of the Purchase
Agreement;
() the
Subsidiaries of the Company
may become and remain liable
with respect to intercompany
indebtedness to the Company;
PROVIDED that all such
intercompany indebtedness is
subordinated to the
Obligations and evidenced by
an intercompany note
executed by such Subsidiary,
all in form and substance
satisfactory to the Holder;
() the Company and
the Subsidiaries may become
and remain liable with
respect to unsecured debt
incurred in connection with
the acquisition by the
Company or a Subsidiary of
any of the Acquired
Companies in accordance with
the terms of the Acquisition
Agreements including,
without limitation, debt
that is assumed in such
acquisition provided that
such debt is prepayable at
the option of the Company;
() the Company and
the Subsidiaries may become
and remain liable with
respect to contingent or
deferred payment obligations
incurred by the Company or
any of its Subsidiaries in
connection with the
acquisition of assets by the
Company or any of its
Subsidiaries in the ordinary
course of business, which
payment obligation is
secured solely by the
acquired assets;
() prior to
January 1, 1997, the Company
may incur the debt permitted
pursuant to Section
2.7(c)(ii) of the Purchase
Agreement;
() if the Stage II
Closing has been
consummated, from January 1,
1997 until the earlier of
July 1, 1997 or the first
date that the quotient,
expressed as a percentage,
of the number of LOS
Households in service areas
with respect to which
Purchaser's Affiliates have
then exercised their options
under Article 3 of the
Business Relationship
Agreement divided by the
number of LOS Households in
all service areas subject to
the Business Relationship
Agreement (the "BR
PERCENTAGE") first exceeds
30%, the Company may incur
Indebtedness in the
aggregate principal amount
of $25,000,000 to the extent
necessary to fund operations
or repay existing debt or
used to effect acquisitions
or capital expenditures
(including acquisitions or
capital expenditures in the
form of Capital Leases)
permitted under SECTION
3.2(AB) hereof; and
() after July 1,
1997, the Company may incur
Indebtedness in an aggregate
amount equal to the product
of (x) $250,000,000 (reduced
by the principal amount of
the Indebtedness incurred
under subsection (h) hereof
and then outstanding) at the
time such Indebtedness is
contemplated to be incurred
by the Business Plan
multiplied by (y) the
difference between (i) 100%
and (ii) the BR Percentage
at the time the Indebtedness
is incurred; PROVIDED that
after the first date that
the BR Percentage is equal
to or greater than 75%, no
Indebtedness may thereafter
be incurred hereunder.
The provisions of this
SECTION 3.2(P) notwithstanding, the
Company shall not permit Atlantic
to directly or indirectly remain
liable, create, incur, assume,
guaranty or otherwise become or
remain directly or indirectly
liable with respect to any
Indebtedness.
() LIENS. The Company
shall not, nor shall it permit any
of the Subsidiaries to, directly or
indirectly, maintain, create,
incur, assume or permit to exist
any lien on or with respect to any
property or asset (including any
document or instrument in respect
of goods or accounts receivable) of
the Company or any Subsidiary,
whether now owned or hereafter
acquired, or any income or profits
therefrom, except:
() liens granted
pursuant to the Loan
Documents or disclosed in
Schedule 4.8 of the Purchase
Agreement (as amended with
respect to Acquired
Companies pursuant to
Section 2.10 of the Purchase
Agreement) and not
discharged as contemplated
by Section 3.2(a) of the
Purchase Agreement;
() liens securing
Indebtedness permitted under
SECTIONS 3.2(P)(VII) AND
(VIII) above; and
() liens securing
Indebtedness of acquired
entities in acquisitions or
for capital expenditures, in
either case which are
permitted under SECTION
3.2(AA) hereof.
The provisions of this
SECTION 3.2(Q) notwithstanding, the
Company shall not permit, nor shall
it permit any of the Subsidiaries,
to directly or indirectly,
maintain, create, incur, assume or
permit to exist any lien on or with
respect to (i) any property or
assets of Atlantic or (ii) any
assets which are used in connection
with Wireless Distribution Systems
subject to the Business
Relationship Agreement; PROVIDED
HOWEVER, that this clause (ii)
shall not apply to liens securing
Indebtedness issued pursuant to
SECTION 3.2(P)(VIII) hereof.
() RESTRICTION ON
FUNDAMENTAL CHANGES; ASSET SALES.
The Company shall not, nor shall it
permit any of the Subsidiaries to,
alter its corporate, capital or
legal structure or to enter into
any merger, or consolidate, or
liquidate, wind-up or dissolve
itself (or suffer any liquidation
or dissolution), or convey, sell,
lease, sub-lease, transfer or
otherwise dispose of, in one
transaction or a series of
transactions, all or any part of
its business, property or assets,
whether now owned or hereafter
acquired (other than in the
ordinary course of business), or
acquire by purchase, lease or
otherwise, in one transaction or a
series of transactions, all or any
part of the business, property or
fixed assets of, or stock or other
evidence of beneficial ownership
of, any Person (other than
purchases or other acquisitions of
inventory, leases, materials,
property and equipment in the
ordinary course of business) or
agree to do any of the foregoing at
any future time, except:
() the Company
and the Subsidiaries may
make acquisitions and
capital expenditures in the
manner expressly provided in
SECTION 3.2(AA) hereof;
() the Company and
the Subsidiaries may from
time to time make sales or
other dispositions of assets
having a cumulative fair
market value in any
twelve-month period not in
excess of the greater of
$1,000,000 in the aggregate
or 5% in the aggregate of
Consolidated Operating Cash
Flow (hereinafter defined)
for the fiscal year
preceding any such sale;
PROVIDED that () the
consideration received shall
be an amount at least equal
to the fair market value
thereof and () at least 85%
of the consideration
received shall be cash;
PROVIDED, HOWEVER, that in
no event shall the Company
sell assets (other than
assets of DE MINIMIS value)
which are used or useful in
providing the services
required to be provided by
the Company or its
Subsidiaries under the
Business Relationship
Agreement; and
() the Company
and its Subsidiaries may
from time to time dispose of
FCC Licenses and Channel
Leases for equivalent rights
in replacement FCC Licenses
and Channel Leases in the
same operating market and
the swapping of assets for
equivalent or better
replacement assets shall be
permitted if at least 20
days prior notice is given
to the Holder (other than in
the case of swaps involving
assets of DE MINIMIS value).
"CONSOLIDATED OPERATING CASH
FLOW" shall mean, for any period,
the sum (without duplication) of
the amounts for such period of (i)
net income, (ii) depreciation
expense, (iii) amortization
expense, (iv) taxes paid, and (v)
service fees under the Loan
Documents LESS (x) capital
expenditures and (y) increases in
net current assets (increases in
inventory and accounts receivable
LESS increases in accounts
payable), determined on a
consolidated basis for the Company
and the Subsidiaries in accordance
with GAAP.
() RESTRICTED PAYMENTS.
The Company shall not, nor shall it
permit any Subsidiary to:
() declare or pay
any dividend or make any
distribution (other than
dividends required to be
paid by the Series A
Convertible Preferred Stock
and 6% Series B Convertible
Preferred Stock or on any
shares the issuance of which
has received a Purchaser
Group Approval) on shares of
the Company or any
Subsidiary;
() purchase,
redeem or otherwise acquire
or retire for value any
stock of the Company or of
any Subsidiary or any
warrants, rights or options
to acquire shares of any
class of such stock;
() make any
principal payment on,
purchase, defease, redeem,
prepay, decrease or
otherwise acquire or retire
for value, prior to any
scheduled final maturity,
scheduled repayment,
scheduled sinking fund
payment, or scheduled
redemption payment, any
Indebtedness that is
subordinate or junior in
right of payment to the
Notes (other than any such
Indebtedness owing to the
Company or any wholly-owned
Subsidiary of the Company);
or
() make any
Investment (other than
Investments permitted by
SECTION 3.2(AA) or 3.2(AC)
hereof).
() ISSUANCE OF STOCK.
The Company shall not, and shall
not permit any Subsidiary to,
authorize or issue any capital
stock except for (i) shares
issuable upon exercise of the
Warrants and the Stage II Warrants
or conversion of the Notes, the
Senior Preferred Shares or the
Voting Preferred Shares, (ii)
shares issued in connection with
the acquisition of the Acquired
Companies as described in the
Acquisition Agreements, (iii)
Common Shares issued upon
conversion of shares of Series A
Convertible Preferred Stock and 6%
Series B Convertible Preferred
Stock or the exercise of options,
warrants and other purchase rights
disclosed on Schedule 4.3 to the
Purchase Agreement, (iv) options
and warrants with respect to Common
Shares set forth on Schedule I
hereto, (v) Common Shares issued in
payment of the purchase price under
acquisitions or to fund capital
expenditures, in each case
permitted pursuant to SECTION
3.2(AA) hereof, (vi) Common Shares
issued pursuant to Section
2.7(c)(ii) of the Purchase
Agreement, and (vii) Common Shares
assumed to be issued when
calculating Fully-Diluted Common
Shares immediately after
consummation of the Stage II
Closing.
() TRANSACTIONS WITH
AFFILIATES. The Company shall not,
nor shall it permit any of the
Subsidiaries to, enter into,
directly or indirectly, any
transaction or group of related
transactions (including without
limitation the purchase, lease,
sale or exchange of properties of
any kind or the rendering of any
service) with any Affiliate (other
than the Company or another
Subsidiary), except (i) for
transactions required by the
ServiceCo Documents, and (ii) in
the ordinary course and pursuant to
the reasonable requirements of the
Company's or such Subsidiary's
business and upon fair and
reasonable terms no less favorable
to the Company or such Subsidiary
than would be obtainable in a
comparable arm's-length transaction
with a Person that is not an
Affiliate.
() CERTAIN OTHER
RESTRICTIONS. The Company shall
not, nor shall it permit any of the
Subsidiaries to, engage in any
business or undertake any
activities or otherwise do any act,
that would subject the Holders, in
the reasonable opinion of the
Holders, to a risk of violation of
the MFJ. In addition:
() the Company
will ensure that its
directors and senior
management, and the
directors and senior
management of the
Subsidiaries, are aware of
the terms of the MFJ and of
what types or categories of
businesses or activities
might constitute a breach
thereof. The Company shall
procure all managers having
significant responsibility
for matters addressed in the
MFJ to sign a certificate as
described in Section V of
the MFJ, or such other form
as the Holders may
reasonably require from time
to time. The Company shall
ensure that the Subsidiaries
and any other company or
other entity in which it or
any Subsidiary holds an
interest shall comply with
the terms of this provision;
and
() the Company
shall, and shall cause the
Subsidiaries to, provide all
necessary and reasonable
assistance to the Holders in
any MFJ proceeding or
investigation, at the
request of the Holders. It
is the intention of the
Company and the Holders
that, in addition to any
damages to which the Holders
may be entitled for
violation of this provision,
this provision may be
enforced by grant of
injunctive relief to
restrain any such breach by
the Company or a Subsidiary.
() CONTINGENT
OBLIGATIONS. The Company shall
not, nor shall it permit any of the
Subsidiaries to, directly or
indirectly, create or become or be
liable with respect to any
Contingent Obligation except:
() Contingent
Obligations of the Company
and the Subsidiaries
incurred pursuant to the
Loan Documents;
() Contingent
Obligations resulting from
endorsement of negotiable
instruments for collection
in the ordinary course of
business;
() Contingent
Obligations in respect of
operating leases;
() intercompany
Contingent Obligations with
respect to the Company or
any other Subsidiary;
PROVIDED that all such
intercompany Contingent
Obligations are subordinated
to the Obligations;
() Contingent
Obligations which the
Company elects to treat as
Indebtedness and which could
then be incurred as
Indebtedness under SECTION
3.2(P) hereof;
() Contingent
Obligations of the Company
in respect of assisting the
Subsidiaries in providing
goods and services in the
ordinary course of their
respective businesses.
For purposes of this SECTION
3.2(W), the term "CONTINGENT
OBLIGATIONS" shall mean any direct
or indirect liability, contingent
or otherwise (1) with respect to
any indebtedness, lease, dividend
or other obligation of another if
the primary purpose or intent
thereof is to provide assurance to
the obligee of such obligation of
another that such obligation of
another will be paid or discharged,
or that any agreements relating
thereto will be complied with, or
that the holders of such
obligations will be protected (in
whole or in part) against loss in
respect thereof and (2) with
respect to any letter of credit.
Contingent Obligations shall
include with respect to the Company
or any of the Subsidiaries, without
limitation, () the direct or
indirect guaranty, endorsement
(otherwise than for the collection
or deposit in the ordinary course
of business), co-making,
discounting with recourse or sale
with recourse by the Company or any
of the Subsidiaries, () the
obligation to make take-or-pay or
similar payments if required
regardless of non-performance by
any other party or parties to an
agreement, and () any liability of
the Company or any of the
Subsidiaries for the obligations of
another through any agreement
(contingent or otherwise) (x) to
purchase, repurchase or otherwise
acquire such obligation or any
security therefor, or to provide
funds for the payment or discharge
of such obligation (whether in the
form of loans, advances, stock
purchases, capital contributions or
otherwise), and (y) to maintain the
solvency or any balance sheet item,
level of income or financial
condition of another (except as
expressly provided in this Note),
if in the case of any agreement
described under subclause (x) or
(y) of this sentence, the primary
purpose or intent thereof is as
described in the preceding
sentence.
() CONDUCT OF BUSINESS.
Except as expressly provided in the
Loan Documents, the Company shall
not, nor shall it permit any of the
Subsidiaries to, engage in any line
of business except those described
in the Company's Transition Report
on Form 10-K for the period ended
March 31, 1994 and the activities
described in Note 2 to the
Company's financial statements
contained in the Company's
Quarterly Report on Form 10-Q for
the quarter ended September 30,
1994 which, in the sole judgment of
the Purchaser Group, do not violate
the MFJ; provided, however, that
prior to the time that the BR
Percentage first exceeds 30%, the
Company and its Subsidiaries may
engage in other business activities
related to the use of the MMDS
Spectrum if (i) they are in
compliance with all of their
obligations hereunder, under the
other Loan Documents and the
documents related to the
Anticipated Financing, (ii) such
activities will not have a material
adverse effect on the ability of
the Company and the Subsidiaries to
perform their obligations under the
Business Relationship Agreement,
and (iii) the Company does not
enter into any joint ventures,
partnerships or other arrangement
with a third Person to share the
profits, losses and control of such
activities with any person unless
the Company has offered the
Purchaser the right to enter into
such arrangement on terms no less
favorable to the Purchaser than
those agreed to by the third person
and in any event, the Company shall
not enter into such an arrangement
with any Person if such Person or
any Affiliate of such Person is
engaged in operating, providing or
marketing wireline cable or local
wireline telephone systems or
services within the United States.
() CREATION OF
SUBSIDIARIES; DISPOSAL OF
SUBSIDIARY STOCK.
() The Company
shall not, nor shall it
permit any of the
Subsidiaries to, create or
acquire any interest in any
Subsidiaries, unless such
Subsidiary is wholly-owned
by the Company or a wholly-
owned Subsidiary or unless
expressly permitted by
clause (iii) of SECTION
3.2(X) hereof.
() The Company
shall not, and shall not
permit any of the
Subsidiaries to, directly or
indirectly sell, assign,
pledge or otherwise encumber
or dispose of any shares of
capital stock, partnership
interests, or other equity
securities (or warrants,
rights or options to acquire
shares or other equity
securities) of any of the
Subsidiaries, except (i) to
the Company, another
Subsidiary of the Company,
(ii) to qualify directors if
required by applicable law,
(iii) as permitted by
SECTION 3.2(S) hereof, (iv)
as reflected on Schedule 4.2
to the Purchase Agreement,
or (v) as collateral for
these Notes.
() AMENDMENTS TO CHARTER
DOCUMENTS. Except as expressly
provided in the Loan Documents, the
Company shall not, nor shall it
permit any of the Subsidiaries to,
make any amendment to, or waive any
of its material rights under, its
articles or certificate of
incorporation, as the case may be,
its by-laws or other documents
relating to its capital stock, or
other equity interests of the
Company or any of the Subsidiaries
(other than non-material amendments
which, in the aggregate, would not
have a Material Adverse Effect and
which would not adversely affect
the rights of the holders of the
Notes) without, in each case,
obtaining the written consent of
all Holders to such amendment or
waiver.
() ACQUISITIONS AND
CAPITAL EXPENDITURES. The Company
shall not, nor shall it permit any
of its Subsidiaries to, incur any
capital expenditures or acquire the
capital stock or assets of any
Person, except for capital
expenditures reflected in the
Business Plan; PROVIDED, HOWEVER,
that, so long as no Default shall
have occurred and be continuing
under the Notes or Senior Preferred
Shares, until the BR Percentage is
at least 30%:
() prior to July
1, 1997, the Company may
make, in addition to those
reflected in the Business
Plan, capital expenditures
for which the aggregate
consideration to be paid
does not exceed $20 million
and acquisitions of
businesses for which the
aggregate value of the
consideration paid and the
liabilities assumed, in the
aggregate, does not exceed
$15 million,
() after July 1,
1997, the Company may incur
additional capital
expenditures so long as the
aggregate consideration to
be paid therefor, including
for capital expenditures
made prior to July 1, 1997,
does not exceed $35 million,
and may make additional
acquisitions so long as the
aggregate value of the
consideration paid for and
the liabilities assumed in
such acquisitions, in the
aggregate and including
acquisitions made prior to
July 1, 1997, does not
exceed $25 million.
() SALE OR DISCOUNT OF
RECEIVABLES. The Company shall
not, nor shall it permit any of the
Subsidiaries to, directly or
indirectly, sell any of their notes
or accounts receivable except
solely in the ordinary course of
business for the collection of
delinquent accounts.
() INVESTMENTS. The
Company shall not, nor shall it
permit any of the Subsidiaries to,
make or permit to exist, any
Investments, directly or
indirectly, other than (a)
marketable direct obligations of
the United States of America which
mature within 5 years from the date
of issue or participations in
marketable direct obligations of
the United States of America
acquired from domestic banks having
total assets in excess of
$500,000,000, (b) certificates of
deposit and bankers' acceptances of
domestic banks having total assets
in excess of $500,000,000 and
demand and time deposits in any
bank, whether domestic or foreign,
(c) securities commonly known as
"commercial paper" issued by any
company organized and existing
under the laws of the United States
of America or any state thereof
which at the time of purchase have
been rated and the ratings for
which are not less than "P-1" if
rated by Moody's, and not less than
"A-1" if rated by Standard and
Poor's, (d) written agreements
under which domestic banks having
total assets in excess of
$500,000,000 sell and agree to
repurchase marketable direct
obligations of the United States of
America, (e) money market funds
backed by U.S. Obligations, (f)
acquisitions of companies if such
acquisition is permitted pursuant
to SECTION 3.2(AA) hereof and such
acquisition is of the entire
interest in the equity of the
acquired company, and (g) the
Company's investment in ACTV, Inc.
described in Schedule 4.13(6) to
the Purchase Agreement.
() ACQUIRED COMPANIES.
The term "Subsidiaries" as used in
the covenants contained in this
SECTION 3.2 shall be deemed to
include each Acquired Company from
and after the date that the
acquisition of such Acquired
Company is consummated, except for
the grace periods applicable
thereto contained in this SECTION
3.2(AD). The following provisions
of this SECTION 3.2 shall not apply
to any Acquired Company until the
end of the grace period after the
date of such Acquired Company's
acquisition by the Company set
forth opposite the reference to
such provision below; PROVIDED,
HOWEVER, that (i) the failure of
the Acquired Company to comply with
such provisions immediately is due
to circumstances existing at the
time of consummation of the
acquisition, (ii) the Company is
using all reasonable and diligent
efforts to bring such Acquired
Company into compliance with such
provisions, and (iii) such failure
of such Acquired Company to comply
with such provisions does not have
a material adverse effect on the
Company's ability to comply with
its obligations under the Business
Relationship Agreement:
SECTION REFERENCE
GRACE PERIOD
3.2(A)(II)
60 days
3.2(B)
60 days
3.2(C)
180 days
3.2(F)
60 days
3.2(G)
60 days
3.2(H)(last sentence
only)
60 days
3.2(J)
60 days
3.2(X)
30 days
() AMENDMENT OF SENIOR
NOTE OR SENIOR NOTES INDENTURE.
The Company shall not amend the
Senior Notes or the Senior Notes
Indenture without a prior Purchaser
Group Approval of such amendment.
SECTION . EVENTS OF DEFAULT. For
purposes of this SECTION 4, the
term "SUBSIDIARY" shall include
Acquired Companies as of the time
such Acquired Companies were
acquired by the Company.
. An "EVENT OF DEFAULT"
shall exist if any of the following
conditions or events shall occur
and be continuing:
() on or prior to the
Change Date:
() the Company
defaults in the payment of
any principal on any Note
when the same becomes due
and payable, whether at
maturity or at a date fixed
for prepayment or by
declaration or otherwise; or
() the Company
defaults in the payment of
any interest on any Note for
more than ten calendar days
after the same becomes due
and payable; or
() the Company
defaults in the performance
of or compliance with any
covenant or agreement
contained in SECTION 3.2
hereof except SUBSECTIONS
3.2(C), (F), (G), (M) AND
(N) hereof or SECTION 6.2(B)
OR (D) of the Securities
Purchase Agreement, and such
default remains unremedied
for a period of 30 days; or
() the Company
defaults in the performance
of or compliance with any
term contained herein (other
than those referred to in
subparagraphs (i), (ii) and
(iii) of this SECTION
4.1(A)) or in the Securities
Purchase Agreement and such
default is not remedied
within 30 days after the
earlier of (X) a Responsible
Officer obtaining actual
knowledge of such default
and (Y) the Company
receiving written notice of
such default from any holder
of a Note (any such written
notice to be identified as a
"notice of default" and to
refer specifically to this
subparagraph (a)(iv) of
SECTION 4.1); or
() any
representation or warranty
made in writing by or on
behalf of the Company or by
any officer of the Company
in the Securities Purchase
Agreement or in any writing
furnished in connection with
the transactions
contemplated hereby proves
to have been false or
incorrect in any material
respect on the date as of
which made; or
() (X) the Company
or any Subsidiary is, or
would be with notice or the
passage of time, in default
(as principal or as
guarantor or other surety)
in the payment of any
principal of or premium or
make-whole amount or
interest on any Indebtedness
that is outstanding in an
aggregate principal amount
of at least $500,000 beyond
any period of grace provided
with respect thereto, or (Y)
the Company or any
Subsidiary is, or would be
with notice or the passage
of time, in default in the
performance of or compliance
with any term of any
evidence of any Indebtedness
in an aggregate outstanding
principal amount of at least
$500,000 or of any mortgage,
indenture or other agreement
relating thereto or any
other condition exists, and
as a consequence of such
default or condition such
Indebtedness has become, or
has been declared (or one or
more Persons are entitled to
declare such Indebtedness to
be), due and payable before
its stated maturity or
before its regularly
scheduled dates of payment,
or (Z) as a consequence of
the occurrence or
continuation of any event or
condition (other than the
passage of time or the right
of the holder of
Indebtedness to convert such
Indebtedness into equity
interests), (1) the Company
or any Subsidiary has become
obligated to purchase or
repay Indebtedness before
its regular maturity or
before its regularly
scheduled dates of payment
in an aggregate outstanding
principal amount of at least
$500,000 or (2) one or more
Persons have the right to
require the Company or any
Subsidiary so to purchase or
repay such Indebtedness; or
() the Company or
any Subsidiary (U) is
generally not paying, or
admits in writing its
inability to pay, its debts
as they become due, (V)
files, or consents by answer
or otherwise to the filing
against it of, a petition
for relief or reorganization
or arrangement or any other
petition in bankruptcy, for
liquidation or to take
advantage of any bankruptcy,
insolvency, reorganization,
moratorium or other similar
law of any jurisdiction, (W)
makes an assignment for the
benefit of its creditors,
(X) consents to the
appointment of a custodian,
receiver, trustee or other
officer with similar powers
with respect to it or with
respect to any substantial
part of its property, (Y) is
adjudicated as insolvent or
to be liquidated, or (Z)
takes corporate action for
the purpose of any of the
foregoing; or
() a court or
Governmental Authority of
competent jurisdiction
enters an order appointing,
without consent by the
Company or any of its
Subsidiaries, a custodian,
receiver, trustee or other
officer with similar powers
with respect to it or with
respect to any substantial
part of its property, or
constituting an order for
relief or approving a
petition for relief or
reorganization or any other
petition in bankruptcy or
for liquidation or to take
advantage of any bankruptcy
or insolvency law of any
jurisdiction, or ordering
the dissolution, winding-up
or liquidation of the
Company or any of its
Subsidiaries, or any such
petition shall be filed
against the Company or any
of its Subsidiaries and such
petition shall not be
dismissed within 90 days; or
() a final
judgment or judgments for
the payment of money
aggregating in excess of
$500,000 are rendered
against one or more of the
Company and its Subsidiaries
and which judgments are not,
within 90 days after entry
thereof, bonded, discharged
or stayed pending appeal, or
are not discharged within 60
days after the expiration of
such stay; or
() if (U) any
Benefit Plan shall fail to
satisfy the minimum funding
standards of ERISA or the
Code for any plan year or
part thereof or a waiver of
such standards or extension
of any amortization period
is sought or granted under
section 412 of the Code, (V)
a notice of intent to
terminate any Benefit Plan
shall have been or is
reasonably expected to be
filed with the PBGC or the
PBGC shall have instituted
proceedings under ERISA
section 4042 to terminate or
appoint a trustee to
administer any Benefit Plan
or the PBGC shall have
notified the Company or any
ERISA Affiliate that a
Benefit Plan may become a
subject of any such
proceedings, (W) the
aggregate "amount of
unfunded benefit
liabilities" (within the
meaning of section
4001(a)(18) of ERISA) under
all Benefit Plans,
determined in accordance
with Title IV of ERISA,
shall exceed $500,000, (X)
the Company or any ERISA
Affiliate shall have
incurred or is reasonably
expected to incur any
liability pursuant to Title
I or IV of ERISA or the
penalty or excise tax
provisions of the Code
relating to employee benefit
plans, (Y) the Company or
any ERISA Affiliate
withdraws from any
Multiemployer Plan, or (Z)
the Company or any
Subsidiary establishes or
amends any Benefit Plan that
provides post-employment
welfare benefits in a manner
that would increase the
liability of the Company or
any Subsidiary thereunder;
and any such event or events
described in clauses (U)
through (Z) above, either
individually or together
with any other such event or
events, could reasonably be
expected to have a Material
Adverse Effect; or
() either the
Anticipated Financing or the
Stage II Closing shall not
have been consummated before
February 28, 1996; or
() after the Change Date,
if (i) any Default or Event of
Default, as defined in the Senior
Notes Indenture or the Senior Notes
as in effect on the original
issuance date thereof and without
giving effect to any amendment,
supplement or other modification
thereof or waiver or consent
thereunder, shall occur and be
continuing (other than any Default
or Event of Default occasioned
solely due to the failure to pay
interest on the Senior Notes unless
such failure results in the
acceleration of the Senior Notes),
regardless of whether or not any
Senior Notes are then outstanding,
or (ii) the Company shall have
failed to pay when due any
principal of any Note when such
principal becomes due and payable,
at maturity, upon acceleration,
redemption pursuant to a required
offer to purchase or otherwise, or
(iii) the Company shall have failed
to pay interest on any Note when
the same becomes due and payable
and such failure continues for a
period of 30 days.
. ACCELERATION OF NOTES.
() If, on or before the
Change Date, an Event of Default
with respect to the Company
described in subparagraph (a)(vii)
or (a)(viii) of SECTION 4.1 (other
than an Event of Default described
in clause (U) of
subparagraph (a)(vii) or described
in clause (Z) of
subparagraph (a)(vii) by virtue of
the fact that such clause
encompasses clause (U) of
subparagraph (a)(vii)) has
occurred, all the Notes then
outstanding shall automatically
become immediately due and payable.
() If, after the Change
Date, an Event of Default with
respect to the Company described in
provisions of the Senior Notes or
the Senior Notes Indenture which
are comparable to
subparagraph (a)(vii) or (a)(viii)
of SECTION 4.1 (other than an Event
of Default which is comparable to
an event described in clause (U) of
subparagraph (a)(vii) or described
in clause (Z) of
subparagraph (a)(vii) by virtue of
the fact that such clause
encompasses clause (U) of
subparagraph (a)(vii)) has
occurred, all the Notes then
outstanding shall automatically
become immediately due and payable.
() If any other Event of
Default has occurred and is
continuing, the Required Holders
may at any time at its or their
option, by notice or notices to the
Company, declare all the Notes then
outstanding to be immediately due
and payable.
Upon any Notes becoming due
and payable under this SECTION 4.2,
whether automatically or by
declaration, such Notes will
forthwith mature and the entire
unpaid principal amount of such
Notes, plus all accrued and unpaid
interest thereon, shall all be
immediately due and payable, in
each and every case without
presentment, demand, protest or
further notice, all of which are
hereby waived. The Company
acknowledges, and the parties
hereto agree, that each Holder of a
Note has the right to maintain its
investment in the Notes free from
repayment by the Company (except as
herein specifically provided for).
. OTHER REMEDIES. If
any Event of Default has occurred
and is continuing, and irrespective
of whether any Notes have become or
have been declared immediately due
and payable under SECTION 4.2, the
Holder of any Note at the time
outstanding may proceed to protect
and enforce the rights of such
Holder by an action at law, suit in
equity or other appropriate
proceeding, whether for the
specific performance of any
agreement contained herein or in
any Note, or for an injunction
against a violation of any of the
terms hereof or thereof, or in aid
of the exercise of any power
granted hereby or thereby or by law
or otherwise.
. RESCISSION. At any
time after any Notes have been
declared due and payable pursuant
to paragraph (c) or (d) of SECTION
4.2, the Required Holders, by
written notice to the Company, may
rescind and annul any such
declaration and its consequences if
(A) the Company has paid all
overdue interest on the Notes and
all principal of any Notes that are
due and payable and are unpaid
other than by reason of such
declaration, and all interest on
such overdue principal and (to the
extent permitted by applicable law)
any overdue interest in respect of
the Notes at the Default Rate,
(B) all Events of Default other
than non-payment of amounts that
have become due solely by reason of
such declaration, have been cured
or have been waived pursuant to
SECTION 9 of the Securities
Purchase Agreement, and (C) no
judgment or decree has been entered
for the payment of any monies due
pursuant to the Notes. No
rescission and annulment under this
SECTION 4.4 will extend to or
affect any subsequent Event of
Default or impair any right
consequent thereon.
. NO WAIVERS OR ELECTION
OF REMEDIES, EXPENSES, ETC. No
course of dealing and no delay on
the part of any Holder of any Note
in exercising any right, power or
remedy shall operate as a waiver
thereof or otherwise prejudice such
Holder's rights, powers or
remedies. No right, power or
remedy conferred by this Note or by
the Securities Purchase Agreement
upon any Holder thereof shall be
exclusive of any other right, power
or remedy referred to herein or
therein or now or hereafter
available at law, in equity, by
statute or otherwise. Without
limiting the obligations of the
Company under SECTION 7 of the
Securities Purchase Agreement, the
Company will pay to the Holder of
each Note on demand such further
amount as shall be sufficient to
cover all costs and expenses of
such holder incurred in any
enforcement or collection under
this SECTION 4.5, including,
without limitation, reasonable
attorneys' fees, expenses and
disbursements.
SECTION . CONVERSION. This SECTION
5 shall become effective upon
consummation of the Stage II
Closing and shall remain effective
thereafter, but only with respect
to the period commencing at such
time.
. CONVERSION PRIVILEGE.
Subject to and upon compliance with
the provisions of this SECTION 5,
at the option of the Holder during
the period beginning upon
consummation of the Stage II
Closing and ending at 5:00 P.M.
local time in New York, NY on the
fifth anniversary of the Stage II
Closing (the "CONVERSION PERIOD"),
this Note or any portion of the
principal amount due hereunder may,
at any time and from time to time,
be converted into fully paid and
nonassessable shares of 14% Senior
Preferred Stock of the Company
("SENIOR PREFERRED STOCK"), at the
Conversion Price in effect at the
date of conversion. The shares of
Senior Preferred Stock issued or
issuable upon conversion of the
Notes are referred to herein as the
"SENIOR PREFERRED SHARES."
. MANNER OF EXERCISE OF
CONVERSION PRIVILEGE. () In the
sole discretion of the Holder, this
Note may be converted in whole or
in part, at any time and from time
to time during the Conversion
Period. To exercise the conversion
privilege with respect to this Note
in whole or in part, the Holder
shall deliver to the Company at its
principal office, during the
Conversion Period, (i) this Note,
and (ii) a written notice of such
Holder's election to convert all or
any part of this Note, which notice
shall specify the amount of this
Note to be so converted, the
denominations of the share
certificate or certificates desired
and the name or names in which such
certificates are to be registered.
This Note or the portion thereof
specified in such notice shall be
deemed to have been converted
immediately prior to the close of
business on the date of receipt of
such notice and such Note by the
Company, even if the Company's
stock transfer books are on that
date closed.
() Promptly after the
conversion of all or any portion of
this Note, the Company shall issue
and deliver, at its expense, to the
Holder, or to the nominee or
nominees of such Holder, a
certificate or certificates for the
number of Senior Preferred Shares
due on such conversion. Interest
shall accrue on the unpaid
principal amount of this Note
converted to the date of
conversion. In the case of a
conversion of all or only a portion
of the outstanding principal amount
of this Note, the Company shall
execute and deliver to the Holder
(or its nominee or nominees), at
the expense of the Company, a
replacement note in a principal
amount equal to the sum of the
unconverted principal portion of
such Note plus all accrued unpaid
interest on such Note and dated and
bearing interest from the date to
which interest has been paid on
such Note or dated the date of such
Note if no interest has been paid
thereon.
. REGULATORY APPROVALS.
The Company acknowledges that prior
to exercising its rights to acquire
Voting Preferred Shares hereunder
and to acquiring the shareholder
rights provided to holders of such
Voting Preferred Shares, the Holder
shall secure any regulatory
approvals it deems necessary to
effect such exercise and acquire
and to assert such rights,
including but not limited to the
approval of the FCC. The Company
shall cooperate (and shall cause
its Affiliates and Subsidiaries to
cooperate) with the Holder in
applying for any necessary requests
or applications for such approval,
and shall immediately execute, on
request of the Holder, all
application forms and other
documents requiring execution by
the Company in connection
therewith.
. FRACTIONAL SHARES.
The Company shall not be required
to issue fractions of Senior
Preferred Shares upon conversion of
this Note. If any fraction of a
share would, but for this Section,
be issuable upon any conversion of
this Note, in lieu of such
fractional share the Company shall
pay to the Holder or Holders, as
the case may be, in cash, an amount
equal to the fair market value of
such fractional share.
. CONVERSION PRICE. The
Conversion Price at which Senior
Preferred Shares shall be issuable
upon the conversion of this Note
shall initially be $10,000 for each
Senior Preferred Share (subject to
appropriate adjustment for stock
splits, subdivisions, combinations,
dividends or other similar
transactions with respect to Senior
Preferred Shares).
SECTION . SUBORDINATION. This
SECTION 6 shall become effective
immediately after the Change Date
and shall remain effective
thereafter, but only with respect
to the period commencing at such
time.
. DEFINITIONS.
() "FEDERAL BANKRUPTCY
CODE" means the Bankruptcy Act of
Title 11 of the United States Code,
as amended from time to time.
() "NON-PAYMENT DEFAULT"
means any event (other than a
Payment Default) the occurrence of
which entitles one or more persons
to accelerate the maturity of, or
would result in the acceleration
of, any Senior Indebtedness.
() "PAYMENT DEFAULT"
means any default in the payment of
principal of (or premium, if any,
on) or interest on Senior
Indebtedness when due.
() "SENIOR INDEBTEDNESS"
means (i) the principal of,
premium, if any, and interest on
the Senior Notes, and (II) all
other Indebtedness of the Company
for money borrowed the incurrence
of which does not violate the Loan
Documents and which is not
expressly subordinated (as set
forth in the terms of such
Indebtedness) to the right of
payment to any other Indebtedness
of the Company, in each case
including without limitation, all
obligations of the Company, whether
outstanding on the date hereof or
hereafter created, incurred or
assumed, under or in respect of the
Senior Notes or such other
Indebtedness, whether for
principal, interest (including,
without limitation, interest
accruing after the filing of a
petition initiating any proceeding
under any state or federal
bankruptcy law whether or not such
interest is an allowable claim),
reimbursement of amounts drawn
under letters of credit issued or
arranged for pursuant thereto,
guarantees in respect thereof, and
all charges, fees, expenses
(including reasonable fees and
expenses of counsel) and other
amounts in respect of the Senior
Notes or such other Indebtedness
incurred by or owing to the holders
of the Senior Notes or such other
Indebtedness or their respective
representative, agent or trustee.
() "SUBORDINATED
INDEBTEDNESS" means, with respect
to the Company, Indebtedness of the
Company which is expressly
subordinated in right of payment to
the Notes.
. GENERAL. The Company
covenants and agrees, and each
Holder of this Note, by its
acceptance hereof, likewise
covenants and agrees, for the
benefit of the holders, from time
to time, of Senior Indebtedness
that, to the extent and in the
manner hereinafter set forth in
this SECTION 6, the Notes, the
indebtedness represented thereby
and the payment of the principal of
(and premium, if any, on) and
interest on each Note are hereby
expressly made subordinate and
subject in right of payment as
provided in this SECTION 6 to the
prior payment in full in cash or
cash equivalents of all Senior
Indebtedness; PROVIDED, HOWEVER,
that the Notes, the indebtedness
represented thereby and the payment
of the principal of (and premium,
if any, on) and interest on the
Notes in all respects shall rank
prior to all future Subordinated
Indebtedness and PARI PASSU with
all Indebtedness of the Company
other than Senior Indebtedness and
Subordinated Indebtedness.
