UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
( QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended December 31, 1996
OR
( TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
Commission File Number: 0-22888
CAI WIRELESS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Connecticut 06-1324691
<S> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
18 Corporate Woods Boulevard, Albany, New York 12211
(Address and zip code of principal executive offices)
(518) 462-2632
(Registrant's telephone number, including area code)
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 _____
Number of shares outstanding of each of registrant's class of common stock at
January 31, 1997:
CLASS OUTSTANDING SHARES
Common Stock, no par value 40,540,539
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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<CAPTION>
<S> <C> <C>
DECEMBER 31, MARCH 31,
1996 1996
(UNAUDITED) *
ASSETS
Cash and cash equivalents $19,038,921 $103,263,094
Subscriber accounts receivable, less allowance for bad
debts of $1,053,000 for December and $1,296,000 for 1,137,205 1,432,674
March
Prepaid expenses 463,861 698,482
Property and equipment, net 72,518,407 52,568,619
Wireless channel rights, net 201,988,912 205,973,840
Investment in CS Wireless Systems, Inc. 99,540,261 113,054,069
Debt service escrow 63,846,061 77,621,088
Goodwill, net 124,502,036 131,282,996
Loan acquisition costs, net 9,441,832 10,631,263
Other assets 2,540,619 2,268,847
Total Assets $595,018,115 $698,794,972
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable $ 5,627,728 $ 8,244,577
Accrued expenses 22,092,885 10,186,374
Senior debt 275,000,000 275,000,000
Notes payable 37,117,799 43,434,667
Wireless channel rights obligations 5,292,600 41,025,866
Deferred income taxes 21,910,000 35,410,000
367,041,012 413,301,484
Commitments and contingencies
Mandatorily Redeemable Preferred Stock
14% Senior convertible preferred stock
(liquidation value $70,000,000) 69,125,005 69,020,002
Series A 8% redeemable convertible preferred stock - 18,050,000
Accrued preferred stock dividends 15,260,826 5,812,562
84,385,831 92,882,564
Shareholders' Equity
Preferred stock - -
Common stock, shares issued and outstanding
March 31, 1996 - 37,829,482
December 31, 1996 - 40,540,539 275,769,414 257,701,130
Accumulated deficit (132,178,142) (65,090,206)
143,591,272 192,610,924
Total Liabilities and Shareholders' Equity $595,018,115 $698,794,972
</TABLE>
* Summarized from the Company's audited Consolidated Balance Sheet as of that
date.
See notes to condensed consolidated financial statements.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE-MONTH THREE-MONTH
PERIODS ENDED PERIODS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES $ 27,737,756 $ 20,843,394 $ 9,249,978 $ 12,951,843
Costs and expenses
Programming and license 11,989,352 8,555,041 4,129,802 5,144,612
Marketing 1,790,734 2,874,222 564,717 1,118,087
General and administrative 22,223,561 17,755,252 7,882,671 8,717,244
Depreciation and amortization 24,729,986 17,321,653 8,179,198 11,731,767
60,733,633 46,506,168 20,756,388 26,711,710
Operating loss (32,995,877) (25,662,774) (11,506,410) (13,759,867)
Other income (expense)
Equity in net loss of affiliate (13,000,000) - (5,200,000) -
Interest income 5,220,246 3,273,243 1,181,072 3,139,019
Other income 99,005 56,207 21,608 15,580
Interest expense (30,316,613) (13,788,657) (10,012,060) (9,980,621)
(37,997,362) (10,459,207) (14,009,380) (6,826,022)
Loss before provision for income tax
benefit and minority interest (70,993,239) (36,121,981) (25,515,790) (20,585,889)
Provision for income tax benefit 13,500,000 6,000,000 4,500,000 6,000,000
Loss before minority interest (57,493,239) (30,121,981) (21,015,790) (14,585,889)
Minority interest in loss - 321,910 - -
Net loss (57,493,239) (29,800,071) (21,015,790) (14,585,889)
Preferred stock dividend (9,576,367) (3,095,286) (3,306,003) (2,352,021)
Loss applicable to common stock
shareholders $(67,069,606) $(32,895,357) $(24,321,793) $(16,937,910)
Loss per common share $ (1.68) $ (1.40) $ (0.60) $ (0.45)
Average common and equivalent
shares outstanding 39,915,020 23,517,014 40,464,356 37,829,482
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
Nine-month
periods ended
December 31, December 31,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (57,493,239) $ (29,800,071)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 24,729,986 17,668,450
Equity in net loss of affiliate 13,000,000 -
Deferred income tax benefit (13,500,000) (6,000,000)
Loan costs and discounts amortization 1,487,172 1,357,500
Minority interest in loss - (321,910)
Debt service escrow interest income (69,315) (1,282,833)
Other - 130,814
Changes in assets and liabilities,
net of effects from acquisitions:
Subscriber accounts receivable 246,794 (517,837)
Other assets 315,663 (92,241)
Accounts payable and accrued expenses 9,646,300 748,298
Net cash used in operating activities (21,636,639) (18,109,830)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for companies, net of cash acquired - (77,943,352)
Purchase of wireless channel rights (4,642,709) (24,314,941)
Purchase of property and equipment (28,886,102) (7,513,368)
Proceeds from the sale of property and equipment 497,023 150,433
Investment in CS Wireless 363,900 -
Purchase of investments - (250,000)
Proceeds from the sale of investments 13,844,342 208,858
Loans to related parties (800,000) -
Collections from related parties 200,000 -
Other (1,205) (1,786,279)
Net cash used in investing activities (19,424,751) (111,448,649)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of senior notes, other debt
and warrants - 307,931,686
Payment of senior and other debt (43,139,640) (33,250,000)
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 - (2,212,549)
Proceeds from issuance of common stock - 1,545,979
Registry and other stock issuance costs paid - (3,223,005)
Payment of related party debt - (100,000)
Other (23,143) (1,006,377)
Net cash provided by (used in) financing activities (43,162,783) 249,046,978
Net increase (decrease) in cash and cash
equivalents (84,224,173) 119,488,499
Cash and cash equivalents, beginning 103,263,094 1,201,932
Cash and cash equivalents, ending $ 19,038,921 $ 120,690,431
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The condensed consolidated financial statements include the
accounts of CAI Wireless Systems, Inc. and its wholly-owned
subsidiaries (the "Company" or "CAI"). The balance sheets presented
herein reflect the acquisitions of ACS Enterprises, Inc. and its
subsidiaries ("ACS") and Eastern Cable Networks of Washington, Inc.
("ECNW") which were effective as of September 29, 1995. However,
consistent with the purchase method of accounting, the statement of
operations for the nine and three-month periods ended December 31,
1995 include the operations of ACS and ECNW from September 30, 1995.
A 52% owned subsidiary, CS Wireless Systems, Inc. ("CS"), is
accounted for on the equity method. Current summarized financial
information regarding CS is presented in Note 3 below.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do
not include all information and notes required by generally accepted
accounting principles for complete financial statements.
In the opinion of the Management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine-
month period ended December 31, 1996 are not necessarily indicative
of the results that may be expected for the year ending March 31,
1997.
