-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KWvLVk6BRxibwSKGCN0isdD4c+hyHzAISnqjBY1NhGcXnSfu4OmC/+k9SmyVf/6g dpZ2ixI9NOOIlXMHR7Gneg== 0000914749-98-000017.txt : 19981116 0000914749-98-000017.hdr.sgml : 19981116 ACCESSION NUMBER: 0000914749-98-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAI WIRELESS SYSTEMS INC CENTRAL INDEX KEY: 0000914749 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 061324691 STATE OF INCORPORATION: CT FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22888 FILM NUMBER: 98748069 BUSINESS ADDRESS: STREET 1: 18 CORPORATE WOODS BLVD STREET 2: THIRD FLOOR CITY: ALBANY STATE: NY ZIP: 12211 BUSINESS PHONE: 5184622632 MAIL ADDRESS: STREET 1: 18 CORPORATE WOODS BLVD STREET 2: 3RD FLOOR CITY: ALBANY STATE: NY ZIP: 12211 10-Q 1 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 X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended SEPTEMBER 30, 1998 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)
Connecticut 06-1324691 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
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 _____ Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No _____ Number of shares outstanding of each of registrant's class of common stock at October 29, 1998: CLASS OUTSTANDING SHARES Common Stock, $.01 par value 17,241,379 PART I. FINANCIAL INFORMATION. ITEM 1. FINANCIAL STATEMENTS. CAI WIRELESS SYSTEMS, INC. (DEBTOR-IN-POSSESSION) CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 MARCH 31, 1998 ------------------ -------------- (UNAUDITED) ASSETS Cash and cash equivalents $ 1,339,067 $ 1,275,020 Restricted cash 11,204,249 9,134,651 Debt service escrow 16,913,922 16,418,922 Subscriber accounts receivable, net 701,635 387,144 Prepaid expenses 549,100 661,669 Property and equipment, net 41,459,062 49,898,337 Wireless channel rights, net 187,730,254 194,050,792 Investment in CS Wireless Systems, Inc. - 43,337,527 Investment in TelQuest Satellite Services LLC 1,220,404 3,174,732 Goodwill, net of accumulated amortization 22,066,442 22,985,876 Debt financing costs, net 5,838,099 7,079,424 Other assets 3,059,931 3,061,780 ------------ ----------- Total Assets $ 292,082,165 $ 351,465,874 ============= ============= LIABILITIES AND SHAREHOLDERS' DEFICIT LIABILITIES Accounts payable $ 3,125,495 $ 4,852,091 Accrued expenses 28,935,335 12,253,286 Wireless channel rights obligations 2,922,100 4,832,971 Interim debt financing 60,000,000 45,000,000 Long term notes 311,558,053 312,088,506 ------------- ------------ 406,540,983 379,026,854 ============= ============== Commitments and Contingencies SHAREHOLDERS' DEFICIT Common stock, 100,000,000 shares authorized, no par value; 40,543,039 shares issued and outstanding 275,770,764 275,770,764 Additional paid-in capital 101,711,759 101,711,759 Accumulated deficit (491,941,341) (405,043,503) ------------- ------------ (114,458,818) (27,560,980) ------------- ------------ Total Liabilities and Shareholders' Deficit $ 292,082,165 $ 351,465,874 ============= =============
See notes to consolidated financial statements. CAI WIRELESS SYSTEMS, INC. (DEBTOR-IN-POSSESSION) CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Six-Months Ended Three-Months Ended SEPTEMBER 30, SEPTEMBER 30, ---------------------------- ----------------------------- 1998 1997 1998 1997 Revenues $ 10,852,156 $ 15,386,043 $ 5,219,189 $ 7,294,791 ------------- ------------- ------------- ------------ Costs and expenses Programming and licensing 7,606,028 7,271,163 3,949,343 3,568,253 General and administrative 12,518,953 14,771,615 6,191,778 7,299,282 Depreciation and amortization 13,637,310 15,907,088 6,817,688 7,968,256 ------------- ------------- ------------ ------------ 33,762,291 37,949,866 16,958,809 18,835,791 ------------- ------------- ------------ ------------ Operating loss (22,910,135) (22,563,823) (11,739,620) (11,541,000) ------------- ------------- ------------ ------------ Other income (expense) Interest expense (22,552,464) (22,929,735) (9,642,589) (11,956,062) Equity in losses of affiliates (45,291,855) (13,740,000) (34,324,691) (7,124,000) Interest and other income 3,856,616 1,623,027 2,917,441 762,390 ------------ ------------ ------------ ------------ (63,987,703) (35,046,708) (41,049,839) (18,317,672) ------------ ------------ ------------ ------------ Net loss (86,897,838) (57,610,531) (51,789,459) (29,858,672) Preferred stock dividends - (7,274,859) - (3,706,901) ------------ ------------ ------------ ------------ Loss applicable to common stockholders $(86,897,838) $(64,885,390) $(52,789,459) $(35,565,573) ============ ============ ============ ============ Loss per common share $ (2.14) $ (1.60) $ (1.30) $ (0.83) ======== ======== ======== ======== Average common and equivalent shares outstanding 40,543,039 40,540,539 40,543,039 40,540,539 ========== ========== ========== ==========
See notes to consolidated financial statements. CAI WIRELESS SYSTEMS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) FOR THE QUARTER ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND THE YEAR ENDED MARCH 31, 1998
ADDITIONAL COMMON STOCK PAID-IN ACCUMULATED TOTAL SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT) ------ ------ ------- ------- ---------------- Balance at March 31, 1997 40,540,539 $275,769,414 $ - $(161,079,224) $114,690,190 Common stock issued in exchange for BANX warrants 2,500 1,350 - - 1,350 Senior preferred stock and accumulated dividends contributed to capital pursuant to the BANX termination agreement on March 3, 1998 - - 101,711,759 - 101,711,759 Preferred stock dividends accrued - - - (13,891,025) (13,891,025) Net loss - - - (230,073,254) (230,073,254) ---------- ------------ ------------ ------------- ------------- BALANCE AT MARCH 31, 1998 40,543,039 275,770,764 101,711,759 (405,043,503) (27,560,980) NET LOSS - - - (86,897,838) 86,897,838) ---------- ------------ ------------ ------------- ------------- BALANCE AT SEPTEMBER 30, 1998 40,543,039 $275,770,764 $101,711,759 $(491,941,341) $(114,458,818) ========== ============ ============ ============= =============
See notes to consolidated financial statements. CAI WIRELESS SYSTEMS, INC. (DEBTOR-IN-POSSESSION) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended September 30, --------------------------------------- 1998 1997 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (86,897,838) $ (57,610,531) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 13,637,310 15,907,088 Equity in net losses of affiliates 45,291,855 13,740,000 (Gain) loss on sale of assets (2,566,716) 36,682 Debt financing costs and discount amortization 864,180 2,434,732 Changes in assets and liabilities: Subscriber accounts receivable and other assets (248,379) 95,181 Accounts payable and accrued expenses 19,766,648 2,470,606 ------------ ------------ Net cash used in operating activities (10,152,940) (22,926,242) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Funds deposited in restricted cash account (2,069,598) - Purchase of wireless channel rights (109,929) (1,761,760) Purchase of equipment (686,760) (5,224,875) Proceeds from sale of equipment 4,810,018 39,145 Proceeds from sale of investments 62,166 66,443 Proceeds from sale of escrow investments - 15,083,944 Payments received from CS Wireless Systems, Inc. 212,139 2,514,542 Investment in TelQuest Satellite Services LLC (411,567) (1,512,488) Loan to related parties (87,421) (197,758) Cash paid for investment - (356,025) Other (196,017) (153,823) ----------- ----------- Net cash provided by investing activities 1,523,031 8,497,345 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from interim debt financing 10,894,106 9,500,000 Repayment of debt including wireless channel rights obligations (2,073,705) (2,167,578) Debt financing costs paid (126,445) (2,514,372) ----------- ----------- Net cash provided by financing activities 8,693,956 4,818,050 ---------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 64,047 (9,610,847) Cash and cash equivalents, beginning of year 1,275,020 10,471,918 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,339,067 $ 861,071 ============ =========== CASH PAYMENTS DURING THE PERIOD FOR INTEREST $ 22,823 $ 17,429,098 ======== ============
See notes to consolidated financial statements. 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 Company does not have comprehensive income pursuant to SFAS No. 130 for the periods presented and, accordingly, a comprehensive income disclosure has not been included. 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 60% investment in CS Wireless Systems, Inc. ("CS Wireless") and 30% investment in TelQuest Satellite Services LLC ("TSS") 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 Wireless is presented in Note 5. 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 six months ended September 30, 1998 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 1999. 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, 1998 which is on file with the Securities and Exchange Commission. NOTE 2. CHAPTER 11 FILING On July 30, 1998 (the "Petition Date"), CAI Wireless Systems, Inc., a Connecticut corporation ("CAI Wireless"), and one of its wholly-owned subsidiaries, Philadelphia Choice Television, Inc., a Delaware corporation ("PCT"; and together with CAI Wireless, the "Debtors"), filed voluntary petitions for relief under Chapter 11, Title 11 of the United States Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"), Wilmington, Delaware. The bankruptcy cases (the "Cases") of CAI Wireless and PCT are being jointly administered, for procedural purposes only, before the Bankruptcy Court under Case No. 98-1765 (JJF). Pursuant to Sections 1107 and 1108 of the Bankruptcy Code, the Debtors, as debtors and debtors-in-possession, managed and operated their assets and businesses pending the September 30, 1998 confirmation of a joint reorganization plan (the "Plan") under the supervision and orders of the Bankruptcy Court. The Plan was filed with the Bankruptcy Court on the Petition Date and filed by the Company with the Securities and Exchange Commission (the "Commission") on a Current Report on Form 8-K on July 1, 1998. Prior to the Petition Date, the Company solicited and received the requisite approvals from those classes of creditors that would be impaired under the Plan. Specifically, the Company solicited and received the requisite approval of the holders of the Company's 12.25% Senior Notes due 2002 (the "Old Senior Notes") and the holders of certain subordinated indebtedness of the Company. The Company did not solicit the vote of its shareholders, for whom the Plan provided no right to receive or retain any property of the Company post-reorganization. Section 1126(g) of the Bankruptcy Code specifically deems such shareholders not to have accepted the Plan. A confirmation hearing was held in the Bankruptcy Court on September 9, 1998. The Plan was confirmed on September 30, 1998 and consummated on October 14, 1998. Under the confirmed Plan, each holder of the Old Senior Notes received a pro rata portion of $212,909,624 aggregate principal amount at maturity ($100,000,000 aggregate discounted principal amount at issuance) of 13% Senior Notes due 2004 (the "New Senior Notes"), 91% of the equity of reorganized CAI and approximately $16,500,000 in cash. Holders of subordinated indebtedness CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 2. CHAPTER 11 FILING (CONTINUED) claims against CAI received a pro rata portion of the remaining 9% of the equity of reorganized CAI. All equity received by the holders of Old Senior Notes and subordinated indebtedness claims was subsequently diluted by equity reserved for issuance upon the exercise of options granted to members of CAI's senior management and for equity of reorganized CAI issued in connection with the Exit Facility (defined below). Although the Company has emerged from bankruptcy, there continues to be substantial doubt as to the Company's ability to continue as a going concern. Reference is made to Item 7 - "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the Report of Independent Public Accountants included in CAI's Annual Report on Form 10-K for the fiscal year ended March 31, 1998, filed with the Commission on June 30, 1998. The Company's consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities and commitments in the normal course of business. The appropriateness of reporting on a going concern basis is dependent upon, among other things, future operations and the ability to generate sufficient cash from operations and financing sources to meet obligations. The consolidated financial statements contained herein and to which these notes relate do not include any adjustments relating to the confirmation and consummation of the Plan. Reference is made to the pro forma balance sheet included herein as Exhibit 99.5, which gives effect to the October 14, 1998 consummation of the Plan as if such consummation had occurred on September 30, 1998. NOTE 3. INTERIM FINANCING DIP FINANCING. In connection with the Cases, CAI consummated a $60,000,000 Debtor-in-Possession financing arrangement (the "DIP Facility") provided by Merrill Lynch Global Allocation Fund, Inc. ("MLGAF"). The DIP financing was governed by an Amended and Restated Note Purchase Agreement dated as of July 30, 1998 (the "DIP Agreement") between CAI and MLGAF, a copy of which was filed as an exhibit to CAI's Current Report on Form 8-K dated August 3, 1998. Indebtedness under the DIP Facility was evidenced by certain promissory notes, accrued interest at 13% per annum and had a maturity date of January 29, 1999. Of the $60,000,000 provided to CAI under the DIP Facility, $49,105,894 represented the outstanding principal, interest and fees due to the MLGAF pursuant to that certain Note Purchase Agreement dated as of November 24, 1997 (the "Existing Note Purchase Agreement") among CAI, certain of its subsidiaries and MLGAF. All such amounts outstanding under the Existing Note Purchase Agreement were converted into DIP Notes as if there had been a purchase thereof under the DIP Agreement in the amount of $49,105,894. The remaining $10,894,106 was made available to CAI for its