AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 19, 1997
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CAI WIRELESS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
CONNECTICUT 06-1324691
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
18 CORPORATE WOODS BLVD., 3RD FLOOR
ALBANY, NEW YORK 12211
(515) 462-2632
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
JARED E. ABBRUZZESE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
CAI WIRELESS SYSTEMS, INC.
18 CORPORATE WOODS BLVD., 3RD FLOOR
ALBANY, NEW YORK 12211
(518) 462-2632
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPY TO:
M. Louise Turilli
Day, Berry & Howard
CityPlace I
Hartford, Connecticut 06103-3499
(860) 275-0178
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this Registration Statement when
warranted by market conditions and other factors.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [ X ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering. [
]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Shares Amount to be Proposed Maximum Proposed Maximum Amount of
to be Registered Registered Aggregate Price Per Unit Aggregate Offering Price* Registration Fee*
<S> <C> <C> <C> <C>
Common Stock, no 73,352 $2.203125 $161.603.63 $48.97
par value shares
</TABLE>
*Estimated solely for purposes of calculating the registration fee
under Rule 457(c).
(con't next page)
Pursuant to Rule 429 under the Securities Act of 1933, the prospectus
included herein also relates to the Company's Registration Statement on
Form S-3 (No. 33-99770) registering 7,567,897 shares of Common Stock, no
par value, of the Company, Registration Statement on Form S-3 (No. 333-
3334) and Registration Statement on Form S-3 (No. 333-12133).
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that
this registration statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
registration statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
<PAGE>
4,969,091 SHARES
CAI WIRELESS SYSTEMS, INC.
COMMON STOCK
(NO PAR VALUE)
This Prospectus relates to 4,969,091 shares (the "Shares") of common stock,
no par value (the "Common Stock"), of CAI Wireless Systems, Inc., a Connecticut
corporation ("CAI" or the "Company"). All of the Shares being offered hereby
are outstanding shares or shares issuable upon exercise of outstanding
warrants.
The Shares may be offered by certain Shareholders of the Company named
herein (the "Selling Shareholders") from time to time in transactions on the
Nasdaq National Market, in negotiated transactions, at fixed prices which may
be changed, at market prices prevailing at the time of sale, at prices related
to prevailing market prices or at negotiated prices. The Selling Shareholders
may effect such transactions by selling the Shares to or through broker-
dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Shareholders and/or the
purchasers of the Shares for whom such broker-dealers may act as agents or to
whom they sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). The Selling
Shareholders, and any agents or broker-dealers that participate with the
Selling Shareholders in the distribution of the Shares, may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended
(the "Securities Act"), and any commissions received by them and any profit on
their resale of the Shares may be deemed to be underwriting commissions or
discounts under the Securities Act. See "The Selling Shareholders" and "Plan
of Distribution."
None of the proceeds from the sale of the Shares by the Selling
Shareholders will be received by the Company. The Company has agreed to bear
certain expenses (other than selling commissions) in connection with the
registration of the Shares.
The Common Stock of the Company is quoted on the Nasdaq National Market
under the symbol "CAWS." On February 12, 1997, the per share closing price of
the Common Stock as reported on the Nasdaq National Market was $2.0625.
SEE "RISK FACTORS" FOR A DESCRIPTION OF CERTAIN RISKS TO BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE SECURITIES OFFERED HEREBY.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAW OF ANY SUCH STATE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February __, 1997.
<PAGE>
AVAILABLE INFORMATION
CAI has filed a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with the Securities and Exchange Commission (the "Commission"),
Washington, D.C., with respect to the Shares of Common Stock offered hereby.
As permitted by the rules and regulations of the Commission, this Prospectus
omits certain information contained in the Registration Statement on file with
the Commission. The information omitted can be inspected at the office of the
Commission, 450 Fifth Street, N.W., Washington, D.C., and copies can be
obtained from the Commission at prescribed rates by writing to it at 450 Fifth
Street, N.W., Washington, D.C. 20549. For further information pertaining to
CAI and the Shares of Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits filed as a part thereof.
CAI is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Reports, proxy statements and other information filed by CAI with
the Commission can be inspected and copied at the Commission's Public Reference
Section, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following Regional Offices of the Commission: Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material can be
obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition,
the Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants, such as the
Company, that file electronically with the Commission. The address of such
site is (http://www.sec.gov).
CAI Common Stock is quoted on the Nasdaq National Market (the "Nasdaq
NM"). Reports, proxy and information statements, and other information
concerning CAI may be inspected at the office of the National Association of
Securities Dealers, Inc., 33 Whitehall Street, 10th Floor, New York, NY 10004.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by CAI with the Commission (File
No. 0-22888) pursuant to the Exchange Act and are incorporated herein by
reference:
(1) Annual Report on Form 10-K for the fiscal year ended March 31,
1996;
(2) Annual Report on Form 10-K/A for the fiscal year ended March 31,
1996;
(3) Quarterly Reports on Form 10-Q for the fiscal quarters ended June
30, 1996, September 30, 1996 and December 31, 1996;
(4) Current Reports on Form 8-K dated April 25, 1996, May 30, 1996,
July 3, 1996, August 12, 1996, September 20, 1996, September 27,
1996, November 6, 1996, January 3, 1997 and February 7, 1997;
(5) Current Reports on Form 8-K/A dated April 1, 1996; and
(6) The description of the Company's Common Stock contained in its
Registration Statement filed pursuant to Section 12 of the
Exchange Act, and any amendment or report filed for the purpose of
updating any such description.
All documents filed by CAI pursuant to Section 13(a), 13(c), or 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
Copies of the above documents (excluding exhibits to such documents, unless
such exhibits are specifically incorporated by reference therein) may be
obtained upon written or oral request without charge by each person, including
beneficial owners, to whom this Prospectus is delivered from George M.
Williams, CAI's Corporate Secretary, 18 Corporate Woods Blvd., 3rd Floor,
Albany, New York 12211 (telephone number (518) 462-2632).
<PAGE>
THE COMPANY
CAI Wireless Systems, Inc. ("CAI" or the "Company") is a leading
developer, owner and operator of subscription television systems utilizing
Multichannel Multipoint Distribution Services ("MMDS") spectrum, in terms of
number of subscribers and number of line-of-sight households. The Company,
since its formation, has focused on the development of MMDS subscription
television systems in major metropolitan markets, primarily in the northeast
and mid-Atlantic regions of the United States. CAI's 14 markets have the
ability to reach approximately 13.1 million line-of-sight households as
estimated by CAI ("LOS households"). CAI had approximately 76,000 subscribers
as of December 31, 1996. In addition to the subscription television business,
and in an effort to fully exploit its spectrum capacity, the Company has been
pursuing the development of other business segments, including high speed
Internet access, as well as other video and data transmission services and may
seek to develop telephony delivery services as well.
The Company has begun to explore the full capabilities of its MMDS
spectrum that may be in addition to, or, in certain CAI markets, instead of,
subscription television. The Company believes that its MMDS spectrum can be
utilized as the transport system for fixed, flexible two-way uses that
eventually could be combined into a wireless full service network--the Wireless
Information Network ("WIN"). Although the Company recognizes that there are
significant regulatory, technological and financial issues surrounding the
development of such a network, the Company believes that WIN systems can be
deployed in a reasonable manner to develop a commercially-viable means of
delivering video, voice and data transmission services. There can be no
assurance, however, that the Company will be able develop and implement WIN
systems in any of its markets, or that, in the event a WIN system is developed
and implemented in any of the Company's markets, that the Company could deploy
such a system in a reasonable, commercially-viable and profitable manner. See
"Risk Factors" for a description of the various risks associated with the
development and implementation of alternative uses of the MMDS spectrum, as
well as certain risks associated with the Company's current operations and
financial condition.
CAI is a Connecticut corporation. Its principal executive offices are
located at 18 Corporate Woods Boulevard, 3rd Floor, Albany, New York 12211.
CAI's telephone number is (518) 462-2632.
BACKGROUND
The Company was formed in 1991 to invest in and operate MMDS
subscription television systems. Through a series of acquisitions culminating
in the merger of ACS Enterprises, Inc., an MMDS operator based in Philadelphia,
Pennsylvania with operating systems in Philadelphia, Cleveland, Ohio and
Bakersfield, California, into CAI in September 1995, the Company has grown to
become the largest MMDS operator in the United States in terms of both
television and LOS households. The Company enhanced its spectrum capacity
during 1996 by being the industry leader in the auction (the "FCC Auction") of
MMDS spectrum rights in 493 Basic Trading Areas ("BTAs") conducted by the
Federal Communications Commission ("FCC"). CAI, in an effort to offer maximum
service, was the top bidder in the FCC Auction with a total bid of $36.2
million for the BTA rights for its existing markets as well as for new markets.
The Company made its initial public offering in February 1994, and
issued $275 million aggregate principal amount of its 12 1/4% Senior Notes due
2002 in September 1995. As of December 31, 1996, the Company had 40,540,539
shares of its common stock, without par value (the "Common Stock"), issued and
outstanding.
In addition to the consummation of several acquisitions and the offering
of CAI's Senior Notes, the Company also completed a series of transactions with
affiliates of Bell Atlantic Corporation ("Bell Atlantic") and NYNEX Corporation
("NYNEX") in September 1995. In March 1995, CAI entered into a strategic
business relationship with BANX Partnership, an affiliate of Bell Atlantic and
NYNEX (the "BANX Partnership") and with other affiliates of Bell Atlantic and
NYNEX (the "BANX Affiliates"). This relationship consisted of (i) the signing
of the Business Relationship Agreement, as amended (the "BR Agreement") with
the BANX Affiliates, (ii) the purchase by the BANX Partnership of $30 million
of convertible Term Notes due May 9, 2005 ("Term Notes") and Warrants (the
"Warrants") to purchase convertible preferred stock, no par value (the "Voting
Preferred Stock"), and (iii) the purchase by the BANX Partnership of $70
million of 14% Senior Convertible Preferred Stock, par value $10,000 per share
("Senior Preferred Stock"; and together with the Term Notes, Voting Preferred
Stock and Warrants, the "CAI Securities") and additional Warrants. The full
conversion or exercise of the CAI Securities would result in the BANX
Partnership having to make an additional investment in CAI for approximately
$202 million (subject to adjustment as contemplated by the Modification
Agreement (as defined herein)) and its pro forma ownership interest in CAI
increasing to approximately 45%. None of the CAI Securities had been exercised
or converted.
Pursuant to the BR Agreement, which was intended to allow CAI to realize
revenue in certain of its markets without incurring substantial capital
expenditures required for subscriber equipment and installation as well as
eliminate most operating costs, other than channel license fees and
distribution system expenses, CAI granted to each BANX Affiliate the ability,
on a market by market basis, to elect to become the marketer and provider of
subscription television services using CAI's MMDS transmission systems in each
market in their respective service areas in exchange for monthly service
revenues based on the number of serviceable households and subscribers in each
market so optioned by a BANX Affiliate. In connection with the Company's
obligations under the BR Agreement, CAI substantially completed the
construction of digital video delivery systems in Boston, Massachusetts and
Hampton Roads, Virginia. Through December 12, 1996, however, neither BANX
Affiliate had exercised their respective options under the BR Agreement in
these or any other markets contemplated by the BR Agreement.
On December 12, 1996, the Company and the various BANX entities reached
an agreement (the "Modification Agreement") modifying certain terms of the BR
Agreement and providing CAI or its designee with the right to acquire the CAI
Securities. For a one-year period beginning on December 12, 1996, the
Modification Agreement suspends the right of the BANX Affiliates to option any
market for the development of subscription video services utilizing CAI's MMDS
spectrum and, therefore, relieves CAI of its obligations to reserve its MMDS
spectrum for imminent use by the BANX Affiliates as a video delivery platform.