Note 2. Shareholders' Equity
During the nine-month period ended December 31, 1996, all of
the shares of 8% Series A Preferred Stock were converted into
2,637,742 shares of common stock, resulting in an increase of
$18,049,955 in common stock. Also during that same period, warrants
were exercised in a cashless transaction whereby 75,000 warrants were
surrendered for 73,315 shares of common stock with a charge to
accumulated deficit and a credit to common stock for $18,329, the
warrant conversion value.
Note 3. Investment in CS Wireless Systems, Inc.
The Company's equity in net loss of affiliate of approximately
$13,000,000 is based on CAI's pro-rata share of CS Wireless Systems,
Inc.'s net loss of $19,334,000 for the nine-month period ended
September 30, 1996, taking into account CAI's complete ownership
prior to February 23, 1996, plus CAI's amortization of the excess of
its cost less its pro-rata share of equity acquired over a fifteen
year period as follows:
CAI's share of affiliate's net loss $11,300,000
Amortization of CAI's excess cost 1,700,000
Equity in net loss of affiliate $13,000,000
The summarized financial information disclosed below is
extracted from CS Wireless Systems, Inc. unaudited historical
September 30, 1996 financial statements.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Note 3. Investment in CS Wireless Systems, Inc. continued
The following is an unaudited condensed consolidated balance
sheet of CS Wireless Systems, Inc. and Subsidiaries as of September
30, 1996:
<TABLE>
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ASSETS
<S> <C>
Cash and cash equivalents $136,844,000
Subscriber receivables, net 2,232,000
Prepaid expenses and other 442,000
Plant and equipment, net 41,076,000
Wireless channel rights, net 172,668,000
Goodwill, net 51,746,000
Debt issuance costs and other assets, net 10,302,000
Total Assets $415,310,000
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 6,773,000
FCC Auction payable 8,728,000
Other liabilities 644,000
Debt 260,048,000
Deferred income taxes 8,668,000
284,861,000
STOCKHOLDERS' EQUITY
Common stock 10,000
Additional paid-in-capital 150,980,000
Accumulated deficit (20,541,000)
Total Stockholders' Equity 130,449,000
$415,310,000
</TABLE>
The following is an unaudited condensed consolidated statement
of operations of CS Wireless Systems, Inc. and Subsidiaries for the
nine months ended September 30, 1996:
<TABLE>
<CAPTION>
Revenues $ 15,994,000
<S> <C>
Operating expenses:
Systems operations 9,400,000
General and administrative 9,726,000
Depreciation and amortization 13,853,000
Total operating expenses 32,979,000
Operating loss ( 16,985,000)
Other income (expense):
Interest income 4,907,000
Interest expense (17,490,000)
( 12,583,000)
Loss before income taxes (29,568,000)
Income tax benefit 10,234,000
Net loss $(19,334,000)
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The statements contained in this Quarterly Report on Form 10-Q,
including the exhibits hereto, relating to the Company's operating
results, and plans and objectives of management for future
operations, which are not historical fact constitute forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Actual results of the Company may differ
materially from those in the forward-looking statements and may be
affected by a number of factors including the receipt of regulatory
approvals, the availability of new strategic partners and their
willingness to enter into arrangements with the Company, the terms of
such arrangements, the success of the Company's trials in various of
its markets and its implementation of digital technology, subscriber
equipment availability, tower space availability, absence of
interference and the ability of the Company to redeploy or sell
excess equipment, the assumptions, risks and uncertainties set forth
below in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere herein, as well as
other factors contained herein and in the Company's other securities
filings.
OPERATIONS
As of December 31, 1996, CAI Wireless Systems, Inc. and
Subsidiaries (the "Company" or "CAI") had approximately 76,400
wireless systems subscribers as compared to 119,000 subscribers
as of December 31, 1995. Approximately 33,500 subscribers for
December 31, 1995 are attributable to CS Wireless Systems, Inc.
("CS"), which became an unconsolidated subsidiary of the
Company on February 23, 1996, upon closing of the transactions
contemplated by the Participation Agreement dated December 12,
1995, among the Company, CS and Heartland Wireless
Communications, Inc. On a pro forma basis, giving effect to
the CS transaction as if such transaction had occurred on
December 31, 1995, the Company would have had as of December
31, 1995 approximately 85,500 subscribers compared to 76,400
subscribers as of December 31, 1996.
The 9,100 net decrease in subscribers is due primarily to
the New York System decrease of approximately 4,500
subscribers, the Philadelphia System decrease of approximately
3,700 subscribers and other system net decreases of
approximately 900 subscribers for the comparable periods. The
New York System is losing subscribers to hardwire cable
operators primarily due to the system's inferior channel
capacity. This trend in New York is likely to continue. The
Company has implemented a program to increase retention of
subscribers in Philadelphia and other systems through an
increase in installation fees, which the Company believes will
increase subscriber commitment, and thus, retention. This
retention policy has slowed subscriber additions. The decrease
in subscribers experienced in the other systems was primarily
due to a curtailment of marketing efforts in the nine-month
period ended December 31, 1996, in anticipation of the then
expected implementation of the BR Agreement which was suspended
as described below.
On December 12, 1996, CAI entered in a Modification Agreement
(the "Modification Agreement") with various affiliates of Bell
Atlantic Corporation and NYNEX Corporation, including NYNEX MMDS
Company, Inc. and MMDS Holdings, Inc. (together, the "BANX
Affiliates") and BANX Partnership. The Modification Agreement
suspends the Business Relationship Agreement among CAI and the BANX
Affiliates for one year, including the ability of each of the BANX
Affiliates to elect to become the marketer and provider of wireless
cable services within various markets located in their respective
operating territories using CAI's wireless delivery platform. For
the one-year suspension period, the Modification Agreement suspends
the right of the BANX Affiliates to option these markets, and,
therefore, relieves CAI of (i) its obligations to reserve its
Multichannel Multipoint Distribution Service (MMDS) spectrum for
imminent use by the BANX Affiliates as a video delivery platform and
(ii) related construction obligations. All deadlines for
construction and other obligations are tolled for one year and will
be reinstated in the event that the BR Agreement is not terminated in
accordance with its terms or the terms of the Modification Agreement.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
In addition to suspending CAI's obligations under the BR
Agreement for one year, the Modification Agreement provides CAI or
its designee the right to acquire all, but not less than all, of the
$100 million in CAI Securities (as defined below) held by BANX
Partnership and its general partners. If notice to purchase the CAI
Securities is received by BANX Partnership within the first 120 days
after December 12, 1996, the purchase price is $121,000,000; if
received in the next 120 days, the purchase price is $100,000,000,
together with accrued interest and dividends, plus $10 million, and
if notice is received in the balance of the year, the purchase price
is $100,000,000, together with accrued interest and dividends, plus
$20 million.
The BANX Partnership's $100 million investment in CAI includes
convertible debt and preferred stock and warrants (as more fully
described below, the "CAI Securities") all of which, if fully
converted and exercised, would result in the right to acquire up to
45% of the equity of CAI. In connection with the arrangement,
the average per share exercise/conversion price of the CAI Securities is
reduced from $8.19 to $5.31, on full conversion and exercise. The exercise
price is subject to readjustment in certain events.