. PAYMENT OVER OF
PROCEEDS UPON DISSOLUTION, ETC. In
the event of (a) any insolvency or
bankruptcy case or proceeding, or
any receivership, liquidation,
reorganization or other similar
case or proceeding in connection
therewith, relative to the Company
or its assets, or (b) any
liquidation, dissolution or other
winding up of the Company, whether
voluntary or involuntary and
whether or not involving insolvency
or bankruptcy, or (c) any
assignment for the benefit of
creditors or any other marshalling
of assets or liabilities of the
Company, then and in any such event
(1) the holders of
Senior Indebtedness shall be
entitled to receive payment
in full in cash or cash
equivalents of all amounts
due on or in respect of all
Senior Indebtedness, or
provision shall be made for
such payment, before the
Holders of the Notes are
entitled to receive any
payment or distribution of
any kind or character on
account of the Notes; and
(2) any payment or
distribution of assets of
the Company of any kind or
character, whether in cash,
property or securities, by
set-off or otherwise, to
which the Holders of the
Notes would be entitled but
for the provisions of this
SECTION 6 shall be paid by
the liquidating trustee or
agent or other person making
such payment or
distribution, whether a
trustee in bankruptcy, a
receiver or liquidating
trustee or otherwise,
directly to the holders of
Senior Indebtedness or their
representative or
representatives or to the
trustee or trustees under
any indenture under which
any instruments evidencing
any of such Senior
Indebtedness may have been
issued, ratably according to
the aggregate amounts
remaining unpaid on account
of the Senior Indebtedness
held or represented by each,
to the extent necessary to
make payment in full in cash
or cash equivalents of all
Senior Indebtedness
remaining unpaid, after
giving effect to any
concurrent payment or
distribution to the holders
of such Senior Indebtedness;
and
(3) in the event
that, notwithstanding the
foregoing provisions of this
SECTION 6, the Holder of any
Notes shall have received
any payment or distribution
of assets of the Company of
any kind or character,
whether in cash, property or
securities, in respect of
the Notes before all Senior
Indebtedness is paid in full
or payment thereof provided
for in cash or cash
equivalents, then and in
such event such payment or
distribution shall be paid
over or delivered forthwith
to the trustee in
bankruptcy, receiver,
liquidating trustee,
custodian, assignee, agent
or other person making
payment or distribution of
assets of the Company for
application to the payment
of all Senior Indebtedness
remaining unpaid, to the
extent necessary to pay all
Senior Indebtedness in full
in cash or cash equivalents,
after giving effect to any
concurrent payment or
distribution to or for the
holders of Senior
Indebtedness.
For purposes of this SECTION
6, the words "payment or
distribution" shall not be deemed
to include (X) any payment or
distribution of securities of the
Company or any other corporation
authorized by an order or decree
giving effect, and stating in such
order or decree that effect is
given, to the subordination of the
Notes to the Senior Indebtedness
and made by a court of competent
jurisdiction in a reorganization
proceeding under any applicable
bankruptcy, insolvency or other
similar law, or (Y) securities of
the Company or any other
corporation provided for by a plan
of reorganization or readjustment
which are subordinated, to at least
the same extent as the Notes, to
the payment of all Senior
Indebtedness then outstanding or to
the payment of all securities
issued in exchange therefor to the
holders of Senior Indebtedness at
the time outstanding. The
consolidation of the Company with,
or the merger of the Company into,
another person, or the liquidation
or dissolution of the Company
following the conveyance, transfer
or lease of its properties and
assets substantially as an entirety
to another person shall not be
deemed a dissolution, winding up,
liquidation, reorganization,
assignment for the benefit of
creditors or marshalling of assets
and liabilities of the Company for
the purposes of this SECTION 6 if
the person formed by such
consolidation or into which the
Company is merged or the person
which acquires by conveyance,
transfer or lease such properties
and assets substantially as an
entirety, as the case may be,
shall, as a part of such
consolidation, merger, conveyance,
transfer or lease, comply with the
conditions set forth in the Senior
Notes Indenture.
. SUSPENSION OF PAYMENT
WHEN SENIOR INDEBTEDNESS IN
DEFAULT.
(a) Unless SECTION 6.3
shall be applicable, upon the
occurrence of a Payment Default,
then no payment or distribution of
any assets of the Company of any
kind or character shall be made by
the Company on account of the Notes
or on account of the purchase or
redemption or other acquisition of
Notes unless and until such Payment
Default shall have been cured or
waived in writing or shall have
ceased to exist or such Senior
Indebtedness shall have been
discharged or paid in full in cash
or cash equivalents, after which
the Company shall resume making any
and all required payments in
respect of the Notes, including any
missed payments.
(b) Unless SECTION 6.3
shall be applicable, upon (1) the
occurrence of a Non-payment Default
and (2) receipt by the Company or
the Holders of the Notes from the
representative of holders of such
any Senior Indebtedness of written
notice of such occurrence, then no
payment or distribution of any
assets of the Company of any kind
or character shall be made by the
Company on account of the Notes or
on account of the purchase or
redemption or other acquisition of
the Notes for a period ("PAYMENT
BLOCKAGE PERIOD") commencing on the
earlier of the date of receipt by
the Company or the date of receipt
by the Holders of the Notes of such
notice from such representative
unless and until (subject to any
blockage of payments that may then
be in effect under paragraph (a) of
this Section) (X) more than 179
days shall have elapsed since
receipt of such written notice by
the Company or the Holders of the
Notes, whichever was earlier, (Y)
such Non-payment Default shall have
been cured or waived in writing or
shall have ceased to exist or such
Designated Senior Indebtedness
shall have been discharged or (Z)
such Payment Blockage Period shall
have been terminated by written
notice to the Company or the
Holders of the Notes from such
representative initiating such
Payment Blockage Period, after
which, in the case of clause (x),
(y) or (z), the Company shall
resume making any and all required
payments in respect of the Notes,
including any missed payments.
Notwithstanding any other provision
of this SECTION 6, only one Payment
Blockage Period may be commenced
within any consecutive 366-day
period, and no Non-payment Default
with respect to Senior Indebtedness
which existed or was continuing on
the date of the commencement of any
Payment Blockage Period initiated
by or behalf of such Senior
Indebtedness shall be, or be made,
the basis for the commencement of a
second Payment Blockage Period
whether or not within a period of
366 consecutive days unless such
event of default shall have been
cured or waived for a period of not
less than 60 consecutive days
subsequent to the commencement of
such initial Payment Blockage
Period (it being acknowledged that
any subsequent action, or any
breach of any financial covenant
for a period commencing after the
date of commencement of such
Payment Blockage Period, that, in
either case, would give rise to a
Non-payment Default pursuant to any
provision under which a Non-payment
Default previously existed or was
continuing shall constitute a new
Non-payment Default for this
purpose). In no event will a
Payment Blockage Period extend
beyond 183 days from the date of
the receipt by the Holders of the
Notes of the notice and there must
be a 183-consecutive-day period in
any 366-day period during which no
Payment Blockage Period is in
effect.
(c) In the event that,
notwithstanding the foregoing, the
Company shall make any payment to
the Holder of any Note prohibited
by the foregoing provisions of this
Section, then and in such event
such payment shall be paid over and
delivered forthwith to the Company.
. PAYMENT PERMITTED IF
NO DEFAULT. Nothing contained in
this SECTION 6 or elsewhere in any
of the Notes shall prevent the
Company, at any time except during
the pendency of any case,
proceeding, dissolution,
liquidation or other winding up,
assignment for the benefit of
creditors or other marshalling of
assets and liabilities of the
Company referred to in SECTION 6.3
or under the conditions described
in SECTION 6.4, from making
payments at any time of principal
of (and premium, if any, on) or
interest on the Notes.
. SUBROGATION TO RIGHTS
OF HOLDERS OF SENIOR INDEBTEDNESS.
Subject to the payment in full in
cash or cash equivalents of all
Senior Indebtedness, the Holders of
the Notes shall be subrogated to
the rights of the holders of such
Senior Indebtedness to receive
payments and distributions of cash,
property and securities applicable
to the Senior Indebtedness until
the principal of (and premium, if
any, on) and interest on the Notes
shall be paid in full. For
purposes of such subrogation, no
payments or distributions to the
holders of Senior Indebtedness of
any cash, property or securities to
which the Holders of the Notes
would be entitled except for the
provisions of this Article, and no
payments over pursuant to the
provisions of this Article to the
holders of Senior Indebtedness by
Holders of the Notes, shall, as
among the Company, its creditors
other than holders of Senior
Indebtedness, and the Holders of
the Notes, deemed to be a payment
or distribution by the Company to
or on account of the Senior
Indebtedness.
. PROVISIONS SOLELY TO
DEFINE RELATIVE RIGHTS. The
provisions of this Article are and
are intended solely for the purpose
of defining the relative rights of
the Holders of the Notes on the one
hand and the holders of Senior
Indebtedness on the other hand.
Nothing contained in this Section
or elsewhere in the Securities
Purchase Agreement or the Notes is
intended to or shall (a) impair, as
between the Company and the Holders
of the Notes, the obligation of the
Company, which is absolute and
unconditional, to pay to the
Holders of the Notes the principal
of (and premium, if any, on) and
interest on the Notes as and when
the same shall become due and
payable in accordance with their
terms; or (b) affect the relative
rights against the Company of the
Holders of the Notes and creditors
of the Company other than the
holders of Senior Indebtedness; or
(c) prevent the Holder of any Note
from exercising all remedies
otherwise permitted by applicable
law upon Default under this Note,
subject to the rights, if any,
under this SECTION 6 of the holders
of Senior Indebtedness.
. NO WAIVER OF
SUBORDINATION PROVISIONS.
(a) No right of any
present or future holder of any
Senior Indebtedness to enforce
subordination as herein provided
shall at any time in any way be
prejudiced or impaired by any act
or failure to act on the part of
the Company or by any act or
failure to act, in good faith, by
any such holder, or by any non-
compliance by the Company with the
terms, provisions and covenants of
this Note, regardless of any
knowledge thereof any such holder
may have or be otherwise charged
with.
(b) Without in any way
limiting the generality of
paragraph (a) of this SECTION 6.8,
the holders of Senior Indebtedness
may, at any time and from time to
time, without the consent of or
notice to the Holders of the Notes,
without incurring responsibility to
the Holders of the Notes and
without impairing or releasing the
subordination provided in this
Article or the obligations
hereunder of the Holders of the
Notes to the holders of Senior
Indebtedness, do any one or more of
the following: (1) change the
manner, place or terms of payment
or extend the time of payment of,
or renew or alter, Senior
Indebtedness or any instrument
evidencing the same or any
agreement under which Senior
Indebtedness is outstanding; (2)
sell, exchange, release or
otherwise deal with any property
pledged, mortgaged or otherwise
securing Senior Indebtedness; (3)
release any person liable in any
manner for the collection of Senior
Indebtedness; and (4) exercise or
refrain from exercising any rights
against the Company and any other
person.
. NOTICE TO NOTE
HOLDERS. The Company shall give
prompt written notice to the
Holders of the Notes of any fact
known to the Company which would
prohibit the making of any payment
to the Holders of the Notes in
respect of the Notes.
Notwithstanding the provisions of
this Section or any other provision
of this Note, the Holders shall not
be charged with knowledge of the
existence of any facts which would
prohibit the making of any payment
to the Holders in respect of the
Notes, unless and until the Holders
of the Notes shall have received
written notice thereof from the
Company or a holder of Senior
Indebtedness or from any trustee,
fiduciary or agent therefor; and,
prior to the receipt of any such
written notice, the Holders shall
be entitled in all respects to
assume that no such facts exist;
PROVIDED, HOWEVER, that, if the
Holders shall not have received the
notice provided for in this SECTION
6.9 prior to the date upon which by
the terms hereof any money may
become payable for any purpose
(including, without limitation, the
payment of the principal of (and
premium, if any, on) or interest on
any Note), then, anything herein
contained to the contrary
notwithstanding, the Holders shall
have full power and authority to
receive such money and to apply the
same to the purpose for which such
money was received and shall not be
affected by any notice to the
contrary which may be received by
them on such date.
. RELIANCE ON JUDICIAL
ORDER OR CERTIFICATE OF LIQUIDATING
AGENT. Upon any payment or
distribution of assets of the
Company referred to in this SECTION
6, the Holders of the Notes shall
be entitled to rely conclusively
upon any order or decree entered by
any court of competent jurisdiction
in which such insolvency,
bankruptcy, receivership,
liquidation, reorganization,
dissolution, winding up or similar
case or proceeding is pending, or a
certificate of the trustee in
bankruptcy, receiver, liquidating
trustee, custodian, assignee for
the benefit of creditors, agent or
other person making such payment or
distribution, delivered to the
Holders of Notes, for the purpose
of ascertaining the persons
entitled to participate in such
payment or distribution, the
holders of Senior Indebtedness and
other Indebtedness of the Company,
the amount thereof or payable
thereon, the amount or amounts paid
or distributed thereon and all
other facts pertinent thereto or to
this Section.
. NO SUSPENSION OF
REMEDIES. Nothing contained in
this SECTION 6 shall limit the
right of the Holders of Notes to
take any action to accelerate the
maturity of the Notes pursuant to
SECTION 4.2 or to pursue any rights
or remedies hereunder or under
applicable law.
SECTION . DEFINITIONS.
As used herein, the
following terms have the respective
meanings set forth below:
"Applicable Rate"
means, through the Change Date,
12.5% per annum and, after the
Change Date, 14.0% per annum.
"Change Date" means
the date immediately preceding the
closing date at which the
Anticipated Financing is
consummated, if and only if the
Stage II Closing is consummated on
or before such closing date of the
Anticipated Financing.
"Common Shares" means
the shares of Common Stock, no par
value, of the Company.
"First Payment Date"
means (i) if the Change Date
occurs, then March 1, 1999, or at
the Payee's option such later date
as Payee may elect, or (ii)
otherwise March 1, 1996.
"Overdue Rate" means,
with respect to any interest
accrual period or portion thereof,
the Applicable Rate then in effect
with respect to such period or
portion, plus 2.0% per annum.
"Senior Notes" means
the notes of the Company evidencing
the Anticipated Financing issued
pursuant to the Senior Notes
Indenture.
"Senior Notes
Indenture" means the indenture
between the Company and trustee
named therein, governing the
Anticipated Financing.
SECTION . MISCELLANEOUS.
. NOTICES. All notices,
advices and communications to be
given or otherwise made to the
Company or any Holder shall be
deemed given upon receipt thereof
if contained in a written
instrument and delivered in person,
sent by overnight courier, sent by
first class registered or certified
mail, postage prepaid and return
receipt requested, or sent by
facsimile telecopier, confirmed by
mail, addressed to such party at
the address or telecopier number
set forth below or at such other
address or telecopier number as may
hereafter be designated in writing
by the addressee to the addressor
listing all parties: (a) if to BANX
Partnership (so long as BANX
Partnership is the Holder of this
Note): to Alexander Good, Bell
Atlantic Corporation, 1310 North
Court House Road, Arlington, VA
22201; Thomas R. McKeough, Bell
Atlantic Corporation, 1717 Arch
Street, Philadelphia, PA 19103;
and Philip R. Marx, Bell Atlantic
Corporation, 1717 Arch Street,
Philadelphia, PA 19103, and NYNEX
Corporation, 1113 Westchester
Avenue, White Plains, NY 10604-
3510, Attention: Chief Financial
Officer and to such address
Attention: General Counsel, (b) if
to any other Holder of this Note:
to it at its address listed on the
books for the registration and
registration of transfer of the
Notes to be maintained by the
Company pursuant to SECTION 2.1
hereof, and (c) if to the Company:
CAI Wireless Systems, Inc., 12
Corporate Woods Boulevard, Suite
102, Albany, NY 12211, Attention:
President, with a required copy to
Day, Berry & Howard, One Canterbury
Green, Stamford, Connecticut 06901-
2047, Attention Sabino Rodriguez,
III, Esq. Whenever pursuant to
this Note, notice is required to be
given to any or all of the Holders
of the Notes, such requirement
shall be satisfied if such notice
is given in the manner prescribed
to the persons last known by the
Company to be a Holder of the Note,
entitled to such notice, at the
addresses of such persons last
known to the Company.
. SEVERABILITY. If any
term, provision, covenant or
restriction of this Note is held by
a court or a governmental agency of
competent jurisdiction to be
invalid, void or unenforceable, or
to cause any party to be in
violation of any applicable
provision of law, the remainder of
the terms, provisions, covenants
and restrictions of this Note shall
remain in full force and effect and
in no way shall be affected,
impaired or invalidated.
. CAPTIONS. The
descriptive headings of the various
paragraphs or parts of this Note
are for convenience only and shall
not affect the meaning or
construction of any of the
provisions hereof.
. AMENDMENT AND WAIVER.
This Note may only be amended or
supplemented, and the observance of
any term hereof may only be waived,
in accordance with SECTION 9 of the
Securities Purchase Agreement.
. WAIVER OF PRESENTMENT,
ETC. The Company hereby waives
presentment, demand for payment,
notice of dishonor or acceleration,
protest and notice of protest, and
any and all other notices or demand
in connection with the delivery,
acceptance, performance, default or
enforcement of this Note, excepting
any notice requirement set forth in
the Securities Purchase Agreement.
No failure on the part of the
Holder of this Note in exercising
any right or remedy hereunder shall
operate as a waiver thereof, nor
shall any single or partial
exercise of any such right or
remedy preclude any other or future
exercise thereof or the exercise of
any other right or remedy
hereunder. No modification or
waiver of any provision of this
Note, nor any departure by the
Company therefrom, shall in any
event be effective unless the same
shall be in writing, in accordance
with the Securities Purchase
Agreement, and then such waiver or
consent shall be effective only in
the specific instance and for the
specific purpose given.
. CONSENT TO
JURISDICTION AND SERVICE OF
PROCESS.
ALL JUDICIAL PROCEEDINGS
BROUGHT AGAINST THE COMPANY ARISING
OUT OF OR RELATING TO THIS NOTE,
ANY NOTE, WARRANT OR OTHER LOAN
DOCUMENT OR ANY OBLIGATION MAY BE
BROUGHT IN ANY STATE OR FEDERAL
COURT OF COMPETENT JURISDICTION IN
THE STATE OF NEW YORK AND BY
EXECUTION AND DELIVERY OF THIS
NOTE, THE COMPANY ACCEPTS FOR
ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE
JURISDICTION OF THE AFORESAID
COURTS AND WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS, AND
IRREVOCABLY AGREES TO BE BOUND BY
ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS NOTE, THE
SECURITIES PURCHASE AGREEMENT, SUCH
OTHER LOAN DOCUMENT OR SUCH
OBLIGATION. IF ANY AGENT APPOINTED
BY THE COMPANY REFUSES TO ACCEPT
SERVICE, THE COMPANY HEREBY AGREES
THAT SERVICE UPON IT BY MAIL SHALL
CONSTITUTE SUFFICIENT NOTICE.
NOTHING HEREIN SHALL AFFECT THE
RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR SHALL
LIMIT THE RIGHT OF ANY PURCHASER TO
BRING PROCEEDINGS AGAINST THE
COMPANY IN THE COURTS OF ANY OTHER
JURISDICTION.
. WAIVER OF JURY TRIAL.
THE COMPANY AND EACH HOLDER
OF THIS NOTE HEREBY AGREES TO WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF
THIS NOTE, ANY OF THE LOAN
DOCUMENTS, OR ANY DEALINGS BETWEEN
THEM RELATING TO THE SUBJECT MATTER
OF THIS LOAN TRANSACTION AND THE
PURCHASER/COMPANY RELATIONSHIP THAT
IS BEING ESTABLISHED. The scope of
this waiver is intended to be all-
encompassing of any and all
disputes that may be filed in any
court and that relate to the
subject matter of this transaction,
including without limitation,
contract claims, tort claims,
breach of duty claims, and all
other common law and statutory
claims. Each party hereto
acknowledges that this waiver is a
material inducement to enter into a
business relationship, that each
has already relied on the waiver in
entering into this Note, and that
each will continue to rely on the
waiver in their related future
dealings. Each party hereto
further warrants and represents
that each has reviewed this waiver
with its legal counsel, and that
each knowingly and voluntarily
waives its jury trial rights
following consultation with legal
counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN
WRITING, AND THE WAIVER SHALL APPLY
TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, REPLACEMENTS, SUPPLEMENTS
OR MODIFICATIONS TO THIS NOTE, THE
LOAN DOCUMENTS, OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO
THE LOAN. In the event of
litigation, a copy of this Note may
be filed as a written consent to a
trial by the court.
IN WITNESS WHEREOF, the
undersigned, by its duly authorized
officer, has executed this Term
Note as of the date first above
written.
CAI WIRELESS SYSTEMS, INC.
By: /S/ JARED ABBRUZZESE
As its: Chairman and Chief
Executive Officer
<PAGE>
}7
{EXHIBIT 4.10
THIS NOTE AND THE
SECURITIES TO BE
ISSUED UPON
CONVERSION HEREOF (I)
HAVE BEEN ACQUIRED
FOR INVESTMENT
PURPOSES AND NOT WITH
A VIEW TO OR FOR
RESALE IN CONNECTION
WITH THE DISTRIBUTION
HEREOF, AND (II) HAVE
NOT BEEN REGISTERED
UNDER THE SECURITIES
ACT OF 1933, AS
AMENDED (THE
"SECURITIES ACT"), OR
THE SECURITIES LAWS
OF ANY STATE AND MAY
NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED,
HYPOTHECATED OR
OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO
(A) AN EFFECTIVE
REGISTRATION
STATEMENT UNDER THE
SECURITIES ACT, (B)
TO THE EXTENT
APPLICABLE, RULE 144
UNDER THE SECURITIES
ACT (OR ANY SIMILAR
RULE UNDER THE
SECURITIES ACT
RELATING TO THE
DISPOSITION OF
SECURITIES), OR (C)
AN OPINION OF
COUNSEL, IF SUCH
OPINION SHALL BE
REASONABLY
SATISFACTORY TO
COUNSEL TO THE
ISSUER, THAT
REGISTRATION UNDER
THE SECURITIES ACT IS
NOT REQUIRED.
No. SB-4
TERM NOTE
DUE MAY 9, 2005
$15,000,000.00
May 9,
1995
FOR VALUE RECEIVED,
CAI WIRELESS SYSTEMS, INC., a
Connecticut corporation
(hereinafter referred to as the
"COMPANY"), hereby promises to pay
to NYNEX MMDS HOLDING COMPANY, a
Delaware corporation, having an
address at 1113 Westchester Ave.,
White Plains, NY 10605 (the
"PAYEE"), or registered assigns, on
or before May 9, 2005, the
principal sum of Fifteen Million
Dollars ($15,000,000.00), together
with interest thereon at the rate
provided herein, and payable on the
terms set forth below.
This Note is one of an
issue of Term Notes due May 9, 2005
of the Company in an aggregate
principal amount of $30,000,000
(collectively, the "NOTES") issued
pursuant to a certain Securities
Purchase Agreement, dated as of
March 28, 1995 between the Company
and the Payee (the "SECURITIES
PURCHASE AGREEMENT"). Through the
Change Date (as defined in SECTION
7 hereof), but not after such date,
this Note is secured by, and the
performance by the Company of its
obligations hereunder is guaranteed
by, a Security Agreement and Pledge
Agreement, of even date herewith,
between the Company and the Payee,
and those certain Guarantee
Agreements and Security Agreements,
of even date herewith, between the
Payee and certain subsidiaries of
the Company. Each registered
holder ("HOLDER") of this Note will
be deemed, by its acceptance
hereof, (I) to have agreed to the
confidentiality provisions set
forth in SECTION 12 of the
Securities Purchase Agreement and
(II) to have made the
representation set forth in SECTION
5.2 of the Securities Purchase
Agreement.
Certain capitalized
terms used in this Note are defined
in SECTION 7 hereof. Other
capitalized terms, used in this
Note but not defined herein, shall
have the meanings ascribed to them
in the Securities Purchase
Agreement. Without limiting the
generality of the foregoing, for
purposes of this Note, the term
"SUBSIDIARY" shall include, without
limitation, any Acquired Company
effective, except as provided in
Section 3.2(ad) hereof, as of the
time such Acquired Company was
acquired by the Company.
SECTION . PAYMENT OF PRINCIPAL AND
INTEREST.
. PRINCIPAL. The
outstanding principal balance of
this Note shall be paid in full on
the tenth anniversary hereof.
. INTEREST.
() Interest shall accrue
semi-annually at the Applicable
Rate on the unpaid principal sum
due hereunder and previous unpaid
accruals of interest. Interest
shall be computed on the basis of a
360-day year of twelve 30-day
months. Interest shall be paid
semi-annually on March 1 and
September 1 of each year,
commencing on the First Payment
Date.
() This Note shall bear
interest following the occurrence
and during the continuance of any
Event of Default on the unpaid
principal amount, including any
overdue payment or prepayment of
principal and premium, if any, and
on any overdue installment of
interest at the Overdue Rate. If
the Company shall have paid or
agreed to pay any interest or
premium on this Note pursuant to
the terms hereof in excess of that
permitted by law, then it is the
express intent of the Company and
the Holder that all excess amounts
previously paid or to be paid by
the Company be applied to reduce
the principal balance of this Note,
and the provisions hereof
immediately be deemed reformed and
the amounts thereafter collectible
hereunder reduced, without the
necessity of the execution of any
new document, so as to comply with
the then applicable law, but so as
to permit the recovery of the
fullest amount otherwise called for
hereunder.
. PREPAYMENTS.
() The Company shall,
without notice, prepay, without
premium, on the 180th day after the
payment in full of all outstanding
obligations under the Senior Notes,
this Note with all interest accrued
on the principal amount of this
Note, including the amount to be
prepaid. Notwithstanding anything
contained in this SECTION 1.3, on
the maturity date of this Note, the
aggregate outstanding principal
amount of this Note, together with
all interest accrued thereon, shall
be due and payable.
() If there is more than
one Note outstanding, the aggregate
principal amount of the prepayment
of Notes shall be allocated among
the Holders of the Notes then
outstanding and being so prepaid in
proportion, as nearly as
practicable, to the respective
unpaid principal amounts of such
Notes, with adjustments, to the
extent practicable, to compensate
for any prior prepayments not made
in exactly such proportion.
() Except as otherwise
provided in SECTION 1.3(A), there
shall be no prepayment, in whole or
in part, of the principal amount of
all or any of the Notes.
. MANNER OF PAYMENT.
All payments of principal and
interest shall be made in lawful
money of the United States of
America at the time of any such
payment, at the election of the
Holder from time to time, either by
wire transfer of immediately
available funds to the account
designated by the Holder for such
purpose from time to time, or by
check mailed to the Holder at the
address designated by the Holder
for such purpose from time to time.
. PAYMENT ON NON-
BUSINESS DAYS. Whenever any
payment to be made on the Notes
shall be due on a Saturday, Sunday
or a public holiday under the laws
of the State of New York, such
payment may be made, together with
interest thereon at the interest
rate provided for in SECTION 1.2(A)
hereof, on the next succeeding day
on which banks in New York City are
open for business with the same
effect as if made on the nominal
date for payment.
. MANDATORY REDEMPTION
ON CHANGE OF CONTROL. Upon the
occurrence of a Change of Control,
the Holder will have the right to
require the Company to repurchase
all or any portion of this Note at
a purchase price equal to 101% (or
such higher percentage as shall
then be applicable to any right of
the holders of the Senior Notes or
the holders of any other
Indebtedness to put such Notes or
Indebtedness or any part thereof to
the Company upon a Change in
Control as defined in the Senior
Notes or the Senior Notes Indenture
or upon the occurrence of any
similar event pursuant to the terms
of such other Indebtedness) of the
unpaid principal amount of this
Note plus accrued interest hereon.
Notwithstanding the foregoing, for
so long as the Senior Notes are
outstanding, in no event shall the
Company's obligation to make such
redemption arise earlier than the
date which is 15 days after the
date the Company is obligated to
purchase Senior Notes pursuant to
the Senior Notes Indenture
following a Change of Control (as
defined therein).
() "CHANGE OF CONTROL"
during the period that any Senior
Notes are outstanding shall have
the meaning ascribed to such term
in the Senior Notes Indenture, and
during any period that no Senior
Notes are outstanding shall mean
the occurrence of one or more of
the following events:
() any sale,
lease, exchange or other
transfer (in one transaction
or a series of related
transactions) of assets of
the Company or any
Subsidiary to any person,
other than to the Purchaser
or any Affiliate thereof,
which assets are either
material to the ownership
and operation of a Wireless
Cable Television System
which is subject to the
Business Relationship
Agreement or which have a
fair market value at the
time of sale in excess of
30% of the fair market value
of the Company and the
Subsidiaries; or
() during any
consecutive two-year period,
individuals who at the
beginning of such period
constituted the Board of
Directors of the Company
(together with any new
directors whose election to
such Board of Directors or
whose nomination for
election by the stockholders
of the Company was approved
by a vote of a majority of
the directors of the Company
then still in office who
were either directors at the
beginning of such period or
whose election or nomination
for election was previously
so approved) cease for any
reason to constitute a
majority of the Board of
Directors of the Company
then in office, excluding
for all purposes of this
subsection (ii) any
directors elected by the
Senior Preferred Shares or
the Voting Preferred Shares;
or
() any person or
group of related persons for
purposes of Section 13(d) of
the Exchange Act or any
Subsidiary (a "GROUP"),
excluding the Purchaser, The
Corotoman Company L.L.C. and
their respective Affiliates
(each a "PERMITTED
PURCHASER"), either (1) is
or becomes, by purchase,
tender offer, exchange
offer, open market
purchases, privately
negotiated purchases or
otherwise, the "beneficial
owner" (as defined in Rules
13d-3 and 13d-5 under the
Exchange Act, whether or not
applicable, except that a
person shall be deemed to
have "beneficial ownership"
of all securities that such
person has the right to
acquire, whether such right
is exercisable immediately
or after the passage of time
only), directly or
indirectly, of more than 50%
of the total then
outstanding Voting Stock of
the Company (for the purpose
of this clause (iii), such
person or Group will be
deemed to "beneficially own"
(determined as aforesaid)
any Voting Stock of a
corporation (the "specified
corporation") held by any
other corporation (the
"parent corporation") if
such person or Group
"beneficially owns,"
directly or indirectly, a
majority of the voting power
of the Voting Stock of such
parent corporation), or (2)
otherwise has the ability to
elect, directly or
indirectly, a majority of
the members of the Board of
the Company; or
() the Company
consolidates with or merges
into another person (other
than the Purchaser or an
Affiliate thereof) and the
stockholders immediately
prior to such merger or
consolidation, or a
Permitted Purchaser and the
stockholders immediately
prior to such merger or
consolidation, hold less
than a majority of the
Voting Stock of the
resulting entity; or
() any person or
Group, excluding the
Purchaser and its
Affiliates, either (x) is or
becomes, by purchase, tender
offer, exchange offer, open
market purchases, privately
negotiated purchases or
otherwise, the "beneficial
owner" of more of the
outstanding Voting Stock
than The Corotoman Company
L.L.C. and its Affiliates or
(y) commences, within the
meaning of Rule 14d-1 under
the Exchange Act, a tender
offer with respect to more
than 30% of the total then
outstanding Voting Stock of
the Company.
() "VOTING STOCK" means,
with respect to any person,
securities of any class or classes
of capital stock in such person
entitling the holders thereof
(whether at all times or only so
long as no senior class of stock
has voting power by reason of any
contingency) to vote in the
election of members of the Board of
such person.
SECTION . REGISTRATION, TRANSFER
AND REPLACEMENT.
. REGISTRATION. The
Company shall maintain at its
principal office a register of the
Notes and shall record therein the
names and addresses of the Holders
of the Notes, the address to which
notices are to be sent and the
address to which payments are to be
made as designated by the Holder if
other than the address of the
Holder, and the particulars of all
transfers, exchanges and
replacements of Notes. No transfer
of a Note shall be valid unless the
Holder or his or its duly appointed
attorney requests such transfer to
be made on such register, upon
surrender thereof for exchange as
hereinafter provided, accompanied
by an instrument in writing, in
form and execution reasonably
satisfactory to the Company. Each
Note issued hereunder, whether
originally or upon transfer,
exchange or replacement of a Note,
shall be registered on the date of
execution thereof by the Company.
The Holder of a Note shall be that
person or entity in whose name the
Note has been so registered by the
Company. A Holder shall be deemed
the owner of a Note for all
purposes, and the Company shall not
be affected by any notice to the
contrary.
. TRANSFER AND EXCHANGE.
The Holder of any Note or Notes
may, prior to maturity or
redemption thereof, surrender such
Note or Notes at the principal
office of the Company for transfer
or exchange. Within a reasonable
time after notice to the Company
from a Holder of its intention to
make such exchange and without
expense (other than applicable
transfer taxes, if any) to such
Holder, the Company shall issue in
exchange therefor another Note or
Notes dated the date to which
interest has been paid on, and for
the unpaid principal amount of, the
Note or Notes so surrendered,
containing the same provisions and
subject to the same terms and
conditions as the Note or Notes so
surrendered; provided, however,
that unless the transferee is an
Affiliate of the Purchaser, the new
Note or Notes shall omit SECTION
3.2 hereof. Subject to the
restrictions on transfer set forth
in Section 2.1 hereof, each new
Note shall be made payable to such
person or entity, as the Holder of
such surrendered Note or Notes may
designate. Notes issued upon any
transfer or exchange shall be only
in authorized denominations, which
shall be $1,000,000 and integral
multiples of $500,000 in excess
thereof or, in the event of partial
redemption by the Company of any
Notes or partial conversion of such
Notes pursuant to SECTION 5 hereof
or the surrender of such Notes in
connection with the exercise of the
Warrants, such lesser amount as
shall constitute the entire
remaining principal amount of such
Note.
. REPLACEMENT. Upon
receipt of evidence satisfactory to
the Company of the loss, theft,
destruction or mutilation of any
Note and, if requested by the
Company in the case of any such
loss, theft or destruction, upon
delivery of an indemnity bond or
other agreement or security
reasonably satisfactory to the
Company, or, in the case of any
such mutilation, upon surrender and
cancellation of such Note, the
Company will issue a new Note, of
like tenor, in the amount of the
unpaid principal of such Note, and
dated the date to which interest
has been paid, in lieu of such
lost, stolen, destroyed or
mutilated Note.
SECTION . COVENANTS.
. COVENANT EFFECTIVE
DATES. Through the period ending
on and including the earlier of (i)
the Change Date or (ii) the date on
which the Holder receives final
payment of all amounts payable
under this Note, the Company and
its Subsidiaries shall comply with
all of the covenants and agreements
set forth in SECTION 3.2. If the
Change Date occurs, then the
Company and its Subsidiaries shall
no longer be bound, with respect to
the period following the Change
Date, by their covenants and
agreements set forth in SECTION
3.2. Immediately after the Change
Date, the Company and its
Subsidiaries shall become bound to
perform, on behalf of the Holders,
all of their covenants and
agreements (the "COVENANTS")
contained in the Senior Notes
Indenture governing, and the Senior
Notes evidencing, the Anticipated
Financing, and shall comply
therewith as they may be amended,
modified, supplemented or replaced
after the Change Date with the
prior written approval of the
Required Holders. If the Change
Date has occurred and thereafter
the Senior Notes are repaid in full
at any time while any Note remains
outstanding, the Covenants as in
effect immediately prior to such
termination shall be deemed to be
incorporated herein by reference
and shall continue in effect for
all purposes hereof.
. INITIAL COVENANTS.
Subject to SECTION 3.1, so long as
any Notes are held by the Purchaser
or an Affiliate thereof or a
successor to any of the foregoing
(the "PURCHASER GROUP"), the
Company shall comply with the
following covenants unless its
first obtains the approval (by vote
or written consent) of the Holders
of a majority of the then
outstanding Stage I Warrants, Stage
II Warrants, Senior Preferred Stock
and Voting Preferred Stock (voting
together as one class on the basis
of the number of Voting Preferred
Shares for or into which each such
security is then exercisable or
convertible) held by the Purchaser
Group (a "Purchaser Group
Approval"). Notwithstanding the
foregoing, the parties intend that
no provision of this Section 3.2
shall operate to limit or impair
the Company's full responsibility
for and control of the FCC Licenses
and its operations conducted
pursuant to those Licenses, if such
provision, as so applied, shall
violate applicable law.
() MAINTENANCE OF EXISTENCE
AND CONDUCT OF BUSINESS. The
Company shall, and shall cause each
of its Subsidiaries to, (i) at all
times preserve and keep in full
force and effect such entity's
corporate or partnership existence,
as the case may be, and rights and
franchises material to such
entity's business and (ii) comply
at all times with the provisions of
all franchises, permits, licenses
or other similar authorizations
relating to such entity's business,
including, without limitation, the
FCC Licenses, Channel Leases and
any obligations or agreements with
respect to signal interference,
certifications and permits, and all
other material agreements, licenses
and sublicenses, leases and
subleases to which it is a party,
and will suffer no loss or
forfeiture thereof or thereunder
except for losses or forfeitures
which in the aggregate would not
have a Material Adverse Effect.
() MAINTENANCE OF BUSINESS
RELATIONSHIPS. The Company shall,
and shall cause each of its
Subsidiaries to, maintain and
preserve its relationships with
equipment vendors, programmers,
lessors (including without
limitation MMDS, MDS, POFS and ITFS
lessors and lessors of headend and
antennae sites), licensors and
others having business
relationships with it except for
losses or replacements of
relationships which individually or
in the aggregate would not have a
Material Adverse Effect.
() MAINTENANCE OF
PROPERTIES. The Company shall, and
shall cause each of its
Subsidiaries to, maintain and keep,
or cause to be maintained and kept,
their respective properties
(including without limitation,
intellectual property and
properties acquired in accordance
with the terms of the Business Plan
or in accordance with the Loan
Documents) in good repair, working
order and condition (other than
ordinary wear and tear), and from
time to time shall make or cause to
be made all appropriate repairs,
renewals and replacements thereof,
so that the business carried on in
connection therewith may be
properly conducted at all times,
except where the failure to do so
would not have a Material Adverse
Effect.
() MAINTENANCE OF LICENSES
AND OTHER MATERIAL AGREEMENTS. The
Company shall, and shall cause each
of its Subsidiaries to, use its
best efforts to keep in full force
and effect all of the FCC Licenses,
Channel Leases, any obligations or
agreements with respect to signal
interference, certifications and
permits, and all other material
agreements, licenses and
sublicenses, leases and subleases
to which it or any of the
Subsidiaries is a party or to which
it or any of the Subsidiaries shall
become a party hereafter except for
losses thereof which individually
or in the aggregate would not have
a Material Adverse Effect. The
foregoing notwithstanding, the
Company shall, and shall cause each
of its Subsidiaries to, keep in
full force and effect sufficient
FCC Licenses and Channel Leases in
each Wireless Distribution System
covered by the Business
Relationship Agreement to comply
with the obligations of the Company
under the Business Relationship
Agreement.
() USE OF PROCEEDS.
Proceeds advanced pursuant to the
Purchase Agreement and pursuant to
the Anticipated Financing shall be
used only as expressly provided by
Section 1.5(a) and 1.5(b) of the
Purchase Agreement or, in respect
of the Anticipated Financing, as
provided in the Business Plan.
() PERFORMANCE OF LOAN
DOCUMENTS AND ANTICIPATED FINANCING
DOCUMENTS. The Company shall, and
shall cause each of its
Subsidiaries to, duly and
punctually perform, pay and
discharge or cause to be performed,
paid or discharged, all of their
respective obligations, as defined
herein, of every nature arising or
owed under the Loan Documents and
under the documents related to the
Anticipated Financing, whether
absolute or contingent. The
Company shall comply with each of
the covenants set forth in the
documents related to the
Anticipated Financing (without
regard to any waivers or consents
obtained in respect thereof from
the holders of the notes issued in
the Anticipated Financing).
() COMPLIANCE WITH LAW.