This suspension also relieves CAI of certain construction obligations otherwise
imposed upon CAI by the BR Agreement, and therefore, provides relief from the
capital expenditure associated with such construction. The Modification
Agreement also enables CAI, during the one-year suspension period, to use its
MMDS spectrum in markets subject to the BR Agreement for applications other
than video transmission, subject to receipt of requisite regulatory approval,
and to enter into new strategic relationships with third parties during the
one-year suspension period.
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 held
by the BANX Partnership. If notice to purchase the BANX Securities is received
by the BANX Partnership within the first 120 days after the date of the
Modification Agreement, the purchase price for the CAI Securities 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.
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.
The Company is actively seeking new strategic investors interested in
purchasing the CAI Securities. See "The Company - Recent Developments -
Interim and Long-term Financing."
In connection with the closing of any such purchase of the CAI
Securities, Bell Atlantic and NYNEX have agreed to return to the Company their
shares in CS Wireless Systems, Inc. ("CS Wireless"), representing almost 10% of
the outstanding stock of this CAI majority-owned joint venture with Heartland
Wireless Communications, Inc. See "The Company - Recent Developments -
Interest in CS Wireless."
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, the 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.
BUSINESS STRATEGY
The Company, since its formation, has focused on the development and
operation of MMDS subscription television systems concentrated in major
metropolitan areas located in the northeast and mid-Atlantic regions of the
United States. With the suspension of the BR Agreement and the receipt of
regulatory approvals not previously sought by MMDS operators or granted by the
FCC, the Company has begun to explore the full capabilities of its MMDS
spectrum that may be in addition to, or in certain CAI markets, instead of,
subscription television. The Company believes that its MMDS spectrum can be
utilized as the transport system for fixed, flexible two-way uses that
eventually could be into a wireless full service network-the Wireless
Information Network ("WIN"). Although the Company recognizes that there are
significant regulatory, technological and financial issues surrounding the
development of such a system in any of CAI's markets, the Company believes that
WIN systems can be deployed in a reasonable manner to develop a commercially-
viable means of delivering video, voice and data transmission services.
The Company has assembled significant spectrum rights in the northeast
and mid-Atlantic regions of the United States, and is continuing to acquire
channel rights in anticipation of developing digital systems which will allow
CAI to utilize higher output power and compression technologies to increase
channel capacity. CAI originally began to acquire its spectrum capacity in
preparation for its obligations under the BR Agreement, which required CAI to
deliver a minimum number of channels in each of the markets subject to the BR
Agreement. During the one-year suspension period, the Company intends to
utilize its significant spectrum capacity to develop systems that are capable
of delivering video, voice and data, subject to regulatory approval. Although
the Company believes that it will be possible to offer all three services in
any given market once regulatory approval for fixed, flexible two-way use is
approved for such market, the allocation of channels among the various services
is expected to be driven by consumer demand for such services in the Company's
markets and not all services may be offered in all markets. The Company's
initial efforts with respect to the development of fixed, flexible two-way use
of the MMDS spectrum have been limited primarily to its Boston market.
The table below sets outlines as of December 31, 1996 (except as
indicated in the footnote below) the characteristics of the markets in which
the Company has an operational subscription television system or in which the
Company holds significant spectrum rights:
<PAGE>
<TABLE>
<CAPTION>
Estimated Total Estimated Number New
DMA Service Area LOS of Channels Channels
MARKET RANK{(1)} HOUSEHOLDS{(2)} HOUSEHOLDS{(2)} AVAILABLE{(3)} APPLIED FOR
<S> <C> <C> <C> <C> <C> <C>
New York City 1 5,563,000 4,173,000 36 0
Long Island{(4)} N/A 619,000 464,000 20 13
Philadelphia 4 2,646,000 1,750,000 41 2
Boston 6 2,122,000 1,283,000 30 3
Washington, DC 7 1,884,000 1,160,000 24 4
Pittsburgh 17 1,170,000 775,000 23 9
Baltimore 23 980,000 740,000 32 1
Hartford 26 911,000 526,000 20 3
Buffalo 36 656,000 408,000 31 2
Norfolk 40 619,000 430,000 32 1
Providence 46 557,000 503,000 23 10
Albany 52 507,000 332,000 32 0
Syracuse 67 398,000 278,000 18 7
Rochester 17 372,000 323,000 27 6
TOTALS 19,004,000 13,145,000
</TABLE>
{(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 of the primary
transmitter that can receive an unobstructed signal, as estimated by CAI,
based on a topographical analysis of each individual market. The service
area for a market varies from 25 to 40 miles based on transmitter height,
transmitter power, and the proximity of adjacent wireless systems.
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 Philadelphia and 11 in New York City. The Number of Channels
Available 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 5 channels in Philadelphia, 5 channels in Hartford, 4
channels in New York City, 7 channels in Washington, D.C., 24 channels in
Rochester, 18 channels in Providence, 3 channels in Buffalo, 20 channels in
each of Norfolk and Boston and 18 channels in Long Island. The Number of
Channels Available includes ITFS channels that may not be available for
commercial programming by CAI.
{(4)} The Long Island market includes Nassau and Suffolk counties in New York
State.
In addition to the markets set forth above, CAI holds 52% of CS Wireless
Systems, Inc., a Delaware corporation ("CS Wireless") formed on February 23,
1996 by the Company and Heartland Wireless Communications, Inc., an MMDS
subscription television operator of small- to mid-sized markets ("Heartland").
Pursuant to the terms of a Participation Agreement dated December 12, 1995 (as
amended, the "Participation Agreement") among the Company, Heartland and CS
Wireless, each of CAI and Heartland contributed MMDS assets and channel rights
and stock of subsidiaries owning such assets and channel rights to CS Wireless.
As a result of the contributions and transactions effected by CS Wireless
following its formation, CS Wireless currently has 11 markets, encompassing on
a pro forma basis for publicly announced transactions approximately 7.4 million
television households, approximately 6.0 million of which are LOS households,
as estimated by CS Wireless. As of December 31, 1996, CS Wireless provided
service to approximately 65,600 subscribers. See "-Recent Developments -
Interest in CS Wireless."
MMDS spectrum is regulated by the Federal Communications Commission
("FCC") which governs, among other things, the issuance, renewal, assignment,
transfer and modification of licenses necessary for MMDS systems to operate.
"MMDS" is the vernacular term used to describe CAI's business and includes both
MMDS and Multichannel Distribution Service ("MDS") channels, as well as
Instructional Television Fixed Service ("ITFS") channels. To date, the MMDS
spectrum has been licensed by the FCC for one-way video and data transmission
on an industry-wide basis. In addition, CAI has applied for and received a
variety of authorizations from the FCC for fixed, flexible use of its MMDS
spectrum in certain of CAI's markets. The Company has received from the FCC
(i) authorization for a market trial of up to 500 customers for CAI's high
speed one-way Internet access product (which uses a telephone line for the
return path) in Rochester, New York, (ii) authorization for a market trial of
up to 1,000 customers for CAI's high speed one-way Internet access product in
New York City, and (iii) permanent authorization for fixed, two-way flexible
use of five channels for 16 sites located in and around the Company's Boston
market. The Company has also received developmental authorization to test
fixed, flexible two-way uses on two channels located in its Hartford,
Connecticut market, however, the Company does not have any plans to conduct any
testing in this market at this time.
SUBSCRIPTION TELEVISION BUSINESS. The Company operates six analog-based
MMDS television systems and holds significant spectrum rights in eight
additional markets where it has not yet commenced operational systems. The
Company's traditional focus has been the development of MMDS subscription
television systems in major metropolitan markets primarily in the northeast and
mid-Atlantic regions of the United States. As of December 31, 1996, CAI had the
ability to reach approximately 13.1 million LOS households (representing
approximately 13.7% of all television households) and provided service to
approximately 76,400 subscribers.
The table below outlines as of December 31, 1996 the characteristics of
the markets in which CAI operates subscription television systems.
<TABLE>
<CAPTION>
Monthly
Number of Revenue Per Premium
MARKET SUBSCRIBERS SUBSCRIBER ($) PENETRATION{(1)}
<S> <C> <C> <C>
New York City 13,300 44.07 133%
Philadelphia 46,000 34.99 143%
Washington, DC 2,500 36.14 136%
Norfolk 3,000 30.02 120%
Albany 9,400 28.81 66%
Rochester 2,200 26.50 60%
</TABLE>
_________________________
{(1)} 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.
The Company has not actively sought to increase its television subscriber
base in its existing operating analog systems. Originally, this decision was
made in connection with the BR Agreement which contemplated that CAI would be
required to transfer all of its analog television subscribers to the
appropriate BANX Affiliate at the time such BANX Affiliate became the provider
of video programming in a particular market. CAI was not entitled to any
compensation for subscribers so transferred, so there was no incentive for CAI
to increase its subscriber base. With the suspension of the BR Agreement, the
Company plans to explore the full capabilities of its MMDS spectrum, including
uses for such spectrum other than subscription television delivery.
Consequently, the Company has maintained its strategy of not pursuing
television subscriber growth while it evaluates its business opportunities
other than subscription television services.
The Company intends to commence digital subscription television service
in the Boston market during the summer of 1997, pending the availability to the
Company of the necessary subscriber equipment and access to pre-digitized
compressed programming. Utilizing portions of the digital MMDS system built by
the Company last year, CAI intends to launch the digital subscription
television service in certain locations served by the Company's main
transmitter located in downtown Boston and selected booster sites throughout
the greater Boston area. There can be no assurance that the necessary
subscriber equipment or access to pre-digitized compressed programming will be
available to the Company in the Boston market, and if available, that the
Company will be able to successfully launch and operate a digital subscription
television business in this market. CAI has substantially completed
construction of a second digital system in Hampton Roads, Virginia. The
Company does not yet have a definitive timetable for the commercial deployment
of digital subscription television service in this market; however, if and when
CAI decides to launch a digital subscription television service in Hampton
Roads or any other of CAI's markets, availability of necessary subscriber
equipment and access to pre-digitized compressed programming must be secured in
connection with any such service launch.
ONE-WAY HIGH-SPEED INTERNET ACCESS. The Company believes that MMDS
technology presents a viable option to traditional telephony providers as a
"pipeline" through which Internet and commercial on-line services can be
carried, especially for small- to medium -sized businesses seeking a cost-
effective means of accessing such on-line services. To date, the FCC has
licensed the MMDS spectrum for one-way video and data transmission. CAI
further believes that the MMDS industry's systems, which can currently reach
more than 50% of the nation's households, are superior to traditional telephone
lines in terms of speed. An MMDS modem can transmit data at speeds of up to
27Mbps, nearly 1,000 times faster than a typical computer modem's 28.8Kbps .
Several MMDS operators, including CAI, have successfully tested one-way
Internet access capabilities over their existing systems, using a traditional
telephone line for the typically less data-intensive return path. CAI intends
to enter the Internet access market as a retail Internet Access Provider
("IAP"), but is also expected to offer wholesale transmission services as well.
The Company's wholesale service is expected to be offered to other IAPs.
CAI recently initiated a commercial one-way Internet access service in
Rochester, New York, where the FCC has granted CAI developmental authorization
to conduct a market trial of up to 500 Internet subscribers. The Company's
service in Rochester consists of one-way wireless high-speed downstream data
transmission at speeds well beyond that of T-1 telephone lines. The service
utilizes the Company's existing MMDS network for the downstream transmission,
while the return path is handled using a traditional telephone line. The
Company is marketing its Internet access service principally to small- to
medium-sized businesses, for which, the Company believes, there is a
significant need for high speed Internet access, but not necessarily the
financial resources to install high cost telephone lines capable of providing
comparable transmission speed. The Company is also conducting internet trials
in Washington, D.C. in conjunction with Hybrid Networks, Inc., a manufacturer
of Internet modems. There has been no definitive agreement to pursue
commercial authorization for an Internet access service in Washington, D.C. as
of the date hereof.
In addition to the developmental authorization the Company has received
for its Rochester market, the Company has received developmental authorization
from the FCC to conduct a commercial market trial of up to 1,000 Internet
access subscribers for its New York City market. The Company is in the
preliminary stages of implementing the commercial trial in New York City, and
expects that its high speed Internet access service should be available for
subscribers during the first half of 1997.