In the event that CAI does not purchase the CAI Securities or
cannot locate a third party purchaser to do so within the first 270
days after December 12, 1996, BANX Partnership has the right to sell
the CAI Securities. If, after one year, the CAI Securities have not
been purchased by CAI or a third party, the BR Agreement is
reinstated. Upon the purchase of the CAI Securities, the BR
Agreement terminates.
In connection with the one-year suspension, CAI expects to
expand the markets for which it is currently seeking regulatory
approval for flexible use of its MMDS spectrum. To date, CAI has
begun exploring mixed use of the spectrum for video, voice and data,
including a commercial trial of a high speed Internet access service
in Rochester, NY, where FCC has granted authority for a market trial
of up to 500 customers. In addition, CAI has been granted authority
to conduct a commercial market trial of up to 1,000 subscribers for
high speed Internet access service in its New York City market. Most
recently, CAI received permanent authority for two-way flexible use
of five channels for 16 sites located around the Boston market. This
authority represents the first of its kind awarded to an MMDS
operator.
The Company's digital video transport systems in Boston and
Virginia Beach are two of the first state-of-the-art digital MMDS
systems. CAI believes that 75% or better line-of-sight (LOS) targets
can be obtained with minor modifications to these systems, including
relocation of boosters and adjustments to the height of certain
antennas. CAI has a definitive timetable to roll-out digital video
and internet services in Boston during the summer of 1997, subject to
the contractual availability of certain equipment and satellite use
authorizations. CAI does not have a present timetable during which it
may deploy a digital video service in Virginia Beach and may re-deploy
portions of the equipment in Boston to other markets. There can be no
assurance that such services will be deployed.
There can be no assurance that the Company will be granted
permanent authority with respect to any of its pending applications
or market trials, that any of the tests currently being conducted or
contemplated by the Company will be successful or that the commercial
deployment, if any, of any new products will be possible on a
widespread basis or commercially successful. The Company intends to
expand its applications for such use of its MMDS spectrum in other
markets and to seek strategic relationships with companies in aligned
industries in these markets, although there can be no assurance that
such applications will be granted or that such relationships will
materialize.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
The Company is vacating certain of its booster transmitter
locations in Boston. In connection with such action, the Company is
removing certain transmission and other portable equipment from such
locations and abandoning certain leasehold improvements. Excess
equipment will be held for other CAI markets to be built out where
permitted pursuant to duly received regulatory approval or made
available for sale. There can be no assurance that the Company will
apply for and receive any and all regulatory approvals necessary for
the build out of other CAI markets. CAI anticipates that it will
incur a loss, not expected to exceed $1 million, through the
abandonment of leasehold improvements, lease terminations,
installation costs and removal costs, however, there can be no
assurance that such loss will not exceed $1 million.
LIQUIDITY AND CAPITAL RESOURCES
During the nine-month period ended December 31, 1996, CAI
expended approximately $28.9 million to purchase equipment, $21.6
million to fund operating activities, $4.6 million to acquire
wireless channel rights and $43.1 million to pay senior and other
debt including $32.9 million against the amount due on the FCC MMDS
License auctions. During this period, CAI funded its cash
requirements out of existing cash balances. At December 31, 1996,
CAI had cash and cash equivalents of approximately $19.0 million.
Pursuant to the Company's capital expenditure plans for fiscal
1997, CAI is committed as of December 31, 1996 through open purchase
orders to expend approximately $7.1 million primarily for capital
expenditures associated with the development of digital transmission
facilities. In addition, during the three-month period ending March
31, 1997, the Company is obligated to pay approximately $2.2 million
in MMDS license auction fees, of which CS is obligated to reimburse
CAI $0.7 million for licenses transferred to CS, and approximately
$1.6 million of minimum license fees and lease payments.
The Company's operating plans, including digital video, two-way
voice and data, Internet and Intranet access services and testing,
will require additional funds during the first quarter of fiscal year
1998. 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 Partnership, and significant transactions likely will
require its prior consent. In addition, the Company's 12 1/4 %
Senior Notes due 2002 (the "Senior Notes") impose similar
restrictions on the incurrence of additional debt and on the ability
to effect asset sales. Currently, the Company is actively seeking to
obtain $25 million to $50 million of interim collateralized financing
by April 1997 and to secure longer term financing through obtaining a
new strategic partner(s) to replace the BANX Partnership. Although
certain qualified parties have expressed strong interest in providing
interim financing to the Company, CAI has not yet reached a
definitive agreement with any such qualified party. There can be no
assurance that any additional financings will be available to the
Company on satisfactory terms and conditions, if at all. Failure to
obtain additional financings or consummate asset sales will have a
material adverse effect on the Company.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
RESULTS OF OPERATIONS
The following tables illustrate the changes discussed below in
the management's discussion of the results of operations.
<TABLE>
<CAPTION>
OPERATING REVENUES (in millions of dollars)
NINE MONTHS ENDED DECEMBER 31, THREE MONTHS ENDED DECEMBER 31,
1996 1995 CHANGE 1996 1995 CHANGE
<S> <C> <C> <C> <C> <C> <C>
Same systems $10.3 $11.5 $(1.2) $ 3.4 $ 3.7 $(0.3)
Acquired systems (FY 96) n/a n/a - 5.8 6.0 (0.2)
Total same systems 10.3 11.5 (1.2) 9.2 9.7 (0.5)
Acquisitions & disposals:
Acquired Systems (FY 96) 17.4 6.0 11.4 n/a n/a -
Disposed Systems (FY 96) - 3.3 (3.3) - 3.3 (3.3)
Total operating revenues $27.7 $20.8 $6.9 $ 9.2 $13.0 $(3.8)
</TABLE>
<TABLE>
<CAPTION>
OPERATING EXPENSES (in millions of dollars)
NINE MONTHS ENDED DECEMBER 31, THREE MONTHS ENDED DECEMBER 31,
1996 1995 CHANGE 1996 1995 CHANGE
S> <C> <C> <C> <C> <C> <C>
Same systems $20.4 $24.2 $(3.8) $ 6.7 $ 7.6 $(0.9)
Acquired systems (FY 96) n/a n/a - 8.5 8.7 (0.2)
Corporate operations 14.5 8.5 6.0 5.6 5.3 0.3
Total same operations 34.9 32.7 2.2 20.8 21.6 (0.8)
Acquisitions & disposals:
Acquired Systems (FY 96) 25.8 8.7 17.1 n/a n/a -
Disposed Systems (FY 96) - 5.1 (5.1) - 5.1 (5.1)
Total operating expenses $60.7 $46.5 $14.2 $20.8 $26.7 $(5.9)
</TABLE>
NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO NINE MONTHS
ENDED DECEMBER 31, 1995
CAI's revenue increased $6.9 million ($27.7 million FY
1997; $20.8 million FY 1996) in the nine-month period ended
December 31, 1996 over the same period in the prior year. The
increase resulted primarily from the acquisition of ACS
Enterprises, Inc. ("ACS"), with operating systems in
Philadelphia, Cleveland, and Bakersfield, and the acquisition
of Eastern Cable Networks of Washington, Inc. ("ECNW"), with
an operating system in Washington D.C. Both acquisitions were
made on September 29, 1995. Revenue from operations that were
owned throughout both nine-month periods ("Same Systems")
decreased $1.2 million ($10.3 million FY 1997; $11.5 million
FY 1996) in the nine-month period ended December 31, 1996 from
the same period in the prior year, primarily due to the
decrease in the number of subscribers mentioned above. During
December 1996, CAI instituted a $2 per subscriber rate
increase that is expected to increase the average revenue per
subscriber; however, this may cause additional net losses of
subscribers.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS CONTINUED
Operating expenses were $60.7 million and $46.5 million
for the nine months ended December 31, 1996 and 1995,
respectively. The $14.2 million increase is attributable
primarily to increases in (1) system operations of acquired
systems (ACS and ECNW) of $7.7 million ($15.9 million FY 1997;
$8.2 million FY 1996), excluding depreciation and
amortization, due to nine months of operations of the
Philadelphia and Washington systems in FY 1997 versus only
three months of the Philadelphia, Washington, Cleveland, and
Bakersfield systems in FY 1996; (2) general and administrative
corporate operations of $1.9 million ($5.7 million FY 1997;
$3.8 million FY 1996) primarily due to increased staffing and
effort to maintain a larger operation, developing digital
markets, and developing other potential uses of the wireless
channel rights; and (3) depreciation and amortization of $7.4
million ($24.7 million FY 1997; $17.3 million FY 1996)
primarily due to the acquisition of ACS and ECNW fixed assets,
wireless channel rights, and goodwill; offset by a decrease in
marketing costs of the Same Systems of $1.5 million ($.6
million FY 1997; $2.1 million FY 1996) due to a concentrated
effort to reduce marketing costs and limit subscriber growth
in light of the then anticipated implementation of the BR
Agreement with BANX.