The Company shall, and shall cause
each of its Subsidiaries to, comply
in all material respects with all
applicable laws, rules,
regulations, orders or ordinances
to which each of them is or will be
subject, including, without
limitation, the Communications Act,
the Copyright Act and all
Environmental Laws, and shall
obtain and maintain in effect at
all times all licenses,
certificates, permits, franchises
and other governmental or other
authorizations necessary to the
ownership of their respective
properties or to the conduct of
their respective businesses,
including, without limitation, all
FCC Licenses, Channel Leases and
obligations or agreements with
respect to signal interference, in
each case to the extent necessary
to ensure that non-compliance with
such laws, ordinances or
governmental rules or regulations
or failures to obtain or maintain
in effect such licenses,
certificates, permits, franchises
and other governmental
authorizations could not,
individually or in the aggregate,
reasonably be expected to have a
Material Adverse Effect.
() COMPLIANCE WITH BUSINESS
PLAN AND BUSINESS RELATIONSHIP
AGREEMENT. The Company shall, and
shall cause each of the
Subsidiaries to, use its best
efforts to achieve the build-out of
the Wireless Distribution Systems
contemplated by the Business Plan,
in each case subject to the
availability of financing and the
anticipated development of certain
technology, and, except as
expressly permitted hereunder,
shall not enter into any material
transaction which is not
contemplated by the Business Plan
or the Loan Documents. The Company
shall, and shall cause each of its
Subsidiaries to, comply in all
respects with the Business
Relationship Agreement.
() INSURANCE. The Company
shall, and shall cause each of its
Subsidiaries to, maintain, with
financially sound and reputable
insurers, insurance with respect to
their respective properties and
businesses against such casualties
and contingencies, of such types,
on such terms and in such amounts
(including deductibles, co-
insurance and self-insurance, if
adequate reserves are maintained
with respect thereto) as is
customary in the case of entities
engaged in the same or a similar
business and similarly situated.
The Company shall maintain key-
person insurance on the life of
Jared E. Abbruzzese in the amount
of $2,000,000, which policy names
the Company as the owner and sole
beneficiary thereof.
() PAYMENT OF TAXES AND
CLAIMS; CONSOLIDATION.
() The Company shall,
and shall cause each of the
Subsidiaries to, timely file
all Tax Returns required to
be filed in any jurisdiction
and to pay and discharge all
Taxes shown to be due and
payable on such returns and
all other Taxes imposed on
them or any of their
properties, assets (wherever
used herein, the term
"ASSETS" includes without
limitation the properties,
licenses, permits,
franchises, stock of
Subsidiaries and contract
rights of the Company and
its Subsidiaries), income or
franchises, to the extent
such Taxes have become due
and payable and before they
have become delinquent; and
to pay and discharge all
claims for which sums have
become due and payable that
have or might become a Lien
on properties or assets of
the Company or any of their
respective Subsidiaries,
PROVIDED that the Company or
any of the Subsidiaries need
not pay any such Tax or
claim if (i) the amount,
applicability or validity
thereof is contested by the
Company or such Subsidiary
on a timely basis in good
faith and in appropriate
proceedings, and the Company
or such Subsidiary has
established adequate
reserves therefor in
accordance with GAAP on the
books of the Company or such
Subsidiary or (ii) the
nonpayment of all such Taxes
and claims in the aggregate
could not reasonably be
expected to have a Material
Adverse Effect.
() The Company shall
not, and shall not permit
any of the Subsidiaries to,
file or consent to the
filing of any consolidated
or combined income tax
return with any Person
(other than the Company or
any of the Subsidiaries).
() EMPLOYEE BENEFIT PLANS.
() The Company
shall, and shall cause each
ERISA Affiliate to, ()
comply in all material
respects with the provisions
of ERISA to the extent
applicable to any Benefit
Plan maintained by it and
cause all Benefit Plans
maintained by it to satisfy
the conditions under the
Code for tax qualification
of all such plans intended
to be tax qualified; and ()
avoid () any material
accumulated funding
deficiency (within the
meaning of ERISA '302 and
Code '412(a)) (whether or
not waived); (B) any act or
omission on the basis of
which it or an ERISA
Affiliate might incur a
material liability to the
PBGC (other than for the
payment of required
premiums) or to a trust
established under former
ERISA '4049; (C) any
transaction with a principal
purpose described in ERISA
'4069; and (D) any act or
omission that might result
in the assessment by any
Multiemployer Plan of
withdrawal liability against
the Company or any ERISA
Affiliate, but only to the
extent that the liability
arising from a failure to
comply with any covenant set
forth in (i) or (ii) could
reasonably be expected to
result in a liability to it
or a Subsidiary or an ERISA
Affiliate for any one such
event in excess of $100,000;
provided however that this
covenant will not apply to
the employee benefit plans
assumed by the Company or a
Subsidiary pursuant to any
acquisition contemplated by
the Loan Documents until the
120th day after such
acquisition is completed.
() The Company
shall not, directly or
indirectly, and shall not
permit its Subsidiaries or
any ERISA Affiliate to
directly or indirectly by
reason of an amendment or
amendments to, or the
adoption of, one or more
Benefit Plans subject to
Title IV or ERISA, permit
the present value of all
benefit liabilities, as
defined in Title IV of ERISA
(using the actuarial
assumptions utilized by the
PBGC upon termination of a
plan), to increase by more
than $100,000; PROVIDED that
this limitation shall not be
applicable to the extent
that the fair market value
of assets allocable to such
benefits, all determined as
of the most recent valuation
date for each such Benefit
Plan, is in excess of the
benefit liabilities, or to
increase to the extent
security must be provided to
any Benefit Plan under
Section 401(a)(29) of the
Code. Neither the Company
nor any of its Subsidiaries
shall establish or become
obligated to any new Retiree
Welfare Plan, or modify any
existing Retiree Welfare
Plan, which could result in
an increase in annual cost,
or could result in an annual
increase in liability to the
Company, in either case by
more than $50,000. Neither
the Company nor any of its
Subsidiaries shall establish
or become obligated to any
new unfunded Benefit Plan,
or modify any existing
unfunded Benefit Plan,
without the prior written
approval by the Holder. The
Company shall not, directly
or indirectly, and shall not
permit its Subsidiaries or
any ERISA Affiliate to (i)
satisfy any liability under
any Benefit Plan by
purchasing annuities from an
insurance company or (ii)
invest the assets of any
Benefit Plan with an
insurance company, unless,
in each case, such insurance
company is rated AA by
Standard & Poor's
Corporation and the
equivalent by each other
nationally recognized rating
agency at the time of the
investment.
() With respect to
other than a Multiemployer
Plan, for each Benefit Plan
hereafter adopted or
maintained by the Company,
any of its Subsidiaries or
any other ERISA Affiliate
and which is intended to be
qualified under Section
401(a) of the Code, the
Company shall (i) seek, or
cause its Subsidiaries or
other ERISA Affiliates to
seek, and receive
determination letters from
the IRS to the effect that
such Benefit Plan is
qualified within the meaning
of Section 401(a) of the
Code; and (ii) from and
after the adoption of any
such Benefit Plan, cause
such plan to be qualified
within the meaning of
Section 401(a) of the Code
and to be administered in
all material respects in
accordance with the
requirements of ERISA and
Section 401(a) of the Code.
() With respect to
each Benefit Plan hereafter
adopted or maintained by the
Company, any of its
Subsidiaries or any other
ERISA Affiliate and which is
a welfare plan within the
meaning of Section 3(1) of
ERISA, the Company shall
comply, or cause its
Subsidiaries or other ERISA
Affiliates to comply, with
the notice and continuation
coverage requirements of
Section 4980B of the Code
and the regulations
thereunder to the extent
noncompliance could result
in a material liability.
() The foregoing
notwithstanding, the
provisions of this SECTION
3.2(K) shall not apply to an
Acquired Company for a
period of six months from
the time of its acquisition
by the Company or a
Subsidiary, if information
disclosed by such Acquired
Company to the Company or a
Subsidiary on a schedule to
its Acquisition Documents
indicates that such Acquired
Company would, at the time
of its acquisition by the
Company or a Subsidiary, be
in violation of this SECTION
3.2(K), and such violation
would not have a Material
Adverse Effect.
() ENVIRONMENTAL LAWS.
The Company shall, and shall cause
each of its Subsidiaries to,
conduct its business so as to, and
maintain a system to assure that it
will, comply with all applicable
Environmental Laws and shall
promptly take corrective action to
remedy any non-compliance with any
Environmental Law, except for non-
compliances which individually or
in the aggregate would not have a
Material Adverse Effect.
() FURTHER ASSURANCES.
From time to time, upon the request
of the Holder, the Company shall,
and shall cause each of the
Subsidiaries to, make such filings
and seek such consents, approvals,
permits and waivers as may be
necessary or desirable in the
reasonable judgment of the Holder
to permit the Holder to exercise
all of its rights under each of the
Loan Documents, including without
limitation the right to exercise
the Stage I Warrants and the Stage
II Warrants, to convert the Notes,
the Senior Preferred Shares and the
Voting Preferred Shares and to
enforce all the covenants
thereunder and under the Business
Relationship Agreement and the
terms of the Voting Preferred
Shares.
() OTHER AFFIRMATIVE
COVENANTS. The Company shall cause
each of its Subsidiaries to comply
with Section 2 of the Purchase
Agreement and this SECTION 3.2.
() SOLVENCY. The Company
and the Subsidiaries shall, on a
consolidated basis, and Atlantic on
a standalone basis shall, be and
remain Solvent. "SOLVENT" means
that the aggregate present fair
saleable value of such Person's
assets is in excess of the total
cost of its probable liability on
its existing debts to third parties
as they become absolute and
matured, such Person has not
incurred debts beyond its
foreseeable ability to pay such
debts as they mature, and such
Person has capital adequate to
conduct the business in which it is
presently employed.
() INDEBTEDNESS. The
Company shall not, nor shall it
permit any of the Subsidiaries to,
directly or indirectly, remain
liable, create, incur, assume,
guaranty, or otherwise become or
remain directly or indirectly
liable with respect to any
Indebtedness except:
() the Company and
the Subsidiaries may become
and remain liable with
respect to the Obligations;
() the Company and
the Subsidiaries may become
and remain liable with
respect to the Anticipated
Financing created and
incurred pursuant to Section
2.4 of the Purchase
Agreement;
() the
Subsidiaries of the Company
may become and remain liable
with respect to intercompany
indebtedness to the Company;
PROVIDED that all such
intercompany indebtedness is
subordinated to the
Obligations and evidenced by
an intercompany note
executed by such Subsidiary,
all in form and substance
satisfactory to the Holder;
() the Company and
the Subsidiaries may become
and remain liable with
respect to unsecured debt
incurred in connection with
the acquisition by the
Company or a Subsidiary of
any of the Acquired
Companies in accordance with
the terms of the Acquisition
Agreements including,
without limitation, debt
that is assumed in such
acquisition provided that
such debt is prepayable at
the option of the Company;
() the Company and
the Subsidiaries may become
and remain liable with
respect to contingent or
deferred payment obligations
incurred by the Company or
any of its Subsidiaries in
connection with the
acquisition of assets by the
Company or any of its
Subsidiaries in the ordinary
course of business, which
payment obligation is
secured solely by the
acquired assets;
() prior to
January 1, 1997, the Company
may incur the debt permitted
pursuant to Section
2.7(c)(ii) of the Purchase
Agreement;
() if the Stage II
Closing has been
consummated, from January 1,
1997 until the earlier of
July 1, 1997 or the first
date that the quotient,
expressed as a percentage,
of the number of LOS
Households in service areas
with respect to which
Purchaser's Affiliates have
then exercised their options
under Article 3 of the
Business Relationship
Agreement divided by the
number of LOS Households in
all service areas subject to
the Business Relationship
Agreement (the "BR
PERCENTAGE") first exceeds
30%, the Company may incur
Indebtedness in the
aggregate principal amount
of $25,000,000 to the extent
necessary to fund operations
or repay existing debt or
used to effect acquisitions
or capital expenditures
(including acquisitions or
capital expenditures in the
form of Capital Leases)
permitted under SECTION
3.2(AB) hereof; and
() after July 1,
1997, the Company may incur
Indebtedness in an aggregate
amount equal to the product
of (x) $250,000,000 (reduced
by the principal amount of
the Indebtedness incurred
under subsection (h) hereof
and then outstanding) at the
time such Indebtedness is
contemplated to be incurred
by the Business Plan
multiplied by (y) the
difference between (i) 100%
and (ii) the BR Percentage
at the time the Indebtedness
is incurred; PROVIDED that
after the first date that
the BR Percentage is equal
to or greater than 75%, no
Indebtedness may thereafter
be incurred hereunder.
The provisions of this
SECTION 3.2(P) notwithstanding, the
Company shall not permit Atlantic
to directly or indirectly remain
liable, create, incur, assume,
guaranty or otherwise become or
remain directly or indirectly
liable with respect to any
Indebtedness.
() LIENS. The Company
shall not, nor shall it permit any
of the Subsidiaries to, directly or
indirectly, maintain, create,
incur, assume or permit to exist
any lien on or with respect to any
property or asset (including any
document or instrument in respect
of goods or accounts receivable) of
the Company or any Subsidiary,
whether now owned or hereafter
acquired, or any income or profits
therefrom, except:
() liens granted
pursuant to the Loan
Documents or disclosed in
Schedule 4.8 of the Purchase
Agreement (as amended with
respect to Acquired
Companies pursuant to
Section 2.10 of the Purchase
Agreement) and not
discharged as contemplated
by Section 3.2(a) of the
Purchase Agreement;
() liens securing
Indebtedness permitted under
SECTIONS 3.2(P)(VII) AND
(VIII) above; and
() liens securing
Indebtedness of acquired
entities in acquisitions or
for capital expenditures, in
either case which are
permitted under SECTION
3.2(AA) hereof.
The provisions of this
SECTION 3.2(Q) notwithstanding, the
Company shall not permit, nor shall
it permit any of the Subsidiaries,
to directly or indirectly,
maintain, create, incur, assume or
permit to exist any lien on or with
respect to (i) any property or
assets of Atlantic or (ii) any
assets which are used in connection
with Wireless Distribution Systems
subject to the Business
Relationship Agreement; PROVIDED
HOWEVER, that this clause (ii)
shall not apply to liens securing
Indebtedness issued pursuant to
SECTION 3.2(P)(VIII) hereof.
() RESTRICTION ON
FUNDAMENTAL CHANGES; ASSET SALES.
The Company shall not, nor shall it
permit any of the Subsidiaries to,
alter its corporate, capital or
legal structure or to enter into
any merger, or consolidate, or
liquidate, wind-up or dissolve
itself (or suffer any liquidation
or dissolution), or convey, sell,
lease, sub-lease, transfer or
otherwise dispose of, in one
transaction or a series of
transactions, all or any part of
its business, property or assets,
whether now owned or hereafter
acquired (other than in the
ordinary course of business), or
acquire by purchase, lease or
otherwise, in one transaction or a
series of transactions, all or any
part of the business, property or
fixed assets of, or stock or other
evidence of beneficial ownership
of, any Person (other than
purchases or other acquisitions of
inventory, leases, materials,
property and equipment in the
ordinary course of business) or
agree to do any of the foregoing at
any future time, except:
() the Company
and the Subsidiaries may
make acquisitions and
capital expenditures in the
manner expressly provided in
SECTION 3.2(AA) hereof;
() the Company and
the Subsidiaries may from
time to time make sales or
other dispositions of assets
having a cumulative fair
market value in any
twelve-month period not in
excess of the greater of
$1,000,000 in the aggregate
or 5% in the aggregate of
Consolidated Operating Cash
Flow (hereinafter defined)
for the fiscal year
preceding any such sale;
PROVIDED that () the
consideration received shall
be an amount at least equal
to the fair market value
thereof and () at least 85%
of the consideration
received shall be cash;
PROVIDED, HOWEVER, that in
no event shall the Company
sell assets (other than
assets of DE MINIMIS value)
which are used or useful in
providing the services
required to be provided by
the Company or its
Subsidiaries under the
Business Relationship
Agreement; and
() the Company
and its Subsidiaries may
from time to time dispose of
FCC Licenses and Channel
Leases for equivalent rights
in replacement FCC Licenses
and Channel Leases in the
same operating market and
the swapping of assets for
equivalent or better
replacement assets shall be
permitted if at least 20
days prior notice is given
to the Holder (other than in
the case of swaps involving
assets of DE MINIMIS value).
"CONSOLIDATED OPERATING CASH
FLOW" shall mean, for any period,
the sum (without duplication) of
the amounts for such period of (i)
net income, (ii) depreciation
expense, (iii) amortization
expense, (iv) taxes paid, and (v)
service fees under the Loan
Documents LESS (x) capital
expenditures and (y) increases in
net current assets (increases in
inventory and accounts receivable
LESS increases in accounts
payable), determined on a
consolidated basis for the Company
and the Subsidiaries in accordance
with GAAP.
() RESTRICTED PAYMENTS.
The Company shall not, nor shall it
permit any Subsidiary to:
() declare or pay
any dividend or make any
distribution (other than
dividends required to be
paid by the Series A
Convertible Preferred Stock
and 6% Series B Convertible
Preferred Stock or on any
shares the issuance of which
has received a Purchaser
Group Approval) on shares of
the Company or any
Subsidiary;
() purchase,
redeem or otherwise acquire
or retire for value any
stock of the Company or of
any Subsidiary or any
warrants, rights or options
to acquire shares of any
class of such stock;
() make any
principal payment on,
purchase, defease, redeem,
prepay, decrease or
otherwise acquire or retire
for value, prior to any
scheduled final maturity,
scheduled repayment,
scheduled sinking fund
payment, or scheduled
redemption payment, any
Indebtedness that is
subordinate or junior in
right of payment to the
Notes (other than any such
Indebtedness owing to the
Company or any wholly-owned
Subsidiary of the Company);
or
() make any
Investment (other than
Investments permitted by
SECTION 3.2(AA) or 3.2(AC)
hereof).
() ISSUANCE OF STOCK.
The Company shall not, and shall
not permit any Subsidiary to,
authorize or issue any capital
stock except for (i) shares
issuable upon exercise of the
Warrants and the Stage II Warrants
or conversion of the Notes, the
Senior Preferred Shares or the
Voting Preferred Shares, (ii)
shares issued in connection with
the acquisition of the Acquired
Companies as described in the
Acquisition Agreements, (iii)
Common Shares issued upon
conversion of shares of Series A
Convertible Preferred Stock and 6%
Series B Convertible Preferred
Stock or the exercise of options,
warrants and other purchase rights
disclosed on Schedule 4.3 to the
Purchase Agreement, (iv) options
and warrants with respect to Common
Shares set forth on Schedule I
hereto, (v) Common Shares issued in
payment of the purchase price under
acquisitions or to fund capital
expenditures, in each case
permitted pursuant to SECTION
3.2(AA) hereof, (vi) Common Shares
issued pursuant to Section
2.7(c)(ii) of the Purchase
Agreement, and (vii) Common Shares
assumed to be issued when
calculating Fully-Diluted Common
Shares immediately after
consummation of the Stage II
Closing.
() TRANSACTIONS WITH
AFFILIATES. The Company shall not,
nor shall it permit any of the
Subsidiaries to, enter into,
directly or indirectly, any
transaction or group of related
transactions (including without
limitation the purchase, lease,
sale or exchange of properties of
any kind or the rendering of any
service) with any Affiliate (other
than the Company or another
Subsidiary), except (i) for
transactions required by the
ServiceCo Documents, and (ii) in
the ordinary course and pursuant to
the reasonable requirements of the
Company's or such Subsidiary's
business and upon fair and
reasonable terms no less favorable
to the Company or such Subsidiary
than would be obtainable in a
comparable arm's-length transaction
with a Person that is not an
Affiliate.
() CERTAIN OTHER
RESTRICTIONS. The Company shall
not, nor shall it permit any of the
Subsidiaries to, engage in any
business or undertake any
activities or otherwise do any act,
that would subject the Holders, in
the reasonable opinion of the
Holders, to a risk of violation of
the MFJ. In addition:
() the Company
will ensure that its
directors and senior
management, and the
directors and senior
management of the
Subsidiaries, are aware of
the terms of the MFJ and of
what types or categories of
businesses or activities
might constitute a breach
thereof. The Company shall
procure all managers having
significant responsibility
for matters addressed in the
MFJ to sign a certificate as
described in Section V of
the MFJ, or such other form
as the Holders may
reasonably require from time
to time. The Company shall
ensure that the Subsidiaries
and any other company or
other entity in which it or
any Subsidiary holds an
interest shall comply with
the terms of this provision;
and
() the Company
shall, and shall cause the
Subsidiaries to, provide all
necessary and reasonable
assistance to the Holders in
any MFJ proceeding or
investigation, at the
request of the Holders. It
is the intention of the
Company and the Holders
that, in addition to any
damages to which the Holders
may be entitled for
violation of this provision,
this provision may be
enforced by grant of
injunctive relief to
restrain any such breach by
the Company or a Subsidiary.
() CONTINGENT
OBLIGATIONS. The Company shall
not, nor shall it permit any of the
Subsidiaries to, directly or
indirectly, create or become or be
liable with respect to any
Contingent Obligation except:
() Contingent
Obligations of the Company
and the Subsidiaries
incurred pursuant to the
Loan Documents;
() Contingent
Obligations resulting from
endorsement of negotiable
instruments for collection
in the ordinary course of
business;
() Contingent
Obligations in respect of
operating leases;
() intercompany
Contingent Obligations with
respect to the Company or
any other Subsidiary;
PROVIDED that all such
intercompany Contingent
Obligations are subordinated
to the Obligations;
() Contingent
Obligations which the
Company elects to treat as
Indebtedness and which could
then be incurred as
Indebtedness under SECTION
3.2(P) hereof;
() Contingent
Obligations of the Company
in respect of assisting the
Subsidiaries in providing
goods and services in the
ordinary course of their
respective businesses.
For purposes of this SECTION
3.2(W), the term "CONTINGENT
OBLIGATIONS" shall mean any direct
or indirect liability, contingent
or otherwise (1) with respect to
any indebtedness, lease, dividend
or other obligation of another if
the primary purpose or intent
thereof is to provide assurance to
the obligee of such obligation of
another that such obligation of
another will be paid or discharged,
or that any agreements relating
thereto will be complied with, or
that the holders of such
obligations will be protected (in
whole or in part) against loss in
respect thereof and (2) with
respect to any letter of credit.
Contingent Obligations shall
include with respect to the Company
or any of the Subsidiaries, without
limitation, () the direct or
indirect guaranty, endorsement
(otherwise than for the collection
or deposit in the ordinary course
of business), co-making,
discounting with recourse or sale
with recourse by the Company or any
of the Subsidiaries, () the
obligation to make take-or-pay or
similar payments if required
regardless of non-performance by
any other party or parties to an
agreement, and () any liability of
the Company or any of the
Subsidiaries for the obligations of
another through any agreement
(contingent or otherwise) (x) to
purchase, repurchase or otherwise
acquire such obligation or any
security therefor, or to provide
funds for the payment or discharge
of such obligation (whether in the
form of loans, advances, stock
purchases, capital contributions or
otherwise), and (y) to maintain the
solvency or any balance sheet item,
level of income or financial
condition of another (except as
expressly provided in this Note),
if in the case of any agreement
described under subclause (x) or
(y) of this sentence, the primary
purpose or intent thereof is as
described in the preceding
sentence.
() CONDUCT OF BUSINESS.
Except as expressly provided in the
Loan Documents, the Company shall
not, nor shall it permit any of the
Subsidiaries to, engage in any line
of business except those described
in the Company's Transition Report
on Form 10-K for the period ended
March 31, 1994 and the activities
described in Note 2 to the
Company's financial statements
contained in the Company's
Quarterly Report on Form 10-Q for
the quarter ended September 30,
1994 which, in the sole judgment of
the Purchaser Group, do not violate
the MFJ; provided, however, that
prior to the time that the BR
Percentage first exceeds 30%, the
Company and its Subsidiaries may
engage in other business activities
related to the use of the MMDS
Spectrum if (i) they are in
compliance with all of their
obligations hereunder, under the
other Loan Documents and the
documents related to the
Anticipated Financing, (ii) such
activities will not have a material
adverse effect on the ability of
the Company and the Subsidiaries to
perform their obligations under the
Business Relationship Agreement,
and (iii) the Company does not
enter into any joint ventures,
partnerships or other arrangement
with a third Person to share the
profits, losses and control of such
activities with any person unless
the Company has offered the
Purchaser the right to enter into
such arrangement on terms no less
favorable to the Purchaser than
those agreed to by the third person
and in any event, the Company shall
not enter into such an arrangement
with any Person if such Person or
any Affiliate of such Person is
engaged in operating, providing or
marketing wireline cable or local
wireline telephone systems or
services within the United States.
() CREATION OF
SUBSIDIARIES; DISPOSAL OF
SUBSIDIARY STOCK.
() The Company
shall not, nor shall it
permit any of the
Subsidiaries to, create or
acquire any interest in any
Subsidiaries, unless such
Subsidiary is wholly-owned
by the Company or a wholly-
owned Subsidiary or unless
expressly permitted by
clause (iii) of SECTION
3.2(X) hereof.
() The Company
shall not, and shall not
permit any of the
Subsidiaries to, directly or
indirectly sell, assign,
pledge or otherwise encumber
or dispose of any shares of
capital stock, partnership
interests, or other equity
securities (or warrants,
rights or options to acquire
shares or other equity
securities) of any of the
Subsidiaries, except (i) to
the Company, another
Subsidiary of the Company,
(ii) to qualify directors if
required by applicable law,
(iii) as permitted by
SECTION 3.2(S) hereof, (iv)
as reflected on Schedule 4.2
to the Purchase Agreement,
or (v) as collateral for
these Notes.
() AMENDMENTS TO CHARTER
DOCUMENTS. Except as expressly
provided in the Loan Documents, the
Company shall not, nor shall it
permit any of the Subsidiaries to,
make any amendment to, or waive any
of its material rights under, its
articles or certificate of
incorporation, as the case may be,
its by-laws or other documents
relating to its capital stock, or
other equity interests of the
Company or any of the Subsidiaries
(other than non-material amendments
which, in the aggregate, would not
have a Material Adverse Effect and
which would not adversely affect
the rights of the holders of the
Notes) without, in each case,
obtaining the written consent of
all Holders to such amendment or
waiver.
() ACQUISITIONS AND
CAPITAL EXPENDITURES. The Company
shall not, nor shall it permit any
of its Subsidiaries to, incur any
capital expenditures or acquire the
capital stock or assets of any
Person, except for capital
expenditures reflected in the
Business Plan; PROVIDED, HOWEVER,
that, so long as no Default shall
have occurred and be continuing
under the Notes or Senior Preferred
Shares, until the BR Percentage is
at least 30%:
() prior to July
1, 1997, the Company may
make, in addition to those
reflected in the Business
Plan, capital expenditures
for which the aggregate
consideration to be paid
does not exceed $20 million
and acquisitions of
businesses for which the
aggregate value of the
consideration paid and the
liabilities assumed, in the
aggregate, does not exceed
$15 million,
() after July 1,
1997, the Company may incur
additional capital
expenditures so long as the
aggregate consideration to
be paid therefor, including
for capital expenditures
made prior to July 1, 1997,
does not exceed $35 million,
and may make additional
acquisitions so long as the
aggregate value of the
consideration paid for and
the liabilities assumed in
such acquisitions, in the
aggregate and including
acquisitions made prior to
July 1, 1997, does not
exceed $25 million.
() SALE OR DISCOUNT OF
RECEIVABLES. The Company shall
not, nor shall it permit any of the
Subsidiaries to, directly or
indirectly, sell any of their notes
or accounts receivable except
solely in the ordinary course of
business for the collection of
delinquent accounts.
() INVESTMENTS. The
Company shall not, nor shall it
permit any of the Subsidiaries to,
make or permit to exist, any
Investments, directly or
indirectly, other than (a)
marketable direct obligations of
the United States of America which
mature within 5 years from the date
of issue or participations in
marketable direct obligations of
the United States of America
acquired from domestic banks having
total assets in excess of
$500,000,000, (b) certificates of
deposit and bankers' acceptances of
domestic banks having total assets
in excess of $500,000,000 and
demand and time deposits in any
bank, whether domestic or foreign,
(c) securities commonly known as
"commercial paper" issued by any
company organized and existing
under the laws of the United States
of America or any state thereof
which at the time of purchase have
been rated and the ratings for
which are not less than "P-1" if
rated by Moody's, and not less than
"A-1" if rated by Standard and
Poor's, (d) written agreements
under which domestic banks having
total assets in excess of
$500,000,000 sell and agree to
repurchase marketable direct
obligations of the United States of
America, (e) money market funds
backed by U.S. Obligations, (f)
acquisitions of companies if such
acquisition is permitted pursuant
to SECTION 3.2(AA) hereof and such
acquisition is of the entire
interest in the equity of the
acquired company, and (g) the
Company's investment in ACTV, Inc.
described in Schedule 4.13(6) to
the Purchase Agreement.
() ACQUIRED COMPANIES.
The term "Subsidiaries" as used in
the covenants contained in this
SECTION 3.2 shall be deemed to
include each Acquired Company from
and after the date that the
acquisition of such Acquired
Company is consummated, except for
the grace periods applicable
thereto contained in this SECTION
3.2(AD). The following provisions
of this SECTION 3.2 shall not apply
to any Acquired Company until the
end of the grace period after the
date of such Acquired Company's
acquisition by the Company set
forth opposite the reference to
such provision below; PROVIDED,
HOWEVER, that (i) the failure of
the Acquired Company to comply with
such provisions immediately is due
to circumstances existing at the
time of consummation of the
acquisition, (ii) the Company is
using all reasonable and diligent
efforts to bring such Acquired
Company into compliance with such
provisions, and (iii) such failure
of such Acquired Company to comply
with such provisions does not have
a material adverse effect on the
Company's ability to comply with
its obligations under the Business
Relationship Agreement:
SECTION REFERENCE
GRACE PERIOD
3.2(A)(II)
60 days
3.2(B)
60 days
3.2(C)
180 days
3.2(F)
60 days
3.2(G)
60 days
3.2(H)(last sentence
only)
60 days
3.2(J)
60 days
3.2(X)
30 days
() AMENDMENT OF SENIOR
NOTE OR SENIOR NOTES INDENTURE.
The Company shall not amend the
Senior Notes or the Senior Notes
Indenture without a prior Purchaser
Group Approval of such amendment.
SECTION . EVENTS OF DEFAULT. For
purposes of this SECTION 4, the
term "SUBSIDIARY" shall include
Acquired Companies as of the time
such Acquired Companies were
acquired by the Company.
. An "EVENT OF DEFAULT"
shall exist if any of the following
conditions or events shall occur
and be continuing:
() on or prior to the
Change Date:
() the Company
defaults in the payment of
any principal on any Note
when the same becomes due
and payable, whether at
maturity or at a date fixed
for prepayment or by
declaration or otherwise; or
() the Company
defaults in the payment of
any interest on any Note for
more than ten calendar days
after the same becomes due
and payable; or
() the Company
defaults in the performance
of or compliance with any
covenant or agreement
contained in SECTION 3.2
hereof except SUBSECTIONS
3.2(C), (F), (G), (M) AND
(N) hereof or SECTION 6.2(B)
OR (D) of the Securities
Purchase Agreement, and such
default remains unremedied
for a period of 30 days; or
() the Company
defaults in the performance
of or compliance with any
term contained herein (other
than those referred to in
subparagraphs (i), (ii) and
(iii) of this SECTION
4.1(A)) or in the Securities
Purchase Agreement and such
default is not remedied
within 30 days after the
earlier of (X) a Responsible
Officer obtaining actual
knowledge of such default
and (Y) the Company
receiving written notice of
such default from any holder
of a Note (any such written
notice to be identified as a
"notice of default" and to
refer specifically to this
subparagraph (a)(iv) of
SECTION 4.1); or
() any
representation or warranty
made in writing by or on
behalf of the Company or by
any officer of the Company
in the Securities Purchase
Agreement or in any writing
furnished in connection with
the transactions
contemplated hereby proves
to have been false or
incorrect in any material
respect on the date as of
which made; or
() (X) the Company
or any Subsidiary is, or
would be with notice or the
passage of time, in default
(as principal or as
guarantor or other surety)
in the payment of any
principal of or premium or
make-whole amount or
interest on any Indebtedness
that is outstanding in an
aggregate principal amount
of at least $500,000 beyond
any period of grace provided
with respect thereto, or (Y)
the Company or any
Subsidiary is, or would be
with notice or the passage
of time, in default in the
performance of or compliance
with any term of any
evidence of any Indebtedness
in an aggregate outstanding
principal amount of at least
$500,000 or of any mortgage,
indenture or other agreement
relating thereto or any
other condition exists, and
as a consequence of such
default or condition such
Indebtedness has become, or
has been declared (or one or
more Persons are entitled to
declare such Indebtedness to
be), due and payable before
its stated maturity or
before its regularly
scheduled dates of payment,
or (Z) as a consequence of
the occurrence or
continuation of any event or
condition (other than the
passage of time or the right
of the holder of
Indebtedness to convert such
Indebtedness into equity
interests), (1) the Company
or any Subsidiary has become
obligated to purchase or
repay Indebtedness before
its regular maturity or
before its regularly
scheduled dates of payment
in an aggregate outstanding
principal amount of at least
$500,000 or (2) one or more
Persons have the right to
require the Company or any
Subsidiary so to purchase or
repay such Indebtedness; or
() the Company or
any Subsidiary (U) is
generally not paying, or
admits in writing its
inability to pay, its debts
as they become due, (V)
files, or consents by answer
or otherwise to the filing
against it of, a petition
for relief or reorganization
or arrangement or any other
petition in bankruptcy, for
liquidation or to take
advantage of any bankruptcy,
insolvency, reorganization,
moratorium or other similar
law of any jurisdiction, (W)
makes an assignment for the
benefit of its creditors,
(X) consents to the
appointment of a custodian,
receiver, trustee or other
officer with similar powers
with respect to it or with
respect to any substantial
part of its property, (Y) is
adjudicated as insolvent or
to be liquidated, or (Z)
takes corporate action for
the purpose of any of the
foregoing; or
() a court or
Governmental Authority of
competent jurisdiction
enters an order appointing,
without consent by the
Company or any of its
Subsidiaries, a custodian,
receiver, trustee or other
officer with similar powers
with respect to it or with
respect to any substantial
part of its property, or
constituting an order for
relief or approving a
petition for relief or
reorganization or any other
petition in bankruptcy or
for liquidation or to take
advantage of any bankruptcy
or insolvency law of any
jurisdiction, or ordering
the dissolution, winding-up
or liquidation of the
Company or any of its
Subsidiaries, or any such
petition shall be filed
against the Company or any
of its Subsidiaries and such
petition shall not be
dismissed within 90 days; or
() a final
judgment or judgments for
the payment of money
aggregating in excess of
$500,000 are rendered
against one or more of the
Company and its Subsidiaries
and which judgments are not,
within 90 days after entry
thereof, bonded, discharged
or stayed pending appeal, or
are not discharged within 60
days after the expiration of
such stay; or
() if (U) any
Benefit Plan shall fail to
satisfy the minimum funding
standards of ERISA or the
Code for any plan year or
part thereof or a waiver of
such standards or extension
of any amortization period
is sought or granted under
section 412 of the Code, (V)
a notice of intent to
terminate any Benefit Plan
shall have been or is
reasonably expected to be
filed with the PBGC or the
PBGC shall have instituted
proceedings under ERISA
section 4042 to terminate or
appoint a trustee to
administer any Benefit Plan
or the PBGC shall have
notified the Company or any
ERISA Affiliate that a
Benefit Plan may become a
subject of any such
proceedings, (W) the
aggregate "amount of
unfunded benefit
liabilities" (within the
meaning of section
4001(a)(18) of ERISA) under
all Benefit Plans,
determined in accordance
with Title IV of ERISA,
shall exceed $500,000, (X)
the Company or any ERISA
Affiliate shall have
incurred or is reasonably
expected to incur any
liability pursuant to Title
I or IV of ERISA or the
penalty or excise tax
provisions of the Code
relating to employee benefit
plans, (Y) the Company or
any ERISA Affiliate
withdraws from any
Multiemployer Plan, or (Z)
the Company or any
Subsidiary establishes or
amends any Benefit Plan that
provides post-employment
welfare benefits in a manner
that would increase the
liability of the Company or
any Subsidiary thereunder;
and any such event or events
described in clauses (U)
through (Z) above, either
individually or together
with any other such event or
events, could reasonably be
expected to have a Material
Adverse Effect; or
() either the
Anticipated Financing or the
Stage II Closing shall not
have been consummated before
February 28, 1996; or
() after the Change Date,
if (i) any Default or Event of
Default, as defined in the Senior
Notes Indenture or the Senior Notes
as in effect on the original
issuance date thereof and without
giving effect to any amendment,
supplement or other modification
thereof or waiver or consent
thereunder, shall occur and be
continuing (other than any Default
or Event of Default occasioned
solely due to the failure to pay
interest on the Senior Notes unless
such failure results in the
acceleration of the Senior Notes),
regardless of whether or not any
Senior Notes are then outstanding,
or (ii) the Company shall have
failed to pay when due any
principal of any Note when such
principal becomes due and payable,
at maturity, upon acceleration,
redemption pursuant to a required
offer to purchase or otherwise, or
(iii) the Company shall have failed
to pay interest on any Note when
the same becomes due and payable
and such failure continues for a
period of 30 days.
. ACCELERATION OF NOTES.
() If, on or before the
Change Date, an Event of Default
with respect to the Company
described in subparagraph (a)(vii)
or (a)(viii) of SECTION 4.1 (other
than an Event of Default described
in clause (U) of
subparagraph (a)(vii) or described
in clause (Z) of
subparagraph (a)(vii) by virtue of
the fact that such clause
encompasses clause (U) of
subparagraph (a)(vii)) has
occurred, all the Notes then
outstanding shall automatically
become immediately due and payable.
() If, after the Change
Date, an Event of Default with
respect to the Company described in
provisions of the Senior Notes or
the Senior Notes Indenture which
are comparable to
subparagraph (a)(vii) or (a)(viii)
of SECTION 4.1 (other than an Event
of Default which is comparable to
an event described in clause (U) of
subparagraph (a)(vii) or described
in clause (Z) of
subparagraph (a)(vii) by virtue of
the fact that such clause
encompasses clause (U) of
subparagraph (a)(vii)) has
occurred, all the Notes then
outstanding shall automatically
become immediately due and payable.
() If any other Event of
Default has occurred and is
continuing, the Required Holders
may at any time at its or their
option, by notice or notices to the
Company, declare all the Notes then
outstanding to be immediately due
and payable.
Upon any Notes becoming due
and payable under this SECTION 4.2,
whether automatically or by
declaration, such Notes will
forthwith mature and the entire
unpaid principal amount of such
Notes, plus all accrued and unpaid
interest thereon, shall all be
immediately due and payable, in
each and every case without
presentment, demand, protest or
further notice, all of which are
hereby waived. The Company
acknowledges, and the parties
hereto agree, that each Holder of a
Note has the right to maintain its
investment in the Notes free from
repayment by the Company (except as
herein specifically provided for).