Internet access service is a new application for the MMDS platform.
Although the Company has previously demonstrated the technology and equipment
necessary to transmit data over its MMDS spectrum on several occasions and in
various markets, there can be no assurance that the Company will be able to
successfully deploy, in a commercial manner, an Internet access service over
its MMDS spectrum in Rochester, New York City or any other market in which it
may seek to initiate such a service.
FIXED, FLEXIBLE TWO-WAY USE OF MMDS SPECTRUM. To date, the FCC has
licensed the MMDS spectrum for one-way video and data transmissions. CAI has
recently applied for, and has received from the FCC, additional authorizations
from the FCC permitting CAI to develop fixed, flexible two-way uses of its MMDS
spectrum in specified CAI markets for specific customer locations. The Company
believes that fixed, flexible two-way use of the MMDS spectrum offers a
significantly enhanced service capability and would present new opportunities
for CAI and other MMDS operators. Based upon policy statements in which the
FCC has consistently recognized that MMDS spectrum may be employed for a
variety of video, voice and data transmission services, including two-way
transmission, the Company believes that FCC policy regarding the use of MMDS
spectrum is moving toward flexible two-way use of MMDS spectrum so long as
favorable technical and interference studies can be demonstrated. The Company
believes that fixed, flexible two-way uses include data transmission such as
two-way Internet access (eliminating the use of a traditional telephone line
return path currently utilized by CAI's internet access service) and corporate
intranet access services.
The Company, in anticipation of such FCC policy regarding flexible two-
way use, has recently applied for, and received from the FCC, a permanent
authorization for fixed, flexible two-way use of 5 channels of its MMDS
spectrum for 16 sites located in and around CAI's Boston market. This
authority represents the first of its kind awarded to an MMDS operator. CAI is
actively seeking strategic partners interested in developing fixed, flexible
two-way uses for its MMDS spectrum in Boston, and potentially, other CAI
markets. The Company is engaged in discussions with potential strategic
investors; however, such discussions are in the preliminary stages. There can
be no assurance that CAI will be successful in attracting a strategic partner,
or if successful, that a business arrangement between CAI and such strategic
investor can be reached on satisfactory terms and conditions, if at all.
Further, there can be no assurance that CAI, alone or in conjunction with a
strategic partner, will be able to successfully develop fixed, flexible uses of
its MMDS spectrum, or if successfully developed, that such uses can be deployed
profitably in a commercial manner.
Additionally, the permanent authorization granted to Boston is limited
to 5 channels for 16 customer locations. There can be no assurance that such
customer locations will enable CAI to successfully develop fixed, flexible uses
of its MMDS spectrum in Boston in a commercial manner, and therefore, CAI may
need to apply for authorization in Boston for additional channels and/or
additional customer locations. Such applications have not been made as of the
date hereof, and are not currently contemplated. There can be no assurance,
however, if such applications are made, that CAI would receive authorization
from the FCC for additional channels and/or additional customer locations in
the Boston market.
In connection with the Company's intention to develop fixed, flexible
two-way uses of its MMDS spectrum, the Company recently entered into a
memorandum of understanding with ADC Telecommunications, Inc., a
telecommunications equipment manufacturer, to pursue the design and
implementation of fixed two-way broadband wireless communications systems for
the transmission of video, voice and data over the MMDS spectrum. Subject to
receipt of the requisite regulatory authority, the Company and ADC expect to
use certain of the channels in CAI's Pittsburgh market for the initial phase of
the joint development project. If such phase is successful, the Company and
ADC have agreed to deploy a demonstration system in Boston, which the Company
believes will be conducted pursuant to the permanent authority it has already
received for fixed, flexible two-way use in that market. Further joint
development would be the subject of a definitive agreement among CAI and ADC,
although there can be no assurance that the initial phase or demonstration
system will be successful, or if successful, that a definitive agreement
relating to additional joint development of fixed two-way broadband wireless
communications systems with ADC will be reached on terms and conditions that
are satisfactory to the Company, if at all.
In addition to one-way video and one- and two-way data transmission, the
Company believes that fixed, flexible two-way use of its MMDS spectrum also
includes telephony delivery services. The Company believes that the
combination of digital compression, fiber loop and cellular technologies can be
integrated into the MMDS spectrum, resulting in a single wireless platform
capable of delivering a wide range of services, including telephony delivery
services. Adaptation of newly available, but as of yet commercially untested,
technologies has been explored by the Company, with the intention of assessing
MMDS spectrum's ability to simultaneously provide a combination of video, voice
and data delivery services. CAI believes that an MMDS system having one main
transmitter and multiple booster sites can be designed using standard cellular
network design principles to produce a relatively low-cost telephony delivery
platform. The Company has commenced preliminary testing and has taken initial
steps in furtherance of developing a telephony application for its MMDS
spectrum. Although the Company believes that an MMDS system can be designed to
provide telephony delivery services, there can be no assurance that such a
system could be designed, or that the Company would be capable of designing and
constructing such a system. Furthermore, in the event that such a system could
be designed, there can be no assurance that the Company would receive the
requisite regulatory approval to offer a telephony delivery service, that the
Company would have the financial resources, alone or in conjunction with a
strategic partner, necessary to design and construct a telephony delivery
service in one or more of its markets, or that such service, if it was designed
and constructed by the Company in one or more markets, could be successfully
deployed in a commercially successful manner.
WIRELESS INFORMATION NETWORK. Subject to receipt of regulatory approval
for fixed, flexible use of its MMDS spectrum, as well as the successful
deployment of digital video, one- and two-way data transmission and telephony
delivery services utilizing the MMDS platform and sufficient capital resources,
the Company intends to launch a wireless version of the full service network,
the Wireless Information Network ("WIN"). The Company believes that its WIN
systems would be able to provide quick and relatively inexpensive household
coverage on a broad scale. CAI believes that the WIN system concept will
enhance the Company's ability to attract one or more strategic investors by
giving such partners the ability to provide competitive access products over
CAI's MMDS spectrum. The Company believes that its WIN systems will be capable
of providing a combination of analog and/or digital video services for
residential, as well as for corporate and institutional/instructional
subscribers, bundled with high speed Internet and intranet access services, and
ultimately, telephony delivery services. The Company expects to be able to
alter the channel allocation among the various services depending on the needs
of the strategic partner and consumer demand, thereby deriving multiple revenue
streams from each WIN system.
The Company has not yet implemented a WIN system in any of its markets.
CAI believes that the various regulatory approvals it has received and the
joint development projects with which it is involved will enable CAI to assess
the viability of the WIN system and present it to potential strategic partners.
There are a number of risk factors, including, without limitation, receipt of
all requisite regulatory appovals, technology development and the availability
of additional financing, that will affect the implementation of a WIN system in
any of the Company's markets, some of which are outside the control of the
Company. There can be no assurance that the Company will be able to develop a
WIN system in any of its markets, or that if a WIN system is developed, that
the Company will be able to deploy a variety of services in a commercially
reasonable manner, if at all.
Recent Developments
INTERIM AND LONG-TERM FINANCING. The Company is actively seeking to
raise $25 million to $50 million of interim secured financing by April 1997 and
to secure long-term financing through a strategic partner(s) to replace BANX
Partnership. The Company has engaged Smith Barney Inc. to act as its financial
adviser with respect to the interim financing and has engaged J.P. Morgan
Securities Inc. and Smith Barney Inc. to act as its financial advisers with
respect to explore strategic alternatives for the Company. J.P. Morgan and
Smith Barney have each contacted several potential strategic partners on behalf
of the Company. Although the Company has had discussions with certain of these
potential strategic partners, such discussions have been preliminary. There
can be no assurance that a new strategic partner(s) can be identified, or if
identified, that an arrangement on terms and condition satisfactory to the
Company can be reached with such new strategic partner(s).
The Company has also had discussions with certain qualified parties
interested in providing CAI with the interim financing. CAI has not yet
reached a definitive agreement with any of these qualified parties. There can
be no assurance that any interim financing will be available to the Company on
satisfactory terms and conditions, if at all. Failure to obtain the interim
financing, and ultimately, failure to obtain a new strategic partner, would
have a material adverse effect on the Company.
INTEREST IN CS WIRELESS. The Company currently owns approximately 52%
of CS Wireless. Pursuant to the terms of a Stockholders' Agreement dated
February 23, 1996 among the Company, Heartland and CS Wireless, the Company is
required to be the single largest stockholder of CS Wireless prior to any
public offering of CS Wireless common stock. Pursuant to the terms of the
Participation Agreement regarding a true-up of the amounts contributed by each
of CAI and Heartland to CS Wireless (based on the value of MMDS assets or
channel rights or stock of entities owning such assets or rights), and the
consummation of the exchange of certain MMDS assets and channel rights relating
to Portsmouth, New Hampshire owned by Heartland and certain of its affiliates
for shares of CS Wireless owned by the Company, the Company's 52% interest in
CS Wireless will be reduced to approximately 48% and Heartland's interest in CS
Wireless will be increased to approximately 39% Although CAI's stock ownership
in CS Wireless will fall below 50%, CAI will continue to be the largest single
stockholder of CS Wireless following the consummation of the Portsmouth
transaction and the true-up adjustment.
LITIGATION. During the quarter ended December 31, 1996 and later
periods, the Company was named in five class action lawsuits, each alleging
various violations of the federal securities laws. The lawsuits were filed in
the United State District Court for the Northern District of New York. The
complaints name the Company, certain directors of CAI, as well as a significant
non-individual 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 (the
"Exchange Act") during various Class Periods. Plaintiffs' claims arise out of
alleged material misstatements and omissions in the Company's public
disclosures during the various Class Periods, as part of a scheme to inflate
the price of CAI securities enabling the individual defendants to sell CAI
securities at such inflated prices. Plaintiffs are seeking 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.
The Company is also the subject of an action before the National Labor
Relations Board ("NLRB"), entitled CAI WIRELESS, INC. EMPLOYER AND
COMMUNICATION WORKERS OF AMERICA, AFL-CIO CHARGING PARTY, Case Nos. 4-CA-24633
and 4-CA-24785. The Company is presently scheduled to participate in a hearing
before and Administrative Law Judge of the NLRB on April 7, 1997 in
Philadelphia, Pennsylvania to defend against unfair labor practice charges
brought by Region 4 of the NLRB. The unfair labor practice charges concern
allegations that the Company violated the National Labor Relations Act during a
union election campaign in February and March, 1996 and actions taken
thereafter that the General Counsel of the NLRB alleges also violated the
National Labor Relations Act. The General Counsel is seeking reinstatement of
field technicians previously employed at the Company's Philadelphia Choice
subsidiary and also an order requiring the Company to recognize and bargain
with the Communication Workers of America as the labor organization
representing the reinstated employees. The Company has stated that it intends
to vigorously defend the action. It is not possible to assess the likely
outcome at this time.
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK INVOLVES SUBSTANTIAL RISK. THE
FOLLOWING RISK FACTORS, TOGETHER WITH ALL THE OTHER INFORMATION APPEARING IN
THIS PROSPECTUS, SHOULD BE CONSIDERED CAREFULLY BY POTENTIAL INVESTORS.