use during the Chapter 11 case, in accordance with the terms of an approved budget. On October 14, 1998, in connection with consummating the Plan, all outstanding amounts under the DIP Facility, including the $60,000,000 aggregate principal amount, accrued and unpaid interest in the amount of $1,646,667 and a $600,000 commitment fee were repaid out of the proceeds of the Exit Facility (defined below). EXIT FACILITY. On October 14, 1998, in connection with consummating the Plan, the Company obtained an $80,000,000 credit facility (the "Exit Facility"), also from MLGAF. The Company received net proceeds from the Exit Facility of $15,953,000, after repaying all outstanding amounts under the DIP Facility and certain commitment fees associated with the Exit Facility. The Exit Facility is governed by the terms of a Note Purchase Agreement dated October 14, 1998 (the "NPA"), a copy of which was filed by the Company with the Commission as an exhibit to the Company's Current Report on 8-K dated October 15, 1998. The Exit Facility consists of two tranches: Tranche A and Tranche B. Tranche A is a $30,000,000 senior secured loan bearing interest at 10.5% compounded CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 3. INTERIM FINANCING (continued) semi-annually and evidenced by a Senior Secured A Note. The Company has granted a first priority lien on and security interest in all of its assets to secure performance of the Company's obligations with respect to Tranche A. Tranche B is a $50,000,000 senior secured loan bearing interest at 13% per annum and evidenced by a Senior Secured B Note. The Company has granted a second priority lien on and security interest in and to all of its assets to secure performance of its obligations with respect to Tranche B. In addition to the liens granted by the Company, substantially all of the Company's wholly-owned subsidiaries have guaranteed the obligations of the Company with respect to the Exit Facility. The subsidiaries have granted a lien on and security interest in all of their respective assets to secure their performance under such subsidiary guaranties. The Exit Facility is a two-year credit facility, maturing on October 14, 2000. The Company paid a 1% facility fee equal to $300,000 on the Tranche A amount at the closing of the Exit Facility. In addition, the Company is required to pay an 8% facility fee equal to $4,000,000 on the Tranche B amount, of which the Company paid $1,500,000 at the closing of the Exit Facility. The remaining $2,500,000 balance of the Tranche B facility fee is payable at maturity of the Exit Facility (by its term, acceleration or otherwise). The Company issued 2,241,379 shares of its Common Stock, par value $.01 per share (the "New Common Stock") to MLGAF as additional consideration to MLGAF for providing the Exit Facility. The shares of New Common Stock issued to MLGAF represent 13% of the total New Common Stock issued and outstanding on October 14, 1998. The foregoing is a summary of certain terms of the Exit Facility and is qualified in its entirety by reference to the NPA. NOTE 4. LITIGATION IN RE CAI WIRELESS SYSTEMS INC. SECURITIES LITIGATION. CAI has been named in six class action lawsuits alleging various violations of the federal securities laws filed in the United States District Court for the Northern District of New York. The 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 Northern District of New York. The amended, consolidated complaint, which names the Company, Jared E. Abbruzzese, chairman and chief executive officer of the Company, John J. Prisco, president, chief operating officer and a director of the Company, and Alan Sonnenberg, the former president of the Company, as defendants, alleges a variety of violations of the anti-fraud provisions of the Federal securities laws by CAI arising out of its alleged disclosure (or alleged omission from disclosure) regarding its Internet and other flexible use of MMDS spectrum, as well as its business relationship with Bell Atlantic and NYNEX. Specifically, the complaint alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 10b-5 promulgated under the Exchange Act during the specified Class Period (May 23, 1996 through December 6, 1996). The Company has notified the carrier of its Directors' and Officers' Liability insurance policy, which is intended to cover not only the Company's officers and directors, but also the Company, itself, against claims such as those made in the Securities Lawsuit. The policy covers up to $5,000,000 of any covered liability, subject to a retention amount of $500,000. The Securities Lawsuit is in its preliminary stages. A scheduling conference was held on June 3, 1997, at which the briefing schedule for defendants' motion to dismiss was agreed upon among the parties. The defendants' motion to dismiss was heard by the Northern District of New York on October 17, 1997 and is still pending. While the motion is pending, all other deadlines affecting motions and discovery have been postponed. CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 4. LITIGATION (continued) The Plan provided no recovery to any holder of the Company's equity or to any holder of an equity-based claim, such as the claims made against the Company in the Securities Lawsuit. Upon the confirmation of the Plan on September 30, 1998 and the October 14, 1998 consummation of the Plan, plaintiffs' claims against the Company in the Securities Lawsuit were discharged and released by order of the Bankruptcy Court. Furthermore, the Securities Lawsuit plaintiffs were enjoined from continuing their action against the Company. The Company is currently preparing a stipulation of dismissal to be filed with the Court in this action. The individual defendants are continuing to contest the Securities Lawsuit vigorously and believe it is entirely without merit at this time. Accordingly, management believes the Securities Lawsuit will not have a material adverse effect on the Company's earnings, financial condition or liquidity. OTHER LITIGATION. The Company is also named as a defendant in JOE HAND PROMOTIONS, INC. V. CAI WIRELESS SYSTEMS, INC. D/B/A POPVISION WIRELESS CABLE and as a third party defendant by one or more defendants in JOE HAND PROMOTIONS, INC. V. 601 L & P BAR, INC. AND JOE HAND PROMOTIONS V. CAROL VALICEE D/B/A MARV'S BAR & RESTAURANT V. CAI WIRELESS SYSTEMS, INC. D/B/A POPVISION WIRELESS CABLE TV in the U.S. District Court for the Eastern District of Pennsylvania. These actions arise out of the alleged improper broadcasts of certain sporting events in commercial establishments in violation of the alleged distributor's exclusive broadcast rights. The Complaints seek actual compensatory damages in unspecified amounts, together with statutory penalties claimed for alleged violations of federal statutes. The Plaintiff, Joe Hand Promotions, has alleged itself to be the exclusive distributor of certain televised sporting events in the greater Philadelphia area for commercial establishments, and has alleged the improper broadcast of such events in approximately five instances. The lawsuits were in the preliminary stages when the Company commenced its Chapter 11 case. Action against CAI in these lawsuits has been suspended by the Court. The Company believes that in the event of outcomes adverse to it, the amounts would not be material given the nature of the claims. NOTE 5. EQUITY INVESTMENTS CS WIRELESS SYSTEMS, INC. The elimination of the Company's investment in CS Wireless reflects an equity loss to the extent of its $43,338,000 investment, and is based on CAI's 60% pro-rata share of CS Wireless' net loss of $83,300,000 for the six-month period ended June 30, 1998. $33,336,000 of the $83,300,000 CS Wireless loss occurred in CAI's second quarter based on the June 1998 write-down of goodwill by CS Wireless in the amount of $46,378,000. The remaining pro rata share of the $83,300,000 net loss was not recorded since CAI does not guarantee any CS Wireless debt. There is no current year amortization of goodwill associated with this investment since CAI's goodwill relating to CS Wireless was written off as of March 31, 1998. CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 5. EQUITY INVESTMENTS (continued) The following is an unaudited condensed consolidated balance sheet of CS Wireless derived from its Form 10-Q as of June 30, 1998:
ASSETS Cash and cash equivalents $ 54,144,000 Restricted cash 5,030,000 Other current assets 1,967,000 Systems and equipment, net 52,939,000 Wireless channel rights, net 170,051,000 Investment in and loans to equity affiliates 7,022,000 Debt issuance costs and other assets, net 8,859,000 ------------ Total Assets $300,012,000 ============ LIABILITIES AND EQUITY Accounts payable and accrued expenses $ 6,174,000 FCC Auction payable 4,164,000 Other liabilities 778,000 Debt 299,967,000 Equity (11,071,000) ------------ Total Liabilities and Equity $300,012,000 ============
The following is an unaudited condensed consolidated statement of operations of CS Wireless derived from its June 30, 1998 Form 10-Q for the period presented:
Quarter Ended Six Months Ended JUNE 30, 1998 JUNE 30, 1998 ------------- ---------------- Revenues $ 6,805,000 $ 13,628,000 ----------- ------------ Operating expenses: Systems operations 4,017,000 7,925,000 General and administrative 4,983,000 9,102,000 Impairment of goodwill 46,378,000 46,378,000 Depreciation and amortization 7,717,000 14,941,000 ----------- ----------- Total operating expenses 63,095,000 78,346,000 Operating loss (56,290,000) (64,718,000) Interest income 926,000 1,943,000 Interest expense (8,621,000) (16,892,000) Equity in losses of affiliates (779,000) (1,765,000) Cumulative effect of change in accounting principle for organizational costs - (1,868,000) ------------ ------------ Net loss $(64,764,000) $(83,300,000) ============ ============
TELQUEST SATELLITE SERVICES LLC. The Company's investment in TSS reflects an equity loss of $760,000 based on CAI's pro-rata share of TSS's net losses approximating $1,158,000 for the three months ended September 30, 1998 plus a true-up for CAI's ownership which increased as of December 8, 1997 to 30% based on a non-exclusivity agreement signed as of that date. Additionally, the investment has been reduced by $416,600 in depreciation on the equipment leased to TSS. As of September 30, 1998, TSS has negative net worth of $5,764,000. CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 6. OPERATING SEGMENT INFORMATION The following information is provided for operating segments for the six months ended September 30, 1998 as determined by senior management and subject to meeting quantitative thresholds. While CAI is a corporate holding company and not an operating segment, it is shown separately for clarity in segment reporting. Atlantic Microsystems, Inc. ("AMI"), a wholly owned subsidiary of CAI, holds the stock of entities owning or leasing a substantial portion of CAI's spectrum rights.
Albany New York Philadelphia CORPORATE MARKET MARKET MARKET AMI ALL OTHER(1) --------- ------ -------- ----------- --- ----------- Revenues EXTERNAL Three months 6/98 $ - $ 766,300 $ 850,989 $ 3,526,503 $ - $ 489,175 Three months 9/98 - 729,393 766,675 3,345,322 - 377,799 ----------- ------------ ----------- ----------- ------------ ----------- Total six months $ - $ 1,495,693 $ 1,617,664 $ 6,871,825 $ - $ 866,974 =========== ============ =========== =========== ============ =========== INTER-COMPANY Three months 6/98 $ 579,000 $ - $ - $ - $ 4,166,137 $ 72,772 Three months 9/98 579,000 - - - 4,417,308 $ 108,806 ----------- ------------ ----------- ----------- ------------ ----------- Total six months $ 1,158,000 $ - $ - $ - $ 8,583,445 $ 181,578 =========== ============ =========== =========== ============ =========== INTEREST EXPENSE Three months 6/98 $(12,876,382) $ - $ - $ - $ (21,653) $ (11,499) Three months 9/98 (9,632,084) - - - $ (4,376) $ (6,470) ----------- ------------ ----------- ----------- ------------ ----------- Total six months $(22,508,466) $ - $ - $ - $ (26,029) $ (17,969) =========== ============ =========== =========== ============ =========== DEPRECIATION & AMORTIZATION Three months 6/98 $ (519,668) $ (366,840) $ (970,170) $ (2,117,400) $ (3,117,480) $ (2,548,544) Three months 9/98 (518,217) (366,840) (970,170) (2,117,400) (3,117,480) (2,548,061) ----------- ------------ ----------- ----------- ------------ ----------- Total six months $ (1,037,885) $ (733,680) $ (1,940,340) $ (4,234,800) $ (6,234,960) $ (5,096,605) =========== ============ =========== =========== ============ =========== SEGMENT LOSS Three months 6/98 $(25,795,124) $ (240,450) $ (1,398,798) $ (1,428,194) $ (581,932) $ (4,663,888) Three months 9/98 (46,842,687) (335,547) (1,499,000) 1,190,997 (680,729) (4,622,486) ----------- ------------ ----------- ----------- ------------ ----------- Total six months $(72,637,811) $ (575,997) $ (2,897,798) $ (237,197) $ (1,262,661) $ (9,286,374) =========== ============ =========== =========== ============ =========== ASSETS $392,370,876 $ 2,363,180 $ 1,149,983 $ 7,828,868 $ 180,890,376 $ 33,263,607 DUE FROM SEGMENTS 306,248,161 - - - - - DUE TO PARENT $ - $ (11,346,839) $(30,331,982) $(22,701,093) $(182,049,004) $(59,819,243) EXPENDITURES FOR SEGMENT ASSETS $ 2,649 $ 22,155 $ 6,187 $ 95,756 $ - $ 6,032 (1) includes Boston Market
CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 6: OPERATING SEGMENT INFORMATION (continued) Total revenues, income(loss), and assets are reconciled as follows:
REVENUES (EXTERNAL) INCOME (LOSS) ASSETS Total reported for identified segments $ 9,985,182 $(77,611,464) $584,603,283 Boston Market(included in All Other) - (4,730,806) 16,127,159 All Other (excluding Boston Market) 866,974 (4,555,568) 17,136,448 Elimination of inter-segment balances - - (307,940,208) Elimination of inter-segment investments - - (17,844,517) ---------- ----------- ------------ Consolidated totals $10,852,156 $(86,897,838) $292,082,165 =========== ============ ===========
The following information for operating segments for the six months ended September 30, 1997 as determined by senior management and subject to meeting quantitative thresholds.