. OTHER REMEDIES. If
any Event of Default has occurred
and is continuing, and irrespective
of whether any Notes have become or
have been declared immediately due
and payable under SECTION 4.2, the
Holder of any Note at the time
outstanding may proceed to protect
and enforce the rights of such
Holder by an action at law, suit in
equity or other appropriate
proceeding, whether for the
specific performance of any
agreement contained herein or in
any Note, or for an injunction
against a violation of any of the
terms hereof or thereof, or in aid
of the exercise of any power
granted hereby or thereby or by law
or otherwise.
. RESCISSION. At any
time after any Notes have been
declared due and payable pursuant
to paragraph (c) or (d) of SECTION
4.2, the Required Holders, by
written notice to the Company, may
rescind and annul any such
declaration and its consequences if
(A) the Company has paid all
overdue interest on the Notes and
all principal of any Notes that are
due and payable and are unpaid
other than by reason of such
declaration, and all interest on
such overdue principal and (to the
extent permitted by applicable law)
any overdue interest in respect of
the Notes at the Default Rate,
(B) all Events of Default other
than non-payment of amounts that
have become due solely by reason of
such declaration, have been cured
or have been waived pursuant to
SECTION 9 of the Securities
Purchase Agreement, and (C) no
judgment or decree has been entered
for the payment of any monies due
pursuant to the Notes. No
rescission and annulment under this
SECTION 4.4 will extend to or
affect any subsequent Event of
Default or impair any right
consequent thereon.
. NO WAIVERS OR ELECTION
OF REMEDIES, EXPENSES, ETC. No
course of dealing and no delay on
the part of any Holder of any Note
in exercising any right, power or
remedy shall operate as a waiver
thereof or otherwise prejudice such
Holder's rights, powers or
remedies. No right, power or
remedy conferred by this Note or by
the Securities Purchase Agreement
upon any Holder thereof shall be
exclusive of any other right, power
or remedy referred to herein or
therein or now or hereafter
available at law, in equity, by
statute or otherwise. Without
limiting the obligations of the
Company under SECTION 7 of the
Securities Purchase Agreement, the
Company will pay to the Holder of
each Note on demand such further
amount as shall be sufficient to
cover all costs and expenses of
such holder incurred in any
enforcement or collection under
this SECTION 4.5, including,
without limitation, reasonable
attorneys' fees, expenses and
disbursements.
SECTION . CONVERSION. This SECTION
5 shall become effective upon
consummation of the Stage II
Closing and shall remain effective
thereafter, but only with respect
to the period commencing at such
time.
. CONVERSION PRIVILEGE.
Subject to and upon compliance with
the provisions of this SECTION 5,
at the option of the Holder during
the period beginning upon
consummation of the Stage II
Closing and ending at 5:00 P.M.
local time in New York, NY on the
fifth anniversary of the Stage II
Closing (the "CONVERSION PERIOD"),
this Note or any portion of the
principal amount due hereunder may,
at any time and from time to time,
be converted into fully paid and
nonassessable shares of 14% Senior
Preferred Stock of the Company
("SENIOR PREFERRED STOCK"), at the
Conversion Price in effect at the
date of conversion. The shares of
Senior Preferred Stock issued or
issuable upon conversion of the
Notes are referred to herein as the
"SENIOR PREFERRED SHARES."
. MANNER OF EXERCISE OF
CONVERSION PRIVILEGE. () In the
sole discretion of the Holder, this
Note may be converted in whole or
in part, at any time and from time
to time during the Conversion
Period. To exercise the conversion
privilege with respect to this Note
in whole or in part, the Holder
shall deliver to the Company at its
principal office, during the
Conversion Period, (i) this Note,
and (ii) a written notice of such
Holder's election to convert all or
any part of this Note, which notice
shall specify the amount of this
Note to be so converted, the
denominations of the share
certificate or certificates desired
and the name or names in which such
certificates are to be registered.
This Note or the portion thereof
specified in such notice shall be
deemed to have been converted
immediately prior to the close of
business on the date of receipt of
such notice and such Note by the
Company, even if the Company's
stock transfer books are on that
date closed.
() Promptly after the
conversion of all or any portion of
this Note, the Company shall issue
and deliver, at its expense, to the
Holder, or to the nominee or
nominees of such Holder, a
certificate or certificates for the
number of Senior Preferred Shares
due on such conversion. Interest
shall accrue on the unpaid
principal amount of this Note
converted to the date of
conversion. In the case of a
conversion of all or only a portion
of the outstanding principal amount
of this Note, the Company shall
execute and deliver to the Holder
(or its nominee or nominees), at
the expense of the Company, a
replacement note in a principal
amount equal to the sum of the
unconverted principal portion of
such Note plus all accrued unpaid
interest on such Note and dated and
bearing interest from the date to
which interest has been paid on
such Note or dated the date of such
Note if no interest has been paid
thereon.
. REGULATORY APPROVALS.
The Company acknowledges that prior
to exercising its rights to acquire
Voting Preferred Shares hereunder
and to acquiring the shareholder
rights provided to holders of such
Voting Preferred Shares, the Holder
shall secure any regulatory
approvals it deems necessary to
effect such exercise and acquire
and to assert such rights,
including but not limited to the
approval of the FCC. The Company
shall cooperate (and shall cause
its Affiliates and Subsidiaries to
cooperate) with the Holder in
applying for any necessary requests
or applications for such approval,
and shall immediately execute, on
request of the Holder, all
application forms and other
documents requiring execution by
the Company in connection
therewith.
. FRACTIONAL SHARES.
The Company shall not be required
to issue fractions of Senior
Preferred Shares upon conversion of
this Note. If any fraction of a
share would, but for this Section,
be issuable upon any conversion of
this Note, in lieu of such
fractional share the Company shall
pay to the Holder or Holders, as
the case may be, in cash, an amount
equal to the fair market value of
such fractional share.
. CONVERSION PRICE. The
Conversion Price at which Senior
Preferred Shares shall be issuable
upon the conversion of this Note
shall initially be $10,000 for each
Senior Preferred Share (subject to
appropriate adjustment for stock
splits, subdivisions, combinations,
dividends or other similar
transactions with respect to Senior
Preferred Shares).
SECTION . SUBORDINATION. This
SECTION 6 shall become effective
immediately after the Change Date
and shall remain effective
thereafter, but only with respect
to the period commencing at such
time.
. DEFINITIONS.
() "FEDERAL BANKRUPTCY
CODE" means the Bankruptcy Act of
Title 11 of the United States Code,
as amended from time to time.
() "NON-PAYMENT DEFAULT"
means any event (other than a
Payment Default) the occurrence of
which entitles one or more persons
to accelerate the maturity of, or
would result in the acceleration
of, any Senior Indebtedness.
() "PAYMENT DEFAULT"
means any default in the payment of
principal of (or premium, if any,
on) or interest on Senior
Indebtedness when due.
() "SENIOR INDEBTEDNESS"
means (i) the principal of,
premium, if any, and interest on
the Senior Notes, and (II) all
other Indebtedness of the Company
for money borrowed the incurrence
of which does not violate the Loan
Documents and which is not
expressly subordinated (as set
forth in the terms of such
Indebtedness) to the right of
payment to any other Indebtedness
of the Company, in each case
including without limitation, all
obligations of the Company, whether
outstanding on the date hereof or
hereafter created, incurred or
assumed, under or in respect of the
Senior Notes or such other
Indebtedness, whether for
principal, interest (including,
without limitation, interest
accruing after the filing of a
petition initiating any proceeding
under any state or federal
bankruptcy law whether or not such
interest is an allowable claim),
reimbursement of amounts drawn
under letters of credit issued or
arranged for pursuant thereto,
guarantees in respect thereof, and
all charges, fees, expenses
(including reasonable fees and
expenses of counsel) and other
amounts in respect of the Senior
Notes or such other Indebtedness
incurred by or owing to the holders
of the Senior Notes or such other
Indebtedness or their respective
representative, agent or trustee.
() "SUBORDINATED
INDEBTEDNESS" means, with respect
to the Company, Indebtedness of the
Company which is expressly
subordinated in right of payment to
the Notes.
. GENERAL. The Company
covenants and agrees, and each
Holder of this Note, by its
acceptance hereof, likewise
covenants and agrees, for the
benefit of the holders, from time
to time, of Senior Indebtedness
that, to the extent and in the
manner hereinafter set forth in
this SECTION 6, the Notes, the
indebtedness represented thereby
and the payment of the principal of
(and premium, if any, on) and
interest on each Note are hereby
expressly made subordinate and
subject in right of payment as
provided in this SECTION 6 to the
prior payment in full in cash or
cash equivalents of all Senior
Indebtedness; PROVIDED, HOWEVER,
that the Notes, the indebtedness
represented thereby and the payment
of the principal of (and premium,
if any, on) and interest on the
Notes in all respects shall rank
prior to all future Subordinated
Indebtedness and PARI PASSU with
all Indebtedness of the Company
other than Senior Indebtedness and
Subordinated Indebtedness.
. PAYMENT OVER OF
PROCEEDS UPON DISSOLUTION, ETC. In
the event of (a) any insolvency or
bankruptcy case or proceeding, or
any receivership, liquidation,
reorganization or other similar
case or proceeding in connection
therewith, relative to the Company
or its assets, or (b) any
liquidation, dissolution or other
winding up of the Company, whether
voluntary or involuntary and
whether or not involving insolvency
or bankruptcy, or (c) any
assignment for the benefit of
creditors or any other marshalling
of assets or liabilities of the
Company, then and in any such event
(1) the holders of
Senior Indebtedness shall be
entitled to receive payment
in full in cash or cash
equivalents of all amounts
due on or in respect of all
Senior Indebtedness, or
provision shall be made for
such payment, before the
Holders of the Notes are
entitled to receive any
payment or distribution of
any kind or character on
account of the Notes; and
(2) any payment or
distribution of assets of
the Company of any kind or
character, whether in cash,
property or securities, by
set-off or otherwise, to
which the Holders of the
Notes would be entitled but
for the provisions of this
SECTION 6 shall be paid by
the liquidating trustee or
agent or other person making
such payment or
distribution, whether a
trustee in bankruptcy, a
receiver or liquidating
trustee or otherwise,
directly to the holders of
Senior Indebtedness or their
representative or
representatives or to the
trustee or trustees under
any indenture under which
any instruments evidencing
any of such Senior
Indebtedness may have been
issued, ratably according to
the aggregate amounts
remaining unpaid on account
of the Senior Indebtedness
held or represented by each,
to the extent necessary to
make payment in full in cash
or cash equivalents of all
Senior Indebtedness
remaining unpaid, after
giving effect to any
concurrent payment or
distribution to the holders
of such Senior Indebtedness;
and
(3) in the event
that, notwithstanding the
foregoing provisions of this
SECTION 6, the Holder of any
Notes shall have received
any payment or distribution
of assets of the Company of
any kind or character,
whether in cash, property or
securities, in respect of
the Notes before all Senior
Indebtedness is paid in full
or payment thereof provided
for in cash or cash
equivalents, then and in
such event such payment or
distribution shall be paid
over or delivered forthwith
to the trustee in
bankruptcy, receiver,
liquidating trustee,
custodian, assignee, agent
or other person making
payment or distribution of
assets of the Company for
application to the payment
of all Senior Indebtedness
remaining unpaid, to the
extent necessary to pay all
Senior Indebtedness in full
in cash or cash equivalents,
after giving effect to any
concurrent payment or
distribution to or for the
holders of Senior
Indebtedness.
For purposes of this SECTION
6, the words "payment or
distribution" shall not be deemed
to include (X) any payment or
distribution of securities of the
Company or any other corporation
authorized by an order or decree
giving effect, and stating in such
order or decree that effect is
given, to the subordination of the
Notes to the Senior Indebtedness
and made by a court of competent
jurisdiction in a reorganization
proceeding under any applicable
bankruptcy, insolvency or other
similar law, or (Y) securities of
the Company or any other
corporation provided for by a plan
of reorganization or readjustment
which are subordinated, to at least
the same extent as the Notes, to
the payment of all Senior
Indebtedness then outstanding or to
the payment of all securities
issued in exchange therefor to the
holders of Senior Indebtedness at
the time outstanding. The
consolidation of the Company with,
or the merger of the Company into,
another person, or the liquidation
or dissolution of the Company
following the conveyance, transfer
or lease of its properties and
assets substantially as an entirety
to another person shall not be
deemed a dissolution, winding up,
liquidation, reorganization,
assignment for the benefit of
creditors or marshalling of assets
and liabilities of the Company for
the purposes of this SECTION 6 if
the person formed by such
consolidation or into which the
Company is merged or the person
which acquires by conveyance,
transfer or lease such properties
and assets substantially as an
entirety, as the case may be,
shall, as a part of such
consolidation, merger, conveyance,
transfer or lease, comply with the
conditions set forth in the Senior
Notes Indenture.
. SUSPENSION OF PAYMENT
WHEN SENIOR INDEBTEDNESS IN
DEFAULT.
(a) Unless SECTION 6.3
shall be applicable, upon the
occurrence of a Payment Default,
then no payment or distribution of
any assets of the Company of any
kind or character shall be made by
the Company on account of the Notes
or on account of the purchase or
redemption or other acquisition of
Notes unless and until such Payment
Default shall have been cured or
waived in writing or shall have
ceased to exist or such Senior
Indebtedness shall have been
discharged or paid in full in cash
or cash equivalents, after which
the Company shall resume making any
and all required payments in
respect of the Notes, including any
missed payments.
(b) Unless SECTION 6.3
shall be applicable, upon (1) the
occurrence of a Non-payment Default
and (2) receipt by the Company or
the Holders of the Notes from the
representative of holders of such
any Senior Indebtedness of written
notice of such occurrence, then no
payment or distribution of any
assets of the Company of any kind
or character shall be made by the
Company on account of the Notes or
on account of the purchase or
redemption or other acquisition of
the Notes for a period ("PAYMENT
BLOCKAGE PERIOD") commencing on the
earlier of the date of receipt by
the Company or the date of receipt
by the Holders of the Notes of such
notice from such representative
unless and until (subject to any
blockage of payments that may then
be in effect under paragraph (a) of
this Section) (X) more than 179
days shall have elapsed since
receipt of such written notice by
the Company or the Holders of the
Notes, whichever was earlier, (Y)
such Non-payment Default shall have
been cured or waived in writing or
shall have ceased to exist or such
Designated Senior Indebtedness
shall have been discharged or (Z)
such Payment Blockage Period shall
have been terminated by written
notice to the Company or the
Holders of the Notes from such
representative initiating such
Payment Blockage Period, after
which, in the case of clause (x),
(y) or (z), the Company shall
resume making any and all required
payments in respect of the Notes,
including any missed payments.
Notwithstanding any other provision
of this SECTION 6, only one Payment
Blockage Period may be commenced
within any consecutive 366-day
period, and no Non-payment Default
with respect to Senior Indebtedness
which existed or was continuing on
the date of the commencement of any
Payment Blockage Period initiated
by or behalf of such Senior
Indebtedness shall be, or be made,
the basis for the commencement of a
second Payment Blockage Period
whether or not within a period of
366 consecutive days unless such
event of default shall have been
cured or waived for a period of not
less than 60 consecutive days
subsequent to the commencement of
such initial Payment Blockage
Period (it being acknowledged that
any subsequent action, or any
breach of any financial covenant
for a period commencing after the
date of commencement of such
Payment Blockage Period, that, in
either case, would give rise to a
Non-payment Default pursuant to any
provision under which a Non-payment
Default previously existed or was
continuing shall constitute a new
Non-payment Default for this
purpose). In no event will a
Payment Blockage Period extend
beyond 183 days from the date of
the receipt by the Holders of the
Notes of the notice and there must
be a 183-consecutive-day period in
any 366-day period during which no
Payment Blockage Period is in
effect.
(c) In the event that,
notwithstanding the foregoing, the
Company shall make any payment to
the Holder of any Note prohibited
by the foregoing provisions of this
Section, then and in such event
such payment shall be paid over and
delivered forthwith to the Company.
. PAYMENT PERMITTED IF
NO DEFAULT. Nothing contained in
this SECTION 6 or elsewhere in any
of the Notes shall prevent the
Company, at any time except during
the pendency of any case,
proceeding, dissolution,
liquidation or other winding up,
assignment for the benefit of
creditors or other marshalling of
assets and liabilities of the
Company referred to in SECTION 6.3
or under the conditions described
in SECTION 6.4, from making
payments at any time of principal
of (and premium, if any, on) or
interest on the Notes.
. SUBROGATION TO RIGHTS
OF HOLDERS OF SENIOR INDEBTEDNESS.
Subject to the payment in full in
cash or cash equivalents of all
Senior Indebtedness, the Holders of
the Notes shall be subrogated to
the rights of the holders of such
Senior Indebtedness to receive
payments and distributions of cash,
property and securities applicable
to the Senior Indebtedness until
the principal of (and premium, if
any, on) and interest on the Notes
shall be paid in full. For
purposes of such subrogation, no
payments or distributions to the
holders of Senior Indebtedness of
any cash, property or securities to
which the Holders of the Notes
would be entitled except for the
provisions of this Article, and no
payments over pursuant to the
provisions of this Article to the
holders of Senior Indebtedness by
Holders of the Notes, shall, as
among the Company, its creditors
other than holders of Senior
Indebtedness, and the Holders of
the Notes, deemed to be a payment
or distribution by the Company to
or on account of the Senior
Indebtedness.
. PROVISIONS SOLELY TO
DEFINE RELATIVE RIGHTS. The
provisions of this Article are and
are intended solely for the purpose
of defining the relative rights of
the Holders of the Notes on the one
hand and the holders of Senior
Indebtedness on the other hand.
Nothing contained in this Section
or elsewhere in the Securities
Purchase Agreement or the Notes is
intended to or shall (a) impair, as
between the Company and the Holders
of the Notes, the obligation of the
Company, which is absolute and
unconditional, to pay to the
Holders of the Notes the principal
of (and premium, if any, on) and
interest on the Notes as and when
the same shall become due and
payable in accordance with their
terms; or (b) affect the relative
rights against the Company of the
Holders of the Notes and creditors
of the Company other than the
holders of Senior Indebtedness; or
(c) prevent the Holder of any Note
from exercising all remedies
otherwise permitted by applicable
law upon Default under this Note,
subject to the rights, if any,
under this SECTION 6 of the holders
of Senior Indebtedness.
. NO WAIVER OF
SUBORDINATION PROVISIONS.
(a) No right of any
present or future holder of any
Senior Indebtedness to enforce
subordination as herein provided
shall at any time in any way be
prejudiced or impaired by any act
or failure to act on the part of
the Company or by any act or
failure to act, in good faith, by
any such holder, or by any non-
compliance by the Company with the
terms, provisions and covenants of
this Note, regardless of any
knowledge thereof any such holder
may have or be otherwise charged
with.
(b) Without in any way
limiting the generality of
paragraph (a) of this SECTION 6.8,
the holders of Senior Indebtedness
may, at any time and from time to
time, without the consent of or
notice to the Holders of the Notes,
without incurring responsibility to
the Holders of the Notes and
without impairing or releasing the
subordination provided in this
Article or the obligations
hereunder of the Holders of the
Notes to the holders of Senior
Indebtedness, do any one or more of
the following: (1) change the
manner, place or terms of payment
or extend the time of payment of,
or renew or alter, Senior
Indebtedness or any instrument
evidencing the same or any
agreement under which Senior
Indebtedness is outstanding; (2)
sell, exchange, release or
otherwise deal with any property
pledged, mortgaged or otherwise
securing Senior Indebtedness; (3)
release any person liable in any
manner for the collection of Senior
Indebtedness; and (4) exercise or
refrain from exercising any rights
against the Company and any other
person.
. NOTICE TO NOTE
HOLDERS. The Company shall give
prompt written notice to the
Holders of the Notes of any fact
known to the Company which would
prohibit the making of any payment
to the Holders of the Notes in
respect of the Notes.
Notwithstanding the provisions of
this Section or any other provision
of this Note, the Holders shall not
be charged with knowledge of the
existence of any facts which would
prohibit the making of any payment
to the Holders in respect of the
Notes, unless and until the Holders
of the Notes shall have received
written notice thereof from the
Company or a holder of Senior
Indebtedness or from any trustee,
fiduciary or agent therefor; and,
prior to the receipt of any such
written notice, the Holders shall
be entitled in all respects to
assume that no such facts exist;
PROVIDED, HOWEVER, that, if the
Holders shall not have received the
notice provided for in this SECTION
6.9 prior to the date upon which by
the terms hereof any money may
become payable for any purpose
(including, without limitation, the
payment of the principal of (and
premium, if any, on) or interest on
any Note), then, anything herein
contained to the contrary
notwithstanding, the Holders shall
have full power and authority to
receive such money and to apply the
same to the purpose for which such
money was received and shall not be
affected by any notice to the
contrary which may be received by
them on such date.
. RELIANCE ON JUDICIAL
ORDER OR CERTIFICATE OF LIQUIDATING
AGENT. Upon any payment or
distribution of assets of the
Company referred to in this SECTION
6, the Holders of the Notes shall
be entitled to rely conclusively
upon any order or decree entered by
any court of competent jurisdiction
in which such insolvency,
bankruptcy, receivership,
liquidation, reorganization,
dissolution, winding up or similar
case or proceeding is pending, or a
certificate of the trustee in
bankruptcy, receiver, liquidating
trustee, custodian, assignee for
the benefit of creditors, agent or
other person making such payment or
distribution, delivered to the
Holders of Notes, for the purpose
of ascertaining the persons
entitled to participate in such
payment or distribution, the
holders of Senior Indebtedness and
other Indebtedness of the Company,
the amount thereof or payable
thereon, the amount or amounts paid
or distributed thereon and all
other facts pertinent thereto or to
this Section.
. NO SUSPENSION OF
REMEDIES. Nothing contained in
this SECTION 6 shall limit the
right of the Holders of Notes to
take any action to accelerate the
maturity of the Notes pursuant to
SECTION 4.2 or to pursue any rights
or remedies hereunder or under
applicable law.
SECTION . DEFINITIONS.
As used herein, the
following terms have the respective
meanings set forth below:
"Applicable Rate"
means, through the Change Date,
12.5% per annum and, after the
Change Date, 14.0% per annum.
"Change Date" means
the date immediately preceding the
closing date at which the
Anticipated Financing is
consummated, if and only if the
Stage II Closing is consummated on
or before such closing date of the
Anticipated Financing.
"Common Shares" means
the shares of Common Stock, no par
value, of the Company.
"First Payment Date"
means (i) if the Change Date
occurs, then March 1, 1999, or at
the Payee's option such later date
as Payee may elect, or (ii)
otherwise March 1, 1996.
"Overdue Rate" means,
with respect to any interest
accrual period or portion thereof,
the Applicable Rate then in effect
with respect to such period or
portion, plus 2.0% per annum.
"Senior Notes" means
the notes of the Company evidencing
the Anticipated Financing issued
pursuant to the Senior Notes
Indenture.
"Senior Notes
Indenture" means the indenture
between the Company and trustee
named therein, governing the
Anticipated Financing.
SECTION . MISCELLANEOUS.
. NOTICES. All notices,
advices and communications to be
given or otherwise made to the
Company or any Holder shall be
deemed given upon receipt thereof
if contained in a written
instrument and delivered in person,
sent by overnight courier, sent by
first class registered or certified
mail, postage prepaid and return
receipt requested, or sent by
facsimile telecopier, confirmed by
mail, addressed to such party at
the address or telecopier number
set forth below or at such other
address or telecopier number as may
hereafter be designated in writing
by the addressee to the addressor
listing all parties: (a) if to BANX
Partnership (so long as BANX
Partnership is the Holder of this
Note): to Alexander Good, Bell
Atlantic Corporation, 1310 North
Court House Road, Arlington, VA
22201; Thomas R. McKeough, Bell
Atlantic Corporation, 1717 Arch
Street, Philadelphia, PA 19103;
and Philip R. Marx, Bell Atlantic
Corporation, 1717 Arch Street,
Philadelphia, PA 19103, and NYNEX
Corporation, 1113 Westchester
Avenue, White Plains, NY 10604-
3510, Attention: Chief Financial
Officer and to such address
Attention: General Counsel, (b) if
to any other Holder of this Note:
to it at its address listed on the
books for the registration and
registration of transfer of the
Notes to be maintained by the
Company pursuant to SECTION 2.1
hereof, and (c) if to the Company:
CAI Wireless Systems, Inc., 12
Corporate Woods Boulevard, Suite
102, Albany, NY 12211, Attention:
President, with a required copy to
Day, Berry & Howard, One Canterbury
Green, Stamford, Connecticut 06901-
2047, Attention Sabino Rodriguez,
III, Esq. Whenever pursuant to
this Note, notice is required to be
given to any or all of the Holders
of the Notes, such requirement
shall be satisfied if such notice
is given in the manner prescribed
to the persons last known by the
Company to be a Holder of the Note,
entitled to such notice, at the
addresses of such persons last
known to the Company.
. SEVERABILITY. If any
term, provision, covenant or
restriction of this Note is held by
a court or a governmental agency of
competent jurisdiction to be
invalid, void or unenforceable, or
to cause any party to be in
violation of any applicable
provision of law, the remainder of
the terms, provisions, covenants
and restrictions of this Note shall
remain in full force and effect and
in no way shall be affected,
impaired or invalidated.
. CAPTIONS. The
descriptive headings of the various
paragraphs or parts of this Note
are for convenience only and shall
not affect the meaning or
construction of any of the
provisions hereof.
. AMENDMENT AND WAIVER.
This Note may only be amended or
supplemented, and the observance of
any term hereof may only be waived,
in accordance with SECTION 9 of the
Securities Purchase Agreement.
. WAIVER OF PRESENTMENT,
ETC. The Company hereby waives
presentment, demand for payment,
notice of dishonor or acceleration,
protest and notice of protest, and
any and all other notices or demand
in connection with the delivery,
acceptance, performance, default or
enforcement of this Note, excepting
any notice requirement set forth in
the Securities Purchase Agreement.
No failure on the part of the
Holder of this Note in exercising
any right or remedy hereunder shall
operate as a waiver thereof, nor
shall any single or partial
exercise of any such right or
remedy preclude any other or future
exercise thereof or the exercise of
any other right or remedy
hereunder. No modification or
waiver of any provision of this
Note, nor any departure by the
Company therefrom, shall in any
event be effective unless the same
shall be in writing, in accordance
with the Securities Purchase
Agreement, and then such waiver or
consent shall be effective only in
the specific instance and for the
specific purpose given.
. CONSENT TO
JURISDICTION AND SERVICE OF
PROCESS.
ALL JUDICIAL PROCEEDINGS
BROUGHT AGAINST THE COMPANY ARISING
OUT OF OR RELATING TO THIS NOTE,
ANY NOTE, WARRANT OR OTHER LOAN
DOCUMENT OR ANY OBLIGATION MAY BE
BROUGHT IN ANY STATE OR FEDERAL
COURT OF COMPETENT JURISDICTION IN
THE STATE OF NEW YORK AND BY
EXECUTION AND DELIVERY OF THIS
NOTE, THE COMPANY ACCEPTS FOR
ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE
JURISDICTION OF THE AFORESAID
COURTS AND WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS, AND
IRREVOCABLY AGREES TO BE BOUND BY
ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS NOTE, THE
SECURITIES PURCHASE AGREEMENT, SUCH
OTHER LOAN DOCUMENT OR SUCH
OBLIGATION. IF ANY AGENT APPOINTED
BY THE COMPANY REFUSES TO ACCEPT
SERVICE, THE COMPANY HEREBY AGREES
THAT SERVICE UPON IT BY MAIL SHALL
CONSTITUTE SUFFICIENT NOTICE.
NOTHING HEREIN SHALL AFFECT THE
RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR SHALL
LIMIT THE RIGHT OF ANY PURCHASER TO
BRING PROCEEDINGS AGAINST THE
COMPANY IN THE COURTS OF ANY OTHER
JURISDICTION.
. WAIVER OF JURY TRIAL.
THE COMPANY AND EACH HOLDER
OF THIS NOTE HEREBY AGREES TO WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF
THIS NOTE, ANY OF THE LOAN
DOCUMENTS, OR ANY DEALINGS BETWEEN
THEM RELATING TO THE SUBJECT MATTER
OF THIS LOAN TRANSACTION AND THE
PURCHASER/COMPANY RELATIONSHIP THAT
IS BEING ESTABLISHED. The scope of
this waiver is intended to be all-
encompassing of any and all
disputes that may be filed in any
court and that relate to the
subject matter of this transaction,
including without limitation,
contract claims, tort claims,
breach of duty claims, and all
other common law and statutory
claims. Each party hereto
acknowledges that this waiver is a
material inducement to enter into a
business relationship, that each
has already relied on the waiver in
entering into this Note, and that
each will continue to rely on the
waiver in their related future
dealings. Each party hereto
further warrants and represents
that each has reviewed this waiver
with its legal counsel, and that
each knowingly and voluntarily
waives its jury trial rights
following consultation with legal
counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN
WRITING, AND THE WAIVER SHALL APPLY
TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, REPLACEMENTS, SUPPLEMENTS
OR MODIFICATIONS TO THIS NOTE, THE
LOAN DOCUMENTS, OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO
THE LOAN. In the event of
litigation, a copy of this Note may
be filed as a written consent to a
trial by the court.
IN WITNESS WHEREOF, the
undersigned, by its duly authorized
officer, has executed this Term
Note as of the date first above
written.
CAI WIRELESS SYSTEMS, INC.
By: /S/ JARED ABBRUZZESE
As its: Chairman and Chief
Executive
Officer
<PAGE>
}8
{EXHIBIT 10.6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this
"Agreement") made as of the 21st
day of March, 1996 by and
between JARED E. ABBRUZZESE,
residing at the address
indicated following his
signature below (hereinafter
referred to as "Employee") and
CAI WIRELESS SYSTEMS, INC., a
Connecticut corporation having
its principal place of business
at 18 Corporate Woods Boulevard,
Third Floor, Albany, New York
12211 (hereinafter referred to
as the "Company").
RECITALS
. The Company and Employee
are parties to that
certain Amended and
Restated Employment
Agreement dated as of
October 31, 1993 whereby
Employee has been employed
by the Company as its
Chairman and Chief
Executive Officer.
. The Company and Employee
desire to enter into a new
employment agreement in
order to set forth the
terms of Employee's
continued employment by
the Company and hereby
enter into this Agreement
for that purpose.
. Employee acknowledges the
additional consideration
for the covenants
contained herein.
. EMPLOYMENT. The
Company hereby agrees to
continue to employ Employee and
Employee agrees to continue to
work for the Company as Chairman
and Chief Employee Officer
during the Term (as defined
below) and upon the terms and
conditions set forth in this
Agreement.
.
COMPENSATION/BENEFITS. () BASE
SALARY. During the term of this
Agreement, the Company agrees to
pay Employee a base annual
salary of $350,000 ("Base
Salary"). Such Base Salary
shall be reviewed no less
frequently than annually during
the term of this Agreement and
may be increased but not
decreased by the Board of
Directors. Such Base Salary
shall be payable in accordance
with the Company's normal
business practices or in such
other amounts and at such other
times as the parties may
mutually agree.
() STOCK OPTIONS.
Employee shall be eligible for
stock options as approved by the
Compensation Committee of the
Board of Directors.
<PAGE>
}
{() BONUSES. During the term
of this Agreement, the Company
shall pay to the Employee an
annual bonus of up to 35% of
Base Salary, based upon the
Company's achievement of
performance targets established
by the Company's Board of
Directors, in consultation with
Employee. These targets will be
revised annually within ninety
days of the beginning of each
fiscal year in consultation with
the Employee or at such other
times as may be mutually agreed
by the parties. The bonus may
be structured as a part of a
deferred compensation
arrangement.
()
BENEFITS/VACATION. During the
Term, the Company shall provide
Employee with such other
benefits, including medical
plans, as are made generally
available to employees of the
Company from time to time and
with such additional benefits as
are made available to executive
officers of the Company at any
time during the Term. Employee
shall be entitled to up to six
weeks vacation during each year
of the Term, provided that the
time and duration of vacation
periods shall not interfere with
the operations of the Company.
Accrued vacation may be carried
over or "sold back" to the
Company to the extent permitted
by, and in accordance with, the
policy set forth in the Employee
Manual of the Company.
() LIFE
INSURANCE. Subject to the
Employee's submitting to any
required physical examinations
and provided such policy can be
obtained at customary premiums,
the Company shall purchase a
term insurance policy with the
face amount of $1,000,000 on the
life of Employee and shall
permit Employee to designate the
beneficiary thereof.
() MEDICAL
INSURANCE/PHYSICAL. During the
Term, the Company shall provide
to Employee and Employee's
immediate family a comprehensive
policy of health insurance.
During the Term, Employee shall
be entitled to a comprehensive
annual physical performed, at
the expense of the Company, by
the physician or medical group
of Employee's choosing.
()
OFFICE/SECRETARY, ETC. During
the Term, Employee shall be
entitled to secretarial services
and a private office
commensurate with his title and
duties.
() CLUB
MEMBERSHIP. The Company will
pay, or at Employee's election
reimburse, all of the costs of a
country club membership at the
club of Employee's choice in the
greater Albany, New York area.
<PAGE>
}
{. SERVICES. Subject to
subparagraph 9(B) below,
Employee agrees to devote not
less than 75% of his working
time, attention and energies to
the business of the Company and
its Affiliates under the general
direction of the Board of
Directors and shall not be
required to take direction from
or report to any other person.
Employee agrees to serve at the
pleasure of the Board of
Directors as an officer or
director of any direct or
indirect wholly-owned subsidiary
of the Company and as a CAI
Director for CS Wireless
Systems, Inc., a Delaware
corporation ("CS"), (as defined
in that certain CS Stockholders'
Agreement dated as of
February 23, 1996 by and among
the Company, Heartland Wireless
Communications, Inc. and CS);
provided, that Employee is
entitled to indemnification by
the Company, to the full extent
permitted by law, with respect
to Employee's services in such
capacities. Except to the
extent provided in
subparagraph 9(B) below,
Employee shall not, without the
prior written consent of the
Company, directly or indirectly,
during the term of this
Agreement, render services, for
compensation or otherwise, to or
for any other person or firm
engaged in any Related Business
(as defined in subparagraph 9(A)
below) in any market served by
the Company or its Affiliates.
In performing his duties
hereunder, Employee shall be
available for reasonable travel
as the needs of the Company's
business require. Employee
shall be based in the greater
Albany, New York metropolitan
area.
. TERM. The term of
this Agreement (the "Term")
shall be for a period beginning
on the date hereof and
continuing until the second
anniversary of this Agreement,
and shall be automatically
renewed annually thereafter for
successive one year periods on
terms no less favorable than are
contained herein unless either
party gives notice to the other
of its intention not to renew
this Agreement within sixty days
of the expiration of the Term of
this Agreement.
. EARLY TERMINATION.
() GENERAL. Employee's
employment hereunder shall be
terminated and the Company's
obligation to employ Employee
hereunder shall cease, including
the obligation to pay
compensation for any period
after the date of termination
(except as provided in
subparagraph 5(D)):
(i) immediately upon notice, in
the sole discretion of the
Company, other than for Cause,
(ii) without the necessity of
notice, upon the death of
Employee, or (iii) upon written
notice of a finding that
Employee has (a) acted with
gross negligence or willful
misconduct in connection with
the performance of his material
duties under Paragraphs 1, 3, 6
and 9, with respect to acts or
omissions prior to termination,
and has not corrected such
action within 15 days of receipt
of written notice thereof,
(b) defaulted in the performance
of his material duties under
Paragraphs 1, 3, 6 and 9, with
respect to acts or omissions
prior to termination, and has
not corrected such action within
15 days of receipt of written
notice thereof, (c) committed a
material act of common law fraud
against the Company, or (d)
knowingly and in bad faith acted
against the best interests of
the Company in a manner that has
a material adverse affect on the
financial condition of the
Company (any such finding is
referred to herein as "Cause"),
provided, however, that from and
after the occurrence of an event
described in Annex A attached
hereto only events under
(iii)(a) above shall constitute
"Cause." Upon any termination
of Employee's employment, the
Term shall expire.
() DISABILITY. If
Employee shall become unable to
efficiently perform the
essential functions of his job,
even with reasonable
accommodation, as a result of a
disability or illness, as such
terms are defined by the
Americans with Disabilities Act,
he shall be entitled to his
regular compensation until the
period of disability or illness
(whether or not the same
disability or illness) shall
exceed 180 consecutive days
during the Term hereunder,
provided, that Employee is
eligible for and is receiving
payments under any disability
insurance plan of the Company.
This Agreement may thereafter be
terminated by the Company and
the Company's obligations
hereunder shall cease, including
the obligation to pay
compensation for any period
after the date of termination.
Any amounts payable as
compensation during the period
of disability or illness shall
be reduced by any amounts paid
during such period under any
disability insurance plan or
similar insurance wholly paid
for by the Company.
() EMPLOYEE'S RIGHT
TO TERMINATE. Employee may, at
any time during the Term,
resign.
() AMOUNTS PAYABLE
TO EMPLOYEE UPON TERMINATION.
Upon any termination of
Employee's employment hereunder
for any reason, the Company
shall pay to Employee or his
executor or legal
representative, as the case may
be, any unpaid portion of his
Base Salary up to the date of
termination, any unpaid bonus
for any fiscal year completed
prior to date of termination of
Employee's employment, the bonus
for the fiscal year in which
Employee's employment is
terminated to the extent earned
(as defined below), any expenses
incurred in accordance with
Paragraph 7 and not reimbursed
prior to the date of
termination, and benefits up to
the date of Employee's
termination of employment. In
addition, in the event of
Employee's termination under
subparagraph 5(A) other than for
Cause (as defined therein) or
the death of Employee, the
Company shall (i) pay to
Employee severance in an amount
(the "Severance Amount") equal
to the greater of (x) his then
Base Salary under Paragraph 2,
payable in twelve equal monthly
installments or (y) the total
Base Salary that would have been
payable for the balance of the
Term (without giving effect to
any early termination), payable
in equal such monthly
installments, and (ii) continue
the benefits provided in
Paragraph 8 and maintain, or
obtain replacement coverage for,
all disability insurance, life
insurance (including any
insurance provided under
subparagraph 2(F)), group
insurance, medical and dental
plans to which Employee, his
spouse and family were receiving
as of the date of the
termination of his employment
under subparagraph 2(D) and
containing comparable coverages
and benefits, for the period
during which Employee is
entitled to receive the
Severance Amount ("Severance
Period") as described above;
provided, however, the Company
shall not be obligated to
provide such benefits under
clause (ii) above to the extent
Employee is receiving the same,
or an equivalent value therefor,
from a subsequent employer.
With respect to the fiscal year
in which the Term expires or
Employee's employment is
terminated, and provided that
the performance targets for such
fiscal year established pursuant
to subparagraph 2(C) are met as
determined with respect to the
executive officers of the
Company by the Compensation
Committee of the Board of
Directors of the Company, the
portion of such bonus which is
deemed "earned" for such fiscal
year, shall be calculated as
follows: (i) determine the
bonus which would have been paid
to Employee for the full fiscal
year if the financial results
for the portion of the fiscal
year prior to termination were
pro rated to the entire fiscal
year; and (ii) multiply the
amounts of such bonus as
calculated under clause (I) by
the fraction of the full fiscal
year prior to such termination
(determined by dividing the
number of days during such
fiscal year prior to termination
by 365 days). This
subparagraph 5(D) shall survive
the termination of this
Agreement.