NEED FOR ADDITIONAL FINANCING FOR OPERATIONS
CAI's business requires substantial investment to finance capital
expenditures and operating expenses for business and system development, as
well as for subscriber growth. These activities may be financed in whole or in
part by CAI through debt or equity financings, subscriber equipment lease
financings, joint ventures or other arrangements. The Company is currently
actively seeking to raise $25 million to $50 million of interim secured
financing by April 1997, which is likely to include some type of equity
component issued to the party providing such financing. There is no assurance
that any additional financing, including the interim financing, necessary to
expand the build-out of CAI's MMDS systems, to acquire new systems or for
operations and business development, including development of fixed, flexible
two-way uses of MMDS spectrum or the WIN system, will be available on
satisfactory terms and conditions, if at all. Any limitations that the Company
may now have on its ability to access the public capital markets should not, in
the Company's view, hinder its access to alternative sources of capital,
including from sales of selected assets. To the extent that future financing
requirements are satisfied through the issuance of equity securities, investors
may experience significant dilution. Additional debts, including the interim
financing, could result in a substantial portion of CAI's cash flow from
operations being dedicated to the payment of principal and interest on such
indebtedness and would render CAI more vulnerable to competitive pressures and
economic downturns. Certain of CAI's existing financing documents restrict the
issuance of debt and the contractual arrangements with the BANX entities also
contain restrictions on the issuance by CAI of equity securities. Failure to
obtain additional financing, including the interim financing, would adversely
affect CAI and its ability to exploit the MMDS spectrum and to compete
successfully in the subscription television and internet access industries.
EFFECT OF SUBSTANTIAL INDEBTEDNESS AND PREFERRED STOCK ON FUTURE OPERATIONS
CAI has substantial indebtedness, and beginning in 1999, will have
significant debt service requirements. As of December 31, 1996, CAI had
outstanding consolidated long-term debt of approximately $312 million and
shareholders' equity of approximately $144 million. In addition to the
foregoing indebtedness, CAI has $70 million of mandatorily redeemable preferred
stock outstanding having a priority as to dividends and a liquidation
preference over the Shares of Common Stock. The Company is actively seeking to
obtain $25 million to $50 million of interim secured 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 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
such financings will have a material adverse effect on the Company.
CAI's debt instruments and preferred stock impose restrictions on the
ability of CAI to incur additional debt, acquire or dispose of assets, incur
debt or liens, make certain investments and take certain other material
actions. Such debt instruments and preferred stock and the restrictions
contained therein will have several important consequences on CAI's future
operations, including, but not limited to the following: (i) CAI will incur
significant interest expense and principal repayment obligations; (ii) CAI's
ability to obtain additional financing, including the interim financing, in the
future, as needed, may be limited; (iii) CAI's leveraged position and the
covenants contained in such debt instruments and preferred stock could limit
CAI's ability to compete as well as its ability to expand and make capital
improvements; (iv) CAI's substantial leverage will make it more vulnerable to
expand and make capital improvements; (v) CAI's substantial leverage will make
it more vulnerable to economic downturns, limit its ability to withstand
competitive pressures and reduce its flexibility in responding to changing
business and economic conditions; and (vi) the Company's ability to fully
implement its plans to exploit its MMDS spectrum, including, without
limitation, development of the WIN system in any of CAI's markets. In
addition, such debt instruments and the terms of such preferred stock contain
provisions that obligate CAI to redeem or offer to purchase such securities for
specified premiums in the event of a change of control of CAI and certain
similar events.
NEED FOR STRATEGIC PARTNER(S)
Pursuant to the terms of the Modification Agreement, CAI has been granted
the right to purchase, or have its designee purchase, the CAI Securities. Upon
the consummation of such purchase, the BR Agreement would terminate eliminating
CAI's strategic relationship with the BANX Affiliates. The Company is actively
seeking a new strategic partner(s) to replace the BANX Partnership. The
Company's ability to locate such strategic partner(s), however, may be limited,
in part, by the BANX Partnership's willingness to negotiate the terms and
conditions of the purchase of the CAI Securities. Much of the Company's
business plan relating to fixed, flexible use of the MMDS spectrum is dependent
upon CAI securing a new strategic partner to provide the necessary capital
resources, as well as engineering and other expertise, and subscribers for such
flexible-use services, to CAI as it develops these business segments. There
can be no assurance that the Company will be able to secure a new strategic
partner(s) on terms and conditions satisfactory to the Company, if at all.
Further, there can be no assurance that, even with a new strategic partner(s)
and receipt of all necessary regulatory authorizations, the Company will be
able to launch fixed, flexible two-way uses of its MMDS spectrum in a
commercially successful manner.
LIMITED BUSINESS HISTORY; LACK OF PROFITABLE OPERATIONS
CAI's subscription television operations commenced in August 1991.
Prospective investors, therefore, have limited historical financial information
about CAI upon which to base an evaluation of their respective performances and
an investment in the Shares offered hereby. Given CAI's limited operating
history, there is no assurance that it will be able to achieve positive cash
flow from operating activities and to compete successfully in the subscription
television industry or in the data transmission or telephony delivery
industries.
CAI has incurred net losses since inception of approximately $122 million
through December 31, 1996 and expects to realize additional net losses on a
consolidated basis while it develops and expands its MMDS systems. There can
be no assurance that CAI will be able to develop or expand its MMDS systems or
that it or its individual subsidiaries will achieve profitability in future
years.
Subject to regulatory approval, the Company intends to expand its business
to include not only subscription video delivery, but also one-way internet
access services and fixed, flexible two-way uses of its MMDS spectrum. The
Company has no operating history for any of these alternative uses of the MMDS
spectrum, and there can be no assurance that CAI could commercially deploy such
alternative uses on a wide-spread basis. There can be no assurance that the
Company will be able to achieve positive cash flow from any of these
alternatives uses of the MMDS spectrum and to compete successfully in the voice
and data transmission delivery services industries.
HIGHLY COMPETITIVE INDUSTRIES
The subscription television industry is highly competitive. CAI's principal
subscription television competitors in each market are traditional hard-wire
cable, direct broadcast satellite ("DBS") and private cable operators. Hard-
wire cable companies generally are well established and known to potential
customers and have significantly greater financial and other resources than
CAI. Premium movie services offered by the cable television systems have
encountered significant competition from the home video cassette recorder
industry. In areas where several local off-air VHF/UHF broadcast channels can
be received without the benefit of subscription television, cable television
systems also have faced competition from the availability of broadcast signals
generally and have found market penetration to be more difficult. Legislative,
regulatory and technological developments may result in additional and
significant competition, including competition from local telephone companies
and from a proposed new wireless service known as Local Multipoint Distribution
Service ("LMDS").
In addition, within each market, the Company initially must compete with
others to acquire, from the limited number of MMDS channels issued or issuable,
rights to a minimum number of MMDS channels needed to establish a commercially
viable system. Digital capability is essential for MMDS to compete with hard-
wire cable, which in its current analog state offers between 36 to 90 channel
offerings depending on a given market. With the deployment of digital, hard-
wire cable is expected to offer over 150 channels. The Company has lost
television subscribers to hard-wire cable competitors in each of its markets
due to the channel capacity limitations inherent in an analog-based MMDS
operation. In addition, within each market, the Company initially must
compete with others to acquire, from the limited number of MMDS channels issued
or issuable, rights to a minimum number of MMDS channels needed to establish a
commercially viable system. Aggressive price competition or the passing of a
substantial number of presently unpassed households by any existing or new
subscription television service could have a material adverse effect on the
Company's results of operations and financial condition.
New and advanced technologies for the subscription television industry, such
as digital compression, fiber optic networks, DBS transmission, video dialtone
and LMDS, are in various stages of development of commercial deployment. These
technologies are being developed and supported by entities, such as hard-wire
cable companies and regional telephone companies, that have significantly
greater financial and other resources than CAI. These new technologies could
have a material adverse effect on the demand for MMDS subscription television
services. There can be no assurance that CAI will be able to compete
successfully with existing competitors or new entrants in the market for
subscription television services.
The Company will also face intense competition from other providers of data
and telephony transmission services if the Company implements, on a commercial
basis, such services. Such competition is increased due to the fact that MMDS
spectrum has not traditionally been utilized to deliver such alternative
services, and consumer acceptance of such services delivered via MMDS
technology is unknown at this time. Many of the existing providers of data
transmission and telephony services, such as long distance and regional
telephone companies have significantly greater financial and other resources
than the Company. There can be no assurance that there will be consumer demand
for alternative uses of the MMDS spectrum such as data transmission, including
Internet access services, and telephony delivery services, that the Company
will be able to compete successfully against other providers of such services
or that the Company will be able to achieve profitability from such services in
future years.
FLEXIBLE USE OF MMDS SPECTRUM
The Company has applied to the FCC for, and received, permission to use
its MMDS spectrum for a variety of uses including video, voice and data
transmission. The Company is currently conducting Internet access trials in
its Washington, D.C. and Rochester, NY markets, and has begun commercial
deployment of a one-way high speed Internet access product in Rochester in
connection with its FCC-approved application to enroll up to 500 commercial
subscribers for this service. There is no definitive timetable for the
commercial deployment of an Internet access product in Washington, D.C. at this
time. CAI has also received developmental authority to conduct a commercial
market trial of its one-way Internet access service with up to 1,000
subscribers in the New York City market, which market trial is in the
preliminary stages of development, and most recently, the Company has been
granted permanent authority for fixed, flexible two-way use in the Boston
market. The Boston authorization is the first of its kind awarded to an MMDS
operator. The permanent authorization granted for Boston is limited to 5
channels for 16 customer locations. There can be no assurance that such
customer locations will enable CAI to successfully develop fixed, flexible uses
of its MMDS spectrum in Boston, and therefore, CAI may need to apply for
authorization in Boston relating to additional channels and/or additional
customer locations. Such applications have not been made as of the date
hereof, and are not currently contemplated. There can be no assurance,
however, if such applications are made, that CAI would receive authorization
from the FCC for additional channels and/or additional customer locations in
the Boston market.
Further, there can be no assurance that the Company will be granted
permanent authority with respect to any of its pending applications or
developmental authorizations, or that the commercial deployment of any new
products will be 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.
NEW APPLICATIONS OF MMDS SPECTRUM
The Company is pursuing alternative uses of its MMDS spectrum, many of
which uses rely on technology that is currently being developed by the Company
and other MMDS operators and vendors. There can be no assurance that such
technology development will continue, or that it will result in
technologically-viable MMDS systems. Additionally, alternative uses of MMDS
spectrum have not been commercially deployed in any meaningful manner to date
by any MMDS operator. There can be no assurance that such alternative uses can
be deployed in a commercially reasonable manner, that such uses will gain
consumer acceptance, or that alternative uses of MMDS spectrum can be developed
into a profitable business by the Company.
DEPLOYMENT OF WIRELESS INFORMATION NETWORK
The Company believes that the WIN system can be developed and
implemented to deliver video, voice and data transmission delivery services in
CAI's markets. The Company has not yet implemented a WIN system in any of its
markets, and there can be no assurance that a WIN system will be implemented in
any CAI market in the near future, if at all. The implementation of a WIN
system in any market will require the Company to develop technology necessary
to deliver a variety of video, voice and data transmission services over the
MMDS spectrum in a market, as well as manage competitive pressures from a
variety of competitors in various industries, including industries in which the
Company does not compete currently in any meaningful manner. The Company will
have to commit significant financial resources to the development of WIN
systems, and there can be no assurance that such financial resources will be
available to develop such systems. Further, there can be no assurance that the
Company will be able to develop the necessary technology or successfully manage
such competitive pressures. Additionally, in the event the Company does
develop a WIN system in any of its markets, there can be no assurance that
there will be consumer acceptance of the WIN system, or that the Company could
deploy WIN systems in any of its markets in a commercially reasonable manner.
COMPETITIVE PRESSURES OF RAPID CHANGES IN TECHNOLOGY
The MMDS industry and the subscription television industry in general are
subject to rapid and significant changes in technology which may increase
competitive pressures on CAI or require capital investment to remain
competitive that are beyond CAI's resources at this time. Because of the rapid
and high level of technological change in the industry in which CAI competes,
the effect of technological changes on the businesses of CAI cannot be
predicted. In addition, the Company's pursuit of fixed, flexible use of the
MMDS spectrum has subjected it to additional competitive pressures of the rapid
changes in technology associated with the data transmission and telephony
industries, which trend is likely to continue as the Company's business
strategy with respect to these services evolves. There can be no assurance
that CAI will be able to compete successfully in these industries, nor can
there be assurance that CAI will be able to keep pace with the rapid and high
level of technological changes and growth necessary to successfully develop and
operate systems delivering fixed, flexible two-way uses of MMDS spectrum.
