UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended DECEMBER 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
Commission File Number: 0-22888
CAI WIRELESS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Connecticut 06-1324691
<S> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
18 Corporate Woods Boulevard, Albany, New York 12211
(Address and zip code of principal executive offices)
(518) 462-2632
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _____
Number of shares outstanding of each of registrant's class of common stock at
February 13, 1998:
CLASS OUTSTANDING SHARES
Common Stock, no par value 40,540,539
<PAGE>
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
CAI WIRELESS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 MARCH 31, 1997
----------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,170,436 $ 10,471,918
Subscriber accounts receivable, net 578,588 695,707
Prepaid expenses 511,679 1,034,106
Property and equipment, net 61,593,527 69,767,017
Wireless channel rights, net 197,042,749 207,680,551
Investment in CS Wireless Systems, Inc. 72,443,527 88,389,527
Investment in TelQuest Satellite Services LLC 3,097,203 -
Goodwill, net of accumulated amortization 98,043,766 104,204,716
Debt service escrow 32,862,035 47,865,389
Debt financing costs, net 8,820,690 9,249,934
Other assets 3,508,716 2,980,650
--------------- -------------
Total Assets $ 408,672,916 $ 542,339,515
=============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 5,801,849 $ 6,600,584
Accrued expenses 29,357,122 16,138,811
Wireless channel rights obligations 4,045,767 5,302,600
Obligations payable to TelQuest Satellite Services LLC 894,128 -
Interim debt financing 25,000,000 -
Term notes 36,599,695 36,786,596
Senior notes 275,000,000 275,000,000
--------------- ------------
376,698,561 339,828,591
=============== ============
Commitments and Contingencies
Mandatorily Redeemable Preferred Stock
14% Senior convertible preferred stock
(liquidation value $70,000,000) 69,265,000 69,160,000
Accrued preferred stock dividends 29,681,187 18,660,734
--------------- ------------
98,946,187 87,820,734
=============== ============
SHAREHOLDERS' EQUITY
Common stock, 100,000,000 shares authorized, no par
value; 40,540,539 shares issued and outstanding 275,769,414 275,769,414
Accumulated deficit (270,741,246) (161,079,224)
--------------- ------------
5,028,168 114,690,190
-------------- ------------
Total Liabilities and Shareholders' Equity $ 480,672,916 $ 542,339,515
============= ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAI WIRELESS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine-Months Ended Three-Months Ended
December 31, December 31,
----------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 21,977,384 $ 27,737,756 $ 6,591,341 $ 9,249,978
------------- ------------- ------------- -----------
Costs and expenses
Programming and licensing 10,973,934 11,989,352 3,702,771 4,129,802
Marketing 1,206,615 1,790,734 376,679 564,717
General and administrative 21,908,478 22,223,561 7,966,799 7,882,671
Depreciation and amortization 26,152,839 24,729,986 10,245,751 8,179,198
------------- ------------- ------------ -----------
60,241,866 60,733,633 22,292,000 20,756,388
------------- ------------- ------------
Operating loss (38,264,482) (32,995,877) (15,700,659) (11,506,410)
------------- ------------- ------------ -----------
Other income (expense)
Interest expense (40,128,505) (30,316,613) (17,198,770) (10,012,060)
Equity in losses of affiliates (23,118,008) (13,000,000) (9,378,008) (5,200,000)
Interest and other income 2,974,426 5,319,251 1,351,399 1,202,680
------------- ------------- ------------ -----------
(60,272,087) (37,997,362) (25,225,379) (14,009,380)
------------- ------------- ------------ -----------
Loss before income tax benefit (98,536,569) (70,993,239) (40,926,038) (25,515,790)
Income tax benefit - 13,500,000 - 4,500,000
------------- ------------- ------------ -----------
Net loss (98,536,569) (57,493,239) (40,926,038) (21,015,790)
Preferred stock dividends (11,125,453) (9,576,367) (3,850,594) (3,306,003)
------------- ------------ ------------ -----------
Loss applicable to common
stockholders $(109,662,022) $ (67,069,606) $ (44,776,632) $ (24,321,793)
============= ============ ============ ===========
Loss per common share $ (2.70) $ (1.68) $ (1.10) $ (0.60)
======== ======= ======== ========
Average common and equivalent shares
outstanding 40,540,539 39,915,020 40,540,539 40,464,356
============ ============ ============ ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAI WIRELESS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED)
AND THE YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Common Stock
-------------------------- Accumulated
Shares Amount Deficit Total
--------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Balance at April 1, 1996 37,829,482 $257,701,130 $(65,090,206) $192,610,924
Senior preferred stock issuance costs
reclassified from project costs - - (661,212) (661,212)
Series A 8% redeemable convertible
preferred stock converted into common 2,637,742 18,049,955 - 18,049,955
Value assigned to warrants exercised 73,315 18,329 (18,329) -
Preferred stock dividends accrued - - (13,011,270) (13,011,270)
Net loss - - (82,298,207) (82,298,207)
----------- ----------- ------------ -----------
BALANCE AT MARCH 31, 1997 40,540,539 275,769,414 (161,079,224) 114,690,190
PREFERRED STOCK DIVIDENDS ACCRUED - - (11,125,453) (11,125,453)
NET LOSS - - (98,536,569) (98,536,569)
----------- ----------- ------------ -----------
Balance at December 31, 1997 40,540,539 $275,769,414 $(270,741,246) $ 5,028,168
=========== ============ ============= ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAI WIRELESS SYSTEMS, INC.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended December 31,
----------------------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (98,536,569) $ (57,493,239)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 26,152,839 24,729,986
Equity in losses of affiliates 23,118,008 13,000,000
Deferred income tax benefit - (13,500,000)
Debt financing costs and discount amortization 8,263,013 1,417,857
Write-off of projects and other costs 559,287 -
Gain on sale of assets (538,307) -
Other 74,665 (23,143)
Changes in assets and liabilities:
Subscriber accounts receivable 117,119 246,794
Other assets (406,763) 314,458
Accounts payable and accrued expenses 12,605,498 9,646,300
------------ -----------
Net cash used in operating activities (28,591,210) (21,660,987)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of wireless channel rights (2,221,096) (4,642,709)
Purchase of equipment (6,336,574) (28,886,102)
Proceeds from the sale of equipment 178,759 497,023
Investment in TelQuest Satellite Services LLC (3,138,797) -
Proceeds from sale of investments 15,354,855 13,844,342
Payments received from CS Wireless Systems, Inc. 3,529,689 363,900
Loans to related parties, net of collections (297,440) (600,000)
------------ -----------
Net cash provided by (used in) investing activities 7,069,396 (19,423,546)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from interim debt financing 20,793,979 -
Repayment of debt (2,608,004) (43,139,640)
Debt financing costs paid (4,965,643) -
------------ -----------
Net cash provided by (used in) financing activities 13,220,332 (43,139,640)
------------ -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (8,301,482) (84,224,173)
Cash and cash equivalents, beginning of year 10,471,918 103,263,094
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,170,436 $ 19,038,921
============ ===========
CASH PAYMENTS FROM THE DEBT SERVICE ESCROW ACCOUNT DURING THE
PERIOD FOR INTEREST $ 18,038,893 $ 17,382,855
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAI WIRELESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial
statements have been prepared in accordance with the
instructions to Form 10-Q and do not include all the
information and notes required by generally accepted
accounting principles for complete financial statements.
The consolidated financial statements include the
accounts of CAI Wireless Systems, Inc. and its wholly-
owned subsidiaries (the "Company" or "CAI"). All
intercompany transactions have been eliminated in
consolidation. CAI's 50.7% investment in CS Wireless
Systems, Inc. ("CS") at December 31, 1997, and 25%
investment in TelQuest Satellite Services LLC ("TSS"; see
Note 5) are accounted for on the equity method since CAI
does not control day to day operations of either company.
Current summarized financial information regarding CS is
presented in Note 3. In the opinion of management, all
adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of results
for interim periods have been included. Certain items in
the prior period financial statements have been
reclassified to conform with the current period's
presentation. Operating results for the quarter and nine
months ended December 31, 1997 are not necessarily
indicative of the results that may be expected for the
fiscal year ending March 31, 1998. The unaudited financial
statements presented herein should be read in conjunction
with the Company's Annual Report on Form 10-K for the year
ended March 31, 1997 which is on file with the Securities
and Exchange Commission.
GOING CONCERN
CAI's recurring losses, restrictions on its
ability to obtain additional financing, and substantial
commitments raise significant doubt about the continuation
of CAI as a going concern. For the last quarter of the
fiscal year ending March 31, 1998, the Company is
obligated to pay $2,500,000 for minimum license fees and
lease payments, approximately $1,200,000 in remaining MMDS
license auction fees, and to fund current operating costs.
On a short-term basis, CAI has
$45,000,000 of 13% Senior Secured Notes (the "Secured
Notes") due on June 1, 1998. See Note 4 - Interim Debt
Financing. On a long-term basis, CAI has substantial
indebtedness which, beginning in fiscal year 1999, will
include significant debt service requirements and
preferred stock dividend payments. As of December 31,
1997, CAI had outstanding consolidated long-term debt of
$311,600,000 and mandatorily redeemable preferred stock
(including accrued dividends) totaling $98,946,000.
The Company's business strategy has been to
explore digital wireless cable services for its MMDS
subscription television systems and alternative uses of
its MMDS spectrum for a variety of applications, including
data and voice transmission such as Internet access and
telephony delivery services and to petition the Federal
Communications Commission ("FCC") for the establishment of
rules governing full two-way flexible use of the MMDS
spectrum. In management's opinion, this strategy will help
meet current and perceived future competition and, in
relation to obtaining a new strategic partner, show the
flexibility and increased value of the Company's MMDS
spectrum, if such exploration and efforts at the FCC are
successful. In connection with achieving these objectives,
CAI is committed through additional open purchase orders
as of February 13, 1998 to spend approximately $7,900,000,
primarily for capital expenditures associated with
additional development of the Boston digital transmission
facilities. These commitments are to be funded, in part,
by the Interim Debt Financing (see Note 4).
CAI is continuing to work with its financial
advisors to devise a comprehensive plan for meeting the
Company's on-going working capital and other financial
needs, and has engaged BT Alex. Brown Incorporated as its
primary financial advisor. The Company projects that
operating cash requirements will be approximately
$7,500,000 for the three-month period ending March 31,
1998. Additionally, as of December 31, 1997, the Company
had outstanding trade payables of approximately
$4,500,000, exclusive of certain disputed amounts.
CAI WIRELESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's operating plans, including digital
video, voice and two-way data, Internet and intranet
access services and testing, will require additional
funding. The Company's ability to raise additional funds
through secured loans and the issuance of certain equity
is limited by the terms of the Indenture governing the
Company's 12.25% Senior Notes due 2002, the terms of
various outstanding securities and/or the terms of the
Secured Notes. The Company continues to implement cost-
saving measures while it reviews the alternatives that may
be available to it, including without limitation,
decreasing video operations, selling non-core assets and
the implementation of various plans of financial
restructuring.
NOTE 2. LITIGATION
SHAREHOLDERS' CLASS ACTION. During the year ended
March 31, 1997, the Company was named in six class action
lawsuits, each alleging various violations of the federal
securities laws. These actions were consolidated into one
lawsuit entitled IN RE CAI WIRELESS SYSTEMS, INC.
SECURITIES LITIGATION (96-CV-1857) (the "Securities
Lawsuit"), which is currently pending in the United States
District Court for the Northern District of New York. The
Securities Lawsuit is in its preliminary stages. The
amended, consolidated complaint, which names the Company
and certain officers and directors of CAI as defendants,
alleges a variety of violations of the antifraud
provisions of the federal securities laws by the
aforementioned defendants.
The defendants filed a motion to dismiss,
which motion was heard by the Northern District of New
York on October 17, 1997. While the motion is pending, all
other deadlines affecting motions and discovery have been
postponed. The Company and the individual defendants
continue to contest the Securities Lawsuit vigorously and
believe it is entirely without merit. Accordingly,
management believes that this lawsuit will not have a
material adverse effect on the Company's earnings,
financial condition, or liquidity.
OTHER LITIGATION. The Company is involved in
various claims and legal actions arising in the normal
course of business. In the opinion of management, the
ultimate disposition of these matters will not have a
material adverse effect on the Company's earnings,
financial condition or liquidity.
NOTE 3. INVESTMENTS IN CS WIRELESS SYSTEMS, INC. AND
TELQUEST SATELLITE SERVICES LLC
CS WIRELESS SYSTEMS, INC. The Company's percentage
interest in CS increased from 47.7% to 50.7% at December 31,
1997 due primarily to the rescission of a previously
recorded transaction wherein CAI would purchase the
Portsmouth, NH wireless channel rights from Heartland
Wireless Communications, Inc. ("Heartland") in exchange for
approximately 314,000 shares of CS held by CAI.
Additionally, the Company's investment in CS reflects an
equity loss of $20,146,000 (based on CAI's pro-rata share of
CS's net loss of $38,849,000 for the nine-month period ended
September 30, 1997) along with $1,800,000 of amortization of
the goodwill associated with this investment.
Pursuant to the terms of the Participation Agreement
dated as of December 12, 1995, as amended by Amendment No.
1 to the Participation Agreement dated as of February 22,
1996, among the Company, CS and Heartland, each of the
Company and Heartland, as the case may be, is subject to a
true-up adjustment, calculated in accordance with the
provisions of the Participation Agreement, in the event
that the number of channels available to CS in any market
contributed by such party is less than 16. The true-up
adjustment for any such channel deficiency may be
satisfied by the deficient party by delivering to CS
either (i) cash, (ii) a 5-year promissory note, (iii)
shares of CS stock, or (iv) any combination of the
foregoing. The Company has been notified by Heartland
that it believes there is a potential channel deficiency
arising out of the number of channels delivered by the
Company in connection with its contribution of MMDS assets
relating to the Charlotte, North Carolina market. The
Company believes that it has delivered 13 of the 16
required channels, and expects to be able to deliver at
least three additional channels in Charlotte, NC from
applications currently pending at the FCC. Heartland has
advised the Company that it believes that the Company has
delivered only 6 channels relating to the Charlotte
market. The Company disputes Heartland's position, and is
in the process of responding to Heartland on this issue.
CAI WIRELESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. INVESTMENTS IN CS AND TSS (CONTINUED)
The following is an unaudited condensed consolidated
balance sheet of CS derived from its Form 10-Q as of
September 30, 1997:
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash and cash equivalents $ 83,453,000
Other current assets 6,602,000
Systems and equipment, net 42,837,000
Wireless channel rights, net 169,222,000
Goodwill, net of accumulated amortization 49,175,000
Net assets held for sale 4,609,000
Investment in and loans to equity affiliates 8,932,000
Debt issuance costs and other assets, net 10,924,000
------------
Total Assets $375,754,000
============
LIABILITIES AND EQUITY
Accounts payable and accrued expenses $ 5,079,000
FCC Auction payable 5,206,000
Other liabilities 2,055,000
Debt 276,112,000
Deferred income taxes 1,357,000
Common stock and paid-in-capital 154,568,000
Treasury stock (40,000)
Accumulated deficit (68,583,000)
------------
Total Liabilities and Equity $375,754,000
============
</TABLE>
The following are unaudited condensed consolidated
statements of operations of CS derived from its
September 30, 1997 Form 10-Q for the periods
presented:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
Revenues $ 6,746,000 $ 20,246,000
------------ -------------
Operating expenses:
Systems operations 3,822,000 11,174,000
General and administrative 4,528,000 12,299,000
Depreciation and amortization 6,976,000 20,266,000
------------ -------------
Total operating expenses 15,326,000 43,739,000
------------ -------------
Operating loss (8,580,000) (23,493,000)
Interest income 1,379,000 4,261,000
Interest expense (7,863,000) (23,952,000)
Equity in losses of affiliates (385,000) (385,000)
Other ( 7,000) 648,000
------------ ------------
Loss before income tax benefit (15,456,000) (42,921,000)
Income tax benefit 1,358,000 4,072,000
------------ ------------
Net loss $(14,098,000) $(38,849,000)
============ ============
</TABLE>
TELQUEST SATELLITE SERVICES LLC. The Company's
investment in TSS reflects an equity loss of $1,137,000
based on CAI's pro-rata share of TSS's net loss of
$4,549,000 from inception to December 31, 1997. TSS has
negative net worth of $1,078,000 at December 31, 1997,
inclusive of the receivables due from CAI and CS in
connection with their investment in TSS totaling
$1,679,000.
CAI WIRELESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. INTERIM DEBT FINANCING
FOOTHILL CAPITAL CREDIT FACILITY. On November 25,
1997, the Company repaid all amounts outstanding and owing
to Foothill Capital Corporation and affiliates of Canyon
Capital Management, L.P. (the "Interim Debt Lenders")
The then-outstanding amount owed under the credit facility
provided by the Interim Debt Lenders (the "F/C Credit
Facility") was approximately $17,300,000, and was repaid
out of the proceeds of the sale by CAI and certain
subsidiaries of $25,000,000 principal amount of Secured
Notes. See discussion below regarding sale and issuance
of Secured Notes. The $17,300,000 paid to the Interim
Debt Lenders on November 25, 1997 consisted of:
$15,329,000 representing the principal amount of the loans
outstanding under the F/C Credit Facility; a $1,575,000
fee; and $350,000 representing interest on the outstanding
loans and fees.
In connection with the early termination of the F/C
Credit Facility, the Company recorded a third quarter
charge of approximately $4,700,000, representing the costs
associated with the F/C Credit Facility that the Company
was originally amortizing over the two-year term of the
F/C Credit Facility. This non-recurring charge is
reflected as interest expense in the Consolidated
Statement of Operations for the quarter and nine months
ended December 31, 1997.
During the quarter ended December 31, 1997 and
before the F/C Credit Facility was repaid, the Company
executed a series of continuing waiver agreements, which
waived compliance by the Company with certain post-closing
requirements, increased the interest rates payable on the
obligations outstanding under the F/C Credit Facility, and
imposed additional and/or modified existing covenants
relating to various items, including sales of non-core
assets, certain fundamental changes to the Company and the
Company's ability to incur additional indebtedness. The
two waivers executed during the quarter ended December 31,
1997 were in addition to a waiver agreement executed on
September 25, 1997, and all of the waivers executed and
delivered by the Company to the Interim Debt Lenders
contained a general release of the Interim Debt Lenders.
A final general release was required of and delivered by
the Company in connection with receipt of the pay-off
letter issued by the Interim Debt Lenders in connection
with the repayment of all Company obligations under the
F/C Credit Facility.
13% SENIOR SECURED NOTES. On November 25, 1997, the
Company sold $25,000,000 of its Secured Notes to Merrill
Lynch Global Allocation Fund, Inc. (the "Investor"). CAI
used approximately $17,300,000 of the proceeds to repay
all amounts outstanding under the F/C Credit Facility, and
the remaining proceeds of approximately $7,300,000, net of
expenses associated with this transaction, for working
capital purposes and build-out of the Company's wireless
cable business. On January 26, 1998, the Company issued
and sold an additional $2,000,000 Secured Note to the
Investor, and on February 17, 1998, the Company issued and
sold an additional $18,000,000 of its Secured Notes in
connection with the consummation of a series of
transactions by the Company, the Investor and various
affiliates of Bell Atlantic Corporation ("BANX"). See
Note 8 - Subsequent Events - Termination of BANX Rights.
The Secured Notes are short-term obligations of CAI,
maturing on June 1, 1998, and were issued and sold
pursuant to the terms of a Note Purchase Agreement between
CAI and certain of its wholly-owned subsidiaries and the
Investor (the "Note Purchase Agreement"). Interest at the
rate of 13% per annum on the Secured Notes is payable at
maturity. In addition to fees and expenses associated
with the issuance and sale of the Secured Notes, CAI is
required to pay a $720,000 commitment fee to the Investor,
which is also due at maturity.
As collateral for the Notes, CAI granted a blanket
lien on all of its assets, including the stock of
substantially all of its wholly-owned subsidiaries, as
well as a pledge of its interests in CS and TSS. The Note
Purchase Agreement contains covenants that are usual and
customary for transactions of this type, including a
series of negative covenants intended to preserve the
value of the collateral pledged by CAI for the benefit of
the Investor.
CAI WIRELESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. SIGNIFICANT EVENTS
TELQUEST SATELLITE SERVICES
TSS is a joint venture between the Company, CS and
TelQuest Communications, Inc., a company controlled by Mr.
Jared E. Abbruzzese, Chairman and Chief Executive Officer
of the Company, formed on August 4, 1997, for the purpose
of developing and operating satellite systems providing
digital services. In connection with the Company's
$5,000,000 investment in TSS, the Company made a cash
payment of $447,064 to TSS on December 1, 1997. The cash
payment is the second of four quarterly installments that
the Company is required to make to satisfy the $2,500,000
cash portion of its investment in TSS. As of December 31,
1997, the Company owed TSS a total of $894,128 to satisfy
the remaining cash portion of the investment, which amount
is payable in two equal installments of $447,064 on March
1, and June 1, 1998.
The Company has also contributed a combination of
equipment (made available to TSS under the terms of a
five-year renewable lease at a nominal rental amount) and
cash (in lieu of equipment) in an amount equal to
$2,149,211 as part of the $2,500,000 equipment portion of
the Company's $5,000,000 investment in TSS. On January
28, 1998 and February 6, 1998, CAI contributed $30,000 and
$320,000, respectively, to TSS to complete CAI's equipment
obligation. Cash paid by CAI to TSS and credited against
the equipment portion of its investment is to be used by
TSS for installation and other costs associated with
equipment purchased by CAI and leased to TSS. In return
for CAI's $5,000,000 investment in TSS, CAI received a 25%
interest in TSS, which interest is subject to dilution
upon the occurrence of certain events.
NOTE 6. SUMMARY OF PERTINENT RIGHTS AND PRIVILEGES OF
COMPANY SECURITIES
STOCK CAPITALIZATION
The stock capitalization is as follows:
<TABLE>
<CAPTION>
Shares Authorized Shares Issued and
CLASS OF STOCK AS OF 12/31/97 OUTSTANDING AS OF 12/31/97
- -------------- ----------------- -------------------------
<S> <C> <C>
Preferred Stock
14% Senior convertible
preferred stock, par
value $10,000 per share 15,000 7,000
-------- -------
Series Preferred Stock, no par value
Series A 8% preferred stock,
no par value 350,000 -
Undesignated 4,650,000 -
--------- -------
Total series preferred stock 5,000,000 -
--------- -------
Voting preferred stock, no par value 2,000,000 -
--------- -------
Total preferred stock 7,015,000 7,000
========= =======
Common stock, no par value 100,000,000 40,540,539
=========== ==========
</TABLE>
SECURITIES ISSUED ORIGINALLY TO BANX
In March 1995 and in conjunction with the execution
of the Business Relationship Agreement (the "BR
Agreement") by the Company and BANX, CAI entered into a
securities purchase agreement with BANX Partnership,
another affiliate of Bell Atlantic and NYNEX (the "BANX
Partnership"), pursuant to which (i) BANX Partnership
purchased $30,000,000 of the Company's Term Notes due May
9, 2005
("BANX Term Notes") and warrants (the "BANX Warrants") to
purchase cumulative voting preferred stock, no par value
(the "Voting Preferred Stock") on May 9, 1995 (the "Stage
I Closing"), and (ii)
CAI WIRELESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. SUMMARY OF COMPANY SECURITIES (CONTINUED)
$70,000,000 of the Company's 14% senior convertible
preferred stock, par value $10,000 per share ("Senior
Preferred Stock") and additional BANX Warrants (together
with the BANX Term Notes, Voting Preferred Stock and
Senior Preferred Stock, the "BANX Securities") on
September 29, 1995 (the "Stage II Closing"). Upon
issuance of the BANX Securities in September 1995, the
full conversion or exercise of the BANX Securities would
have resulted in the BANX Partnership having to make an
additional investment, at that time, in CAI of
approximately $202,000,000 (subject to adjustment in
accordance with the terms of the Modification Agreement
(as defined below)), to increase its ownership interest
in CAI, on a pro forma basis, to approximately 45%.
On December 12, 1996, the Company and BANX reached
an agreement (the "Modification Agreement") that modified
certain terms of the BR Agreement and provided CAI or its
designee with the right to acquire the BANX Securities.
In connection with the Modification Agreement, the average
per share exercise/conversion price of the BANX Securities
was reduced from $8.19 to $5.31, on full conversion and
exercise. This reduction resulted in BANX having to only
make an additional investment in CAI of approximately
$95,000,000 to acquire the approximately 45% ownership
interest in CAI in the event BANX elected to convert or
exercise the BANX Securities. The Modification Agreement
was subsequently amended on April 29, 1997, pursuant to
Amendment No.1 to the Modification Agreement (the
"Modification Agreement Amendment").
The Modification Agreement Amendment represented the
re-negotiation of an option granted to CAI to repurchase
the $100,000,000 face amount of BANX securities held by
BANX. The repurchase consideration was $40,000,000 in
cash and 100,000 shares of CAI convertible junior
preferred stock. The junior preferred stock would have
been non-voting, carried no coupon and no maturity, and
would have been convertible into 2.5 million shares of CAI
Common Stock. The repurchase option was exercisable
through February 28, 1998. These agreements, together
with the BR Agreement, were terminated on February 17,
1998 and the BANX Securities were transferred by BANX to
the Investor. See Note 8 - Subsequent Events -
Termination of BANX Rights.
A summary of the outstanding Senior Preferred
Stock, Voting Preferred Stock and BANX Warrants follows:
14% SENIOR CONVERTIBLE PREFERRED STOCK. As part of
the Stage II Closing, BANX purchased 7,000 shares of
Senior Preferred Stock. The Senior Preferred Stock has a
14% cumulative dividend, payable quarterly (optionally
before December 1, 1998 and mandatorily after December 1,
1998). The dividend rate was increased to 16% pursuant
to an adjunct agreement with BANX regarding licensing
issues. The terms of the Senior Preferred Stock require
mandatory redemption at par plus any accrued dividends on
September 29, 2005, absent any conversion. As of
December 31, 1997, there were 7,000 shares of Senior
Preferred Stock issued and outstanding.
VOTING PREFERRED STOCK. The Senior Preferred Stock
is convertible into Voting Preferred Stock (based on a
formula prescribed in the terms of the Senior Preferred
Stock) for a period of five years commencing on September
29, 1995. In turn, the Voting Preferred Stock is
convertible into CAI Common Stock, initially at the rate
of 100 shares of CAI Common Stock for one share of
Voting Preferred Stock. The terms include an conversion
feature wherein each outstanding share of Voting
Preferred Stock shall automatically be converted into
shares of CAI Common Stock based on enumerated conditions
and/or events. Voting rights are based on the underlying
shares of Common Stock per share of Voting Preferred
Stock. Additionally, holders of the Voting Preferred
Stock are entitled to receive dividends if, as, or when a
dividend is declared on shares of CAI Common Stock and in
an amount based on the underlying shares of CAI Common
Stock per share of Voting Preferred Stock. In the event
of liquidation or dissolution, Voting Preferred Stock is
subject to the prior rights of the Senior Preferred Stock
but ahead of the CAI Common Stock in an amount equal to
the underlying shares of CAI Common Stock per share of
Voting Preferred Stock. As of December 31, 1997, there
were no shares of Voting Preferred Stock issued and
outstanding.
CAI WIRELESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. SUMMARY OF COMPANY SECURITIES (CONTINUED)
THE BANX WARRANTS. The BANX Warrants entitle the
holder thereof to purchase Voting Preferred Stock which
and are exercisable at an aggregate price of
approximately $95,000,000.
In connection with the transactions consummated on
February 17, 1998 and described more fully in Note 8
below, the Investor waived all conversion features of the
foregoing securities, pending the exchange of such
securities for a new subordinated note of the Company.
OTHER SECURITIES ISSUED BY CAI
COMMON STOCK. The Company's Common Stock is without
par value and carries one vote per share. Holders of
Company Common Stock are entitled to dividends if, as, or
when declared out of funds legally available which
consists of current or accumulated earnings. The Company
currently has an accumulated deficit. In liquidation or
dissolution, all preferred stock including accumulated
dividends thereon must be satisfied before holders of
Common Stock receive any distribution. As of December 31,
1997, there were 40,540,539 shares of Common Stock issued
and outstanding.
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
("ISO's"), non-qualified stock options ("NQSO's"), stock
appreciation rights, performance shares and restricted
stock or any combination of the foregoing, as the
Compensation Committee of the Board of Directors (the
"Committee") may determine. The 1995 Plan will expire on
March 27, 2005. The number of shares available for stock
option grants is 1,200,000 shares and the 1995 Plan is
administered by the 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 Committee at the time of
grant. There have been no options exercised under the
1995 Plan. As of December 31, 1997, there were options
to purchase approximately 1,181,000 shares of Company
common stock granted under the 1995 Plan.
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 ISO's or NQSO's. Options granted to
independent consultants and other nonemployees may only
be designated NQSO's. The 1993 Plan is administered by
the Committee. 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 Committee at the time of grant. There
have been no options exercised under the 1993 Plan. As
of December 31, 1997, there were options to purchase
997,500 shares of Company common stock granted under the
1993 Plan.
Outside Directors' Option Plan. In October 1996,
the Company adopted the 1996 Outside Directors' Stock
Option Plan (the "1996 Directors' Plan"). Under the 1996
Directors' Plan, options to purchase an aggregate of not
more than 45,000 shares of common stock will be granted
from time to time to nonemployee directors. Each
qualifying director shall be granted an option to
purchase 7,500 shares at a price which will not be less
than 100% of fair market value on the date of the grant.
Such option shall vest: 25% on the date of grant, and
25% on each of the second, third, and fourth
anniversaries of the grant.
The options under the 1996 Directors' Plan are
exercisable for a period of ten years, but not before an
initial six-month period. As of March 31, 1997, the
Company has granted options under this plan to purchase
30,000 shares of common stock at a weighted average price
of $6.63 per share. As of December 31, 1997, there have
been no options exercised under the 1996 Directors' Plan,
and the
CAI WIRELESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. SUMMARY OF COMPANY SECURITIES (CONTINUED)
Company has not issued any additional options under the
1996 Directors' Plan during the nine months ended
December 31, 1997.
In October 1993, the Company adopted the 1993
Outside Directors' Option Plan (the "1993 Directors'
Plan"). Under the 1993 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 1993 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, 1997, the Company has granted
outstanding options under this plan to purchase 8,334
shares of common stock at $11 per share. As of December
31, 1997, no options have been exercised under the 1993
Directors' Plan, and no additional options have been
issued under the 1993 Directors' Plan during the nine
months ended December 31, 1997.
WARRANTS
COMMON STOCK WARRANTS. The Company has issued and
outstanding warrants to purchase 5,083,563 shares of
Company Common Stock, which warrants were issued to
various bridge lenders, and the Interim Debt Lenders in
connection with various financings consummated by the
Company since its inception. The common stock warrants do
not include the warrants issued originally to BANX
Partnership. The weighted-average exercise price for the
non-BANX warrants, at December 31, 1997 was $3.84 per
share.
NOTE 7. RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 128
("SFAS 128") - "Earnings Per Share." The Company has
adopted SFAS 128 for the quarter and nine months ended
December 31, 1997. Accordingly, the Company replaced the
"primary" EPS requirements with a "basic" EPS computation
based upon weighted-average shares outstanding. Due to the
Company's net losses, only the basic loss per share
amounts are reflected in the accompanying Statements of
Operations.
Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income", which was
issued in June 1997 is effective for fiscal years
beginning after December 15, 1997. SFAS 130 establishes
standards for reporting and disclosure of comprehensive
income and its components in a full set of general-purpose
financial statements. The Company believes that it does
not have a significant amount of comprehensive income
(loss) as defined, if any. Accordingly, the Company
believes that this statement will not have a material
effect on CAI's future financial statement presentations.