() NO MITIGATION;
LEGAL FEES. In the event of the
termination of Employee's
employment for any reason,
Employee shall have no duty to
mitigate damages, and any
earnings of Employee shall not
reduce the payments otherwise
due to Employee hereunder or
otherwise, except with respect
to benefits as provided for in
subparagraph 5(D)(II). Employee
shall be entitled to legal fees
and costs if Employee institutes
any legal action to enforce the
Company's obligations hereunder
provided that he is the
prevailing party. This
subparagraph 5(E) shall survive
the termination of this
Agreement.
. EMPLOYER'S
AUTHORITY. Employee agrees to
observe and comply with the
rules and regulations of the
Company as adopted by the
Company's Board of Directors
respecting the performance of
his duties and to carry out and
perform orders, directions and
policies communicated to him
from time to time by the
Company's Board of Directors
provided such rules,
regulations, orders, directions
and policies do not violate any
applicable law, rule or
regulation or require the
commission of a tort or crime.
. EXPENSES. During
the term of this Agreement, the
Company shall reimburse Employee
for the reasonable business
expenses approved in advance
incurred by Employee in the
course of performing his duties
for the Company hereunder in
accordance with the procedures
then in place for such
reimbursement.
. AUTOMOBILE
ALLOWANCE. During the term of
this Agreement, Employee shall
be entitled to an automobile
allowance of $750.00 per month,
payable monthly in arrears.
. NON-COMPETITION.
() RESTRICTIONS. Except to the
extent provided in
subparagraph 9(B) below, if
(i)(x) Employee's employment is
terminated for Cause or
(y) Employee voluntarily
terminates his employment
relationship hereunder with the
Company, for a period of twelve
(12) months following the
termination of this Agreement,
or (ii) Employee's employment is
terminated and Employee is
receiving the Severance Amount,
for a period not to exceed
twelve (12) months during the
Severance Period, whichever is
applicable, he will not, (i)
engage in any business or
undertaking directly competitive
with the wireless cable
television transport business of
the Company contemplated by the
Business Relationship Agreement
(the "BRA") between the Company
and Bell Atlantic Corporation
("BAC") and NYNEX Corporation
("NYNEX") amended and in effect
on the date of termination in
any "Service Area" (as defined
in the BRA) in which the Company
or any Affiliate thereof could
be required to provide transport
services; or (ii) engage in any
MMDS license-based television
subscription business or
wireline franchise cable
business in any market in which
the Company or any Affiliate has
MMDS licenses or leases on the
date of termination (any such
business or activity under (i)
or (ii) herein referred to as a
"Related Business"), in either
case without the prior written
consent of a majority of the
independent members of the Board
of Directors. The parties agree
that the time period and
geographical area of
noncompetition specified above
are reasonable and necessary in
light of the transactions
entered into this Agreement.
If, however, it shall be
determined at any time by a
court of competent jurisdiction
that either the time period
restriction or the geographical
area restriction, or both, are
invalid or unenforceable, the
parties agree that any such
restriction determined to be
invalid or unenforceable shall
be deemed so amended as to make
such restriction valid and
enforceable in the determination
of said court, and such
restriction, as so amended,
shall be enforceable between the
parties to the same extent as if
such amendment had been made as
of the date of this Agreement.
This subparagraph 9(A) shall
survive the termination of this
Agreement.
() PERMITTED
ACTIVITIES. Notwithstanding
anything contained herein to the
contrary, Employee may during
and after the Term engage in the
following permitted activities:
(i)
participate as an officer
or director of, or advisor
to, any charitable or
other tax exempt
organization; and
(ii) to the
extent not in a Related
Business, devote up to 25% of
his working time to providing
services to or investing in
entities, businesses or persons
other than the Company,
including but not limited to (A)
purchasing securities in private
placements by any corporation or
other business entity, PROVIDED
that, if such investments would
otherwise be prohibited by the
terms of this Paragraph 9, such
investments shall not result in
his collectively owning
beneficially at any time ten
percent or more of the equity
securities of any corporation or
other business entity,
(B) engaging in any
telecommunications businesses or
ventures, and (C) providing
services as an officer,
director, employee or consultant
to TelQuest, Inc., TelQuest
Ventures, L.L.C., Haig Capital
L.L.C., The Corotoman Company,
L.L.C., Crest International
Holdings LLC and any Affiliates
or successors thereof, so long
as those efforts by Employee
individually or collectively do
not adversely impact on the
business of the Company.
. EXECUTION, DELIVERY
AND PERFORMANCE. The execution,
delivery and performance by
Employee of this Agreement or
any other agreement, instrument
or document contemplated herein
or hereby will not result in a
breach of or conflict with any
terms of any other agreement,
instrument or document to which
Employee is a party or by which
Employee or his property is
bound. No consent or approval
of any person or entity, other
than those that have been
obtained by Employee, is
required for Employee to
execute, deliver and perform its
obligations under this Agreement
or any agreement, instrument or
document contemplated herein or
hereby.
. NOTICES. Any notice
permitted or required hereunder
shall be deemed sufficient when
hand-delivered or mailed by
certified mail, postage prepaid,
and addressed if to the Company
at the address indicated above
and if to the Employee at the
address indicated below (or to
such other address as may be
provided by written notice.
. MISCELLANEOUS. ()
This Agreement (i) together with
that certain Non-Disclosure
Agreement dated as of October 1,
1993 by and between the Company
and Employee, constitutes the
entire agreement between the
parties concerning the subjects
hereof and supersedes any and
all prior agreements or
understandings, including but
not limited to that certain
Amended and Restated Employment
Agreement dated as of October 1,
1993 by and between the Company
and Employee and such Employment
Agreement shall be of no further
force and effect, (ii) may not
be assigned by Employee without
the prior written consent of the
Company, and (iii) may not be
assigned by the Company except
in the event of a sale of
substantially all of the assets
of the Company to a third party
who assumes in writing the
Company's obligations (naming
Employee as a third party
beneficiary of the assumption)
and furnishes a copy of such
assumption of the Employee
hereunder (and provided such
assignment shall not release the
Company of its financial
obligations hereunder in case of
a default by the assignee) and
(iv), subject to clauses (ii)
and (iii) hereof, shall be
binding upon, and inure to the
benefit of, the Employee, his
heirs and personal
representatives, and the Company
and its successors and assigns.
() Headings
herein are for convenience of
reference only and shall not
define, limit or interpret the
contents hereof.
. AFFILIATES. As used
herein, the term "Affiliate"
shall mean any individual or
entity directly or indirectly
controlled by such person, now
or in the future, including
without limitation, partnerships
in which such person or any
Affiliate may invest as a
limited or general partner and
limited liability companies in
which such person or any
Affiliate may become a member.
. AMENDMENt. This
Agreement may be amended,
modified or supplemented by the
mutual consent of the parties in
writing, but no oral amendment,
modification or supplement shall
be effective.
. SPECIFIC
ENFORCEMENT. The parties
acknowledge that the Company
would be irreparably damaged and
there would be no adequate
remedy at law for the Employee's
breach of Paragraph 9 of this
Agreement, and accordingly, the
terms thereof shall be
specifically enforced. Employee
hereby consents to the entry of
any temporary restraining order
or preliminary injunction, in
addition to any other remedies
available at law or in equity,
to enforce the provisions hereof
provided sufficient facts are
shown to warrant such relief.
. SEVERABILITY. The
provisions of this Agreement are
severable. The invalidity of
any provision shall not affect
the validity of any other
provision.
. GOVERNING LAW. This
Agreement shall be construed and
regulated in all respects under
the laws of the State of New
York.
IN WITNESS WHEREOF, this
Agreement is entered into as of
the date and year first above
written.
CAI WIRELESS SYSTEMS, INC.
By
/S/ JOHN PRISCO
Name: John Prisco
Title: President
EMPLOYEE:
/S/ JARED E. ABBRUZZESE
Name: Jared E. Abbruzzese
Address: 59 Old Niskayuna
Road
Loudonville, NY 12211
<PAGE>
{EXHIBIT 10.15
THIS WARRANT AND THE
SECURITIES TO BE
ISSUED UPON EXERCISE
HEREOF (I) HAVE BEEN
ACQUIRED FOR
INVESTMENT PURPOSES
AND NOT WITH A VIEW
TO OR FOR RESALE IN
CONNECTION WITH THE
DISTRIBUTION HEREOF,
AND (II) HAVE NOT
BEEN REGISTERED UNDER
THE SECURITIES ACT OF
1933, AS AMENDED (THE
"SECURITIES ACT"), OR
THE SECURITIES LAWS
OF ANY STATE AND MAY
NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED,
HYPOTHECATED OR
OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO
(A) AN EFFECTIVE
REGISTRATION
STATEMENT UNDER THE
SECURITIES ACT, (B)
TO THE EXTENT
APPLICABLE, RULE 144
UNDER THE SECURITIES
ACT (OR ANY SIMILAR
RULE UNDER THE
SECURITIES ACT
RELATING TO THE
DISPOSITION OF
SECURITIES), OR (C)
AN OPINION OF
COUNSEL, IF SUCH
OPINION SHALL BE
REASONABLY
SATISFACTORY TO
COUNSEL TO THE
ISSUER, THAT
REGISTRATION UNDER
THE SECURITIES ACT IS
NOT REQUIRED.
No. 1
Dated:
September 29, 1995
STAGE II WARRANT
To
Purchase Shares of Voting
Preferred Stock, No Par Value, of
CAI
WIRELESS SYSTEMS, INC.
THIS IS TO CERTIFY
THAT, for value received, BANX
Partnership or its registered
assign (the "HOLDER") is entitled
to purchase from CAI Wireless
Systems, Inc., a Connecticut
corporation (the "COMPANY"), at any
time and from time to time before
the Expiration Time (hereinafter
defined), at the place where the
Warrant Agency (hereinafter
defined) is located, at each of the
Tier Prices (hereinafter defined),
the number of shares of the
Company's Voting Preferred Stock
("VOTING PREFERRED SHARES")
described herein, and is also
entitled to exert the other
appurtenant rights, powers and
privileges hereinafter described.
This Warrant is one of
the Stage II Warrants (the
"WARRANTS") which is issued in
connection with that certain
Securities Purchase Agreement dated
as of March 28, 1995 (the "PURCHASE
AGREEMENT").
<PAGE>
}
{
ARTICLE .
CERTAIN DEFINITIONS
Terms used herein and not defined herein, shall have the meaning
ascribed thereto in the Purchase Agreement. The following terms have the
respective meanings set forth below:
. "BLENDED PRICE" means at any time the quotient of (a) the sum of
(i) the product of the sum of the number of Voting Preferred Shares then
issuable at the Tier 1 Exercise Price under the Warrants and the Stage I
Warrants and at the Tier 1 Conversion Price under and as defined in the Senior
Preferred Shares, multiplied by the Tier 1 Exercise Price, plus (ii) the
product of the number of Voting Preferred Shares then issuable at the Tier 2
Exercise Price under the Warrants multiplied by the Tier 2 Exercise Price, plus
(iii) the product of the number of Voting Preferred Shares then issuable at the
Tier 3 Exercise Price under the Warrants multiplied by the Tier 3 Exercise
Price, plus (iv) the product of the number of Voting Preferred Shares then
issuable at the Tier 4 Exercise Price under the Warrants multiplied by the Tier
4 Exercise Price, divided by (b) the number of Voting Preferred Shares then
issuable under the Warrants, the Stage I Warrants, and the Senior Preferred
Shares.
. "BUSINESS DAY" means each day on which banking institutions in
New York City are not required or authorized by law or executive order to
close.
. "COMMON SHARES" means shares of Common Stock, no par value, of the
Company.
. "CONVERSION SHARES" means the Common Shares issued or issuable from
time to time upon the conversion of Warrant Shares.
. "DILUTION FACTOR" shall be determined from time to time for each Tier
Price and shall be equal to the quotient, expressed as a percentage (calculated
to the nearest one-hundredth of a percent), of such Tier Price immediately
before an adjustment under SECTION 5.3 hereof divided by the Blended Price
immediately before such adjustment under SECTION 5.3 hereof.
. "FAIR MARKET VALUE" means the fair market value of the business,
property or assets in question, as a going concern, or if greater, in an
orderly liquidation. If the Company is being valued such valuation shall not
reflect any decrease in value for any obligations of the Company in connection
with the Purchase Agreement other than the Company's obligations to make
payments of principal, interest, redemption proceeds and dividends on the Notes
and the Senior Preferred Stock. In calculating the Fair Market Value, no
discount shall be made for lack of control, lack of an active trading market,
or any restrictions on transferability of any equity interest. Notwithstanding
the foregoing, so long as the Common Shares are traded on Nasdaq or a national
securities exchange, the Fair Market Value of each Voting Preferred Share shall
mean the product of (x) the Preferred Conversion Ratio in effect at the time of
such determination, multiplied by (y) the average of the daily closing prices
for a Common Share on the thirty (30) consecutive trading days before the day
in question. The closing price for each day shall be the last reported sales
price regular way or, in case no such reported sale takes place on such date,
the average of the reported closing bid and asked prices regular way, in either
case on Nasdaq, or if the Common Shares are not listed or admitted to trading
on Nasdaq, on the principal national securities exchange on which the Common
Shares are listed or admitted to trading. Fair Market Value initially shall be
determined in good faith by the Board of Directors of the Company, provided
however, that if the Required Holders object to any determination of Fair
Market Value made by such Board, the Fair Market Value shall be determined by a
Qualified Investment Banking Firm selected by the Required Holders from a list
of three Qualified Investment Banking Firms which shall be submitted to the
Required Holders by the Company within five Business Days after the Company has
received notice that Fair Market Value shall be so determined.
. "FULLY-DILUTED COMMON SHARES" at any time shall mean the sum of (A)
the number of Common Shares then outstanding, plus (B) in the case of options
to purchase or rights to subscribe for Common Shares, the aggregate maximum
number of Common Shares which are deliverable upon exercise of such options to
purchase or rights to subscribe for Common Shares, plus (C) in the case of
securities by their terms convertible into or exchangeable for Common Shares or
options to purchase or rights to subscribe for such convertible or exchangeable
securities, the aggregate maximum number of Common Shares deliverable upon
conversion of or in exchange for any such convertible or exchangeable
securities, whether or not then exercisable, or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof, including without limitation
Options and Convertible Securities as defined in SECTION 5.3(B) hereof, and
further including without limitation all Common Shares issuable, directly or
indirectly, under anti-dilution or similar provisions of Options or Convertible
Securities as a result of any past, present or future issuance of Common
Shares, Options or Convertible Securities, plus (D) 2,072,166 Common Shares
which may be issued upon the exercise of options, having an exercise price of
not less than $11.00 per share in the case of 1,200,000 of such shares and, in
the case of the remaining shares, of not less than the Fair Market Value of the
Common Shares subject thereto at the time of grant, which may be granted from
time to time to directors, officers and employees of the Company.
. "INITIAL TIER 1 EXERCISE PRICE" means the product of the Preferred
Conversion Ratio immediately after the consummation of the Stage II Closing,
multiplied by the quotient, rounded to the nearest $.01, of (a) $131,704,000,
divided by (b) 60% of the Initial Target Share Number.
. "INITIAL TIER 2 EXERCISE PRICE" means the product of the Preferred
Conversion Ratio immediately after consummation of the Stage II Closing,
multiplied by the quotient, rounded to the nearest $.01, of (a) $60,368,000,
divided by (b) 20% of the Initial Target Share Number.
. "INITIAL TIER 3 EXERCISE PRICE" means the product of the Preferred
Conversion Ratio immediately after consummation of the Stage II Closing,
multiplied by the quotient, rounded to the nearest $.01, of (a) $46,648,000,
divided by (b) 10% of the Initial Target Share Number.
. "INITIAL TIER 4 EXERCISE PRICE" means the product of the Preferred
Conversion Ratio immediately after consummation of the Stage II Closing,
multiplied by the quotient, rounded to the nearest $.01, of (a) $63,112,000,
divided by (b) 10% of the Initial Target Share Number.
. "NASDAQ" means the National Market System of The Nasdaq Stock Market.
. "NOTES" means the Company's Term Notes due 2005 issued under the
Purchase Agreement.
. "PREFERRED CONVERSION RATIO" at any time means the number of Common
Shares then issuable upon the conversion of one Voting Preferred Share.
. "QUALIFIED INVESTMENT BANKING FIRM" means any firm engaged in
providing merger and acquisition advisory services having announced
transactions of not less than $100 billion during the five most recent years
for which such data shall be publicly available from Securities Data Corp. or
another recognized industry source but excluding, however, any firms which
received more than $100,000 in fees during the preceding 24 calendar months
from the Company.
. "REQUIRED HOLDERS" means, at any time, the holders of Warrants
evidencing the right to purchase a majority of the Warrant Shares then issuable
upon the exercise of all then outstanding Warrants (exclusive of Warrants then
owned by the Company or any of its Affiliates).
. "SECURITIES ACT" means the Securities Act of 1933, as amended.
. "SENIOR PREFERRED STOCK" means the 14% Senior Preferred Stock, par
value $10,000 per share, of the Company.
. "SENIOR PREFERRED SHARES" means the shares of Senior Preferred Stock
issued under the Purchase Agreement or issued or issuable upon conversion of
the Notes.
. "STAGE I WARRANTS" means the Stage I Warrants as described in the
Purchase Agreement.
. "TARGET SHARE NUMBER" at any time means the product of 45% multiplied
by the number of Fully-Diluted Common Shares of the Company at that time
(including without limitation the number of Fully-Diluted Common Shares
issuable upon conversion of the Voting Preferred Shares issued or issuable upon
exercise or conversion of the Warrants, the Stage I Warrants, and the Senior
Preferred Shares and including the number of Common Shares set forth on
Schedule I hereto). "INITIAL TARGET SHARE NUMBER" means the product of 45%
multiplied by the number of Fully-Diluted Common Shares of the Company
(including without limitation the number of Fully-Diluted Common Shares
issuable upon conversion of the Voting Preferred Shares issued or issuable upon
exercise or conversion of the Warrants, the Stage I Warrants and the Senior
Preferred Shares and including the number of Common Shares set forth on
Schedule I hereto) determined immediately after consummation of the Stage II
Closing.
. "TARGET TIER 1 SHARES" means at the time of each exercise of this
Warrant the number of Voting Preferred Shares which is equal to the amount by
which (i) the quotient of (A) 60% of the Target Share Number at that time,
divided by (B) the Preferred Conversion Ratio in effect at that time, exceeds
(ii) the number of Voting Preferred Shares which theretofore have been issued
or are then issuable under the Stage I Warrant and the Senior Preferred Shares
or which theretofore have been issued under this Warrant, in each case at the
Tier 1 Exercise Price.
. "TARGET TIER 2 SHARES" means at the time of each exercise of this
Warrant the number of Voting Preferred Shares which is equal to the amount by
which (i) the quotient of (A) 20% of the Target Share Number at that time,
divided by (B) the Preferred Conversion Ratio in effect at that time, exceeds
(ii) the number of Voting Preferred Shares which theretofore have been issued
under this Warrant at the Tier 2 Exercise Price.
. "TARGET TIER 3 SHARES" means at the time of each exercise of this
Warrant the number of Voting Preferred Shares which is equal to the amount by
which (i) the quotient of (A) 10% of the Target Share Number at that time,
divided by (B) the Preferred Conversion Ratio in effect at that time, exceeds
(ii) the number of Voting Preferred Shares which theretofore have been issued
under this Warrant at the Tier 3 Exercise Price.
. "TARGET TIER 4 SHARES" means at the time of each exercise of this
Warrant the number of Voting Preferred Shares which is equal to the amount by
which (i) the quotient of (A) 10% of the Target Share Number at that time,
divided by (B) the Preferred Conversion Ratio in effect at that time, exceeds
(ii) the number of Voting Preferred Shares which theretofore have been issued
under this Warrant at the Tier 4 Exercise Price.
. "WARRANT SHARES" means the Voting Preferred Shares issued or issuable
from time to time under the Warrants.
ARTICLE .
NUMBER OF WARRANT SHARES, EXERCISE PRICE
. WARRANT SHARES. This Warrant entitles the Holder to purchase from
the Company from time to time (a) the number of Voting Preferred Shares which
is equal to the number of Target Tier 1 Shares at a price per Voting Preferred
Share equal to the Tier 1 Exercise Price; (b) the number of Voting Preferred
Shares which is equal to the number of Target Tier 2 Shares at a price per
share equal to the Tier 2 Exercise Price; (c) the number of Voting Preferred
Shares which is equal to the number of Target Tier 3 Shares at a price per
share equal to the Tier 3 Exercise Price; and (d) the number of Voting
Preferred Shares which is equal to the number of Target Tier 4 Shares, at a
price per share equal to the Tier 4 Exercise Price.
. ADJUSTMENT OF EXERCISE PRICE. The "TIER 1 EXERCISE PRICE", "TIER 2
EXERCISE PRICE", "TIER 3 EXERCISE PRICE" and "TIER 4 EXERCISE PRICE" hereunder
(together, the "TIER PRICES") shall initially be the Initial Tier 1 Exercise
Price, the Initial Tier 2 Exercise Price, the Initial Tier 3 Exercise Price and
the Initial Tier 4 Exercise Price, respectively, but each such exercise price
shall be adjusted from time to time in accordance with the provisions of
Article 5 hereof.
ARTICLE .
EXERCISE OF WARRANTS
. EXPIRATION TIME. This Warrant, to the extent not exercised, shall
expire and become null and void at 5:00 P.M. local time in New York, NY on
September 29, 2001 (the "EXPIRATION TIME").
. METHOD OF EXERCISE. In the sole discretion of the Holder, this
Warrant may be exercised in whole or in part, at any time and from time to time
prior to the Expiration Time; provided, however, that if this Warrant is
exercised only in part and the Holder is the Purchaser or an Affiliate of the
Purchaser, the minimum exercise of this Warrant shall involve an aggregate
Exercise Price (hereinafter defined) of at least $500,000. To exercise this
Warrant in whole or in part, the Holder shall either:
(a) deliver to the Company, on or before the Expiration Time, at the
Warrant Agency (i) this Warrant, (ii) a written notice, in substantially the
form of the Subscription Notice attached hereto, of such Holder's election to
exercise this Warrant, which notice shall specify the number of Voting
Preferred Shares to be purchased, the denominations of the share certificate or
certificates desired and the name or names in which such certificates are to be
registered and (iii) payment of the appropriate exercise price ("EXERCISE
PRICE") with respect to such shares, made, at the option of the Holder, by (x)
cash, money order, certified or bank cashier's check or wire transfer, or (y)
if the Holder of this Warrant is a holder of a Note, by set-off of any unpaid
principal of, or accrued interest on, whether or not then payable, such Note,
or (z) if the holder of this Warrant is the holder of Senior Preferred Shares,
only if the entire amount of redemption proceeds of such Shares has already
been, or is simultaneously being, converted into Voting Preferred Shares, by
set-off of all but not less than all accumulated and unpaid dividends on such
Senior Preferred Shares, provided, however, that (I) if the amount of such
accumulated and unpaid dividends exceeds the aggregate Tier 1 Exercise Price
(or, if the number of Target Tier 1 Shares is zero, the aggregate Tier 2
Exercise Price (or, if the number of Target Tier 2 Shares is zero, the
aggregate Tier 3 Exercise Price)), then an amount of such dividends equal to
such aggregate Exercise Price may be used to satisfy such price, and (II) if
the amount of such accumulated and unpaid dividends exceeds the aggregate
Exercise Price which is required to exercise this Warrant in full, then an
amount of such dividends equal to such aggregate Exercise Price may be used to
satisfy such price; or
(b) deliver to the Company, on or before the Expiration Time, at the
Warrant Agency, (i) this Warrant and (ii) a written notice, in substantially
the form of the Conditional Notice attached hereto, of such Holder's election
to exercise this Warrant on a conditional basis, which notice shall specify the
conditions precedent to such exercise, the number of Voting Preferred Shares to
be purchased, the denominations of the share certificate or certificates
desired and the name or names in which such certificates are to be registered.
In the case of a Conditional Notice, no payment of the Exercise Price shall be
made until all the conditions to exercise have been either waived by the Holder
or satisfied, at which time payment shall be made, at the option of the Holder,
by (x) cash, money order, certified or bank cashier's check or wire transfer,
or, (y) if the Holder of this Warrant is a holder of a Note, by set-off of any
unpaid principal of, or accrued interest on, whether or not then payable, such
Note, or (z) if the holder of this Warrant is the holder of Senior Preferred
Shares, only if the entire amount of redemption proceeds of such Shares has
already been, or is simultaneously being, converted into Voting Preferred
Shares, by set-off of all but not less than all accumulated and unpaid
dividends on such Senior Preferred Shares, provided, however, that (I) if the
amount of such accumulated and unpaid dividends exceeds the aggregate Tier 1
Exercise Price (or, if the number of Target Tier 1 Shares is zero, the
aggregate Tier 2 Exercise Price (or, if the number of Target Tier 2 Shares is
zero, the aggregate Tier 3 Exercise Price)), then an amount of such dividends
equal to such aggregate Exercise Price may be used to satisfy such price, and
(II) if the amount of such accumulated and unpaid dividends exceeds the
aggregate Exercise Price which is required to exercise this Warrant in full,
then an amount of such dividends equal to such aggregate Exercise Price may be
used to satisfy such price. If payment of the Exercise Price under this
SECTION 3.2(B) is made by set-off of any unpaid principal of, or accrued
interest on, a Note, the Exercise Price shall be increased by an amount equal
to the stated interest rate (determined without regard to any default rate) on
such Note computed on the unpaid Exercise Price from the Expiration Time until
the date the purchase described in the Conditional Notice is consummated, and
if payment of the Exercise Price under this SECTION 3.2(B) is made by set-off
of any accumulated dividends on Senior Preferred Shares, the Exercise Price
shall be increased by an amount equal to the stated dividend rate (determined
without regard to any higher default rate) of such Senior Preferred Shares
computed on the unpaid Exercise Price from the Expiration Time until the date
the purchase described in the Conditional Notice is consummated. If payment of
the Exercise Price under this SECTION 3.2(B) is made other than by set-off of
any unpaid principal of, or accrued interest on, a Note, or accumulated
dividends on Senior Preferred Shares, the Exercise Price shall be increased by
an amount equal to interest on the unpaid Exercise Price at 8% per annum simple
interest computed on the unpaid Exercise Price from the Expiration Time until
the date the purchase described in the Conditional Notice is consummated.
Payment of the Exercise Price by Holder as contemplated by SECTION 3.2(B) shall
be Holder's confirmation that all conditions described in the Conditional
Notice have been satisfied or waived by the Holder. If the purchase described
in the Conditional Notice has not been consummated prior to 5:00 PM local time
in New York, NY on the last day of the 18th full calendar month following the
Expiration Time, the Conditional Notice shall expire.
. DELIVERY OF CERTIFICATES.
() The Company shall, in the case of a Subscription Notice, as promptly
as practicable and in any event within five days thereafter, and in the case of
a Conditional Notice, immediately upon receipt from the Holder of payment
representing the Exercise Price, execute and deliver or cause to be executed
and delivered, in accordance with such notice, a certificate or certificates
representing the number of Warrant Shares specified in said notice. The share
certificate or certificates so delivered shall be in such denominations as may
be specified in such notice or, if such notice shall not specify denominations,
in denominations of 100 shares each, and shall be issued in the name of the
Holder or such other name or names as shall be designated in such notice. In
the case of a Subscription Notice, such certificate or certificates shall be
deemed to have been issued, and the Holder or any other person so designated
therein shall be deemed for all purposes to have become holders of record of
such shares, as of the date the Subscription Notice is received by the Company.
In the case of a Conditional Notice, the certificate or certificates shall be
deemed to have been issued, and the Holder or any other person so designated
therein shall be deemed for all purposes to have become holders of record of
such shares, as of the date that payment in respect of the Exercise Price is
received by the Company; provided, however, that the Holder of the Warrant
shall be entitled to all dividends, distributions, and other economic rights
and benefits which would accrue to the holder of the number and type of Warrant
Shares with respect to which the Warrant is being exercised pursuant to the
Conditional Notice after the date the Conditional Notice is given until the
date that the certificates evidencing the Warrant are issued. The proceeds of
such rights and benefits shall be paid to a national bank or other party
acceptable to the Company and the Holder to be held in an interest-bearing
escrow account pending consummation of the transactions contemplated by the
Conditional Notice at which time the funds in such escrow account shall be paid
over to the Holder. After delivery of a Conditional Notice, the Company shall
cooperate with the Holder to satisfy such conditions as may be obtained in the
Conditional Notice and shall take such actions as may be reasonably requested
by the Holder in connection therewith.
() If this Warrant shall have been exercised only in part, the Company
shall, at the time of delivery of the certificate or certificates, deliver to
the Holder a new Warrant evidencing the rights to purchase the remaining
Warrant Shares called for by this Warrant, which new Warrant shall in all other
respects be identical with this Warrant, or, at the request of the Holder,
appropriate notation may be made on this Warrant which shall then be returned
to the Holder. The Company shall pay all expenses, taxes and other charges
payable in connection with the preparation, issuance and delivery of share
certificates and new Warrants contemplated by SECTION 4.6 below, except that,
if share certificates or new Warrants shall be registered in a name or names
other than the name of the Holder, funds sufficient to pay all transfer taxes
payable as a result of such transfer shall be paid by the Holder at the time of
delivering the aforementioned notice of exercise or promptly upon receipt of a
written request of the Company for payment.
. SHARES TO BE FULLY PAID AND NONASSESSABLE; RESERVATION AND
LISTING. All Warrant Shares and Conversion Shares shall be validly issued,
fully paid and nonassessable and the Company shall at all times reserve and
keep available out of its authorized shares of capital stock (a) solely for the
purpose of issuance upon the exercise of this Warrant, such number of Voting
Preferred Shares as shall be issuable from time to time upon the exercise of
all rights hereunder, and (b) solely for the purpose of issuance upon the
conversion of the Warrant Shares, such number of Common Shares as shall be
issuable from time to time upon the conversion of all Warrant Shares issuable
from time to time upon the exercise of all rights hereunder. If the Voting
Preferred Shares or Common Shares are then listed on any national securities
exchange (as such term is used in the Securities Exchange Act of 1934, as
amended) or quoted on Nasdaq, the Company shall cause the Warrant Shares and
the Conversion Shares, respectively, to be duly listed or quoted thereon, as
the case may be.
. NO FRACTIONAL SHARES TO BE ISSUED. The Company shall not be
required to issue fractions of Voting Preferred Shares upon exercise of this
Warrant. If any fraction of a share would, but for this Section, be issuable
upon any exercise of this Warrant, in lieu of such fractional share the Company
shall pay to the Holder or Holders, as the case may be, in cash, an amount
equal to the product of such fraction multiplied by the Fair Market Value of a
Warrant Share upon such exercise.
. SHARE LEGEND. Each certificate for Warrant Shares issued upon
exercise of this Warrant, unless at the time of exercise such shares are
registered under the Securities Act, shall bear the following legend:
THESE SECURITIES (I) HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO OR FOR RESALE IN CONNECTION WITH THE DISTRIBUTION HEREOF,
AND (II) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (A) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, (B) TO THE EXTENT APPLICABLE, RULE
144 UNDER THE SECURITIES ACT (OR ANY SIMILAR RULE UNDER THE SECURITIES
ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (C) AN OPINION OF
COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL TO
THE ISSUER, THAT REGISTRATION UNDER THE SECURITIES ACT IS NOT REQUIRED.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon
completion of a public distribution pursuant to a registration statement under
the Securities Act) shall also bear such legend unless, in the opinion of
counsel selected by the holder of such certificate and reasonably acceptable to
the Company, the securities represented thereby need no longer be subject to
restrictions on resale under the Securities Act.
. REGULATORY APPROVALS. The Company acknowledges that prior to
exercising its rights to acquire Voting Preferred Shares hereunder and to
acquiring the shareholder rights provided to holders of such Voting Preferred
Shares, the Holder shall secure any regulatory approvals it deems necessary to
effect such exercise and acquisition and to assert such rights, including but
not limited to the approval of the FCC. The Company shall cooperate (and shall
cause its Affiliates and Subsidiaries to cooperate) with the Holder in applying
for any necessary requests or applications for such approval, and shall
immediately execute, on request of the Holder, all application forms and other
documents requiring execution by the Company in connection therewith.
ARTICLE .
WARRANT AGENCY; TRANSFER, EXCHANGE AND
REPLACEMENT OF WARRANTS
. WARRANT AGENCY. Until such time, if any, as an independent agency
shall be appointed by the Company to perform services with respect to the
Warrants described herein (the "WARRANT AGENCY"), the Company shall perform the
obligations of the Warrant Agency provided herein at its principal office
address or such other address as the Company shall specify by prior written
notice to all Holders.
. OWNERSHIP OF WARRANT. The Company may deem and treat the person
in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by any
person other than the Company) for all purposes and shall not be affected by
any notice to the contrary, until presentation of this Warrant for registration
of transfer as provided in this ARTICLE 4.
. TRANSFER OF WARRANT. The Company agrees to maintain at the
Warrant Agency books for the registration of transfers of Warrants, and
transfer of this Warrant and all rights hereunder shall be registered, in whole
or in part, on such books, upon surrender of this Warrant at the Warrant
Agency, together with a written assignment of this Warrant duly executed by the
Holder wishing to transfer this Warrant or his duly authorized agent or
attorney, and funds sufficient to pay any transfer taxes payable upon such
transfer. Upon surrender the Company shall execute and deliver a new Warrant
or Warrants in the name of the assignee or assignees and in the denominations
specified in the instrument of assignment, and this Warrant shall promptly be
canceled. Notwithstanding the foregoing, a Warrant may be exercised by a new
holder without having a new Warrant issued. Without limiting the generality of
the ability of the Holder of this Warrant to transfer this Warrant in whole or
in part, the Holder of the Warrant shall have the right to direct the Company
to transfer interests in a fixed number of Warrant Shares or in a percentage of
the Warrant Shares, in each case with respect to one or more Tier Prices, which
may be issuable from time to time hereunder and the new Warrants resulting
shall bear such modifications related thereto as the transferor may direct;
provided, however, that in no event shall the new Warrants issued to the
transferor and the transferee in the aggregate contain rights which are greater
than the rights under the Warrant being transferred in whole or in part; and
provided further that any Warrant transferred to any person who is not an
Affiliate (as defined in the Purchase Agreement) of the Purchaser under the
Purchase Agreement shall not be entitled to enforce the covenants contained in
ARTICLE 7 hereof.
. DIVISION OR COMBINATION OF WARRANTS. This Warrant may be divided
or combined with other Warrants upon surrender hereof and of any Warrant or
Warrants with which this Warrant is to be combined at the Warrant Agency,
together with a written notice specifying the names and denominations in which
the new Warrant or Warrants are to be issued, signed by the holders hereof and
thereof or their respective duly authorized agents or attorneys. Subject to
compliance with SECTION 4.3 as to any transfer which may be involved in the
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
. LOSS, THEFT, DESTRUCTION OF WARRANT CERTIFICATES. Upon receipt of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of an indemnification agreement reasonably
satisfactory to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of such Warrant, the Company will make and deliver,
in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of
like tenor and representing the right to purchase the same aggregate number of
Warrant Shares.
. EXPENSES OF DELIVERY OF WARRANTS. The Company shall pay all
expenses, taxes (other than transfer taxes in connection with any transfer by
the Holder) and other charges payable in connection with the preparation,
issuance and delivery of Warrants and Warrant Shares hereunder.
ARTICLE .
ANTIDILUTION PROVISIONS
. ADJUSTMENTS GENERALLY. The Tier Prices and the type of securities
or property issuable upon exercise of this Warrant shall be subject to
adjustment from time to time upon the occurrence of certain events, as provided
in this Article 5.
. STOCK REORGANIZATION. In case the Company shall subdivide its
outstanding Common Shares into a greater number of shares or consolidate its
outstanding Common Shares into a smaller number of shares (any such event being
called a "STOCK REORGANIZATION"), then each of the Tier Prices shall be
adjusted, effective immediately after the record date at which the holders of
Common Shares are determined for purposes of such Stock Reorganization, to a
price determined by multiplying each of the Tier Prices in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
number of Common Shares outstanding on such record date before giving effect to
such Stock Reorganization and the denominator of which shall be the number of
Common Shares outstanding after giving effect to such Stock Reorganization.
. STOCK DISTRIBUTION. () If the Company shall issue or otherwise
sell or distribute any Common Shares, other than pursuant to a Stock
Reorganization (any such event, including any event described in paragraphs (b)
and (c) below, being herein called a "STOCK DISTRIBUTION") without
consideration or for a consideration per share (the "ISSUE PRICE") less than
the quotient of the Blended Price on the date of such issue, sale or
distribution (before giving effect to such issue, sale or distribution) divided
by the Preferred Conversion Ratio then in effect, then, effective upon such
issue, sale or distribution, each Tier Price shall be reduced to the product of
the Dilution Factor for such Tier Price multiplied by the Issue Price
multiplied by the Preferred Conversion Ratio then in effect.
No adjustment of a Tier Price shall be made in an amount less than 1% of
such Tier Price, but any such lesser adjustment shall be carried forward and
shall be made at the time and together with the next subsequent adjustment
which together with any adjustments so carried forward shall amount to 1% of
such Tier Price or more. In no event shall the application of this SECTION 5.3
result in an increase in a Tier Price.
() If the Company shall issue, sell, distribute or otherwise grant in
any manner (whether directly or by assumption in a merger or otherwise) any
rights to subscribe for or to purchase, or any warrants or options for the
purchase of, Common Shares or any stock or securities convertible into or
exchangeable for Common Shares (such rights, warrants or options being herein
called "OPTIONS" and such convertible or exchangeable stock or securities being
herein called "CONVERTIBLE SECURITIES"), whether or not such Options or the
rights to convert or exchange any such Convertible Securities are immediately
exercisable, and the price per share for which Common Shares are issuable upon
exercise of such Options or upon conversion or exchange of such Convertible
Securities (determined by dividing (i) the aggregate amount, if any, received
or receivable by the Company as consideration for the granting of such Options,
plus the minimum aggregate amount of additional consideration payable to the
Company upon the exercise of all such Options, plus, in the case of Options to
acquire Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (ii) the total
maximum number of Common Shares issuable upon the exercise of such Options or
upon the conversion or exchange of all such Convertible Securities issuable
upon the exercise of such Options) shall be less than the quotient of the
Blended Price divided by the Preferred Conversion Ratio, in each case on the
date of granting such Options (before giving effect to such grant), then, for
purposes of paragraph (a) above, the total maximum number of Common Shares
issuable upon the exercise of such Options or upon conversion or exchange of
the Convertible Securities issuable upon the exercise of such Options shall be
deemed to have been issued as of the date of granting of such Options and
thereafter shall be deemed to be outstanding and the Company shall be deemed to
have received as consideration such price per share, determined as provided
above, therefor. Except as otherwise provided in paragraph (d) below, no
additional adjustment of a Tier Price shall be made upon the actual exercise of
such Options or upon conversion or exchange of such Convertible Securities.