DIGITAL COMPRESSION TECHNOLOGY NOT COMMERCIALLY AVAILABLE
Currently, MMDS operators can offer up to 33 analog channels of
educational and commercial programming. The ability to offer substantially
more programming utilizing existing wireless channel capacity is dependent on
effectively applying digital technology. FCC approval is required before the
Company's MMDS systems can be converted to digital technology. The FCC has
recently issued a Declaratory Ruling and Order which effectively established
interim rules to govern the transition from analog to digital technology. The
FCC has yet to commence a rulemaking proceeding to adopt permanent rules.
There can be no assurance as to what permanent rules and policies the FCC will
adopt to govern the use of digital technology, when such rules and policies
will be adopted, or the company's ability to comply with those rules and
policies. It is expected that digital technology will be commercially
available in sufficient production in 1997. It is also expected that the cost
of digital equipment will exceed the cost of analog equipment. There can be no
assurance, however, that digital converter boxes and other equipment necessary
to implement digital technology, including satellite delivery of digital
signals, will be available on this timetable or that digital technology can be
successfully deployed. Conversion from current analog technology to a digital
technology will not take place in all markets simultaneously.
In order for the Company to launch a digital subscription television
service in any market in which it now has or may in the future have a digital
MMDS transport system, the Company must have access to pre-digitized,
compressed programming. The Company is currently in discussions with certain
third parties which the Company believes will be able to provide it with the
pre-digitized, compressed programming necessary to launch digital subscription
television in Boston. As of the date hereof, no definitive agreement has been
reached with any such third party provider, and there can be no assurance that
CAI will be able to reach a definitive agreement on terms and conditions
satisfactory to the Company, if at all. If the Company cannot contract with a
third party provider capable of providing CAI with sufficient digital
programming to launch a digital subscription television service, the Company
would have to construct its own digital compression center if it chose to
pursue digital subscription television as a business segment. The Company
estimates the cost of constructing a digital compression center at $5 million,
based on information available to the Company as of the date hereof. There can
be no assurance that the Company would be able to construct a digital
compression center or that the cost of such facility would not exceed $5
million if CAI were to build a digital compression center, or that the Company
would have the financial resources necessary to construct such facility.
Access to pre-digitized, compressed programming, either through a third party
provider or construction of a digital compression center, must be secured for
each market in which CAI desires to launch a digital subscription television
service.
IMPACT OF RECENTLY ENACTED LEGISLATION
The recently enacted Telecommunications Act of 1996 (the "1996 Act") could
have a material impact on the MMDS industry and the competitive environment in
which the Company operates. The 1996 Act will result in comprehensive changes
to the regulatory environment for the telecommunications industry as a whole.
The legislation will, among other things, substantially reduce regulatory
authority over cable rates. Another provision of the 1996 Act will afford
hard-wire cable operators greater flexibility to offer lower rates to certain
of its subscribers, and would thereby permit cable operators to offer discounts
on hard-wire cable service to the Company's subscribers of prospective
subscribers. The legislation will permit telephone companies to enter the
video distribution business, subject to certain conditions. The entry of
telephone companies into the video distribution business, with greater access
to capital and other resources, could provide significant competition to the
companies in the MMDS industry, including the Company. In addition, the
legislation will afford relief to DBS providers by exempting such providers
from local restrictions on reception antennas and preempting the authority of
local governments to impose certain taxes. The Company cannot predict the
substance of rules and policies to be adopted by the FCC in implementing the
provisions of the legislation.
OPERATIONAL DEMANDS RESULTING FROM GROWTH
The rapid growth CAI has experienced prior to, and as a result of, the ACS
Merger in the number of employees, the scope of its operating and financial
systems, the geographic area of its operations, and the exploration of
alternative uses of its MMDS spectrum, has increased the operating complexity
of CAI, as well as increased the level of responsibility for both existing and
new management personnel. In managing this growth, CAI has been and will be
required to continue to improve its operating and financial systems to expand,
train and manage its employees. There can be no assurance that CAI will be
able to attract and retain qualified employees. Any inability to attract and
retain qualified employees may impede CAI's growth and its ability to compete
with other subscription television providers. In addition, the Company has
implemented a series of cost-cutting measures, including a reduction of its
workforce, in an effort to manage the increased cost associated with this
growth.
EFFECT OF MODIFICATION AGREEMENT
The Modification Agreement entered into by the Company and the various BANX
entities suspends the BR Agreement for a period of one year, beginning on
December 12, 1996 (the "Suspension Period"). In the event that the CAI
Securities are not purchased by CAI or its designee (or by a purchaser
identified by BANX after September 8, 1997) during the Suspension Period, the
BR Agreement would be reinstated. If the BR Agreement is reinstated, the
parties have agreed that they will negotiate in good faith to amend the BR
Agreement; provided, however, 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, and the corresponding construction obligations of CAI
pursuant to such Fulfillment Dates. There can be no assurance, in the event
that the BR Agreement is reinstated, that the parties will be able to negotiate
amendments, modification or waivers of the BR Agreement on terms and conditions
satisfactory to CAI, if at all.
In addition, the one-year suspension of the BR Agreement eliminates the
requirement that CAI reserves its MMDS spectrum in the markets affected by the
BR Agreement for imminent use by the BANX Affiliates as a video delivery
platform during the Suspension Period. The Modification Agreement also
provides CAI with relief from certain, but not all, covenants contained in the
CAI Securities that would otherwise prohibit CAI from pursuing joint ventures.
There can be no assurance that the Company will be able to utilize its MMDS
spectrum for any other uses, or that CAI will be able to enter into joint
ventures or other arrangements on terms and conditions satisfactory to the
Company, if at all. Further, the relief provided by the Modification Agreement
is limited to the Suspension Period. Although any joint ventures formed or
other arrangements entered into during the Suspension Period will not be deemed
to violate the covenants contained in the CAI Securities at the expiration of
the Suspension Period, CAI will be able to take only ministerial actions in
furtherance of such ventures or arrangements if the BR Agreement is reinstated.
This limitation on CAI's ability take non-ministerial acts in furtherance of
any such venture or arrangement may have an adverse affect CAI's ability to
enter into joint ventures and other arrangements notwithstanding the relief
granted to CAI by the Modification Agreement.
If the BR Agreement is reinstated and neither BANX Affiliate elects to
implement the BR Agreement in any market, no service revenues thereunder will
be payable to CAI, and the additional service revenues anticipated from this
source that would have been used to expand into additional markets may need to
be obtained from other sources. Revenues also may be adversely affected to the
extent any amendment, modification or waiver to the BR Agreement alters the
economic relationship between the parties with respect to any market where the
BR Agreement would be implemented.
INTERESTS OF BANX AFFILIATES
Although the contractual arrangements among CAI, Bell Atlantic and NYNEX are
designed to be mutually beneficial to the parties, Bell Atlantic's and NYNEX's
interests may diverge from those of CAI's other shareholders. Bell Atlantic
and NYNEX have announced plans to develop video dialtone delivery platforms in
their respective operating territories and may become competitors of CAI in any
of CAI's markets. Notwithstanding the Modification Agreement, (i) Bell
Atlantic and NYNEX are substantial creditors of CAI under the Term Notes, (ii)
the Warrants and shares of preferred stock of CAI issued to the BANX Affiliates
are subject to antidilution provisions that are not available to other
shareholders and that are designed to maintain the right of the BANX Affiliates
to acquire 45% of the shares of Common Stock on a fully diluted basis, and
(iii) the Voting Preferred Stock to be issued to Bell Atlantic and NYNEX upon
exercise of the Warrants and Term Notes will be entitled to vote on certain
matters, which voting rights would increase after in the event Bell Atlantic
and NYNEX exercises a percentage of their conversion rights for Voting
Preferred Stock, including the right to elect directors in proportion to their
stock ownership. There is a substantial likelihood that in exercising all or a
portion of their conversion rights, Bell Atlantic and NYNEX would become the
single largest shareholders of CAI and would have the power to control or
influence the control of CAI.
DILUTION
The Company is actively seeking interim financing and long-term financing
through a strategic investor(s) to purchase the BANX Securities pursuant to the
Modification Agreement. To the extent the Company is required, under the terms
of such financings, to issue equity in connection with obtaining such
financings, the Company's current shareholders will experience dilution. It is
unknown at this time the extent to which such financings may require the
issuance of equity, and therefore, the Company cannot predict the level of
dilution that would be experienced by current shareholders.
POSSIBLE FUTURE SALES OF SHARES OF COMMON STOCK
CAI has as of December 31, 1996, 40,540,539 shares of Common Stock
outstanding and 3,220,747 shares are or will be deemed to be "Restricted
Shares" issued and sold by CAI in private transactions not involving a public
offering and are therefore not freely transferable in the public market without
restriction or limitation under the Securities Act. The Warrants and shares of
preferred stock of CAI issued to the BANX Partnership entitle the holder to
acquire 45% of the shares of Common Stock outstanding from time to time on a
fully diluted basis and require CAI to register such securities, or the shares
of Common Stock issuable upon conversion or exercise thereof, under the
Securities Act. In addition, holders of outstanding CAI warrants, other than
the Warrants, have the right to cause CAI to register such shares issuable upon
exercise of such warrants under the Securities Act, most of which are included
in the Registration Statement of which this Prospectus forms a part. No
prediction can be made of the effect, if any, that the sales of such shares in
the public market would have on the market price of shares of Common Stock
available from time to time. Nevertheless, sales of substantial amounts of
shares of Common Stock in the public market could adversely affect prevailing
market prices.
RESTRICTIONS IMPOSED BY GOVERNMENT AND COMMUNITY REGULATION
The MMDS industry is regulated by the FCC. The FCC governs, among other
things, the issuance, renewal, assignment, transfer and modification of
licenses necessary for MMDS systems to operate and the time afforded to
licensees to construct facilities. The FCC requires fees for certain
applications and licenses, and mandates that certain amounts of educational,
instructional or cultural programming be transmitted over certain of the
channels used by CAI's existing and proposed MMDS systems. In the top fifty
markets, the FCC has authorized up to 33 channels (constituting a spectrum
bandwidth of 198 MHZ) primarily for MMDS transmission of video programming. In
markets below the top fifty markets, the FCC has authorized up to 32 channels
(constituting a spectrum bandwidth of 192 MHZ). Between 5 and 13 MMDS channels
can be licensed by the FCC to commercial operators for full-time usage without
programming restrictions. The remaining Instructional Television Fixed
Services ("ITFS") channels typically are authorized for educational purposes,
although excess capacity can be leased to MMDS operators, subject to certain
programming restrictions. Licenses for both MMDS and ITFS channels are granted
based upon applications filed with the FCC. FCC approval also is required for
assignment of existing licenses or transfer of control of license holders. The
FCC imposes restrictions and conditions upon the use, control and operation of
channels. FCC licenses are limited in duration and subject to renewal
procedures. While current FCC rules are intended to promote development of a
competitive subscription television and other industries, the statutes, rules
and regulations affecting the subscription television and other industries
could change, and any future changes in FCC rules, regulations, policies or
procedures could have a negative impact on the MMDS industry as a whole, CAI in
particular.
In addition, MMDS operators are subject to regulations by the Federal
Aviation Administration ("FAA") with respect to construction of transmission
towers and to certain local zoning regulations affecting construction of towers
and other facilities. There also may be restrictions imposed by local
authorities, neighborhood associations and other similar organizations limiting
the use of certain types of reception equipment used by CAI. Future changes in
the foregoing regulations or any other regulations applicable to CAI could have
a material adverse effect on CAI's results of operations and financial
condition.
Certain states have legislated that each resident of a Multiple Dwelling
Unit ("MDU") should not be denied access to programming provided by franchised
cable systems, notwithstanding the fact that the MDU entered into an exclusive
agreement with a non-franchised video program distributor. States with such
"mandatory access" laws where CAI provides MMDS service include Connecticut,
Delaware, District of Columbia, New Jersey, New York, Pennsylvania and Rhode
Island. In several district courts, mandatory access laws have been held
unconstitutional. Such laws could increase the competition for subscribers in
MDUs.