In June 1997, Statement of Financial Accounting
Standards No. 131 "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131") was also
issued. This pronouncement is effective for fiscal years
beginning after December 15, 1997 and requires disclosures
about operating segments and enterprise-wide disclosures
about products and services, geographic areas and major
customers. Effective April 1, 1998, the Company will
comply with the requirements of SFAS 131 and make the
necessary disclosures.
CAI WIRELESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. SUBSEQUENT EVENTS
NASDAQ DE-LISTING. On January 8, 1998, trading of
the Company's common stock was removed from The Nasdaq
National Market<reg-trade-mark> ("NNM") and listed for
trading on the Nasdaq SmallCap Market{ SM}. The removal
was caused by the Company's failure to meet the net
tangible asset listing requirement imposed by Nasdaq upon
NNM-listed companies. As a condition to listing on the
Nasdaq SmallCap Market{ SM}, the Company was required to
maintain compliance with a $1.00 per share bid price for
an interim period. Effective January 13, 1998, as a
result of failing to maintain the $1.00 per share bid
price, CAI's common stock was de-listed from the Nasdaq
SmallCap Market{ SM}. The common stock currently trades
on the Electronic Bulletin Board system under the CAWS
symbol.
TERMINATION OF BANX RIGHTS. On February 17, 1998,
the Company consummated a series of transactions,
including the purchase by the Company of the remaining
interest of BANX under the BR Agreement and the
acquisition of BANX's approximately 9.9% equity interest
in CS. Under the terms of the Termination and Purchase
Agreement (the "Termination Agreement"), the Company
issued $7,000,000 aggregate principal amount of its
Secured Notes to BANX in consideration of the termination
of the BR Agreement, Modification Agreement and
Modification Agreement Amendment, and the transfer of
1,000,000 shares of CS common stock held by BANX. The
parties exchanged general releases in connection with the
transaction. The BR Agreement was originally entered into
by the parties in March 1995 and provided Bell Atlantic
the right to exercise options to utilize CAI's MMDS
spectrum in certain of its major markets exclusively for
Bell Atlantic video programming. Prior to its
termination, none of those major markets had been optioned
by BANX.
Simultaneously with the closing of the Termination
Agreement, the Company and the Investor amended the Note
Purchase Agreement to increase the aggregate amount of
Secured Notes issued and outstanding thereunder by an
additional $18,000,000 to $45,000,000, which amount
includes $25,000,000 of Secured Notes issued and sold to
the Investor on November 25, 1997, a $2,000,000 Secured
Note issued and sold to the Investor on January 26, 1998,
$7,000,000 of Secured Notes issued by the Company to BANX
in connection with the Termination Agreement and an
additional $11,000,000 Secured Note issued by the Company
and sold to the Investor on February 17, 1998. The
proceeds of the additional Secured Note will be used for
working capital and to meet certain other obligations of
the Company into the first quarter of its fiscal year
beginning April 1, 1998. All of the Secured Notes mature
on June 1, 1998.
As part of these transactions, the Investor advised
CAI that it had completed the purchase from BANX of all of
the BANX Securities representing BANX's initial
$100,000,000 investment in CAI in 1995, as well as the
Secured Notes issued by CAI to BANX in connection with the
Termination Agreement.
CAI and the Investor have entered into an agreement
in principle on February 17, 1998, pursuant to which the
Investor agreed to exchange all of the BANX Securities,
together with accrued but unpaid interest and dividends
thereon, for a $30,000,000 12% subordinated note due 2003,
subject to prepayment at a discount of up to $27,000,000
prior to June 1, 1998 in the event that certain
circumstances occur that result in the realization of a
significant increase in the current market value of CAI's
12 1/4 % Senior Notes due 2002. The exchange is subject
to certain conditions, including documentation
satisfactory to the parties. Pending the exchange, the
Investor has waived all conversion features contained in
the BANX Securities.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The statements contained in this Quarterly Report on
Form 10-Q, including the exhibits hereto, relating to the
Company's future operations may constitute forward-looking
statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. Actual
results of the Company may differ materially from those in
the forward-looking statements and may be affected by a
number of factors including the Company's ability to
attract one or more new strategic partners and their
willingness to enter into arrangements with CAI on a
timely basis, the terms of such arrangements, the receipt
of regulatory approvals for alternative uses of its MMDS
spectrum, the success of CAI's trials in various of its
markets, the commercial viability of any alternative use
of MMDS spectrum, consumer acceptance of any new products
offered or to be offered by CAI, subscriber equipment
availability, practical success of CAI's engineered
technology, tower space availability, absence of
interference and the ability of the Company to redeploy or
sell excess equipment, the assumptions, risks and
uncertainties set forth below in this "Management's
Discussion and Analysis of Financial Condition and Results
of Operations" and elsewhere herein, as well as other
factors contained herein and in the Company's other
securities filings. Furthermore, there can be no
assurance that the financing obtained by the Company to
date will enable it to meet its future cash needs.
BUSINESS DEVELOPMENTS
Boston Digital Project. The Company has committed
significant funds and substantial engineering and
regulatory efforts to the build-out of its digital MMDS
system in Boston, Massachusetts. Initially, construction
of the Boston system was undertaken in fulfillment of the
Company's obligations under the Business Relationship
Agreement with affiliates of Bell Atlantic Corporation and
NYNEX Corporation (collectively, "BANX") for the provision
of subscription video services by BANX using MMDS
spectrum. When BANX abandoned its digital video plans,
CAI continued to construct the Boston system. In its
continuation of the construction, however, the Company
sought to build into the system flexibility it believed
was necessary to offer one-way, high-speed data services,
as well as two-way MMDS services, such as two-way data and
telephony services. The Company's Boston system is
currently testing digital video, voice and data
transmission services, which have been demonstrated to
certain third parties that have expressed interest in the
Company's technical capabilities.
In connection with the build-out of the digital
system in Boston, the Company has converted approximately
65% of the Instructional Television Fixed Service ("ITFS")
receive sites in Boston enabling the receive sites to
receive CAI's digital MMDS signal, as transmitted from its
digital head-end and several repeater sites located in the
Boston metropolitan area. The Company expects that the
remaining Boston ITFS receive sites should be converted
within the next 90 days.
The technology and equipment deployed and being used
in Boston for digital video and other uses was devised
primarily by CAI's engineering staff, working in
conjunction with various equipment vendors. Since the
technology and equipment is relatively new, the Company
and its principal vendors have had to reconfigure certain
aspects of the technology and equipment. The Company has
substantially eliminated many of the minor technical flaws
it experienced in the incipient stages of developing and
testing the Boston digital video technology, and is
working with vendors to improve the technology and
prototype equipment deployed in Boston for video and
alternative uses such as two-way data and telephony.
The Company originally indicated that it would
launch a digital subscription video product in Boston
during the second half of 1997. The video launch was not
only viewed by the Company as important as a means of
attracting a strategic investor, but also was required to
meet certain covenants imposed by the F/C Credit Facility
(defined below). (The covenants imposed upon the Company
in connection with the issuance of the Secured Notes
(defined below) do not include a digital video requirement
in Boston or any other CAI market.) The launch of a
commercial digital subscription video product in Boston
has been delayed due to three principal factors: the
unexpected delays associated with equipment, including
customer premises equipment of sufficient quality to
support a commercial launch of a digital subscription
video product; the Company's limited financial resources,
and the absence of a strategic partner willing to utilize
the digital MMDS system to the fullest capacity.
The Company has made significant progress, in
conjunction with its primary vendors, in improving the
quality of the digital video product being tested in
Boston. The customer premises and other equipment has
been reconfigured in some instances in an effort to
eliminate many of the technical flaws that were associated
with the early versions of this equipment. At this time,
however, the Company has no definitive plans to launch a
full-scale commercial digital subscription video service
in its Boston market, and is instead contemplating limited
roll-out of a digital subscription video product once all
of the technical flaws experienced by the Company with the
equipment have been eliminated to the Company's
satisfaction. The Company is fully committed to ensuring
that its ITFS licenseholders in Boston can serve their
respective receive sites with such licenseholders' digital
video programming, a project that the Company believes is
substantially completed in Boston The Company believes,
however, that its best position in connection with
discussions it is having or contemplates having with
potential strategic partners, and in light of its limited
financial resources, is to delay the full-scale launch of
a commercial video service for the immediate future.
The Company is pursuing a one-way, high-speed
Internet access service on a wholesale basis in its
Boston, Rochester and New York City markets. The
Company's data transport delivery service currently
utilizes a wireless downstream transmitted over CAI's MMDS
system and a telephone return path. Acting through its
wholly-owned subsidiary CAI Wireless Internet, Inc., the
Company will begin to offer bandwidth to Internet Service
Providers (ISPs) in the three markets in the first quarter
of 1998. By providing transport services to ISPs, the
Company believes that it will be able to eliminate a
significant amount of capital expenditure associated with
providing retail data delivery services. In connection
with the Company's wholesale Internet strategy, it has
curtailed its efforts with respect to previously-announced
commercial trials of its one-way Internet access service
in Rochester, New York City and Boston, and is focusing
its efforts on the wholesale strategy.
TELQUEST SATELLITE SERVICES. TelQuest Satellite
Services LLC ("TSS") is a joint venture between the
Company, CS Wireless Systems, Inc. ("CS") and TelQuest
Communications, Inc., a company controlled by Mr. Jared E.
Abbruzzese, Chairman and Chief Executive Officer of the
Company, formed on August 4, 1997 for the purpose of
developing and operating satellite systems providing
digital services. In connection with the Company's
$5,000,000 investment in TSS, the Company made a cash
payment of $447,064 to TSS on December 1, 1997. The cash
payment is the second of four quarterly installments that
the Company is required to make to satisfy the $2,500,000
cash portion of its investment in TSS. As of December 31,
1997, the Company owed TSS a total of $894,128 to satisfy
the remaining cash portion of the investment, which amount
is payable in two equal installments of $447,064 on March
1, and June 1, 1998.
The Company has also contributed a combination of
equipment (made available to TSS under the terms of a
five-year renewable lease at a nominal rental amount) and
cash (in lieu of equipment) in an amount equal to
$2,149,211 as part of the $2,500,000 equipment portion of
the Company's $5,000,000 investment in TSS. On January
28, 1998 and February 6, 1998, CAI contributed an
additional $30,000 and $320,000, respectively, to TSS to
complete its equipment obligation. Cash paid by CAI to
TSS and credited against the equipment portion of its
investment is to be used by TSS for installation and other
costs associated with equipment purchased by CAI and
leased to TSS. In return for CAI's $5,000,000 investment
in TSS, CAI received a 25% interest in TSS, which interest
is subject to dilution upon the occurrence of certain
events.
CAI has designated its Boston market as the first of
the Company's market to receive TSS digital video
programming. TSS is currently broadcasting approximately
40 channels of pre-digitized video programming, which
programming is being received at the Company's head-end
located in downtown Boston without significant technical
flaws. The Company is currently using the TSS programming
in Boston to test the digital MMDS delivery platform and
the customer premises equipment to be used for a
commercial subscription video product.
The Company continues to believe that the
affiliation agreement it has with TSS is the most cost-
efficient means of accessing pre-digitized video
programming for use at its transmission facilities. A
migration from the C-band satellite capacity that TSS
currently is transmitting to the contemplated Ku-band
satellite capacity will provide the Company with the
opportunity to expand its video offerings to include a
direct-to-home product as a supplement to any MMDS-based
video delivery system for those potential subscribers that
are not capable of receiving the MMDS signal. There can
be no assurance, however, that TSS will be able to
migrate from C-band satellite capacity to Ku-band
satellite capacity, or that the Company will be able to
expand its video offerings beyond its current subscription
video product.
NASDAQ DE-LISTING. On January 8, 1998, trading of
the Company's common stock was removed from The Nasdaq
National Market<reg-trade-mark> ("NNM") and listed for
trading on the Nasdaq SmallCap Market{ SM}. The removal
was caused by the Company's failure to meet the net
tangible asset listing requirement imposed by Nasdaq upon
NNM-listed companies. As a condition to listing on the
Nasdaq SmallCap Market{ SM}, the Company was required to
maintain compliance with a $1.00 per share bid price for
an interim period. Effective January 13, 1998, as a
result of failing to maintain the $1.00 per share bid
price, CAI's common stock was de-listed from the Nasdaq
SmallCap Market{ SM}. The common stock currently trades
on the Electronic Bulletin Board system under the CAWS
symbol.
CS WIRELESS TRUE-UP. Pursuant to the terms of the
Participation Agreement dated as of December 12, 1995, as
amended by Amendment No. 1 to the Participation Agreement
dated as of February 22, 1996, among the Company, CS and
Heartland Wireless Communications, Inc. ("Heartland"),
each of the Company and Heartland, as the case may be, is
subject to a true-up adjustment, calculated in accordance
with the provisions of the Participation Agreement, in the
event that the number of channels available to CS in any
market contributed by a party is less than 16. The true-
up adjustment for any such channel deficiency may be
satisfied by the deficient party by delivering to CS
either (i) cash, (ii) a 5-year promissory note, (iii)
shares of CS stock, or (iv) any combination of the
foregoing. The Company has been notified by Heartland
that it believes there is a potential channel deficiency
arising out of the number of channels delivered by the
Company in connection with its contribution of MMDS assets
relating to the Charlotte, North Carolina market. The
Company believes that it has delivered 13 of the 16
required channels, and expects to be able to deliver at
least three additional channels in Charlotte, NC from
applications currently pending at the FCC. Heartland has
advised the Company that it believes that the Company has
delivered only 6 channels relating to the Charlotte
market. The Company disputes Heartland's position, and is
in the process of responding to Heartland on this issue.
TERMINATION OF BANX RIGHTS. On February 17, 1998,
the Company consummated a series of transactions,
including the purchase by the Company of the remaining
interest of BANX under the BR Agreement and the
acquisition of BANX's approximately 9.9% equity interest
in CS. Under the terms of the Termination and Purchase
Agreement (the "Termination Agreement"), the Company
issued $7,000,000 aggregate principal amount of its
Secured Notes (defined below) to BANX in connection with
the closing of the Termination Agreement. The parties
exchanged general releases in connection with the
transaction, and terminated the Modification Agreement
dated December 12, 1996 by and among CAI and BANX and
Amendment No. 1 to Modification Agreement dated April 29,
1997. The BR Agreement was originally entered into by the
parties in March 1995 and provided Bell Atlantic the right
to exercise options to utilize CAI's MMDS spectrum in
certain of its major markets exclusively for Bell Atlantic
video programming. Prior to its termination, none of
those major markets had been optioned by BANX. Following
the consummation of the foregoing transaction and the
transactions discussed below in the section entitled,
"Liquidity and Capital Resources - Interim Debt Financing
- - 13% Senior Secured Notes," BANX ceased to have any
interest in the Company. See "Liquidity and Capital
Resources - Interim Debt Financing - 13% Senior Secured
Notes" below.
LIQUIDITY AND CAPITAL RESOURCES
NINE MONTHS ENDED DECEMBER 31, 1997
For the nine months ended December 31, 1997, cash
and cash equivalents decreased by $8,301,000. Operating
activities utilized $28,591,000 of cash, primarily to fund
the Company's net losses of $98,537,000, reduced for non-
cash expenditures including depreciation and amortization
of $26,153,000, equity losses for CS and TSS totaling
$23,118,000, and the increase in payables and accruals of
$12,605,000 (primarily interest on the 12.25% Senior
Notes). Cash provided from financing activities primarily
reflects the issuance of $25,000,000 of principal amount
of Secured Notes and the use of the proceeds thereof to
repay the approximately $17,300,000 outstanding under the
prior credit facility with Foothill Capital Corporation
and affiliates (see Interim Debt Financing below). The
remaining funds, net of issuance fees, are being used by
the Company for general operating requirements.
The Company's capital expenditures during the nine
months ended December 31, 1997 included the purchase of
$6,337,000 in equipment, primarily for the Boston digital
project, and to acquire $2,221,000 in wireless channel
rights.
INTERIM DEBT FINANCING
Foothill Capital Credit Facility. On November 25,
1997, the Company repaid all amounts outstanding and owing
to Foothill Capital Corporation and affiliates of Canyon
Capital Management, L.P. (the "Interim Debt Lenders")
The then-outstanding amount owed under the credit facility
provided by the Interim Debt Lenders (the "F/C Credit
Facility") was approximately $17,300,000, and was repaid
out of the proceeds of the sale by CAI and certain
subsidiaries of $25,000,000 principal amount of Secured
Notes. See discussion below regarding sale and issuance
of Secured Notes. The $17,300,000 paid to the Interim
Debt Lenders on November 25, 1997 consisted of:
$15,329,000 representing the principal amount of the loans
outstanding under the F/C Credit Facility; a $1,575,000
fee; and $350,000 representing interest on the outstanding
loans and fees.
In connection with the early termination of the F/C
Credit Facility, the Company recorded a third quarter
charge of approximately $4,700,000, representing the costs
associated with the F/C Credit Facility that the Company
was originally amortizing over the two-year term of the
F/C Credit Facility. This non-recurring charge is
reflected as interest expense in the Consolidated
Statement of Operations for the quarter and nine months
ended December 31, 1997.
During the quarter ended December 31, 1997 and
before the F/C Credit Facility was repaid, the Company
executed a series of continuing waiver agreements, which
waived compliance by the Company with certain post-closing
requirements, increased the interest rates payable on the
obligations outstanding under the F/C Credit Facility, and
imposed additional and/or modified existing covenants
relating to various items, including sales of non-core
assets, certain fundamental changes to the Company and the
Company's ability to incur additional indebtedness. The
two waivers executed during the quarter ended December 31,
1997 were in addition to a waiver agreement executed on
September 25, 1997, and all of the waivers executed and
delivered by the Company to the Interim Debt Lenders
contained a general release of the Interim Debt Lenders.
A final general release was required of and delivered by
the Company in connection with receipt of the pay-off
letter issued by the Interim Debt Lenders in connection
with the repayment of all Company obligations under the
F/C Credit Facility.
13% SENIOR SECURED NOTES. On November 25, 1997, the
Company issued and sold $25,000,000 of its 13% Senior
Secured Notes due June 1, 1998 (the "Secured Notes") to
Merrill Lynch Global Allocation Fund, Inc. (the
"Investor"). CAI used approximately $17,300,000 of the
proceeds to repay all amounts outstanding under the F/C
Credit Facility, and the remaining proceeds of
approximately $7,300,000, net of expenses associated with
this transaction, for working capital purposes and build-
out of the Company's wireless cable business. On January
26, 1998, the Company issued and sold an additional
$2,000,000 Secured Note to the Investor, and on February
17, 1998, the Company issued and sold an additional
$18,000,000 of Secured Notes in connection with the
consummation of a series of transactions by the Company,
the Investor and BANX. See "Business Developments -
Termination of BANX Rights" above.
The Secured Notes are short-term obligations of CAI,
maturing on June 1, 1998, and were issued and sold
pursuant to the terms of a Note Purchase Agreement between
CAI and certain of its wholly-owned subsidiaries and the
Investor (the "Note Purchase Agreement"). Interest at the
rate of 13% per annum on the Secured Notes is payable at
maturity. In addition to fees and expenses associated
with the issuance and sale of the Secured Notes, CAI is
required to pay a $720,000 commitment fee to the Investor,
which is also due at maturity.
As collateral for the Notes, CAI granted a blanket
lien on all of its assets, including the stock of
substantially all of its wholly-owned subsidiaries, as
well as a pledge of its interests in CS and TSS. The Note
Purchase Agreement contains covenants that are usual and
customary for transactions of this type, including a
series of negative covenants intended to preserve the
value of the collateral pledged by CAI for the benefit of
the Investor.
Simultaneously with the closing of the Termination
Agreement, the Company and the Investor amended the Note
Purchase Agreement to increase the aggregate amount of
Secured Notes issued and outstanding thereunder by an
additional $18,000,000 to $45,000,000, which amount
includes $25,000,000 of Secured Notes issued and sold to
the Investor on November 25, 1997, the $2,000,000 Secured
Note issued and sold to the Investor on January 26, 1998,
$7,000,000 of Secured Notes issued by the Company to BANX
in connection with the Termination Agreement and an
additional $11,000,000 Secured Note issued by the Company
and sold to the Investor on February 17, 1998. The
proceeds of the additional Secured Note will be used for
working capital and to meet certain other obligations of
the Company into the first quarter of its fiscal year
beginning April 1, 1998. All of the Secured Notes mature
on June 1, 1998.
As part of these transactions, the Investor advised
CAI that it had completed the purchase from BANX of all of
the CAI securities issued to BANX in connection with
BANX's initial $100,000,000 investment in CAI in 1995,
including $30,000,000 of term notes, $70,000,000 of senior
preferred stock and warrants to purchase voting preferred
stock of CAI (the "BANX Securities"), as well as the
Secured Notes issued by CAI to BANX in connection with the
Termination Agreement.
CAI and the Investor have entered into an agreement
in principle on February 17, 1998, pursuant to which the
Investor agreed to exchange all of the BANX Securities,
together with accrued but unpaid interest and dividends
thereon, for a $30,000,000 12% subordinated note due 2003,
subject to prepayment at a discount of up to $27,000,000
prior to June 1, 1998 in the event that certain
circumstances occur that result in the realization of a
significant increase in the current market value of CAI's
12 1/4 % Senior Notes due 2002. The exchange is subject
to certain conditions, including documentation
satisfactory to the parties. Pending the exchange, the
Investor has waived all conversion features contained in
the BANX Securities.
GOING CONCERN
CAI's recurring losses, restrictions on its ability
to obtain additional financing, and substantial
commitments raise significant doubt about the continuation
of CAI as a going concern. For the last quarter of the
fiscal year ending March 31, 1998, the Company is
obligated to pay $2,500,000 for minimum license fees and
lease payments, approximately $1,200,000 in remaining MMDS
license auction fees, and to fund current operating costs.
On a short-term basis, CAI has
$45,000,000 of Secured Notes due on June 1, 1998. See
"Interim Debt Financing" above. On a long-term basis,
CAI has substantial indebtedness which, beginning in
fiscal year 1999, will include significant debt service
requirements and preferred stock dividend payments. As
of December 31, 1997, CAI had outstanding consolidated
long-term debt of $311,600,000 and mandatorily
redeemable preferred stock (including accrued dividends)
totaling $98,946,000.
The Company's business strategy has been to
explore digital wireless cable services for its MMDS
subscription television systems and alternative uses of
its MMDS spectrum for a variety of applications, including
data and voice transmission such as Internet access and
telephony delivery services and to petition the Federal
Communications Commission ("FCC") for the establishment of
rules governing full two-way flexible use of the MMDS
spectrum. In management's opinion, this strategy will help
meet current and perceived future competition and, in
relation to obtaining a new strategic partner, show the
flexibility and increased value of the Company's MMDS
spectrum, if such exploration and efforts at the FCC are
successful. In connection with achieving these objectives,
CAI is committed through additional open purchase orders
as of January 30, 1998 to spend approximately $7,900,000,
primarily for capital expenditures associated with
additional development of the Boston digital transmission
facilities. These commitments are to be funded, in part,
by the Interim Debt Financing.
CAI is continuing to work with its financial
advisors to devise a comprehensive plan for meeting the
Company's on-going working capital and other financial
needs, and has engaged BT Alex. Brown Incorporated as its
primary financial advisor. The Company projects that
operating cash requirements will be approximately
$7,500,000 for the three-month period ending March 31,
1998. Additionally, as of February 13, 1998, the Company
had outstanding trade payables of approximately
$4,500,000, exclusive of certain disputed amounts.
The Company's operating plans, including digital
video, voice and two-way data, Internet and intranet
access services and testing, will require additional
funding. The Company's ability to raise additional funds
through secured loans and the issuance of certain equity
is limited by the terms of the Indenture governing the
Company's 12.25% Senior Notes due 2002, the terms of
various outstanding securities and/or the terms of the
Secured Notes. The Company continues to implement cost-
saving measures while it reviews the alternatives that may
be available to it, including without limitation,
decreasing video operations, selling non-core assets and
the implementation of various plans of financial
restructuring.
RESULTS OF OPERATIONS
DECEMBER 31, 1997 COMPARED TO DECEMBER 31, 1996
The Company's strategy is not to pursue analog-based
television subscriber growth while it evaluates its
business opportunities in addition to subscription
television including high-speed Internet and Intranet
access, as well as digital video and telephony services.
The policy has had a negative impact on the Company's
subscription revenues. As of December 31, 1997, the
Company's subscriber base had decreased by approximately
19,500 to 57,500 subscribers from approximately 77,000 at
December 31, 1996. Consequently, subscriber revenues have
decreased $2,659,000 and $5,760,000 for the quarter and
nine months ended December 31, 1997, compared to the
corresponding periods last year.
Operating expenses were approximately $60,242,000
and $60,734,000 for the nine months and $22,292,000 and
$20,756,000 for the quarters ended December 31, 1997 and
1996, respectively. Programming costs did not decline in
proportion to the revenue decline due to minimum
provisions provided by certain of the programming
agreements. The approximately $500,000 reduction in
operating expenses for the nine months of 1997 versus 1996
reflects lower licensing and marketing costs which were in
line with the decline in subscribers, offset by an
increase in general and administrative expenses of
$2,067,000 consisting of financial and corporate
restructuring costs, attorneys fees in the class action
lawsuit, and various FCC filings.
Interest expense was $40,129,000 and $30,317,000 for
the nine months ended December 31, 1997 and 1996,
respectively, and was $17,199,000 and $10,012,000 for the
quarter ended December 31, 1997 and 1996, respectively,
and reflects primarily the interest on the $275,000,000 of
12.25% Senior Notes due 2002 and the $30,000,000 of Term
Notes issued to BANX. The increase in interest expense
for the quarter and nine months ended December 31, 1997
consists of interest incurred on the F/C Credit Facility
and Secured Notes, amortization of the financing fees
associated with those facilities, and the $4,700,000 non-
recurring charge related to the unamortized costs arising
from the termination of the F/C Credit Facility.
The decrease in CAI's investment in CS reflects
primarily the Company's 50.7% pro rata share of the
$38,849,000 net loss reported by CS for the nine months
ended September 30, 1997, along with $1,800,000 of
amortization of the goodwill associated with this
investment compared to an aggregate loss of $13,000,000
for the same period last year. The decrease in CAI's
investment in TSS reflects primarily the Company's 25%
pro-rata share of the $4,549,000 loss reported by TSS
since its inception to December 31, 1997.
.
Other income, comprised primarily of interest
income, for the nine months ended December 31, 1997 was
$2,974,000 compared to $5,319,000 for the comparable
period last year and was $1,351,000 and $1,203,000 for the
quarters ended December 31, 1997 and 1996 respectively.
Current period interest income on investments declined due
to the use of cash in the escrow account for semi-annual
interest payments on the Senior Notes totaling
approximately $33,700,000 during the prior twelve-month
period in addition to usage of the Company's unrestricted
accounts for operational requirements and capital
expenditures. There are funds available for two remaining
semi-annual interest payments in the debt service escrow
account. The decline in interest income was partially
offset by a $538,000 gain from the sale of certain assets.
The Company recorded an income tax benefit of
$4,500,000 for the first, second and third quarter of 1996
to offset existing deferred tax liabilities. There is no
tax benefit for the current period since there were no
available deferred tax liabilities and it is more likely
than not that any benefit recorded on the Company's
current losses would not be realized in the foreseeable
future.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 128
("SFAS 128") - "Earnings Per Share." The Company has
adopted SFAS 128 for the quarter and nine months ended
December 31, 1997. Accordingly, the Company replaced the
"primary" EPS requirements with a "basic" EPS computation
based upon weighted-average shares outstanding. Due to the
Company's net losses, only the basic loss per share
amounts are reflected in the accompanying Statements of
Operations.
Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income", which was
issued in June 1997 is effective for fiscal years
beginning after December 15, 1997. SFAS 130 establishes
standards for reporting and disclosure of comprehensive
income and its components in a full set of general-purpose
financial statements. The Company believes that it does
not have a significant amount of comprehensive income
(loss) as defined, if any. Accordingly, the Company
believes that this statement will not have a material
effect on CAI's future financial statement presentations.
In June 1997, Statement of Financial Accounting
Standards No. 131 "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131") was also
issued. This pronouncement is effective for fiscal years
beginning after December 15, 1997 and requires disclosures
about operating segments and enterprise-wide disclosures
about products and services, geographic areas and major
customers. Effective April 1, 1998, the Company will
comply with the requirements of SFAS 131 and make the
necessary disclosures.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Note 2 of Notes to Consolidated
Financial Statements in Part I, Item 1 of this filing.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) EXHIBITS.
The following exhibits are filed herewith or
incorporated by reference as indicated:
<TABLE>
<CAPTION>
Incorporation
by Reference Page REFERENCE
EXHIBIT NO. DESCRIPTION (SEE LEGEND)
<S> <C> <C> <C>
3.1 Amended and Restated Certificate of Incorporation [1] Exhibit 3.1
of CAI
3.2 Amended and Restated Bylaws of CAI [1] Exhibit 3.2
<dagger>4.1 Note Purchase Agreement by and among registrant,
certain of its subsidiaries and the purchaser named
therein
<dagger>11.1 Schedule Regarding Computation of Loss Per Common
Share for the Quarter Ended December 31, 1997 and
1996
<dagger>11.2 Schedule Regarding Computation of Loss Per Common
Share for the Nine Months Ended December 31, 1997
and 1996
<dagger>27. Financial Data Schedule
<dagger>99.1 Press Release - CAI Wireless Systems, Inc. Issues
Additional $2 Million in 13% Senior Secured Notes
<dagger>99.2 Press Release - CAI Wireless Systems, Inc. Buys Out
Remaining Bell Atlantic Hold on MMDS Spectrum
</TABLE>
LEGEND
[1] Incorporated by reference to the exhibits to the
Quarterly Report on Form 10-Q for 9/30/95.
<dagger> Filed herewith.
b) REPORTS ON FORM 8-K.
(1) Form 8-K dated November 25, 1997 was filed
December 29, 1997, regarding the following items under
Item 5, Other Events:
FINANCING MATTERS - CAI sold $25,000,000 of
its 13% Senior Secured Notes to an existing
investor and used approximately $17,300,000 to payoff
the existing credit facility.
STRATEGIC PARTNER UPDATE - CAI has focused its
recent efforts on two telecommunications companies, both of
which are currently performing various reviews of the
Company and its spectrum.
OPERATIONS - business strategy update.
BANX UPDATE - The Company made the election to
preserve its right to repurchase the BANX securities.
NASDAQ NOTIFICATION - The Company was notified
that its common stock no longer qualifies for listing on
the NASDAQ National Market and the Company could apply for
listing on the NASDAQ SmallCap Market.
CHANGES TO CORPORATE STRUCTURE - The Company
was required to create a number of wholly-owned direct
and indirect subsidiaries to hold certain assets in
connection with the F/C Credit Facility.
(2) Form 8-K dated January 7, 1998 was filed
January 22, 1998, regarding the following items
under Item 5, Other Events:
(A) Excerpts from a conference call for
financial analysts on January 14, 1998 concerning the full
two-way use of MMDS Spectrum and certain other Company matters.
(B) The following news releases were
issued:
(i) CAI Wireless Systems, Inc.
Common Stock to be listed on the
Nasdaq SmallCap Market dated
January 7,1998.