() If the Company shall issue, sell or otherwise distribute (whether
directly or otherwise) any Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable, and the price per
share for which Common Shares are issuable upon such conversion or exchange
(determined by dividing (i) the aggregate amount received or receivable by the
Company as consideration for the issue, sale or distribution of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (ii) the total maximum number of Common Shares issuable upon the
conversion or exchange of all such Convertible Securities) shall be less than
the quotient of the Blended Price divided by the Preferred Conversion Ratio, in
each case on the date of such issue, sale or distribution (before giving effect
to such issue, sale or distribution), then, for purposes of paragraph (a)
above, the total maximum number of Common Shares issuable upon conversion or
exchange of all such Convertible Securities shall be deemed to have been issued
as of the date of the issue, sale or distribution of such Convertible
Securities and thereafter shall be deemed to be outstanding and the Company
shall be deemed to have received as consideration such price per share,
determined as provided above, therefor. Except as otherwise provided in
paragraph (d) below, no additional adjustment of a Tier Price shall be made
upon the actual conversion or exchange of such Convertible Securities.
() If the purchase price provided for in any Option referred to in
paragraph (b) above, the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in paragraph
(b) or (c) above, or the rate at which any Convertible Securities referred to
in paragraph (b) or (c) above are convertible into or exchangeable for Common
Shares shall change at any time (other than under or by reason of provisions
designed to protect against dilution upon an event which results in a related
adjustment pursuant to this ARTICLE 5), each Tier Price then in effect shall
forthwith be readjusted (effective only with respect to any exercise of this
Warrant after such readjustment) to the Tier Price which would then be in
effect had the adjustment made upon the issue, sale, distribution or grant of
such Options or Convertible Securities been made based upon such changed
purchase price, additional consideration or conversion rate, as the case may
be; PROVIDED, HOWEVER, that such readjustment shall give effect to such change
only with respect to such Options and Convertible Securities as then remain
outstanding.
() If the Company shall pay a dividend or make any other distribution
upon any capital stock of the Company payable in Common Shares, Options or
Convertible Securities, then, for purposes of paragraph (a) above, such Options
or Convertible Securities, as the case may be, shall be deemed to have been
issued or sold without consideration.
() If any Common Shares, Options or Convertible Securities shall be
issued, sold or distributed for cash, the consideration received therefor shall
be deemed to be the amount received by the Company therefor, before deduction
therefrom of any reasonable expenses incurred and any underwriting commission
or concessions paid or allowed by the Company in connection therewith. If any
Common Shares, Options or Convertible Securities shall be issued, sold or
distributed for a consideration other than cash, the amount of the
consideration other than cash received by the Company shall be deemed to be the
Fair Market Value of such consideration, before deduction of any reasonable
expenses incurred and any underwriting commissions or concessions paid or
allowed by the Company in connection therewith. If any Common Shares, Options
or Convertible Securities shall be issued in connection with any merger in
which the Company is the surviving corporation, the amount of consideration
therefor shall be deemed to be the Fair Market Value of such portion of the
assets and business of the nonsurviving corporation as shall be attributable to
such Common Shares, Options or Convertible Securities, as the case may be. If
any Options shall be issued in connection with the issue and sale of other
securities of the Company, together comprising one integral transaction in
which no specific consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued without
consideration.
() Notwithstanding any other provision of this SECTION 5.3, no
adjustment under this SECTION 5.3 shall be made with respect to the issuance of
any securities which were included in the calculation of Fully-Diluted Common
Shares immediately after consummation of the Stage II Closing.
. SPECIAL DIVIDENDS. If the Company shall issue or distribute to
any holders of Common Shares, evidences of indebtedness, any other securities
of the Company or any cash, property or other assets, and if such issuance or
distribution does not constitute (y) a Stock Reorganization or (z) a Stock
Distribution (any such nonexcluded event being herein called a "SPECIAL
DIVIDEND"), then each Tier Price shall be decreased, effective immediately
after the record date at which the holders of Common Shares are determined for
purposes of such Special Dividend, by an amount equal to the product of (a) the
Fair Market Value of the evidences of indebtedness, securities or property or
other assets issued or distributed in such Special Dividend with respect to one
Common Share, multiplied by (b) the Preferred Conversion Ratio.
. CAPITAL REORGANIZATION. If there shall be: (i) any consolidation
or merger to which the Company is a party (other than a consolidation or a
merger in which the Company is a continuing corporation and which does not
result in any reclassification of, or change (other than a Stock Reorganization
or a change in par value) in, outstanding Common Shares) or (ii) any sale or
conveyance of the property of the Company as an entirety or substantially as an
entirety (any such event being called a "CAPITAL REORGANIZATION"), then,
effective upon the effective date of such Capital Reorganization, the Holder
shall have the right to purchase, upon exercise of this Warrant, the kind and
amount of shares of stock and other securities and property (including cash)
which the Holder would have owned or have been entitled to receive after such
Capital Reorganization if this Warrant had been exercised immediately prior to
such Capital Reorganization. In such event, the provisions set forth herein
with respect to the rights and interest of the Holder shall be appropriately
adjusted so as to be applicable, as nearly as may reasonably be, to any shares
of stock or other securities or property thereafter receivable upon the
exercise of this Warrant. The above provisions of this SECTION 5.5 shall apply
to successive consolidations, mergers, sales and conveyances.
. CERTAIN OTHER EVENTS. If any event occurs as to which the
foregoing provisions of this Article 5 are not strictly applicable or, if
strictly applicable, would not, in the good faith judgment of the Board of
Directors of the Company, fairly protect the purchase rights of the Warrants in
accordance with the essential intent and principles of such provisions or would
violate applicable law, then such Board shall make such adjustments in the
application of such provisions in accordance with such essential intent and
principles, as shall be reasonably necessary, in the good faith opinion of such
Board, to protect such purchase rights as aforesaid.
. ADJUSTMENT RULES. () Any adjustments pursuant to this ARTICLE 5
shall be made successively whenever an event referred to herein shall occur.
() No adjustment shall be made pursuant to this ARTICLE 5 in respect of
the issuance from time to time of Senior Preferred Shares upon conversion of
the Notes, Voting Preferred Shares upon the exercise of Warrants, the Stage I
Warrants or the Senior Preferred Stock or upon the issuance from time to time
of Common Shares upon the conversion of the Voting Preferred Shares.
() If the Company shall set a record date to determine the holders of
Common Shares for purposes of a Stock Reorganization, Stock Distribution,
Special Dividend or Capital Reorganization and shall legally abandon such
action prior to effecting such action, then no adjustment shall be made
pursuant to this ARTICLE 5 in respect of such action.
. PROCEEDING PRIOR TO ANY ACTION REQUIRING ADJUSTMENT. As a
condition precedent to the taking of any action which would require an
adjustment pursuant to this Article 5, the Company shall take any action which
may be necessary, including obtaining regulatory approvals or exemptions, in
order that the Company may thereafter validly and legally issue as fully paid
and nonassessable (i) all Voting Preferred Shares which the holders of Warrants
are entitled to receive upon exercise thereof, and (ii) all Common Shares which
the holders of Voting Preferred Shares issuable under this Warrant will be
entitled to receive upon conversion thereof.
. NOTICE OF ADJUSTMENT. Not less than 15 days prior to the earlier
of the record date for, or the taking of, any action which requires or might
require an adjustment or readjustment pursuant to this Article 5, the Company
shall give notice to each holder of Warrants of such event, describing such
event in reasonable detail and specifying the record date or effective date, as
the case may be, and, if determinable, the required adjustment and the
computation thereof. If the required adjustment is not determinable at the time
of such notice, the Company shall give notice to each holder of a Warrant of
such adjustment and computation promptly after such adjustment becomes
determinable.
ARTICLE .
BASIC COVENANTS
. NOTICE OF CERTAIN EVENTS. In addition to the provisions of
SECTION 5.9, in case at any time the Company shall (a) declare any dividend on
any class or series of its capital stock, whether payable in cash, stock or
other property, (b) offer to all the holders of any class of its capital stock
any additional shares of capital stock of the Company, or any option, right or
warrant to subscribe therefor; or (c) declare a dissolution, liquidation or
winding up of the Company (other than in connection with a consolidation or
merger) or propose a sale of all or substantially all of its property, assets
and business as an entirety, then the Company shall give written notice to each
Holder of the date on which the books of the Company shall close or a record
shall be taken for such action. Such notice shall also specify the date as of
which the holders of record of the class or series of capital stock affected
shall participate in such action. Such written notice shall be given at least
15 days prior to the relevant record date or the date fixed for determining
stockholders entitled to participate therein, as the case may be.
. INFORMATIONAL REQUIREMENTS. The Company will transmit to the
Holder such information, documents and reports concerning the Company as are
required to be distributed by the Purchase Agreement to the Purchaser (as
defined in the Purchase Agreement).
. AMENDMENT TO CHARTER. The Company shall not make any amendment to
its Certificate of Incorporation or By-laws which limits its legal capacity or
ability to perform its obligations under this Warrant or the Voting Preferred
Shares or which may materially adversely affect the rights of the Holders of
these Warrants.
ARTICLE .
SPECIAL COVENANTS
So long as this Warrant is held by the Purchaser or an Affiliate thereof
or a successor to any of the foregoing (the "PURCHASER GROUP"), the Company
shall comply with the following covenants unless its first obtains the approval
(by vote or written consent) of the holders of a majority of the then
outstanding Warrants, Stage I Warrants, Senior Preferred Stock and Voting
Preferred Stock (voting together as one class on the basis of the number of
Voting Preferred Shares for or into which each such security is then
exercisable or convertible) held by the Purchaser Group (a "PURCHASER GROUP
APPROVAL"). Notwithstanding the foregoing, the parties intend that no
provision of this ARTICLE 7 shall operate to limit or impair the Company's full
responsibility for and control of the FCC Licenses and its operations conducted
pursuant to those Licenses, if such provision, as so applied, shall violate
applicable law.
. MAINTENANCE OF EXISTENCE AND CONDUCT OF BUSINESS. The Company shall,
and shall cause each of its Subsidiaries to, (a) at all times preserve and keep
in full force and effect such entity's corporate or partnership existence, as
the case may be, and rights and franchises material to such entity's business
and (b) comply at all times with the provisions of all franchises, permits,
licenses or other similar authorizations relating to such entity's business,
including, without limitation, the FCC Licenses, Channel Leases and any
obligations or agreements with respect to signal interference, certifications
and permits, and all other material agreements, licenses and sublicenses,
leases and subleases to which it is a party, and will suffer no loss or
forfeiture thereof or thereunder except for losses or forfeitures which in the
aggregate would not have a Material Adverse Effect.
. MAINTENANCE OF BUSINESS RELATIONSHIPS. The Company shall, and shall
cause each of its Subsidiaries to, maintain and preserve its relationships with
equipment vendors, programmers, lessors (including without limitation MMDS,
MDS, POFS and ITFS lessors and lessors of headend and antennae sites),
licensors and others having business relationships with it except for losses or
replacements of relationships which individually or in the aggregate would not
have a Material Adverse Effect.
. MAINTENANCE OF PROPERTIES. The Company shall, and shall cause each
of its Subsidiaries to, maintain and keep, or cause to be maintained and kept,
their respective properties (including without limitation, intellectual
property and properties acquired in accordance with the terms of the Business
Plan or in accordance with the Loan Documents) in good repair, working order
and condition (other than ordinary wear and tear), and from time to time shall
make or cause to be made all appropriate repairs, renewals and replacements
thereof, so that the business carried on in connection therewith may be
properly conducted at all times, except where the failure to do so would not
have a Material Adverse Effect.
. MAINTENANCE OF LICENSES AND OTHER MATERIAL AGREEMENTS. The Company
shall, and shall cause each of its Subsidiaries to, use its best efforts to
keep in full force and effect all of the FCC Licenses, Channel Leases, any
obligations or agreements with respect to signal interference, certifications
and permits, and all other material agreements, licenses and sublicenses,
leases and subleases to which it or any of the Subsidiaries is a party or to
which it or any of the Subsidiaries shall become a party hereafter except for
losses thereof which individually or in the aggregate would not have a Material
Adverse Effect. The foregoing notwithstanding, the Company shall, and shall
cause each of its Subsidiaries to, keep in full force and effect sufficient FCC
Licenses and Channel Leases in each Wireless Distribution System covered by the
Business Relationship Agreement to comply with the obligations of the Company
under the Business Relationship Agreement.
. USE OF PROCEEDS. Proceeds advanced pursuant to the Purchase
Agreement and pursuant to the Anticipated Financing shall be used only as
expressly provided by Section 1.5(a) and 1.5(b) of the Purchase Agreement or,
in respect of the Anticipated Financing, as provided in the Business Plan.
. PERFORMANCE OF LOAN DOCUMENTS AND ANTICIPATED FINANCING DOCUMENTS.
The Company shall, and shall cause each of its Subsidiaries to, duly and
punctually perform, pay and discharge or cause to be performed, paid or
discharged, all of their respective obligations, as defined herein, of every
nature arising or owed under the Loan Documents and under the documents related
to the Anticipated Financing, whether absolute or contingent. The Company
shall comply with each of the covenants set forth in the documents related to
the Anticipated Financing (without regard to any waivers or consents obtained
in respect thereof from the holders of the notes issued in the Anticipated
Financing).
. COMPLIANCE WITH LAW. The Company shall, and shall cause each of its
Subsidiaries to, comply in all material respects with all applicable laws,
rules, regulations, orders or ordinances to which each of them is or will be
subject, including, without limitation, the Communications Act, the Copyright
Act and all Environmental Laws, and shall obtain and maintain in effect at all
times all licenses, certificates, permits, franchises and other governmental or
other authorizations necessary to the ownership of their respective properties
or to the conduct of their respective businesses, including, without
limitation, all FCC Licenses, Channel Leases and obligations or agreements with
respect to signal interference, in each case to the extent necessary to ensure
that non-compliance with such laws, ordinances or governmental rules or
regulations or failures to obtain or maintain in effect such licenses,
certificates, permits, franchises and other governmental authorizations could
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
. COMPLIANCE WITH BUSINESS PLAN AND BUSINESS RELATIONSHIP AGREEMENT.
The Company shall, and shall cause each of the Subsidiaries to, use its best
efforts to achieve the build-out of the Wireless Distribution Systems
contemplated by the Business Plan, in each case subject to the availability of
financing and the anticipated development of certain technology, and, except as
expressly permitted hereunder, shall not enter into any material transaction
which is not contemplated by the Business Plan or the Loan Documents. The
Company shall, and shall cause each of its Subsidiaries to, comply in all
respects with the Business Relationship Agreement.
. INSURANCE. The Company shall, and shall cause each of its
Subsidiaries to, maintain, with financially sound and reputable insurers,
insurance with respect to their respective properties and businesses against
such casualties and contingencies, of such types, on such terms and in such
amounts (including deductibles, co-insurance and self-insurance, if adequate
reserves are maintained with respect thereto) as is customary in the case of
entities engaged in the same or a similar business and similarly situated. The
Company shall maintain key-person insurance on the life of Jared E. Abbruzzese
in the amount of $2,000,000, which policy names the Company as the owner and
sole beneficiary thereof.
. PAYMENT OF TAXES AND CLAIMS; CONSOLIDATION.
() The Company shall, and shall cause each of the Subsidiaries to,
timely file all Tax Returns required to be filed in any jurisdiction and to pay
and discharge all Taxes shown to be due and payable on such returns and all
other Taxes imposed on them or any of their properties, assets (wherever used
herein, the term "ASSETS" includes without limitation the properties, licenses,
permits, franchises, stock of Subsidiaries and contract rights of the Company
and its Subsidiaries), income or franchises, to the extent such Taxes have
become due and payable and before they have become delinquent; and to pay and
discharge all claims for which sums have become due and payable that have or
might become a Lien on properties or assets of the Company or any of their
respective Subsidiaries, PROVIDED that the Company or any of the Subsidiaries
need not pay any such Tax or claim if (i) the amount, applicability or validity
thereof is contested by the Company or such Subsidiary on a timely basis in
good faith and in appropriate proceedings, and the Company or such Subsidiary
has established adequate reserves therefor in accordance with GAAP on the books
of the Company or such Subsidiary or (ii) the nonpayment of all such Taxes and
claims in the aggregate could not reasonably be expected to have a Material
Adverse Effect.
() The Company shall not, and shall not permit any of the Subsidiaries
to, file or consent to the filing of any consolidated or combined income tax
return with any Person (other than the Company or any of the Subsidiaries).
. EMPLOYEE BENEFIT PLANS. () The Company shall, and shall cause each
ERISA Affiliate to, () comply in all material respects with the provisions of
ERISA to the extent applicable to any Benefit Plan maintained by it and cause
all Benefit Plans maintained by it to satisfy the conditions under the Code for
tax qualification of all such plans intended to be tax qualified; and () avoid
(A) any material accumulated funding deficiency (within the meaning of ERISA
'302 and Code '412(a)) (whether or not waived); (B) any act or omission on the
basis of which it or an ERISA Affiliate might incur a material liability to the
PBGC (other than for the payment of required premiums) or to a trust
established under former ERISA '4049; (C) any transaction with a principal
purpose described in ERISA '4069; and (D) any act or omission that might result
in the assessment by any Multiemployer Plan of withdrawal liability against the
Company or any ERISA Affiliate, but only to the extent that the liability
arising from a failure to comply with any covenant set forth in (i) or (ii)
could reasonably be expected to result in a liability to it or a Subsidiary or
an ERISA Affiliate for any one such event in excess of $100,000; provided
however that this covenant will not apply to the employee benefit plans assumed
by the Company or a Subsidiary pursuant to any acquisition contemplated by the
Loan Documents until the 120th day after such acquisition is completed.
() The Company shall not, directly or indirectly, and shall not permit
its Subsidiaries or any ERISA Affiliate to directly or indirectly by reason of
an amendment or amendments to, or the adoption of, one or more Benefit Plans
subject to Title IV or ERISA, permit the present value of all benefit
liabilities, as defined in Title IV of ERISA (using the actuarial assumptions
utilized by the PBGC upon termination of a plan), to increase by more than
$100,000; PROVIDED that this limitation shall not be applicable to the extent
that the fair market value of assets allocable to such benefits, all determined
as of the most recent valuation date for each such Benefit Plan, is in excess
of the benefit liabilities, or to increase to the extent security must be
provided to any Benefit Plan under Section 401(a)(29) of the Code. Neither the
Company nor any of its Subsidiaries shall establish or become obligated to any
new Retiree Welfare Plan, or modify any existing Retiree Welfare Plan, which
could result in an increase in annual cost, or could result in an annual
increase in liability to the Company, in either case by more than $50,000.
Neither the Company nor any of its Subsidiaries shall establish or become
obligated to any new unfunded Benefit Plan, or modify any existing unfunded
Benefit Plan, without the prior written approval by the Holder. The Company
shall not, directly or indirectly, and shall not permit its Subsidiaries or any
ERISA Affiliate to (i) satisfy any liability under any Benefit Plan by
purchasing annuities from an insurance company or (ii) invest the assets of any
Benefit Plan with an insurance company, unless, in each case, such insurance
company is rated AA by Standard & Poor's Corporation and the equivalent by each
other nationally recognized rating agency at the time of the investment.
() With respect to other than a Multiemployer Plan, for each Benefit
Plan hereafter adopted or maintained by the Company, any of its Subsidiaries or
any other ERISA Affiliate and which is intended to be qualified under Section
401(a) of the Code, the Company shall (i) seek, or cause its Subsidiaries or
other ERISA Affiliates to seek, and receive determination letters from the IRS
to the effect that such Benefit Plan is qualified within the meaning of Section
401(a) of the Code; and (ii) from and after the adoption of any such Benefit
Plan, cause such plan to be qualified within the meaning of Section 401(a) of
the Code and to be administered in all material respects in accordance with the
requirements of ERISA and Section 401(a) of the Code.
() With respect to each Benefit Plan hereafter adopted or maintained by
the Company, any of its Subsidiaries or any other ERISA Affiliate and which is
a welfare plan within the meaning of Section 3(1) of ERISA, the Company shall
comply, or cause its Subsidiaries or other ERISA Affiliates to comply, with the
notice and continuation coverage requirements of Section 4980B of the Code and
the regulations thereunder to the extent noncompliance could result in a
material liability.
() The foregoing notwithstanding, the provisions of this SECTION 7.11
shall not apply to an Acquired Company for a period of six months from the time
of its acquisition by the Company or a Subsidiary, if information disclosed by
such Acquired Company to the Company or a Subsidiary on a schedule to its
Acquisition Documents indicates that such Acquired Company would, at the time
of its acquisition by the Company or a Subsidiary, be in violation of this
SECTION 7.11, and such violation would not have a Material Adverse Effect.
. ENVIRONMENTAL LAWS. The Company shall, and shall cause each of its
Subsidiaries to, conduct its business so as to, and maintain a system to assure
that it will, comply with all applicable Environmental Laws and shall promptly
take corrective action to remedy any non-compliance with any Environmental Law,
except for non-compliances which individually or in the aggregate would not
have a Material Adverse Effect.
. FURTHER ASSURANCES. From time to time, upon the request of the
Holder, the Company shall, and shall cause each of the Subsidiaries to, make
such filings and seek such consents, approvals, permits and waivers as may be
necessary or desirable in the reasonable judgment of the Holder to permit the
Holder to exercise all of its rights under each of the Loan Documents,
including without limitation the right to exercise the Warrants and the Stage I
Warrants, to convert the Notes, the Senior Preferred Shares and the Voting
Preferred Shares and to enforce all the covenants thereunder and under the
Business Relationship Agreement and the terms of the Voting Preferred Shares.
. OTHER AFFIRMATIVE COVENANTS. The Company shall cause each of its
Subsidiaries to comply with Section 2 of the Purchase Agreement and this
ARTICLE 7.
. SOLVENCY. The Company and the Subsidiaries shall, on a consolidated
basis, and Atlantic on a standalone basis shall, be and remain Solvent.
"SOLVENT" means that the aggregate present fair saleable value of such Person's
assets is in excess of the total cost of its probable liability on its existing
debts to third parties as they become absolute and matured, such Person has not
incurred debts beyond its foreseeable ability to pay such debts as they mature,
and such Person has capital adequate to conduct the business in which it is
presently employed.
. INDEBTEDNESS. The Company shall not, nor shall it permit any of the
Subsidiaries to, directly or indirectly, remain liable, create, incur, assume,
guaranty, or otherwise become or remain directly or indirectly liable with
respect to any Indebtedness except:
() the Company and the Subsidiaries may become and remain liable with
respect to the Obligations;
() the Company and the Subsidiaries may become and remain liable with
respect to the Anticipated Financing created and incurred pursuant to Section
2.4 of the Purchase Agreement;
() the Subsidiaries of the Company may become and remain liable with
respect to intercompany indebtedness to the Company; PROVIDED that all such
intercompany indebtedness is subordinated to the Obligations and evidenced by
an intercompany note executed by such Subsidiary, all in form and substance
satisfactory to the Holder;
() the Company and the Subsidiaries may become and remain liable with
respect to unsecured debt incurred in connection with the acquisition by the
Company or a Subsidiary of any of the Acquired Companies in accordance with the
terms of the Acquisition Agreements including, without limitation, debt that is
assumed in such acquisition provided that such debt is prepayable at the option
of the Company;
() the Company and the Subsidiaries may become and remain liable with
respect to contingent or deferred payment obligations incurred by the Company
or any of its Subsidiaries in connection with the acquisition of assets by the
Company or any of its Subsidiaries in the ordinary course of business, which
payment obligation is secured solely by the acquired assets;
() prior to January 1, 1997, the Company may incur the debt permitted
pursuant to Section 2.7(c)(ii) of the Purchase Agreement;
() if the Stage II Closing has been consummated, from January 1, 1997
until the earlier of July 1, 1997 or the first date that the quotient,
expressed as a percentage, of the number of LOS Households in service areas
with respect to which Purchaser's Affiliates have then exercised their options
under Article 3 of the Business Relationship Agreement divided by the number of
LOS Households in all service areas subject to the Business Relationship
Agreement (the "BR PERCENTAGE") first exceeds 30%, the Company may incur
Indebtedness in the aggregate principal amount of $25,000,000 to the extent
necessary to fund operations or repay existing debt or used to effect
acquisitions or capital expenditures (including acquisitions or capital
expenditures in the form of Capital Leases) permitted under Section 7.27
hereof; and
() after July 1, 1997, the Company may incur Indebtedness in an
aggregate amount equal to the product of (x) $250,000,000 (reduced by the
principal amount of the Indebtedness incurred under subsection (h) hereof and
then outstanding) at the time such Indebtedness is contemplated to be incurred
by the Business Plan multiplied by (y) the difference between (i) 100% and (ii)
the BR Percentage at the time the Indebtedness is incurred; PROVIDED that after
the first date that the BR Percentage is equal to or greater than 75%, no debt
may thereafter be incurred hereunder.
The provisions of this SECTION 7.16 notwithstanding, the Company shall
not permit Atlantic to directly or indirectly remain liable, create, incur,
assume, guaranty or otherwise become or remain directly or indirectly liable
with respect to any Indebtedness.
. LIENS. The Company shall not, nor shall it permit any of the
Subsidiaries to, directly or indirectly, maintain, create, incur, assume or
permit to exist any lien on or with respect to any property or asset (including
any document or instrument in respect of goods or accounts receivable) of the
Company or any Subsidiary, whether now owned or hereafter acquired, or any
income or profits therefrom, except:
() liens granted pursuant to the Loan Documents or disclosed in
Schedule 4.8 of the Purchase Agreement (as amended with respect to Acquired
Companies pursuant to Section 2.10 of the Purchase Agreement) and not
discharged as contemplated by Section 3.2(a) of the Purchase Agreement;
() liens securing Indebtedness permitted under SECTIONS 7.16(G) and
(H) above; and
() liens securing Indebtedness of acquired entities in acquisitions
or for capital expenditures, in either case which are permitted under SECTION
7.27.
The provisions of this SECTION 7.17 notwithstanding, the Company shall
not permit, nor shall it permit any of the Subsidiaries, to directly or
indirectly, maintain, create, incur, assume or permit to exist any lien on or
with respect to (i) any property or assets of Atlantic or (ii) any assets which
are used in connection with Wireless Cable Television Systems subject to the
Business Relationship Agreement; PROVIDED HOWEVER, that this clause (ii) shall
not apply to liens securing Indebtedness issued pursuant to SECTION 7.16(H)
hereof.
. RESTRICTION ON FUNDAMENTAL CHANGES; ASSET SALES. The Company shall
not, nor shall it permit any of the Subsidiaries to, alter its corporate,
capital or legal structure or to enter into any merger, or consolidate, or
liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, lease, sub-lease, transfer or otherwise dispose
of, in one transaction or a series of transactions, all or any part of its
business, property or assets, whether now owned or hereafter acquired (other
than in the ordinary course of business), or acquire by purchase, lease or
otherwise, in one transaction or a series of transactions, all or any part of
the business, property or fixed assets of, or stock or other evidence of
beneficial ownership of, any Person (other than purchases or other acquisitions
of inventory, leases, materials, property and equipment in the ordinary course
of business) or agree to do any of the foregoing at any future time, except:
() the Company and the Subsidiaries may make acquisitions and capital
expenditures in the manner expressly provided in SECTION 7.27 hereof;
() the Company and the Subsidiaries may from time to time make sales or
other dispositions of assets not subject to the Business Relationship Agreement
having a cumulative fair market value in any twelve month period not in excess
of the greater of $1,000,000 in the aggregate or 5% in the aggregate of
Consolidated Operating Cash Flow (hereinafter defined) for the fiscal year
preceding any such sale; PROVIDED that () the consideration received shall be
an amount at least equal to the fair market value thereof and () at least 85%
of the consideration received shall be cash; PROVIDED, HOWEVER, that in no
event shall the Company sell assets (other than assets of DE MINIMIS value)
which are used or useful in providing the services required to be provided by
the Company or its Subsidiaries under the Business Relationship Agreement; and
() the Company and its Subsidiaries may from time to time dispose of
FCC Licenses and Channel Leases for equivalent rights in replacement FCC
Licenses and Channel Leases in the same operating market and the swapping of
assets for equivalent or better replacement assets shall be permitted if at
least 20 days prior notice is given to the Holder (other than in the case of
swaps involving assets of DE MINIMIS value).
"CONSOLIDATED OPERATING CASH FLOW" shall mean, for any period, the sum
(without duplication) of the amounts for such period of (i) net income, (ii)
depreciation expense, (iii) amortization expense, (iv) taxes paid, and (v)
service fees under the Loan Documents LESS (x) capital expenditures and (y)
increases in net current assets (increases in inventory and accounts receivable
LESS increases in accounts payable), determined on a consolidated basis for the
Company and the Subsidiaries in accordance with GAAP.
. RESTRICTED PAYMENTS. The Company shall not, nor shall it permit any
Subsidiary to:
() declare or pay any dividend or make any distribution (other than
dividends required to be paid by the Series A Convertible Preferred Stock and
6% Series B Convertible Preferred Stock or on any shares the issuance of which
has received a Purchaser Group Approval) on shares of the Company or any
Subsidiary;
() purchase, redeem or otherwise acquire or retire for value any stock
of the Company or of any Subsidiary or any warrants, rights or options to
acquire shares of any class of such stock;
() make any principal payment on, purchase, defease, redeem, prepay,
decrease or otherwise acquire or retire for value, prior to any scheduled final
maturity, scheduled repayment, scheduled sinking fund payment, or scheduled
redemption payment, any Indebtedness that is subordinate or junior in right of
payment to the Notes (other than any such Indebtedness owing to the Company or
any wholly-owned Subsidiary of the Company); or
() make any Investment (other than Investments permitted by SECTION
7.27 or 7.29 hereof).
. ISSUANCE OF STOCK. The Company shall not, and shall not permit any
Subsidiary to, authorize or issue any capital stock except for (i) shares
issuable upon exercise of the Warrants and the Stage I Warrants or conversion
of the Notes, the Senior Preferred Shares or the Voting Preferred Shares, (ii)
shares issued in connection with the acquisition of the Acquired Companies as
described in the Acquisition Agreements, (iii) Common Shares issued upon
conversion of shares of Series A Convertible Preferred Stock and 6% Series B
Convertible Preferred Stock or the exercise of options, warrants and other
purchase rights disclosed on Schedule 4.3 to the Purchase Agreement, (iv)
options and warrants with respect to Common Shares set forth on Schedule I
hereto, (v) Common Shares issued in payment of the purchase price under
acquisitions or to fund capital expenditures, in each case permitted pursuant
to SECTION 7.27 hereof, (vi) Common Shares issued pursuant to Section
2.7(c)(ii) of the Purchase Agreement, and (vii) Common Shares assumed to be
issued when calculating Fully-Diluted Common Shares immediately after
consummation of the Stage II Closing.
. TRANSACTIONS WITH AFFILIATES. The Company shall not, nor shall it
permit any of the Subsidiaries to, enter into, directly or indirectly, any
transaction or group of related transactions (including without limitation the
purchase, lease, sale or exchange of properties of any kind or the rendering of
any service) with any Affiliate (other than the Company or another Subsidiary),
except (i) for transactions required by the ServiceCo Documents, and (ii) in
the ordinary course and pursuant to the reasonable requirements of the
Company's or such Subsidiary's business and upon fair and reasonable terms no
less favorable to the Company or such Subsidiary than would be obtainable in a
comparable arm's-length transaction with a Person that is not an Affiliate.
. CERTAIN OTHER RESTRICTIONS. The Company shall not, nor shall it
permit any of the Subsidiaries to, engage in any business or undertake any
activities or otherwise do any act, that would subject the Holders, in the
reasonable opinion of the Holders, to a risk of violation of the MFJ. In
addition:
() the Company will ensure that its directors and senior management,
and the directors and senior management of the Subsidiaries, are aware of the
terms of the MFJ and of what types or categories of businesses or activities
might constitute a breach thereof. The Company shall procure all managers
having significant responsibility for matters addressed in the MFJ to sign a
certificate as described in Section V of the MFJ, or such other form as the
Holders may reasonably require from time to time. The Company shall ensure
that the Subsidiaries and any other company or other entity in which it or any
Subsidiary holds an interest shall comply with the terms of this provision; and
() the Company shall, and shall cause the Subsidiaries to, provide all
necessary and reasonable assistance to the Holders in any MFJ proceeding or
investigation, at the request of the Holders. It is the intention of the
Company and the Holders that, in addition to any damages to which the Holders
may be entitled for violation of this provision, this provision may be enforced
by grant of injunctive relief to restrain any such breach by the Company or a
Subsidiary.
. CONTINGENT OBLIGATIONS. The Company shall not, nor shall it permit
any of the Subsidiaries to, directly or indirectly, create or become or be
liable with respect to any Contingent Obligation except:
() Contingent Obligations of the Company and the Subsidiaries incurred
pursuant to the Loan Documents;
() Contingent Obligations resulting from endorsement of negotiable
instruments for collection in the ordinary course of business;
() Contingent Obligations in respect of operating leases;
() intercompany Contingent Obligations with respect to the Company or
any other Subsidiary; PROVIDED that all such intercompany Contingent
Obligations are subordinated to the Obligations;
() Contingent Obligations which the Company elects to treat as
Indebtedness and which could then be incurred as Indebtedness under SECTION
7.16 hereof;
() Contingent Obligations of the Company in respect of assisting the
Subsidiaries in providing goods and services in the ordinary course of their
respective businesses.
For purposes of this SECTION 7.23, the term "CONTINGENT OBLIGATIONS"
shall mean any direct or indirect liability, contingent or otherwise () with
respect to any indebtedness, lease, dividend or other obligation of another if
the primary purpose or intent thereof is to provide assurance to the obligee of
such obligation of another that such obligation of another will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such obligations will be protected (in whole or in part)
against loss in respect thereof and () with respect to any letter of credit.
Contingent Obligations shall include with respect to the Company or any of the
Subsidiaries, without limitation, (A) the direct or indirect guaranty,
endorsement (otherwise than for the collection or deposit in the ordinary
course of business), co-making, discounting with recourse or sale with recourse
by the Company or any of the Subsidiaries, (B) the obligation to make take-or-
pay or similar payments if required regardless of non-performance by any other
party or parties to an agreement, and (C) any liability of the Company or any
of the Subsidiaries for the obligations of another through any agreement
(contingent or otherwise) (x) to purchase, repurchase or otherwise acquire such
obligation or any security therefor, or to provide funds for the payment or
discharge of such obligation (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise), and (y) to maintain the
solvency or any balance sheet item, level of income or financial condition of
another (except as expressly provided in this Warrant), if in the case of any
agreement described under subclause (x) or (y) of this sentence, the primary
purpose or intent thereof is as described in the preceding sentence.
. CONDUCT OF BUSINESS. Except as expressly provided in the Loan
Documents, the Company shall not, nor shall it permit any of the Subsidiaries
to, engage in any line of business except those described in the Company's
Transition Report on Form 10-K for the period ended March 31, 1994 and the
activities described in Note 2 to the Company's financial statements contained
in the Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1994 which, in the sole judgment of the Purchaser Group, do not violate the
MFJ; provided, however, that prior to the time that the BR Percentage first
exceeds 30%, the Company and its Subsidiaries may engage in other business
activities related to the use of the MMDS Spectrum if (i) they are in
compliance with all of their obligations hereunder, under the other Loan
Documents and the documents related to the Anticipated Financing, (ii) such
activities will not have a material adverse effect on the ability of the
Company and the Subsidiaries to perform their obligations under the Business
Relationship Agreement, and (iii) the Company does not enter into any joint
ventures, partnerships or other arrangement with a third Person to share the
profits, losses and control of such activities with any person unless the
Company has offered the Purchaser the right to enter into such arrangement on
terms no less favorable to the Purchaser than those agreed to by the third
person and in any event, the Company shall not enter into such an arrangement
with any Person if such Person or any Affiliate of such Person is engaged in
operating, providing or marketing wireline cable or local wireline telephone
systems or services within the United States.
. CREATION OF SUBSIDIARIES; DISPOSAL OF SUBSIDIARY STOCK.
() The Company shall not, nor shall it permit any of the Subsidiaries
to, create or acquire any interest in any Subsidiaries, unless such Subsidiary
is wholly-owned by the Company or a wholly-owned Subsidiary or unless expressly
permitted by clause (iii) of SECTION 7.24 hereof.
() The Company shall not, and shall not permit any of the Subsidiaries
to, directly or indirectly sell, assign, pledge or otherwise encumber or
dispose of any shares of capital stock, partnership interests, or other equity
securities (or warrants, rights or options to acquire shares or other equity
securities) of any of the Subsidiaries, except (i) to the Company or another
Subsidiary of the Company, (ii) to qualify directors if required by applicable
law, (iii) as permitted by Section 7.18 hereof, (iv) as reflected on Schedule
4.2 to the Purchase Agreement or (v) as collateral for the Notes.
. AMENDMENTS TO CHARTER DOCUMENTS. Except as expressly provided in the
Loan Documents, the Company shall not, nor shall it permit any of the
Subsidiaries to, make any amendment to, or waive any of its material rights
under, its articles or certificate of incorporation, as the case may be, its
by-laws or other documents relating to its capital stock, or other equity
interests of the Company or any of the Subsidiaries (other than non-material
amendments which, in the aggregate, would not have a Material Adverse Effect
and which would not adversely affect the rights of the Warrants or the Warrant
Shares) without, in each case, obtaining the written consent of all Holders to
such amendment or waiver.
. ACQUISITIONS AND CAPITAL EXPENDITURES. The Company shall not, nor
shall it permit any of its Subsidiaries to, incur any capital expenditures or
acquire the capital stock or assets of any Person, except for capital
expenditures reflected in the Business Plan; PROVIDED, HOWEVER, that, so long
as no Default shall have occurred and be continuing under the Notes or Senior
Preferred Shares, until the BR Percentage is at least 30%:
() prior to July 1, 1997, the Company may make, in addition to those
reflected in the Business Plan, capital expenditures for which the aggregate
consideration to be paid does not exceed $20 million and acquisitions of
businesses for which the aggregate value of the consideration paid and the
liabilities assumed, in the aggregate, does not exceed $15 million,
() after July 1, 1997, the Company may incur additional capital
expenditures so long as the aggregate consideration to be paid therefor,
including for capital expenditures made prior to July 1, 1997, does not exceed
$35 million, and may make additional acquisitions so long as the aggregate
value of the consideration paid for and the liabilities assumed in such
acquisitions, in the aggregate and including acquisitions made prior to July 1,
1997, does not exceed $25 million.
. SALE OR DISCOUNT OF RECEIVABLES. The Company shall not, nor shall it
permit any of the Subsidiaries to, directly or indirectly, sell any of their
notes or accounts receivable except solely in the ordinary course of business
for the collection of delinquent accounts.