DIFFICULTIES AND UNCERTAINTIES OF A NEW INDUSTRY
MMDS subscription television is not a new technology, however, it is a new
industry with a short operating history. Fixed, flexible two-way uses of the
MMDS spectrum have relatively no operating history. Potential investors should
be aware of the difficulties and uncertainties that are normally associated
with new industries, such as lack of consumer acceptance, difficulty in
obtaining financing, increasing competition, advances in technology and changes
in laws and regulations. There can be no assurance that the MMDS industry will
develop or continue as a viable or profitable industry.
DEPENDENCE ON CHANNEL LEASES AND LICENSES; NEED FOR LICENSE EXTENSIONS
For most of its channel rights, CAI is dependent upon leases of transmission
capacity with various third-party license holders. ITFS licenses generally are
granted for a term of ten years and are subject to renewal by the FCC. MDS
licenses generally will expire on May 1, 2001 unless renewed. FCC licenses
also specify construction deadlines which, if not met, could result in the loss
of the license. Requests for additional time to construct a channel may be
filed and are subject to review pursuant to FCC rules. Certain of CAI's ITFS
channel rights are subject to pending extension requests and it is anticipated
that additional extensions will be required. There can be no assurance that
the FCC will grant any particular extension request or license renewal request.
CAI's channel leases typically cover four ITFS channels and/or one to four MDS
channels each. Under the rules of the FCC, the term of leases for ITFS
channels, which constitute up to 20 of the 33 available wireless channels
within any major MMDS market, may not exceed ten years. There is no such
restriction on MMDS leases. Following the expiration of the initial term of a
lease for ITFS channels, the leases under which CAI operates generally provide
that the ITFS license holders may negotiate for the lease of channel capacity
for one or more additional renewal terms with only CAI or its sublessor. In
addition, if a renewal agreement is not reached within a specified time frame
during which only CAI or its sublessor has the use of the channel capacity, CAI
will thereafter typically have a right of first refusal to match any competing
offers from one or more third parties. Because the ITFS license holders have
generally received their FCC licenses within the last ten years, CAI and other
similarly situated entities in the industry have had little or no experience
negotiating renewals of ITFS channel lease agreements. CAI anticipates,
however, that it will be able to negotiate additional renewals with either the
incumbent license holder, or with successor license holders, although there is
no assurance that it will be successful in doing so. The MMDS channel leases
held by CAI generally grant CAI the right to renew the channel lease. All ITFS
and MMDS channel leases are dependent upon the continued validity of the
corresponding FCC license. CAI anticipates that upon the expiration of the
current license terms, all such FCC licenses will be renewed following
completion of the FCC review process, although there is no assurance that such
renewal applications will be granted. The termination of or failure to renew a
channel license or lease (due to a breach by CAI, or its lessor, cancellation
of the license held by a third party lessor for failure to timely construct
and/or perfect the wireless cable facility or otherwise) or the failure to
grant an application for an extension of time to construct an authorized
station, would result in CAI being unable to deliver programming on such
channel(s) unless it were able to lease excess capacity from a successor
license holder. Such a termination or failure in a market which CAI actively
serves could have a material adverse effect on CAI.
DEPENDENCE ON KEY INDIVIDUALS
CAI is dependent in large part on the experience and knowledge of Jared E.
Abbruzzese, Chairman and Chief Executive Officer of CAI and John Prisco, who
became President of CAI on February 23, 1996. The loss of the services of one
or both of Mr. Abbruzzese or Mr. Prisco could have a material adverse effect
upon CAI. CAI has an aggregate of $2.0 million of key man life insurance on
the life of Mr. Abbruzzese for the benefit of CAI.
PHYSICAL LIMITATIONS OF MMDS TRANSMISSION
MMDS subscription television programming, as well as alternative uses of the
MMDS spectrum is transmitted through the air via microwave frequencies from a
transmission facility to a small receiving antenna at each subscriber's
location and requires line-of-sight transmission. Therefore, in communities
with tall trees, hilly terrain, tall buildings or other obstructions in the
transmission path, MMDS transmission can be difficult or impossible to receive
at certain locations without the use of low power signal repeaters (known as
"beambenders"), which retransmit an otherwise blocked signal over a limited
area. The use of beambenders increases the costs per subscriber. In addition,
in limited circumstances, extreme adverse weather could damage the transmission
and receiving antennas as well as transmission site equipment.
CABLE SUBSCRIBER CONVERSION
In each of the principal subscription television markets served by CAI there
is or will be significant competition for households that are presently
subscribers of a hard-wire cable service. There can be no assurance that CAI
will be able to attract to its services existing cable customers, who for a
variety of reasons may be reluctant to shift from their present cable service.
Additionally, the Company has experienced loss of subscribers to hard-wire
cable providers in each of its market due, in large part the Company believes,
to channel capacity limitations inherent in an analog-based MMDS operation.
DIVIDENDS UNLIKELY
CAI has never declared or paid any cash dividends on the Shares of Common
Stock and does not expect to declare any such dividends in the foreseeable
future. Payment of any future dividends will depend upon earnings and capital
requirements of CAI, and will be subject to restrictions contained in CAI's
debt instruments and the terms of CAI's preferred stock and other factors the
Board of Directors considers appropriate. CAI currently intends to retain
earnings, if any, to support growth and expansion.
SAFE HARBOR UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
The statements contained in this Prospectus, including those incorporated
herein by reference, 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, without limitation, the receipt of
regulatory approvals, the availability of a new strategic partner(s) and its
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 and tower space
availability absence of interference, as well as the assumptions, risks and
uncertainties set forth above under "Risk Factors" as well as other
assumptions, risks, uncertainties and factors disclosed in the documents
incorporated herein by reference and the Company's other securities filings.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares by the
Selling Shareholders, except for amounts received from the exercise of
warrants. Such amounts will be used by the Company for general corporate
purposes.
THE SELLING SHAREHOLDERS
The following table sets forth certain information regarding the ownership
by the Selling Shareholders of Common Stock at December 31, 1996, and as
adjusted for the sale of the Shares offered hereby. All shares being offered
hereby have been included in previous prospectuses filed by the Company, except
as noted below. At December 31, 1996, there were 40,540,539 shares of Common
Stock issued and outstanding.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
PRIOR TO OFFERING Shares Being AFTER OFFERING
SHARES PERCENT OFFERED HEREBY SHARES PERCENT
<S> <C> <C> <C> <C> <C>
SELLING SHAREHOLDERS
Sherrie Abbruzzese{1} 176,000 * 51,000 125,000 *
Leslie L. Alexander 910,507{2} 2.25% 910,507 -- --
Leslie L. Alexander (IRA) 36,000 * 36,000 -- --
James P. Ashman{3} 211,090 * 73,315 137,775 *
William M. Barnard 48,928 * 48,928 -- --
Stephen W. Burke 61,726 * 61,726 -- --
Commonwealth Life Insurance
Co. - Stock TRAC 20,500 * 20,500 -- --
(Teamsters I)
CTM Financial Corporation 15,000 * 15,000 -- --
Richard J. Davis 40,630 * 40,630 -- --
Thomas J. Dougherty, Jr. 16,327 * 16,327 -- --
Eastern Cable
Networks Corp. 1,582,630 3.90% 1,582,630 -- --
Mark D. Ein 7,129 * 7,129 -- --
Gerard Klauer Mattison &
Co., LLC{4} 533,722{2} 1.32% 533,722 -- --
Grosvenor Fund L.P. 31,446{2} * 31,446 -- --
Handtman Family Trust 7,000 * 7,000 -- --
Philip Hempleman 176,704{2} * 176,704 -- --
Robert E. Hoffman 20,989 * 20,989 -- --
JMG Capital Partners, L.P. 22,090 * 22,090 -- --
Bradley T. Johnson 35,232 * 35,232 -- --
F. Gray Kiger, Jr. 85,720 * 85,720 -- --
Lagunitas Partners, L.P. 10,000 * 10,000 -- --
Audrey E. Loving, Jr. 85,720 * 85,720 -- --
James A. Lowe 46,330 * 46,330 -- --
Charles A. McFadden 70,671 * 70,671 -- --
Richard McKenzie 35,000{2} * 35,000 -- --
Melco Development Ltd. 147,793{2} * 147,793 -- --
NBH & BJB Associates, 46,330 * 46,330 -- --
L.C.
New York Life Insurance
and Annuity Corporation 67,022 * 67,022 -- --
New York Life Insurance
Company 255,180 * 255,180 -- --
Olton Holdings Ltd. 9,433{2} * 9,433 -- --
Michael Powers 3,000 * 3,000 -- --
Ronald Howard Reede 5,000 * 5,000 -- --
SBC Warburg Inc. 155,752{5} * 155,752 -- --
Telcom - CAI Investors,
L.L.C. 149,545{2} * 149,545 -- --
John A. Trinder 85,720 * 85,720 -- --
Trust for the Benefit of
Carter G. Hempleman 10,000 * 10,000 -- --
Trust for the Benefit of
Spencer J. Hempleman 10,000 * 10,000 -- --
</TABLE>
____________________________
* less than 1%
1 Sherrie Abbruzzese is the spouse of Jared E. Abbruzzese, Chairman and Chief
Executive Officer of CAI.
2 Such shares are issuable upon exercise of outstanding warrants.
3 James P. Ashman is the Company's Executive Vice President and Chief
Financial Officer and a Director.
4 Gerard Klauer Mattison & Co., LLC has acted as underwriter in connection
with offerings of the Company's securities and has provided other
investment banking services to the Company.
5 Represents 82,400 shares previously registered and 73,352 additional shares
registered pursuant to the Registration Statement of Form S-3 of which this
Prospectus forms a part.
To the best of the Company's knowledge, the Selling Shareholders have not
within the past three years held any position or office or had any other
material relationship with the Company, except as noted above.
PLAN OF DISTRIBUTION
The Shares registered for sale hereby may be sold from time to time by
the respective Selling Shareholders named herein. Such sales may be effected
(i) in transactions on the Nasdaq NM, or (ii) in privately negotiated
transactions or in a combination of any such transactions. Such transactions
may be effected by the Selling Shareholders at market prices and on terms
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices or at fixed prices. The discussion herein assumes
that the Selling Stockholders named herein holding warrants have exercised
their warrants prior to effecting sales of Shares pursuant to this Registration
Statement or any of the transactions described.
The Shares may be sold by one or more of the following: (a) a block
trade in which the broker or dealer so engaged will attempt to sell the Shares
as agent but may position and resell a portion of the block as principal to
facilitate the transactions; (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this
prospectus; and (c) ordinary brokerage transactions and transactions in which
the broker solicits purchasers. In effecting sales, brokers or dealers engaged
by the Selling Shareholders may arrange for other brokers or dealers to
participate in the resales.
In connection with distributions of the Shares or otherwise, certain of
the Selling Shareholders may enter into hedging transactions, where feasible,
with broker-dealers with respect to the Shares. In connection with such
transactions, broker-dealers may engage in short sales of the Shares registered
hereunder in the course of hedging the positions they assume with Selling
Shareholders. The Selling Shareholders may also sell Shares short and
redeliver the Shares to close out such short positions. The Selling
Shareholders may also enter into option or other transactions with broker-
dealers which require the delivery to the broker-dealer of the Shares
registered hereunder. The Selling Shareholder may also pledge the Shares
registered hereunder to a broker or dealer and upon a default the broker or
dealer may effect sales of the pledged shares pursuant to this Prospectus.
Brokers, dealers or agents may receive compensation in the form of
discounts, commissions or concessions from the Selling Shareholders in amounts
to be negotiated in connection with the sale and may receive commissions from
the purchasers of Shares for whom they may act as agent. Such brokers or
dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales and any such commission discount or concession may be deemed to be
underwriting discounts or commissions under the Securities Act. In addition,
any securities covered by this Prospectus which qualify for sale pursuant to
Rule 144 may be sold under Rule 144 rather than pursuant to this Prospectus.