Albany New York Philadelphia CORPORATE MARKET MARKET MARKET AMI ALL OTHER(1) --------- ------ -------- ------------ --- ------------ Revenues External $ - $ 1,635,435 $ 2,875,122 $ 9,275,527 $ - $ 1,599,959 Inter-company $ 1,158,000 $ - $ - $ - $ 3,964,803 $ 164,857 Interest expense $ (22,922,267) $ - $ - $ - $ - $ (7,468) Depreciation & amortization $ (4,428,882) $ (925,590) $ (1,373,970) $ (5,643,090) $ (4,515,390) $ (2,941,556) Segment loss $ (43,577,141) $ (903,966) $ (2,263,879) $ (3,770,344) $ (1,351,579) $ (5,743,622) Assets $ 567,381,721 $ 3,854,322 $ 1,617,435 $ 15,993,172 $ 198,490,571 $ 17,741,071 Due from segments $ 282,311,301 $ - $ - $ - $ - $ - Due to parent $ - $(11,444,496) $(23,562,715) $(26,743,311) $(196,535,305) $(24,025,474) Expenditures for segment assets $ 200,060 $ 219,851 $ 159,756 $ 709,890 $ - $ 530,610
(1) includes Boston Market CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 6: OPERATING SEGMENT INFORMATION (continued) Total revenues, income(loss), and assets are reconciled as follows:
REVENUES (EXTERNAL) INCOME (LOSS) ASSETS Total reported for identified segments $13,786,084 $(51,866,909) $787,337,221 Boston Market(included in All Other) - (973,780) 261,481 All Other (excluding Boston Market) 1,599,959 (4,769,842) 17,479,590 Elimination of inter-segment balances - - (285,211,146) Elimination of inter-segment investments - - (17,859,517) ----------- ------------ ------------ Consolidated totals $15,386,043 $(57,610,531) $502,007,629 =========== ============ ============
NOTE 7. RESIGNATION OF AUDITORS On July 30, 1998, the Company was informed by PricewaterhouseCoopers LLP ("PWC") that PWC had resigned from its engagement as the Company's independent accountant. The Company was informed by PWC that it had resigned from the engagement due to a conflict of interest arising as the result of the July 1, 1998 merger of Price Waterhouse, LLP and Coopers & Lybrand L.L.P. Prior to the merger, Coopers & Lybrand L.L.P. acted as the Company's independent accountant. Price Waterhouse, LLP, acted as collateral agent and administrative agent for MLGAF under a Note Purchase Agreement dated as of November 24, 1997, as amended from time to time. PWC currently acts as collateral agent and administrative agent for MLGAF under the Note Purchase Agreement dated as of October 14, 1998 between the Company and MLGAF. The Company is currently seeking independent accountants to replace PWC. Except as discussed below, the reports of Coopers & Lybrand L.L.P. on the Company's financial statements for the past two fiscal years contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. The report of Coopers & Lybrand L.L.P. delivered in connection with the Company's audited financial statements for the years ended March 31, 1998 and 1997 contained an explanatory paragraph which indicated that there was substantial doubt regarding the Company's ability to continue as a going concern. In connection with its audits for the two most recent fiscal years and through July 30, 1998, there have been no disagreements with Coopers & Lybrand L.L.P. or PWC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Coopers & Lybrand L.L.P. would have caused them to made reference thereto in their report on the financial statements for such years. During the two most recent fiscal years and through July 30, 1998, there have been no reportable events (as defined in Regulation S-K item 304(a)(1)(v)) involving the Company. The Company requested that PWC furnish it with a letter addressed to the SEC stating whether or not PWC agrees with the above statements. A copy of such letter, dated August 6, 1998, was filed as Exhibit 16 to the Company's Current Report on Form 8-K dated August 6, 1998. NOTE 8. SUBSEQUENT EVENTS Reference is made to Notes 2 and 3 above for a description of the October 14, 1998 consumation of CAI's Chapter 11 case and the Exit Facility that CAI entered into in connection therewith. Also, reference is made to Exhibit 99.5 for the pro forma effects of the consummation on the Company's balance sheet. 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 design and implement competitive, cost effective two-way operating plans, the Company's ability to attract one or more strategic partners and such strategic partner's 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, the Company's ability to fund its business plans, equipment availability for alternative uses of MMDS spectrum, 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. CHAPTER 11 FILING. On July 30, 1998 (the "Petition Date"), CAI Wireless Systems, Inc., a Connecticut corporation ("CAI Wireless"), and one of its wholly-owned subsidiaries, Philadelphia Choice Television, Inc., a Delaware corporation ("PCT"; and together with CAI Wireless, the "Debtors"), filed voluntary petitions for relief under Chapter 11, Title 11 of the United States Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"), Wilmington, Delaware. The bankruptcy cases (the "Cases") of CAI Wireless and PCT are being jointly administered, for procedural purposes only, before the Bankruptcy Court under Case No. 98-1765 (JJF). Pursuant to Section 1107 and 1108 of the Bankruptcy Code, the Debtors, as debtors and debtors-in-possession, managed and operated their assets and businesses pending the September 30, 1998 confirmation of a joint reorganization plan (the "Plan") under the supervision and orders of the Bankruptcy Court. The Plan was filed with the Bankruptcy Court on the Petition Date and filed by the Company with the Securities and Exchange Commission (the "Commission") on a Current Report on Form 8-K on July 1, 1998. Prior to the Petition Date, the Company solicited and received the requisite approvals from those classes of creditors that would be impaired under the Plan. Specifically, the Company solicited and received the requisite approval of the holders of the Company's 12.25% Senior Notes due 2002 (the "Old Senior Notes") and the holders of certain subordinated indebtedness of the Company. The Company did not solicit the vote of its shareholders, for whom the Plan provided no right to receive or retain any property of the Company post-reorganization. Section 1126(g) of the Bankruptcy Code specifically deems such shareholders not to have accepted the Plan. A confirmation hearing was held in the Bankruptcy Court on September 9, 1998. The Plan was confirmed on September 30, 1998 and consummated on October 14, 1998. Under the confirmed Plan, each holder of the Old Senior Notes received a pro rata portion of $212,909,624 aggregate principal amount at maturity ($100,000,000 aggregate principal amount at issuance) of 13% Senior Notes due 2004 (the "New Senior Notes"), 91% of the equity of reorganized CAI and approximately $16,500,000 in cash. Holders of subordinated indebtedness claims against CAI received a pro rata portion of 9% of the equity of reorganized CAI. All equity received by the holders of Old Senior Notes and subordinated indebtedness claims was subsequently diluted by equity reserved for issuance upon the exercise of options granted to members of CAI's senior management and for equity of reorganized CAI issued in connection with the Exit Facility (defined below). Although the Company has emerged from bankruptcy, there continues to be substantial doubt as to the Company's ability to continue as a going concern. Reference is made to Item 7 - "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the Report of Independent Public Accountants included in CAI's Annual Report on Form 10-K for the fiscal year ended March 31, 1998, filed with the Commission on June 30, 1998. The Company's consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities and commitments in the normal course of business. The appropriateness of reporting on a going concern basis is dependent upon, among other things, future operations and the ability to generate sufficient cash from operations and financing sources to meet obligations. The consolidated financial statements contained herein and to which these notes relate do not include any adjustments relating to the confirmation and consummation of the Plan. Reference is made to the pro forma balance sheet included herein as Exhibit 99.5, which pro forma balance sheet gives effect to the October 14, 1998 consummation of the Plan as if such consummation had occurred on September 30, 1998. DIP FINANCING. In connection with the Cases, CAI consummated a $60,000,000 Debtor-in-Possession financing arrangement (the "DIP Facility") provided by Merrill Lynch Global Allocation Fund, Inc. ("MLGAF"). The DIP financing was governed by an Amended and Restated Note Purchase Agreement dated as of July 30, 1998 (the "DIP Agreement") between CAI and MLGAF, a copy of which was filed as an exhibit to CAI's Current Report on Form 8-K dated August 3, 1998. Indebtedness under the DIP Facility was evidenced by certain promissory notes, accrued interest at 13% per annum and had a maturity date of January 29, 1999. Of the $60,000,000 provided to CAI under the DIP Facility, $49,105,894 represented the outstanding principal, interest and fees due to the MLGAF pursuant to that certain Note Purchase Agreement dated as of November 24, 1997 (the "Existing Note Purchase Agreement") among CAI, certain of its subsidiaries and MLGAF. All such amounts outstanding under the Existing Note Purchase Agreement were converted into DIP Notes as if there had been a purchase thereof under the DIP Agreement in the amount of $49,105,894. The remaining $10,894,106 was made available to CAI for its use during the Chapter 11 case, in accordance with the terms of an approved budget. On October 14, 1998, in connection with consummating the Plan, all outstanding amounts under the DIP Facility, including the $60,000,000 aggregate principal amount, accrued and unpaid interest in the amount of $1,646,667 and a $600,000 commitment fee, were repaid out of the proceeds of the Exit Facility (defined below). EXIT FACILITY. On October 14, 1998, in connection with consummating the Plan, the Company obtained an $80,000,000 credit facility (the "Exit Facility"), also from MLGAF. The Company realized net proceeds from the Exit Facility of $15,953,000, after repaying all outstanding amounts under the DIP Facility and certain commitment fees associated with the Exit Facility. The Exit Facility is governed by the terms of a Note Purchase Agreement dated October 14, 1998 (the "NPA"), a copy of which was filed by the Company with the Commission as an exhibit to the Company's Current Report on 8-K dated October 15, 1998. The Exit Facility consists of two tranches: Tranche A and Tranche B. Tranche A is a $30,000,000 senior secured loan bearing interest at 10.5% compounded semi-annually and evidenced by a Senior Secured A Note. The Company has granted a first priority lien on and security interest in and to all of its assets to secure performance of the Company's obligations with respect to Tranche A. Tranche B is a $50,000,000 senior secured loan bearing interest at 13% per annum and evidenced by a Senior Secured B Note. The Company has granted a second priority lien on and security interest in and to all of its assets to secure performance of its obligations with respect to Tranche B. In addition to the liens granted by the Company, substantially all of the Company's wholly-owned subsidiaries have guaranteed the obligations of the Company with respect to the Exit Facility. The subsidiaries have granted a lien on and security interest in and to all of their respective assets to secure their performance under such subsidiary guaranties. The Exit Facility is a two-year credit facility, maturing on October 14, 2000. The Company was required to pay a 1% facility fee equal to $300,000 on the Tranche A amount at the closing of the Exit Facility. In addition, the Company is required to pay an 8% facility fee equal to $4,000,000 on the Tranche B Amount of which the Company paid $1,500,000 at the closing of the Exit Facility. The remaining $2,500,000 balance of the Tranche B facility fee is payable at maturity of the Exit Facility (by its term, acceleration or otherwise). The Company issued 2,241,379 shares of its Common Stock, par value $.01 per share (the "New Common Stock") to MLGAF as additional consideration to MLGAF for providing the Exit Facility. The shares of New Common Stock issued to MLGAF represent 13% of the total New Common Stock issued and outstanding on October 14, 1998. The foregoing is a summary of certain terms of the Exit Facility and is qualified in its entirety by reference to the NPA. LIQUIDITY AND CAPITAL RESOURCES CAI's primary sources of liquidity are cash flows from operations, trade credit and borrowings under the Existing Credit Facility for the period prior to July 30, 1998 and subsequently under the DIP Facility. During the six months ended September 30, 1998, CAI expended approximately $10,153,000 of cash to fund operating activities. CAI also expended $2,074,000 in debt payments, $687,000 for equipment, and paid $412,000 to TSS in fulfillment of its investment obligation. The cash requirements were primarily funded by existing cash balances maintained in the restricted cash account. At September 30, 1998, CAI had available funds of approximately $12,543,000, of which $11,204,000 was restricted and all of which will be used to fund the operations of the Company. CAI is committed through additional open purchase orders as of September 30, 1998 to spend approximately $1,700,000, primarily for capital expenditures associated with additional development its digital transmission facilities. 