(ii) CAI Wireless Systems,
Inc. Common Stock to be delisted on
the Nasdaq SmallCap Market
dated January 12, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/ JARED E. ABBRUZZESE Chairman, Chief Executive Officer February 20, 1998
JARED E. ABBRUZZESE and Director (Principal Executive
Officer)
/S/ JAMES P. ASHMAN Executive VicePresident, Chief February 20, 1998
JAMES P. ASHMAN Financial Officer and Director
(Principal Financial Officer)
/S/ ARTHUR J. MILLER VicePresident and Controller February 20, 1998
ARTHUR J. MILLER (Principal Accounting Officer)
<PAGE>
</TABLE>
EXHIBIT 4.1
CAI WIRELESS SYSTEMS, INC.
18 CORPORATE WOODS BOULEVARD
ALBANY, NEW YORK 12211
13.00% Senior Secured Notes due February 20, 1998
As of November 24, 1997
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
Ladies and Gentlemen:
CAI WIRELESS SYSTEMS, INC., a Connecticut corporation (the
"COMPANY") and the SUBSIDIARIES of the Company listed on the attached Schedule
1.1 (the "SUBSIDIARY OBLIGORS"; and together with the Company, the "OBLIGORS"),
agree with you as follows:
1. AUTHORIZATION OF NOTES.
The Obligors will authorize the issue and sale of $25,000,000
aggregate principal amount of their 13.00% Senior Secured Notes due February
20, 1998 (together with the Notes delivered pursuant to Section 2 of this
Agreement and any such Notes issued in substitution or exchange therefor
pursuant to Section 12 of this Agreement, the "NOTES"). Each of the Notes
shall be in substantially the form of Exhibit A attached hereto, with such
amendments, supplements and other modifications thereto, if any, as shall be
approved from time to time by you and the Obligors. Capitalized terms used in
this Agreement shall have the meanings specified in Schedule I attached hereto;
and references to a "Schedule" or an "Exhibit" are, unless otherwise specified
herein, to a Schedule or an Exhibit attached to this Agreement.
2. SALE AND PURCHASE OF NOTES.
The Obligors will issue and sell to you and, subject to the terms
and conditions of this Agreement, you will purchase from the Obligors, at the
Closing provided for in Section 3, Notes in the aggregate principal amount of
$25,000,000.
3. CLOSING.
The sale and purchase of the Notes to be purchased by you shall
occur at the offices of Shearman & Sterling, 599 Lexington Avenue, New York,
New York 10022, at 11:30 A.M. (New York City time), at a closing (the
"CLOSING") on November 24, 1997 or on such other Business Day thereafter on or
prior to November 26, 1997 as may be agreed upon among the Obligors and you
(the "CLOSING DATE"). At the Closing, the Obligors will deliver to you the
Notes to be purchased by you in the form of a single Note (or such greater
number of Notes in denominations of at least $1,000,000 or integral multiples
of $100,000 in excess thereof as you may request) dated the Closing Date and
registered in your name (or in the name of your nominee), against delivery by
you to the Company or its order of immediately available funds in the amount of
the aggregate purchase price therefor by wire transfer of immediately available
funds for the account of the Company to Fleet Bank, N.A., Account No.
0001562960. If at the Closing the Obligors shall fail to tender such Notes to
you as provided above in this Section 3 or any of the conditions specified in
Section 4 shall not have been fulfilled to your satisfaction, you shall, at
your election, be relieved of all further obligations under this Agreement,
without hereby waiving any rights you may have by reason of such failure or
such nonfulfillment.
4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold to you
at the Closing is subject to the fulfillment to your satisfaction, prior to or
at the Closing, of the following conditions:
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of each of the Obligors contained
in this Agreement and in each of the other Note Documents shall be complete and
correct when made and at the time of the Closing, before and after giving
effect to the issue and sale of the Notes and to the application of the
proceeds therefrom as contemplated by Section 5.14.
4.2. PERFORMANCE; NO DEFAULT.
Each of the Obligors shall have performed and complied with all
agreements and conditions contained in this Agreement and the other Note
Documents required to be performed or complied with by it prior to or at the
Closing and, after giving effect to the issue and sale of the Notes and to the
application of the proceeds therefrom as contemplated by Section 5.14, no
Default or Event of Default shall have occurred and be continuing.
4.3. DOCUMENTS REQUIRED.
You shall have received the following documents, each dated as of
the Closing Date (except as otherwise specified below) and in the form of the
respective Exhibit attached hereto, if any, or otherwise in form and substance
satisfactory to you:
(a) SECURITY AGREEMENT. A security agreement, in substantially the
form of Exhibit B attached hereto (as amended, supplemented or otherwise
modified hereafter from time to time in accordance with the terms hereof
and thereof, the "SECURITY AGREEMENT"), duly executed by the Company
together with:
(i) certificates representing the Pledged Shares referred to
therein accompanied by undated stock powers executed in blank and
instruments evidencing the Pledged Debt referred to therein indorsed
in blank,
(ii) acknowledgment copies or stamped receipt copies of proper
financing statements, duly filed on or before the Closing Date under
the Uniform Commercial Code of the States of Connecticut, New York,
Pennsylvania and Virginia, covering the Collateral described in the
Security Agreement,
(iii) completed requests for information, dated on or before
the Closing Date, listing the financing statements referred to in
clause (ii) above and all other effective financing statements filed
in the jurisdictions referred to in clause (ii) above that name the
Company or any other Obligor as debtor, together with copies of such
other financing statements,
(iv) evidence of the completion of all other recordings and
filings of or with respect to the Security Agreement that you may
deem necessary or desirable in order to perfect and protect the
Liens created thereby,
(v) evidence of the insurance required by the terms of the
Security Agreement,
(vi) copies of the Assigned Agreements referred to in the
Security Agreement, together with a consent to such assignment, in
substantially the form of Exhibit B to the Security Agreement, duly
executed by each party to such Assigned Agreements other than the
Company,
(vii) the Blocked Account Letters referred to in the Security
Agreement, duly executed by each Blocked Account Bank referred to in
the Security Agreement, and
(viii) evidence that all other action that you may deem
necessary or desirable in order to perfect and protect the first
priority liens and security interests created under the Security
Agreement has been taken.
(b) CORPORATE AND SIMILAR DOCUMENTATION.
(i) A copy of the charter of the Company and each of its
Subsidiaries and each amendment thereto, certified (as of a date
reasonably near the Closing Date) by the Secretary of State of the
jurisdiction of this incorporation as being a true and correct copy
thereof.
(ii) A copy of a certificate of the Secretary of State of the
jurisdiction of its incorporation, dated reasonably near the Closing
Date, listing the charter of the Company and each of its
Subsidiaries and each amendment thereto on file in his office and
certifying that (A) such amendments are the only amendments to the
Company's or such Subsidiary's charter on file in his office, (B)
the Company and each of its Subsidiaries have paid all franchise
taxes to the date of such certificate and the Company and each of
its Subsidiaries are duly incorporated and in good standing under
the laws of the State of the jurisdiction of its incorporation.
(iii) A copy of a certificate dated reasonably near the
Closing Date of the Secretary of State, of each jurisdiction in
which the Company or any Subsidiary is qualified as a foreign
corporation, stating that the Company or such Subsidiary is duly
qualified and in good standing as a foreign corporation in such
State and have filed all annual reports required to be filed to the
date of such certificate.
(c) SECRETARY'S CERTIFICATE. A certificate from the secretary or
an assistant secretary (or a person performing similar functions) of each
of the Obligors certifying:
(i) copies of the resolutions of the board of directors (or
persons performing similar functions) of such Obligor approving this
Agreement, the Notes and each of the other Note Documents to which
it is or is to be a party, and of all documents evidencing other
necessary corporate or other necessary action and governmental
approvals, if any, with respect thereto,
(ii) the names and true signatures of the officers of such
Obligor authorized to sign this Agreement, the Notes and each of the
other Note Documents to which it is or is to be a party and the
other agreements, instruments and other documents to be delivered
hereunder and thereunder, and
(iii) such other matters relating to the existence and good
standing of such Obligor, the corporate and other necessary
authority for, and the validity of, each of the Note Documents to
which it is or is to be a party and any other matters relevant
thereto.
(d) OFFICER'S CERTIFICATE. An Officer's Certificate certifying that
the conditions specified in Sections 4.1, 4.2 and 4.3(l) have been
fulfilled.
(e) INSURANCE. Copies of all insurance policies or certificates of
insurance of the Company and its Subsidiaries evidencing liability and
casualty insurance meeting the requirements of Section 8.3.
(f) OTHER COLLATERAL DOCUMENTS. You shall have received the
following documents, each dated as of the Closing Date and in form of the
respective Exhibit attached hereto, if any, or otherwise in form and
substance satisfactory to you:
(i) a securities account pledge agreement, substantially in
the form of Exhibit C (as amended, supplemented or otherwise
modified from time to time in accordance with its terms, the "PLEDGE
AGREEMENT"),
(ii) a cooperation agreement (as amended, supplemented or
otherwise modified from time to time in accordance with its terms,
the "FCC COOPERATION AGREEMENT"),
(iii) the Collateral Access Agreements from the lessor of the
Company's leased premises located in or about Albany, New York,
(iv) the Control Agreement,
(g) EMPLOYMENT AGREEMENTS. Certified copies of each employment
agreement and other compensation arrangement with each officer of the
Company and its Subsidiaries (the "EMPLOYMENT AGREEMENTS").
(h) MATERIAL CONTRACTS. Certified copies of all Material Contracts
of the Company and its Subsidiaries.
(i) AMI MERGER AGREEMENT. The AMI Merger Agreement in form
acceptable and substance to you and documents (i) executed or delivered in
connection therewith or (ii) necessary to effect such Merger.
(j) ADDITIONAL DOCUMENTATION. Such other documents, agreements or
information as you may reasonably request.
(k) AMI SUBSIDIARIES. The Agent shall have received certificates
representing shares of stock of the Subsidiaries of AMI listed in
Schedule 4.3(k) (the "AMI SUBSIDIARIES") accompanied by undated stock
powers executed in blank and to be held in escrow until the consummation
of the AMI Merger.
(l) TERMINATION OF EXISTING CREDIT AGREEMENT. Evidence
satisfactory to you that all of the obligations of the Company and its
Subsidiaries under the Existing Credit Agreement have been repaid in full
contemporaneously with the Closing, all commitments of the lenders party
to the Existing Credit Agreement have been terminated and all Liens
securing the obligations thereunder have been released.
4.4. OPINIONS OF COUNSEL.
You shall have received favorable opinions, dated the Closing Date,
from:
(a) Day, Berry & Howard, counsel for the Obligors, in form and
substance acceptable to you, and addressing such other matters incident to
the Transaction and the other transactions contemplated hereby as you or
your counsel may reasonably request (and the Company hereby instructs its
counsel to deliver such opinion to you);
(b) Shearman & Sterling and Squire Sanders & Dempsey, your counsel.
4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC.
The purchase of and any payment for the Notes to be purchased by you
at the Closing (a) shall be permitted by the applicable laws, statutes, rules
and regulations, including without limitation the Communications Act, FCC Rules
and those relating to copyright of each jurisdiction to which you are subject,
(b) shall not violate any applicable law, statute, rule or regulation
(including, without limitation, Regulation G, Regulation T or Regulation X) and
(c) shall not subject you to any tax, penalty or liability under or pursuant to
any applicable law, statute, rule or regulation. You shall have received an
Officer's Certificate on or prior to the Closing Date, dated the Closing Date,
certifying such matters of fact as you may reasonably specify to enable you to
determine whether such purchase and payment are so permitted.
4.6. CONSENTS AND APPROVALS.
Except as set forth on Schedule 4.6, all orders, consents and
approvals licenses, validations of any Governmental Authority or public body or
authority or any subdivision thereof and any other third party (including, but
not limited to, Subsidiaries of the Company) including any radio, television or
other license, Permit, certificate or approval granted or issued by the FCC or
any other Governmental Authority (including any MDS, MMDS, ITFS, business
radio, earth station or experimental licenses or permits issued by the FCC)
(except for filings to perfect security interests granted pursuant to this
Agreement or any other Note Document) necessary in connection with any aspect
of the Transaction or this Agreement or any other Note Document shall have been
obtained (without the imposition of any conditions that are not acceptable to
you) and shall remain in full force and effect; and all applicable waiting
periods shall have expired without any action being taken by any competent
authority.
4.7. PAYMENT OF SPECIAL COUNSEL FEES.
Without limiting the provisions of Section 14.1, the Obligors shall
have paid on or before the Closing the reasonable fees, charges and
disbursements of your counsel referred to in Section 4.4(b) and any other
professional you may retain in connection with the Transaction.
4.8. CHANGES IN CORPORATE STRUCTURE.
Except as specified in Schedule 4.8 attached hereto, none of the
Obligors shall have changed its jurisdiction of incorporation or been a party
to any merger or consolidation and shall not have succeeded to all or any
substantial part of the liabilities of any other entity, at any time following
the date of the most recent audited consolidated financial statements of the
Company and its Subsidiaries referred to in Section 5.4(a).
4.9. PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the
Transaction and the other transactions contemplated hereby and all documents
and instruments incident to the Transaction and such other transactions shall
be satisfactory to you and your special counsel, and you and your special
counsel shall have received all such counterpart originals or certified or
other copies of such documents as you or they may reasonably request.
4.10. NO MATERIAL ADVERSE CHANGE.
(a) In your reasonable judgment, before giving effect to the
Transaction, there shall have occurred no Material Adverse Change (or
development involving a prospective Material Adverse Change) since March 31,
1997 except as otherwise disclosed to you in writing prior to the Closing Date
PROVIDED that such disclosure is acceptable to you.
(b) No material adverse change (or development involving a
prospective Material Adverse Change) shall have occurred in the loan
syndication or financial capital market conditions generally from those in
effect on the date of the Commitment Letter which could reasonably be expected
to adversely affect the consummation of the transactions contemplated hereunder
and thereunder.
4.11. LITIGATION.
Except as disclosed on Schedule 5.7, there shall exist no action,
suit, investigation, litigation or proceeding or counterclaim affecting the
Company or any of its Subsidiaries pending or threatened by or before any court
or governmental, administrative or regulatory agency or authority, domestic or
foreign, seeking to obtain, or having resulted in the entry of, any judgment,
order or injunction that (a) would restrain, prohibit or impose adverse
conditions on your ability to purchase the Notes, (b) could be reasonably
likely to have a Material Adverse Effect, or (c) could purport to affect the
legality, validity or enforceability of this Agreement or any of the Note
Documents.
4.12. CAPITAL STRUCTURE.
You shall be satisfied with the corporate and legal structure and
capitalization of the Company and each of its Subsidiaries, including the terms
and conditions of the Charter, bylaws and each class of capital stock of the
Company and each of its Subsidiaries and of each agreement or instrument
relating to such structure or capitalization.
4.13. DUE DILIGENCE.
You shall have completed a due diligence investigation of the
Company and its Subsidiaries in scope and with results, satisfactory to you and
you shall have been given such access to the management, records, books of
account, contracts and properties of the Company and its Subsidiaries and shall
have received such financial, business and other information regarding the
Company and its Subsidiaries as you shall have requested.
4.14. FINANCIAL STATEMENTS.
The Company shall have delivered pro forma financial statements as
to the Company and its Subsidiaries, in a form satisfactory to you.
4.15. KEY MAN LIFE INSURANCE.
You shall have received evidence satisfactory to you that the
Company shall have obtained key man life insurance on Jared Abbruzzese, John
Prisco and Bruce Kostreski, in an amount, from an insurance company and on
terms acceptable to you.
4.16. APPROVED BUDGET.
The Company shall have delivered an operating and financial budget
for the period from November 15, 1997 through February 20, 1998, which shall
be satisfactory in all respects to you (the "APPROVED BUDGET").
4.17. BANX AGREEMENT.
You shall have received evidence satisfactory to you that the
Company shall have exercised its option under Section 3 of the BANX Agreement.
4.18. RETAINER AMOUNTS.
You shall have received evidence satisfactory to you that the
Company shall have paid retainer amounts to Shearman & Sterling, Squire Sanders
& Dempsey and the Agent, in amounts acceptable to you, which shall be held as
retainer for services rendered to you in connection with the Transaction and
the Note Documents and the transactions contemplated thereby.
4.19. ABBRUZZESE NOTE.
The Abbruzzese Note shall have been secured by the Haig Interests
pursuant to a pledge agreement in form and substance satisfactory to you and
such Note and security shall have been pledged and collaterally assigned to
you.
4.20. ESCROW ACCOUNT.
The Company shall have delivered to you evidence satisfactory to you
that the Escrow Account is held by The Chase Manhattan Bank, N.A. in an amount
equal to $32,179,588.47 on the Closing Date.
5. REPRESENTATIONS AND WARRANTIES OF THE OBLIGORS.
Each of the Obligors represents and warrants to you that:
5.1. ORGANIZATION; POWER AND AUTHORITY.
The Company and each of its Subsidiaries are corporations duly
organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation, and are duly qualified as a foreign
corporations and are in good standing in each other jurisdiction in which the
ownership, lease or operation of their respective property and assets or the
conduct of their respective businesses requires such qualification, other than
in any such jurisdiction in which the failure to be so qualified or in good
standing could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. The Company and each of its Subsidiaries have
all corporate and other necessary power and authority, and the legal right, to
own or to hold under lease the properties they purport to own or hold under
lease and to transact the business they transact and propose to transact. Each
of the Obligors has all corporate and other necessary power and authority, and
the legal right, to execute and deliver this Agreement, the Notes and the other
Note Documents to which it is or is to be a party, and to perform its
obligations hereunder and thereunder and to consummate the Transaction. All of
the outstanding capital stock of the Company has been validly issued, is fully
paid and non-assessable.
5.2. AUTHORIZATION, ENFORCEABILITY, ETC.
This Agreement and each of the other Note Documents have been duly
authorized by all necessary corporate action (including, without limitation,
all necessary shareholder action) on the part of each of the Obligors intended
to be a party thereto. This Agreement has been, and each of the other Note
Documents, when delivered hereunder, will have been duly executed and delivered
by each of the Obligors intended to be a party thereto. This Agreement
constitutes, and each of the other Note Documents, when delivered hereunder
will constitute, the legal, valid and binding obligation of each of the
Obligors intended to be a party thereto, enforceable against such Obligor in
accordance with its terms, except as such enforceability may be limited by (a)
the effect of applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
(b) general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
5.3. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES; AFFILIATES.
(a) Schedule 5.3 attached hereto sets forth (i) all of the
Subsidiaries of each Obligor (ii) CS Wireless and (iii) TelQuest as of the
Closing Date, showing, as to each such Subsidiary, CS Wireless and TelQuest,
the correct name thereof, the jurisdiction of its incorporation and the
percentage of shares of each class of its capital stock or similar equity
interests or membership interests outstanding as of the Closing Date that are
owned by such Obligor and/or one or more of its Subsidiaries.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary, CS Wireless and TelQuest referred to in
Schedule 5.3 attached hereto as being owned by such Obligor and/or one or more
of its Subsidiaries have been validly issued, are fully paid and nonassessable
and are owned by such Obligor and/or one or more of its Subsidiaries free and
clear of all Liens, except for the Liens created under the Collateral Documents
and Liens disclosed on Schedule 9.2(ii).
(c) Except for the Seller Restricted Subsidiaries, neither any
Subsidiary nor CS Wireless nor TelQuest is a party to or otherwise subject to
any legal restriction or any agreement (other than the Collateral Documents and
customary limitations imposed by corporate law statutes) restricting the
ability of such Subsidiary, CS Wireless or TelQuest to pay dividends out of
profits or make any other similar distributions of profits to such Obligor or
any of its Subsidiaries that owns shares of capital stock of or similar equity
interests in such Subsidiary.
5.4. FINANCIAL STATEMENTS.
(a) The audited consolidated balance sheet of the Company and its
Subsidiaries as of March 31, 1997 and the audited consolidated statements of
earnings and cash flows of the Company and its Subsidiaries for the fiscal
years ended March 31, 1995 and March 31, 1996, in each case including the
related schedules and notes, copies of each of which have previously been
furnished to each Purchaser, (i) have been audited by independent public
accountants acceptable to you, (ii) have been prepared in accordance with GAAP
consistently applied throughout the periods covered thereby and (iii) present
fairly (on the basis disclosed in the footnotes to such financial statements)
in all material respects the consolidated financial condition, results of
operations and cash flows of the Company and its Subsidiaries as of such dates
and for such periods.
(b) The unaudited consolidating balance sheet of the Company and
its Subsidiaries as of September 30, 1997 and the unaudited consolidating
statements of earnings and cash flows of the Company and its Subsidiaries for
the six months ended September 30, 1997 in each case including the related
schedules and notes, copies of each of which have previously been furnished to
each Purchaser, (i) have been prepared in accordance with GAAP consistently
applied throughout the periods covered thereby and (ii) present fairly in all
material respects the consolidated financial condition, results of operations
and cash flows of the Company and its Subsidiaries as of such dates and for
such periods.
(c) Since March 31, 1997, except as otherwise disclosed to you in
writing prior to the Closing Date (PROVIDED that such disclosure is acceptable
to you), there has been no sale, transfer or other disposition by the Company
or any of its Subsidiaries of any material part of the business or property and
assets of the Company and its Subsidiaries, taken as a whole, except for sales
of inventory and other assets in the ordinary course of business, and no
purchase or other acquisition by any of them of any business or property or
assets (including, without limitation, any shares of capital stock of any other
Person) material in relation to the consolidated financial condition of the
Company and its Subsidiaries, taken as a whole, except for purchases of raw
materials, inventory and other property and assets in the ordinary course of
business, in each case, which is not reflected in the financial statements
referred to in this Section 5.4 or in the notes thereto and has not otherwise
been disclosed in writing to each of the Purchasers on or prior to the date of
this Agreement.
(d) Since March 31, 1997, except as otherwise disclosed to you in
writing prior to the Closing Date (PROVIDED that such disclosure is acceptable
to you), there has been (i) no change in the condition (financial or
otherwise), operations, business, assets, liabilities or properties of the
Company and its Subsidiaries, taken as a whole, and (ii) no development or
event relating to or affecting the Company or any of its Subsidiaries that,
either individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
5.5. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.
(a) Except as set forth on Schedule 4.6, the execution, delivery
and performance by each of the Obligors of each of the Note Documents to which
it is or is to be a party and the consummation of the Transaction and the other
transactions contemplated hereby do not and will not (i) contravene such
Obligor's charter or bylaws (or equivalent organizational documents), (ii)
violate any law, statute, rule or regulation, including without limitation the
Communications Act, FCC Rules and those relating to copyright, or any order,
writ, judgment, injunction, decree, determination or award in any manner that,
either individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect, (iii) conflict with or result in the breach of, or
constitute a default under, any contract, loan agreement, indenture, including,
without limitation, the Senior Note Indenture, mortgage, deed of trust, lease
or other instrument binding on or affecting any Obligor, any of its
Subsidiaries, CS Wireless, TelQuest, or any of their properties in any manner
that, either individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect, or (iv) except for the Liens created under the
Collateral Documents, result in or require the creation or imposition of any
Lien upon or with respect to any of the properties or revenues of any Obligor
or any of its Subsidiaries. Neither any Obligor nor any of its Subsidiaries is
in violation of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award or in breach of any such contract, loan
agreement, indenture, mortgage, deed of trust, lease or other instrument
referred to in the immediately preceding sentence, the violation or breach of
which, either individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect.
(b) Except as disclosed on Schedule 4.6, all Channel Licenses, FCC
Licenses and Related Facility Licenses are in full force and effect and there
are no pending or threatened complaints, investigations, inquiries or
proceedings by or before the FCC or other Governmental Authority or any actions
or events that (i) could result in the revocation, cancellation, adverse
modification or non-renewal of any Channel License, FCC License, or Related
Facility License or the imposition of a material fine or forfeiture, (ii)
materially impair the Company's or any of its Subsidiaries' ability to develop
or operate any of the Channels or Systems, or (iii) otherwise result in a
Material Adverse Change. The Systems, Channels, Channel Licenses, FCC
Licenses, and Related Facilities are currently providing and, to the knowledge
of the Company, have been providing service to the public (rather than a test
signal or color bar) and are being operated and/or developed in material
compliance with the respective FCC License, Channel License, Related Facility
License, and other Permits and with all other Legal Requirements.
(c) Except as set forth on Schedule 4.6, all material reports and
other documents required to be filed with the FCC or other Governmental
Authority with respect to the Systems, Channels, Channel Licenses, FCC
Licenses, Booster Licenses, System Agreements, and Channel Leases have been
timely filed, including, without limitation certifications of completion of
construction. Notwithstanding anything contained herein to the contrary, to
the knowledge of the Company, except as set forth on Schedule 4.6, there have
been no failures to make filings with the FCC or any Governmental Authority at
any time that would reasonably be likely to have a material adverse effect on
any of the Channels, Channel Licenses, FCC Licenses, System Agreements, or
Systems, or any of the company or any of its Subsidiaries, or what would
reasonably be likely to result in the imposition of a material fine or
forfeiture, including copyright filings, extension requests, and reports
required by Sections 21.11(a), 21.911 and 21.920 of the FCC Rules.
5.6. GOVERNMENTAL AUTHORIZATIONS, ETC.
Except as set forth on Schedule 4.6, no order, consent, approval,
license, validation or authorization of, or registration, filing or declaration
with, or any exemption by any Governmental Authority or public body or
authority or any subdivision thereof or any other third party including any
radio, television or other license, Permit, certificate or approval granted or
issued by the FCC or any other Governmental Authority (including any MDS, MMDS,
ITFS, business radio, earth station or experimental licenses or permits issued
by the FCC) (except for filings to perfect security interest granted pursuant
to this Agreement or any other Note Document) is required for (a) the due
execution, delivery, recordation, filing or performance by any Obligor of this
Agreement or any other Note Document to which it is or is to be a party, or for
the consummation of any aspect of the Transaction or the other transactions
contemplated hereby, (b) the grant by any Obligor of the Liens granted by it
pursuant to the Collateral Documents or (c) the perfection or maintenance of
the Liens created under the Collateral Documents (including the first priority
nature thereof), except for the filing of the financing statements or the
equivalent thereof referred to in Section 4.3(a).
5.7. LITIGATION.
(a) Except as disclosed in Schedule 5.7, there are no actions,
suits, investigations or proceedings pending or, to the best knowledge of the
Obligors, threatened against or affecting the Company or any of its
Subsidiaries or any property or revenues of the Company or any of its
Subsidiaries in any court or before any arbitrator of any kind or before or by
any Governmental Authority that (i) either individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect or (ii) purports
to adversely affect this Agreement, any of the other Note Documents, the
Transaction or any of the other transactions contemplated hereby.
(b) Neither the Company nor any Subsidiary is in default under any
term of any agreement or instrument to which it is a party or by which it is
bound, or any order, judgement decree or ruling of any count, arbitrator or
Governmental Authority or is in violation of any applicable law, ordinance,
rule or regulation (including without limitation Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
5.8. TAXES.
(a) The Company and each of its Subsidiaries have filed or caused
to be filed all United States federal income tax returns and all other tax
returns that are required to have been filed in any jurisdiction, and have paid
all taxes shown to be due and payable on such returns and all taxes shown to be
due and payable on any assessments of which the Company or any such Subsidiary,
as the case may be, has received notice and all other taxes, assessments,
levies, fees and charges imposed upon it or any of its properties, assets,
income or franchises, to the extent such taxes, assessments, levies, fees and
charges have become due and payable and before they have become delinquent,
except for any tax, assessment, levy, fee or charge (i) the amount of which is
not, either individually or in the aggregate, Material or (ii) the amount,
applicability or validity of which is being contested in good faith and by
appropriate proceedings and with respect to which the Company or such
Subsidiary, as the case may be, has established adequate reserves in accordance
with GAAP. Neither the Company nor any of the its Subsidiaries knows of any
basis for any other tax, assessment, levy, fee or charge that, either
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
(b) The charges, accruals and reserves on the books of the Company
and its Subsidiaries in respect of federal, state, local, foreign or other
taxes for all fiscal periods through October 31, 1997 are adequate.
(c) The United States federal income tax liabilities of the Company
and its Subsidiaries have been determined by the Internal Revenue Service and
paid, or the time for audit has expired, for all fiscal years of the Company
through the fiscal year ended August 31, 1993.
(d) Neither the Company nor any of its Subsidiaries has entered
into an agreement or waiver or been requested to enter into an agreement or
waiver extending any statute of limitations relating to the payment or
collection of taxes of the Company or any of its Subsidiaries, or is aware of
any circumstances that would cause the taxable years or other taxable periods
of the Company or any of its Subsidiaries not to be subject to the normally
applicable statute of limitations. Neither the Company nor any of its
Subsidiaries has provided, with respect to itself or to any property held by
it, any consent under Section 341 of the Internal Revenue Code.
5.9. TITLE TO PROPERTY; LEASES.
Each Obligor and each of its Subsidiaries have good and sufficient
title to, or a valid and enforceable leasehold interest in, all of the
Collateral owned by them and all of their other respective property and assets
that, either individually or in the aggregate, are Material, in each case free
and clear of all Liens other than the Liens expressly permitted under this
Agreement. All leases (other than Channel Leases and the Tower Site Leases)
under which each Obligor or any of its Subsidiaries are a lessor or a lessee
that, either individually or in the aggregate, are Material are valid and
subsisting and are in full force and effect in all material respects.
5.10. LICENSES, PERMITS, ETC.
Except as disclosed in Schedule 5.10 attached hereto:
(a) the Company and each of its Subsidiaries own or possess all
licenses (other than FCC Licenses), permits, franchises, authorizations,
consents and approvals and all patents, copyrights, service marks,
trademarks and trade names, or rights thereto, that are necessary to own
or lease and operate their respective properties and assets and to
transact their respective businesses as now conducted or as proposed to be
conducted and, either individually or in the aggregate, are Material.
Except as set forth in Schedule 5.7 attached hereto, no claim of any
Person is pending or, to the best knowledge of any Obligor, is threatened
challenging the use of any such license, permit, franchise, authorization,
consent, approval, patent, copyright, service mark, trademark, trade name
or other right, or the validity or effectiveness thereof, except for any
such claim that, either individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect;
(b) no product of any Obligor or any of its Subsidiaries infringes
on any license, permit, franchise, authorization, consent, approval,
patent, copyright, service mark, trademark, trade name or other right
owned by any other Person, except for any such infringement that, either
individually or in the aggregate, could not reasonably be expected to have
a Material Adverse Effect; and
(c) to the best knowledge of each of the Obligors, there is no
Material violation by any Person of any right of the Company or any of its
Subsidiaries with respect to any license, permit, franchise,
authorization, consent, approval, patent, copyright, service mark,
trademark, trade name or other right owned or used by the Company or any
such Subsidiary, except for any such violation that, either individually
or in the aggregate, could not reasonably be expected to have a Material
Adverse Effect.
5.11. SECURITY INTERESTS, ETC.
The Collateral Documents create a valid and perfected first priority
lien on and security interest in the Collateral in favor of the Agent for the
benefit of the Secured Parties, securing the payment of all of the Secured
Obligations, and all of the shares of capital stock of each of the Subsidiaries
of the Company that are purported to comprise part of the Collateral have been
delivered to the Agent, together with undated stock powers executed in blank,
and all filings and other actions necessary or desirable to perfect and protect
such lien and security interest have been duly made or taken and are in full
force and effect or will be duly made or taken in accordance with the terms of
the Note Documents.
5.12. COMPLIANCE WITH ERISA.
(a) Each Obligor and each ERISA Affiliate have operated and
administered each Plan in compliance with its terms and with the provisions of
ERISA and all other applicable laws, except to the extent such noncompliance,
either individually or in the aggregate, has not resulted in and could not
reasonably be expected to result in a Material Adverse Effect.