If an underwriter or underwriters are utilized in a firm commitment
public offering, the Selling Shareholders will execute a firm commitment
underwriting agreement with such underwriters.
Sales of the Shares "at the market" and not at a fixed price into an
existing trading market for the Shares, on the Nasdaq NM or otherwise, may be
made to or through one or more underwriters, acting as principal or agent, as
may be specified in an accompanying Prospectus Supplement. Other sales may be
made, directly or through agents, to purchasers outside existing trading
markets.
The Selling Shareholders are acting independently of the Company in
making decisions with respect to the timing manner and size of each sale. The
place and time of delivery for a particular offer of the Shares will be set
forth in an accompanying Prospectus Supplement, if required.
All costs, expenses and fees in connection with the registration of the
Shares will be borne by the Company. Commissions and discounts, if any,
attributable to the sales of the Shares will be borne by the Selling
Shareholders. The Selling Shareholders may agree to indemnify any agent,
dealer or broker that participates in transactions involving sales of the
Shares against certain liabilities, including liabilities arising under the
Securities Act. The Company has agreed to indemnify certain of the Selling
Shareholders against all losses, claims, damages and controversies arising out
of the registrations pursuant to the Registration Statement, including without
limitation, all liabilities of the underwriters related thereto and all
liabilities as to the sales of any shares of the Company's stock pursuant
thereto.
LEGAL OPINION
The validity of the Shares of Common Stock offered hereby has been
passed on by Day, Berry & Howard, One Canterbury Green, Stamford, Connecticut
06901.
EXPERTS
The consolidated financial statements of CAI Wireless Systems, Inc. and
Subsidiaries as of March 31, 1996 and 1995 and for the years ended March 31,
1996 and 1995, and the seven-month period ended March 31, 1994 included in this
Prospectus and the Registration Statement on Form S-3 of which it is part, have
been included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, which includes an explanatory paragraph with regard to
substantial doubt about CAI Wireless Systems, Inc. and Subsidiaries' ability to
continue as a going concern, given on the authority of that firm as experts in
accounting and auditing.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE NO.
FINANCIAL STATEMENTS
Report of Independent Accountants
Consolidated Balance Sheets - March 31, 1995 and 1996
Consolidated Statements of Operations - Seven-Month Period Ended
March 31, 1994, and Years Ended March 31, 1995 and 1996
Consolidated Statements of Shareholders' Equity - Seven-Month Period
Ended March 31, 1994 and Years Ended March 31, 1995 and 1996
Consolidated Statements of Cash Flows - Seven-Month Period Ended March 31, 1994
and Years Ended March 31, 1995 and 1996
Notes to Consolidated Financial Statements
Condensed Consolidated Balance Sheets - March 31, 1996 and December 31, 1996
(unaudited)
Condensed Consolidated Statement of Operations - Nine-Month Periods Ended
December 31, 1995 and 1996 and Three-Month Periods Ended December 31,
1995 and 1996 (unaudited)
Condensed Consolidated Statements of Cash Flows - Nine-Month Periods Ended
December 31, 1995 and 1996 (unaudited)
<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.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 18, in December
1996, the Company entered in a Modification Agreement with various affiliates
of Bell Atlantic Corporation and NYNEX which suspended the Business
Relationship Agreement for one year. Under this Agreement, the various
affiliates were expected to become the marketer and provider of wireless cable
services using the Company's wireless delivery platform. The Company's
operating plans require additional funds which may take the form of debt or
equity security issuances, borrowings or asset sales. Also, recoverability of
the Company's intangible and other long lived assets is dependent on the
Company's ability to implement its operating plan. There can be no assurance
that any additional will be available. The uncertainty over the Company's
ability to obtain such additional financings raises substantial doubt about the
ability of the Company to continue as a going concern. Management's plans in
regard to these matters are also described in Note 18. The financial
statements do not include any adjustments that might result from the outcome of
the uncertainty.
COOPERS & LYBRAND L.L.P.
Albany, New York
June 21, 1996, except for Note 18,
as to which the date is December 12, 1996.
<PAGE>
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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.
NOTE 18 - SUBSEQUENT EVENTS (UNAUDITED)
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.
The Company's operating plans, including
digital video, two-way voice and data, Internet
and Intranet access services and testing,
committed capital expenditures and license
auction fees, will require additional funds.
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 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>
No dealer, salesperson or any
other person has been authorized to
give any information or to make any
representations in connection with the
Offerings other than those contained
in this Prospectus, and, if given or
made, such information or
representations must not be relied
upon as having been authorized by the
Company, the Selling Shareholders or
any of the Underwriters. This
Prospectus does not constitute an
offer to sell, or a solicitation of an
offer to buy, any securities other
than the registered securities to
which it relates or an offer to, or
solicitation of, any person in any
jurisdiction where such an offer or
solicitation would be unlawful.
Neither the delivery of this
Prospectus nor any sale made hereunder
shall, under any circumstances, create
any implication that there has been no
change in the affairs of the Company
since the date hereof or that the
information contained herein is
correct as of any time subsequent to
the date hereof.
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<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>
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>
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine-month
periods ended
December 31, December 31,
1996 1995
<S> <C> <C>
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>
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>
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>
<CAPTION>
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>
TABLE OF CONTENTS
Page
Available Information......... 2
Incorporation of Certain Documents By
Reference.................... 2
The Company.....................3
Risk Factors....................9
Safe Harbor Under the Private Securities
Litigation Reform Act of 1995 15
Use of Proceeds............... 15
The Selling Shareholders.......15
Plan of Distribution...........18
Legal Opinion................. 18
Experts....................... 18
Index To Financial Statements..19
4,969,091 SHARES
CAI WIRELESS
SYSTEMS, INC.
COMMON STOCK
FEBRUARY __, 1997
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, the registrant certifies that it has
reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3, has duly
caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly
authorized, in the City of Albany, State of New York
on February 14, 1997.
CAI WIRELESS
SYSTEMS, INC.
By: /S/
Jared E. Abbruzzese
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities
Act, this Registration Statement has been signed
below by the following persons in the capacities and
on the dates indicated. Each person whose signature
appears below hereby constitutes Wayne Barr, Jr. and
Jared E. Abbruzzese, and each of them singly, such
person's true and lawful attorneys, with full power
to them and each of them, to sign for such person and
in such persons' name and capacity as indicated
below, any and all amendments to this Registration
Statement, hereby ratifying and confirming such
person's signature as it may be signed by said
attorneys to any and all amendments.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
/S/ Chairman, Chief Executive February 14, 1997
Jared E. Abbruzzese Officer and Director
(Principal Executive Officer)
/S/ President,Chief Operating Officer February 14, 1997
John Prisco and Director
/S/ Chief Administrative Officer and February 14, 1997
George M. Williams Corporate Analyst, Secretary,
Treasurer and Director
/S/ Executive Vice President, Chief February 14, 1997
James P. Ashman Financial Officer and Director
(Principal Financial Officer)
/S/ Vice President and February 14, 1997
Craig J. Kessler Corporate Controller
(Principal Accounting Officer)
/S/ Director February 14, 1997
Alan Sonnenberg
/S/ Director February 14, 1997
Harold A. Bouton
/S/ Director February 14, 1997
Arthur C. Belanger
/S/ Director February 14, 1997
David M. Tallcott
/S/ Director February 14, 1997
Robert D. Happ
(a majority of the Board of Directors)
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND
DISTRIBUTION.
The table below sets forth the expenses
expected to be incurred and borne solely by the
Company in connection with the distribution of the
Common Stock offered hereby. Selling commissions
shall be borne by the Selling Shareholders. All
amounts shown are estimated, except the Securities
and Exchange Commission ("SEC") Registration Fee.
SEC Registration Fee $ 48.97
Legal Fees and Expenses 5,000.00
Accounting Fees and Expenses 3,000.00
Blue Sky Fees and Expenses 0.00
Miscellaneous Expenses 1,000.00
Total $9,048.97
To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
CAI Wireless Systems, Inc. ("CAI") is a
Connecticut corporation. Sections 33-770 through 33-
778 of the Connecticut General Statutes ("C.G.S.")
provides that a Connecticut corporation may, under
certain circumstances, and shall, in other
circumstances, indemnify its directors, officers,
employees, agents and certain other persons.
Section 33-771 of C.G.S. provides that (a)
except of provided in subsection (d) of Section 33-
771, a Connecticut corporation may indemnify an
individual made a party to a proceeding because he is
or was a director against liability incurred in the
proceeding if: (1) He conducted himself in good
faith; and (2) he reasonably believed (A) in the case
of conduct in his official capacity with the
corporation, that his conduct was in its best
interests, and (B) in all other cases, that his
conduct was at least not opposed to its best
interests; and (3) in the case of any criminal
proceeding, he had no reason to believe his conduct
was unlawful. (b) A director's conduct with respect
to an employee benefit plan for a purpose he
reasonably believed to be in the best interest of the
participants in and beneficiaries of the plan is
conduct that satisfies the requirement of
subparagraph (B) of subdivision (2) of subsection (a)
of C.G.S. Section 33-771. (c) The termination of a
proceeding by judgment, order, settlement or
conviction or upon a plea of nolo contendere or its
equivalent is not, of itself, determinative that the
director did not meet the standard of conduct
described in C.G.S. Section 33-771. (d) A
corporation may not indemnify a director under C.G.S.
Section 33-771: (1) In connection with a proceeding
by or in the right of the corporation in which the
director was adjudged liable to the corporation; or
(2) in connection with any other proceeding charging
improper personal benefit to him, whether or not
involving action in his official capacity, in which
he was adjudged liable on the basis of that personal
benefit was improperly received by him. (e)
Indemnification permitted under C.G.S. Section 33-771
in connection with a proceeding by or in the right of
the corporation is limited to reasonable expenses
incurred in connection with the proceeding. (f)
Notwithstanding any provision of C.G.S. Section 33-
771 to the contrary, a corporation which was
incorporated under the laws of this state, whether
under chapter 599 of the general statutes, revised to
January 1, 1995, or any other general law or special
act, prior to January 1, 1996, shall, except to the
extent that the articles of incorporation expressly
provide otherwise, provide its directors with the
full amount of indemnification that the corporation
is permitted to provide to such directors pursuant to
C.G.S. Section 33-771 as limited by the provisions of
C.G.S. Section 33-775.
C.G.S. Section 33-772 provides that, unless
limited by its articles of incorporation, a
corporation shall indemnify a director who was wholly
successful, on the merits or otherwise, in the
defense of any proceeding to which he was a party
because he is or was a director of the corporation
against reasonable expenses incurred by him in
connection with the proceeding.
C.G.S. Section 33-773 provides that (a) a
corporation may pay for or reimburse the reasonable
expenses incurred by a director who is a party to a
proceeding in advance of final disposition of the
proceeding if: (1) The director furnishes the
corporation a written affirmation of his good faith
belief that he has met the standard of conduct
described in C.G.S. Section 33-771; (2) the director
furnishes the corporation a written undertaking,
executed personally or on his behalf, to repay the
advance if it is ultimately determined that he did
not meet the standard of conduct; and (3) a
determination is made that the facts then known to
those making the determination would not preclude
indemnification under C.G.S. Sections 33-770 through
33-778, inclusive. (b) The undertaking required by
subdivision (2) of subsection (a) of this section
must be an unlimited obligation of the director but
need not be secured and may be accepted without
reference to financial ability to make repayment.
(c) Determinations and authorizations of payments
under C.G.S. Section 33-773 shall be made in the
manner specified in C.G.S. Section 33-775.