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 borrowings or the issuance of certain equity is currently limited by the terms of the Indenture governing the Company's 13% Senior Notes due 2004, and/or the terms of the Exit Facility. There can be no assurance that the funds obtained by the Company in connection with the Exit Facility will enable CAI to meet its future cash needs. RESULTS OF OPERATIONS SEPTEMBER 30, 1998 COMPARED TO SEPTEMBER 30, 1997 The Company currently operates six analog subscription video systems. During the last several quarters, the Company has operated these systems within the confines of a cash conservation strategy, while pursuing a strategic alliance with one or more strategic partners interested in using the Company's spectrum for fixed, one- and two-way transmission services. The Company's cash conservation strategy requires the Company to limit or curtail entirely analog video subscriber growth, which has had an adverse effect on the Company's operating results. See Note 6 to the Consolidated Financial Statements included in this Form 10-Q. The cash conservation strategy also includes the continued implementation of cost-cutting measures and the periodic sales of non-core assets in an effort to maximize the value of assets that are no longer used or useful to the Company's long-term operating strategy, which is to be a wholesale provider of two-way transmission services to one or more strategic partners. In addition to limiting the analog subscription video business growth, the Company has sold assets relating to the provision of analog subscription video services to multiple dwelling units ("MDUs"), such as apartment and condominium complexes, in certain of its markets. Assets typically involved in providing analog subscription video services to residents of MDUs include the tangible assets necessary to transmit and receive the video programming signal, customer premises equipment and a right of entry agreement with the property owner or manager, pursuant to which the Company's operating subsidiary is granted the right to provide subscription video services to residents of the MDU. In March 1998, the Company sold assets relating to MDUs located in its Washington, DC operating market. Most recently, in September 1998, the Company completed the sale of assets relating to approximately 60 MDUs located in CAI's Philadelphia system (the "Philadelphia MDU Sale") to Mid-Atlantic Telcom Plus, LLC d/b/a OnePoint Communications, a leading operator of Satellite Master Antenna Television (SMATV) systems. Consummated under the auspices of the Bankruptcy Court, the Philadelphia MDU Sale generated net proceeds to the Company of approximately $5,000,000, of which $785,000 is being held in escrow pending certain post-closing adjustments. The Company expects to use the proceeds from the Philadelphia MDU Sale, as well as proceeds from subsequent sales of non-core assets, for working capital purposes. The limitation on analog video subscriber growth, coupled with the sale of MDU assets, has had an adverse impact on the Company's analog video subscriber base. As of September 30, 1998, the Company's subscriber base had decreased by approximately 27,400 subscribers to 35,100 analog video subscribers, compared to 62,500 analog video subscribers at September 30, 1997. The 27,400-subscriber decrease includes the loss of approximately 12,400 subscribers as a result of the Philadelphia MDU Sale. The decrease in analog video subscribers has resulted in subscriber revenue decreases of $2,492,000 and $4,534,000 for the quarter and six months ended September 30, 1998 compared to the corresponding periods last year. Operating expenses were $33,762,000 and $37,950,000 for the six months ended September 30, 1998 and 1997, respectively. The $4,188,000 reduction in operating expenses for the six months versus last year's corresponding six- month period reflects lower technical, customer service and marketing costs approximating $3,117,000 which were in-line with the decline in subscribers, offset by an increase in general and administrative expenses of $865,000 consisting of a significant increase in professional fees primarily associated with the bankruptcy and partially offset by decreases in other expenses. Programming costs increased by $335,000, primarily in the quarter ended September 30, 1998 despite the revenue decline as a result of additional channels being added as well as minimum provisions provided by certain of the programming agreements. The remaining decrease of $2,271,000 reflects lower depreciation and amortization, primarily, related to the goodwill write-down at March 31, 1998, offset in part by greater depreciation recorded on the Boston digital project. Interest expense was $22,552,000 and $22,930,000 for the six months ended September 30, 1998 and 1997, respectively. The slight decrease was primarily due to higher fees on the interim debt financing in the 1997 period than those incurred during the comparable period this year. Interest and other income increased by $2,234,000 for the six months ended September 30, 1998 compared to the same period last year. The increase resulted primarily from the Philadephia MDU Sale which generated a net gain of $2,642,000. The elimination of CAI's investment in CS Wireless reflects the Company's 60% pro rata share of the $83,300,000 net loss reported by CS Wireless for the six months ended June 30, 1998 to the extent of its $43,338,00 investment. The remaining pro rata share of net loss was not recorded since CAI does not guarantee any CS Wireless debt. The net loss reported by CS Wireless includes a $46,378,000 write-down of its goodwill. The aggregate decrease in this investment was $13,013,000 for the same period last year reflecting CAI's 50.7% ownership at that time. The decrease in CAI's investment in TSS of $1,496,000 reflects primarily the Company's pro-rata share of the estimated $6,900,000 loss of TSS from April 1, 1998 to September 30, 1998, plus another $416,600 reflecting CAI's depreciation on the equipment leased to TSS. THE YEAR 2000 ISSUE The Company is continuing to assess issues relating to what is generally referred to as the Year 2000 Issue. Based on preliminary information, as of the date of this report, the Company believes that it will be able to implement successfully the systems and programming changes necessary to address the Year 2000 Issue internally. The Company is reviewing the Year 2000 Issue with various third party vendors and other entities on whom the Company relies for the provision of certain services, such as subscriber billing, to assess such vendors' readiness with respect to addressing Year 2000 Issues. The Company believes that the cost of changes to be made, if any, to the Company's internal systems and programming in response to Year 2000 Issues will not have a material impact on the Company's financial position, results of operations or cash flows in future periods. PART II. OTHER INFORMATION Item 1. Legal Proceedings. Reference is made to Notes 2 and 4 to the Notes to Consolidated Financial Statements in Part I, Item 1 of this filing. Item 2. Changes in Securities and Use of Proceeds. As previously reported in Current Reports on Form 8-K filed with the Securities and Exchange Commission (the "Commission") on July 1, 1998, July 16, 1998 and October 15, 1998 by CAI Wireless Systems, Inc. ("CAI" or the "Company"), CAI and its wholly-owned subsidiary, Philadelphia Choice Television, Inc. ("PCT"), recently emerged from a reorganization under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). The bankruptcy case, entitled IN RE CAI WIRELESS SYSTEMS, INC. AND PHILADELPHIA CHOICE TELEVISION, INC., DEBTORS, Chapter 11 Case No.: 98-01765 (JJF), was brought in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). On September 30, 1998, the Bankruptcy Court issued its Findings of Fact, Conclusions of Law, and Order (the "Confirmation Order") confirming the Joint Reorganization Plan of CAI and PCT (the "Plan"). On October 14, 1998 (the "Consummation Date"), CAI and PCT consummated the Plan. Pursuant to the Plan, from and after the Consummation Date, holders of CAI's 12.25% Senior Notes due 2002 (the "Old Senior Notes"), upon surrender of their Old Senior Notes to the Exchange Agent (defined below), were entitled to receive their pro rata portion of $212,909,624 aggregate principal amount at maturity ($100,000,000 aggregate discounted principal amount at issuance) of 13% Senior Notes due 2004 (the "New Senior Notes") and 13,650,000 shares of common stock, par value $.01 per share (the "New Common Stock") of reorganized CAI. Holders of the Old Senior Notes also received, on or about October 9, 1998, the interest payment on the Old Senior Notes that was due to such holders on September 15, 1998 (the "September Interest Payment"), plus interest on the September Interest Payment at a per annum rate of 12.25%. The issuance of the New Senior Notes and New Common Stock and the interest payment (collectively, the "Old Senior Note Entitlement") pursuant to the Plan and the Confirmation Order has terminated all rights of the holders of the Old Senior Notes (i) under that certain Indenture dated as of September 15, 1995 between CAI and Chemical Bank, as supplemented, and (ii) evidenced by the Old Senior Notes. From and after the Consummation Date, the Old Senior Notes represent solely the right to receive the New Senior Notes and New Common Stock attributable to the surrendered Old Senior Notes (such surrendering noteholders having already received the September Interest Payment). The New Senior Notes are governed by an indenture dated as of October 14, 1998 (the "New Senior Note Indenture") between CAI and State Street Bank and Trust Company, as trustee. A copy of the New Senior Note Indenture was filed as an exhibit to the Company's Current Report on Form 8-K filed with the Commission on October 15, 1998. The terms of the New Senior Note Indenture impose several significant limitations on the Company, including, without limitation, the Company's right to declare dividends in respect of its capital stock and on the right of the Company to incur additional indebtedness for corporate purposes such as working capital. The description of the New Senior Notes and the New Senior Note Indenture contained herein and elsewhere in the Company's public filings is qualified in its entirety by reference to the New Senior Note Indenture filed as an exhibit to the Company's Current Report on Form 8-K filed with the Commission on October 15, 1998. To administer the exchange of Old Senior Notes for the appropriate amount of New Senior Notes and New Common Stock, the Company has engaged State Street Bank and Trust Company, as exchange agent (the "Exchange Agent"). By letter to holders of record of Old Senior Notes as of October 8, 1998, the Company requested that such record holders complete and send a signed letter of transmittal, together with their Old Senior Notes, to the Exchange Agent. They were directed to contact the Exchange Agent at (617) 664-5587 with any questions regarding the exchange. The Plan also contemplated that the holders of Old Common Stock and holders of claims against or interests in the Company derived from Old Common Stock would not receive or retain any property as a result of consummating the Plan. As a consequence, the Old Common Stock was extinguished as of October 14, 1998. The Company filed a certificate amending its Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Connecticut on October 14, 1998, which amendment modified the Company's capital structure by authorizing 25,000,000 shares of New Common Stock and 5,000,000 shares of preferred stock, which preferred stock may be designated from time to time by the Board of Directors of the Company. A copy of the Certificate Amending the Amended and Restated Certificate of Incorporation of the Company is filed herewith as an exhibit to this Quarterly Report on Form 10-Q. Item 4. Submission of Matters to a Vote of Security Holders. The Company's bankruptcy case was conducted as a "pre-packaged" bankruptcy. Prior to filing its bankruptcy petition, the Company sought and obtained agreement to the Plan by the requisite constituencies required by the Bankruptcy Code. To initiate the pre-packaged bankruptcy process, the Company, on or about June 30, 1998, commenced a solicitation (the "Solicitation") of holders of its Old Senior Notes and holders of certain subordinated indebtedness of the Company in an effort to obtain sufficient acceptances of the Plan. The Solicitation was conducted by the Company in reliance upon Section 3(a)(9) of the Securities Act of 1933, as amended (the "'33 Act") and similar state law provisions to exempt from registration under the securities laws the offer of the New Senior Notes and New Common Stock that may be deemed to have been made as a result of the Solicitation. The Solicitation was conducted through the use of a Disclosure Statement, as supplemented from time to time. See the Company's Current Reports on Form 8-K dated July 1, and July 16, 1998 for a copy of the Disclosure Statement and the Disclosure Statement Supplement, filed as exhibits to such Forms 8-K. The Solicitation expired at midnight on July 28, 1998. The Plan was accepted by the following vote of the holders of Old Senior Notes and holders of certain subordinated indebtedness of the Company: OLD SENIOR NOTES
PERCENTAGE OF PRINCIPAL Percentage of PRINCIPAL AMOUNT AMOUNT Number of Creditors THAT THAT VOTED CREDITORS VOTED Accept $217,441,000 99.9% 198 99.9% Reject 160,000 0.1% 2 0.1% ----------- ----- --- ----- Total $217,601,000 100.0% 200 100.0% ============ ===== === =====
SUBORDINATED INDEBTEDNESS
PERCENTAGE OF PRINCIPAL Percentage of PRINCIPAL AMOUNT AMOUNT NUMBER OF Creditors That THAT VOTED CREDITORS Voted Accept $ 30,072,685 92.3% 5 83.3% Reject 2,513,692 7.7% 1 16.7% ------------ ----- -- ----- Total $ 32,586,377 100.0% 6 100.0% ============ ===== == =====