CAI has a $13.0 million equity in net loss of affiliate
in the nine months ended December 31, 1996, relating to its
52% investment in CS. In the prior year, CAI's operating
systems contributed to CS on February 23, 1996 were fully
consolidated in the operating results of CAI's third fiscal
quarter of FY 1996.
Interest income increased $1.9 million ($5.2 million FY
1997; $3.3 million FY 1996) for the nine-month period ended
December 31, 1996 compared to the same period in the prior
year. The increase is primarily due to interest earned on the
Debt Service Escrow established in connection with The
Company's offering of 12.25% Senior Notes Due 2002 and the
investment of the cash remaining from the net proceeds of the
Senior Notes offering and other concurrent September 29, 1995
transactions. Interest income has steadily decreased since
the Debt Service Escrow and investments have been used to fund
debt service, project costs, capital purchases, and operating
deficits.
Interest expense increased $16.5 million ($30.3 million
FY 1997; $13.8 million FY 1996) for the nine-month period
ended December 31, 1996 compared to the same period in the
prior year. The increase is primarily due to interest expense
incurred on the Senior Notes issued on September 29, 1995.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS CONTINUED
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS
ENDED DECEMBER 31, 1995
CAI's revenue decreased $3.8 million ($9.2 million FY
1997; $13.8 million FY 1996) in the three-month period ended
December 31, 1996 over the same period in the prior year. The
decrease resulted primarily from the spin off of operating
systems in Cleveland and Bakersfield to CS. Same Systems
decreased $.5 million ($9.2 million FY 1997; $9.7 million FY
1996) in the three-month period ended December 31, 1996 from
the same period in the prior year, primarily due to the
decrease in the number of subscribers mentioned above.
Operating expenses were $20.8 million and $26.7 million
for the three months ended December 31, 1996 and 1995,
respectively. The $5.9 million decrease is attributable
primarily to the spin off of operating systems to CS
representing $5.1 million of expenses in the three-month
period ended December 31, 1995.
CAI has a $5.2 million equity in net loss of affiliate
in the three months ended December 31, 1996, relating to its
52% investment in CS. In the prior year, CAI's operating
systems contributed to CS on February 23, 1996 were fully
consolidated in the operating results of CAI's third fiscal
quarter ending December 31, 1995.
Interest income decreased $2.0 million ($1.2 million FY
1997; $3.2 million FY 1996) for the three-month period ended
December 31, 1996 compared to the same period in the prior
year. The decrease is primarily due to CAI owning fewer
assets earning interest since the Debt Service Escrow and
investments have been used to fund debt service, project
costs, capital purchases, and operating deficits.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the quarter ended December 31, 1996 and later
periods, the Company was named in four class action lawsuits,
each alleging various violations of the federal securities
laws. The lawsuits were filed in the United States District
Court for the Northern District of New York. The complaints
name the Company, certain directors of CAI, as well as a
significant shareholder in the Company and its members as
defendants.
Plaintiffs in each of the lawsuits allege that
defendants violated Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, as amended, during various Class Periods
beginning on May 23, 1996 and ending on various dates, the
latest of which being December 13, 1996. Plaintiffs claims
arise out of alleged material misstatements and omissions in
the Company's public disclosures during the various Class
Periods, which produced a scheme to inflate the price of CAI
securities enabling the individual defendants to sell CAI
securities at such inflated prices.
Plaintiffs are seeking to be declared a plaintiff class
action, unspecified damages and fees and expenses.
The Company has denied the allegations in each of the
Complaints, does not believe that the lawsuits have merit and
intends to vigorously defend the actions.
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders of CAI Wireless
Systems, Inc. was held on October 16, 1996, for the purpose of
electing a Board of Directors, approving a new 1996 Outside
Directors' Stock Option Plan, and approving certain amendments
to the Company's 1993 Stock Option and Incentive Plan.
(b) All of management's nominees for directors as listed
in the proxy statement were elected with the following vote:
Shares
Voted Shares
"For" "Withheld"
Jared E. Abbruzzese 28,839,707 1,003,588
John J. Prisco 28,839,807 1,003,488
George M. Williams 28,839,807 1,003,488
James P. Ashman 28,839,807 1,003,488
Arthur C. Belanger 28,839,707 1,003,588
Harold A. Bouton 28,839,807 1,003,488
David M. Tallcott 28,791,707 1,051,588
Alan Sonnenberg 28,839,807 1,003,488
Robert D. Happ 28,839,807 1,003,488
(c) The other matters voted upon were as follows:
The 1996 Outside Directors' Stock Option Plan was
approved with the following vote:
Votes For: 27,280,367
Votes Against: 2,404,621
Abstentions: 62,507
Broker non-votes: 95,800
The Amendments to the Company's 1993 Stock Option and
Incentive Plan were approved with the following vote:
Votes For: 22,531,807
Votes Against: 7,115,671
Abstentions: 100,017
Broker non-votes: 95,800
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
The following Exhibits are filed herewith or
incorporated by reference as indicated:
<TABLE>
<CAPTION>
Incorporation
by Reference Page
EXHIBIT NO. DESCRIPTION (SEE LEGEND) REFERENCE
<S> <C> <C> <C>
3.1 Amended and Restated Certificate of
Incorporation of CAI 1-Exhibit 3.1
3.2 Amended and Restated Bylaws of CAI 1-Exhibit 3.2
<dagger>10. Modification Agreement dated December 12, 18-27
1996, among the Registrant and various
affiliates of Bell Atlantic Corporation and
NYNEX Corporation
<dagger>11.1 Schedule Regarding Computation of Loss 28
Per Common Share
<dagger>11.2 Schedule Regarding Computation of Fully 29
Diluted Loss Per Common Share
<dagger>27. Financial Data Schedule 30
99.1 Media Release - CAI announces 1996 second 2-Exhibit 99.1
quarter and six-month results.