(b) During the immediately preceding five-year period: (i) no
Termination Event has occurred or could reasonably be expected to occur with
respect to any Plan that has resulted in or could reasonably be expected to
result in any Material liability of any Obligor or any ERISA Affiliate to a
Plan or to the PBGC; (ii) no "accumulated funding deficiency" (as such term is
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code),
whether or not waived, has occurred with respect to any Plan; and (iii) no Lien
in favor of the PBGC or a Plan has arisen or could reasonably be expected to
arise on account of any Plan.
(c) Neither any Obligor nor any ERISA Affiliate has incurred any
liability pursuant to Title I or IV or ERISA or the penalty or excise tax
provisions of the Internal Revenue Code relating to employee benefit plans (as
defined in Section 3 of ERISA), and no event, transaction or condition has
occurred or exists that could reasonably be expected to result in the
incurrence of any such liability by any Obligor or any ERISA Affiliate, or in
the imposition of any Lien on any of the rights, properties or assets of any
Obligor or any ERISA Affiliate, in either case pursuant to Title I or IV of
ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or
412 of the Internal Revenue Code that, either individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.
(d) The present value of all "benefit liabilities" under all of the
Plans (other than Multiemployer Plans), determined as of the end of each such
Plan's most recently completed plan year on the basis of the actuarial
assumptions specified for funding purposes in such Plan's most recent actuarial
valuation report, whether or not vested, did not exceed the aggregate current
value of the assets of all such Plans allocable to such benefit liabilities by
more than $1,000,000 in the aggregate.
(e) Neither any Obligor nor any ERISA Affiliate has incurred or, to
the best knowledge of the Obligors, could reasonably be expected to incur any
Withdrawal Liability in respect of any Multiemployer Plan or any Multiple
Employer Plan. Neither any Obligor nor any ERISA Affiliate would become
subject to any Withdrawal Liability if any such Obligor or any such ERISA
Affiliate were to withdraw completely from all Multiemployer Plans and all
Multiple Employer Plans as of the most recently completed valuation date.
Neither any Obligor nor any ERISA Affiliate has been notified that any
Multiemployer Plan is in reorganization (within the meaning of Section 4241 of
ERISA), is insolvent (within the meaning of Section 4245 of ERISA) or is being
terminated (within the meaning of Title IV of ERISA), and no Multiemployer Plan
is, to the best knowledge of the Obligors, reasonably expected to be in
reorganization, insolvent or terminated.
(f) No prohibited transaction (within the meaning of Section 406 of
the Internal Revenue Code) or breach of fiduciary responsibility has occurred
with respect to any Plan which has subjected or may subject any Obligor or any
ERISA Affiliate to any liability under Section 406, 409, 502(i) or 502(l) of
ERISA or Section 4975 of the Internal Revenue Code, or under any agreement or
other instrument pursuant to which any Obligor or any ERISA Affiliate has
agreed or is required to indemnify any Person against any such liability
(g) None of the execution and delivery of this Agreement, the
issuance and sale of the Notes hereunder or the consummation of any aspect of
the Transaction will involve any transaction that is subject to the
prohibitions of Section 406 of ERISA or in connection with which a tax could be
imposed pursuant to Section 4975 of the Internal Revenue Code. The
representation by the Obligors in the first sentence of this Section 5.12(g) is
made in reliance upon and is subject to (i) the accuracy of your representation
in Section 6.3 as to the sources of the funds used to pay the purchase price of
the Notes to be purchased by you and (ii) the assumption, made solely for the
purpose of making such representation, that Department of Labor Interpretive
Bulletin 75-2 with respect to prohibited transactions remains valid in the
circumstances of the transactions contemplated herein.
5.13. PRIVATE OFFERING BY THE COMPANY.
(a) Neither the Company nor any Person acting on its behalf has
directly or indirectly offered the Notes or any similar securities for sale to,
or solicited any offer to buy any of the same from, or otherwise approached or
negotiated in respect thereof with, any Person other than you. Neither the
Company nor any Person acting on its behalf has taken, or will take, any action
that would subject the issuance and sale of the Notes to the registration
requirements of Section 5 of the Securities Act.
(b) Neither any Obligor nor any Person acting on its behalf has
directly or indirectly offered or sold the Notes by any form of general
solicitation or general advertising (including, without limitation, any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or any broadcast over television or radio
or any seminar or meeting whose attendees have been invited by any form of
general solicitation or general advertising).
5.14. USE OF PROCEEDS; MARGIN REGULATIONS.
(a) The proceeds received from the sale of the Notes to the
Purchasers will be used solely to refinance the Existing Credit Agreement in
aggregate amount (including principal, accrued interest and fees) of up to
$17,254,178.06 to pay certain transaction costs and expenses in connection with
the Transaction and acceptable to you and to fund certain approved and budgeted
corporate purposes in accordance with the Approved Budget.
(b) No part of the proceeds from the sale of the Notes will be
used, directly or indirectly, for the purpose of purchasing or carrying any
"margin stock" (within the meaning of Regulation G or Regulation U) or for the
purpose of purchasing, carrying or trading in any securities under such
circumstances as to involve the Company in a violation of Regulation X or to
involve any broker or dealer in a violation of Regulation T. Upon your
request, each Obligor will furnish you with a statement to the foregoing effect
in conformity with the requirements of FR Form U-1 referred to in Regulation U.
No indebtedness being reduced or retired out of the proceeds of the Notes was
or will be incurred for the purpose of purchasing or carrying any "margin
stock" (within the meaning of Regulation U) or any "margin security" (within
the meaning of Regulation T). Margin stock does not constitute more than 25%
of the value of the consolidated property and assets of the Company and its
Subsidiaries. None of the transactions contemplated by this Agreement
(including, without limitation, the direct and indirect use of proceeds of the
Notes) will violate or result in a violation of the Securities Act or the
Exchange Act or any of the rules and regulations promulgated thereunder or
Regulation G, Regulation T, Regulation U or Regulation X.
5.15. STATUS UNDER CERTAIN STATUTES.
(a) Neither the Company nor any of its Subsidiaries is subject to
regulation under the Investment Company Act of 1940, as amended, the Public
Utility Act of 1935, as amended, or the Federal Power Act, as amended.
(b) Neither the Company nor any of its Subsidiaries is an
"investment company," or an "affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company" (each as defined in the Investment
Company Act of 1940, as amended). Neither the sale and purchase of the Notes
nor the application of the proceeds therefrom or repayment thereof by the
Company, nor the consummation of the Transaction or any of the other
transactions contemplated hereby, will violate any provision of such Act or any
rule, regulation or order of the Securities and Exchange Commission thereunder.
(c) Neither the Company nor any of its Subsidiaries is a "holding
company," or a "subsidiary company" of a "holding company," or an "affiliate"
of a "holding company" or of a "subsidiary company" of a "holding company"
(each within the meaning of the Public Utility Holding Company Act of 1935, as
amended).
(d) The Company and each of its Subsidiaries are current with all
reports and documents, if any, required to be filed with any federal or state
securities commission or similar agency and are in full compliance with all
applicable rules and regulations of such commissions, except where the failure
to so comply, either individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
5.16. FOREIGN ASSETS CONTROL REGULATIONS, COMMUNICATIONS ACT, ETC.
(a) Neither the issue and sale of the Notes by any Obligor nor the
use of the proceeds therefrom will violate the Trading with the Enemy Act, as
amended, or any of the foreign assets control regulations of the United States
Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
(b) Each license, permit and other authority issued, granted,
approved or otherwise authorized by the FCC for the benefit of the Company or
any of its Subsidiaries is in good standing unimpaired by any act or omission
of the Company or any of its Subsidiaries or any of their respective officers,
directors, employees or agents. None of the Company or any of its Subsidiaries
is the subject of any outstanding citation, order or investigation by the FCC
that could result in any termination or forfeiture of any FCC License or any
monetary forfeiture or could result in any other Material Adverse Effect and,
to the knowledge of any Obligor, no such citation, order or investigation is
contemplated by the FCC. The Company and its Subsidiaries have filed all
reports and applications required to be filed by the FCC or the Communications
Act, except where the failure to file could not result in any termination,
forfeiture or Material Adverse Effect, and have paid all fees required to be
paid by the FCC or the Communications Act.
5.17. ENVIRONMENTAL MATTERS.
(a) The operations and properties (whether owned or leased) of the
Company and each of its Subsidiaries comply with all Environmental Laws and
Environmental Permits, and all necessary Environmental Permits have been
obtained and are in effect for all of the operations and properties of the
Company and each such Subsidiary, except to the extent that the failure to so
comply or to obtain such Environmental Permit, either individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
All past noncompliance with any such Environmental Laws or Environmental
Permits has been resolved without ongoing Material obligations or costs to the
Company or any of its Subsidiaries. No circumstances exist that, either
individually or in the aggregate, could reasonably be expected to (i) form the
basis of an Environmental Action against the Company or any of its
Subsidiaries, or any of their respective properties, that, either individually
or in the aggregate, could have a Material Adverse Effect or (ii) cause any
such property to be subject to any restrictions on ownership, occupancy, use or
transferability under any Environmental Law.
(b) None of the properties owned or operated by the Company or any
of its Subsidiaries is listed or proposed for listing on the NPL or on the
CERCLIS or any analogous foreign, state or local list or, to the best knowledge
of the Obligors, is adjacent to any such property; there are no and never have
been any underground or aboveground storage tanks or any surface impoundments,
septic tanks, pits, sumps or lagoons in which Hazardous Materials are being or
have been treated, stored or disposed of on any property owned or operated by
the Company or any of its Subsidiaries or, to the best knowledge of the
Obligors, on any property formerly owned or operated by the Company or any of
its Subsidiaries; there is no asbestos or asbestos-containing material on any
property owned or operated by the Company or any of its Subsidiaries; and
Hazardous Materials have not been released, discharged or disposed of on any
property owned or operated by the Company or any of its Subsidiaries in any
manner that, either individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
(c) Neither the Company nor any of its Subsidiaries is undertaking,
nor has any of them completed, either individually or together with other
potentially responsible parties, any investigation or assessment or remedial or
response action relating to any actual or threatened release, discharge or
disposal of Hazardous Materials at any site, location or operation, either
voluntarily or pursuant to the order of any Governmental Authority or the
requirements of any Environmental Law, excluding, however, any such release,
discharge or disposal the consequences of which, either individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect;
and all Hazardous Materials generated, used, treated, handled or stored at, or
transported to or from, any property owned or operated by the Company or any of
its Subsidiaries have been disposed of in a manner that does not violate or, to
the best knowledge of the Obligors, could not reasonably be expected to give
rise to liability under, any applicable Environmental Law, except to the extent
that such generation, use, treatment, handling, storage or transportation,
either individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
(d) Neither the Company nor any of its Subsidiaries has received
any notice from any Governmental Authority regarding any violation or alleged
violation of, noncompliance or alleged noncompliance with, or liability or
potential liability under or in respect of, any Environmental Law or
Environmental Permit by it or any of its Subsidiaries, nor does the Company or
any of its Subsidiaries have knowledge or reason to believe that any such
notice will be received or is being threatened, except for any such notice or
threatened notice that, either individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
5.18. NO BURDENSOME AGREEMENTS.
Neither the Company nor any of its Subsidiaries is a party to any
indenture, loan or credit agreement, lease or other agreement or instrument or
subject to any law, rule, regulation or statute or any charter or corporate or
other similar restriction that, either individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect, except as has been
disclosed to you in writing prior to the date of this Agreement.
5.19. EXISTING INDEBTEDNESS; FUTURE LIENS.
(a) Schedule 5.19 sets forth a complete and correct list of all
outstanding Indebtedness of the Company and its Subsidiaries as of the Closing
Date, since which date there has been no Material change in the amounts,
interest rates, sinking funds, installment payments or maturities of the
Indebtedness of the Company or any of its Subsidiaries. Neither the Company
nor any of its Subsidiaries is in default and no waiver of default is currently
in effect in the payment of any principal or interest on any Indebtedness of
the Company or any such Subsidiary and no event or condition exists with
respect to any Indebtedness of the Company or any such Subsidiary that would
permit (or that with notice or the lapse of time, or both, would permit) one or
more Persons to cause such Indebtedness to become due and payable before its
stated maturity or before its regularly scheduled dates of payment.
(b) Neither the Company nor any of its Subsidiaries has agreed or
consented to cause or permit in the future (upon the happening of a contingency
or otherwise) any of its property or assets, whether now owned or hereafter
acquired, to be subject to a Lien not expressly permitted under Section 9.2.
5.20 FCC LICENSES; CHANNEL LEASES; SYSTEM AGREEMENTS; AND THE SYSTEMS.
(a) Schedule 5.20(a) sets forth a description of each of the
markets in which the Company and each of its Subsidiaries has an Operating
System as of the Closing Date.
(b) Schedule 5.20(b) lists all System Agreements other than FCC
Licenses and Channel Leases. Except as set forth in Schedule 5.20(b), (A) each
System Agreement constitutes a legal, valid, and binding obligation of the
Company or its Subsidiary that is a party thereto and is in full force and
effect and materially complies with all applicable Legal Requirements and has
been filed with the FCC to the extent required by the FCC Rules, and no other
approval, application, filing, registration, consent, or other action of any
Governmental Authority is required to enable the Company or any of its
Subsidiaries to operate under such System Agreement to recognize the benefits
thereunder, or to comply with applicable Legal Requirements; (B) none of the
Company or its Subsidiaries has assigned its rights and interests under any
System Agreement to any other Person; (C) none of the Company or any of its
Subsidiaries is in material breach or default under any such System Agreement,
which breach or default could result in the termination, impairment, or
forfeiture of any rights under or any payments being made with respect to any
such System Agreement, nor has an event occurred with respect to any System
Agreement which (whether with or without notice, the lapse of time, or the
happening or occurrence of any other event) would constitute a breach or
default under such System Agreement; (D) to the knowledge of the Company, no
third party has any rights to assert any interest in any System Agreement or
the rights and benefits granted to the Company or any of its Subsidiaries
pursuant thereto; (E) there are no contractual restrictions relating to any
such System Agreement that reasonably could be expected to materially adversely
affect or delay the Collocation of the Channels at their respective Collocation
Sites or the implementation of digital technology or Alternative Use Services;
(F) there are no material provisions of any such System Agreements that are the
subject of negotiation nor has any party to any such System Agreement requested
the renegotiation of any material term thereof; (G) none of the System
Agreements contain a put or call option with resect to the subject matter
thereof; and (H) none of the System Agreements contains any restriction on the
assignment of any System Agreement or the granting of a lien or the placing of
an encumbrance on the transmission equipment by the Company or any of its
Subsidiaries that is a party thereto in accordance with the terms of the Note
Documents or any provisions granting the other party thereto the right to
terminate the System Agreement upon a change in control of the Company. The
Company has delivered to you complete and accurate copies of each of the System
Agreements and none of such have been amended in any respect.
(c) Schedule 5.20(c) lists all Channel Leases and the monthly
payment obligations thereunder. Except as set forth in Schedule 5.20(c), (A)
each Channel Lease constitutes a legal, valid, and binding obligation of the
Company or its Subsidiary that is a party thereto and is in full force and
effect and materially complies with all applicable Legal Requirements and has
been filed with the FCC, to the extent required by the FCC Rules, and no other
approval, application, filing, registration, consent or other action of any
Governmental Authority is required to enable the Company or any of its
Subsidiaries to operate under such Channel Lease to recognize the benefits
thereunder, or to comply with applicable Legal Requirements; (B) none of the
Company or any of its Subsidiaries has assigned its rights and interests under
any Channel Lease to any other Person; (C) none of the Company or its
Subsidiaries is in material breach or default under any such Channel Lease,
which breach or default could result in the termination, impairment, or
forfeiture of any rights under or any payments being made with resect to any
such Channel Lease, nor has an event occurred with respect to any Channel Lease
which (whether with or without notice, the lapse of time, or the happening or
occurrence of any other event) would constitute a breach or default under such
Channel Lease; (D) to the knowledge of the Company, no third party has any
rights to assert any interest in any Channel Lease or the rights and benefits
granted to the Company or any of its Subsidiaries pursuant thereto; (E) there
are no contractual restrictions relating to any such Channel Lease that
reasonably could be expected to materially adversely affect or delay the
Collocation of the Channels at their respective Collocation Sties or the
implementation of digital technology or Alternative Use Services; (F) there are
no material provisions of any such Channel Lease that are the subject of
negotiation nor has any party to any such Channel Lease requested the
renegotiation of any material term thereof; (G) none of the Channel Leases
contain a put or call option with respect to the subject matter thereof; and
(H) none of the Channel Leases contains any restriction on the assignment of
any Channel Lease or the granting of a lien or the placing of an encumbrance on
the transmission equipment by the Company or any of its Subsidiaries that is a
party thereto in accordance with the terms of the Note Documents or any
provisions granting the other party thereto the right to terminate the Channel
Leases upon a change in control of the Company. The Company has delivered to
you complete and accurate copies of each of the Channel Leases and none of such
have been amended in any respect.
(d) Schedule 5.20(d) lists all FCC Licenses and applications for
FCC Licenses. As of the Closing date, except as set forth in Schedule 5.20(d),
(A) each of such FCC Licenses constitutes a legal, valid, and binding
obligation of the Company or its Subsidiaries and is in full force and effect;
(B) neither the Company nor any of its Subsidiaries has assigned its rights and
interest under any of the FCC Licenses or any application for an FCC License;
(C) neither the Company, any of its Subsidiaries nor any lessor under any
Channel Lease, as the case may be, is in violation of the terms under the
corresponding FCC License, which violation could result in the termination or
forfeiture of any rights under or any payments being made with respect to such
FCC License, nor has an event occurred with respect to any of the FCC Licenses
which (whether with or without notice, the lapse of time, or the happening or
occurrence of any other event) would constitute such a violation of the terms
of such FCC License that could result in the termination or forfeiture of such
FCC License; (D) to the knowledge of the Company, except with respect to the
lessors under the Channel Leases, no third party has any rights to assert any
interest in any of the FCC Licenses or applications for FCC Licenses; and (E)
there are no contractual restrictions relating to any of the FCC Licenses which
reasonably could be expected to materially adversely affect the Collocation of
the Channels that are the subject thereof at their respective Collocation Site
or the implementation of an Alternative Use. The Company has delivered to you
complete and accurate copies of each of the FCC Licenses and none of them have
been amended in any respect.
(e) Schedule 5.20(e) accurately lists, with respect to each of the
Systems, all Channels, and accurately describes the following:
(i) the status of each FCC License, Channel License, and Booster
License, and, for the System relative to Boston, Massachusetts, any other
Related Facility License including (A) the expiration date of the license,
(B) the renewal deadline and any pending construction deadline and the
status of compliance therewith (including whether one or more extensions
of the filing deadline have been requested or obtained), (D) the status of
any pending applications (including assignment and transfer of control
applications) including whether the application has been accepted for
filing by the FCC and any pending deadline for filing timely petitions to
deny such FCC applications, (E) whether there are any threatened or
pending interference issues, petitions to deny, informal objections,
competing or conflicting applications, outstanding no-objection letters,
comments or waiver requests, and (F) the status of the request for a
protected service area or other interference protection;
(ii) the status of each Collocation Application, Booster
Application and Alternative Use Application and any amendments thereto,
including (A) the relevant Collocation Site or other transmission site and
proposed technical parameters and conditions for analog and digital
operations, (B) whether the application has been accepted for filing by
the FCC, (C) whether there are any threatened or pending interference
issues, petitions to deny, informal objections, competing or conflicting
applications, outstanding no-objection letters, outstanding consent
letters, comments or waiver requests, and (D) the status of the request
for a protected service are or other interference protection; and
(iii) the market trials and operations that the Company or any of
its Subsidiaries are conducting, or intend to conduct pursuant to the
Approved Budget, with respect to Alternative Uses of the Channels or the
Systems and identifies the relevant authorizations used, or to be used, in
conjunction with such trial and operations and the conditions contained
therein.
(f) Complete and correct copies of all of the Permits, Facilities
Location Applications and Alternative Use Applications and amendments thereto
(with the FCC file date stamped thereon), Channel Licenses, Related Facilities
Licenses, FCC Licenses and material related thereto, including pending
applications filed with the FCC relating to the Systems and other Permits
owned, held or possessed by the Company and any of its Subsidiaries have been
provided to you.
(g) Except as set forth on Schedule 5.20(g) and except for Channel
Licenses held by third parties, with resect to each of the Systems, all of the
assets, Permits, and System Agreements relating to each System are owned by one
or more of the Company and its Subsidiaries.
(h) Except as disclosed in Schedule 5.20(h), (i) the Company and
each of its Subsidiaries have obtained and possesses all System Agreements,
patents, copyrights, certificates of confirmation, licenses, permits,
trademarks, and trade names, or rights thereto, necessary to conduct its
business as currently conducted by the Company and each of its Subsidiaries and
none of the Company and each of its Subsidiaries are in violation of any valid
rights of others with resect to any of the foregoing; (ii) no other license,
permit or franchise is necessary to the operation by the Company or any of its
Subsidiaries of the Systems as conducted or proposed to be conducted pursuant
to the Approved Budget; and (iii) the Company and each of its Subsidiaries have
obtained and possess or applied for all licenses, and have obtained and possess
all leases, conduit use, equipment rental and microwave or satellite relay
agreements necessary for the operation of the Systems as required by the System
Agreements.
5.21 INTERFERENCE.
Except as set forth on Schedule 5.21, neither any of the Company,
any of its Subsidiaries, nor any Licensee of a Channel has accepted or will
accept any electrical interference from any source that is likely to result in
material adverse electrical interference to any of the Channels in any of the
Systems now operating or expected to be operated, including the BTA
Authorizations or any newly licensed Channel in any BTA in which any System
operates or the Company or any of its Subsidiaries expect to operate. Except
as set forth in Schedule 5.21, neither any of the Company, any of its
Subsidiaries, nor any Channel Licensee is likely to experience interference
from any source authorized by the FCC to its presently authorized facilities in
an analog or digital mode or to any facilities that it proposes to construct
pursuant to an application currently pending before the FCC.
5.22 LINE OF SITE HOUSEHOLDS.
Schedule 5.22 lists the number of line of sight households for each
of the Systems and describes any material assumptions for arriving at such
determinations.
5.23 LEASE AGREEMENTS.
(a) Schedule 5.23 accurately and completely lists and sets forth a
description (including location of premises, term and assignability) of the
Tower Site Leases and office and studio space and the same constitute the only
Tower Site Leases and other leases necessary in connection with the conduct of
business by the Company and any of its Subsidiaries as currently conducted.
Each of the Company and its Subsidiaries enjoys quiet possession under all
leases (including Tower Site Leases) to which it is a party as lessee, and all
of such leases are valid, subsisting, and in full force and effect. None of
such leases contains any provision restricting the incurrence of indebtedness
by the lessee.
(b) All of the existing towers owned by the Company or its
Subsidiaries and, to the best of each Obligor's knowledge, all of the other
existing towers, used in the operation of the Systems are obstruction-marked
and lighted to the extent required by, and in accordance with, the rules and
regulations of the FAA or FCC. To the best knowledge and good faith belief of
the Company and its Subsidiaries, appropriate notification to the FAA has been
filed for each tower where required by the rules and regulations of the FAA or
FCC.
5.24. EMPLOYEE CONTRACTS; BOARD OF DIRECTORS.
(a) There are no employment agreements or other compensation
arrangements (including the setting of targets for the payment of bonuses) with
any officer of the Company or any of its Subsidiaries except for the Employment
Agreements and as disclosed in Schedule 5.24(a) hereto.
(b) Set forth on Schedule 5.24(b) is a true and complete list of
(a) the Board of Directors of CS Wireless and (b) the Members and the members
of the Governing Board of TelQuest.
5.25. SUBSIDIARIES WITHOUT ASSETS OR LIABILITIES.
Set forth on Schedule 5.25 is a true and complete list of each
"shell" corporation formed for the benefit of the Company in connection with
the Existing Credit Agreement having no assets or liabilities and for which
there are no shares of capital stock, subscriptions or other offers to purchase
shares, currently outstanding or contemplated as of the Closing Date.
5.26. MAINTENANCE OF SEPARATENESS.
Each of the Company and each of its Subsidiaries has conducted its
dealings with each of its Subsidiaries on an independent and arm's-length basis
and has observed and maintained, its separate identity from that of each of its
Subsidiaries by (i) not allowing its funds or other assets to be commingled
with the funds or other assets of any of its Subsidiaries, (ii) maintaining
separate corporate and financial records from those of each of its Subsidiaries
and observing all corporate formalities, including corporate minute books and
acting pursuant to corporate resolutions, (iii) paying its liabilities from its
own assets, (iv) maintaining bank accounts and accounting systems separate from
those of each of its Subsidiaries and (v) conducting its dealings with third
parties in its own name and as a corporate entity separate and distinct from
each of its Subsidiaries.
5.27. MATERIAL CONTRACTS.
Set forth on Schedule 5.27 is a complete and accurate list of all
Material Contracts of each Obligor, showing as of the date hereof the parties,
subject matter and term thereof. Each such Material Contract has been duly
authorized, executed and delivered by all parties thereto, has not been amended
or otherwise modified, is in full force and effect and is binding upon and
enforceable against all parties thereto in accordance with its terms, and there
exists no default under any Material Contract by any party thereto.
5.28. ACCOUNTS.
Neither the Company nor any of its Subsidiaries has any deposit
accounts or other checking or operating accounts other than the accounts listed
on the attached Schedule 5.28.
6. REPRESENTATIONS OF THE PURCHASER.
6.1. PURCHASE FOR INVESTMENT.
You represent that you are purchasing the Notes for your own account
or for one or more separate accounts maintained by you or for the account of
one or more pension or trust funds and not with a view to the distribution
thereof; PROVIDED that the disposition of your or their property shall at all
times be within your or their control. You understand that the Notes have not
been registered under the Securities Act and may be resold only if registered
pursuant to the provisions of the Securities Act or if an exemption from
registration is available, except under circumstances where neither such
registration nor such an exemption is required by applicable law, and that no
Obligor is required to register the Notes.
6.2. ACCREDITED INVESTOR.
You are an "accredited investor" (as defined in Rule 501 of
Regulation D under the Securities Act) and by reason of your business and
financial experience, and the business and financial experience of those
Persons retained by you to advise you with respect to your investment in the
Notes, you, together with such advisors, have such knowledge, sophistication
and experience in business and financial matters as to be capable of evaluating
the merits and risks of the prospective investment, are able to bear the
economic risk of such investment and, at the present time, are able to afford a
complete loss of such investment. You are not purchasing the Notes in reliance
upon any investigation made by any other Person.
6.3. SOURCE OF FUNDS.
You represent that at least one of the following statements is an
accurate representation as to each source of funds (a "FUNDS SOURCE") to be
used by you to pay the purchase price of the Notes to be purchased by you
hereunder:
(a) the Funds Source constitutes assets of an "investment fund"
(within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or "QPAM" (within the meaning of
Part V of the QPAM Exemption), no employee benefit plan's assets that are
included in such investment fund, when combined with the assets of all
other employee benefit plans established or maintained by the same
employer or by an affiliate (within the meaning of Section V(c)(1) of the
QPAM Exemption) of such employer or by the same employee organization and
managed by such QPAM, exceed 20% of the total client assets managed by
such QPAM, the conditions of Parts I(c) and I(g) of the QPAM Exemption are
satisfied, neither the QPAM nor a person controlling or controlled by the
QPAM (applying the definition of "CONTROL" in Section V(e) of the QPAM
Exemption) owns more than a 5% interest in the Company and (i) the
identity of such QPAM and (ii) the names of all employee benefit plans the
assets of which are included in such investment fund have been disclosed
to the Company in writing pursuant to this Section 6.3(a); and
(b) the Funds Source does not include assets of any employee
benefit plan, other than a plan exempt from the coverage of ERISA.
7. PREPAYMENTS AND REPURCHASES OF THE NOTES.
7.1. REQUIRED PREPAYMENTS.
The Obligors will prepay the aggregate principal amount of all of
the Notes outstanding on such date at 100% of the aggregate principal amount of
the Notes so prepaid together with all interest accrued and unpaid thereon to
the date of such prepayment upon receipt of the Net Cash Proceeds (i) from the
sale of assets of the Company (excluding such sales in the ordinary course of
business and sales permitted under Sections 9.5(b)(ii) and (iv) unless used in
accordance with the Approved Budget), (ii) of Extraordinary Receipts unless
used in accordance with the Approved Budget and (iii) from all proceeds from
the issuance of additional debt (subject to Section 7.2 below) or equity
permitted under this Agreement. The aggregate outstanding principal amount of
the Notes, together with all interest accrued and unpaid thereon, shall be due
and payable by the Obligors on the Maturity Date. Upon and during the
continuance of an Event of Default, the Obligors shall pay interest at the
Default Rate.
7.2. OPTIONAL PREPAYMENTS.
(a) Each Obligor may, at its option, upon notice as provided in
Section 7.2(b), prepay at any time all, or from time to time any part of, the
Notes, in an aggregate principal amount of not less than $250,000 or integral
multiples of $50,000 in excess thereof (or, if less, the remaining aggregate
principal amount of the Notes outstanding at such time), at 105% of the
aggregate principal amount of the Notes so prepaid; PROVIDED, HOWEVER, that (i)
if you have refinanced the aggregate principal amount outstanding under the
Notes plus accrued interest thereon under a debtor in possession financing with
the Company or any other Obligor or (ii) if you have failed to provide the
Company or any other Obligor with a commitment letter for debtor in possession
financing on commercially reasonable terms, such Obligor may prepay all of the
Notes at 100% of the aggregate principal amount of the Notes; PROVIDED FURTHER,
HOWEVER, that if you have provided the Company or any other Obligor with a
commitment letter for debtor in possession financing on commercially reasonable
terms, such Obligor may prepay the Notes at 105% of the aggregate outstanding
principal amount of the Notes plus all accrued and unpaid interest thereon to
the date of such prepayment, payable in cash upon the earlier of (i) the
signing of a commitment for debtor in possession financing with lenders other
than you or (ii) the making of the initial advance under a debtor in possession
financing with lenders other than you.
(b) Each Obligor will give each holder of Notes written notice of
each optional prepayment under this Section 7.2 not less than 5 days and not
more than 10 days prior to the date fixed for such prepayment. Each such
notice shall specify the date fixed for such prepayment, the aggregate
principal amount of the Notes to be prepaid on such date, the principal amount
of each Note held by such holder to be prepaid (determined in accordance with
Section 7.5), and the interest to be paid on the prepayment date with respect
to such principal amount being prepaid and shall state that such prepayment is
to be made pursuant to this Section 7.2.
7.3. ALLOCATION OF PARTIAL PREPAYMENTS.
In the case of each partial prepayment of the Notes, the principal
amount of the Notes to be prepaid shall be allocated (in integral multiples of
$1,000) among all of the Notes at the time outstanding in proportion, as nearly
as practicable, to the respective unpaid principal amounts thereof not
theretofore called for prepayment.
7.4. MATURITY; SURRENDER, ETC.
In the case of each prepayment of Notes pursuant to this Section 7,
the principal amount of each Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such
principal amount accrued to such date. From and after such date, unless any
Obligor shall fail to pay such principal amount when so due and payable, as
aforesaid, interest on such principal amount shall cease to accrue. Any Note
paid or prepaid in full shall be surrendered to the Company and cancelled and
shall not be reissued, and no Note shall be issued in lieu of any prepaid or
repurchased principal amount of any Note.