The Company did not solicit the vote of its shareholders, for whom the Plan provided no right to receive or retain any property of reorganized CAI. Section 1126(g) of the Bankruptcy Code specifically deems such shareholders not to have accepted the Plan. Item 5. Other Information. FCC TWO-WAY APPLICATION PROCESS. The Company is in the process of preparing the necessary applications for two-way use of certain of its MMDS spectrum in accordance with the rules that were released by the Federal Communications Commission ("FCC") on September 25, 1998 with respect to two-way transmissions (the "Two-way Rules"). Although the FCC has not yet announced a definitive date for filing such applications, the Company anticipates that the first "filing window" will open at the FCC for two-way applications late in the first quarter or early in the second quarter of calendar year 1999. In accordance with the Two-way Rules, following the first filing window, the FCC will accept two-way transmission applications on an on-going, daily, first-come basis. The application process involves the formulation of a frequency plan and coordination of such frequency plan both with internal market, as well as adjacent market, licenseholders in each market in which an operator seeks two- way approval. Following the close of the first filing window, completed applications are reviewed in the order in which they are filed at the FCC and the granting of an application in a particular market may limit the utilization of contiguous markets. The frequency plan is also dependent upon the two-way uses of the spectrum proposed by the applicant in any given market. The Company, in consultation with other companies in the industry, has developed a generic frequency plan that can be used as a template for its markets and has begun to adapt such template to its various markets in an effort to complete certain two-way applications to be filed at the FCC. Adaptation of the generic frequency plan is necessary because of the different channel groups and channels that are available to the Company in its various markets, and the potential interference that could result from, or be encountered by the Company as a result of, an operators activities in a contiguous market. Although the Company has devised such a template, there can be no assurance that the Company will be able to complete the necessary processes to enable it to file two-way applications for each of its markets during the first filing window, nor can there be any assurance that applications filed after the first filing window will not be preempted or otherwise limited by previously filed applications of other operators. Moreover, the plan applied for may not be the frequency plan necessary for the requirements for the business ultimately conducted in a particular market. The Company believes that MMDS spectrum, in general, can be utilized in a two-way environment to provide data, telephony and video transmission services. In accordance with certain authorizations granted specifically to the Company by the FCC prior to the release of the Two-way Rules, the Company has performed certain demonstrations and conducted limited testing of fixed, two-way data and telephony transmission as well as digital video transmission using its MMDS spectrum. The use of MMDS spectrum in a two-way environment on a widespread basis, however, involves the deployment of new technology, engineering and equipment, most of which will be developed for the first time in response to the expanded authority recently granted by the FCC to use MMDS spectrum for two-way transmissions, and the coordinated efforts of MMDS operators in contiguous and adjacent markets. Although the Company believes that it will be able to adapt its two-way transmission engineering plans to provide widespread deployment of its MMDS spectrum in a two-way environment, there can be no assurance that new technology and such engineering will be developed by the Company, that cost-effective and efficient equipment will be developed and produced by the vendor community, or that the Company will be able to deploy MMDS spectrum in a two-way environment in any of its markets on a competitive, cost-effective basis. Furthermore, there can be no assurance that the Company will be able to obtain the necessary cooperation and coordination from MMDS operators in markets that are contiguous or adjacent to the Company's markets to enable the Company to maximize the use of its MMDS spectrum in a two-way environment. The deployment of MMDS spectrum in a digital two-way environment requires significant capital expenditures. Implementation of two-way operations requires an MMDS operator to build an infrastructure that is significantly more complex than the infrastructure necessary to operate a one-way analog or digital video system using MMDS spectrum. The Company's business plan contemplates that CAI will become a wholesale provider of fixed, two-way transmission services, and does not contemplate retail distribution by CAI of wireless services. The Company's business plan, which assumes the presence of one or more strategic partners purchasing or otherwise utilizing the Company's two-way capacity for consideration, also contemplates that the Company will be able to share certain capital expenditures necessary for the build-out of digital two-way MMDS systems with such strategic partners. There can be no assurance that the Company will be able to identify one or more strategic partners, or that any strategic partners so identified will be willing to enter into a business relationship with the Company on terms and conditions, including terms and conditions relating to capital expenditures, that are satisfactory to the Company. The Company owns an average of 7 of the available commercial channels in each of its primary markets. The balance of the commercial channels, as well as the ITFS channels owned by educational and similar institutions, available to the Company in its various markets is provided to the Company through long- term leases. The Company does not have access to all available channels in all of its markets. Certain of the Company's more recent leases contain provisions that contemplate the use of the leased spectrum for fixed, two-way transmissions. The majority of the spectrum leases to which the Company, through wholly-owned, indirect subsidiaries, is a party, do not contemplate two-way usage.The Company is in the process of negotiating these MMDS spectrum leases. The negotiations involve the use of the leased spectrum by the Company for two-way services. The Company has recently completed a series of such negotiations with spectrum lessors in its Boston market, which negotiations have resulted in the Company entering into leases with various spectrum lessors in the Boston market that contemplate two-way transmission services. The Company believes that these leases are on terms and conditions that are fair and reasonable to the Company. The Company believes that it will continue to be able to negotiate revised leases with spectrum lessors in markets other than Boston on terms and conditions that are fair and reasonable to the Company. STRATEGIC PARTNER SEARCH. As stated above and in prior filings made by the Company with the Commission, the Company continues to search for one or more strategic partners interested in utilizing the Company's MMDS spectrum. In connection with this search and the issuance by the FCC of the two-way rulemaking, the Company plans to construct a two-way demonstration system in its Washington, DC market, which system, while not commercially deployed on anything other than a limited basis, will utilize technology and equipment from a variety of vendors. The Company believes that the equipment to be deployed in its Washington, DC demonstration system could be deployed in a widespread commercial launch of two-way services in one or more markets; however, such equipment needs further testing, which the Company intends to accomplish in the Washington, DC market. The Company currently operates an analog subscription video service and a limited one-way Internet access service in its Washington, DC market. The Company's plans for its Washington, DC market do not currently include the deployment of commercial services utilizing MMDS spectrum for two-way transmissions on a widespread basis. The Company intends, at this time, to conduct limited tests and use the Washington, DC system for demonstrating the capabilities of two-way MMDS transmissions to potential strategic partners, and possibly, a limited commercial deployment. There can be no assurance that the demonstration system will be constructed in its entirety or at all, that Company will receive the necessary regulatory approvals for the demonstration system, or that the Company will be able to deploy its MMDS spectrum in the Washington, DC market in a two-way manner for such demonstration system. Furthermore, the Company does not believe that a limited commercial deployment of any two-way services in the Washington, DC market will have a material impact on the Company's revenues. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a) EXHIBITS. The following exhibits are filed herewith or incorporated by reference as indicated:
Incorporation by Reference Page REFERENCE EXHIBIT NO. DESCRIPTION (SEE LEGEND) 2.1 Joint Reorganization Plan of CAI Wireless Systems, Inc. [3] Exhibit 2.1 and Philadelphia Choice Television, Inc. 3.1 Amended and Restated Certificate of Incorporation of [1] Exhibit 3.1 CAI 3.2 Amended and Restated Bylaws of CAI [1] Exhibit 3.2 3.3 Certificate Amending the Amended and Restated Certificate of Incorporation of CAI 4.1 Amended and Restated Note Purchase Agreement dated as [2] Exhibit 4.1 of July 30, 1998 between Registrant and Merrill Lynch Global Allocation Fund, Inc. 4.2 Indenture dated as of October 14, 1998 between CAI [3] Exhibit 4.1 and State Street Bank and Trust Company governing CAI's 13% Senior Notes due 2004 4.3 Note Purchase Agreement dated as of October 14, 1998 [3] Exhibit 4.2 by and between CAI and Merrill Lynch Global Allocation Fund, Inc. 4.4 Senior Secured A Note in the principal amount of $30 [3] Exhibit 4.3 million due October 14, 2000 4.5 Senior Secured B Note in the principal amount of $50 [3] Exhibit 4.4 million due October 14 2000 4.6 Registration Rights Agreement dated as of October 14, 1998 by and among CAI, Merrill Lynch Global Allocation Fund, Inc. and Merrill Lynch Equity/Convertible Series Fund (Global Allocation Portfolio) 16. Letter by PricewaterhouseCoopers to Securities and [4] Exhibit 16. Exchange Commission dated August 6, 1998 27. Financial Data Schedule 99.1 Disclosure Statement dated as of June 30, 1998 [5] Exhibit 99.1 99.2 Disclosure Statement Supplement dated as of July 15, [6] Exhibit 99.1 1998 99.3 Interim Order Authorizing Postpetition Financing [2] Exhibit 99.1 99.4 Press Release dated July 30, 1998 [2] Exhibit 99.2 99.5 Pro Forma Balance Sheet Giving Effect to the Company's Reorganization Plan as if it had Occurred on September 30, 1998
LEGEND [1] Incorporated by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for September 30, 1995. [2] Incorporated by reference to the exhibit to the Company's Current Report on Form 8-K dated August 3, 1998. [3] Incorporated by reference to the exhibit to the Company's Current Report on Form 8-K dated October 15, 1998. [4] Incorporated by reference to the exhibit to the Company's Current Report on Form 8-K dated August 6, 1998. [5] Incorporated by reference to the exhibit to the Company's Current Report on Form 8-K dated July 1, 1998. [6] Incorporated by reference to the exhibit to the Company's Current Report on Form 8-K dated July 16, 1998. Filed herewith. b) REPORTS ON FORM 8-K. (1) Form 8-K filed July 1, 1998, reporting the following: Item 5. Other Events: The Company commenced a solicitation of votes on June 30, 1998 with respect to a pre-packaged reorganization plan and upon acceptance, intends to file a voluntary petition under Chapter 11 of the Bankruptcy Code. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits C. Exhibits 99.1 Disclosure Statement dated as of June 30, 1998 (2) Form 8-K filed July 16, 1998, reporting the following: Item 5. Other Events The Company disseminated a Disclosure Statement Supplement to certain impaired creditors, which sets forth additions and/or amendments to the Disclosure Statement originally sent to certain impaired creditors. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits C. Exhibits 99.1 Disclosure Statement Supplement dated as of July 15, 1998 (3) Form 8-K filed August 3, 1998, reporting the following: Item 3. Bankruptcy or Receivership The Company filed voluntary petitions for relief under Chapter 11, Title 11 of the United States Code with the United States Bankruptcy Court for the District of Delaware, Wilmington, Delaware. CAI, as Debtor-in-Possession, will continue to manage and operate its assets and business with its existing directors and officers, subject to the supervision and orders of the Court. Concurrent with filing the voluntary petitions, CAI sold 13% senior secured notes due January 29, 1999 to Merrill Lynch Global Allocation Fund, Inc. which provided for the rollover of the existing bridge financing with the remaining $10,894,000 available for use during the Chapter 11 proceedings, in accordance with the terms of an approved budget. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits C. Exhibits 4.1 Amended and Restated Note Purchase Agreement dated as of July 30, 1998 between Registrant and Merrill Lynch Global Allocation Fund, Inc. 99.1 Interim Order Authorizing Postpetition Financing. 99.2 Press Release dated July 30, 1998. (4) Form 8-K filed August 6, 1998, reporting the following: Item 4. Changes in Registrant's Certifying Accountant PricewaterhouseCoopers LLP resigned from its engagement as the Company's independent accountant due to a conflict of interest arising as a result of the merger of the two accounting firms. (5) Form 8-K filed October 15, 1998, reporting the following: Item 3. Bankruptcy or Receivership. CAI and one of its subsidiaries filed each filed a petition for reorganization relief under Chapter 11 of the United States Bankruptcy Code on July 30, 1998. The Plan was confirmed on September 30, 1998 and consummated on October 14, 1998. Item 5. Other Events. Simultaneously with the consummation of the Plan, CAI consummates an $80 million senior secured credit facility (Exit Facility) of which $64 million was used to repay principal, interest and fees on the $60 million interim debtor-in-possession financing. Item 7. Financial Statements and Exhibits. (c) Exhibits 2.1 Joint Reorganization Plan of CAI Wireless Systems, Inc. and Philadelphia Choice Television, Inc. dated June 30, 1998. 4.1 Indenture dated as of October 14, 1998 governing the terms of registrant's 13% Senior Notes due 2004. 4.2 Note Purchase Agreement dated as of October 14, 1998 by and between registrant and Merrill Lynch Global Allocation Fund, Inc. 4.3 Senior Secured A Note in the principal amount of $30 million due October 14, 2000. 4.4 Senior Secured B Note in the principal amount of $50 million due October 14, 2000. (6) Form 8-K filed October 30, 1998, reporting the following: Item 1. Changes in Control of Registrant. In connection with the consummation of its previously- announced reorganization under Chapter 11 of the U.S. Bankruptcy Code, the Company issued its voting common stock to holders of its 12.25% Senior Notes due 2002 (the "Old Senior Notes"). As a result of this issuance, certain holders of Old Senior Notes acquired more than 10% of the voting securities of CAI. In response to Item 1, CAI disclosed the identity and certain other information regarding these 10% holders. 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.