99.2 Media Release - CAI responds to class action 3-Exhibit 99.1
lawsuit.
99.3 Media Release - CAI responds to recent news. 3-Exhibit 99.2
99.4 Media Release - CAI receives first FCC market 3-Exhibit 99.3
trial approval to use wireless cable
spectrum for two-way services
</TABLE>
LEGEND
1 Incorporated by reference to the exhibits to the Quarterly Report on
Form 10-Q for September 30, 1995.
2 Incorporated by reference to the exhibits to the Current Report on
Form 8-K dated November 6,1996.
3 Incorporated by reference to the exhibits to the Current Report on
Form 8-K dated November 25, 1996.
<dagger> Filed herewith.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K CONTINUED
b) Reports on Form 8-K
b1) Form 8-K dated November 5, 1996 (filed November 6, 1996), regarding
the following item:
Item 5. OTHER EVENTS
The Company announces 1996 second quarter and six-month
results on November 5, 1996 (see exhibit 99.1).
b2) Form 8-K dated November 25, 1996 (filed January 3, 1997),
regarding the following item:
Item 5. OTHER EVENTS
CAI Wireless Systems, Inc. (CAI) entered into a
Modification Agreement dated December 12, 1996 with
affiliates of Bell Atlantic Corporation and NYNEX
Corporation (the "RBOCs") pursuant to which the Business
Relationship Agreement among the parties has been suspended
for one year and CAI or its designee has been granted
an option to purchase the $100 million RBOC investment in
CAI (see Exhibit 10.).
CAI announced that it has retained J. P. Morgan Securities
Inc. and Smith Barney Inc. to act as financial advisors to CAI
in connection with exploring strategic alternatives for the
Company.
CAI has been named in a class action lawsuit alleging various
violations of the federal securities laws.
In addition, the Company issued three news releases at various
times. see exhibits 99.1 (news release on November 25, 1996),
99.2 (news release on December 6, 1996), and 99.3 (news
release on December 16, 1996).
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/ JARED E. ABBRUZZESE Chairman, Chief Executive Officer February 5, 1997
JARED E. ABBRUZZESE and Director (Principal Executive
Officer)
/S/ JAMES P. ASHMAN Executive Vice President, Chief February 5, 1997
JAMES P. ASHMAM Financial Officer and Director
(Principal Financial Officer)
/S/ CRAIG J. KESSLER Vice President and Controller February 5, 1997
CRAIG J. KESSLER (Principal Accounting Officer)
</TABLE>
EXHIBIT 10.
MODIFICATION AGREEMENT
MODIFICATION AGREEMENT dated as of December 12, 1996 among CAI
WIRELESS SYSTEMS, INC., a Connecticut corporation ("CAI"), the subsidiaries of
CAI listed on the signature pages hereto (collectively with CAI, the
"COMPANY"), BANX PARTNERSHIP, a Delaware general partnership ("BANX"), MMDS
HOLDINGS, INC., a Delaware corporation ("MMDS HOLDINGS"), MMDS HOLDINGS II,
INC., a Delaware corporation ("MMDS HOLDINGS II"), NYNEX MMDS COMPANY, a
Delaware corporation ("NYNEX MMDS"), and NYNEX MMDS HOLDING COMPANY, a Delaware
corporation ("NYNEX MMDS HOLDING").
RECITALS
. The Company and BANX are parties to a Securities Purchase
Agreement dated as of March 28, 1995, as amended (the "SECURITIES
PURCHASE AGREEMENT"; capitalized terms defined therein and used but not
defined herein being used as therein defined), pursuant to which CAI
issued and sold and BANX purchased (i) CAI's Term Notes due 2005 (the
"NOTES") in an aggregate original principal amount of $30,000,000, (ii)
7,000 shares of CAI's 14% Senior Preferred Stock, par value $10,000 per
share (the "SENIOR PREFERRED STOCK"), and (iii) warrants (the "WARRANTS")
to purchase CAI's Series C Convertible Preferred Stock. The Notes, the
Senior Preferred Stock and the Warrants are referred to herein
collectively as the "PURCHASED SECURITIES".
. The Company, NYNEX MMDS and MMDS Holdings are parties to a
Business Relationship Agreement dated as of March 28, 1995, as amended
(the "BR AGREEMENT"), pursuant to which the Company has, among other
things, granted to NYNEX MMDS and MMDS Holdings options, on a market by
market basis, to cause the Company to provide wireless cable transmission
services to NYNEX MMDS and MMDS Holdings using the Company's transmission
systems in specified markets in their respective service areas.
. The parties desire to modify their contractual arrangements
under the Securities Purchase Agreement and the BR Agreement and with
respect to the Purchased Securities, as set forth herein.
Accordingly, the parties hereby agree as follows:
Section 1. OPTION TO PURCHASE SECURITIES. BANX and its partners,
NYNEX MMDS Holding and MMDS Holdings II, hereby grant to CAI or its designee
the right and option, exercisable for a period of twelve (12) months following
the date of this Agreement, to purchase all (but not less than all) of the
Purchased Securities, including all accrued and unpaid dividends thereon, for
an aggregate purchase price equal to the Purchase Price specified below. The
option shall be exercised by written notice to BANX, NYNEX MMDS and MMDS
Holdings II in accordance with the Securities Purchase Agreement, which notice
shall identify any designee and shall provide information in reasonable detail
with respect to the creditworthiness of any designee and of the expected source
of funds for the purchase. If the designee (which for purposes of this
sentence shall include the ultimate parent or entity which controls the
designee) is not required to file reports pursuant to the Securities Exchange
Act of 1934, then CAI shall have thirty (30) days from the date of the notice
to provide the financial information (including the expected source of funds)
required under the immediately preceding sentence. If the notice from CAI
includes a request to keep the identity of the designee (if any) confidential,
the sellers will not publicly disclose the designee's identity, until such time
as the identity of the designee as the purchaser of the Purchased Securities is
otherwise made public, except as may otherwise be required by any applicable
law, rule, regulation, court order or requirement of a government entity,
including without limitation, the rules or regulations of any securities
exchange. Upon such exercise, the purchase and sale of the Purchased
Securities shall occur at the offices of NYNEX MMDS Holding in New York City on
the date, not later than ninety (90) days following the date of the notice of
exercise, as shall be specified by CAI in such notice of exercise, at which
closing BANX, NYNEX MMDS Holding and MMDS Holdings II shall deliver the
certificates or other instruments representing the Purchased Securities to CAI
or its designee (without representation or warranty except as to title) against
payment of the Purchase Price in immediately available funds, and CAI shall
deliver such legal opinions, opinions of financial advisors and officers'
certificates as may reasonably be requested by the sellers or as may be
customary for transactions of such nature, provided that if CAI or its designee
is unable to close within such 90-day period solely due to the document
deliveries required pursuant to this sentence, then at the election of CAI in
writing to sellers not less than 2 business days prior to the expiration of
such 90-day period, the full Purchase Price may be deposited in an interest
bearing account for a period of up to thirty (30) days in order to permit the
purchaser to satisfy such delivery requirements and the closing shall be deemed
timely if consummated within such 30-day period provided the sellers shall be
paid all interest accrued on such funds during such period in addition to the
Purchase Price. The parties will use reasonable efforts to agree upon the form
of such documents within forty five (45) days after the execution of this
Agreement; PROVIDED, HOWEVER, that the failure of the parties to so agree shall
not relieve any party of its obligation to deliver the required documents in a
form reasonably satisfactory to the receiving parties. The Purchase Price for
the Purchased Securities shall equal the amount specified below opposite the
applicable number of days following the date of this Agreement on which the
notice of exercise is delivered by CAI to BANX, NYNEX MMDS Holding and MMDS
Holdings II:
<PAGE>
NOTICE OF OPTION EXERCISE PURCHASE PRICE
up to 120 days $121,000,000
after 120 days up to 240 days $100,000,000 plus payment in full of all
accrued interest and dividends under the
Notes and Senior Preferred Stock as of the
date of notice plus $10,000,000.