C.G.S. Section 33-774 provides that, unless a
corporation's articles of incorporation provide
otherwise, a director of the corporation who is a
party to a proceeding may apply for indemnification
to the court conducting the proceeding or to another
court of competent jurisdiction. On receipt of an
application, the court after giving any notice the
court considers necessary may order indemnification
if it determines: (1) The director is entitled to
mandatory indemnification under C.G.S. Section 33-
772, in which case the court shall also order the
corporation to pay the director's reasonable expenses
incurred to obtain court-ordered indemnification; or
(2) the director is fairly and reasonably entitled to
indemnification in view of all the relevant
circumstances, whether or not he met the standard of
conduct set forth in C.G.S. Section 33-771 or was
adjudged liable as described in subsection (d) of
C.G.S. Section 33-771, but if he was adjudged so
liable his indemnification is limited to reasonable
expenses incurred.
C.G.S. Section 33-775 provides (a) a
corporation may not indemnify a director under C.G.S.
Section 33-771 unless authorized in the specific case
after a determination has been made that
indemnification of the director is permissible in the
circumstances because he has met the standard of
conduct set forth in C.G.S. Section 33-771. (b) the
determination shall be made: (1) by the board of
directors by majority vote of a quorum consisting of
directors not at the time parties to the proceeding;
(2) if a quorum cannot be obtained under subdivision
(1) of this subsection, by majority vote of a
committee duly designated by the board of directors,
in which designation directors who are parties may
participate, consisting solely of two or more
directors not at the time parties to the proceeding;
(3) by special legal counsel (A) selected by the
board of directors or its committee in that manner
prescribed in subdivision (1) or (2) of this
subsection, or (B) if a quorum of the board of
directors cannot be obtained under subdivision (1) of
this subsection and a committee cannot be designated
under subdivision (2) of this subsection, selected by
majority vote of the full board of directors, in
which selection directors who are parties may
participate; or (4) by the shareholders, but shares
owned by or voted under the control of directors who
are at the time parties to the proceeding may not be
voted on the determination. (c) Authorization of
indemnification and evaluation as to reasonableness
of expenses shall be made in the same manner as the
determination that indemnification is permissible,
except that the determination is made by special
legal counsel, authorization of indemnification and
evaluation as to reasonableness of expenses shall be
made by those entitled under subdivision (3) of
subsection (b) of this section to select counsel.
C.G.S. Section 33-776, provides that, unless a
corporation's articles of incorporation provide
otherwise (1) an officer of the corporation who is
not a director is entitled to mandatory
indemnification under C.G.S. Section 33-772, and is
entitled to apply for court-ordered indemnification
under C.G.S. Section 33-774, in each case to the same
extent as a director; (2) the corporation may
indemnify and advance expenses under C.G.S. Sections
33-770 to 33-778, inclusive, to an officer, employee
or agent of the corporation who is not a director to
the same extent as to a director; (3) a corporation
may also indemnify and advance expenses to an
officer, employee or agent who is not a director to
the extent, consistent with public policy, that may
be provided by its articles of incorporation, bylaws,
general or specific action of its board of directors
or contract; and (4) a corporation which was
incorporated under the laws of this state, whether
under chapter 599 of the general statues, revised to
January 1, 1995, or any other general law or special
act, prior to January 1, 1996, shall, except to the
extent that the articles of incorporation expressly
provide otherwise, indemnify and advance expenses
under C.G.S. Sections 33-770 to 33-778, inclusive, to
each officer, employee or agent of the corporation
who is not a director to the same extent as the
corporation is permitted to provide the same to a
director pursuant to C.G.S. Section 33-771, as
limited by C.G.S. Section 33-775.
C.G.S. Section 33-777 provides that a
corporation may purchase and maintain insurance on
behalf of an individual who is or was a director,
officer, employee or agent of the corporation, or
who, while a director, officer, employee or agent of
the corporation, is or was serving at the request of
the corporation as a director, officer, partner,
trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise,
against liability asserted against or incurred by him
in that capacity or arising from his status as a
director, officer, employee or agent, whether or not
the corporation would have the power to indemnify him
against the same liability under C.G.S. Section 33-
771 or 33-772.
C.G.S. Section 33-778 provides that (a) A
provision treating a corporation's indemnification of
or advance for expenses to directors that is
contained in its articles of incorporation, bylaws, a
resolution of its shareholders or board of directors,
or in a contract or otherwise, is valid only if and
to the extent the provision is consistent with C.G.S.
Sections 33-770 to 33-778, inclusive. If articles of
incorporation limit indemnification or advance of
expenses, indemnification and advance for expenses
are valid only to the extent consistent with the
articles. (b) C.G.S. Sections 33-770 to 33-778,
inclusive, do not limit a corporation's power to pay
or reimburse expenses incurred by a director in
connection with his appearance as a witness in a
proceeding at a time when he has not been made a
named defendant or respondent to the proceeding.
Consistent with the statute, CAI has obtained
insurance for its directors and officers which
supplements the indemnification rights provided to
those individuals by C.G.S. Section 33-771 to 33-778,
inclusive. Unlike the statute, such policy does not
require the standard of conduct required by C.G.S.
Section 33-771, nor does the policy require the
undertakings required by C.G.S. Section 33-773
relating to the advances for expenses in connection
with the defense of an officer or director in a
proceeding.
Article SIXTH of the Amended and Restated
Certificate of Incorporation of CAI limits the
personal liability of directors for monetary damages
to CAI and its shareholders for a breach of duty as a
director to the amount of the compensation received
by the Director for serving CAI during the year of
the alleged breach of duty.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits are filed herewith:
Page Number
EXHIBIT NO. DESCRIPTION (SEE LEGEND)
5 Opinion of Day, Berry & Howard
6 Opinion re discount on capital shares
*
23.1 Consent of Day, Berry & Howard (included in
Exhibit 5)
23.2 Consent of Coopers & Lybrand, L.L.P.
24 Powers of Attorney (See Signature Page)
_______________
LEGEND
*Incorporated by reference to the Exhibit 6 to the
Registration Statement on Form S-3 (no. 33-94770).
ITEM 17. UNDERTAKINGS.
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in
which offers or sales are being made, a post-
effective amendment to this registration
statement:
(i) To include any prospectus
required by Section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the
prospectus any facts or events arising after
the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) promulgated under the
Securities Act of 1933, if, in the aggregate, the changes
in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
PROVIDED, HOWEVER, that paragraphs (A)(1)(i)
and (A)(1)(ii) do not apply if the
registration statement is on Form S-3 or Form
S-8 and the information required to be
included in a post-effective amendment by
those paragraphs is contained in periodic
reports filed by the Registrant pursuant to
section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of
determining any liability under the Securities
Act of 1933, each such post-effective
amendment shall be deemed to be a new
registration statement relating to the
securities offered therein, and the offering
of such securities at that time shall be
deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by
means of a post-effective amendment any of the
securities being registered which remain
unsold at the termination of the offering.
B. The undersigned Registrant hereby
undertakes that, for purposes of determining
any liability under the Securities Act of
1933, each filing of the registrant's annual
report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an
employee benefit plan's annual report pursuant
to section 15(d) of the Securities Exchange
Act of 1934) that is incorporated by reference
in the registration statement shall be deemed
to be a new registration statement relating to
the securities offered therein, and the
offering of such securities at that time shall
be deemed to be the initial bona fide offering
thereof.
C. Insofar as indemnification for
liabilities arising under the Securities Act
of 1933 may be permitted to directors,
officers and controlling persons of the
registrant pursuant to the foregoing
provisions, or otherwise, the registrant has
been advised that in the opinion of the
Securities and Exchange Commission such
indemnification is against public policy as
expressed in the Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities
(other than the payment by a registrant of
expenses incurred or paid by a director,
officer or controlling person of the
registrant in the successful defense of any
action, suit or proceeding) is asserted by
such director, officer or controlling person
in connection with the securities being
registered, the registrant will, unless in the
opinion of its counsel the matter has been
settled by controlling precedent, submit to a
court of appropriate jurisdiction the question
whether such indemnification by it is against
public policy as expressed in the Act and will
be governed by the final adjudication of such
issue.
<PAGE>
EXHIBIT INDEX
Page Number
EXHIBIT NO. DESCRIPTION (SEE LEGEND)
5 Opinion of Day, Berry & Howard
6 Opinion re discount on capital shares *
23.1 Consent of Day, Berry & Howard
(included in Exhibit 5)
23.2 Consent of Coopers & Lybrand L.L.P.
24 Power of attorney (See Signature
Page)
______
LEGEND
* Incorporated by reference to the Exhibit 6 to
the Registration Statement on Form S-3 (no. 33-
94770).
</TABLE>
Exhibit 5
[LETTERHEAD OF DAY, BERRY & HOWARD]
February 14, 1997
CAI Wireless Systems, Inc.
18 Corporate Woods Boulevard
Albany, NY 12211
Dear Sirs:
We have acted as counsel with respect to the Registration Statement on
Form S-3 (the "Registration Statement") under the Securities Act of 1933, as
amended, as filed by CAI Wireless Systems, Inc., a Connecticut corporation (the
"Corporation") with the Securities and Exchange Commission relating to
4,969,091 shares of common stock, no par value, of the Corporation (the
"Stock") that may be offered from time to time by certain shareholders of the
Corporation (the "Selling Shareholders"). All of the Stock being offered
pursuant to the Registration Statement are outstanding shares or shares
issuable upon the exercise of outstanding warrants (the "Warrants").
We have examined the Registration Statement, as amended, originals or
copies, certified or otherwise identified to our satisfaction, of the minutes
of the Board of Directors of the Corporation, the agreements (the "Warrant
Agreements") pursuant to which the Warrants were issued, and such other
documents, corporate records, certificates of public officials and other
instruments as we have deemed necessary or advisable for purposes of the
opinion set forth below. We have assumed the genuineness of the signatures on
all documents examined by us, the authenticity of all documents submitted to us
as originals and the conformity to all corresponding originals of all documents
submitted to us as copies.
Based on the foregoing, we are of the opinion that (i) the Stock that
was issued to the Selling Stockholders was at the time of such issuance validly
issued, fully-paid and non-assessable and (ii) the Stock to be issued upon
exercise of the Warrants will, when so issued pursuant to and in accordance
with the provisions of the Warrant Agreements, be validly issued, fully paid
and non-assessable (assuming that, at the time of such issuance, the
Corporation has a sufficient number of authorized and unissued shares or
treasury shares available for such issuance.
We are members of the bar of the State of Connecticut and express no
opinion to any matter relating to any law other than the law of the State of
Connecticut.
We consent to the use of this opinion as Exhibit 5, and to the
incorporation by reference of our letter dated November 7, 1995 as Exhibit 6,
to the aforesaid Registration Statement. In giving such consent, we do not
thereby admit that we are within the category of persons whose consent is
required by Section 7 of the Securities Act of 1933.
Very truly yours,
/S/ DAY, BERRY & HOWARD
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
WE CONSENT TO THE INCLUSION IN THE REGISTRATION STATEMENT OF CAI WIRELESS
SYSTEMS, INC. AND SUBSIDIARIES ON FORM S-3 (FILE NO. 0-22888) OF OUR
REPORT DATED JUNE 21, 1996, EXCEPT FOR NOTE 18, AS TO WHICH THE DATE IS
DECEMBER 12, 1996, WHICH INCLUDES AN EXPLANATORY PARAGRAPH WITH REGARD TO
SUBSTANTIAL DOUBT ABOUT THE ABILITY OF CAI WIRELESS SYSTEMS, INC. AND
SUBSIDIARIES TO CONTINUE AS A GOING CONCERN, ON OUR AUDITS OF THE
CONSOLIDATED FINANCIAL STATEMENTS OF CAI WIRELESS SYSTEMS, INC. AND
SUBSIDIARIES AS OF MARCH 31, 1996 AND 1995 AND FOR THE YEARS ENDED MARCH
31, 1996 AND 1995 AND FOR THE SEVEN-MONTH PERIOD ENDED MARCH 31, 1994.
WE ALSO CONSENT TO THE REFERENCE TO OUR FIRM UNDER THE CAPTION,
"EXPERTS".
COOPERS & LYBRAND L.L.P.
ALBANY, NEW YORK
February 13, 1997