SIGNATURE TITLE DATE /S/ Chairman, Chief Executive Officer November 13, 1998 JARED E. ABBRUZZESE and Director (Principal Executive Officer) /S/ Executive Vice President, Chief November 13, 1998 JAMES P. ASHMAN Financial Officer and Director (Principal Financial Officer) /S/ Vice President and Controller November 13, 1998 ARTHUR J. MILLER (Principal Accounting Officer)
EX-1 2 Exhibit 3.3 CERTIFICATE AMENDING THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF CAI WIRELESS SYSTEMS, INC. PURSUANT TO SECTION 33-802 OF THE CONNECTICUT BUSINESS CORPORATION ACT 1. The name of the corporation (the "Corporation") is CAI WIRELESS SYSTEMS, INC. 2. The Amended and Restated Certificate of Incorporation of the Corporation is hereby amended as follows: (a) Article THIRD of the Amended and Restated Certificate of Incorporation of the Corporation is hereby amended by deleting it in its entirety and substituting the following in lieu thereof: "THIRD: (a) The amount of capital stock of the Corporation hereby authorized is thirty million (30,000,000) shares which consists of twenty-five million (25,000,000) shares of common stock, par value $0.01 per share (the "Common Stock") and five million (5,000,000) shares of preferred stock, par value $0.01 per share (the "Preferred Stock"). The Board of Directors will have the authority to fix the terms, limitations and relative rights and preferences of any unissued shares of Preferred Stock, to establish series to the Preferred Stock, to fix and determine the variations among series and to fix the number of shares constituting any series of Preferred stock and the designation of such series, without any further vote or action by shareholders. (b) Notwithstanding the foregoing, the Corporation will not issue any nonvoting equity securities to the extent prohibited by Section 1123 of the United States Bankruptcy Code; provided, however, that this subsection (b) of Article THIRD (i) will have no further force and effect beyond that required by Section 1123 of the United States Bankruptcy Code, (ii) will have such force and effect, if any, only for so long as such Section 1123 is in effect and applicable to the Corporation, and (iii) in all events may be amended or eliminated in accordance with applicable law as from time to time in effect." (b) Article SIXTH of the Amended and Restated Certificate of Incorporation of the Corporation is hereby amended by deleting it in its entirety and substituting the following in lieu thereof: "SIXTH: The personal liability of any Director to the Corporation or its shareholders for monetary damages for breach of duty as a Director is hereby limited to the amount of the compensation received by the Director for serving the Corporation during the year of the violation if such breach did not (a) involve a knowing and culpable violation of law by the Director, (b) enable the Director or an associate, as defined in Section 33-840 of the Connecticut General Statutes or any successor statute thereto, to receive an improper personal economic gain, (c) show a lack of good faith and a conscious disregard for the duty of the Director to the Corporation under circumstances in which the Director was aware that his or her conduct or omission created an unjustifiable risk of serious injury to the Corporation, (d) constitute a sustained and unexcused pattern of inattention that amounted to an abdication of the Director's duty to the Corporation, or (e) create liability under Section 33-757 of the Connecticut General Statutes, or any successor statute thereto. Any lawful repeal or modification of this provision by the shareholders and the Board of Directors of the Corporation shall not adversely affect any right or protection of a Director existing at or prior to the time of such repeal or modification." (c) Articles NINTH and TENTH are hereby added as follows: "NINTH: The Corporation expressly elects not to be governed by Sections 33-840 to 33-842, inclusive of the Connecticut General Statutes. TENTH: Pursuant to the authority granted in Sections 33-601(a) of the Connecticut General Statutes , the Corporation expressly elects not to be governed by Sections 33-843 to 33-845, inclusive, of the Connecticut General Statutes." 3. The Order of the United States Bankruptcy Court for the District of Delaware (the "Order") approving this Certificate of Amendment to the Restated and Amended Certificate of Incorporation of CAI Wireless Systems, Inc. was entered on September 30, 1998. 4. The title of the reorganization proceeding in which the Order was entered is IN RE CAI WIRELESS SYSTEMS, INC., Case No. 98-01765 (JJF). 5. The United States Bankruptcy Court for the District of Delaware had jurisdiction over the above-captioned proceeding under 28 U.S.C.
157 and 1334. 2 IN WITNESS WHEREOF, the undersigned, being designated by the United States Bankruptcy Court for the District of Delaware, does hereby declare, under the penalties of false statement, that the statements in the foregoing certificate are true. /S/ JAMES P. ASHMAN James P. Ashman Executive Vice President and Chief Financial Officer EX-2 3 Exhibit 4.6 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is made and entered into as of October 14, 1998 among CAI WIRELESS SYSTEMS, INC. (the "Company"), a Connecticut corporation, MERRILL LYNCH GLOBAL ALLOCATION FUND, INC. ("GAX"), and MERRILL LYNCH EQUITY/CONVERTIBLE SERIES: GLOBAL ALLOCATION PORTFOLIO ("Portfolio") together with GAX and including their respective successors, assigns and direct and indirect transferees, "SHAREHOLDERS" and "NOTEHOLDERS"). This Agreement is made pursuant to the plan of reorganization under Chapter 11 of the United States Bankruptcy Code for the Company and Philadelphia Choice Television, Inc., a Delaware corporation, dated June 30, 1998, as amended, modified or supplemented from time to time (the "PLAN"), and the Note Purchase Agreement dated October 14, 1998 among the Company and the other parties thereto (the "PURCHASE AGREEMENT"). In order to induce (i) the Noteholders to accept the 13% Senior Notes due 2004 of the Company pursuant to the Plan and (ii) the Shareholders to accept the shares of the Company's common stock, par value $0.01 per share, (the "Common Stock") pursuant to the Plan and the Purchase Agreement, the Company has agreed to provide the Noteholders and the Shareholders the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the consummation of the Plan and the closing under the Purchase Agreement. In consideration of the foregoing, the parties hereto agree as follows: SECTION 1. DEFINITIONS. As used in this Agreement, the following defined terms shall have the following meanings: "ADVICE" has the meaning ascribed to such term in Section 3 hereof. "AFFILIATE" shall have the meaning ascribed to such term in Rule 144A under the Securities Act. "AGREEMENT" shall have the meaning ascribed to such term in the preamble hereof. "BUSINESS DAY" shall mean a day that is not a Legal Holiday. "CAPITAL STOCK" shall mean, with respect to any Person, any and all shares, interests, partnership interests, participation's, rights in or other equivalents (however designated and whether voting or non-voting) of such person's capital stock, and any rights (other than debt securities convertible into capital stock), warrants or options exchangeable for or convertible into such capital stock whether outstanding on the date hereof or issued hereafter. "COMPANY" shall have the meaning ascribed to such term in the preamble hereof and shall also include the Company's permitted successors and assigns. "COMMON STOCK" shall have the meaning ascribed to such term in the preamble hereof. "DEMAND REGISTRATION" shall have the meaning ascribed to such term in Section 2.2(a) hereof. "DTC" shall mean The Depository Trust Company. "EFFECTIVENESS PERIOD" shall mean the respective periods for which the Company is obligated to keep a Registration Statement effective pursuant to Sections 2.1(a), 2.2(a) and 2.3(a). "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended from time to time. "GAX" shall have the meaning ascribed to such term in the preamble hereof. "HOLDER" shall mean each holder of any Registrable Securities, and each of their successors, assigns and direct and indirect transferees who become registered owners of such Registrable Securities. "INDEMNIFIED PARTY" and "INDEMNIFYING PARTY" shall have the respective meanings ascribed to such terms in Section 4(c). "INDENTURE" shall mean the Indenture dated the date hereof between the Company and State Street Bank and Trust Company, as Trustee, pursuant to which the Notes are issued. "INSPECTORS" shall have the meaning ascribed to such term in Section 3(m) hereof. "LEGAL HOLIDAY" shall mean a Saturday, a Sunday or a day on which (i) banking institutions in The City of New York are required or authorized by law or other government action to be closed and (ii) the principal U.S. securities exchange or market, if any, on which the Notes or any Common Stock is listed or admitted to trading are closed for business. "NOTEHOLDERS" shall have the meaning ascribed to such term in the preamble hereof. "NOTES" shall have the meaning ascribed to such term in the preamble hereof. "PERSON" shall mean any individual, corporation, limited liability company, partnership, joint venture, association, joint- stock company, trust, unincorporated organization or government or any agency or political subdivision thereof or any other entity, including any predecessor of any such entity. "PIGGY-BACK REGISTRATION" shall have the meaning ascribed to such term in Section 2.3(a) hereof. "PIGGY-BACK REGISTRATION STATEMENT" shall have the meaning ascribed to such term in Section 2.3(c) hereof. "PLAN" shall have the meaning ascribed to such term in the preamble hereof. "PORTFOLIO" shall have the meaning ascribed to such term in the preamble hereof. "PROSPECTUS" shall mean the prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. "PURCHASE AGREEMENT" shall have the meaning ascribed to such term in the preamble hereof. "REGISTRABLE SECURITIES" shall mean securities acquired pursuant to or in connection with the Plan, including the Common Stock, the Notes and any other securities issued or issuable with respect to the Common Stock or the Notes, including by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise, PROVIDED that if the Common Stock is listed on any national securities exchange or quoted on any interdealer quotation system only the shares of Common Stock and Notes held by Persons deemed to be Affiliates or "underwriters" for purposes of the Securities Act will be deemed to be Registrable Securities. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (a) a registration statement with respect to the offering of such securities by the holder thereof shall have been declared effective under the Securities Act and such securities shall have been disposed of by such holder pursuant to such registration statement, (b) such securities have been sold to the public pursuant to, or are eligible for sale to the public without volume or manner of sale restrictions under, Rule 144(k) (or any similar provision then in force, but not Rule 144A) promulgated under the Securities Act, (c) such securities shall have been otherwise transferred and new certificates for such securities not bearing a legend restricting further transfer shall have been delivered by the Company or its transfer agent and subsequent disposition of such securities shall not require registration or qualification under the Securities Act or any similar state law then in force, or (d) such securities shall have ceased to be outstanding. "REGISTRATION EXPENSES" shall mean all expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation, all SEC and stock exchange or National Association of Securities Dealers, Inc. registration and filing fees and expenses, fees and expenses of compliance with securities or blue sky laws (including, without limitation, reasonable fees and disbursements of counsel for the underwriters, if any, and the Holders in connection with blue sky qualifications of the Registrable Securities), printing expenses, messenger, telephone and delivery expenses, fees and disbursements of counsel for the Company, counsel for the Holders, counsel for the underwriters, if any, the Trustee, the Transfer Agent and Registrar and all independent certified public accountants, and other reasonable out-of-pocket expenses of Holders (it being understood that Registration Expenses shall not include, as to the fees and expenses of counsel, the fees and expenses of more than one counsel for each of the Shareholders, as a whole, and the Noteholders, as a whole, and one counsel for the underwriters, if any, as to securities and blue sky matters). "REGISTRATION STATEMENT" shall mean any appropriate registration statement of the Company filed with the SEC pursuant to the Securities Act which covers any of the shares of Common Stock, the Notes and any other Registrable Securities pursuant to the provisions of this Agreement and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all materials incorporated by reference therein. "RULE 144" shall mean Rule 144 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not Affiliates of an issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act. "RULE 144A" shall mean Rule 144A promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC. "SEC" shall mean the Securities and Exchange Commission. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended from time to time. "SELLING HOLDER" shall mean a Holder who is selling Registrable Securities in accordance with the provisions of Section 2.3. "SHAREHOLDERS" shall have the meaning ascribed to such term in the preamble hereof. "SHELF REGISTRATION STATEMENT" shall have the meaning ascribed to such term in Section 2.1(a). "SUSPENSION PERIOD" shall have the meaning ascribed to such term in Section 2.4(a). "TERMINATION DATE" shall mean October 14, 2004. "TRANSFER AGENT AND REGISTRAR" shall mean American Stock Transfer & Trust Company and any successor thereto for the Common Stock. "TRUSTEE" shall mean State Street Bank and Trust Company and any successor trustee for the Notes pursuant to the Indenture. Capitalized terms used herein but not defined shall have the meaning ascribed thereto in the Plan or the Purchase Agreement. SECTION 2. REGISTRATION RIGHTS. 2.1 (a) SHELF REGISTRATION STATEMENT. Upon request of Shareholders of not less than 10% of the outstanding shares of Common Stock which are deemed to be Affiliates or "underwriters" for purposes of the Securities Act, the Company shall, as soon as practicable, cause to be filed pursuant to Rule 415 (or any successor provision) of the Securities Act a shelf registration statement (the "SHELF REGISTRATION STATEMENT") covering the resale of the Registrable Securities by the Holders thereof, and shall use its commercially reasonable efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act on or before 180 days after the date of such request. Subject to Section 2.4(a) hereof, the Company shall use its best efforts to maintain the effectiveness of the Shelf Registration Statement until the earlier of (i) such time as all of the Registrable Securities have been resold thereunder, or (ii) such time as the Registrable Securities may be sold without restriction under the Securities Act. The Company shall pay all Registration Expenses in connection with the resale of the Registrable Securities. Each Holder of Registrable Securities shall pay all brokerage and sales commissions, underwriting discounts and commissions, if any, and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to a Registration Statement requested pursuant to this Section 2.1. (b) BLUE SKY. The Company shall use its best efforts to register or qualify the shares of Common Stock and the Notes under all applicable securities laws, blue sky laws or similar laws of all jurisdictions in the United States and Canada in which any Holder may or may be deemed to purchase such securities and shall use its best efforts to maintain such registration or qualification for as long as the Shelf Registration Statement shall be required to be kept effective under Section 2.1(a); PROVIDED, HOWEVER, that the Company shall not be required to qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 2.1(b) or to take any action which would subject it to general service of process or to taxation in any such jurisdiction where it is not then so subject. (c) ACCURACY OF DISCLOSURE. The Company represents and warrants to each Holder and agrees for the benefit of each Holder that (i) the Shelf Registration Statement and any amendment thereto will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading; and (ii) each of the prospectuses furnished to such Holder for delivery in connection with the resale of Registrable Securities and the documents incorporated by reference therein will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading; provided, however, that the Company shall have no liability under clause (i) or (ii) of this Section 2.1(c) with respect to any such untrue statement or omission made in the Shelf Registration Statement in reliance upon and in conformity with information furnished to the Company by or on behalf of the Holders specifically for inclusion therein. (d) ADDITIONAL ACTS. If the issuance or sale of any Registrable Securities requires registration or approval of any governmental authority (other than the registration requirements under the Securities Act), or the taking of any other action under the laws of the United States of America or any political subdivision thereof before such securities may be validly offered or sold in compliance with such laws, then the Company covenants that it will, in good faith and as expeditiously as possible, use its best efforts to secure and maintain such registration