7.5. PURCHASE OF NOTES.
No Obligor will or will permit any of its Subsidiaries or Affiliates
to purchase, redeem, prepay or otherwise acquire, directly or indirectly, any
of the outstanding Notes except upon the payment or, prepayment of the Notes in
accordance with the terms of this Agreement and the Notes. Such Obligor will
promptly cancel all Notes acquired by it or any of its Affiliates pursuant to
any payment, prepayment or purchase of Notes pursuant to any provision of this
Agreement, and no Notes may be issued in substitution or exchange for any such
Notes.
7.6 JOINT AND SEVERAL OBLIGATION; LIMITATION OF LIABILITY.
(a) Notwithstanding anything contained herein or in the Notes to
the contrary, the Subsidiary Obligors shall not receive proceeds from the sale
of the Notes in an amount that exceeds $10,000,000 in the aggregate. The
obligation to repay the Notes is the joint and several obligation of the
Obligors.
(b) (i) Each of the Obligors and the Purchasers hereby confirm
that it is the intention of all such parties that this Agreement not constitute
a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform
Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar
federal or state law to the extent applicable to this Agreement. To effectuate
the foregoing intention, each of the Obligors and the Purchaser hereby
irrevocably agree that the obligations of each Subsidiary Obligor under this
Agreement shall not exceed the lesser of (i) $10,000,000 and (ii) the greater
of (A) the net benefit realized by such Subsidiary Obligor from the proceeds of
the Notes made available to such Subsidiary Obligor and the advances made from
time to time by the Company to such Subsidiary Obligor or any subsidiary of
such Subsidiary Obligor and (B) the maximum amount that will, after giving
effect to such maximum amount and all other contingent and fixed liabilities of
such Subsidiary Obligor that are relevant under such laws, and after giving
effect to any collections from, rights to receive contribution from or payments
made by or on behalf of any other Subsidiary Obligor in respect of the
Obligations of such other Subsidiary Obligor under this Agreement or the Notes,
result in the Obligations of such Subsidiary Obligor under this Agreement or
the Notes not constituting a fraudulent transfer or conveyance. For purposes
hereof, "BANKRUPTCY LAW" means Title 11, U.S. Code, or any similar Federal or
state law for the relief of debtors.
(ii) Each Subsidiary Obligor agrees that, in the event any payment
shall be required to be made to the Purchaser under this Agreement or the
Notes, such Subsidiary Obligor will contribute, to the maximum extent permitted
by law, such amounts to each other Subsidiary Obligor and each other Obligor so
as to maximize the aggregate amount paid to the Purchaser under the Note
Documents.
8. AFFIRMATIVE COVENANTS.
From the date of this Agreement and, thereafter, so long as any of
the Notes shall be outstanding, each Obligor will perform and comply with each
of the following covenants:
8.1. FINANCIAL AND BUSINESS INFORMATION.
The Company will furnish to each holder of Notes without cost to
you:
(a) REQUESTED INFORMATION. With reasonable promptness, any
information relating to the financial condition, business, operations,
assets, liabilities or properties of the Company or any of its
Subsidiaries, including but not limited to information regarding FCC
activity or relating to the ability of any Obligor to perform its
obligations under any of the Note Documents to which it is a party as from
time to time may be reasonably requested by any such holder of Notes,
including, without limitation, all monthly bank statements of the Company
and its Subsidiaries.
(b) AUDITOR'S REPORTS. Promptly upon receipt thereof, copies of
all "management letters" or other written reports submitted to the Company
or any of its Subsidiaries by any independent certified public accountants
of the Company or any such Subsidiary in connection with each annual,
interim or special audit of its financial statements made by such
accountants (including, without limitation, any comment letter submitted
by such accountants to management of the Company or any such Subsidiary in
connection with their annual audit and any reports addressing internal
accounting controls of the Company or any such Subsidiary submitted by
such accountants), and, promptly upon completion thereof, copies of any
response report from the Company or any such Subsidiary to such
accountants.
(c) SEC AND OTHER REPORTS. Promptly upon transmission or receipt
thereof, (i) copies of any filings and registrations with, and any reports
or notices to or from, the Securities and Exchange Commission, or any
successor agency, and copies of all financial statements, proxy
statements, notices and reports that the Company or any of its
Subsidiaries shall send to a holder of any Indebtedness owed by the
Company or any of its Subsidiaries in its capacity as such a holder, (ii)
copies of all press releases and other statements made available by the
Company or any of its Subsidiaries to the public concerning developments
that are Material, (iii) upon your reasonable request, all reports and
written information to and from the United States Environmental Protection
Agency, or any state or local agency responsible for environmental
matters, the United States Occupational Health and Safety Administration,
or any state or local agency responsible for health and safety matters, or
any successor agencies or authorities to any of the foregoing, concerning
environmental, health or safety matters and (iv) all reports and
applications required to be filed by the FCC or the Communications Act for
which the failure to file could have a Material Adverse Effect.
(d) NOTICE OF DEFAULT, ETC. Promptly, and in any event within five
days after a Responsible Officer obtains knowledge thereof, notice of the
occurrence of each Default or Event of Default or any event, development
or occurrence that, either individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect continuing on the
date of such statement, setting forth in reasonable detail the nature of
such Default, Event of Default or event, development or occurrence and the
action that the Company has taken and proposes to take with respect
thereto.
(e) MATERIAL ADVERSE CHANGE. Promptly after the occurrence
thereof, notice of a Material Adverse change in the business, operations,
properties, prospects or condition (financial or otherwise) of the Company
and its Subsidiaries, taken as a whole, or the occurrence of a development
which might result in such Material Adverse Change.
(f) LITIGATION. Promptly after the commencement thereof, notice of
all actions, suits, investigations and proceedings in any court or before
any arbitrator or before or by any Governmental Authority binding on or
affecting the Company or any of its Subsidiaries or any of their
respective properties of the type described in Section 5.7 which would, if
adversely decided, reasonably be expected to have a Material Adverse
Effect on the business operations, properties, prospects or condition
(financial or otherwise) of the Company and its Subsidiaries, taken as a
whole.
(g) ERISA MATTERS. Promptly, and in any event within five days
after a Responsible Officer becomes aware of any of the following, a
written notice setting forth the nature thereof and the action, if any,
that any Obligor or any ERISA Affiliate proposes to take with respect
thereto:
(i) Any event or condition, including, but not limited to,
any Reportable Event, that constitutes, or could reasonably be
expected to result in, a Termination Event;
(ii) With respect to any Multiemployer Plan, the receipt of
any notice as prescribed in ERISA or otherwise of any Withdrawal
Liability assessed against any Obligor or any ERISA Affiliate, or of
a determination that any Multiemployer Plan is in reorganization or
insolvent (both within the meaning of Title IV of ERISA);
(iii) The taking by the PBGC of steps to institute, or the
threatening by the PBGC of the institution of, proceedings under
Section 4042 of ERISA for the termination of, or the appointment of
a trustee to administer, any Plan, or the receipt by any Obligor or
any ERISA Affiliate of a notice from a Multiemployer Plan that such
action has been taken by the PBGC with respect to such Multiemployer
Plan;
(iv) The failure to make full payment on or before the due
date (including extensions thereof) of all amounts that any Obligor
or any ERISA Affiliate is required to contribute to each Plan
pursuant to its terms and as required to meet the minimum funding
standard set forth in ERISA and the Internal Revenue Code with
respect thereto;
(v) Any change in the funding status of any Plan that could
reasonably be expected to have a Material Adverse Effect; or
(vi) Any event, transaction or condition not otherwise
described in this Section 8.1(g) that could result in the incurrence
of any liability by any Obligor or any ERISA Affiliate pursuant to
Title I or IV of ERISA or the penalty or excise tax provisions of
the Internal Revenue Code relating to employee benefit plans, or in
the imposition of any Lien on any of the rights, properties or
assets of any Obligor or any ERISA Affiliate pursuant to Title I or
IV of ERISA or such penalty or excise tax provisions, if such
liability or Lien, taken together with any other such liabilities or
Liens then existing, could reasonably be expected to have a Material
Adverse Effect.
Promptly upon your reasonable request, such additional information
concerning any Plan as you may have reasonably requested, including, but
not limited to, copies of each annual report/return (Form 5500 series) and
all schedules and attachments thereto required to be filed with the
Department of Labor and/or the Internal Revenue Service pursuant to ERISA
and the Internal Revenue Code, respectively, for each "plan year" (within
the meaning of Section 3(39) of ERISA).
8.2. COMPLIANCE WITH LAW.
The Company will and will cause each of its Subsidiaries to comply
with all laws, ordinances, rules, regulations, including without limitation the
Communications Act, FCC Rules and those relating to copyright and orders to
which each of them and their properties are subject and all applicable
restrictions imposed on each of them and their properties by any Governmental
Authority (including, without limitation, all Environmental Laws), and will
obtain and maintain in effect all licenses, certificates, permits, franchises,
consents and other authorizations of any Governmental Authority or public body
or authority or any subdivision thereof or any other third party including any
radio, television or other license, Permit, certificate or approval granted or
issued by the FCC or any other Governmental Authority (including any MDS, MMDS,
ITFS, business radio, earth station or experimental licenses or permits issued
by the FCC) (except for filings to perfect security interest granted pursuant
to this Agreement or any other Note Document) necessary for the ownership or
leasing and operation of their respective properties or the conduct of their
respective businesses, in each case to the extent necessary to ensure that any
noncompliance with such laws, ordinances, rules, regulations or orders or any
failure to obtain or maintain in effect such licenses, certificates, permits,
franchises, consents and other authorizations, either individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
8.3. MAINTENANCE OF INSURANCE.
The Company will and will cause each of its Subsidiaries at all
times to maintain, with financially sound and reputable insurers, insurance
with respect to their respective properties and businesses against such
casualties and contingencies, of such types, on such terms and in such amounts
(including deductibles, co-insurance and self-insurance, if adequate reserves
are maintained with respect thereto) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated or as may otherwise be required by applicable law, including, without
limitation, workers' compensation insurance, liability insurance, casualty
insurance and business interruption insurance.
8.4. MAINTENANCE OF PROPERTIES.
The Company will and will cause each of its Subsidiaries to maintain
and keep, or cause to be maintained and kept, their respective properties and
assets, owned or leased, used or useful in the conduct of its business, that,
either individually or in the aggregate, are Material in good repair, working
order and condition (other than ordinary wear and tear and as a result of
casualty and condemnation), so that the business carried on in connection
therewith may be properly conducted at all times.
8.5. PAYMENT OF TAXES AND CLAIMS; PERFORMANCE OF MATERIAL OBLIGATIONS.
(a) The Company will and will cause each of its Subsidiaries to pay
and discharge, and maintain appropriate reserves in respect of, all taxes,
assessments and governmental charges or levies imposed upon them or any of
their properties, assets, income or franchises, to the extent such taxes,
assessments, charges or levies have become due and payable and before they have
become delinquent and all claims for which sums have become due and payable
that have or might by law become a Lien upon any property or assets of the
Company or any of its Subsidiaries or any part thereof; PROVIDED, HOWEVER, that
neither the Company nor any of its Subsidiaries shall be required to pay or to
discharge any such tax, assessment, charge, levy or claim that is being
contested in good faith and by appropriate proceedings and as to which adequate
reserves are being maintained in accordance with GAAP, unless and until any
Lien resulting therefrom attaches to its property and assets and becomes
enforceable against its other creditors.
(b) The Company will and will cause each of its Subsidiaries to
perform all of its obligations under the terms of each contract, loan
agreement, indenture, mortgage, deed of trust, lease or other instrument
binding on or affecting it, except where the failure to so perform could not,
either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(c) The Company will and will cause each of its Subsidiaries to pay
when due all rents and other amounts payable under any leases and Systems
Agreements to which the Company or any of its Subsidiaries is a party or by
which any of its properties and assets are bound, except where the failure to
so pay could not, either individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
8.6. PRESERVATION OF CORPORATE EXISTENCE, ETC.
The Company will at all times preserve and keep in full force and
effect its corporate existence and its rights (charter and statutory). Except
with respect to the AMI Merger, the Company will at all times preserve and keep
in full force and effect the corporate existence of each of its Subsidiaries
and all permits, licenses, approvals, rights, privileges and franchises of the
Company and its Subsidiaries.
8.7. MAINTENANCE OF BOOKS AND RECORDS; INSPECTION.
(a) The Company will and will cause each of its Subsidiaries to
keep proper records and books of account in which full, true and correct
entries in conformity with generally accepted accounting principles in effect
from time to time in the United States of America consistently applied or as
otherwise required by applicable rules and regulations of any governmental
agency or regulatory authority having jurisdiction over the Company and its
Subsidiaries and all requirements of law shall be made of all financial
transactions and all of the assets and businesses of the Company and each such
Subsidiary (including, without limitation, the establishment and maintenance of
adequate and appropriate reserves).
(b) The Company shall and shall cause each of its Subsidiaries to
permit each holder of Notes that is an Institutional Investor and any of the
agents or representatives thereof:
(i) NO DEFAULT. If no Default or Event of Default has occurred and
is continuing, at the expense of the Company and upon reasonable prior
written notice to the Company, at any reasonable time and from time to
time (as often as may be requested), to visit and inspect any of the
offices and properties, and to examine and make copies of and abstracts
from the records and books of account, of the Company and/or any of its
Subsidiaries, and to discuss the affairs, finances and accounts of the
Company or any such Subsidiary, as the case may be, with, and be advised
as to the same by, their officers or directors and with or by their
independent certified public accountants (and by this Section 8.7(b)(i)
the Company authorizes said accountants to discuss the affairs, finances
and accounts of the Company and its Subsidiaries with such Persons).
(ii) DEFAULT. If a Default or Event of Default has occurred and is
continuing, at the expense of the Company and without prior notice, at any
time and from time to time (as often as may be requested), to visit and
inspect any of the offices or properties, and to examine and make copies
of and abstracts from the records and books of account, of the Company
and/or any of its Subsidiaries, and to discuss the affairs, finances and
accounts of the Company or any such Subsidiary, as the case may be, with,
and be advised as to the same by, their officers or directors and with or
by their independent public accountants (and by this Section 8.7(b)(ii)
the Company authorizes said accountants to discuss the affairs, finances
and accounts of the Company and its Subsidiaries with such Persons).
8.8. USE OF PROCEEDS.
The Company will use the proceeds of the issue and sale of the Notes
solely for the purposes set forth in Section 5.14(a).
8.9. CAPITAL STOCK.
The Company will at all times be the direct, legal and beneficial
owner of 100% of the outstanding capital stock of each of its directly owned
Subsidiaries as set forth in Schedule 5.3, and the indirect legal and
beneficial owner of 100% of the outstanding capital stock of each of its
indirectly owned Subsidiaries free and clear of any lien, security interest,
option or other charge or encumbrance.
8.10. FULL COOPERATION.
The Company agrees that, at all times, it will cooperate fully with
you and provide all information reasonably requested by you in connection with
the Refinancing, including information, term sheets, drafts of agreements with
strategic partners, lenders, acquirors or equity investors.
8.11. OBLIGATIONS OF ADDITIONAL OBLIGORS.
The Company will cause (a)(i) all of the shares of capital stock of
each First Tier Subsidiary of the Company, (ii) its membership interest
in TelQuest, (iii) its shares of capital stock of CS Wireless, (iv) all of the
shares of capital stock of the AMI Subsidiaries immediately following the
consummation of the AMI Merger and (v) all of the shares of capital stock of
each Subsidiary of an Unrestricted Subsidiary, in each case, now or hereafter
owned by the Company or any of its Unrestricted Subsidiaries and (b) such other
present and future property and assets of each Unrestricted Subsidiary as you
may request, including, without limitation, proceeds from the liquidation of
FCC licenses, FCC leases, owned real estate, leaseholds, fixtures, accounts,
license rights, patents, trademarks, tradenames, copyrights, chattel paper,
insurance proceeds, contract rights, hedge agreements, cash bank accounts, tax
refunds, documents, instruments, general intangibles, inventory, equipment and
other goods to be pledged to the Agent pursuant to the terms and conditions of
the Security Agreement or a security agreement in substantially the form of
Exhibit B attached hereto and otherwise in form and substance reasonably
acceptable to you and the Agent. In furtherance of the foregoing provisions of
this Section 8.11, the Company agrees that:
(i) at the time that any Person becomes a Subsidiary, the Company
shall so notify you and the Agent and shall cause (a) such Person to cause
100% (or, if less, the full amount owned, directly or indirectly, by the
Company or any Unrestricted Subsidiary), of the shares of capital stock of
such Person to be delivered to the Agent (together with undated stock
powers executed in blank) and (b) such other present and future property
and assets of each Unrestricted Subsidiary as you may request, including,
without limitation, proceeds from the liquidation of FCC licenses, FCC
leases, owned real estate, leaseholds, fixtures, accounts, license rights,
patents, trademarks, tradenames, copyrights, chattel paper, insurance
proceeds, contract rights, hedge agreements, cash bank accounts, tax
refunds, documents, instruments, general intangibles, inventory, equipment
and other goods and pledged to the Agent pursuant to security agreement(s)
in substantially the form of Exhibit B attached hereto and otherwise in
form and substance reasonably acceptable to you and the Agent,
(ii) to cause such Person to deliver such other documentation as
you or the Agent may reasonably request in connection with the foregoing,
including, without limitation, certified resolutions, UCC Financing
Statements and other organizational and authorizing documents of such
Person and favorable opinions of counsel to such Person (which shall
cover, among other things, the legality, validity, binding effect and
enforceability of the documentation referred to above in Section 8.11(i)),
all in form, substance and scope reasonably satisfactory to you and the
Agent, and
(iii) upon the release of the shares of capital stock of the Seller
Restricted Subsidiaries, the Company shall deliver certificates
representing such shares to you accompanied by undated stock powers
executed in blank.
8.12. PAYMENT OF FEES.
(a) The Company will pay the Commitment Fee on the Maturity Date.
(b) The Company will pay all fees required to be paid by the FCC
and the Communications Act.
8.13. AMI MERGER.
As soon as practicable, but in any event within 5 days of receipt of
all necessary approvals from the FCC, take or cause to be taken any and all
action necessary or desirable to effect the merger of AMI into the Company as
provided in the AMI Merger Agreement.
8.14. MAINTENANCE OF SEPARATENESS.
Each of the Obligors and each of its Subsidiaries will conduct, its
dealings with each of its Subsidiaries on an independent and arm's-length basis
and will observe and maintain, its separate identity from that of each of its
Subsidiaries by (i) not allowing its funds or other assets to be commingled
with the funds or other assets of any of its Subsidiaries, (ii) maintaining
separate corporate and financial records from those of each of its Subsidiaries
and observing all corporate formalities, including corporate minute books and
acting pursuant to corporate resolutions, (iii) paying its liabilities from its
own assets, (iv) maintaining bank accounts and accounting systems separate from
those of each of its Subsidiaries and (v) conducting its dealings with third
parties in its own name and as a corporate entity separate and distinct from
each of its Subsidiaries.
8.15. PERFORMANCE OF MATERIAL CONTRACTS.
Each of the Obligors and each of its Subsidiaries will perform and
observe all of the terms and provisions of each Material Contract to be
performed or observed by it, maintain each such Material Contract in full force
and effect, enforce each such Material Contract in accordance with its terms,
take all such action to such end as may be from time to time requested by the
Purchaser and, upon request of the Purchaser, make to each other party to each
such Material Contract such demands and requests for information and reports or
for actions as such Obligor is entitled to make under such Material Contract,
and cause each of its Subsidiaries to do so except, in any case, where the
failure to do so, either individually or in the aggregate could not have a
Material Adverse Effect.
8.16. ACCOUNTS.
The Company will maintain the Account (as defined in the Pledge
Agreement and listed in Part IV of Schedule 5.28), the Cash Collateral Account
(as defined in the Security Agreement and listed in Part IV of Schedule 5.28),
the payroll account listed in Part IV of Schedule 5.28 and the Lockbox Account
listed in Part I of Schedule 5.28 into which, among other things, all proceeds
of Collateral are paid, in each case with Fleet National Bank or one or more
banks acceptable to the Purchaser that have accepted the assignment of such
accounts to the Purchaser pursuant to the Security Agreement. Neither the
Company nor any of its Subsidiaries will establish any deposit accounts other
than those set forth on Schedule 5.28.
Each Obligor shall instruct (i) each bank listed in Part I of
Schedule 5.28 to transfer to the Cash Collateral Account, at the end of each
Business Day, in same day funds, an amount equal to the credit balance of such
account in such bank, (ii) each bank listed in Part II of Schedule 5.28 to
transfer to the Cash Collateral Account, at the end of the next Business Day,
in same day funds, an amount equal to the credit balance of such account minus
$20,000 and (iii) each bank listed in Part III of Schedule 5.28 to transfer to
the Cash Collateral Account no later than December 3, 1997, in same day funds,
all funds, if any, in such accounts and immediately thereafter to close such
accounts.
9. NEGATIVE COVENANTS.
From the date of this Agreement and, thereafter, so long as any of
the Notes shall be outstanding, the Company and its Subsidiaries will perform
and comply with each of the following covenants:
9.1. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES.
Except as otherwise permitted in this Agreement, the Company will
not and will not permit any of its Subsidiaries to directly or indirectly enter
into or engage in any transaction or series of related transactions (including,
without limitation, the purchase, lease, sale or exchange of property or assets
of any kind or the rendering of any service) with any of its Affiliates, except
in the ordinary course and pursuant to the reasonable requirements of the
Company's or such Subsidiary's business and upon fair and reasonable terms no
less favorable to the Company or such Subsidiary than would be obtainable in a
comparable arm's-length transaction with a Person not an Affiliate thereof;
PROVIDED that the foregoing restrictions of this Section 9.1 shall not apply to
any tax sharing agreements in existence on the date of closing and approved by
the Purchaser.
9.2. LIMITATIONS ON LIENS.
The Company will not and will not permit any of its Subsidiaries to
(a) create, incur, assume or suffer to exist any Lien on or with respect to any
of its property or assets of any character (including, without limitation,
accounts), whether now owned or hereafter acquired, (b) sign or file or suffer
to exist under the Uniform Commercial Code or any similar statute of any
jurisdiction, a financing statement (or the equivalent thereof) that names the
Company or any of its Subsidiaries as debtor, (c) sign or suffer to exist any
security agreement authorizing any secured party thereunder to file such
financing statement (or the equivalent thereof), or (d) assign any accounts or
other right to receive income; EXCLUDING, HOWEVER, from the operation of the
foregoing restrictions the following:
(i) Permitted Liens;
(ii) Liens existing on the date of this Agreement and described in
Schedule 9.2(ii) attached hereto;
(iii) purchase money Liens upon or in real property or equipment
acquired or held by the Company or any of its Subsidiaries in the ordinary
course of business to secure the purchase price of such real property or
equipment or to secure Indebtedness incurred solely for the purpose of
financing the acquisition, construction or improvement of such real
property or equipment to be subject to such Liens, or Liens existing on
any such real property or equipment at the time of its acquisition (other
than any such Liens created in contemplation of such acquisition that do
not secure the purchase price of such real property or equipment);
PROVIDED, HOWEVER, that no such Lien shall extend to or cover any property
other than the real property or equipment being acquired, constructed or
improved; and PROVIDED FURTHER that the aggregate principal amount of
Indebtedness secured by Liens permitted under this Section 9.2(iii) shall
not exceed $200,000; and
(iv) deposits to secure the performance of leases of property
(whether real, personal or mixed) of the Company and its Subsidiaries
(excluding Capitalized Leases) in the ordinary course of business, in an
aggregate principal amount not to exceed $1,400,000.
If the Company shall create, assume or suffer to exist any Lien upon any of its
property or assets, or the property or assets of any of its Subsidiaries,
whether now owned or hereafter acquired, other than any Liens expressly
permitted under clauses (i) through (iv) of this Section 9.2, the Company will
make or cause to be made effective provision whereby the Notes and all of the
other Obligations of the Obligors under the Note Documents will be secured
equally and ratably with any and all other Obligations of the Company and its
Subsidiaries secured thereby; PROVIDED that the securing of the Notes and all
of the other Obligations of the Obligors under the Note Documents equally and
ratably with such other Obligations of the Company and its Subsidiaries will in
no way be deemed to remedy or waive any Default or Event of Default resulting
from the incurrence, assumption, existence or continuation of any such Lien.
9.3. LIMITATIONS ON INDEBTEDNESS.
The Company will not and will not permit any of its Subsidiaries to
create, incur, assume or suffer to exist any Indebtedness other than:
(a) Indebtedness arising under the Note Documents;
(b) Indebtedness owed to the Company by any of its Subsidiaries so
long as such indebtedness is evidenced by a promissory note, in an amount
and in form and substance satisfactory to you, and delivered to the
Collateral Agent under the Security Agreement;
(c) Indebtedness listed on Schedule 5.19;
(d) Indebtedness secured by Liens permitted under Section
9.2(c)(iii);
(e) the $1,000,000 payment due under the BANX Agreement; and
(f) Indebtedness of the Company in respect of interest rate or
currency rate Hedge Agreements; PROVIDED that all such Hedge Agreements
shall be nonspeculative in nature.
9.4. LIMITATIONS ON LEASE OBLIGATIONS.
The Company will not and will not permit any of its Subsidiaries at
any time to create, incur, assume or suffer to exist, any obligations as lessee
for the rental or hire of real or personal property of any kind under leases or
agreements to lease, including, but not limited to, Capitalized Leases, except
as identified on Schedule 9.4.
9.5. LIMITATIONS ON MERGERS, CONSOLIDATIONS, SALES OF ASSETS, ETC.
(a) The Company will not and will not permit any of its
Subsidiaries to merge or consolidate with or into, or convey, transfer, lease
or otherwise dispose (whether in one transaction or a series of transactions)
of its property and assets (whether now owned or hereafter acquired) to, any
Person, except that, so long as no Default or Event of Default shall have
occurred and be continuing or shall occur as a consequence thereof:
(i) the Company may merge or consolidate with, or convey, transfer,
lease or otherwise dispose of all or substantially all of its property and
assets to, any of its Subsidiaries so long as that the Company is the
surviving corporation;
(ii) any Subsidiary may merge or consolidate with, or convey,
transfer, lease or otherwise dispose of all or substantially all of its
property and assets to, any First Tier Subsidiary of the Company other
than the Seller Restricted Subsidiaries; and
(iii) the Company may convey, transfer, lease or otherwise dispose
of a portion of its property and assets, and any Subsidiary of the Company
may convey, transfer, lease or otherwise dispose of all or a portion of
its property and assets, if such conveyance, transfer, lease or other
disposition is otherwise expressly permitted under Section 9.5(b) or
identified on Schedule 9.5(a).
(b) The Company will not and will not permit any of its
Subsidiaries to sell, lease, transfer or otherwise dispose (whether in one
transaction or a series of transactions) of any property and assets (whether
now owned or hereafter acquired), including, without limitation, pursuant to
any sale and leaseback transaction, other than:
(i) sales of inventory in the ordinary course of business and for
fair consideration;
(ii) the sale or disposition of property and assets of the Company
and its Subsidiaries identified on Schedule 9.5(b) for fair market value
at least 75% of which is received in cash, PROVIDED that the proceeds from
such sale or disposition are used in accordance with the Approved Budget;
(iii) the sale for cash and for fair consideration PROVIDED,
HOWEVER, that the proceeds of such sale are used to prepay the Notes; and
(iv) the sale or disposition of obsolete property and assets of the
Company and its Subsidiaries no longer useful in the conduct of their
respective businesses having an aggregate book value not in excess of
$1,000,000 for all such sales and dispositions provided that the proceeds
from such sale are used in accordance with the Approved Budget.
PROVIDED, HOWEVER, notwithstanding anything to the contrary set forth in this
Section 9.5(b), the Company shall be permitted to (A) transfer to CS Wireless
the Channels and Channel Leases (or interests therein) relating to the
Charlotte, North Carolina market in fulfillment of the Company's obligations
under that certain Participation Agreement dated as of December 12, 1995 (as
amended, the "Participation Agreement") among the Company, CS Wireless and
Heartland Wireless Communications, Inc., and (B) transfer to CS Wireless the
BTA Authorizations awarded to the Company by the FCC for the Cleveland-Akron,
Ohio and Stockton, California BTAs, when and as awarded by the FCC, and to take
all actions necessary in connection therewith, all in fulfillment of the
Company's obligations under the Participation Agreement (as in effect on the
date hereof).
9.6. LIMITATIONS ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES.
(a) The Company will not and will not permit any of its
Subsidiaries to declare or pay any dividends, purchase, redeem, retire or
otherwise acquire for value any of its capital stock or any warrants, rights or
options to acquire such capital stock, now or hereafter outstanding, return any
capital to its stockholders as such, make any distribution of assets, capital
stock, warrants, rights, options, obligations or securities to its stockholders
as such or issue or sell any capital stock or any warrants, rights or options
to acquire such capital stock other than any dividend or distribution made by a
direct or indirect wholly owned Subsidiary of the Company to its parent
corporation.
(b) The Company will not and will not permit any of its
Subsidiaries to directly or indirectly create or otherwise cause, incur,
assume, suffer or otherwise permit to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Subsidiary (i) to
pay dividends or to make any other distribution on any shares of capital stock
of (or other ownership or profit interest in) such Subsidiary owned by the
Company or any of its Subsidiaries, (ii) to pay or to subordinate any
Indebtedness owed to the Company or any of its Subsidiaries, (iii) to make
loans or advances to the Company or any of its Subsidiaries or (iv) to transfer
any of its property or assets to the Company or any of its Subsidiaries, except
with respect to any encumbrance or restriction on the Seller Restricted
Subsidiaries as in effect on the date hereof.
9.7. LIMITATIONS ON PREPAYMENTS OF INDEBTEDNESS, ETC.
If any Default or Event of Default has occurred and is continuing or
would occur, directly or indirectly, as a consequence thereof, the Company will
not and will not permit any of its Subsidiaries (a) after the issuance thereof,
to amend, modify or otherwise change in any manner (or permit the amendment,
modification or other change in any manner of) any of the terms of any
Indebtedness of the Company or any such Subsidiary if such amendment,
modification or change would shorten the final maturity or average life to
maturity of, or require any payment to be made sooner than originally scheduled
on, such Indebtedness, increase the interest rate applicable thereto or change
any subordination provision thereof, (b) to make (or give any notice with
respect thereto) any voluntary or optional payment, prepayment, redemption or
acquisition for value of any Indebtedness of the Company or any such Subsidiary
(including, without limitation, by way of depositing money or securities with
the trustee therefor before the date required for the purpose of paying when
due) of any Indebtedness of the Company or any such Subsidiary, or refund,
refinance, replace or exchange any other Indebtedness for any such Indebtedness
or (c) to amend, modify or otherwise change its articles of incorporation or
bylaws (or other similar organizational documents) if such amendment,
modification or change, either individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
9.8. LIMITATIONS ON NEGATIVE PLEDGES.
The Company will not permit any of its Subsidiaries to enter into,
assume or suffer or permit to exist any agreement prohibiting, conditioning or
otherwise restricting the creation or assumption of any Lien upon its
properties or assets, whether now owned or hereafter acquired, or requiring the
grant of any assignment or security for such obligation if an assignment or
security is given for some other obligation, other than:
(a) the Note Documents;
(b) in connection with any Indebtedness described on Schedule 5.19
attached hereto to the extent such agreement is in effect on the date
hereof;
(c) any such agreement prohibiting other encumbrances on specific
property and assets of the Company or any of its Subsidiaries, which
encumbrance secures the payment of Indebtedness incurred solely to
acquire, construct or improve such property or assets or to finance the
purchase price therefor and which Indebtedness is otherwise permitted to
be incurred under the terms of this Agreement;
(d) any agreement setting forth customary restrictions on the
subletting, assignment or transfer of any property or asset that is a
lease, license, conveyance or contract of similar property or assets;
(e) any restriction or encumbrance with respect to any Subsidiary
of the Company imposed pursuant to an agreement that has been entered into
for the sale, transfer or other disposition of all or substantially all of
the property and assets of such Subsidiary so long as such sale or
disposition is otherwise expressly permitted under the terms of this
Agreement; and
(f) any agreement evidencing Indebtedness outstanding on the date a
Subsidiary of the Company first becomes a Subsidiary of the Company or any
of its Subsidiaries.