after 240 days up to 365 days $100,000,000 plus payment in full of all
accrued interest and dividends under the
Notes and Senior Preferred Stock as of the
date of notice plus $20,000,000.
Notwithstanding anything to the contrary herein, (i) in the event CAI shall
fail to consummate the purchase of the Purchased Securities in accordance with
the terms of this Agreement and without limitation to any other remedies of
BANX, NYNEX MMDS or MMDS Holdings occasioned by such failure, the option to
purchase pursuant to this Section 1 shall terminate automatically and without
further action of the parties, and (ii) in the event the option to purchase
pursuant to this Section 1 is not exercised in accordance herewith on or before
the 270th day following the date of this Agreement, BANX, NYNEX MMDS Holding
and MMDS Holdings II shall have the right to sell the Purchased Securities free
and clear of the option granted hereby and the rights of the Company pursuant
hereto upon twenty (20) days' prior notice to CAI, provided that CAI or its
designee does not exercise the option in accordance herewith within a period of
ten (10) days following the date of such notice to CAI. During the option
period, CAI shall make commercially reasonable efforts to secure the funds
required to exercise the option or to otherwise find a purchaser for the
Purchased Securities. If CAI engages in discussions or negotiations with
entities which have an interest in investing in the Company, it shall offer
such entities the option of acquiring the Purchased Securities. CAI agrees
that it shall take no action, (other than actions in the ordinary course of its
business) the effect of which could reasonably expected to make the acquisition
of the Purchased Securities less attractive to a prospective purchaser. If CAI
obtains funds sufficient to acquire the Purchased Securities, it shall use
commercially reasonable efforts to obtain any consents or other authorizations
required to permit it to exercise the option hereunder.
Section 2. EXERCISE AND CONVERSION PRICES.
(a) Effective upon the execution and delivery of this Agreement,
(i) the Initial Tier I Conversion Price and the Initial Tier I Exercise Price
for the Senior Preferred Stock and the Warrants, respectively, shall be reduced
to an amount equal the product of the Preferred Conversion Ratio (as defined in
the Purchased Securities) multiplied by $3.86, and (ii) the Initial Tier 2
Exercise Price, the Initial Tier 3 Exercise Price and the Initial Tier 4
Exercise Price shall be reduced by multiplying such amounts by a fraction, the
numerator of which is equal to the Initial Tier I Exercise Price immediately
after giving effect to the reduction pursuant to clause (i) of this Section
2(a) and the denominator of which is equal to the Initial Tier I Exercise Price
immediately prior to giving effect to such reduction.
(b) In the event CAI shall not have exercised its option to
purchase the Purchased Securities on or prior to 180 days after the date of
this Agreement, (i) the Initial Tier I Conversion Price and the Initial Tier I
Exercise Price for the Senior Preferred Stock and the Warrants, respectively,
in each case shall be further reduced by an amount equal to 15% of the Initial
Tier 1 Exercise Price immediately prior to any and all such adjustments, and
(ii) in each case the Initial Tier II Exercise Price, the Initial Tier III
Exercise Price and the Initial Tier IV shall be reduced by multiplying such
price by a fraction, the numerator of which is equal to the Initial Tier I
Exercise Price immediately after giving effect to the reduction pursuant to
clause (i) of this Section 2(b) and the denominator of which is equal to the
Initial Tier I Exercise Price immediately prior to giving effect to such
reduction.
(c) Each reduction pursuant to this Section 2 shall be cumulative
with and in addition to any other reductions or adjustments to the applicable
prices pursuant hereto or under the other applicable documents governing the
Purchased Securities and each adjustment pursuant hereto shall be affected
prior to any adjustments pursuant to such other documents.
(d) The reduction provided for in Section 2(b) above shall not
apply in the event of an exercise of the conversion rights of the Notes or
Senior Preferred Stock or an exercise of the Warrants by BANX or its
affiliates.
Section 3. SUSPENSION OF BR AGREEMENT. Effective upon the
execution and delivery of this Agreement, the right of NYNEX MMDS and MMDS
Holdings to exercise the options, and the obligations of the Company to perform
by the specified dates, under the BR Agreement shall be suspended and the
running of all other time periods thereunder shall be tolled. If CAI shall
purchase all of the Purchased Securities pursuant to the exercise of its option
in accordance with Section 1 of this Agreement, the BR Agreement and all rights
and obligations of the parties thereunder shall terminate. If CAI shall fail
to provide notice of the exercise of its option to purchase the Purchased
Securities pursuant to Section 1 hereof on or prior to the first anniversary of
the date of this Agreement and consummate a purchase transaction pursuant to
Section 1 hereof, the BR Agreement and the rights and obligations of the
parties shall be reinstated automatically and without further action of the
parties, and all time periods for performance or the exercise of any rights or
obligations thereunder, including the right to exercise the options by NYNEX
MMDS and MMDS Holdings thereunder, shall be extended by a period equal to the
period of the suspension of the BR Agreement pursuant to this Section 3,
provided that, following the end of the suspension period, the parties agree to
negotiate in good faith to amend the BR Agreement; provided further however,
that the parties are under no obligation to agree to any amendments,
modifications or waivers of the BR Agreement other than with respect to the
elimination of the existing "Fulfillment Dates" (as defined in the BR
Agreement"). The suspension of the BR Agreement, and any reinstatement
thereof, shall not effect a waiver of any rights, obligations or claims of the
parties thereto for any period prior to such suspension or after such
reinstatement and this Agreement shall not constitute a consent to any
modification of such rights, obligations or claims except as expressly provided
hereunder.
Section 4. CS CONSENT RIGHTS; CONVEYANCE OF STOCK. (a) All rights
of BANX and its affiliates to consent to the exercise by CAI of its right to
approve or disapprove of the taking of any actions by CS Wireless Systems, Inc.
pursuant to the terms of the Consent dated February 23, 1996 (the "CS Consent")
among CAI, BANX and its affiliates shall be terminated effective upon the
execution and delivery of this Agreement.