or approval or to take such other action, as the case may be. 2.2 (a) DEMAND REGISTRATION. The Holders of a number of Registrable Securities equivalent to at least a majority of the outstanding shares of Common Stock comprising Registrable Securities at such time or a majority of the outstanding Notes comprising Registrable Securities at such time, as the case may be, may make a written request to the Company, from time to time, to effect up to two registrations under the Securities Act per year of each such class of Registrable Securities until the Termination Date (each, a "DEMAND REGISTRATION"); PROVIDED, HOWEVER, that such Holders may not make a second demand for registration with respect to such class of Registrable Securities until 12 months after the date on which the Registration Statement filed pursuant to the first demand was declared effective. Within 15 days after the receipt of such written request for a Demand Registration, the Company shall notify the Holders of all such class Registrable Securities that a Demand Registration relating to that class of Registrable Securities has been requested. As promptly as practicable after receiving a written request for a Demand Registration, the Company shall (i) prepare, file with the SEC and use its commercially reasonable efforts to cause to become effective under the Securities Act within 90 days of such demand a Registration Statement with respect to such class of Registrable Securities, subject to Section 2.2(b), and (ii) keep such Registration Statement continuously effective until the earlier to occur of (A) the date that is 90 days after such effectiveness and (B) such period of time as all of the Registrable Securities included in such registration statement shall have been sold thereunder. Any such request will specify the number of shares of Registrable Securities proposed to be sold and will also specify the intended method of disposition thereof. Within 30 days after receipt by any Holder of Registrable Securities of such notice from the Company, such Holder may request in writing that the applicable class of such Holder's Registrable Securities be included in such Registration Statement and, subject to 2.2(b), the Company shall include in such Registration Statement the applicable class of Registrable Securities of any such Holder requested to be so included (the "INCLUDED SECURITIES"). Each such request by such other Holders shall specify the number of Included Securities proposed to be sold and the intended method of disposition thereof. If such demand occurs during the "lock up" or "black out" period (not to exceed 180 days) imposed on the Company pursuant to or in connection with any underwriting or purchase agreement relating to an underwritten Rule 144A or registered public offering of Common Stock or securities convertible into or exchangeable or exercisable for Common Stock, the Company shall not be required to so notify holders of Registrable Securities and file such Demand Registration Statement prior to the end of such "lock up" or "black out" period, in which event the Company will use its commercially reasonable efforts to cause such Demand Registration statement to become effective no later than the later of (i) 150 days after such demand or (ii) 30 days after the end of such "lock up" or "black out" period. In the event of any "lock up" or "black out" period or any underwriting or other purchase agreement, the Company shall so notify the holders of the Registrable Securities. (b) PRIORITY IN DEMAND REGISTRATION. In a registration pursuant to this Section 2.2 involving an underwritten offering, if the managing underwriter or underwriters of such underwritten offering have informed, in writing, the Company and the Holders requesting inclusion in such offering that in such underwriter's or underwriters' reasonable opinion the total number of securities which the Company and the Holders intend to include in such offering is such as to materially and adversely affect the success of such offering, including the price at which such securities can be sold, then the Company will be required to include in such registration only the amount of securities which it is so advised should be included in such registration. In such event, securities shall be registered in such offering in the following order of priority: (i) FIRST, the securities which have been requested to be included in such registration by any Holder deemed to be an Affiliate or "underwriter" for purposes of the Securities Act (in an amount equal to the lesser of (x) an amount sufficient to include all Registrable Securities offered by such Holder and (y) an amount sufficient to reduce the number of such Holder's Registrable Securities held after the offering to a level that would cause such Holder to no longer be so deemed an Affiliate or "underwriter") (ii) SECOND, PROVIDED that no securities sought to be included by an Affiliate or "underwriter" have been excluded from such registration pursuant to (i) above, the securities which have been duly requested to be included in such registration by all other Holders of Registrable Securities pursuant to this Agreement (such securities for the account of the Holders to be allocated among the Holders pro rata based on the amount of securities sought to be registered by the Holder), (iii) THIRD, PROVIDED that no securities sought to be included by an Affiliate or "underwriter" or any other Holder have been excluded from such registration, the securities of other Persons entitled to exercise "piggy-back" registration rights pursuant to contractual commitments of the Company (pro rata based on the amount of securities sought to be registered by such Persons) and (iv) FOURTH, PROVIDED that no securities of any of the foregoing eligible Persons sought to be included therein have been excluded from such registration, securities to be offered and sold for the account of the Company. If, as a result of the provisions of this Section 2.2(b), any Holder shall not be entitled to include all Registrable Securities in a Demand Registration that such Selling Holder has requested to be included, such Holder may elect to withdraw his request to include Registrable Securities in such registration. (c) EFFECTIVE REGISTRATION. A Registration Statement shall not be deemed to have been effected as a Demand Registration unless it shall have been declared effective by the SEC, no later than the later of (i) 90 days after the request for a Demand Registration or (ii) 30 days after the end of any "lock up" or "black out" period described in Section 2.2(a) hereof and the Company has complied in all material respects with all of its obligations under this Agreement with respect thereto; PROVIDED, HOWEVER, that if, after such Registration Statement has become effective, the offering of Registrable Securities pursuant to such Registration Statement is or becomes the subject of any stop order, injunction or other order or requirement of the SEC or any other governmental, judicial or administrative order or requirement that prevents, restrains or otherwise limits the sale of Registrable Securities pursuant to such Registration Statement for any reason not attributable to any Holder participating in such registration, and such Registration Statement has not become effective within a reasonable time period thereafter, such Registration Statement shall be deemed not to have been effected. If (i) a registration requested pursuant to this Section 2.2 is deemed not to have been effected or (ii) a Demand Registration does not remain effective under the Securities Act until at least the earlier of (A) an aggregate of 90 days (subject to Section 2.4 herein) after the effective date thereof or (B) the consummation of the distribution by the Holders of all of the Registrable Securities covered thereby, then such Demand Registration shall not count towards determining if the Company has satisfied its obligation to effect Demand Registrations pursuant to this Section 2.2. For purposes of calculating the 90-day period referred to in the preceding sentence, any period of time during which such Registration Statement was not in effect shall be excluded. The Holders of Registrable Securities shall be permitted to withdraw all or any part of the Registrable Securities from a Demand Registration. Notwithstanding any such withdrawal by a Holder of Registrable Securities, if the Company has complied with all of its obligations hereunder and has effected a Demand Registration within 90 days after the request for a Demand Registration, such withdrawal shall not require the Company to effect any additional Demand Registrations. (d) RESTRICTIONS ON SALE BY HOLDERS. Each Holder of Registrable Securities whose Registrable Securities are covered by a Registration Statement filed pursuant to this Section 2.2 and are to be sold thereunder agrees, if and to the extent reasonably requested by the managing underwriter or underwriters in an underwritten public offering, not to effect any public sale or distribution of Registrable Securities or of securities of the Company of the same class as any securities included in such Registration Statement, including a sale pursuant to Rule 144 (except as part of such underwritten offering), during the 30-day period prior to, and during the 180-day period beginning on, the closing date of each underwritten offering made pursuant to such Registration Statement, to the extent timely notified in writing by the Company or such managing underwriter or underwriters. The foregoing provisions of Section 2.2(d) shall not apply to any Holders of Registrable Securities if such Holder is prevented by applicable statute or regulation from entering into any such agreement; PROVIDED, HOWEVER, that any such Holder shall undertake, in its request to participate in any such underwritten offering, not to effect any public sale or distribution of any Registrable Securities commencing on the date of sale of such Registrable Securities unless it has provided 45 days' prior written notice of such sale or distribution to the managing underwriter or underwriters. (e) SELECTION OF UNDERWRITER. If the Holders so elect, the offering of such Registrable Securities pursuant to such Demand Registration shall be in the form of an underwritten offering. The Holders making such Demand Registration shall select one or more nationally recognized firms of investment bankers, who shall be reasonably acceptable to the Company, to act as the managing underwriter or underwriters in connection with such offering and shall select any additional investment bankers and managers to be used in connection with the offering. (f) EXPENSES. The Company will pay all Registration Expenses in connection with the registrations requested pursuant to Section 2.2(a) hereof. Each Holder of Registrable Securities shall pay all brokerage and sales commissions, underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to a Registration Statement requested pursuant to this Section 2.2. 2.3 (a) PIGGY-BACK REGISTRATION. If at any time prior to the Termination Date the Company proposes to file a Registration Statement under the Securities Act with respect to an offering by the Company for its own account or for the account of any of its securityholders of Capital Stock (other than (i) a registration statement on Form S-4 or S-8 (or F-4 or F-8) (or any substitute form that may be adopted by the SEC) or any other publicly registered offering pursuant to the Securities Act pertaining to the issuance of shares of Capital Stock or securities exercisable therefor under any benefit plan, employee compensation plan, or employee or director stock purchase plan or (ii) a registration statement filed in connection with an offer of securities solely to the Company's existing securityholders), then the Company shall give written notice of such proposed filing to the Holders of Registrable Securities of the same class intended to be offered by the Company as soon as practicable (but in no event fewer than 15 days before the anticipated filing date or 10 days if the Company is subject to filing reports under the Exchange Act and able to use Form S-3 (or F-3) under the Securities Act. Such notice shall offer such Holders the opportunity to register such number of shares of the applicable class of Registrable Securities as each such Holder may request, and such request must be received by the Company within 20 days after such written notice was received by such Holder, (which request shall specify the number of such Registrable Securities intended to be disposed of by such Selling Holder and the intended method of distribution thereof) (a "PIGGY-BACK REGISTRATION"). The Company shall use its commercially reasonable efforts to effect the registration of such Registrable Securities and shall use its best efforts to keep such Piggy-Back Registration continuously effective under the Securities Act in the qualifying jurisdictions until at least the earlier of (A) 60 days after the effective date thereof or (B) the consummation of the distribution by the Holders of all of the Registrable Securities covered thereby. The Company shall use its commercially reasonable efforts to cause the managing underwriter or underwriters, if any, of such proposed offering to permit the Registrable Securities requested to be included in a Piggy-Back Registration to be included on the same terms and conditions as any similar securities of the Company or any other securityholder included therein and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method of distribution thereof. Any Selling Holder shall have the right to withdraw its request for inclusion of its Registrable Securities in any Registration Statement pursuant to this Section 2.3 by giving written notice to the Company of its request to withdraw. The Company may withdraw a Piggy-Back Registration at any time prior to the time it becomes effective or the Company may elect to delay the registration; PROVIDED, HOWEVER, that the Company shall give prompt written notice thereof to participating Selling Holders. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 2.3, and each Holder of Registrable Securities shall pay all brokerage and sales commissions, underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to a Registration Statement effected pursuant to this Section 2.3. No registration effected under this Section 2.3, and no failure to effect a registration under this Section 2.3, shall relieve the Company of its obligation to effect a registration upon the request of Holders of Registrable Securities pursuant to Sections 2.1 and 2.2 hereof, and no failure to effect a registration under this Section 2.3 and to complete the sale of securities registered thereunder in connection therewith shall relieve the Company of any other obligation under this Agreement. (b) PRIORITY IN PIGGY-BACK REGISTRATION. In a registration pursuant to this Section 2.3 involving an underwritten offering, if the managing underwriter or underwriters of such underwritten offering have informed, in writing, the Company and the Selling Holders requesting inclusion in such offering that in such underwriter's or underwriters' reasonable opinion the total number of securities which the Company, the Selling Holders and any other persons desiring to participate in such registration intend to include in such offering is such as to materially and adversely affect the success of such offering, including the price at which such securities can be sold, then the Company will be required to include in such registration only the amount of securities which it is so advised should be included in such registration. In such event: (x) in cases only involving the registration for sale of securities for the Company's own account (which may include securities included pursuant to the exercise of piggy-back rights herein and in other contractual commitments of the Company), securities shall be registered in such offering in the following order of priority: (i) FIRST, the securities which the Company proposes to register, (ii) SECOND, PROVIDED that no securities sought to be included by the Company have been excluded from such registration, the securities which have been properly requested to be included in such registration by any Holder deemed to be an Affiliate or "underwriter" for purposes of the Securities Act (in an amount equal to the lesser of (x) an amount sufficient to include all Registrable Securities offered by such Holder and (y) an amount sufficient to reduce the number of such Holder's Registrable Securities held after the offering to a level that would cause such Holder to no longer be so deemed an Affiliate or "underwriter"), (iv) THIRD, PROVIDED that no securities sought to be included by the Company or an Affiliate or "underwriter" have been excluded from such registration pursuant to (i) or (ii) above, the securities which have been duly requested to be included in such registration by all other Holders of Registrable Securities pursuant to this Agreement (such securities for the account of the Holders to be allocated among the Holders pro rata based on the amount of securities sought to be registered by the Holder) and (iv) FOURTH, PROVIDED that no securities sought to be included by the Company or any Holders have been excluded from such registration, the securities of other Persons entitled to exercise "piggy-back" registration rights pursuant to contractual commitments of the Company (pro rata based on the amount of securities sought to be registered by such Persons); and (y) in cases not involving the registration for sale of securities for the Company's own account only, securities shall be registered in such offering in the following order of priority: (i) FIRST, securities to be sold for the account of the Company and the securities of any Person whose