9.9. LIMITATIONS ON CHANGES IN FISCAL YEAR.
The Company will not and will not permit any of its Subsidiaries to
change its fiscal year.
9.10. LIMITATIONS ON SPECULATIVE REAL ESTATE INVESTMENTS.
Notwithstanding anything to the contrary set forth in this
Agreement, the Company will not and will not permit any of its Subsidiaries to
acquire, lease, assume or otherwise invest in any real property solely for
investment purposes.
9.11. LIMITATION ON INVESTMENTS.
The Company will not and will not permit any of its Subsidiaries to
make or hold any Investment in any Person other than (i) purchases of assets
permitted under Section 9.12, (ii) intercompany Indebtedness permitted pursuant
to Section 9.3, (iii) Investments in Cash Equivalents, (iv) existing
Investments set forth on Schedule 9.11 and (v) Investments provided for in the
Approved Budget.
9.12. LIMITATION ON ASSET PURCHASES.
The Company will not and will not permit any of its Subsidiaries to
purchase any assets other than (i) inventory occurring in the ordinary course
of business consistent with past practice and (ii) purchases of assets provided
for in the Approved Budget.
9.13. LIMITATION ON CAPITAL STOCK.
The Company will not and will not permit any of its Subsidiaries to
(a) purchase, redeem or otherwise acquire for value any shares of any capital
stock or any warrants, rights or options to acquire any such shares, now or
hereafter outstanding, or the voluntary prepayment, redemption or repurchase in
respect of any debt; or
(b) issue any capital stock or any warrants, rights or options to
acquire any such capital stock other than employee stock options issued
pursuant to plans approved or to be approved by the Company's shareholders and
other than the issuance by the Company of capital stock that is not Prohibited
Stock.
9.14. LIMITATION ON TERMINATION OF LICENSES.
Except as disclosed on Schedule 9.14, the Company will not and will
not permit any of its Subsidiaries to lose, fail to hold, or fail to renew for
a full license term, forfeit, revoke, rescind or materially impair any
Channels, Channel Licenses or FCC Licenses.
9.15. LIMITATION ON LINE OF BUSINESS.
The Company will not and will not permit any of its Subsidiaries to
engage in any line of business other than in accordance with the Approved
Budget and in the usual and ordinary course and other than in a manner that is
consistent with past practice.
9.16. LIMITATION ON TERMINATION OF EMPLOYER PLANS.
The Company will not and will not permit any of its Subsidiaries to
create or otherwise cause to exist or become effective any consensual risk of
termination of any single employer plan or multiemployer plan by the Pension
Benefit Guaranty Corporation if the occurrence of such event could reasonably
be expected to have a material adverse effect on the business operations,
properties, prospects, or condition (financial or otherwise) of the Company and
its Subsidiaries taken as a whole.
9.17. LIMITATION ON INVESTMENT COMPANY ACT.
The Company will not and will not permit any of its Subsidiaries to
be or become an investment company subject to the registration requirements of
the Investment Company Act of 1940, as amended.
9.18. LIMITATIONS ON AMENDMENT, ETC. OF BANX AGREEMENT OR MATERIAL CONTRACTS.
(a) The Company will not, at any time cancel or terminate the BANX
Agreement or any Material Contract or consent to or accept any cancellation or
termination thereof, amend, modify or change in any manner, any term or
condition of the BANX Agreement or any Material Contract or give any consent,
waiver or approval thereunder, waive any default under or any breach of any
term or condition of the BANX Agreement or any Material Contract, or agree in
any manner to any other amendment, modification or change of any term or
condition of the BANX Agreement or any Material Contract.
(b) No Obligor shall enter into any agreement, commitment or
Material Contract (except such Material Contracts delivered pursuant to
Section 4.3(h)) which may, upon the occurrence or non-occurrence of any
subsequent event or otherwise,require the payment by any Obligor of any amount
in excess of $1,000,000.
9.19. LIMITATION ON PRESS RELEASES.
The Company will not and will not permit any of its Subsidiaries to
issue a press release or other public disclosure containing any reference to
you or any of your Affiliates without your express written consent except as
otherwise may be required by applicable law.
9.20. LIMITATION ON CREATION OF SUBSIDIARIES.
The Company will not and will not permit its Subsidiaries to create
any Subsidiary not in existence on the date hereof.
9.21. LIMITATIONS ON EMPLOYMENT CONTRACTS.
The Company will not and will not permit any of its Subsidiaries:
(a) to waive, amend, supplement or otherwise modify any of the
Employment Agreements or other employment agreements or compensation
arrangements described in Section 5.24(a); or
(b) to directly or indirectly enter into or create, incur, assume
or suffer to exist any obligation in connection with any employment
agreement or other compensation arrangement other than the Employment
Agreements and the employment agreements and other compensation
arrangements described in Schedule 5.24(a);
(c) to set, determine or otherwise establish any target or levels
for the determination of any bonuses or additional compensation
arrangements other than as provided in the Employment Agreements; or
(d) to pay or make any other distribution of any bonus or
additional compensation other than pursuant to the Employment Agreements.
10. FINANCIAL COVENANTS.
From the date of this Agreement and, thereafter, so long as any of
the Notes shall be outstanding, the Company will perform and comply in all
material respects with the Approved Budget.
11. EVENTS OF DEFAULT.
11.1. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following conditions
or events shall occur and be continuing (each, an "EVENT OF DEFAULT"):
(a) any Obligor defaults in the payment of any principal on any
Note when the same becomes due and payable, whether by scheduled maturity
or at a date fixed for prepayment or repurchase or by declaration, demand
or otherwise; or
(b) any Obligor defaults in the payment of any interest on any
Note, or any Obligor defaults in the payment of any other amount owing
under any of the Note Documents, when the same becomes due and payable,
whether by scheduled maturity or at a date fixed for prepayment or
repurchase or by declaration, demand or otherwise; or
(c) any Obligor defaults in the performance of or compliance with
any term, covenant or agreement contained in this Agreement on its part to
be performed or complied with; or
(d) any Obligor defaults in the performance of or compliance with
any term, covenant or agreement contained in any of the Note Documents on
its part to be performed or complied with and such default shall remain
unremedied for 5 days after the earlier of the first date on which (i) a
Responsible Officer obtains becomes aware of such default and (ii) the
Company receives written notice of such default from any holder of a Note;
or
(e) any representation or warranty made or deemed made by or on
behalf of any Obligor or by any officer of any Obligor under or in
connection with this Agreement or any other Note Document or in any
writing furnished in connection with the Transaction or any of the other
transactions contemplated hereby proves to have been false or incorrect in
any material respect on the date as of which it was made or deemed to have
been made; or
(f) the Company or any of its Subsidiaries shall fail to pay any
principal of, premium or interest on or any other amount payable in
respect of, any Indebtedness that is outstanding in a principal or
notional amount of at least U.S.$1,500,000 (or the equivalent thereof in
one or more other currencies), either individually or in the aggregate
(but excluding Indebtedness outstanding hereunder), of the Company and its
Subsidiaries, when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and
such failure shall continue after the applicable grace period, if any,
specified in the agreement or instrument relating to such Indebtedness; or
any other event shall occur or condition shall exist under any agreement
or instrument evidencing, securing or otherwise relating to any such
Indebtedness and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such event or
condition is to accelerate, or to permit the acceleration of, the maturity
of such Indebtedness or otherwise to cause, or to permit the holder or
holders thereof (or a trustee or agent on behalf of such holders) to cause
such Indebtedness to mature; or any such Indebtedness shall be declared to
be due and payable or required to be prepaid or redeemed (other than by a
regularly scheduled required prepayment or redemption), purchased or
defeased, or an offer to prepay, redeem, purchase or defease such
Indebtedness shall be required to be made, in each case prior to the
stated maturity thereof; or
(g) the Company or any of its Subsidiaries shall generally not pay
its debts as such debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make a general assignment
for the benefit of creditors; or any proceeding shall be instituted by or
against the Company or any of its Subsidiaries seeking to adjudicate it a
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its
debts under any law relating to bankruptcy, insolvency or reorganization
or relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee or other similar official for it or for
any substantial part of its property and assets and, in the case of any
such proceeding instituted against it (but not instituted by it) that is
being diligently contested by it in good faith, either such proceeding
shall remain undismissed or unstayed for a period of 30 days or any of the
actions sought in such proceeding (including, without limitation, the
entry of an order for relief against, or the appointment of a receiver,
trustee, custodian or other similar official for, it or any substantial
part of its property and assets) shall occur; or the Company or any of its
Subsidiaries shall take any corporate action to authorize any of the
actions set forth above in this Section 11.1(g); or
(h) one or more judgments or orders for the payment of money
aggregating $1,000,000 (or the equivalent thereof in one or more other
currencies) or more are rendered against one or more of the Company and
its Subsidiaries and remain unsatisfied and either (i) enforcement
proceedings shall have been commenced by any creditor upon any such
judgment or order or (ii) there shall be a period of at least 30 days
after entry thereof during which a stay of enforcement of any such
judgment or order, by reason of a pending appeal or otherwise, shall not
be in effect; PROVIDED, HOWEVER, that any such judgment or order shall not
give rise to an Event of Default under this Section 11.1(h) if and for so
long as (A) the amount of such judgment or order is covered by a valid and
binding policy of insurance between the defendant and the insurer covering
full payment thereof and (B) such insurer has been notified, and has not
disputed the claim made for payment, of the amount of such judgment or
order; or
(i) any provision of any Note Document after delivery thereof
pursuant to Section 4 or 8.11 shall for any reason (other than pursuant to
the express terms thereof) cease to be valid and binding on or enforceable
against any Obligor intended to be a party to it or to give you or the
Agent any of the rights, powers or privileges purported to be created
thereunder, or any such Obligor shall so state in writing; or
(j) any Collateral Document after delivery thereof pursuant to
Section 4 or 8.11 shall for any reason (other than pursuant to the terms
thereof) cease to create a valid and perfected first priority lien on and
security interest in the Collateral purported to be covered thereby; or
(k) any Termination Event shall have occurred with respect to a
Plan and the sum (determined as of the date of occurrence of such
Termination Event) of the Insufficiency of such Plan and the Insufficiency
of any and all other Plans with respect to which a Termination Event shall
have occurred and be continuing (or the liabilities of the Obligors and
the ERISA Affiliates related to such Termination Event) exceeds an
aggregate amount of $2,500,000 (or the equivalent thereof in one or more
other currencies); or
(l) any Obligor or any ERISA Affiliate shall have been notified by
the sponsor of a Multiemployer Plan that it has incurred Withdrawal
Liability to such Multiemployer Plan in an amount that, when aggregated
with all other amounts required to be paid to Multiemployer Plans by the
Obligors and the ERISA Affiliates as Withdrawal Liability (determined as
of the date of such notification), exceeds $2,500,000 (or the equivalent
thereof in one or more other currencies); or
(m) any Obligor or any ERISA Affiliate shall have been notified by
the sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization, is insolvent or is being terminated, within the meaning of
Title IV of ERISA, and, as a result of such reorganization, insolvency or
termination, the aggregate annual contributions of the Obligors and the
ERISA Affiliates to all Multiemployer Plans that are in reorganization or
being terminated at such time have been or will be increased over the
amounts contributed to such Multiemployer Plans for the plan years of such
Multiemployer Plans immediately preceding the plan year in which such
reorganization, insolvency or termination occurs by an amount exceeding
$2,500,000 (or the equivalent thereof in one or more other currencies); or
(n) any "accumulated funding deficiency" (as defined in Section 302
of ERISA and Section 412 of the Internal Revenue Code), whether or not
waived, shall exist with respect to one or more Plans in excess of
$2,500,000 (or the equivalent thereof in one or more other currencies) in
the aggregate, or any Lien shall exist on the property and assets of any
Obligor or any ERISA Affiliate in favor of the PBGC or a Plan; or
(o) any prohibited transaction (within the meaning of Section 406
of ERISA or Section 4975 of the Internal Revenue Code) or any breach of
fiduciary responsibility shall occur that may subject any Obligor or any
ERISA Affiliate to any liability under Section 406, 409, 502(i) or 502(l)
of ERISA or Section 4975 of the Internal Revenue Code, or under any
agreement or instrument pursuant to which any Obligor or any ERISA
Affiliate has agreed or is required to indemnify any Person against such
liability; or
(p) the BANX Agreement shall for any reason be cancelled or
terminated.
11.2. ACCELERATION.
(a) If an Event of Default with respect to the Company or any of
its Subsidiaries described in Section 11.1(g) shall occur, all of the Notes
then outstanding shall automatically become immediately due and payable.
(b) If any other Event of Default shall occur and be continuing,
any holder or holders of more than 50% in aggregate principal amount of the
Notes at the time outstanding may at any time, at its or their option, by
notice or notices to the Company, declare all of the Notes then outstanding to
be immediately due and payable.
(c) If any Event of Default described in Section 11.1(a) or 11.1(b)
has occurred and is continuing, any holder or holders of Notes at the time
outstanding may at any time, at its or their option, by notice or notices to
the Company, declare all of the Notes held by it or them to be immediately due
and payable. If any holder of a Note shall exercise its rights under this
Section 11.2(c) at any time, the Company will give prompt notice thereof to the
holders of all other Notes at such time outstanding and each such holder may
(whether or not such notice is given or received), by written notice to the
Company, declare the aggregate principal amount of all Notes held by it to be,
and the same shall forthwith become, due and payable.
Upon any Notes becoming due and payable under this Section 11.2,
whether automatically or by declaration, such Notes will forthwith mature and
the entire unpaid principal amount of such Notes, plus all accrued and unpaid
interest thereon, shall all be immediately due and payable, in each and every
case without presentment, demand, protest or further notice of any kind, all of
which are hereby waived by the Obligors. Each Obligor acknowledges, and the
parties hereto agree, that each holder of a Note has the right to maintain its
investment in the Notes free from repayment by any Obligor (except as herein
specifically provided for).
11.3. OTHER REMEDIES.
If one or more Defaults or Events of Default shall occur and be
continuing, and irrespective of whether any Notes have become or have been
declared immediately due and payable under Section 11.2(a), the holder of any
Note at the time outstanding may proceed to protect and enforce the rights of
such holder by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement contained
herein or in any other Note Document, or for an injunction against a violation
of any of the terms hereof or thereof, or in aid of the exercise of any power
granted hereby or thereby or by law or otherwise.
11.4. RESCISSION.
At any time after any Notes have been declared due and payable
pursuant to Section 11.2(b) or 11.2(c), as the case may be, the holders of not
less than 51% in aggregate principal amount of the Notes then outstanding, by
written notice to the Company, may rescind and annul any such declaration and
its consequences if (a) the Obligors have paid all overdue interest on the
Notes, all principal of any Notes that are due and payable and are unpaid other
than by reason of such declaration, and all interest on such overdue principal,
and (to the extent permitted by applicable law) any overdue interest in respect
of the Notes, at the Default Rate, (b) all Defaults and Events of Default,
other than nonpayment of amounts that have become due solely by reason of such
declaration, have been remedied or have been waived pursuant to Section 16, and
(c) no judgment or decree has been entered for the payment of any monies due
pursuant hereto, to the Notes or to any other Note Document. No rescission and
annulment under this Section 11.4 will extend to or affect any subsequent
Default or Event of Default or impair any right consequent thereon.
11.5. RESTORATION OF RIGHTS AND REMEDIES.
If any holder of any Note has instituted any proceeding to enforce
any right or remedy under this Agreement or any other Note Document and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to such holder, then, and in each such case, the Obligors
and the other holders of Notes shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder and, thereafter, all rights and remedies of the holders of Notes
shall continue as though no such proceeding had been instituted.
11.6. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.
No course of dealing and no delay on the part of any holder of any
Note in exercising any right, power or remedy shall operate as a waiver thereof
or otherwise prejudice such holder's rights, powers or remedies. No right,
power or remedy conferred by this Agreement or by any other Note Document upon
any holder thereof shall be exclusive of any other right, power or remedy
referred to herein or therein or now or hereafter available at law, in equity,
by statute or otherwise. Without limiting the obligations of each of the
Company and the other Obligors under Section 14, the Company will pay to the
holder of each Note on demand such further amount as shall be sufficient to
cover all costs and expenses of such holder incurred in any enforcement or
collection under this Section 11, including, without limitation, reasonable
attorneys' fees, expenses and disbursements.
12. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
12.1. REGISTRATION OF NOTES.
The Company shall keep at its principal executive office a register
for the registration and registration of transfers of Notes. The name and
address of each holder of one or more Notes, each transfer thereof and the name
and address of each transferee of one or more Notes shall be registered in such
register. Prior to due presentment for registration of transfer, the Person in
whose name any Note shall be registered shall be deemed and treated as the
owner and holder thereof for all purposes hereof, and the Company shall not be
affected by any notice or knowledge to the contrary. The Company shall give to
any holder of a Note that is an Institutional Investor, promptly upon request
therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes.
12.2. TRANSFER AND EXCHANGE OF NOTES.
Upon surrender of any Note at the principal executive office of the
Company for registration of transfer or exchange (and in the case of a
surrender for registration of transfer, duly endorsed or accompanied by a
written instrument of transfer duly executed by the registered holder of such
Note or his attorney duly authorized in writing and accompanied by the address
for notices of each transferee of such Note or part thereof), the Obligors
shall execute and deliver, at the Company's expense (except as provided below),
one or more new Notes (as requested by the holder thereof) in exchange
therefor, in an aggregate principal amount equal to the unpaid principal amount
of the surrendered Note. Each such new Note shall be payable to such Person as
such holder may request and shall be in substantially the form of Exhibit A
attached hereto. Each such new Note shall be dated and bear interest from the
date to which interest shall have been paid on the surrendered Note or dated
the date of the surrendered Note if no interest shall have been paid thereon.
The Company may require payment of a sum sufficient to cover any stamp tax or
governmental charge imposed in respect of any such transfer of Notes. Notes
shall not be transferred in denominations of less than $100,000, PROVIDED that,
if necessary to enable the registration of transfer by a holder of its entire
holding of Notes, one Note may be in a denomination of less than $100,000. Any
transferee, by its acceptance of a Note registered in its name (or the name of
its nominee), shall be deemed to have made the representations set forth in
Section 6.3.
12.3. REPLACEMENT OF NOTES.
Upon receipt by the Company of evidence reasonably satisfactory to
it of the ownership of and the loss, theft, destruction or mutilation of any
Note (which evidence shall be, in the case of an Institutional Investor, notice
from such Institutional Investor of such ownership and such loss, theft,
destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (PROVIDED that if the holder of such Note
is, or is a nominee for, an original Purchaser or any other Institutional
Investor, such Person's own unsecured agreement of indemnity shall be
deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
each Obligor, at its own expense, shall execute and deliver, in lieu thereof, a
new Note, dated and bearing interest from the date to which interest shall have
been paid on such lost, stolen, destroyed or mutilated Note or dated the date
of such lost, stolen, destroyed or mutilated Note if no interest shall have
been paid thereon.
13. PAYMENTS ON NOTES.
13.1. PLACE OF PAYMENT.
Subject to Section 13.2, payments of principal and interest becoming
due and payable on the Notes shall be made in New York, New York, at the
principal office of the Company in such jurisdiction. The Company may, at any
time, by notice to you, change the place of payment of the Notes so long as
such place of payment shall be either the principal office of the Company in
such jurisdiction or the principal office of a bank or trust company in such
jurisdiction.
13.2. HOME OFFICE PAYMENT.
So long as you or your nominee shall be the holder of any Note, and
notwithstanding anything contained in Section 13.1 or in such Note to the
contrary, the Company will pay all sums becoming due on such Note for principal
and interest by the method and at the address specified for such purpose below
your name on the signature page attached hereto, or by such other method or at
such other address as you shall have from time to time specified to the Company
and the Agent in writing for such purpose, without the presentation or
surrender of such Note or the making of any notation thereon, except that upon
written request of the Company made concurrently with or reasonably promptly
after payment or prepayment in full of any Note, you shall surrender such Note
for cancellation, reasonably promptly after any such request, to the Company at
its principal executive office or at the place of payment most recently
designated by the Company pursuant to Section 13.1. Prior to any sale,
transfer or other disposition of any Note held by you or your nominee, you
will, at your election, either endorse thereon the amount of principal paid
thereon and the last date to which interest has been paid thereon or surrender
such Note to the Company in exchange for a new Note or Notes pursuant to
Section 12.2. The Company will afford the benefits of this Section 13.2 to any
Institutional Investor that is the direct or indirect transferee of any Note
purchased by you under this Agreement and that has made the same agreement
relating to such Note as you have made in this Section 13.2.
14. EXPENSES, ETC.
14.1. TRANSACTION EXPENSES.
Whether or not any aspect of the Transaction or any of the other
transactions contemplated hereby are consummated, the Company will pay all
costs and expenses (including reasonable attorneys' fees of a special counsel,
local or other counsel, financial advisors and outside accountants) incurred by
you or holder of a Note in connection with the preparation, execution, delivery
and administration of this Agreement, the Notes and the other Note Documents
and in connection with any amendments, waivers or consents under or in respect
of this Agreement, the Notes or any of the other Note Documents (whether or not
such amendment, waiver or consent becomes effective), including, without
limitation: (a) the Commitment Fee, (b) the costs and expenses incurred in
enforcing or defending (or determining whether or how to enforce or defend) any
rights under this Agreement, the Notes or any of the other Note Documents or in
responding to any subpoena or other legal process or informal investigative
demand issued in connection with this Agreement, the Notes or any of the other
Note Documents, or by reason of being a holder of any Note, and (c) the costs
and expenses, including financial advisors' fees, incurred in connection with
the insolvency or bankruptcy of the Company or any of its Subsidiaries or in
connection with any work-out, renegotiating or restructuring of the Transaction
or any of the other transactions contemplated hereby, by the Notes and by the
other Note Documents. The Company further agrees to indemnify you and each of
your transferees from and hold you and each of them harmless from and against
any and all present and future transfer, stamp, documentary or other similar
taxes, assessments or charges made by any Governmental Authority by reason of
the execution, delivery or performance of this Agreement, any Note or any other
Note Document and all costs, expenses, taxes, assessments and other charges
incurred in connection with any filing or perfection of any lien, pledge or
security interest contemplated by any of the Collateral Documents or any other
document referred to therein. The Company will pay, and will save you and each
other holder of a Note harmless from, all claims in respect of any fees, costs
or expenses, if any, of brokers and finders (other than those retained by you).
14.2. INDEMNITY.
Each Obligor agrees to indemnify the Purchaser and its affiliates
and their respective directors, officers, employees, agents, investment
advisors and controlling persons (the Purchaser and each such person being an
"INDEMNIFIED PARTY") from and against any and all losses, claims, damages and
liabilities, joint or several, to which such Indemnified Party may become
subject under any applicable federal or state law, or otherwise, and related to
or arising out of the Notes, the Note Purchase Agreement, the Refinancing or
any other transaction contemplated by this Agreement and the performance by the
Purchaser of the services contemplated by this Agreement and will reimburse any
Indemnified Party for all expenses (including reasonable counsel fees and
expenses) as they are incurred in connection with the investigation of,
preparation for or defense of any pending or threatened claim or any action or
proceeding arising therefrom, whether or not such Indemnified Party is a party
and whether or not such claim, action or proceeding is initiated or brought by
or on behalf of the Company or any other Obligor. No Obligor will be liable
under the foregoing indemnification provision to the extent that any loss,
claim, damage, liability or expense is found in a final judgment by a court to
have resulted from the Purchaser's bad faith or gross negligence. Each Obligor
also agrees that no Indemnified Party shall have any liability (whether direct
or indirect, in contract or tort or otherwise) to such Obligor or its security
holders or creditors related to or arising out of the performance by the
Purchaser of the services contemplated by, this Agreement except to the extent
that any loss, claim, damage or liability is found in a final judgment by a
court to have resulted from the Purchaser's bad faith or gross negligence.
If the indemnification of an Indemnified Party provided for in this
Agreement is for any reason held unenforceable, each Obligor agrees to
contribute to the losses, claims, damages and liabilities for which such
indemnification is held unenforceable (i) in such proportion as is appropriate
to reflect the relative benefits to the Obligors, on the one hand, and the
Purchaser, on the other hand, of the Notes or the Refinancing as contemplated
by this Agreement (whether or not the Notes or the Refinancing is consummated)
or (ii) if (but only if) the allocation provided for in clause (i) is for any
reason held unenforceable, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) but also the relative
fault of such Obligor or Obligors, on the one hand, and the Purchaser, on the
other hand, as well as any other relevant equitable considerations. Each
Obligor agrees that for the purposes of this paragraph the relative benefits to
the Obligors and the Purchaser of the Notes or the Refinancing as contemplated
shall be deemed to be in the same proportion that the total amount of the Notes
or the Refinancing, as the case may be, bears to the fees paid or to be paid to
the Purchaser under this Agreement or in connection with the Notes; PROVIDED,
HOWEVER, that, to the extent permitted by applicable law, in no event shall the
Indemnified Parties be required to contribute an aggregate amount in excess of
the aggregate fees actually paid to the Purchaser under this Agreement or in
connection with the Notes.
Each Obligor agrees that, without the Purchaser's prior written
consent, it will not settle, compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding in respect of which
indemnification could be sought under the indemnification provision of this
Agreement (whether or not the Purchaser or any other Indemnified Party is an
actual or potential party to such claim, action or proceeding), unless such
settlement, compromise or consent includes an unconditional release of each
Indemnified Party from all liability arising out of such claim, action or
proceeding.
In the event that an Indemnified Party is requested or required to
appear as a witness in any action brought by or on behalf of or against any
Obligor or any affiliate of such Obligor in which such Indemnified Party is not
named as a defendant, the Company and the other Obligors agree to reimburse the
Purchaser for all reasonable expenses incurred by it in connection with such
Indemnified Party's appearing and preparing to appear as such a witness,
including, without limitation, the fees and disbursements of its legal counsel.
14.3. SURVIVAL.
The obligations of the Obligors under this Section 14 shall survive
the payment or transfer of any Note, the enforcement, amendment or waiver of
any provision of this Agreement, the Notes or any other Note Document, and the
termination of this Agreement and, in respect of any Person who was at any time
a Purchaser or in whose name or for whose benefit such Person held any Note,
the date on which such person no longer holds, or no longer holds in the name
of or for the benefit of such other Person, any Note.
15. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein and in the other
Note Documents shall survive the execution and delivery of this Agreement and
the Notes, the purchase or transfer by you of any Note or portion thereof or
interest therein and the payment of any Note, and may be relied upon by any
subsequent holder of a Note, regardless of any investigation made at any time
by or on behalf of you or any other holder of a Note. All statements contained
in any certificate or other instrument delivered by or on behalf of any Obligor
pursuant to this Agreement or any other Note Document shall be deemed
representations and warranties of the Company and the other Obligors under this
Agreement. Subject to the immediately preceding sentence, this Agreement, the
Notes and the other Note Documents embody the entire agreement and
understanding between you and the Company and supersede all prior agreements
and understandings relating to the subject matter hereof.
16. AMENDMENT AND WAIVER.
16.1. REQUIREMENTS.
This Agreement and the Notes may be amended, and the observance of
any term hereof or of the Notes may be waived (either retroactively or
prospectively), with (and only with) the written consent of the Company and the
Required Holders, except that (a) no amendment or waiver of any of the
provisions of Section 1, 2, 3, 4, 5, 6 or 20 hereof, or any defined term (as it
is used therein), will be effective as to you unless consented to by you in
writing, and (b) no such amendment or waiver may, without the written consent
of the holder of each Note at the time outstanding affected thereby:
(i) subject to the provisions of Section 11 relating to
acceleration or rescission, change the amount or time of any prepayment or
repurchase or payment of principal of, or reduce the rate or change the
time of payment or method of computation of interest on, the Notes;
(ii) change the percentage of the aggregate principal amount of the
Notes the holders of which are required to consent to any such amendment
or waiver;
(iii) subordinate the Notes (or any of them) to any other
obligations of the Company or any other Obligor now or hereafter existing;
(iv) reduce or limit any Obligor's liability with respect to any
Obligations owing to you or any other holder of any Note;
(v) release a material portion of the Collateral in any transaction
or any series of related transactions;
(vi) permit the creation, incurrence, assumption or existence of
any Lien on a material portion of the Collateral in any transaction or any
series of related transactions to secure any obligations other than
obligations owing to you and the other holders of Notes under the Note
Documents; or
(vii) amend any of Sections 7, 11.1(a), 11.1(b), any of 11.2
through 11.6, 16 or 19.
16.2. SOLICITATION OF HOLDERS OF NOTES.
(a) SOLICITATION. The Company will provide each holder of the
Notes (irrespective of the amount of Notes then owned by it at the time) with
sufficient information, sufficiently far in advance of the date a decision is
required, to enable such holder to make an informed and considered decision
with respect to any proposed amendment, waiver or consent in respect of any of
the provisions hereof or of the other Note Documents. The Company will deliver
executed or true and correct copies of each amendment, waiver or consent
effected pursuant to the provisions of this Section 16 to each holder of
outstanding Notes promptly following the date on which it is executed and
delivered by, or receives the consent or approval of, the requisite holders of
Notes.
(b) PAYMENT. The Company will not directly or indirectly pay or
cause to be paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise, or grant any security, to any holder of Notes as
consideration for or as an inducement to the entering into by any holder of
Notes or any waiver or amendment of any of the terms and provisions hereof or
of the other Note Documents, unless such remuneration is concurrently paid, or
security is concurrently granted, on the same terms, ratably to each holder of
Notes then outstanding even if such holder did not consent to such waiver or
amendment.
16.3. BINDING EFFECT, ETC.
Any amendment or waiver consented to as provided in this Section 16
applies equally to all holders of Notes and is binding upon them, upon each
future holder of any Note and upon each Obligor without regard to whether such
Note has been marked to indicate such amendment or waiver. No such amendment
or waiver will extend to or affect any obligation, covenant, agreement, Default
or Event of Default not expressly amended or waived or impair any right
consequent thereon. No course of dealing between the Company, any other
Obligor and the holder of any Note nor any delay in exercising any right, power
or privilege hereunder or under any other Note Document shall operate as a
waiver of any right of any holder of such Note; nor shall any single or partial
exercise of any such right, power or privilege preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
remedies provided under this Agreement and the other Note Documents are
cumulative and not exclusive of any rights and remedies provided by applicable
law.
16.4. NOTES HELD BY COMPANY, ETC.
Solely for the purpose of determining whether the holders of the
requisite percentage of the aggregate principal amount of Notes then
outstanding approved or consented to any amendment, waiver or consent to be
given under this Agreement or any other Note Document, or have directed the
taking of any action provided herein or in any other Note Document to be taken
upon the direction of the holders of a specified percentage of the aggregate
principal amount of Notes then outstanding, Notes directly or indirectly owned
by the Company or any of its Affiliates shall be deemed not to be outstanding.
17. NOTICES.
All notices and communications provided for hereunder shall be in
writing and delivered (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), (b) by registered or certified mail with return receipt
requested (postage prepaid) or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
(i) if to you or your nominee, to you or it at the address
specified for such communications on the signature page attached hereto,
or at such other address as you or it shall have specified to the Company
and the Agent in writing;
(ii) if to any other holder of any Note, to such holder at such
address as such other holder shall have specified to the Company and the
Agent in writing; or
(iii) if to any Obligor, in care of the Company at its address set
forth on the first page of this Agreement (Telecopier No. (518) 462-3045)
to the attention of James P. Ashman, Executive Vice President and Chief
Financial Officer, or at such other address as the Company shall have
specified to the holder of each Note and the Agent in writing.