. INVESTMENTS. The Company shall not, nor shall it permit any of the
Subsidiaries to, make or permit to exist, any Investments, directly or
indirectly, other than (a) marketable direct obligations of the United States
of America which mature within 5 years from the date of issue or participations
in marketable direct obligations of the United States of America acquired from
domestic banks having total assets in excess of $500,000,000, (b) certificates
of deposit and bankers' acceptances of domestic banks having total assets in
excess of $500,000,000 and demand and time deposits in any bank, whether
domestic or foreign, (c) securities commonly known as "commercial paper" issued
by any company organized and existing under the laws of the United States of
America or any state thereof which at the time of purchase have been rated and
the ratings for which are not less than "P-1" if rated by Moody's, and not
less than "A-1" if rated by Standard and Poor's, (d) written agreements under
which domestic banks having total assets in excess of $500,000,000 sell and
agree to repurchase marketable direct obligations of the United States of
America, (e) money market funds backed by U.S. Obligations, (f) acquisitions of
companies if such acquisition is permitted pursuant to SECTION 7.27 hereof and
such acquisition is of the entire interest in the equity of the acquired
company, and (g) the Company's investment in ACTV, Inc. described in Schedule
4.13(6) to the Purchase Agreement.
. ACQUIRED COMPANIES. The term "Subsidiaries" as used in the covenants
contained in this ARTICLE 7 shall be deemed to include each Acquired Company
from and after the date that the acquisition of such Acquired Company is
consummated, except for the grace periods applicable thereto contained in this
SECTION 7.30. The following provisions of this ARTICLE 7 shall not apply to
any Acquired Company until the end of the grace period after the date of such
Acquired Company's acquisition by the Company set forth opposite the reference
to such provision below; PROVIDED, HOWEVER, that (i) the failure of the
Acquired Company to comply with such provisions immediately is due to
circumstances existing at the time of consummation of the acquisition, (ii) the
Company is using all reasonable and diligent efforts to bring such Acquired
Company into compliance with such provisions, and (iii) such failure of such
Acquired Company to comply with such provisions does not have a material
adverse affect on the Company's ability to comply with its obligations under
the Business Relationship Agreement:
SECTION REFERENCE GRACE PERIOD
7.1(b) 60 days
7.2 60 days
7.3 180 days
7.6 60 days
7.7 60 days
7.8 (last sentence only) 60 days
7.10 60 days
7.24 30 days
. OBSERVER RIGHTS. The Company shall give the Holders written
notice of each meeting of the boards of directors of the Company and each
Subsidiary and any committees or other groups exercising responsibilities
comparable to such boards of directors at the same time as such notice is given
to the directors or committee members, as the case may be, but in no event less
than two days prior to any meeting, such written notice specifying the time and
place of such meeting. Upon receipt of such written notice, the Purchasers by
Purchaser Group Approval may designate one representative of the Holders to
attend any such meeting in a nonvoting observer capacity and the Company shall
invite such representative to each meeting of such boards and committees;
PROVIDED, HOWEVER, that in no event shall there be more than two such
representatives for all holders of the Notes, the Warrants, the Stage I
Warrants and the Senior Preferred Stock. The Company shall provide such
representative copies of all notices, minutes, consents and other material
which have been provided to the Company's or a Subsidiary's directors or any
committee member, as the case may be, no later than at the time of any such
meeting.
ARTICLE .
HOLDER'S REMEDIES
. EQUITABLE RELIEF; OTHER REMEDIES. The Company acknowledges that
the covenants contained in ARTICLES 6 and 7 are reasonable and necessary to
protect the legitimate interests of the Holder, that the Holder would not have
entered into the Purchase Agreement and the various Loan Documents in the
absence of such restrictions, and that any violation of any provision of those
Sections will result in irreparable injury to the Holder and its affiliates.
The Company agrees that the Holder shall be entitled to preliminary and
permanent injunctive relief, without the necessity of proving actual damages,
as well as an equitable accounting of all earnings, profits and other benefits
arising from any violation of ARTICLES 6 and 7, which rights shall be
cumulative and in addition to any other rights or remedies to which the Holder
may be entitled.
. REPRICING OF WARRANTS.
() Upon the occurrence from time to time of any of the following
conditions or events (each a "REPRICING EVENT") then the Tier 1 Exercise Price
of the Warrants shall be adjusted as set forth herein:
(i) the Company defaults in the performance of or compliance
with any covenant or agreement contained in SECTIONS 7.1, 7.4, 7.5, 7.8,
and 7.15 through 7.27 of this Warrant; or
(ii) any representation or warranty contained in Sections 4.1
through 4.3, 4.9, 4.12, 4.14, 4.15, 4.18, 4.24, 4.29 and 4.32 through
4.38 (excluding 4.36) of the Purchase Agreement (without regard to any
materiality limitation therein except that (i) the materiality
provisions of Section 4.24 shall remain in effect and (ii) the
materiality provisions of Section 4.15 shall remain in effect until the
Threshold Amount (as defined therein) equals zero) proves to have been
false or incorrect in any respect on the Stage I Closing Date or Stage
II Closing Date; or
(iii) any representation or warranty contained in the revised
representations and warranties provided by the Company in Sections 4.1
through 4.3, 4.9, 4.12, 4.14, 4.15, 4.18, 4.24, 4.29 and 4.32 through
4.38 (excluding 4.36) of the Purchase Agreement pursuant to Section 2.10
of the Purchase Agreement (treating such representations and warranties
as being made with respect to each of the Acquired Companies, and
without regard to any materiality limitation therein except that (i) the
materiality provisions of Section 4.24 shall remain in effect and (ii)
the materiality provisions of Section 4.15 shall remain in effect until
the Threshold Amount (as defined therein) equals zero) proves to have
been false or incorrect in any respect on the Stage II Closing Date.
() After the occurrence of a Repricing Event, the Required Holders may
send to the Company a notice specifying the nature of such Repricing Event and
an estimate, to the extent feasible, of the amount of the damages, losses,
deficiencies, liabilities, costs or expenses to the Company and the
Subsidiaries (including without limitation for purposes of SECTION 8.2(A)(I)
Acquired Companies from and after the time such requirements are deemed to be
applicable to such Acquired Companies pursuant to SECTION 7.30 hereof) on a
consolidated basis which arise from defaults referred to in SECTION 8.2(A)(I)
or the inaccuracy of the representations and warranties referred to in SECTION
8.2(A)(II) or 8.2(A)(III) (without regard to any materiality limitation therein
except as provided in SECTION 8.2(A)(II) or 8.2(A)(III)) ("REPRICING DAMAGES")
to the extent then feasible (which estimate shall not be conclusive of the
final amount of damages) (the "CLAIM NOTICE").
() At such time as the aggregate Repricing Damages for all Repricing
Events exceed $20,000,000, the Tier 1 Exercise Price per share then in effect
shall be reduced by an amount equal to the product of (i) the then applicable
Preferred Conversion Ratio multiplied by (ii) the quotient of (A) the aggregate
Repricing Damages through the date such calculation is made, divided by (B)
(1) in the case of a Repricing Event described in SECTION 8.2(A)(II) or (III),
the Fully-Diluted Common Shares of the Company determined immediately after
consummation of the Stage II Closing and (2) in the case of a Repricing Event
described in SECTION 8.2(A)(I), the Fully-Diluted Common Shares of the Company
at the date of the Claim Notice with respect thereto.
() The Required Holders and the Company shall negotiate in good faith
to arrive at the amount of Repricing Damages, but in the event that the parties
are unable to reach agreement as to such amount within 30 days of the date of
the latest Claim Notice, the Company shall deliver to the Required Holders a
list of three Qualified Investment Banking Firms. Within 10 days of the
delivery of such list, the Required Holders shall select one of the investment
banking firms on such list. Such investment banking firm shall render its
opinion of the amount of the aggregate Repricing Damages within 30 days of such
selection and such opinion shall be conclusive and binding upon the Company and
the Holder as to the amount of such Repricing Damages. All fees and costs of
the selected investment banking firm shall be borne by the Company.
() Notwithstanding the foregoing, however, Repricing Damages shall not
include damages (i) resulting from a Repricing Event described in SECTION
8.2(A)(II) OR (III) unless the Claim Notice with respect thereto is delivered
not later than the last day of the 18th full calendar month following (1) the
Stage II Closing Date, (2) if the Stage II Closing has not occurred, the Stage
I Closing Date or (3) to the extent that such Repricing Damages relate to
Section 4.15 of the Purchase Agreement, the date on which the Holders receive
actual notice of the final amount of such damages; (ii) to the extent that the
Holder has actually received indemnification therefor pursuant to Section 7.2
of the Purchase Agreement; (iii) resulting from a breach of any of the
covenants referred to in SECTION 8.2(A)(I) to the extent that such breach is
caused principally by an action which the holders of Voting Preferred Shares
approved or disapproved in accordance with Section 6(e) of the Designation of
Terms of the Voting Preferred Shares; PROVIDED, HOWEVER, that the limitations
contained in this clause (iii) shall not apply if the Required Holders of
Voting Preferred Shares (as defined therein) have notified the Company in
writing, within 30 days of the receipt of a written request for such consent,
that they have waived their right to consent to the specific action with
respect to which Repricing Damages are claimed; or (iv) which have previously
been reflected in an adjustment pursuant to clause (c) above and in any
comparable adjustment under the Senior Preferred Shares or the Stage I
Warrants.
ARTICLE .
MISCELLANEOUS
. NOTICES. Any notice or other communication to be given hereunder
shall be in writing and shall be delivered by recognized courier, telecopy or
certified mail, return receipt requested, and shall be conclusively deemed to
have been received by a party hereto and to be effective on the day on which
delivered or telecopied to such party at its address set forth below (or at
such other address as such party shall specify to the other parties hereto in
writing), or, if sent by certified mail, on the third business day after the
day on which mailed, addressed to such party at such addresses.
In the case of a Holder, such notices and communications shall be
addressed to (a) if to BANX Partnership (so long as BANX Partnership is the
Holder of this Note), to Alexander Good, Bell Atlantic Corporation, 1310 North
Court House Road, Arlington, VA 22201; Thomas R. McKeough, Bell Atlantic
Corporation, 1717 Arch Street, Philadelphia, PA 19103; and Philip R. Marx,
Bell Atlantic Corporation, 1717 Arch Street, Philadelphia, PA 19103, and NYNEX
Corporation, 1113 Westchester Avenue, White Plains, NY 10604-3510), Attention:
Chief Financial Officer and to such address Attention: General Counsel, (b) if
to any other Holder his or her address as shown on the books maintained by the
Warrant Agency; unless the Holder shall notify the Company and the Warrant
Agency that notices and communications should be sent to a different address,
in which case such notices and communications shall be sent to the address
specified by the Holder. In the case of the Company, such notices and
communications shall be addressed as follows (until notice of a change is given
as provided herein): CAI Wireless Systems, Inc., 12 Corporate Woods Blvd.,
Albany, New York 12211, Attention: Jared E. Abbruzzese, Chairman and Chief
Executive Officer, Fax No. (518) 462-3045, Telephone: (518) 462-2632, with a
copy to: Day, Berry & Howard, One Canterbury Green, Stamford, Connecticut
06901-2047, Attention: Sabino Rodriguez, III, Esq.
. WAIVERS; AMENDMENTS. No failure or delay of the Holder in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of such right or power, or any abandonment
or discontinuance of steps to enforce such a right or power, preclude any other
or further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Holder are cumulative and not exclusive of any
rights or remedies which the Holder would otherwise have. The provisions of
this Warrant may be amended, modified or waived with (and only with) the
written consent of the Company and Required Holders (including any permitted
transferee holding a Warrant); PROVIDED, HOWEVER, that no such amendment,
modification or waiver shall, without the written consent of the Holder, (a)
change the type and number of Voting Preferred Shares subject to purchase upon
exercise of this Warrant, the Exercise Price or provisions for payment thereof
(except as a result of amendments, modifications or waivers of the provisions
of SECTION 8.2 hereof), or (b) amend, modify or waive the provisions of this
Section or ARTICLE 5 with respect to the Holder.
Any such amendment, modification or waiver effected pursuant to this
Section shall be binding upon the Holder, upon each future holder of the
Warrants and Warrant Shares issuable hereunder and upon the Company. In the
event of any such amendment, modification or waiver the Company shall give
prompt notice thereof to all holders of Warrants and, if appropriate, notation
thereof shall be made on all Warrants thereafter surrendered for registration
of transfer or exchange.
No notice or demand on the Company in any case shall entitle the Company
to any other or further notice or demand in similar or other circumstances.
. GOVERNING LAW. This Warrant shall be construed in accordance with
and governed by the laws of the State of New York.
. SURVIVAL OF AGREEMENTS. All covenants and agreements made by the
Company herein shall be considered to have been relied upon by the Holder and
shall survive the issuance and delivery of the Warrant, and shall continue in
full force and effect so long as this Warrant is outstanding.
. COVENANTS TO BIND SUCCESSOR AND ASSIGNS. All covenants,
stipulations, promises and agreements in this Warrant contained by or on behalf
of the Company shall bind its successors and assigns, whether so expressed or
not.
. SEVERABILITY. In case any one or more of the provisions contained
in this Warrant shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and therein shall not in any way be affected or impaired thereby. The
parties shall endeavor in good faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions the economic effect
of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
. SECTION HEADINGS. The section headings used herein are for
convenience of reference only, are not part of this Warrant and are not to
affect the construction of or be taken into consideration in interpreting this
Warrant.
. NO RIGHTS AS STOCKHOLDER. This Warrant shall not entitle any
Holder to any rights as a stockholder of the Company and no dividends shall be
payable or accrue in respect of this Warrant or the interest represented hereby
or the Warrant Shares exercisable hereunder unless and until and only to the
extent this Warrant shall be exercised.
. NO REQUIREMENT TO EXERCISE. Nothing contained in this Warrant
shall be construed as requiring the Holder to exercise this Warrant.
<PAGE>
}
{
IN WITNESS WHEREOF, CAI Wireless Systems, Inc. has caused this Stage II
Warrant to be executed in its corporate name by one of its officers thereunto
duly authorized.
CAI Wireless Systems, Inc.
By: /S/ JARED E. ABBRUZZESE
Jared E. Abbruzzese
Chairman, Chief Executive Officer &
President
<PAGE>
}
{
SUBSCRIPTION NOTICE
(To be executed upon exercise of Warrant)
To CAI WIRELESS SYSTEMS, INC.
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the attached Warrant for, and to purchase thereunder,
the number of Warrant Shares specified below, from the Tier of the Warrant
specified below, as provided for therein, and tenders herewith payment of the
Tier Exercise Price therefor in full in the form of certified or bank cashier's
check or wire transfer:
Shares at Number of
SPECIFIED PRICE SHARES EXERCISED
Tier 1 Exercise Price
Tier 2 Exercise Price
Tier 3 Exercise Price
Tier 4 Exercise Price
Please issue a certificate or certificates for such Warrant Shares in
the following name or names and denominations:
If said number of shares shall not be all the shares issuable upon
exercise of the attached Warrant, a new Warrant is to be issued in the name of
the undersigned for the balance remaining of such shares less any fraction of a
share paid in cash.
Dated:
___________________________________
NOTE: The above signature should
correspond exactly with the name on the
face of the attached Warrant or with
the name of the assignee appearing in
the assignment form below.
<PAGE>
}
{
CONDITIONAL NOTICE
(To be executed upon exercise of Warrant)
To CAI WIRELESS SYSTEMS, INC.
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the attached Warrant for, and to purchase thereunder,
the number of Warrant Shares specified below, from the Tier of the Warrant
specified below, as provided for in the attached Warrant:
Shares at Number of
SPECIFIED PRICE SHARES EXERCISED
Tier 1 Exercise Price
Tier 2 Exercise Price
Tier 3 Exercise Price
Tier 4 Exercise Price
, subject to the following conditions precedent:
i) [MFJ WAIVER]
ii) [FCC CONSENT]
iii) [OTHER MATERIAL CONSENT OR CONDITION]
Upon waiver by the undersigned or satisfaction of such conditions, the
undersigned shall tender payment of the Exercise Price in full in the form of
certified or bank cashier's check or wire transfer.
Upon receipt of such payment, please issue a certificate or certificates
for such Warrant Shares in the following name or names and denominations (after
receipt of this notice, such payment being all the notice required for such
issuance):
If said number of shares shall not be all the shares issuable upon
exercise of the attached Warrant, a new Warrant is to be issued in the name of
the undersigned for the balance remaining of such shares less any fraction of a
share paid in cash.
Dated:
___________________________________
NOTE: The above signature should
correspond exactly with the name on the
face of the attached Warrant or with
the name of the assignee appearing in
the assignment form below.
<PAGE>
}
{ ASSIGNMENT
(To be executed upon assignment of Warrant)
For value received, _________________ hereby sells, assigns and
transfers unto ______________ the attached Warrant, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
_____________________ attorney to transfer said Warrant on the books of CAI
Wireless Systems, Inc., a Connecticut corporation, with full power of
substitution in the premises.
___________________________________
NOTE: The above signature should
correspond exactly with the name on the
face of the attached Warrant.
<PAGE>
EXHIBIT 10.16
1995 CAI WIRELESS SYSTEMS, INC. INCENTIVE STOCK PLAN
. PURPOSE
The purpose of the 1995 CAI Wireless Systems, Inc. Incentive Stock Plan
is to motivate and reward superior performance on the part of employees of the
Company and its subsidiaries and to thereby attract and retain employees of
superior ability. In addition, the Plan is intended to further opportunities
for stock ownership by such employees in order to increase their proprietary
interest in the Company and, as a result, their interest in the success of the
Company. Awards will be made, in the discretion of the Committee, to Key
Employees (including officers and directors who are also employees) whose
responsibilities and decisions directly affect the performance of any
Participating Company. Such incentive awards may consist of stock options,
stock appreciation rights payable in stock or cash, performance shares,
restricted stock or any combination of the foregoing, as the Committee may
determine.
. DEFINITIONS
When used herein, the following terms shall have the following meanings:
"Act" means the Securities Exchange Act of 1934.
"Award" means an award granted to any Key Employee in accordance with
the provisions of the Plan in the form of Options, Rights, Performance Shares
or Restricted Stock, or any combination of the foregoing.
"Award Agreement" means the written agreement evidencing each Award
granted to a Key Employee under the Plan.
"Beneficiary" means the beneficiary or beneficiaries designated pursuant
to Section 9 to receive the amount, if any, payable under the Plan upon the
death of a Key Employee.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended. (All citations to sections of the Code are to such sections
as they may from time to time be amended or renumbered.)
"Committee" means the Stock Option or Compensation Committee of the
Board or such other committee as may be designated by the Board to administer
the Plan.
"Company" means CAI Wireless Systems, Inc. and it successors and
assigns.
"Fair Market Value" means the fair market value as determined by rules
to be adopted by the Committee.
"Incentive Stock Option" means a stock option qualified under Section
422 of the Code.
"Key Employee" means an employee (including any officer or director who
is also an employee) of any Participating Company whose responsibilities and
decisions, in the judgment of the Committee, directly affect the performance of
the Company and its subsidiaries.
"Option" means an option awarded under Section 5 of the Plan to purchase
Stock of the Company, which option may be an Incentive Stock Option or a non-
qualified stock option.
"Participating Company" means the Company or any corporation which at
the time an Award is granted qualifies as a "subsidiary" of the Company under
Section 425(F) of the Code.
"Performance Share" means a performance share awarded under Section 6 of
the Plan.
"Plan" means the 1995 CAI Wireless Systems, Inc. Incentive Stock Plan,
as the same may be amended, administered or interpreted from time to time.
"Restricted Stock" means Stock awarded under Section 7 of the Plan
subject to such restrictions as the Committee deems appropriate or desirable.
"Right" means a stock appreciation right awarded in connection with an
option under Section 5 of the Plan.
"Stock" means the common shares of the Company.
"Total Disability" means a permanent and total disability as defined in
Section 22(e)(3) of the Code.
. SHARES SUBJECT TO THE PLAN
In no event shall more than one million two hundred thousand (1,200,000)
shares of Stock be cumulatively available for Awards under the Plan.
Subject to the above limitation, shares of Stock to be issued under the
Plan may be made available from the authorized but unissued shares, or from
shares purchased in the open market. For the purpose of computing the total
number of shares of Stock available for Awards under the Plan, there shall be
counted against the foregoing limitation the number of shares of Stock which
equal the value of performance share Awards, in each case determined as at the
dates on which such Awards are granted. If any Awards under the Plan are
forfeited, terminated, expire unexercised, are settled in cash in lieu of Stock
or are exchanged for other Awards, the shares of stock which were theretofore
subject to such Awards shall again be available for Awards under the Plan to
the extent of such forfeiture or expiration of such Awards.
. GRANT OF AWARDS AND AWARD AGREEMENTS
() Subject to the provisions of the Plan, the Committee shall (i)
determine and designate from time to time those Key Employees or groups of Key
Employees to whom Awards are to be granted; (ii) determine the form or forms of
Award to be granted to any Key Employee; (iii) determine the amount or number
of shares of Stock subject to each Award; and (iv) determine the terms and
conditions of each Award.
() Each Award granted under the Plan shall be evidenced by a written
Award Agreement. Such agreement shall be subject to and incorporate the
express terms and conditions, if any, required under the Plan or required by
the Committee.
. STOCK OPTIONS AND RIGHTS
() With respect to Options and Rights, the Committee shall (i)
authorize the granting of Incentive Stock Options, non-qualified stock options,
or a combination of Incentive Stock Options and non-qualified stock options;
(ii) authorize the granting of Rights which may be granted in connection with
all or part of any Option granted under this Plan, either concurrently with the
grant of the option or at any time thereafter during the term of the Option;
(iii) determine the number of shares of Stock subject to each Option or the
number of shares of Stock that shall be used to determine the value of a Right;
and (iv) determine the time or times when and the manner in which each Option
or Right shall be exercisable and the duration of the exercise period.
() Any option issued hereunder which is intended to qualify as an
Incentive Stock Option shall be subject to such limitations or requirements as
may be necessary for the purposes of Section 422 of the Code or any regulations
and rulings thereunder to the extent and in such form as determined by the
Committee in its discretion
() The exercise period for a non-qualified stock option and any
related Right shall not exceed ten years and two days from the date of grant,
and the exercise period for an Incentive Stock Option and any related Right
shall not exceed ten years from the date of grant.
() The Option price per share shall be determined by the Committee at
the time any Option is granted and shall be not less than the Fair Market Value
of one share of Stock on the date the Option is granted.
() No part of any Option or Right may be exercised until the Key
Employee who has been granted the Award shall have remained in the employ of a
Participating Company for such period after the date of grant as the Committee
may specify, if any, and the Committee may further require exercisability in
installments; provided, however, the period during which a Right is exercisable
shall commence no earlier than six months following the date the Option or
Right is granted.
() The purchase price of the shares as to which an Option shall be
exercised shall be paid to the Company at the time of exercise either in cash
or Stock already owned by the optionee having a total Fair Market Value equal
to the purchase price, or a combination of cash and Stock having a total fair
market value, as so determined, equal to the purchase price. The Committee
shall determine acceptable methods for tendering Stock as payment upon exercise
of an Option and may impose such limitations and prohibitions on the use of
Stock to exercise an Option as it deems appropriate.
() In case of termination of employment, the following provisions
shall apply:
() If a Key Employee who has been granted an Option shall die
before such Option has expired, his or her Option may be exercised to the
extent it was exercisable as of the date of death by the person or persons to
whom the Key Employee's rights under the Option pass by will, or if no such
person has such right, by his or her executors or administrators, at any time,
or from time to time, within one year after the date of the Key Employee's
death or within such other period, and subject to such terms and conditions as
the Committee may specify, but not later than the expiration date specified in
Section 5(D) above.
() If the Key Employee's employment by any Participating
Company terminates because of his or her Total Disability, he or she may
exercise his or her Options to the extent they were exercisable as of the date
of termination of employment at any time, or from time to time, within one year
after the date of the termination of his or her employment or within such other
period, and subject to such terms and conditions as the Committee may specify,
but not later than the expiration date specified in Section 5(D) above.
() If the Key Employee is terminated for cause, defined as
neglect of duty or misconduct, as reasonably determined by the Committee, the
Options or Rights shall be cancelled coincident with the effective date of the
termination of employment.
() If the Key Employee's employment terminates for any other
reason, he or she may exercise his or her Options, to the extent that he or she
shall have been entitled to do so at the date of the termination of his or her
employment, at any time, or from time to time, within three months after the
date of the termination of his or her employment or within such other period,
and subject to such terms and conditions as the Committee may specify, but not
later than the expiration date specified in Section 5(D) above.
() No Option or Right granted under the Plan shall be transferable
other than by will or by the laws of descent and distribution. During the
lifetime of the optionee, an Option or Right shall be exercisable only by the
Key Employee to whom the Option or Right is granted.
() With respect to an Incentive Stock Option, the Committee shall
specify such terms and provisions as the Committee may determine to be
necessary or desirable in order to qualify such Option as an "incentive stock
option" within the meaning of Section 422 of the Code.
() With respect to the exercisability and settlement of Rights:
(i) Upon exercise of a Right, the Key Employee shall be
entitled, subject to such terms and conditions the Committee may
specify, to receive upon exercise thereof all or a portion of the
excess of (A) the Fair Market Value of specified number of shares
of Stock at the time of exercise, as determined by the Committee,
over (B) a specified amount which shall not, subject to Section
5(E) be less than the Fair Market Value of such specified number
of shares of Stock at the time the Right is granted. Upon
exercise of a Right, payment of such excess shall be made as the
Committee shall specify in cash, the issuance or transfer to the
Key Employee of whole shares of Stock with a Fair Market Value at
such time equal to any excess, or a combination of cash and shares
of Stock with a combined Fair Market Value at such time equal to
any such excess, all as determined by the Committee. The Company
will not issue a fractional share of Stock and, if a fractional
share would otherwise be issuable, the Company shall pay cash
equal to the Fair Market Value of the fractional share of Stock at
such time.
(ii) In the event of the exercise of such Right, the
Company's obligation in respect of any related Option or such
portion thereof will be discharged by payment of the Right so
exercised.
. PERFORMANCE SHARES
() Subject to the provisions of the Plan, the Committee shall (i)
determine and designate from time to time those Key Employees or groups of Key
Employees to whom Awards of Performance Shares are to be made, (ii) determine
the Performance Period (the "Performance Period") and Performance Objectives
(the "Performance Objectives") applicable to such Awards, (iii) determine the
form of settlement of a Performance Share and (iv) generally determine the
terms and conditions of each such Award. At any date, each Performance Share
shall have value equal to the Fair Market Value of a share of Stock at such
date; provided that the Committee may limit the aggregate amount payable upon
the settlement of any Award.
() The Committee shall determine a Performance Period of not less
than two nor more than five years. Performance Periods may overlap and Key
Employees may participate simultaneously with respect to Performance Shares for
which different Performance Periods are prescribed.
() The Committee shall determine the Performance Objectives of Awards
of Performance Shares. Performance Objectives may vary from Key Employee to
Key Employee and between groups of Key Employees and shall be based upon such
performance criteria or combination of factors as the Committee may deem
appropriate, including, but not limited to, minimum earnings per share or
return on equity. If during the course of a Performance Period there shall
occur significant events which the Committee expects to have a substantial
effect on the applicable Performance Objectives during such period, the
Committee may revise such Performance Objectives.
() At the beginning of a Performance Period, the Committee shall
determine for each Key Employee or group of Key Employees the number of
Performance Shares or the percentage of Performance Shares which shall be paid
to the Key Employee or member of the group of Key Employees if Performance
Objectives are met in whole or in part.
() If a Key Employee terminates service with all Participating
Companies during a Performance Period because of death, Total Disability, or
under other circumstances where the Committee in its sole discretion finds that
a waiver would be in the best interests of the Company, that Key Employee may,
as determined by the Committee, be entitled to an Award of Performance Shares
at the end of the Performance Period based upon the extent to which the
Performance Objectives were satisfied at the end of such period and prorated
for the portion of the Performance Period during which the Key Employee was
employed by any Participating Company; provided, however, the Committee may
provide for an earlier payment in settlement of such Performance Shares in such
amount and under such terms and conditions as the Committee deems appropriate
or desirable. If a Key Employee terminates service with all Participating
Companies during a Performance Period for any other reason, then such Key
Employee shall not be entitled to any Award with respect to that Performance
Period unless the Committee shall otherwise determine.
() Each Award of a Performance Share shall be paid in whole shares of
Stock, or cash, or a combination of Stock and cash either as a lump sum payment
or in annual installments, all as the Committee shall determine, with payment
to commence as soon as practicable after the end of the relevant Performance
Period.
. RESTRICTED STOCK
() Restricted Stock shall be subject to a restriction period (after
which restrictions will lapse) which shall mean a period commencing on the date
the Award is granted and ending on such date as the Committee shall determine
(the "Restriction Period"). The Committee may provide for the lapse of
restrictions in installments where deemed appropriate.
() Except when the Committee determines otherwise pursuant to Section
7(d), if a Key Employee terminates employment with all Participating Companies
for any reason before the expiration of the Restriction Period, all shares of
Restricted Stock still subject to restriction shall be forfeited by the Key
Employee and shall be reacquired by the Company.
() Except as otherwise provided in this Section 7, no shares of
Restricted Stock received by a Key Employee shall be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of during the
Restriction Period.
() In cases of death or Total Disability or in cases of special
circumstances, the Committee may, in its sole discretion when it finds that a
waiver would be in the best interests of the Company, elect to waive any or all
remaining restrictions with respect to such Key Employee's Restricted Stock.
() The Committee may require, under such terms and conditions as it
deems appropriate or desirable, that the certificates for Stock delivered under
the Plan may be held in custody by a bank or other institution, or that the
Company may itself hold such shares in custody until the Restriction Period
expires or until restrictions thereon otherwise lapse, and may require, as a
condition of any Award of Restricted Stock that the Key Employee shall have
delivered a stock power endorsed in blank relating to the Restricted Stock.
() Nothing in this Section 7 shall preclude a Key Employee from
exchanging any shares of Restricted Stock subject to the restrictions contained
herein for any other shares of Stock that are similarly restricted.
() Subject to Section 7(e) and Section 8, each Key Employee entitled
to receive Restricted Stock under the Plan shall be issued a certificate for
the shares of Stock. Such certificate shall be registered in the name of the
Key Employee, and shall bear an appropriate legend reciting the terms,
conditions and restrictions, if any, applicable to such Award and shall be
subject to appropriate stop-transfer orders.
. CERTIFICATES FOR AWARDS OF STOCK
() The Company shall not be required to issue or deliver any
certificates for shares of Stock prior to (i) the listing of such shares on any
stock exchange on which the Stock may then be listed and (ii) the completion of
any registration or qualification of such shares under any federal or state
law, or any ruling or regulation of any government body which the Company
shall, in its sole discretion, determine to be necessary or advisable.
() All certificates for shares of Stock delivered under the Plan
shall also be subject to such stop-transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed and any applicable federal or state securities
laws, and the Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions. The foregoing
provisions of this Section 8(b) shall not be effective if and to the extent
that the shares of Stock delivered under the Plan are covered by an effective
and current registration statement under the Securities Act of 1933, or if and
so long as the Committee determines that application of such provisions is not
required or desirable. In making such determination, the committee may rely
upon an opinion of counsel for the Company.
() Except for the restrictions on Restricted Stock under Section 7,
each Key Employee who receives Stock in settlement of an Award of Stock, shall
have all of the rights of a shareholder with respect to such shares, including
the right to vote the shares and receive dividends and other distributions. No
Key Employee awarded an Option, a Right or Performance Share shall have any
right as a shareholder with respect to any shares covered by his or her Option,
Right or Performance Share prior to the date of issuance to him or her of a
certificate or certificates for such shares.
. BENEFICIARY
() Each Key Employee shall file with the Company a written
designation of one or more persons as the Beneficiary who shall be entitled to
receive the Award, if any, payable under the Plan upon his or her death. A Key
Employee may from time-to-time revoke or change his or her Beneficiary
designation without the consent of any prior Beneficiary by filing a new
designation with the Company. The last such designation received by the
Company shall be controlling; provided, however, that no designation, or change
or revocation thereof, shall be effective unless received by the Company prior
to the Key Employee's death, and in no event shall it be effective as of a date
prior to such receipt.
() If no such Beneficiary designation is in effect at the time of a
Key Employee's death, or if no designated Beneficiary survives the Key Employee
or if such designation conflicts with law, the Key Employee's estate shall be
entitled to receive the Award, if any, payable under the Plan upon his or her
death. If the Committee is in doubt as to the right of any person to receive
such Award, the Company may retain such Award, without liability for any
interest thereon, until the Committee determines the rights thereto, or the
Company may pay such Award into any court of appropriate jurisdiction and such
payment shall be a complete discharge of the liability of the Company therefor.
. ADMINISTRATION OF THE PLAN
() Each member of the Committee shall be a "disinterested person"
within the meaning of Rule 16b-3 under the Act or successor rule or regulation.
No member of the Committee shall be, or shall have been, eligible to receive an
Award under the Plan or any other plan maintained by any Participating Company
to acquire stock, stock options, stock appreciation rights, performance shares
or restricted stock of a Participating Company at any time within the one year
immediately preceding the member's appointment to the Committee.
() All decisions, determinations or actions of the Committee made or
taken pursuant to grants of authority under the Plan shall be made or taken in
the sole discretion of the Committee and shall be final, conclusive and binding
on all persons for all purposes.
() The Committee shall have full power, discretion and authority to
interpret, construe and administer the Plan and any part thereof, and its
interpretations and constructions thereof and actions taken thereunder shall
be, except as otherwise determined by the Board, final, conclusive and binding
on all persons for all purposes.
() The Committee's decisions and determinations under the Plan need
not be uniform and may be made selectively among Key Employees, whether or not
such Key Employees are similarly situated.
() The Committee may, in its sole discretion, delegate such of its
powers as it deems appropriate.
. AMENDMENT, EXTENSION OR TERMINATION
The Board may, at any time, amend or terminate the Plan and,
specifically, may make such modifications to the Plan as it deems necessary to
avoid the application of Section 162(m) of the Code and the Treasury
regulations issued thereunder. However, no amendment shall, without approval
by a majority of the Company's stockholders, (a) alter the group of persons
eligible to participate in the Plan, (b) except as provided in Section 12
increase the maximum number of shares of Stock which are available for Awards
under the Plan, (c) materially increase the benefits available to persons under
the Plan, or (d) extend the period during which awards may be granted beyond
March 27, 2005. No amendment or termination shall impair the rights of any
person with respect to a prior Award.
. ADJUSTMENTS IN EVENT OF CHANGE IN COMMON STOCK
In the event of any recapitalization, reclassification, split-up or
consolidation of shares of Stock or, stock dividend, merger or consolidation of
the Company or sale by the Company of all or a portion of its assets, the
Committee may make such adjustments in the Stock subject to Awards, including
Stock subject to purchase by an Option, or the terms, conditions or
restrictions on Stock or Awards, including the price payable upon the exercise
of such Option, as the Committee deems equitable.
. MISCELLANEOUS
() Nothing in this Plan or any Award granted hereunder shall confer
upon any employee any right to continue in the employ of any Participating
Company or interfere in any way with the right of any Participating Company to
terminate his or her employment at any time. No Award payable under the Plan
shall be deemed salary or compensation for the purpose of computing benefits
under any employee benefit plan or other arrangement of any Participating
Company for the benefit of its employees unless the Company shall determine
otherwise. No Key Employee shall have any claim to an Award until it is
actually granted under the Plan. To the extent that any person acquires a
right to receive payments from the Company under this Plan, such right shall be
no greater than the right of an unsecured general creditor of the Company. All
payments to be made hereunder shall be paid from the general funds of the
Company and no special or separate fund shall be established and no segregation
of assets shall be made to assure payment of such amounts except as provided in
Section 7(e) with respect Restricted Stock.
() The Committee may cause to be made, as a condition precedent to
the payment of any Award, or otherwise, appropriate arrangements with the Key
Employee or his or her Beneficiary, for the withholding of any federal, state,
local or foreign taxes.
() The Plan and the grant of Awards shall be subject to all
applicable federal and state laws, rules, and regulations and to such approvals
by any government or regulatory agency as may be required.
() The terms of the Plan shall be binding upon the Company and its
successors and assigns.
() Captions preceding the sections hereof are inserted solely as a
matter of convenience and in no way define or limit the scope or intent of any
provision hereof.
. EFFECTIVE DATE, TERM OF PLAN AND SHAREHOLDER APPROVAL
The effective date of the Plan shall be March 28, 1995; provided that the
Plan shall be approved by the Company's shareholders within twelve months
before or after such date. No Award shall be granted under this Plan after the
Plan's termination date. The Plan's termination date shall be March 27, 2005.
The Plan will continue in effect for existing Awards as long as any such Award
is outstanding.
<PAGE>
{EXHIBIT 10.17
CONSULTING AND EMPLOYMENT AGREEMENT
CONSULTING AND EMPLOYMENT AGREEMENT (this "Agreement") made as of the 3rd
day of January, 1996 by and between JOHN PRISCO residing at the address
indicated following his signature below (hereinafter referred to as
"Executive") and CAI WIRELESS SYSTEMS, INC., a Connecticut corporation having
its principal place of business at 18 Corporate Woods Boulevard, Third Floor,
Albany, New York (hereinafter referred to as the "Company").
. CAPACITY/TERMS. () CONSULTING PERIOD. Subject to the provisions
of this Agreement the Company hereby engages Executive and Executive hereby
accepts engagement by the Company as its Chief Operations Officer subject to
the provisions of this Agreement during the period commencing as of the date
hereof and ending on March 1, 1996 (the "Consulting Period"). During the
Consulting Period, Executive shall be deemed an employee of the Company.
() EMPLOYMENT TERM. Upon termination of the Consulting Period
through January 3, 1998 (the "Employment Term") the Company shall employ
Executive and Executive shall work for the Company as its President and Chief
Operating Officer on the terms and conditions set forth in this Agreement. The
Employment Term shall be automatically renewed annually thereafter for
successive one year periods unless either party gives notice to the other of
its intention not to renew this Agreement within sixty (60) days of the
expiration of the initial Employment Term or applicable renewal term. At the
commencement of the Employment Term, the Company shall recommend, and shall
propose any action necessary to effect, Executive's addition to the Board of
Directors of the Company, subject to applicable law and in accordance with the
Company's Certificate of Incorporation and By-Laws.
() TERM. Unless otherwise specified, the terms of this Agreement
shall be applicable to Executive during both the Consulting Period and the
Employment Term, which together with any renewal term are herein referred to
together as the "Term".
. COMPENSATION/BENEFITS. () SIGNING BONUS. In consideration of
Executive entering into this Agreement, upon its execution and delivery, the
Company shall pay to Executive the sum of $40,000.
() BASE SALARY. During the Term, the Company agrees to pay
Executive on the basis of an annualized base salary of $200,000 ("Base
Salary"). Such Base Salary shall be reviewed no less frequently than annually
during the Term and may be increased but not decreased by the Company's Board
of Directors. Such Base Salary shall be payable in accordance with the
Company's normal business practices or in such other amounts and at such other
times as the parties may mutually agree.
() STOCK OPTIONS. Executive shall be granted incentive stock
options (as defined in Section 422 of the Internal Revenue Code of 1986) to
purchase up to 200,000 shares of Company common stock pursuant an option
agreement substantially in the form attached hereto (the "Option Agreement").