During the option period, BANX and its affiliates party hereto
agree to grant CAI a proxy for the purposes of voting their respective shares
of CS Wireless Systems, Inc. ("CS") common stock; PROVIDED, HOWEVER, that with
respect to votes regarding the following matters, CAI must vote the shares of
CS held by BANX and its affiliates as directed by such parties:
any shareholder approval sought in connection with a public
offering of CS equity securities in the event that CAI proposes to vote against
such a transaction;
any shareholder approval in connection with a merger, business
combination, sale of all or substantially all of CS' assets or any similar
transaction, other than a transaction in which the holders of CS common stock
would become the holders of tradable securities in a publicly traded entity,
unless CAI has notified BANX that it proposes to vote in favor of such
transaction;
any shareholder approval in connection with a transaction between
CS and CAI and/or any of their respective affiliates;
any shareholder approval in connection with a redemption or
repurchase of CS' equity securities or the declaration of any dividends; and
any transaction, other than a sale of CS equity securities for
cash, that would dilute the interest of BANX and its affiliates in CS or grant
any entity greater voting rights.
CAI will inform BANX if it proposes to exercise the proxy granted hereunder.
If the proxy would be voted in connection with one or more of the items listed
in this Section 4(b), CAI will describe the action to be approved and CAI's
intention to exercise the proxy for or against such matter, and the notice
containing the foregoing shall be delivered as soon as possible, but in no
event less than ten (10) business days prior to the date of the vote. Unless
BANX notifies CAI prior to the actual vote that it objects to CAI's proposed
vote, CAI shall exercise the proxy as indicated in the notice.
In the event CAI exercises the proxy granted hereunder other than at the
express direction of BANX, CAI shall defend, indemnify and hold harmless each
Indemnitee (as hereinafter defined) from and against any and all Claims (as
hereinafter defined) arising out of, in connection with or as a result of
exercise of the proxy.
(c) Upon the consummation of a purchase by CAI or its designee in
accordance with the provisions of Section 1 hereof, BANX and its partners will
transfer to CAI, for no additional consideration, the shares of CS common stock
conveyed to them pursuant to the CS Consent. CAI shall pay any and all taxes
(other than income tax) or other costs and expenses payable to third parties as
a result of such transfer.
Section 5. MODIFICATION OF COVENANTS. The covenants of CAI in the
Securities Purchase Agreement and in the Purchased Securities shall be modified
(i) to permit the Company to sell, transfer or otherwise dispose of assets
having a fair market value not in excess of $2,000,000 in any one transaction
or series of related transactions from time to time to the extent permitted
under the terms of the Indenture governing CAI's 12-1/4% Senior Notes due 2002
as in effect on the date of this Agreement and (ii) to suspend during the term
of the suspension of the BR Agreement pursuant to Section 3 hereof the right of
BANX and its affiliates to approve of the Business Plan of CAI and the
following covenants in the Stage II Warrants (and the corresponding provisions
of the Stage I Warrants, the Term Notes and the Senior Preferred Stock):
Section 7.8 (other than the last sentence thereof), 7.10(b), 7.19(d),, clause
(iii) of 7.24 and 7.25. Actions taken by CAI during the one-year period which
would otherwise have required consent under the suspended covenants shall not
be deemed to be a breach of such covenants following the termination of such
suspension; but only to the extent of actions completed or transactions
consummated as of the end of the suspension period, provided, however, that CAI
may continue to take actions, ministerial or administrative in nature, required
of CAI subsequent to the one-year period in furtherance of the actions taken by
CAI during the one-year period, which actions shall not be deemed to be a
breach of such covenants following the termination of the suspension period.
Section 6. REMOVAL OF EQUIPMENT. Until the expiration of the
options under the BR Agreement with respect to the Virginia Beach and Boston
markets, the Company will maintain the transmission systems in Virginia Beach
and Boston intact and will not, unless consented to in writing by NYNEX MMDS or
MMDS Holdings, as applicable, sell, transfer or otherwise dispose of or remove
from the site any of the fixed assets or equipment located at or utilized in
the transmission systems in Virginia Beach or Boston, provided that CAI may
remove and utilize for other purposes (i) booster transmitters and associated
equipment in Boston, other than any equipment located at or used for the main
transmitter and associated systems at One Financial in Boston and (ii) booster
transmitters and associated equipment in Virginia Beach, other than equipment
used at the Virginia Beach main transmitter.
Section 7. COOPERATION. The parties shall provide reasonable
cooperation to each other in connection with facilitating the sale of the
Purchased Securities; PROVIDED, HOWEVER, that such cooperation shall not
require the parties to make any representations, warranties or statements or
incur any obligations other than those set forth in Section 1.
Section 8. FCC MATTERS. For a period of one year from the date
hereof, each of BANX and its affiliates party hereto agrees that it shall not
oppose any FCC filing or application by CAI solely for the purpose of: (i)
transferring any of its MMDS, MDS or ITFS leases or licenses; or (ii) modifying
its authority to use such spectrum for uses other than that permitted under
existing law or regulations, PROVIDED, HOWEVER, that BANX and its affiliates
party hereto will not be restricted from opposing any application or filing
described in clause (ii) where such application or filing, if granted, could
reasonably be expected to have the effect of restricting the conduct of their
business. Nothing in this Agreement shall have the effect of limiting the
ability of BANX and its affiliates to respond to any communication to the FCC
which they determine makes false, misleading and/or negative reference
(directly or indirectly) to BANX or any of its affiliates.
Section 9.PUBLICITY. The parties will make reasonable efforts to
consult with each other prior to the issuance of a press release regarding this
Agreement. Following the dissemination of an initial press release, the
parties' obligations with respect to the disclosure of the details of this
Agreement shall be governed by the applicable provisions of the agreements
which this Agreement modifies.
Section 10. NO WAIVER. Failure by either party to insist on strict
performance or observance of any provision of this Agreement or to exercise any
right or remedy shall not be construed as a waiver of any right or remedy with
respect to any existing or subsequent breach or default. This Agreement shall
not constitute a waiver, compromise or relinquishment of any claims relating to
the BR Agreement or the documentation governing the Purchased Securities.
Section 11. REPRESENTATIONS AND WARRANTIES. Each party hereto
represents and warrants to the other party that (a) such party has all
requisite legal power and authority to execute and deliver this Agreement and
to perform its obligations hereunder, (b) the execution, delivery and
performance hereof has been duly authorized by all requisite corporate action
on the part of such party, including with respect to the Company by express
Board of Directors authorization, and (c) this Agreement (i) has been duly
executed and delivered by such party and (ii) subject to the due execution and
delivery of this Agreement by the other party hereto, this Agreement
constitutes a legal, valid and binding obligation of such party, enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws or other laws affecting
creditors' rights generally and subject further to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law). Notwithstanding anything to the contrary herein, the
effectiveness of Section 1 hereof shall be contingent on the approval of this
Agreement to the extent required by the Boards of Directors of Bell Atlantic
Corporation and NYNEX Corporation, which if required BANX and its affiliates
agree to seek promptly following the date hereof.
Section 12. EFFECT ON AGREEMENTS. The provisions of this Agreement
shall be narrowly construed in accordance with the express provisions hereof
and except as expressly amended or modified herein, the Stock Purchase
Agreement, the Purchased Securities and the BR Agreement and each of the
provisions thereof shall remain in full force and effect in accordance with
their respective terms.
Section 13. MISCELLANEOUS.
() ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes any and all previous agreements, representations and understandings
between the parties hereto with respect to such matters whether oral or in
writing.
() GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the law of the State of New York.
() SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validly or enforceability of
any other provisions of this Agreement, each of which shall remain in full
force and effect.
() NO THIRD PARTY BENEFICIARIES. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. Nothing in this Agreement shall create or
be deemed to create any third party beneficiary rights in any person not party
to this Agreement.
() AMENDMENTS. This Agreement may be amended, supplemented or
modified, and any provision hereof may be waived, only pursuant to a written
instrument making specific reference to this Agreement signed by each of the
parties hereto.
() COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 13. EXPENSES AND INDEMNIFICATION. Without limitation to
Section 7.1 and 7.2 of the Securities Purchase Agreement:
(i) each party will pay its own costs and expenses (including
reasonable fees, charges and disbursements of counsel) incurred in connection
with the preparation, negotiation and execution of this Agreement; and
(ii) the Company agrees to indemnify BANX and its affiliates and
their respective directors, officers, employees and agents (each such Person
being an "INDEMNITEE") against, and to hold each Indemnitee harmless from, any
and all losses, claims, damages, liabilities, penalties and related costs and
expenses (collectively, "Claims"), including counsel fees, charges and
disbursements, incurred by or asserted against any Indemnitee arising out of,
in any way in connection with, or as a result of (i) the execution, delivery or
performance of this Agreement or of any document contemplated hereby or the
consummation of any of the transactions contemplated hereby, (ii) any exercise
by any Indemnitee of its rights and remedies hereunder, or (iii) any claim
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnitee is a party thereto; PROVIDED, HOWEVER, that such
indemnity shall not, as to any Indemnitee, apply to any such losses, claims,
damages, liabilities, penalties or related costs and expenses or portion
thereof arising exclusively from the material breach, gross negligence or
wilful misconduct of such Indemnitee, or from any act or failure to act of an
Indemnitee under any other agreement or legal obligation of such Indemnitee
where the Indemnitee was under a legal obligation to act or abstain from
acting, in any such case, as determined by final order of a court of competent
jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
through their duly authorized representatives on the day and year first above
written.
CAI WIRELESS SYSTEMS, INC.
By:
Name:
Title:
ROCHESTER CHOICE TELEVISION, INC.
By:
Name:
Title:
HAMPTON ROADS WIRELESS, INC.
By:
Name:
Title:
EASTERN NEW ENGLAND TV, INC.
By:
Name:
Title:
CONNECTICUT CHOICE TELEVISION, INC.
By:
Name:
Title:
COMMONWEALTH CHOICE TELEVISION, INC.
By:
Name:
Title:
ATLANTIC MICROSYSTEMS, INC.
By:
Name:
Title:
HOUSATONIC WIRELESS, INC.
SYSTEMS, INC., d/b/a
CAPITAL CHOICE TELEVISION
By:
Name:
Title:
NISAKAYUNA ASSOCIATES, INC.
By:
Name:
Title:
ONTEO ASSOCIATES, INC.
By:
Name:
Title:
<PAGE>
NEW YORK CHOICE TELEVISION, INC.
By:
Name:
Title:
CAI TRANSACTIONS P, INC.
By:
Name:
Title:
CAI TRANSACTIONS W, INC.
By:
Name:
Title:
CAI VA TRANSACTIONS, INC.
By:
Name:
Title:
CAI CT HOLDINGS CORP.
By:
Name:
Title:
<PAGE>
BANX PARTNERSHIP
By: MMDS Holdings Inc.
By:
Name:
Title:
By: NYNEX MMDS Company
By:
Name:
Title:
MMDS HOLDINGS INC.
By:
Name:
Title:
MMDS HOLDINGS II INC.
By:
Name:
Title:
NYNEX MMDS COMPANY
By:
Name:
Title:
NYNEX MMDS HOLDING COMPANY
By:
Name:
Title:
<TABLE>
<CAPTION>
EXHIBIT 11.1
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
Computation of Loss per Common Share
For the Nine-Month Period Ended December 31, 1996
<S> <C>
Net loss $ (57,493,239)
Preferred stock dividend (9,576,367)
Loss applicable to common stock
shareholders $ (67,069,606)
Weighted average number of shares
outstanding 39,915,020
Loss per common share $ (1.68)
</TABLE>
<TABLE>
<CAPTION>
COMPUTATION OF WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Weighted Average
SHARES SHARES
<S> <C> <C>
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996
Beginning Balance 37,829,482 37,829,482
Series A Preferred Stock - converted 2,637,742 2,028,219
Warrants exercised 73,315 57,319
Warrants - BANX 36,751,083 0
Warrants - Other 2,235,541 0
Options 2,152,604 0
39,915,020
</TABLE>
(a) Outstanding convertible preferred stock, warrants and options are not
considered for the purposes of calculating the weighted average shares
outstanding since these securities are anti-dilutive.
(b) The Series A Redeemable Convertible Preferred Stock have been converted
as of December 31, 1996.
EXHIBIT 11.2
<TABLE>
<CAPTION>
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
Computation of Fully Diluted Loss Per Common Share
For the Nine-Month Period Ended December 31, 1996
<S> <C>
Loss applicable to common stock shareholders $ (67,069,606)
Less: Preferred stock dividends 9,576,367
Net loss used to calculate fully diluted loss per
common share, before adjustments (57,493,239)
LESS : ADJUSTMENTS
Interest expense on term notes assumed to be
CONVERTED, NET OF DEFERRED TAX EFFECT....................... 1,917,000
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........................................ 10,994,000
Adjusted net loss $(44,582,239)
Weighted average fully diluted loss per common share $ (0.62)
Weighted average common and equivalent
shares outstanding as of December 31, 1996 39,915,020
ADD SHARES ASSUMING CONVERSION OF :
Warrants, BANX 36,751,083
Warrants, other 2,235,541
Options 2,152,604
Treasury stock repurchase with proceeds (8,108,108)
Weighted average number of shares
used to compute fully diluted loss
per common share 72,946,140
</TABLE>
a. Interest expense reduction resulting from excess proceeds (over 20%
treasury stock purchase) used to reduce debt is calculated based on actual
interest expense incurred on the Senior Notes.
b. Treasury method used to the extent of the 20% limit on the shares
outstanding as of December 31, 1996.
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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the December
31, 1996 financial statements contained in this Form 10-Q and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 19,038,921
<SECURITIES> 0
<RECEIVABLES> 2,190,161
<ALLOWANCES> 1,052,956
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 97,945,275
<DEPRECIATION> 25,426,868
<TOTAL-ASSETS> 595,018,115
<CURRENT-LIABILITIES> 0
<BONDS> 312,117,799
69,125,005
0
<COMMON> 275,769,414
<OTHER-SE> (132,178,142)
<TOTAL-LIABILITY-AND-EQUITY> 595,018,115
<SALES> 0
<TOTAL-REVENUES> 27,737,756
<CGS> 0
<TOTAL-COSTS> 23,651,959
<OTHER-EXPENSES> 13,000,000
<LOSS-PROVISION> 2,219,772
<INTEREST-EXPENSE> 30,316,613
<INCOME-PRETAX> (70,993,239)
<INCOME-TAX> (13,500,000)
<INCOME-CONTINUING> (57,493,239)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (57,493,239)
<EPS-PRIMARY> (1.68)
<EPS-DILUTED> 0
</TABLE>