All notices and communications provided for under this Section 17 will be
deemed given and effective only when actually received.
18. REPRODUCTION OF DOCUMENTS.
This Agreement, each of the other Note Documents and all documents
relating thereto, including, without limitation, (a) consents, waivers and
modifications of this Agreement or any other Note Document that may hereafter
be executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or
other similar process and you may destroy any original document so reproduced.
Each Obligor agrees and stipulates that, to the extent permitted by applicable
law, any such reproduction shall be admissible in evidence as the original
itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by you
in the regular course of business) and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
This Section 18 shall not prohibit any Obligor or any other holder of Notes
from contesting any such reproduction to the same extent that it could contest
the original, or from introducing evidence to demonstrate the inaccuracy of any
such reproduction.
19. CONFIDENTIAL INFORMATION.
You hereby agree to maintain the confidentiality of all Confidential
Information in accordance with procedures adopted by you in good faith to
protect confidential information of third parties delivered to you; PROVIDED
that you may deliver or disclose Confidential Information to (a) your
directors, officers, employees, agents, attorneys and affiliates (to the extent
such disclosure reasonably relates to the administration of the investment
represented by your Notes), (b) your counsel or your financial and other
professional advisors who agree to hold confidential the Confidential
Information substantially in accordance with the terms of this Section 19, (c)
any other holder of any Note or to the Agent or any Bank, (d) any Institutional
Investor to which you sell or offer to sell such Note or any part thereof or
any participation therein (if such Person has agreed in writing prior to its
receipt of such Confidential Information to be bound by the provisions of this
Section 19), (e) any Person from which you offer to purchase any security of
the Company (if such Person has agreed in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this Section 19), (f)
any federal or state regulatory authority having jurisdiction over you, or (g)
any other Person to which such delivery or disclosure may be necessary or
appropriate (i) to effect compliance with any law, rule, regulation or order
applicable to you, (ii) in response to any subpoena or other legal process,
(iii) in connection with any litigation to which you, any other holder of any
Note or the Agent are a party or (iv) if an Event of Default shall have
occurred and be continuing, to the extent you may reasonably determine such
delivery and disclosure to be necessary or appropriate in the enforcement or
for the protection of the rights and remedies under your Notes, this Agreement
and the other Note Documents. Each holder of a Note, by its acceptance of a
Note, will be deemed to have agreed to be bound by and to be entitled to the
benefits of this Section 19 as though it were a party to this Agreement. Upon
the reasonable request of the Company in connection with the delivery to any
holder of a Note of information required to be delivered to such holder under
this Agreement or requested by such holder (other than a holder that is a party
to this Agreement or its nominee), such holder will enter into an agreement
with the Company embodying the provisions of this Section 19.
20. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your Affiliates as
the purchaser of the Notes that you have agreed to purchase hereunder, by
written notice to the Company, which notice shall be signed by both you and
such Affiliate, shall contain such Affiliate's agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in Section 6. Upon receipt
of such notice, wherever the word "you" is used in this Agreement (other than
in this Section 20), such word shall be deemed to refer to such Affiliate in
lieu of you. In the event that such Affiliate is so substituted as a purchaser
hereunder and such Affiliate thereafter transfers to you all of the Notes then
held by such Affiliate, upon receipt by the Company of notice of such transfer,
wherever the word "you" is used in this Agreement (other than in this Section
20), such word shall no longer be deemed to refer to such Affiliate, but shall
refer to you, and you shall have all the rights of an original holder of the
Notes under this Agreement.
21. MISCELLANEOUS.
21.1. SUCCESSORS AND ASSIGNS.
All covenants and other agreements contained in this Agreement by or
on behalf of any of the parties hereto bind and inure to the benefit of their
respective successors and assigns (including, without limitation, any
subsequent holder of a Note) whether so expressed or not.
21.2. PAYMENTS DUE ON NON-BUSINESS DAYS.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or interest on any Note that is
due on a date other than a Business Day shall be made on the next succeeding
Business Day without including the additional days elapsed in the computation
of the items payable on such next succeeding Business Day.
21.3. SATISFACTION REQUIREMENT.
Except as otherwise provided herein, or in any other Note Document,
if any agreement, certificate or other writing, or any action taken or to be
taken, is by the terms of this Agreement or any other Note Document required to
be satisfactory to you or to the Required Holders, the determination of such
satisfaction shall be made by you or the Required Holders, as the case may be,
in the sole and exclusive judgment (exercised in good faith) of the Person or
Persons making such determination.
21.4. SEVERABILITY.
Any provision of this Agreement that is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in
any jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
21.5. CONSTRUCTION.
Each covenant contained herein shall be construed (absent express
provision to the contrary) as being independent of each other covenant
contained herein, so that compliance with any one covenant shall not (absent
such an express contrary provision) be deemed to excuse compliance with any
other covenant. Where any provision herein refers to action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
21.6. COMPUTATION OF TIME PERIODS.
In this Agreement, in the computation of periods of time from a
specific date to a later specified date, the word "FROM" means "from and
including", the word "THROUGH" means "through and including", and the words
"TO" and "UNTIL" each mean "to but not excluding".
21.7. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each
of which shall be an original but all of which together shall constitute one
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
21.8. GOVERNING LAW; SUBMISSION TO JURISDICTION, ETC.
(a) This Agreement shall be governed by, and construed and enforced
in accordance with, the law of the State of New York.
(b) Each of the parties hereto hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of any New York state court or federal court of the United States
of America sitting in New York City, New York, and any appellate court from any
thereof, in any action or proceeding arising out of or relating to this
Agreement, the Notes or the other Note Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in any such New York state court or, to
the extent permitted by applicable law, in such federal court. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by applicable law. Nothing in this
Agreement shall affect any right that any party may otherwise have to bring any
action or proceeding relating to this Agreement or the Notes in the courts of
any jurisdiction.
(c) Each of the parties hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement, the Notes or
the other Note Documents in any New York state or federal court. Each of the
parties hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, the defense of an inconvenient forum to the maintenance of such
action or proceeding in any such court.
(d) To the extent that any Obligor has or hereafter may acquire any
immunity from the jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, such
Obligor hereby irrevocably waives such immunity in respect of its obligations
under this Agreement and the Notes.
(e) Each Obligor hereby irrevocably waives all right to trial by
jury in any action, proceeding or counterclaim (whether based on contract, tort
or otherwise) arising out of or relating to any of the Note Documents, the
transactions contemplated thereby or the actions of the Agent or the Purchaser
in the negotiation, administration, performance or enforcement thereof.
* * * * *
<PAGE>
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to
the Company, whereupon the foregoing shall become a binding agreement between
you and the Obligors.
Very truly yours,
AMI LICENSE CORP.
ATLANTIC MICROSYSTEMS, INC.
BALTIMORE CHOICE TELEVISION, INC.
BALTIMORE LICENSE, INC.
BUFFALO CHOICE TELEVISION, INC.
BUFFALO LICENSE, INC.
CAI DATA SYSTEMS, INC.
CAI SATELLITE COMMUNICATIONS, INC.
CAI WIRELESS INTERNET, INC.
COMMONWEALTH CHOICE TELEVISION, INC.
COMMONWEALTH LICENSE, INC.
CONNECTICUT CHOICE TELEVISION, INC.
CONNECTICUT LICENSE, INC.
EASTERN NEW ENGLAND TV, INC.
EASTERN NEW ENGLAND LICENSE, INC.
GREATER ALBANY WIRELESS SYSTEMS, INC.
GREATER ALBANY LICENSE, INC.
GREENSBORO CHOICE TELEVISION, INC.
GREENSBORO LICENSE, INC.
HAMPTON ROADS WIRELESS, INC.
HAMPTON ROADS LICENSE, INC.
LONG ISLAND CHOICE TELEVISION, INC.
LONG ISLAND LICENSE, INC.
MEMPHIS CHOICE TELEVISION, INC.
MEMPHIS LICENSE, INC.
MMDS SATELLITE VENTURES, INC.
NEW YORK CHOICE TELEVISION, INC.
NEW YORK LICENSE, INC.
ONONDAGA WIRELESS, INC.
PC LICENSE, INC.
PHILADELPHIA CHOICE TELEVISION, INC.
PITTSBURGH CHOICE TELEVISION, INC.
PITTSBURGH LICENSE, INC.
ROCHESTER CHOICE TELEVISION, INC.
ROCHESTER LICENSE, INC.
SPRINGFIELD CHOICE TELEVISION, INC.
SPRINGFIELD LICENSE, INC.
By: /S/
James P. Ashman
Executive Vice President
<PAGE>
SYRACUSE CHOICE TELEVISION, INC.
SYRACUSE LICENSE, INC.
WASHINGTON CHOICE TELEVISION, INC.
WASHINGTON LICENSE, INC.
WINSTON-CHOICE LICENSE, INC.
WINSTON-SALEM CHOICE TELEVISION, INC.
By: /S/
James P. Ashman
Executive Vice President
CAI WIRELESS SYSTEMS, INC.
By: /S/
James P. Ashman
Executive Vice President and
Chief Financial Officer
CAI/AMI SPECTRUM MANAGEMENT, INC.
By: /S/
Timothy J. Santora
President
CAI CT HOLDINGS CORP.
COMMUNICATIONS TRANSPORT, INC.
CAI DEVELOPMENT, INC.
By: /S/
John J. Prisco
President
<PAGE>
The foregoing is hereby
agreed to as of the
date first above written.
MERRILL LYNCH GLOBAL
ALLOCATION FUND, INC.
By: /S/
Name: Bryan N. Ison
Title: Vice President
Address: Merrill Lynch Asset Management
800 Scudders Mill Road
Plainsboro, NJ 08536
Telecopier: (609) 282-6916
<PAGE>
SCHEDULE I
DEFINED TERMS
As used in this Agreement, the following terms shall have the
respective meanings set forth below (such meanings to be equally applicable to
both the singular and plural forms of the term defined):
"ABBRUZZESE NOTE" means that certain promissory note dated March 31,
1997 made by Jared E. Abbruzzese, payable to CAI Wireless Systems, Inc.,
in the principal amount of $780,054.33.
"AFFILIATE" means, with respect to any Person, any other Person
that, directly or indirectly, controls, is controlled by or is under
common control with such Person, or is a director or officer of such
Person. For purposes of this definition, the term "CONTROL" (including
the terms "CONTROLLING", "CONTROLLED BY" and "UNDER COMMON CONTROL WITH")
of a Person means the possession, direct or indirect, of the power to vote
5% or more of the Voting Stock of such Person or to direct or cause the
direction of the management and policies of such Person, whether through
the ownership of Voting Stock, by contract or otherwise.
"AGENT" means Price Waterhouse in its capacity as administrative
agent and collateral agent under the Collateral Documents for the holders
of the Notes.
"ALTERNATIVE USE" means the provision of service other than Wireless
Cable Service through the use of, among others, ITFS, MDS, and MMDS
channels, including two-way transmission services and fixed or mobile
telecommunications services.
"ALTERNATIVE USE APPLICATION" means an application filed by the
Company or any of its Subsidiaries or the Licensee of a Channel to provide
an Alternative Use, including an application for developmental authority,
experimental authority, or special temporary authority or any Booster
Application requesting to provide an Alternative Use.
"AMI" means Atlantic Microsystems, Inc., a Delaware corporation.
"AMI MERGER AGREEMENT" means that certain Plan of Merger of CAI
Wireless Systems, Inc. and Atlantic Microsystems, Inc. dated as of
November 26, 1997.
"AMI SUBSIDIARIES" has the meaning set forth in Section 4.4(k).
"APPROVED BUDGET" has the meaning specified in Section 4.16.
"BANX AGREEMENT" means that certain Modification Agreement dated as
of December 12, 1996 among CAI Wireless Systems, Inc., the subsidiaries of
CAI listed therein, BANX Partnership, MMDS Holdings, Inc., MMDS Holdings
II, Inc., NYNEX MMDS Company and NYNEX MMDS Holding Company (collectively,
the "BANX Parties"), as amended by that certain Amendment No. 1 to the
Modification Agreement dated April 29, 1997 among CAI and the subsidiaries
of CAI listed therein and the BANX Parties.
"BENEFIT LIABILITIES" has the meaning specified in Section 3 of
ERISA.
"BOOSTER LICENSE" means a License for a booster station.
"BTA" means basic trading area, as defined by Rand McNally and used
by the FCC in licensing MDS and MMDS channels pursuant to the competitive
bidding process.
"BTA AUTHORIZATION" means the Permit granted by the FCC to apply for
individual MDS and MMDS channels with a certain BTA.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a
day on which commercial banks in New York, New York, are required or
authorized by law to be closed.
"CAPITALIZED LEASE" means any lease with respect to which the lessee
is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"CASH EQUIVALENTS" means, at any time, (i) any evidence of
Indebtedness with a maturity of 180 days or less issued or directly and
fully guaranteed or insured by the United States of America or any agency
or instrumentality thereof (provided that the full faith and credit of the
United States of America is pledged in support thereof); (ii) certificates
of deposit or acceptances with a maturity of 180 days or less of any
financial institution that is a member of the Federal Reserve System
having combined capital and surplus and undivided profits of not less than
$500,000,000; (iii) certificates of deposit with a maturity of 180 days or
less of any financial institution that is not organized under the laws of
the United States, any state thereof or the District of Columbia that are
rated at least A-1 by S&P or at least P-1 by Moody's or at least an
equivalent rating category of another nationally recognized securities
rating agency; (iv) repurchase agreements and reverse repurchase
agreements relating to marketable direct obligations issued or
unconditionally guaranteed by the government of the United States of
America or issued by any agency thereof and backed by the full faith and
credit of the United States of America, in each case maturing within 180
days from the date of acquisition; PROVIDED that the terms of such
agreements comply with the guidelines set forth in the Federal Financial
Agreements of Depository Institutions With Securities Dealers and Others,
as adopted by the Comptroller of the Currency on October 31, 1985.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to time.
"CERCLIS" means the Comprehensive Environmental Response,
Compensation and Liability Information System maintained by the U.S.
Environmental Protection Agency.
"CHANNEL LEASES" means all leases to use transmission capacity held
by or for benefit of one or more of the Company or any of its Subsidiaries
of transmission capacity on ITFS, MDS, or MMDS frequencies licensed by the
FCC.
"CHANNEL LICENSE" means any Permits for a Channel granted by the FCC
to any one or more of the Company or its Subsidiaries or leased to the
Company or any of its Subsidiaries by a lessor of a Channel Lease, or any
application pending before the FCC for such Permit.
"CHANNELS" means the ITFS, MDS, or MMDS frequencies licensed, or
expected to be licensed, to one or more of the Company or any of its
Subsidiaries by the FCC pursuant to an FCC License or made available to
one or more of the Company or any of its Subsidiaries by an ITFS, MDS, or
MMDS applicant, permittee, conditional licensee or licensee pursuant to a
Channel lease, including any frequencies associated with any booster
station, repeater station, response station hub or any facility used to
provide an Alternative Use.
"CLOSING" has the meaning specified in Section 3.
"CLOSING DATE" has the meaning specified in Section 3.
"COLLATERAL" means all "Collateral" referred to in the Collateral
Documents and all other property and assets that are or are intended under
the terms of the Collateral Documents to be subject to any Lien in favor
of the Agent for the benefit of the Secured Parties.
"COLLATERAL ACCESS AGREEMENT" means a landlord waiver or consent,
mortgagee waiver or consent, bailee letter, or a similar acknowledgement
agreement of any warehouseman, processor, or other Person in possession of
Collateral, in each case, in form and substance reasonably satisfactory to
you.
"COLLATERAL DOCUMENTS" means, collectively, the Security Agreement,
the Pledge Agreement, each other security or pledge agreement entered into
pursuant to Section 8.11 and each other agreement that creates or purports
to create or perfect a Lien in favor of the Agent for the benefit of the
Secured Parties.
"COLLOCATE" means to construct, modify, or relocate a facility of an
ITFS, MDS, or MMDS application, permittee, conditional license, or
licensee, pursuant to FCC approval and in accordance with FCC Rules, at a
common transmitter site with other ITFS, MDS, and MMDS licensees in the
same market pursuant to common technical characteristics.
"COLLOCATION SITE" means the site at which the facilities for the
corresponding Channel are, or are to be, collocated at a common
transmitter site with other Channels that are used to provide Wireless
Telecommunications Service on the System.
"COMMITMENT FEE" means $250,000 payable to the Purchaser on the
Maturity Date.
"COMMITMENT LETTER" means the commitment letter dated November 14,
1997 executed by the Purchaser and accepted by the Company.
"COMMUNICATIONS ACT" means the Communications Act of 1934, as
amended, 47 U.S.C. sec. 151 ET SEQ.
"COMPANY" has the meaning specified on page one of this Agreement.
"CONFIDENTIAL INFORMATION" means information delivered to you by or
on behalf of the Company or any of its Subsidiaries in connection with
this Agreement or the Transaction or the other transactions contemplated
hereby that is proprietary in nature and that was clearly marked, labeled
or otherwise adequately identified when received by you as being
confidential information of the Company or such Subsidiary, but does not
include any such information that (a) is or was generally available to the
public (other than as a result of a breach of your confidentiality
obligations hereunder), (b) becomes known or available to you on a
nonconfidential basis other than through disclosure by the Company or any
of its Subsidiaries or (c) constitutes financial statements delivered to
you under Section 5.4 or 8.1 that are otherwise publicly available.
"CONTROL AGREEMENT" means a control agreement, in form and substance
satisfactory to each Purchaser, between the Company, Agent, and the
applicable securities intermediary, that provides (among other things)
that, from and after the giving of notice by Agent to such securities
intermediary (a "Notice of Exclusive Control") such securities
intermediary shall take instructions solely from Agent with respect to the
applicable Securities Account and related Investment Property.
"CS WIRELESS" means CS Wireless Systems, Inc. a Delaware
corporation.
"CURRENT VALUE" has the meaning specified in Section 3 of ERISA.
"DEFAULT" means any Event of Default or any event or condition that
would constitute an Event of Default but for the requirement that notice
be given or time elapse or both.
"DEFAULT RATE" means that rate of interest that is the greater of 3%
per annum above the rate of interest stated in clause (a) of the first
paragraph of the Notes.
"EMPLOYEE BENEFIT PLAN" has the meaning specified in Section 3 of
ERISA.
"ENVIRONMENTAL ACTION" means any action, suit, demand, demand
letter, claim, notice of noncompliance or violation, notice of liability
or potential liability, investigation, proceeding, consent order or
consent agreement relating in any way to any Environmental Law, any
Environmental Permit or any Hazardous Materials or arising from alleged
injury or threat to health, safety or the environment, including, without
limitation, (a) by any Governmental Authority for enforcement, cleanup,
removal, response, remedial or other actions or damages and (b) by any
Governmental Authority or other third party for damages, contribution,
indemnification, cost recovery, compensation or injunctive relief.
"ENVIRONMENTAL LAW" means any federal, state, local or foreign
statute, law, ordinance, rule, regulation, code, order, writ, judgment,
injunction, decree or judicial, ministerial or agency interpretation,
policy or guidance relating to pollution or to protection of the
environment, health, safety or natural resources, including, without
limitation, those relating to the use, handling, transportation,
treatment, storage, disposal, release or discharge of Hazardous Materials.
"ENVIRONMENTAL PERMIT" means any permit, approval, license,
identification number or other authorization required under any
Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated and the
rulings issued thereunder from time to time.
"ERISA AFFILIATE" means any Person that for purposes of Title IV of
ERISA is a member of the controlled group of the Company or any of its
Subsidiaries, or under common control with the Company or any of its
Subsidiaries, within the meaning of Section 414 of the Internal Revenue
Code.
"ESCROW ACCOUNT" means that certain account maintained at The Chase
Manhattan Bank, N.A. pursuant to the Escrow Agreement dated as of
September 15, 1995, among CAI, Chemical Bank, as escrow agent, and
Chemical Bank, as trustee, for the deposit of $90,638,765.40 of the net
proceeds from the sale of the Senior Notes, and the proceeds from the
investment thereof.
"EVENT OF DEFAULT" has the meaning specified in Section 11.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, and the regulations promulgated and the rulings issued
thereunder from time to time.
"EXISTING CREDIT AGREEMENT" means the Credit Agreement dated as of
May 16, 1997 among the Company and certain of its Subsidiaries party
thereto, the banks party thereto and Foothill Capital Corporation, as the
Agent thereunder, as amended, supplemented or otherwise modified to the
date hereof.
"EXTRAORDINARY RECEIPT" means any cash received by or paid to or for
the account of any Person not in the ordinary course of business,
including, without limitation, tax refunds, pension plan reversions,
judgment awards, proceeds of insurance (other than proceeds of business
interruption insurance to the extent such proceeds constitute compensation
for lost earnings), condemnation awards (and payments in lieu thereof) and
indemnity payments.
"FAA" means the Federal Aviation Administration or any other federal
governmental agency which may hereafter perform its functions.
"FCC COOPERATION AGREEMENT" has the meaning specified in Section 4.
"FCC LICENSES" means the Permits, including construction permits,
issued by the FCC to the Company or any of its Subsidiaries or any lessor
under a Channel Lease, or that are the subject of an application filed
with the FCC by the Company or any Subsidiary or any such lessor under a
Channel Lease, to operate one or more of the Channels, including any BTA
Authorization, individual Permit to construct or operate Channels within a
BTA, and any Alternative Use Permit.
"FCC RULES" means Title 47 of the Code of Federal Regulations, as
amended at any time and from time to time, and FCC decisions issued
pursuant to the adoption of such regulations.
"FIRST TIER SUBSIDIARY" means any Subsidiary directly and wholly-
owned by the Company.
"FUNDED INDEBTEDNESS" means, with respect to any Person (without
duplication), (a) all Indebtedness of such Person of the character
described in clauses (a), (b), (c), (e) and (f) of the definition of
"INDEBTEDNESS" set forth in this Schedule I and (b) all Indebtedness of
such Person of the character described in clauses (k) and (l) of the
definition of "INDEBTEDNESS" set forth in this Schedule I to the extent
such Indebtedness guarantees or in effect guarantees or secures or in
effect secures Indebtedness of another Person of the type described in
clause (a) above. The Funded Indebtedness of any Person (i) shall include
all Indebtedness of the character described in clause (a) or (b) of the
immediately preceding sentence of any partnership or joint venture in
which such Person is a general partner or joint venturer and (ii) shall
not include any Indebtedness of any Person and one or more of its
Subsidiaries.
"FUNDS SOURCE" has the meaning specified in Section 6.3.
"GAAP" means generally accepted accounting principles as in effect
in the United States of America and as are applied in the financial
statements of a Person on a consistent basis.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state,
province or other political subdivision thereof, and any governmental,
executive, legislative, judicial, administrative or regulatory agency,
department, authority, instrumentality, commission, board or similar body,
whether federal, state, provincial, territorial, local or foreign.
"GOVERNMENTAL PLAN" has the meaning specified in Section 3 of ERISA.
"HAIG INTERESTS" means the economic rights associated with the
membership interest held by Jared E. Abbruzzese in Haig Capital L.L.C, a
Delaware limited liability company.
"HAZARDOUS MATERIALS" means (a) petroleum or petroleum products,
byproducts or breakdown products, radioactive materials, asbestos-
containing materials, polychlorinated biphenyls and radon gas and (b) any
other chemicals, materials or substances designated, classified or
regulated as hazardous or toxic or as a pollutant or contaminant under any
Environmental Law.
"HEDGE AGREEMENTS" means interest rate swap, cap or collar
agreements, interest rate future or option contracts, commodity future or
option contracts, currency swap agreements, currency future or option
contracts and other similar agreements.
"HOLDER" means, with respect to any Note, the Person in whose name
such Note is registered in the register maintained by the Company pursuant
to Section 12.1.
"INDEBTEDNESS" means, with respect to any Person (without
duplication):
(a) all indebtedness of such Person for borrowed money;
(b) all Obligations of such Person for the deferred purchase
price of property and assets or services (other than trade payables
that are incurred in the ordinary course of such Person's business
and are not overdue by more than 60 days);
(c) all Obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, or upon which interest
payments are customarily made;
(d) all Obligations of such Person created or arising under
any conditional sale or other title retention agreement with respect
to property or assets acquired by such Person, even though the
rights and remedies of the seller or the lender under such agreement
in the event of default are limited to repossession or sale of such
property or assets;
(e) all Obligations of such Person as lessee under
Capitalized Leases;
(f) all Obligations, contingent or otherwise, of such Person
under acceptance, letter of credit or similar facilities;
(g) all Obligations of such Person to purchase, redeem,
retire, defease or otherwise make any payment in respect of any
shares of capital stock of (or other ownership or profit interest
in) such Person or in any other Person, or any warrants, rights or
options to acquire such shares (or such other ownership or profit
interest), other than any such Obligations for accrued and unpaid
dividends thereon;
(h) all Obligations of such Person in respect of Hedge
Agreements, commodities agreements or take-or-pay or other similar
arrangements;
(i) all Obligations of such Person under any synthetic lease,
tax retention operating lease, off-balance sheet loan or similar
off-balance sheet financing if the transaction giving rise to such
Obligation is considered indebtedness for borrowed money for tax
purposes but is classified as an operating lease in accordance with
GAAP;
(j) all Obligations of such Person for production payments
from property operated by or on behalf of such Person and other
similar arrangements with respect to natural resources;
(k) all Indebtedness of other Persons referred to in
clauses (a) through (j) above or clause (l) below guaranteed
directly or indirectly in any manner by such Person, or in effect
guaranteed directly or indirectly by such Person through an
agreement (i) to pay or purchase such Indebtedness or to advance or
supply funds for the payment or purchase of such Indebtedness,
(ii) to purchase, sell or lease (as lessee or lessor) property or
assets, or to purchase or sell services, primarily for the purpose
of enabling the debtor to make payment of such Indebtedness or to
assure the holder of such Indebtedness against loss, (iii) to supply
funds to or in any other manner to invest in the debtor (including
any agreement to pay for property, assets or services irrespective
of whether such property or assets are received or such services are
rendered) or (iv) otherwise to assure a creditor against loss; and
(l) all Indebtedness referred to in clauses (a) through (k)
above of another Person secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien on property or assets (including, without
limitation, accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment
of such Indebtedness.
The Indebtedness of any Person shall include (i) all obligations of any
partnership or joint venture of the character described in clauses (a)
through (l) above in which such person is a general partner or a joint
venturer and (ii) all obligations of such Person of the character
described in clauses (a) through (l) above to the extent such Person
remains legally liable in respect thereof notwithstanding that any such
obligation is deemed to be extinguished under GAAP.
"INDEMNIFIED LIABILITIES" has the meaning specified in Section 14.2.
"INDEMNIFIED PARTY" has the meaning specified in Section 14.2.
"INSUFFICIENCY" means, with respect to any Plan, the amount, if any,
of its unfunded benefit liabilities (as defined in Section 4001(a)(18) of
ERISA).
"INSTITUTIONAL INVESTOR" means (a) any original purchaser of a Note,
(b) any holder of a Note holding more than 25% of the aggregate principal
amount of the Notes outstanding on any date of determination and (c) any
bank, trust company, savings and loan association or other financial
institution, any pension plan, any investment company, any insurance
company, any broker or dealer, or any other similar financial institution
or entity, regardless of legal form.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and the rulings
issued thereunder from time to time.
"INVESTMENT" means, with respect to any Person, any loan or advance
to such Person, any purchase or other acquisition of any shares of capital
stock (or other ownership or profit interest), warrants, rights, options,
obligations or other securities of such Person, any capital contribution
to such Person or any other investment in such Person, including, without
limitation, any arrangement pursuant to which the investor incurs
Indebtedness of the types referred to in clause (k) or (l) of the
definition of "INDEBTEDNESS" in respect of such Person.
"ITFS" means the Instructional Television Fixed Service, a class of
microwave frequencies licensed by the FCC pursuant to Part 74 of the FCC
Rules primarily to educational organizations to be used primarily for the
transmission of instructional, cultural, and other types of educational
material to fixed receiving stations, the excess capacity of which may be
leased for commercial operations pursuant to the terms and conditions set
forth in the FCC Rules.
"LEGAL REQUIREMENTS" means all applicable international, foreign,
federal, state, and local laws, judgments, decrees, orders, statutes,
ordinances, rules, regulations, or Permits including the Communications
Act and all orders issued and regulations promulgated under the
Communications Act.
"LICENSEE" means an applicant, permittee, conditional licensee, or
licensee of a facility regulated by the FCC.
"LIEN" means, with respect to any Person, any mortgage, lien,
pledge, charge, hypothecation, assignment, deposit arrangement, security
interest, encumbrance priority, charge or other preference of any kind
(including, without limitation, any agreement to give any of the
foregoing), or any interest or title of any vendor, lessor, lender or
other secured party to or of such Person under any conditional sale or
other title retention agreement or Capitalized Lease, upon or with respect
to any property or asset of such Person (including, in the case of shares
of capital stock, stockholder agreements, voting trust agreements and
other similar arrangements).
"MATERIAL" means material in relation to the business, operations,
condition (financial or otherwise), assets, liabilities or properties of
the Company and its Subsidiaries, taken as a whole.
"MATERIAL ADVERSE CHANGE" means any material adverse change in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or any of its Subsidiaries taken as
a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, operations, condition (financial or otherwise), assets,
liabilities or properties of the Company and its Subsidiaries, taken as a
whole, (b) the ability of any of the Obligors to perform its obligations
under this Agreement or any other Note Document to which it is or is to be
a party or (c) other than solely as a result of an action or inaction by
you, the rights and remedies afforded to you and the Agent under this
Agreement or any other Note Document.
"MATERIAL CONTRACT" means, with respect to any Person, the Assigned
Agreements (as defined in the Security Agreement) and each contract to
which such Person is a party involving aggregate consideration payable to
or by such Person of $1,000,000 or more in any year or otherwise material
to the business, condition (financial or otherwise), operations,
performance, properties or prospects of such Person.
"MATURITY DATE" means the earlier of February 20, 1998 and the date
the Notes have become or are declared to be immediately due and payable
pursuant to Section 11.
"MDS" means the Multipoint Distribution Service, a domestic
transmission service licensed by the FCC pursuant to Part 21 of the FCC
Rules using the frequencies of 2150 to 2162 MHZ, rendered on microwave
frequencies and used primarily for the distribution of commercial visual
and audio programming.
"MMDS" means Multichannel Multipoint Distribution Service, a
domestic transmission service licensed by the FCC pursuant to Part 21 of
the FCC Rules using the frequency of 2596 to 2644 MHZ, rendered on
microwave frequencies and used primarily for the distribution of
commercial visual and audio programming.
"MULTIEMPLOYER PLAN" means a multiemployer plan (as defined in
Section 4001(a)(3) of ERISA) to which any Obligor or any ERISA Affiliate
is making or accruing an obligation to make contributions, or has within
any of the preceding five plan years made or accrued an obligation to make
contributions.
"MULTIPLE EMPLOYER PLAN" means a single employer plan (as defined in
Section 4001(a)(15) of ERISA) that (a) is maintained for employees of any
Obligor or any ERISA Affiliate and at least one Person other than the
Obligors and the ERISA Affiliates or (b) was so maintained and in respect
of which any Obligor or any ERISA Affiliate could have liability under
Section 4064 or 4069 of ERISA in the event such plan has been or were to
be terminated.