Executive will be given at least 10 business days notice of any intent to
terminate him for Cause, so that he can exercise his options prior to such
termination.
() BONUSES. During the Employment Term, the Company shall pay to
Executive an annual bonus of up to 35% of the Base Salary paid to Executive
during the portion of the Term to which said bonus applies, based upon the
achievement of performance targets established within ninety (90) days of the
date hereof by the Compensation Committee of the Company's Board of Directors,
in consultation with Executive and Chief Executive Officer. The targets will
be revised annually, within (90) ninety days of the beginning of each fiscal
year or at such other times as may be mutually agreed by the parties. Except
for the initial Employment Term, any bonus will normally be payable within 90
days of the close of each fiscal year during the Term such payment to be made
with respect to a fiscal year during the Term even after the Term has expired.
Bonuses for a portion of a fiscal year shall be paid to the extent earned (as
defined in Paragraph 4(D)).
() BENEFITS/VACATION. During the Term, the Company shall provide
Executive with such other benefits, including medical plans, as are made
generally available to employees of the Company from time to time and with such
additional benefits as are made available to executive officers of the Company
at any time during the Term. Executive shall be entitled to up to five weeks
vacation during each year of the Employment Term, provided that the time and
duration of vacation periods shall not interfere with the operations of the
Company. For purposes of vacation accrual, Executive shall be entitled to
credit for the term of service completed during the Consulting Period. Accrued
vacation may be carried over or "sold back" to the Company to the extent
permitted by, and in accordance with, the policy set forth in the Employee
Manual of the Company.
() LIFE INSURANCE. Subject to the Executive's submitting to any
required physical examinations and provided such policy can be obtained at
customary premiums, the Company shall purchase a term insurance policy with the
face amount of $200,000 on the life of Executive and shall permit Executive to
designate the beneficiary thereof.
. SERVICES. During the Term, Executive shall devote substantially
all his working time, attention and energies to the business of the Company and
its Affiliates (as defined below) under the general direction of the Company's
Board of Directors, acting through its Chairman and Chief Executive Officer.
Executive agrees to serve, for no additional compensation, as an officer or
director of any direct or indirect wholly-owned subsidiary of the Company;
provided, that the Executive is entitled to indemnification by the Company, to
the full extent permitted by law, with respect to Executive's service in such
capacity. The Chief Operating Officer shall be in charge of all day-to-day
operations of the Company and the second highest ranking officer of the
Company, reporting solely to the Chairman and Chief Executive Officer, who is
the highest ranking officer of the Company. Without limiting the generality of
the foregoing, during the Term, Executive shall not, without the prior written
consent of the Company render services, directly or indirectly, for
compensation or otherwise, to or for any other person or firm in competition
with the business of the Company in any market served by the Company or its
Affiliates without the written consent of the Board of Directors; provided,
however, that during the Consulting Period, Executive may remain an employee of
Bell Atlantic Corporation, or any Affiliate thereof (collectively, "BAC") until
the Closing Date; provided that, notwithstanding anything contained in this
Agreement to the contrary, the Company shall not be obligated to pay any
amounts due, or provide any benefits, hereunder to Executive to the extent
Executive is receiving the same, or an equivalent value therefor, from BAC. As
used herein, the term "Affiliate" shall mean any corporation of which the
Company directly or indirectly owns at least 51% of the stock and is entitled
to elect a majority of the directors. For purposes of this Agreement, CS
Wireless Systems, Inc. shall be deemed an Affiliate of the Company for so long
as the Company owns not less than 25% of the equity of CS Wireless Systems,
Inc. and has the right to actively participate in its management. During the
Term, the principal location of Executive's services shall be Albany, New York,
except as otherwise mutually agreed.
. EARLY TERMINATION. () GENERAL. Executive's employment hereunder
shall be terminated and the Company's obligation to employ Executive hereunder
shall cease, including the obligation to pay compensation for any period after
the date of termination (except as provided in subparagraph 4(D)):
(i) immediately upon notice, in the sole discretion of the Company, other than
for Cause, (ii) without the necessity of notice, upon the death of Executive,
or (iii) upon written notice of a finding that Executive has (a) acted with
gross negligence or willful misconduct in connection with the performance of
his material duties under Paragraphs 1, 3, 5 and 8, with respect to acts or
omissions prior to termination, and has not corrected such action within 15
days of receipt of written notice thereof, (b) defaulted in the performance of
his material duties under Paragraphs 1, 3, 5 and 8, with respect to acts or
omissions prior to termination, and has not corrected such action within 15
days of receipt of written notice thereof, (c) committed a material act of
common law fraud against the Company, or (d) knowingly and in bad faith acted
against the best interests of the Company in a manner that has a material
adverse affect on the financial condition of the Company (any such finding is
referred to herein as "Cause"), provided, however, that for the purposes of
this Agreement, in the event that Jared E. Abbruzzese is not the Chief
Executive Officer of the Company for any reason, the refusal or unwillingness
of the Executive to relocate to Albany, New York, or elsewhere shall not
constitute "Cause," and further provided that from and after an event described
in Exhibit A to the Option Agreement only events under (iii)(a) above shall
constitute "Cause." Upon any termination of Executive's employment, the Term
shall expire. Any a breach by the Company of its material obligations under
Paragraphs 1(B), 2(A)-(D), 3, 4(D), 4(E), 6(B) and 6(C), which are not
corrected within 15 days of receipt of written notice thereof from Executive,
shall be deemed a termination by the Company of Executive's employment other
than for Cause.
() DISABILITY. If Executive shall become unable to efficiently
perform the essential functions of his job, even with reasonable accommodation,
as a result of a disability or illness, as such terms are defined by the
Americans with Disabilities Act, he shall be entitled to his regular
compensation until the total period of disability or illness shall exceed:
(i) 90 days during any calendar year in the Term hereunder (whether or not
continuous and whether or not the same disability or illness); or (ii) 60
continuous days during any calendar year in the Term hereunder, provided, that
Executive is eligible for and is receiving payments under any disability plan
of the Company. This Agreement may thereafter be terminated by the Company and
the Company's obligations hereunder shall cease, including the obligation to
pay compensation for any period after the date of termination. Any amounts
payable as compensation during the period of disability or illness shall be
reduced by any amounts paid during such period under any disability plan or
similar insurance wholly paid for by the Company.
() EXECUTIVE'S RIGHT TO TERMINATE. Executive may, at any time
during the Term, resign.
() AMOUNTS PAYABLE TO EXECUTIVE UPON TERMINATION. Upon any
termination of Executive's employment hereunder for any reason, the Company
shall pay to Executive or his executor or legal representative, as the case may
be, any unpaid portion of his Base Salary up to the date of termination, any
unpaid bonus for any fiscal year completed prior to date of termination of
Executive's employment, the bonus for the fiscal year in which Executive's
employment is terminated to the extent earned (as defined below), any expenses
incurred in accordance with subparagraph 6(A) and not reimbursed prior to the
date of termination, and benefits up to the date of Executive's termination of
employment. In addition, in the event of Executive's termination under
subparagraph 4(A) other than for Cause (as defined therein) or the death of
Executive, the Company shall (i) pay to executive severance in an amount (the
"Severance Amount") equal to the greater of (x) his then Base Salary under
Paragraph 3, payable in twelve equal monthly installments or (y) the total Base
Salary that would have been payable for the balance of the Term (without giving
effect to any early termination), payable in equal such monthly installments,
and (ii) continue the benefits provided in Paragraph 7 and maintain, or obtain
replacement coverage for, all disability insurance, life insurance (including
any insurance provided under subparagraph 2(F)), group insurance, medical and
dental plans to which Executive and his spouse were receiving as of the date of
the termination of his employment under subparagraph 2(E) and containing
comparable coverages and benefits, for the period during which Executive is
entitled to receive the Severance Amount ("Severance Period") as described
above; provided, however, the Company shall not be obligated to provide such
benefits under clause (ii) above to the extent Executive is receiving the same,
or an equivalent value therefor, from a subsequent employer. With respect to
the fiscal year in which the Term expires or Executive's employment is
terminated, and provided that the performance targets for such fiscal year
established pursuant to subparagraph 2(D) are met as determined with respect to
the executive officers of the Company by the Compensation Committee of the
Board of Directors of the Company, the portion of such bonus which is deemed
"earned" for such fiscal year, shall be calculated as follows: (i) determine
the bonus which would have been paid to Executive for the full fiscal year if
the financial results for the portion of the fiscal year prior to termination
were pro rated to the entire fiscal year; and (ii) multiply the amounts of such
bonus as calculated under clause (I) by the fraction of the full fiscal year
prior to such termination (determined by dividing the number of days during
such fiscal year prior to termination by 365 days). This subparagraph 4(D)
shall survive the termination of this Agreement.
() NO MITIGATION; LEGAL FEES. In the event of the termination of
Executive's employment for any reason, Executive shall have no duty to mitigate
damages, and any earnings of Executive shall not reduce the payments otherwise
due to Executive hereunder or otherwise, except with respect to benefits as
provided for in subparagraph 4(D)(II). Executive shall be entitled to legal
fees and costs if Executive institutes any legal action to enforce the
Company's obligations hereunder provided that he is the prevailing party. This
subparagraph 4(E) shall survive the termination of this Agreement.
. EMPLOYER'S AUTHORITY. Executive agrees to observe and comply with
the rules and regulations of the Company as adopted by the Company's Board of
Directors respecting the performance of his duties and to carry out and perform
orders, directions and policies communicated to him from time to time by the
Company's Chairman and Chief Executive Officer provided such rules,
regulations, orders, directions and policies do not violate any applicable law,
rule or regulation or require the commission of a tort or crime.
. EXPENSES. () GENERAL. During the Term, the Company shall
reimburse Executive for the reasonable business expenses incurred by Executive
in the course of performing his duties for the Company hereunder approved in
advance or otherwise in accordance with the procedures then in place for such
reimbursement.
() APARTMENT/COMMUTING. The Company shall arrange, or otherwise
reimburse Executive for, accommodations approved by the Company's Chairman and
Chief Executive Officer and weekly round trip airline tickets to and from his
current residence and Albany, New York during the Term; provided that in the
event Executive shall relocate pursuant to the terms of subparagraph 6(C)
below, the obligations of the Company under this subparagraph 6(B) shall cease
upon Executive's completion of such relocation. In the event Executive is
required to pay federal or state taxes in respect of any accommodation or
travel expenses hereunder, Executive shall be grossed up for the amount of such
taxes and the receipt of the gross up payment.
() RELOCATION. By March 1, 1996, the Company's senior management,
including Executive, shall evaluate the location of the Company's operations
headquarters to determine if more than one headquarters location is appropriate
and financially viable. If as a result of such evaluation, the Company's Board
of Directors determines that the Executive should relocate to Albany, New York,
or elsewhere, then Executive shall relocate to the greater Albany, New York
area, or such other designated location, as soon as practicable after the
commencement of the Employment Term. Executive shall be reimbursed for
expenses reasonably incurred related to sale of his existing house and related
relocation expenses as follows: (i) cost of packing and moving; (ii) sales
commissions on the sale of his current home equal to local custom and
reasonable closing and financing costs of the sale of his current home and the
purchase of a home in New York; (iii) seller's and buyer's customary portion of
transfer taxes, if any; (iv) payment of interest portion of mortgage payment on
his current residence for up to three months during any period such residence
is not sold following the acquisition of a residence in New York, or such other
location, (subject to extension in the discretion of the Company's Board of
Directors); and (v) an amount equal to any federal and state capital gains
taxes currently recognized as a result of the purchase of a home in New York,
or such other location, for a sales price that is less than the sales price of
his current home. Amounts payable under the foregoing clauses (i) through (v)
of this subparagraph 6(C) shall be grossed up for any federal and state taxes
attributable to the receipt of such payments and attributable to the receipt of
gross up payments under this clause. The Company may reimburse Executive for
other relocation expenses incurred by Executive during his relocation to New
York, with the prior written approval of the Company's Board of Directors.
Notwithstanding the foregoing, the maximum amount payable to Executive in
respect of this subparagraph 6(C), including the gross up for taxes, shall not
exceed $85,000 in the aggregate.
. AUTOMOBILE ALLOWANCE. During the Term, Executive shall be entitled
to an automobile allowance of $750.00 per month, payable monthly in arrears.
. NON-DISCLOSURE/NON-COMPETITION. () Executive will execute the
Nondisclosure Agreement of the Company, a copy of which is attached as Annex A
hereto and made a part hereof. Said agreement shall survive any termination of
the Term hereunder.
() Because Executive's services to the Company are special and
because Executive has access to the Company's confidential information,
Executive covenants and agrees that if (i)(x) Executive's employment is
terminated for Cause or (y) Executive voluntarily terminates his employment
relationship hereunder with the Company or Executive elects not to renew his
employment with the Company following the expiration of the Term, for a period
of twelve (12) months following the termination of this Agreement, or
(ii) Executive's employment is terminated and Executive is receiving the
Severance Amount, for a period not to exceed twelve (12) months during the
Severance Period, whichever is applicable, he will not, directly or indirectly,
either on his own behalf or on behalf of any person, partnership, corporation,
limited liability company or otherwise, (i) engage in any business or
undertaking directly competitive with the wireless cable television, cable
television, subscription television (excluding video dialtone), direct
broadcast satellite or direct-to-home businesses (each a "Related Business")
being carried on by the Company, in any market serviced by the Company or any
Affiliate thereof at the time of Executive's termination of employment, or in
any "Service Area" (as defined in the Business Relationship Agreement
referenced below) in which the Company or any Affiliate thereof, could be
required to provide transport services for affiliates of BAC or NYNEX
Corporation ("NYNEX") (any such BAC or NYNEX affiliates are collectively
referred to as "BANX"), pursuant to the Business Relationship Agreement between
the Company and BANX as in effect on the date of termination, or (ii) be
employed by or provide consulting services to or be an investor, partner,
member or shareholder in, any entity or other person in Related Business within
25 miles of any city in which the Company or any Affiliate thereof, does
business at time of execution or in which the Company or any Affiliate thereof,
is, at the time of Executive's termination of employment, providing transport
services for BANX or has rights to broadcast or transmit television programing
or in which the Company or any Affiliate thereof, has a transmission license at
the time of termination, without the prior written consent of a majority of the
independent members of the Board of Directors. The parties agree that the time
period and geographical area of noncompetition specified above are reasonable
and necessary in light of the transactions entered into this Agreement. If,
however, it shall be determined at any time by a court of competent
jurisdiction that either the time period restriction or the geographical area
restriction, or both, are invalid or unenforceable, the parties agree that any
such restriction determined to be invalid or unenforceable shall be deemed so
amended as to make such restriction valid and enforceable in the determination
of said court, and such restriction, as so amended, shall be enforceable
between the parties to the same extent as if such amendment had been made as of
the date of this Agreement. This subparagraph 8(B) shall survive the
termination of this Agreement and shall not apply to investments constituting
not more than 1% of the common equity of a publicly traded company.
. NOTICES. Any notice permitted or required hereunder shall be
deemed sufficient when hand-delivered or mailed by certified mail, postage
prepaid, and addressed if to the Company at the address indicated above and if
to the Executive at the address indicated below (or to such other address as
may be provided by notice) provided that if a notice is mailed, a copy of such
notice is sent the same day to the facsimile number set forth below for the
addressee.
. MISCELLANEOUS. This Agreement (i) constitutes the entire agreement
between the parties concerning the subjects hereof and supersedes any and all
prior agreements or understandings, (ii) may not be assigned by Executive
without the prior written consent of the Company, and (iii) may not be assigned
by the Company except in the event of a sale of substantially all of the assets
of the Company to a third party who assumes in writing the Company's
obligations (naming Executive as a third party beneficiary of the assumption)
and furnishes a copy of such assumption of the Executive hereunder (and
provided such assignment shall not release the Company of its financial
obligations hereunder in case of a default by the assignee) and (iv), subject
to clauses (ii) and (iii) hereof, shall be binding upon, and inure to the
benefit of, the Executive, his heirs and personal representatives, and the
Company and its successors and assigns. Headings herein are for convenience of
reference only and shall not define, limit or interpret the contents hereof.
. AMENDMENT. This Agreement may be amended, modified or supplemented
by the mutual consent of the parties in writing, but no oral amendment,
modification or supplement shall be effective.
. SPECIFIC ENFORCEMENT. The parties acknowledge that the Company
would be irreparably damaged and there would be no adequate remedy at law for
the Executive's breach of Paragraph 8 of this Agreement, and accordingly, the
terms thereof shall be specifically enforced. Executive hereby consents to the
entry of any temporary restraining order or preliminary or ex parte injunction,
in addition to any other remedies available at law or in equity, to enforce the
provisions hereof.
. SEVERABILITY. The provisions of this Agreement are severable. The
invalidity of any provision shall not affect the validity of any other
provision.
. GOVERNING LAW. This Agreement shall be construed and regulated in
all respects under the laws of the State of New York.
. LEGAL FEES AND COSTS. The Company shall pay Executive's reasonable
legal fees and costs in negotiating this Agreement up to a maximum of $10,000
against submission by Executive of itemized invoices. This Paragraph 15 shall
survive the termination of this Agreement.
<PAGE>
}
{
IN WITNESS WHEREOF, this Agreement is entered into as of the date and
year first above written.
CAI WIRELESS SYSTEMS, INC.
By /S/ JARED E. ABBRUZZESE
Its Chairman and Chief Executive
Officer
EXECUTIVE:
/S/ JOHN PRISCO
Name: John Prisco
Address:
<PAGE>
}
{ Annex A
NONDISCLOSURE AGREEMENT
AGREEMENT made as of the 3rd day of January, 1996 by and between the
undersigned individual residing at the address indicated following his
signature below (hereinafter referred to as "Executive") and CAI WIRELESS
SYSTEMS, INC., a Connecticut corporation, having its principal place of
business in Albany, New York (hereinafter referred to as the "Company").
WHEREAS, Executive is being employed by the Company in a capacity wherein
Executive will come into possession of material of a confidential, sensitive or
proprietary nature concerning the business, plans and trade secrets of the
Company and its Affiliates (as defined below) and of third parties; and
WHEREAS, the continued confidential treatment of such information is
vital to the success of the Company's business,
NOW THEREFORE, the parties agree as follows:
. Executive acknowledges that his work as an employee of the Company
will bring him into close contact with the Confidential Information (as defined
below) of the Company and of third parties. Executive acknowledges that such
Confidential Information is reposed in him in trust.
. Executive hereby agrees that he shall, both during and after his
employment, maintain such Confidential Information in confidence and neither
disclose to others (nor cause to be disclosed) nor use personally (nor cause to
be used) such Confidential Information without the prior written permission of
the Company. Executive will also take reasonable precautions to prevent the
inadvertent exposure of Confidential Information to unauthorized persons or
entities. The restrictions contained in this Agreement shall expire four years
after termination of Executive's employment with the Company, regardless of the
reason for the termination.
. Executive acknowledges that he may, during his employment, add to
the Company's Confidential Information in accordance with Paragraph 8 below and
he agrees that any such additions shall fall within the strictures of this
Agreement in accordance with Paragraph 8 below.
. Executive agrees that upon any termination of his employment with
the Company or any Affiliate thereof, or upon request if sooner, he shall
forthwith return to the Company all reports, correspondence, notes, financial
statements, computer printouts and other documents and recorded material of
every nature (including all copies thereof) which may be in his possession or
under his control dealing with Confidential Information.
. Executive acknowledges that the covenants in this Agreement have
existed since the commencement of his engagement with the Company. These
covenants are expressions of his duty as an employee not to use the
Confidential Information to the detriment of the Company. In addition,
Executive acknowledges that he shall benefit from entry into this Agreement as
the Company shall be willing to continue to provide access to Confidential
Information to Executive.
. Executive acknowledges that the Company would be irreparably
damaged and there would be no adequate remedy at law for Executive's breach of
this Agreement, and accordingly, the terms of this Agreement shall be
specifically enforced. Executive hereby consents to the entry of any temporary
restraining order or preliminary or ex parte injunction, in addition to any
other remedies available at law or in equity, to enforce the provisions hereof.
. This Agreement is not an agreement of employment and nothing herein
shall be construed to obligate the Company to employ Executive for any definite
duration or upon any specific terms. It is understood that the Company has
agreed to employ Executive pursuant to a separate Consulting and Employment
Agreement with the Company of even date herewith.
. As used herein, "Confidential Information" shall mean all
confidential information and trade secrets of the Company or any of its
Affiliates (as such term is defined in the aforesaid Consulting and Employment
Agreement), whether now existing or hereafter acquired or developed, including'
without limitation financial statements, business plans, working methods,
investments, materials, processes, programs, designs, drawings, names of and
relationships with current or potential vendors and lenders and other third
parties, contractual arrangements, profit formulas, experimental
investigations, studies, current or potential customer names and requirements,
current or potential professional associations or contacts, information
submitted to Employer or its Affiliates by third parties on a confidential
basis and similar other non-public or otherwise confidential, sensitive or
proprietary information. "Confidential Information" shall not include (i)
information that has become generally known within the wireless cable industry
without breach of any obligation of confidentiality of Executive or any third
party, (ii) information known to Executive prior to December 31, 1995, (iii)
information obtained by Executive from third persons without breach of any
obligations owed to the Company or any of its Affiliates or (iv) information
provided by the Company or any of its Affiliates to third persons without
confidentiality restrictions.
. This Agreement shall survive the termination of the employment of
Executive and shall not be amended except by a writing signed by the parties
hereto. This Agreement shall be binding upon the Executive and his heirs,
legal representatives, successors and assigns.
. This Agreement shall be governed and construed in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
CAI WIRELESS SYSTEMS, INC.
By
Its
EXECUTIVE:
Name: John Prisco
Address:
<PAGE>
EXHIBIT 10.18
TERMINATION AGREEMENT
TERMINATION AGREEMENT (this "Agreement") made as of the 23rd day of
February, 1996 by and between ALAN SONNENBERG, residing at the address
indicated following his signature below (hereinafter referred to as "Employee")
and CAI WIRELESS SYSTEMS, INC., a Connecticut corporation having its principle
place of business at 18 Corporate Woods Boulevard, Third Floor, Albany, New
York 11221 (hereinafter referred to as the "Company").
W I T N E S S E T H:
WHEREAS, Employee and the Company are parties to that certain Employment
Agreement dated as of September 29, 1995 (the "Employment Agreement"); and
WHEREAS, the Company has requested that Employee serve as an officer of
CS Wireless Systems, Inc., and Employee is willing to serve in such capacity
and terminate the Employment Agreement on the terms and conditions contained
herein.
NOW THEREFORE, in consideration of their mutual promises, and for other
good and valuable consideration, the parties, intending to be legally bound,
agree as follows:
. TERMINATION OF EMPLOYMENT. The Employment Agreement is hereby
terminated, effective immediately, and shall be of no further force and effect.
. STOCK OPTIONS. Employee hereby surrenders to the Company any
and all Stock Options (as defined in the Employment Agreement), whether vested
or unvested, under the Employment Agreement.
. NON-COMPETITION. (a) Notwithstanding anything to the contrary
contained in the Employment Agreement, the non-competition covenants contained
in subparagraph 9(b) of the Employment Agreement shall not survive the
termination of the Employment Agreement and in consideration therefore,
Employee agrees to be bound by the covenants contained in subparagraph (b)
below.
(b) Because Employee's services to the Company are special and
because Employee has access to the Company's confidential information, Employee
covenants and agrees that from the date hereof until such time as Employee is
no longer serving the Company in the capacity of either a director or
consultant, he will not, directly or indirectly, either on his own behalf or on
behalf of any person, partnership, corporation or otherwise, (i) engage in any
business or undertaking directly competitive with the wireless cable
television, direct broadcast satellite, direct-to-home or non-wired video
programming businesses (the "Related Businesses") being carried on by the
Company in any market serviced by the Company, or in any market in which the
Company provides any transport services for Bell Atlantic Corporation, or any
affiliate thereof (collectively, "BAC"), or NYNEX, Inc., or any affiliate
thereof (collectively, "NYNEX"), (ii) be employed by or provide consulting
services to or be an investor, limited partner or shareholder (other than one
owning less than a 5% equity interest) in, any entity or other person in any
Related Business within 25 miles of any city in which the Company does business
at time of execution or any other city or community in which the Company is
providing transport services for BAC or NYNEX or has rights to broadcast or
transmit television programming or in which the Company has a transmission
license at the time of termination, without the prior written consent of the
Board of Directors. The parties agree that the time period and geographical
area of noncompetition specified above are reasonable and necessary in light of
the transactions entered into in this Agreement. If, however, it shall be
determined at any time by a court of competent jurisdiction that either the
time period restriction or the geographical area restriction, or both, are
invalid or unenforceable, the parties agree that any such restriction valid and
enforceable in the determination of said court, and such restriction, as so
amended, shall be enforceable between the parties to the same extent as if such
amendment had been made as of the date of this Agreement.
. NON-DISCLOSURE. The Non-Disclosure Agreement dated as of
September 29, 1995 (the "Non-Disclosure Agreement") between the parties shall
remain in full force and effect.
. NOTICES. Any notice permitted or required hereunder shall be
deemed sufficient when hand-delivered or mailed by certified mail, postage
prepaid, and addressed if to the Company at the address indicated above and if
to Employee at the address indicated below (or to such other address as may be
provided by notice).
. MISCELLANEOUS. This Agreement (i) together with the Non-
Disclosure Agreement, constitutes the entire agreement between the parties
concerning the subjects hereof and supersedes any and all prior agreements or
understandings, (ii) may not be assigned by Employee without the prior written
consent of the Company and (iii) may be assigned by the Company and shall be
binding upon, and inure to the benefit of, the Company's successors and
assigns. Headings herein are for convenience of reference only and shall not
define, limit or interpret the contents hereof
. AMENDMENT. This Agreement may be amended, modified or
supplemented by the mutual consent of the parties in writing, but no oral
amendment, modification or supplement shall be effective.
. SPECIFIC PERFORMANCE. The parties acknowledge that the Company
would be irreparably damaged and there would be no adequate remedy at law for
Employee's breach of PARAGRAPH 3 of this Agreement, and accordingly, the terms
thereof shall be specifically enforced. Employee hereby consents to the entry
of any temporary restraining order or preliminary or ex parte injunction, in
addition to any other remedies available at law or in equity, to enforce the
provisions hereof.
. AFFILIATES. As used herein, the term "Affiliate" shall mean any
individual or entity controlling, controlled by or under common control with
the Company, now or in the future, including without limitation, partnerships
in which the Company or any Affiliate may invest as a limited or general
partner and limited liability companies in which the Company or any Affiliate
may become a member.
. SEVERABILITY. The provisions of this Agreement are severable.
The invalidity of any provision shall not affect the validity of any other
provision.
. GOVERNING LAW. This Agreement shall be construed and
regulated in all respects under the laws of the State of New York.
IN WITNESS WHEREOF, this Agreement is entered into as of the date and
year first above written.
CAI WIRELESS SYSTEMS, INC.
By /S/ JARED E. ABBRUZZESE
Name: Jared E. Abbruzzese
Title: Chairman and Chief Executive
Officer
EMPLOYEE:
/S/ ALAN SONNENBERG
Name: Alan Sonnenberg
Address:
<PAGE>
{EXHIBIT 10.19
CONSULTING AGREEMENT
CONSULTING AGREEMENT (this "Agreement") made as of the 23RD day of
February, 1996 by and between ALAN SONNENBERG, residing at the address
indicated following his signature below (hereinafter referred to as the
"Consultant"), and CAI WIRELESS SYSTEMS, INC., a Connecticut corporation having
its principal place of business at 18 Corporate Woods Boulevard, Third Floor,
Albany, New York (hereinafter referred to as the "Company").
. ENGAGEMENT AND TERM. The Company hereby engages the Consultant and
the Consultant hereby accepts engagement by the Company subject to the
provisions of this Agreement for a term commencing on the date hereof and
ending on the thirty-month anniversary of this Agreement (the "Consulting
Period") at which time this Agreement, if not earlier terminated as provided
below, shall terminate.
. DUTIES OF THE CONSULTANT. The Consultant is hereby retained by the
Company in the capacity of Consultant to consult and advise, by telephone or in
person, with the officers, directors, employees and other representatives of
the Company with respect to the Company's business and operations. Consultant
shall at all times faithfully, industriously and to the best of his skill,
ability, experience and talent, perform all of those duties of a responsible
nature and not inconsistent with this position as Consultant that may be
required of Consultant pursuant to the express and implied terms hereof.
. INDEPENDENT CONTRACTOR.
() Consultant shall at all times be deemed an independent
contractor and not an employee or agent of the Company. Consultant shall have
no power or authority by virtue of his capacity as Consultant to act on behalf
or in the name of the Company or to bind the Company.
() Consultant shall be wholly responsible for the payment of all
federal, state and local income, social security, sales and other taxes with
respect to Consultant's compensation and services under this Agreement.
. COMPENSATION. For his services during the Consulting Period, the
Company shall pay Consultant an annual fee of $75,000 less any fees paid by the
Company to the Consultant for the Consultant's services as a director of the
Company (the "Consulting Fee"). The Consulting Fee shall be payable in
accordance with the Company's normal business practices or in such other
amounts and at such other times as the parties may mutually agree.
. TERMINATION.
() UPON NOTICE. The Consultant and the Company may terminate
this Agreement at any time upon notice one to the other.
() PAYMENT IN CERTAIN TERMINATIONS. Upon the voluntary termination
of this Agreement by Consultant, or upon the termination of this Agreement by
the Company following a termination of the Consultant as an employee of CS
Wireless Systems, Inc. ("CS") for "Cause" under Consultant's Employment
Agreement with CS dated as of the date hereof, the Company's obligation to pay
the Consulting Fee for any period after the date of termination shall cease;
provided that, in the event of a voluntary termination by Consultant of his
employment with CS under circumstances where he continues to receive his Base
Salary, Consultant shall continue to be entitled to receive the Consulting Fee
hereunder for the same period not to exceed six months.
. EXPENSES. During the Consulting Period, the Company shall
reimburse Consultant for the reasonable business expenses approved in advance
by the Company incurred by Consultant in the course of performing his services
for the Company hereunder in accordance with the procedures then in place for
such reimbursement.
. NOTICES. Any notice permitted or required hereunder shall be
deemed sufficient when hand-delivered or mailed by certified mail, postage
prepaid, and addressed if to the Company at the address indicated above and if
to the Consultant at the address indicated below (or to such other address as
may be provided by notice).
. MISCELLANEOUS. This Agreement (i) together with the Nondisclosure
Agreement dated as of September 29, 1995 between the parties, constitutes the
entire agreement between the parties concerning the subjects hereof and
supersedes any and all prior agreements or understandings, including any prior
or existing employment agreement with the Company and such employment agreement
shall be of no further force and effect, (ii) may not be assigned by Consultant
without the prior written consent of the Company, and (iii) may be assigned by
the Company and shall be binding upon, and inure to the benefit of, the
Company's successors and assigns. Headings herein are for convenience of
reference only and shall not define, limit or interpret the contents hereof.
. AMENDMENT. This Agreement may be amended, modified or supplemented
by the mutual consent of the parties in writing, but no oral amendment,
modification or supplement shall be effective.
. SEVERABILITY. The provisions of this Agreement are severable. The
invalidity of any provision shall not affect the validity of any other
provision.
. GOVERNING LAW. This Agreement shall be construed and regulated in
all respects under the laws of the State of New York.
IN WITNESS WHEREOF, this Agreement is entered into as of the date and
year first above written.
CAI WIRELESS SYSTEMS, INC.
By /S/ JARED E. ABBRUZZESE
Name: Jared E. Abbruzzese
Title: Chairman and Chief Executive
Officer
CONSULTANT:
/S/ ALAN SONNENBERG
Name: Alan Sonnenberg
Address:
<PAGE>
{EXHIBIT 11.1
CAI WIRELESS SYSTEMS, INC.
LOSS PER SHARE COMPUTATION
<TABLE>
<CAPTION>
Seven-month Period
Ended March 31, Year Ended March 31, Year Ended March 31,
1994 1995 1996
<S> <C> <C> <C>
Net loss $ (7,520,869) $ (14,106,837) $ (40,985,572)
Preferred stock dividend - 328,011 5,878,960
Loss applicable to common stock
shareholders $ (7,520,869) $ (14,434,848) $ (46,864,532)
Weighted average number of shares 12,278,220 15,456,540 27,075,578
outstanding
Loss per share $ (0.61) $ (0.93) $ (1.73)
</TABLE>
COMPUTATION OF WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
<TABLE>
<CAPTION>
Weighted Shares
COMMON STOCK TRANSACTIONS SHARES OUTSTANDING
<S> <C> <C>
For seven-month period ended March 31, 1994
Beginning Balance 11,500,000 11,500,000
2/25/94 3,400,000 545,283
3/24/94(1) 510,000 0
Warrants(2)(3) 1,214,000 232,937
Options(3) 451,000 0
12,278,220
For the year ended March 31, 1995
}Beginning Balance 15,410,000 15,410,000
Warrants exercised 74,000 29,417
Series A Preferred Stock{(3)(4)} 1,640,909 0
Series B Preferred Stock{(5)} 271,739 17,123
Warrants{(3)} 2,020,578 0
Options{(3)} 956,500 0
15,456,540
For the year ended March 31, 1996
Beginning Balance 15,754,018 15,754,018
Common stock sold 179,765 174,824
Common stock issued to acquire 49% minority
interest in Hampton Roads Wireless, Inc. 652,523 467,107
Common stock issued in ACS Merger 19,362,611 9,734,209
Common stock issued in ECNW Merger 1,880,565 945,420
Series A Preferred Stock{(3)(4)} 2,546,198 0
Warrants{(3)} 2,310,541 0
Options{(3)} 1,274,134 0
27,075,578
</TABLE>
(1)} On March 24, 1994, the Company received a stock
subscription for the over allotment portion of the initial
public offering. The subscription proceeds were received
on April 8, 1994.
{(2)} The effect of warrants issued in connection with
the purchase of the Master Sublease and Bridge
Loans were included as shares outstanding for all
reported periods prior to the IPO because their
exercise prices
<PAGE>
EXHIBIT 11.1
COMPUTATION OF WEIGHTED SHARES OUTSTANDING (CONTINUED)
($.25 and $6.60) were substantially below the IPO
price. Subsequent to the IPO, such warrant shares
were determined to be anti-dilutive and eliminated
from the weighted average shares outstanding.
{
(3)} For the periods subsequent to the public offering,
outstanding convertible preferred stock, warrants
and options
are not considered for the purposes of
calculating the weighted shares outstanding since
these securities are anti-dilutive.
{(4)} The Series A 8% Redeemable Convertible Preferred
Stock of 180,500 shares would be converted at a
minimum into 1,640,909 Common Shares assuming the
maximum conversion price of $11 per share. As of
March 31, 1996, 2,546,198 shares are assumed based
on actual shares issued upon conversion subsequent
to March 31, 1996, and $9.00 per share for those
preferred shares not converted.
{(5)} The Series B 6% Redeemable Convertible Preferred
Stock of 20,000 shares was converted into 271,739
Common Shares in April 1995 which is reflected as
being issued on March 8, 1995, the date of issuance
of the Series B Preferred Stock.
{
<PAGE>
EXHIBIT 11.2
CAI WIRELESS SYSTEMS, INC.
COMPUTATION OF FULLY DILUTED LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
Year ended
MARCH 31, 1996
<S> <C> <C>
Loss applicable to common stock shareholders $ (46,864,532)
Less: Preferred stock dividends 5,878,960
Net loss used to calculate fully diluted loss
per common share, before adjustments (40,985,572)
LESS: ADJUSTMENTS:
Interest expense on term notes assumed to be
converted, net of deferred tax effect 2,432,557
Interest expense reduction resulting from the
assumed proceeds from exercise of warrants and
options in excess of the 20% buyback applied
against short and long term debt,
net of deferred tax effect. * 5,574,056
Adjusted net loss (32,978,959
Weighted average fully diluted loss per share ($ 0.71)
Weighted average common and equivalent shares
outstanding as of March 31, 1996 27,075,578
ADD SHARES ASSUMING CONVERSION OF:{
Warrants ** 2,310,541
Options ** 1,274,134
Series A preferred stock 2,546,158
Treasury stock repurchase with proceeds ** (3,075,454)
Total before BANX 30,130,957
Assumed conversion of Term Note and Senior
Preferred Stock - BANX (collectively 45%) 36,751,083
Less shares assumed repurchased, with proceeds
applicable to above **
Treasury stock repurchase 20% limit 7,565,896
Less amount used above (3,075,454) (4,490,442)
BANX shares for a full year 32,260,641
BANX shares outstanding for 184/366 days 16,218,464
Weighted average number of shares used to
compute fully diluted loss per share 46,349,421
</TABLE>
* Interest expense reduction resulting from excess
proceeds (over 20% treasury stock purchase) used
to reduce debt is limited to interest
calculated at 12 1/4 % per annum, of excess
proceeds for the six-month period ended March
31, 1996.
** Treasury stock method used on options and warrants to
the extent of their proceeds and then to the 20% limit
on BANX.
This calculation is submitted in accordance with Regulation
S-K item 601(b)(11) although it is contrary to paragraph 40
of APB Opinion No. 15 because it produces an anti-dilutive
result.
<PAGE>
{EXHIBIT 21
CAI WIRELESS SYSTEMS, INC.
LIST OF SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
SUBSIDIARY NAME UNDER WHICH SUBSIDIARY CONDUCTS STATE OF INCORPORATION
BUSINESS
<S> <C> <C>
Greater Albany Wireless Systems, Inc. Capital Choice Television New York
Rochester Choice Television, Inc. Delaware
Hampton Roads Wireless, Inc. Virginia
Eastern New England TV, Inc. Delaware
Connecticut Choice Television, Inc. Connecticut
Commonwealth Choice Television, Inc. Delaware
Atlantic Microsystems, Inc. Delaware
Housatonic Wireless, Inc. New York
New York Choice Television, Inc. Wireless Cable of New York New York
Niskayuna Associates, Inc. Delaware
Onteo Associates, Inc. New York
CAI Transactions P, Inc. Delaware
Washington Choice Television, Inc. Atlantic Wireless Delaware
CAI CT Holdings Corp. Delaware
CAI Developments, Inc. Delaware
CAI/AMI Spectrum Management, Inc. Delaware
Philadelphia Choice Television, Inc. Popvision Pennsylvania
ACS License, Inc. Pennsylvania
CS Wireless Systems, Inc., Delaware
ACS Ohio License, Inc. Delaware
ACS California License, Inc. Delaware
ACS Pennsylvania License, Inc. Delaware
Onondaga Wireless, Inc. New York
Chenango Associates, Inc. New York
</TABLE>
<PAGE>
}
{EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statement on Form S-8 (Registration No. 33-99770) and in the
Registration Statement on Form S-3 (Registration No. 333-3334),
filed by CAI Wireless Systems, Inc., of the consolidated balance
sheets of CAI Wireless Systems, Inc. and Subsidiaries as of March
31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the years ended
March 31, 1996 and 1995 and for the seven-month period ended March
31, 1994 contained in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Albany, New York
June 26, 1996