"NET CASH PROCEEDS" means, with respect to any sale, lease, transfer
or other disposition of any asset or the sale or issuance of any
Indebtedness or capital stock or other ownership interest, any securities
convertible into or exchangeable for capital stock or other ownership or
profit interest or any warrants, rights, options or other securities to
acquire capital stock or other ownership or profit interest by any Person
or any Extraordinary Receipt received by or paid to or for the account of
any Person, the aggregate amount of cash received from time to time
(whether as initial consideration or through payment or disposition of
deferred consideration) by or on behalf of such Person in connection with
such transaction after deducting therefrom only (without duplication) (a)
reasonable and customary brokerage commissions, underwriting fees and
discounts, legal fees, finder's fees and other similar fees and
commissions, (b) the amount of taxes payable in connection with or as a
result of such transaction and (c) the amount of any Indebtedness secured
by a Lien on such asset that, by the terms of such transaction, is
required to be repaid upon such disposition, in each case to the extent,
but only to the extent, that the amounts so deducted are, at the time of
receipt of such cash, actually paid to a Person that is not an Affiliate
of such Person or the Company or any of its Subsidiaries or any Affiliate
of any of the Company or any of its Subsidiaries and are properly
attributable to such transaction or the asset that is the subject thereof.
"NOTE DOCUMENTS" means, collectively, this Agreement, the Notes, if
any, the Collateral Documents, the Control Agreement, and each other
agreement evidencing any Obligation of the Obligors secured by the
Collateral Documents, in each case as amended, supplemented or otherwise
modified hereafter from time to time in accordance with the terms hereof
and thereof.
"NOTES" has the meaning defined in Section 1.
"NPL" means the National Priorities List under CERCLA.
"OBLIGATION" means, with respect to any Person, any payment,
performance or other obligation of such Person of any kind, including,
without limitation, any liability of such Person on any claim, whether or
not the right of any creditor to payment in respect of such claim is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
disputed, undisputed, legal, equitable, secured or unsecured, and whether
or not such claim is discharged, stayed or otherwise affected by any
proceeding referred to in Section 11.1(g).
"OBLIGORS" means, collectively, the Company and each Subsidiary
Obligor and each other Subsidiary that is a party to a security agreement
(or other similar document) after the date of this Agreement pursuant to
Section 8.11.
"OFFICER'S CERTIFICATE" means a certificate of a Senior Financial
Officer or of any other officer of the Company whose responsibilities
extend to the subject matter of such certificate.
"PARTY IN INTEREST" has the meaning specified in Section 3 of
ERISA.
"PBGC" means the Pension Benefit Guaranty Corporation referred to
and defined in ERISA or any successor thereto.
"PERMITS" of a Person shall mean all rights, franchises, permits,
authorities, licenses, certificates of approval or authorizations,
including licenses and other authorizations issuable by a Governmental
Authority, which pursuant to applicable Legal Requirements are necessary
to permit such Person lawfully to conduct and operate its business as
currently conducted and to own and use its assets.
"PERMITTED LIENS" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall
have been commenced:
(a) Liens for taxes, assessments and governmental charges or
levies to the extent not otherwise required to be paid under
Section 8.5(a);
(b) Liens imposed by law, such as materialmen's, mechanics',
carriers', workmen's, storage and repairmen's Liens and other
similar Liens arising in the ordinary course of business and
securing obligations (other than Indebtedness for borrowed money)
that (i) are not overdue for a period of more than 60 days or (ii)
are being contested in good faith and by proper proceedings and as
to which appropriate reserves are being maintained in accordance
with GAAP;
(c) pledges or deposits to secure obligations incurred in the
ordinary course of business under workers' compensation laws,
unemployment insurance or other similar legislation (other than in
respect of employee benefit plans subject to ERISA) or to secure
public or statutory obligations;
(d) Liens securing the performance of, or payment in respect
of, bids, tenders, government contracts (other than for the
repayment of borrowed money), surety and appeal bonds and other
obligations of a similar nature incurred in the ordinary course of
business;
(e) any interest or title of a lessor or sublessor and any
restriction or encumbrance to which the interest or title of such
lessor or sublessor may be subject that is incurred in the ordinary
course of business and, either individually or when aggregated with
all other Permitted Liens in effect on any date of determination,
could not be reasonably expected to have a Material Adverse Effect;
(f) Liens in favor of customs and revenue authorities arising
as a matter of law or pursuant to a bond to secure payment of
customs duties in connection with the importation of goods;
(g) customary rights of setoff upon deposits of cash in favor
of banks or other depository institutions; and
(h) easements, rights of way, zoning restrictions and other
encumbrances on title to real property that do not, either
individually or in the aggregate, render title to the property
encumbered thereby unmarketable or materially and adversely affect
either the use of such property for its present purposes or the
conduct of the business of the Company or any of its Subsidiaries in
the ordinary course.
"PERSON" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government
or any political subdivision or agency thereof.
"PLAN" means a Single Employer Plan or a Multiple Employer Plan.
"PLEDGE AGREEMENT" has the meaning specified in Section 4.3.
"PLEDGED DEBT" has the meaning specified in the Security Agreement.
"PLEDGED SHARES" has the meaning specified in the Security
Agreement.
"PRESENT VALUE" has the meaning specified in Section 3 of ERISA.
"PROHIBITED STOCK" means any class or series of equity securities of
the Company or any Subsidiary that by its terms is, on or before
January 1, 2003, (a) mandatorily redeemable or subject to any other
payment obligation (including any obligation to pay dividends other than
in capital stock that is not Prohibited Stock), or (b) redeemable at the
option of the holder thereof for cash, other assets or distributions of
Prohibited Stock and in respect of which no required cash dividend is
payable.
"PROPERTY" or "PROPERTIES" means, unless otherwise expressly stated
in this Agreement, real or personal property of any kind, tangible or
intangible, choate or inchoate.
"PURCHASER" means the Merrill Lynch Global Allocation Fund, Inc.
"QPAM EXEMPTION" means Prohibited Transaction Class Exemption 84-14
issued by the United States Department of Labor.
"REFINANCING" shall mean [the refinancing of the Notes].
"REGULATION G" shall mean Regulation G of the Board of Governors of
the Federal Reserve System as from time to time in effect (and any
successor to all or a portion thereof).
"REGULATION T" shall mean Regulation T of the Board of Governors of
the Federal Reserve System as from time to time in effect (and any
successor to all or a portion thereof).
"REGULATION U" shall mean Regulation U of the Board of Governors of
the Federal Reserve System as from time to time in effect (and any
successor to all or a portion thereof).
"REGULATION X" shall mean Regulation X of the Board of Governors of
the Federal Reserve System as from time to time in effect (and any
successor to all or a portion thereof).
"REPORTABLE EVENT" means any of the events set forth in Section
4043(c) of ERISA other than those events as to which the post-event notice
requirement is waived under subsections .13, .14, .18, .19, or .20 of PBGC
Reg. '2615.
"REQUIRED HOLDERS" means, at any time, the holders of at least a
majority in interest of the aggregate principal amount of all of the Notes
outstanding at such time (excluding from any calculation thereof any Notes
then owned or held by the Company or any of its Subsidiaries or other
Affiliates).
"RESPONSIBLE OFFICER" means any Senior Financial Officer and any
other officer of the Company or any of its Subsidiaries responsible for
overseeing the administration of or reviewing compliance with all or any
portion of this Agreement or any other Note Document.
"SECURED OBLIGATIONS" has the meaning specified in Section 2 of the
Security Agreement.
"SECURED PARTIES" means the Agent, the holders of the Notes and the
other Persons, if any, the Obligations owing to which are or are purported
to be secured by the Collateral under the terms of the Collateral
Documents.
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time.
"SECURITY AGREEMENT" has the meaning specified in Section 4.3
"SELLER RESTRICTED SUBSIDIARIES" means, collectively, Chenango,
Niskayuna, Onteo, Housatonic, Springfield License, Inc. and AMI License.
"SENIOR FINANCIAL OFFICER" means the chief financial officer, the
principal accounting officer, the treasurer or the comptroller of the
Company.
"SENIOR NOTE INDENTURE" means the Indenture dated as of September
15, 1995 between the Company and Chemical Bank, as trustee.
"SEPARATE ACCOUNT" has the meaning specified in Section 3 of ERISA.
"SINGLE EMPLOYER PLAN" means a single employer plan (as defined in
Section 4001(a)(15) of ERISA) that (a) is maintained for employees of any
Obligor or any ERISA Affiliate and no Person other than the Obligors and
the ERISA Affiliates or (b) was so maintained and in respect of which any
Obligor or any ERISA Affiliate could have liability under Section 4069 of
ERISA in the event such plan has been or were to be terminated.
"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, joint venture, limited liability company, trust or estate of
which (or in which) more than 50% of:
(a) the issued and outstanding shares of capital stock having
ordinary voting power to elect a majority of the board of directors
of such corporation (irrespective of whether at the time shares of
capital stock of any other class or classes of such corporation
shall or might have voting power upon the occurrence of any
contingency);
(b) the interest in the capital or profits of such
partnership, joint venture or limited liability company; or
(c) the beneficial interest in such trust or estate,
is at the time, directly or indirectly, owned or controlled by such
Person, by such Person and one or more of its other Subsidiaries or by one
or more of such Person's other Subsidiaries.
"SYSTEM AGREEMENTS" means, collectively, all FCC Licenses for
Channels and booster stations, Channel Leases, Tower Site Leases,
programming agreements, retransmission agreements, non-interference or
cooperation agreements (excluding no-objection letters issued in the
ordinary course of business), equipment agreements or instruments,
licenses, permits, and other material agreements pertaining to the
transmission of video, voice, or data signals through wireless cable
transmission facilities, of each of the Company and each of its
Subsidiaries now existing or hereafter acquired or obtained, relative to
the Channels or the construction an operation of the Systems.
"SYSTEMS" means (a) the wireless telecommunications system
constructed and operated by one or more of the Company and each of its
Subsidiaries as of the Closing Date for the provision of Wireless
Telecommunications service and (b) the wireless telecommunications systems
constructed and operated by one or more of the company and each of its
Subsidiaries from and after the Closing Date for the provision of Wireless
Telecommunications Service.
"TELQUEST" means TelQuest Satellite Services, LLC, a limited
liability company whose initial members shall consist of the Company, CS
Wireless, and TelQuest Communications, Inc., a Delaware corporation.
"TERMINATION EVENT" means:
(a) (i) the occurrence of a reportable event, within the
meaning of Section 4043(c) of ERISA, with respect to any Plan unless
the 30-day notice requirement with respect to such event has been
waived by the PBGC or (ii) the requirements of paragraph (1) of
Section 4043(b) of ERISA (without regard to paragraph (2) of such
Section) are met with a contributing sponsor, as defined in Section
4001(a)(13) of ERISA, of a Plan, and an event described in
paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA
would reasonably be expected to occur with respect to such Plan
within the following 30 days;
(b) the application for a minimum funding waiver with respect
to a Plan;
(c) the provision by the administrator of any Plan of a
notice of intent to terminate such Plan pursuant to
Section 4041(a)(2) of ERISA (including any such notice with respect
to a plan amendment referred to in Section 4041(e) of ERISA);
(d) the cessation of operations at a facility of any Obligor
or any ERISA Affiliate in the circumstances described in Section
4062(e) of ERISA;
(e) the withdrawal by any Obligor or any ERISA Affiliate from
a Multiple Employer Plan during a plan year for which it was a
substantial employer, as defined in Section 4001(a)(2) of ERISA;
(f) the conditions for the imposition of a lien under
Section 302(f) of ERISA shall have been met with respect to any
Plan;
(g) the adoption of an amendment to a Plan requiring the
provision of security to such Plan pursuant to Section 307 of ERISA;
or
(h) the institution by the PBGC of proceedings to terminate a
Plan pursuant to Section 4042 of ERISA, or the occurrence of any
event or condition described in Section 4042 of ERISA, that
constitutes grounds for the termination of, or the appointment of a
trustee to administer, a Plan.
"TOWER SITE LEASE" means each agreement between each of the Company
and each of its Subsidiaries and any Person relating to the location of
towers and transmitters.
"TRANSACTION" means, collectively, (a) the entering into by the
Obligors of the Note Documents and (b) the repayment of all amounts owing
under the Existing Credit Facilities.
"UNRESTRICTED SUBSIDIARY" has the meaning specified in the Senior
Note Indenture.
"VOTING STOCK" means shares of capital stock issued by a
corporation, or equivalent interests in any other Person, the holders of
which are ordinarily, in the absence of contingencies, entitled to vote
for the election of directors (or persons performing similar functions) of
such Person, even if the right so to vote has been suspended by the
happening of such a contingency.
"WIRELESS CABLE SERVICE" means the provision of subscription video
or entertainment and additional programming services and services
ancillary thereto through the use of, among other, ITFS, MDS, and MMDS
channels.
"WIRELESS TELECOMMUNICATIONS SERVICE" means any service that is
permitted under FCC rules and regulations or authorized by the FCC to be
provided on or by means of the transmission capacity on an ITFS, MDS, or
MMDS channel, including Wireless Cable Services and Alternative Use
services.
"WITHDRAWAL LIABILITY" has the meaning specified in Part I of
Subtitle E of Title IV of ERISA.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11.1
CAI WIRELESS SYSTEMS, INC.
COMPUTATION OF LOSS PER COMMON SHARE
QUARTER ENDED DECEMBER 31,
------------------------------
1997 1996
---- ----
<S> <C> <C>
BASIC LOSS PER COMMON SHARE
1 Net loss $(40,926,038) $(21,015,790)
2 Less preferred dividends (3,850,594) (3,306,003)
------------- -------------
3 Loss applicable to common shareholders $(44,776,632) $(24,321,793)
============= =============
4 Weighted average shares outstanding 40,540,539 40,464,356
5 Add additional shares issuable upon exercise of
outstanding stock options and warrants * - -
------------- -------------
6 Adjusted weighted average shares outstanding 40,540,539 40,464,356
============= =============
7 Net loss per common share (line 3 <divide> line 6) $(1.10) $(0.60)
======= =======
FULLY DILUTED LOSS PER COMMON SHARE:
8 Line 3 above $(44,776,632) $(24,321,793)
9 Add back preferred dividends 3,850,594 3,306,003
10 Add back interest, net of tax, assuming conversion of Term Notes 999,000 459,000
11 Add back interest, net of tax, assuming proceeds from
exercise of warrants and options in excess of the
20% treasury stock buyback applied against
short-term debt 1,023,000 4,694,000
------------- -------------
12 Adjusted net loss $(38,904,038) $(15,862,790)
============= =============
13 Weighted average shares outstanding (line 4) 40,540,539 40,464,356
14 Add additional shares issuable upon the assumed exercise
of outstanding stock options 2,195,937 2,152,604
15 Add additional shares issuable upon the assumed exercise
of BANX warrants (Term Notes and Senior Preferred Stock) 36,751,085 36,751,083
16 Add additional shares issuable upon the assumed exercise
of other warrants 5,083,563 2,235,541
17 Add Series A preferred stock (not converted until November 1996) - -
18 Deduct treasury stock repurchased with proceeds from the assumed
exercise of all options and warrants (8,108,108) (8,108,108)
------------- -------------
19 Adjusted weighted average shares outstanding 76,463,016 73,495,476
============= =============
20 Net loss per common share (line 12 <divide> line 19) ** $(0.51) $(0.22)
======= =======
</TABLE>
* For the calculation of loss per share, the inclusion of the assumed
exercise of options and warrants is not dilutive for the periods
presented and, therefore, such assumed exercise is excluded from the
per share calculations.
** The fully diluted loss per share is anti-dilutive and is, therefore, not
presented in the Consolidated Statements of Operations.
<TABLE>
<CAPTION>
EXHIBIT 11.2
CAI WIRELESS SYSTEMS, INC.
COMPUTATION OF LOSS PER COMMON SHARE
NINE MONTHS ENDED DECEMBER 30,
------------------------------------
1997 1996
---- ----
<S> <C> <C> <C>
BASIC LOSS PER COMMON SHARE:
1 Net loss $(98,536,569) $(57,493,239)
2 Less preferred dividends (11,125,453) (9,576,367)
------------ ------------
3 Loss applicable to common shareholders $(109,662,022) $(67,069,606)
============= =============
4 Weighted average shares outstanding 40,540,539 39,915,020
5 Add additional shares issuable upon exercise of
outstanding stock options and warrants * - -
------------ ------------
6 Adjusted weighted average shares outstanding 40,540,539 39,915,020
============ ============
7 Net loss per common share (line 3 <divide> line 6) $(2.70) $(1.68)
======= =======
FULLY DILUTED LOSS PER COMMON SHARE:
8 Line 3 above $(109,662,022) $(67,069,606)
9 Add back preferred dividends 11,125,453 9,576,367
10 Add back interest, net of tax, assuming conversion of Term Notes 2,997,000 1,917,000
11 Add back interest, net of tax, assuming proceeds from
exercise of warrants and options in excess of the
20% treasury stock buyback applied against
short-term debt 3,894,000 10,994,000
------------- -------------
12 Adjusted net loss $(91,645,569) $(44,582,239)
============= =============
13 Weighted average shares outstanding (line 4) 40,540,539 39,915,020
14 Add additional shares issuable upon the assumed
exercise of outstanding stock optons 2,195,937 2,152,604
15 Add additional shares issuable upon the assumed exercise
of BANX warrants (Term Notes and Senior Preferred Stock) 36,751,085 36,751,083
16 Add additional shares issuable upon the assumed exercise
of other warrants 5,083,563 2,235,541
17 Add Series A preferred stock (not converted until November 1996) - -
18 Deduct treasury stock repurchased with proceeds from the assumed
exercise of all options and warrants (8,108,108) (8,108,108)
------------ ------------
19 Adjusted weighted average shares outstanding 76,463,016 72,946,140
============ ============
20 Net loss per common share (line 12 <divide> line 19) ** $(1.20) $(0.62)
======= =======
</TABLE>
* For the calculation of loss per share, the inclusion of the assumed
exercise of options and warrants is not dilutive for the periods
presented and, therefore, such assumed exercise is excluded from the per
share calculations.
** The fully diluted loss per share is anti-dilutive and is, therefore, not
presented in the Consolidated Statements of Operations.
FOR IMMEDIATE RELEASE EXHIBIT 99.1
Investor Relations Contact: Company Contact:
Michael Glickman James P. Ashman, CFO
Lippert/Heilshorn & Associates CAI Wireless Systems, Inc.
212/838-3777 518/462-2632
CAI WIRELESS SYSTEMS, INC. ISSUES ADDITIONAL $2 MILLION
IN 13% SENIOR SECURED NOTES
Albany, N.Y., January 29, 1998 - CAI Wireless Systems, Inc. (OTC Symbol:
CAWS)("CAI") announced that it sold an additional $2 million of its 13% Senior
Secured Notes (the "Notes") to an existing investor that had previously
purchased $25 million of the Notes in November 1997. The sale of the
additional Notes increases the total amount of Notes held by the investor to
$27 million.
The Notes, which are secured by a blanket lien on all of CAI's assets, are
short-term obligations of CAI, maturing on February 20, 1998, and were sold
pursuant to the terms of the November 1997 Note Purchase Agreement which was
amended to provide for the additional $2 million Notes purchase. Interest on
the Notes is payable at maturity. CAI is required to pay an additional $20,000
commitment fee to the purchaser of the Notes, making the total commitment fee
for the Notes equal to $270,000, which fee is also due at maturity.
CAI is continuing to work with its financial advisors to devise a
comprehensive plan for financing to meet the Company's on-going needs, which
plan may include a financial restructuring of its existing debt.
CAI, based in Albany, NY, currently operates six analog-based MMDS
subscription video systems in New York City, Rochester and Albany, NY,
Philadelphia, PA, Washington, DC and Norfolk/Virginia Beach, VA, and provides
Internet access services in Rochester, New York City and Boston. CAI also owns
a portfolio of MMDS channel rights in eight additional markets, including Long
Island, Buffalo and Syracuse, NY, Providence, RI, Hartford, CT, Boston, MA,
Baltimore, MD and Pittsburgh, PA. In addition, CAI owns approximately 50.7% of
CS Wireless Systems, Inc., an MMDS operator based in Plano, TX.
THE STATEMENTS CONTAINED IN THIS PRESS RELEASE RELATING TO CAI'S PLANS AND
OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, INCLUDING PLANS OR OBJECTIVES
RELATING TO CAI'S PRODUCTS AND SERVICES, CONSTITUTE FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. ACTUAL RESULTS OF THE COMPANY MAY DIFFER MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENTS AND MAY BE AFFECTED BY A NUMBER OF FACTORS INCLUDING
THE RECEIPT OF REGULATORY APPROVALS FOR ALTERNATIVE USES OF ITS MMDS SPECTRUM,
THE AVAILABILITY OF NEW STRATEGIC PARTNERS AND THEIR WILLINGNESS TO ENTER INTO
ARRANGEMENTS WITH CAI, THE TERMS OF SUCH ARRANGEMENTS, THE SUCCESS OF CAI'S
TRIALS IN VARIOUS OF ITS MARKETS, THE COMMERCIAL VIABILITY OF ANY ALTERNATIVE
USE OF MMDS SPECTRUM, CONSUMER ACCEPTANCE OF ANY NEW PRODUCTS OFFERED OR TO BE
OFFERED BY CAI, SUBSCRIBER EQUIPMENT AVAILABILITY, TOWER SPACE AVAILABILITY,
ABSENCE OF INTERFERENCE AND THE ABILITY OF CAI TO REDEPLOY OR SELL EXCESS
EQUIPMENT, AS WELL AS OTHER FACTORS CONTAINED HEREIN AND IN CAI'S SECURITIES
FILINGS. FURTHERMORE, THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL BE ABLE
TO SECURE FINANCING NECESSARY TO MEET ITS FUTURE CASH NEEDS ON TERMS AND
CONDITIONS SATISFACTORY TO THE COMPANY.
FOR IMMEDIATE RELEASE EXHIBIT 99.2
Investor Relations Contact: Company Contact:
Michael W. Glickman James P. Ashman
Lippert/Heilshorn & Associates CFO, CAI Wireless Systems, Inc.
212-838-3777 518-462-2632
CAI WIRELESS SYSTEMS, INC. BUYS-OUT REMAINING
BELL ATLANTIC HOLD ON MMDS SPECTRUM
- CAI Extends and Increases Short-term Credit Facility -
- Investor Succeeds to Bell Atlantic Preferred Stock and Debt and
Agrees in Principle to Exchange for New Subordinated Debt -
ALBANY, N.Y., February 18, 1998. CAI Wireless Systems, Inc. ("CAI")
announced today that it had bought out the remaining interest of
affiliates of Bell Atlantic Corporation ("BANX") under the so-called
Business Relationship Agreement ("BR Agreement") pursuant to which BANX
had retained the right to exercise options to utilize CAI's MMDS spectrum
in certain of its major markets exclusively for Bell Atlantic video
programming. Under the terms of the buy-out agreement, CAI also acquired
BANX's approximately 9.9% stake in CS Wireless Systems, Inc., CAI's joint
venture with Heartland Wireless Communications, Inc. in the mid-west.
CAI also announced that it had simultaneously increased its short-
term secured debt facility (the "Debt Facility") by an additional $18
million to $45 million. BANX received $7 million in senior secured notes
of CAI (the "Secured BANX Notes") under the Debt Facility in
consideration for the termination of the BR Agreement and the purchase of
the CS Wireless shares. An additional note in the principal amount of
$11 million was sold to an existing financial investor in the Company
(the "Investor"). The Investor is the Company's senior secured lender
and holder of the balance of the notes issued under the Debt Facility.
The proceeds of the new note will be used for working capital and to meet
certain other obligations of the Company into the first quarter of its
fiscal year beginning April 1, 1998. All of the notes under the Debt
Facility mature on June 1, 1998.
As part of a series of transactions closing simultaneously with the
foregoing, the Investor advised CAI that it had purchased from BANX all
of BANX's remaining debt and equity interests in CAI, including the CAI
preferred stock, subordinated note and certain warrants that represented
BANX's initial $100 million investment in CAI in 1995 (collectively, the
"BANX Securities"), as well as the new Secured BANX Notes issued by CAI
in consideration for the termination of the BR Agreement and the purchase
of the CS Wireless stock.
CAI also announced that it had entered into an agreement in
principle with the Investor, pursuant to which it would exchange all of
the BANX Securities, together with accrued but unpaid interest and
dividends thereon, for a new $30 million 12% subordinated note due 2003,
subject to prepayment at a discount of up to $27 million prior to June 1,
1998 in the event that certain circumstances occur that result in the
realization of a significant increase in the current market value of
CAI's 12 1/4 % Senior Notes due 2002 (the "Senior Notes"). The exchange
is subject to certain conditions, including documentation satisfactory to
the parties. Pending the exchange, the Investor has waived all
conversion features contained in the BANX Securities.
Following the closings announced today, Bell Atlantic affiliates
cease to hold any interests in CAI Wireless Systems, Inc. "We want to
acknowledge Bell Atlantic for affording us the opportunity to terminate
early its remaining options on CAI's wireless spectrum and the Company's
related construction obligations, " said Jared Abbruzzese, CAI's chairman
and chief executive officer. "While CAI's future is by no means certain,
with this significant cloud over our spectrum lifted, we intend to
redouble our efforts to locate a strategic partner to help CAI realize
its potential for voice and data, as well as video applications." Mr.
Abbruzzese added, "the Company will continue to work with its advisor BT
Alex. Brown Incorporated in this process and to explore various
restructuring alternatives."
BACKGROUND
At the inception of the arrangement in the spring of 1995, the BR
Agreement was considered a strategic path to allow affiliates of Bell
Atlantic and NYNEX to enter the subscription television market. It
provided them the right to option digital transport systems constructed
by CAI and CAI's MMDS spectrum in their respective operating territories
as their delivery platform for digital video services. In anticipation
of an option exercise, CAI constructed digital transport systems in
Boston and Virginia Beach; however, no markets were optioned.
In anticipation of the BR Agreement, CAI acquired MMDS spectrum in a
number of principal BANX markets, including the acquisition of ACS
Enterprises, Inc., with analog subscription television businesses in
Philadelphia, PA, Cleveland, OH and Bakersfield, CA, and wireless
properties in Stockton/Modesto, CA. CAI also acquired analog
subscription television businesses in New York City and Washington, D.C.,
and access to MMDS spectrum in Baltimore, MD, Boston, MA and Pittsburgh,
PA. Combined with its analog systems in Virginia Beach, VA and Albany,
NY, and other MMDS spectrum in various Upstate New York markets, these
acquisitions made CAI the largest wireless cable company in terms of LOS
households. Subsequently, CAI contributed certain MMDS properties
outside the BANX region to the joint venture with Heartland Wireless
Communications, Inc. know as CS Wireless Systems, Inc. BANX received its
equity stake in CS Wireless in connection with that transaction
To finance the MMDS spectrum acquisitions and build-out of digital
transport systems, among other things, BANX invested $100 million in CAI
and the Company raised $275 million in a public offering of its Senior
Notes in September 1995. The BANX investment consisted of $30 million in
Term Notes, $70 million Senior Preferred Stock and warrants to purchase
convertible preferred stock, which, when combined with the conversion
features of the Term Notes and Senior Preferred Stock, resulted in the
right to acquire up to 45% of the equity of CAI. None of the conversion
features were ever exercised by BANX.
On December 13, 1996, the Company announced that it had agreed with BANX
to suspend for one year CAI's obligation to reserve its MMDS spectrum for
use by BANX as a video delivery platform and related construction
obligations under the BR Agreement (the "Modification Agreement"). In
addition to suspending CAI's obligations under the BR Agreement for one
year, the Modification Agreement provided CAI (or its designee) the right
to acquire all of the BANX Securities, including the convertible debt,
preferred stock and warrants.
On April 30, 1997, the Company announced an amendment to the Modification
Agreement that renegotiated the option to repurchase the BANX Securities,
the termination of the BR Agreement and the repurchase of the CS Wireless
shares for consideration of $40 million in cash and 100,000 shares of
convertible junior preferred stock. The repurchase option was
exercisable through February 28, 1998.
Upon the closing today of the transactions with the Company, the BR
Agreement and the Modification Agreement have been terminated and BANX's
equity stake in CS Wireless was transferred to CAI. Upon the closing of
the purchase of the BANX Securities and the BANX Secured Notes by the
Investor, BANX ceases to hold any securities of the Company.
CAI, based in Albany, NY, currently operates six analog-based MMDS
subscription video systems in New York City, Rochester and Albany, NY,
Philadelphia, PA, Washington, DC and Norfolk/Virginia Beach, VA, and
provides Internet access services in Rochester, New York City and Boston.
CAI also owns a portfolio of MMDS channel rights in eight additional
markets, including Long Island, Buffalo and Syracuse, NY, Providence, RI,
Hartford, CT, Boston, MA, Baltimore, MD and Pittsburgh, PA. In addition,
CAI owns approximately 50.7% of CS Wireless Systems, Inc., an MMDS
operator based in Plano, TX.
THE STATEMENTS CONTAINED IN THIS PRESS RELEASE RELATING TO CAI'S PLANS AND
OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, INCLUDING PLANS OR OBJECTIVES
RELATING TO CAI'S PRODUCTS AND SERVICES, CONSTITUTE FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. ACTUAL RESULTS OF THE COMPANY MAY DIFFER MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENTS AND MAY BE AFFECTED BY A NUMBER OF FACTORS INCLUDING
THE RECEIPT OF REGULATORY APPROVALS FOR ALTERNATIVE USES OF ITS MMDS SPECTRUM,
THE COMPANIES' ABILITY TO ATTRACT ONE OR MORE NEW STRATEGIC PARTNERS AND THEIR
WILLINGNESS TO ENTER INTO ARRANGEMENTS WITH CAI ON A TIMELY BASIS, THE TERMS OF
SUCH ARRANGEMENTS, THE SUCCESS OF CAI'S TRIALS IN VARIOUS OF ITS MARKETS, THE
COMMERCIAL VIABILITY OF ANY ALTERNATIVE USE OF MMDS SPECTRUM, CONSUMER
ACCEPTANCE OF ANY NEW PRODUCTS OFFERED OR TO BE OFFERED BY CAI, SUBSCRIBER
EQUIPMENT AVAILABILITY, TOWER SPACE AVAILABILITY, ABSENCE OF INTERFERENCE AND
THE ABILITY OF CAI TO REDEPLOY OR SELL EXCESS EQUIPMENT, AS WELL AS OTHER
FACTORS CONTAINED HEREIN AND IN CAI'S SECURITIES FILINGS. FURTHERMORE, THERE
CAN BE NO ASSURANCE THAT THE FINANCING OBTAINED BY THE COMPANY TO DATE WILL
ENABLE CAI TO MEET ITS FUTURE CASH NEEDS.
###
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,170,436
<SECURITIES> 0
<RECEIVABLES> 967,082
<ALLOWANCES> 388,494
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 102,242,410
<DEPRECIATION> 40,648,883
<TOTAL-ASSETS> 480,672,916
<CURRENT-LIABILITIES> 0
<BONDS> 311,599,695
98,946,187
0
<COMMON> 275,769,414
<OTHER-SE> (270,741,246)
<TOTAL-LIABILITY-AND-EQUITY> 480,672,916
<SALES> 0
<TOTAL-REVENUES> 21,977,384
<CGS> 0
<TOTAL-COSTS> 60,241,866
<OTHER-EXPENSES> 23,118,008
<LOSS-PROVISION> 636,200
<INTEREST-EXPENSE> 40,128,505
<INCOME-PRETAX> (98,536,569)
<INCOME-TAX> 0
<INCOME-CONTINUING> (98,536,569)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (98,536,569)
<EPS-PRIMARY> (2.70)
<EPS-DILUTED> 0
</TABLE>