exercise of a "demand" registration right pursuant to a contractual commitment of the Company is the basis for the registration (PROVIDED that if such Person is a Holder of Registrable Securities, as among Holders of Registrable Securities there shall be no priority), (ii) SECOND, PROVIDED that no securities of the Company or such Persons referred to in the immediately preceding clause (i) have been excluded from such registration, the securities properly requested to be included in such registration by any Holder deemed to be an Affiliate or "underwriter" for purposes of the Securities Act (in an amount equal to the lesser of (x) an amount sufficient to include all Registrable Securities offered by such Holder and (y) an amount sufficient to reduce the number of such Holder's Registrable Securities held after the offering to a level that would cause such Holder to no longer be so deemed an Affiliate or "underwriter"), (iii) THIRD, PROVIDED that no securities sought to be included by the Company or an Affiliate or "underwriter" have been excluded from such registration pursuant to (i) or (ii) above, the securities which have been duly requested to be included in such registration by all other Holders of Registrable Securities pursuant to this Agreement (such securities for the account of the Holders to be allocated among the Holders pro rata based on the total amount of securities sought to be registered by the Holders) and (iv) FOURTH, PROVIDED that no securities of such Person referred to in the immediately preceding clause (i) or of the Holders have been excluded from such registration, securities of other Persons entitled to exercise "piggy-back" registration rights pursuant to contractual commitments (pro rata based on the amount of securities sought to be registered by such Persons). If, as a result of the provisions of this Section 2.3(b), any Selling Holder shall not be entitled to include all Registrable Securities in a Piggy-Back Registration that such Selling Holder has requested to be included, such Selling Holder may elect to withdraw his request to include Registrable Securities in such registration. (c) RESTRICTIONS ON SALE BY HOLDERS. Each Holder of Registrable Securities whose Registrable Securities are covered by a Registration Statement filed pursuant to this Section 2.3 (a "PIGGY-BACK REGISTRATION STATEMENT") and are to be sold thereunder agrees, if and to the extent reasonably requested by the managing underwriter or underwriters in an underwritten public offering, not to effect any public sale or distribution of Registrable Securities or of securities of the Company of the same class as any securities included in such Piggy-Back Registration Statement, including a sale pursuant to Rule 144 (except as part of such underwritten offering), during the 30-day period prior to, and during the 180-day period beginning on, the closing date of each underwritten offering made pursuant to such Piggy-Back Registration Statement, to the extent timely notified in writing by the Company or such managing underwriter or underwriters. The foregoing provisions of Section 2.3(c) shall not apply to any Holders of Registrable Securities if such Holder is prevented by applicable statute or regulation from entering into any such agreement; PROVIDED, HOWEVER, that any such Holder shall undertake, in its request to participate in any such underwritten offering, not to effect any public sale or distribution of any Registrable Securities commencing on the date of sale of such Registrable Securities unless it has provided 45 days' prior written notice of such sale or distribution to the managing underwriter or underwriters. 2.4 LIMITATIONS, CONDITIONS AND QUALIFICATIONS TO OBLIGATIONS UNDER REGISTRATION COVENANTS. The obligations of the Company set forth in Sections 2.1, 2.2, 2.3 and 2.6 hereof are subject to each of the following limitations, conditions and qualifications: (a) Subject to the next sentence of this paragraph, the Company shall be entitled to postpone, for a reasonable period of time, the filing of, or suspend the effectiveness of, any registration statement or amendment thereto, or suspend the use of any prospectus and shall not be required to amend or supplement the registration statement, any related prospectus or any document incorporated therein by reference (other than an effective registration statement being used for an underwritten offering); PROVIDED that the duration of all such postponements or suspensions during any consecutive 365-day period (a "SUSPENSION PERIOD") may not exceed an aggregate of 60 days and shall not include the 60 days immediately prior to the Termination Date and PROVIDED, FURTHER, that the duration of such Suspension Period shall be excluded from the calculation of the 90-day period described in Section 2.2(c) hereof. Such Suspension Period may be effected only if (i) an event or circumstance occurs and is continuing as a result of which the registration statement, any related prospectus or any document incorporated therein by reference as then amended or supplemented or proposed to be filed would, in the Company's good faith judgment, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (ii) (A) the Company determines in its good faith judgment that the disclosure of such an event at such time would have a material adverse effect on the business, operations or prospects of the Company or (B) the disclosure otherwise relates to a material business transaction which has not yet been publicly disclosed; PROVIDED, that the Effectiveness Period shall be extended by the number of days in any Suspension Period; PROVIDED, FURTHER, that the Company may from time to time suspend the effectiveness for a period not in excess of five Business Days to allow for the updating of the financial statements included in a Registration Statement to the extent required by law, such suspension for updating financial statements not to exceed 45 calendar days in aggregate in any 12-month period. If the Company shall so postpone the filing of a Registration Statement it shall, as promptly as possible, deliver a certificate signed by the chief executive officer of the Company to the Selling Holders as to such determination, and the Selling Holders shall (1) have the right, in the case of a postponement of the filing or effectiveness of a Registration Statement, upon the affirmative vote of the Holders of not less than a majority of the Registrable Securities to be included in such Registration Statement, to withdraw the request for registration by giving written notice to the Company within 10 days after receipt of such notice or (2) in the case of a suspension of the right to make sales, receive an extension of the registration period equal to the number of days of the suspension. Any Demand Registration as to which the withdrawal election referred to in the preceding sentence has been effected shall not be counted for purposes of the Demand Registration the Company is required to effect pursuant to Section 2.2 hereof. (b) The Company's obligations shall be subject to the obligations of the Selling Holders, which the Selling Holders acknowledge, to furnish all information and materials and to take any and all actions as may be required under applicable federal and state securities laws and regulations to permit the Company to comply with all applicable requirements of the SEC, if applicable, and to obtain any acceleration of the effective date of the applicable Registration Statement. 2.5 RESTRICTIONS ON SALE BY THE COMPANY AND OTHERS. The Company covenants and agrees that (i) it shall not, and that it shall not cause or permit any of its subsidiaries to, effect any public sale or distribution of any securities of the same class as any of the Registrable Securities or any securities convertible into or exchangeable or exercisable for such securities (or any option or other right for such securities) during the 30-day period prior to, and during the 90-day period beginning on, the commencement of any underwritten offering of Registrable Securities pursuant to a Demand Registration which has been requested pursuant to this Agreement, or a Piggy-Back Registration which has been scheduled, prior to the Company or any of its subsidiaries publicly announcing its intention to effect any such public sale or distribution; (ii) the Company will not, and the Company will not cause or permit any subsidiary of the Company to, after the date hereof, enter into any agreement or contract that conflicts with or limits or prohibits the full and timely exercise by the Holders of Registrable Securities of the rights herein to request a Demand Registration or to join in any Piggy-Back Registration subject to the other terms and provisions hereof; and (iii) upon request of the Holders of not less than a majority of the Registrable Securities to be included in such Registration Statement or any underwriter, it shall use its best efforts to secure the written agreement of each of its officers and directors to not effect any public sale or distribution of any securities of the same class as the Registrable Securities (or any securities convertible into or exchangeable or exercisable for an such securities), or any option or right for such securities during the period described in clause (i) of this Section 2.5. 2.6 RULE 144 AND RULE 144A. The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the request of any Holder or beneficial owner of Registrable Securities, make available such information necessary to permit sales pursuant to Rule 144A under the Securities Act. The Company further covenants that it will take such further action as any Holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144(k) and Rule 144A under the Securities Act, as such Rules may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. The Company shall also be required to file with the Trustee and the Transfer Agent and Registrar, and to provide to each other Holder upon written request, without cost to such Holder, copies of such reports and documents within 15 days after the date on which the Company files such reports and documents with the SEC. Upon the request of any Holder of Registrable Securities, the Company will in a timely manner deliver to such Holder a written statement as to whether it has complied with such information requirements. 2.7 UNDERWRITTEN REGISTRATIONS. No Holder of Registrable Securities may participate in any underwritten registration pursuant to a Registration Statement filed under this Agreement unless such Holder (a) agrees to (i) sell such Holder's Registrable Securities on the basis provided in and in compliance with any underwriting arrangements approved by the Holders of not less than a majority of the Registrable Securities to be sold thereunder and (ii) comply with Rules 101, 102 and 104 of Regulation M under the Exchange Act and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. If the Company has complied with all its obligations under this Agreement with respect to a Demand Registration or a Piggy-Back Registration relating to an underwritten public offering, all holders of the applicable class of Registrable Securities upon request of the lead managing underwriter with respect to such underwritten public offering, will be required to not sell or otherwise dispose of any such Registrable Securities owned by them for a period not to exceed 30 days prior to and 180 days after the consummation of such underwritten public offering. SECTION 3. REGISTRATION PROCEDURES. In connection with the obligations of the Company with respect to any Registration Statement pursuant to Sections 2.1, 2.2, 2.3 and 2.6 hereof, the Company shall, except as otherwise provided: (a) At least five days prior to the initial filing of a Registration Statement or Prospectus and at least two days prior to the filing of any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), furnish to the Trustee, the Transfer Agent and Registrar, the Holders and the managing underwriters, if any, copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) shall be subject to the review of such Holders, and such underwriters, if any, and cause the officers and directors of the Company, counsel to the Company and independent certified public accountants to the Company to respond to such reasonable inquiries as shall be necessary, in the opinion of counsel to such underwriters, to conduct a reasonable investigation within the meaning of the Securities Act; PROVIDED that the foregoing inspection and information gathering shall be coordinated on behalf of the Holders by GAX. The Company shall not file any such Registration Statement or related Prospectus or any amendments or supplements thereto which the Holders of a majority of the Registrable Securities included in such Registration Statement shall reasonably object on a timely basis. (b) Prepare and file with the SEC such amendments, including post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement continuously effective for the applicable time period required hereunder; cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented. (c) Notify the Holders of Registrable Securities to be sold and the managing underwriters, if any, promptly, and (if requested by any such person) confirm such notice in writing, (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment is proposed to be filed, and (B) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or related Prospectus or for additional information, (iii) of the issuance by the SEC, any state securities commission, any other governmental agency or any court of any stop order suspending the effectiveness of such Registration Statement or of any order or injunction suspending or enjoining the use of a Prospectus or the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, and (v) of the happening of any event, the existence of any information becoming known that makes any statement made in a Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or omit to state any material fact required to be stated therein or necessary to make the statements therein, not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) Use its reasonable best efforts to avoid the issuance of or, if issued, obtain the withdrawal of any order enjoining or suspending the effectiveness of the Registration Statement or the use of a Prospectus or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities covered thereby for sale in any jurisdiction described in Section 3(h) at the earliest practicable moment. (e) If requested by the managing underwriters, if any, or if none, by the Holders of a majority of the Registrable Securities being sold pursuant to such Registration Statement, (i) promptly incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriters, if any, or if none, such Holders reasonably believe should be included therein, and (ii) make all required filings of such Prospectus supplement or such post-effective amendment under the Securities Act as soon as practicable after the Company has received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment; PROVIDED, HOWEVER, that the Company shall not be required to take any action pursuant to this Section 3(e) that would, in the opinion of counsel for the Company, violate applicable law. (f) Upon written request to the Company, furnish to each Holder of Registrable Securities to be sold pursuant to a Registration Statement and each managing underwriter, if any, without charge, at least one conformed copy of the Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested (including those previously furnished or incorporated by reference) as soon as practicable after the filing of such documents with the SEC. (g) Deliver to each Holder of Registrable Securities to be sold pursuant to a Registration Statement and each managing underwriter, if any, without charge, as many copies of each Prospectus (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request; and the Company hereby consents to use of such Prospectus and each amendment or supplement thereto and each document supplemental thereto by each of the Selling Holders of Registrable Securities and the underwriters or agents, if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto. (h) Prior to any offering of Registrable Securities, use its best efforts to register or qualify or cooperate with the Holders of Registrable Securities to be sold, the managing underwriter or underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions as any such Holder or underwriter reasonably requests in writing; keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective hereunder and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the applicable Registration Statement; PROVIDED, HOWEVER, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified or (ii) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or to taxation in any jurisdiction where it is not so subject. (i) In connection with any sale or transfer of Registrable Securities that will result in such securities no longer being Registrable Securities, cooperate with the Holders of Registrable Securities and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends whatsoever and shall be in a form eligible for deposit with DTC; and to enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or such Holders may reasonably request at least two business days prior to any sale of Registrable Securities. (j) Upon the occurrence of any event contemplated by Section 3(c)(v) above, as promptly as practicable prepare a supplement or amendment, including if appropriate a post-effective amendment to each Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (k) Prior to the effective date of a Registration Statement, (i) provide the Trustee and the Transfer Agent and Registrar, as applicable, with certificates for such securities in a form eligible for deposit with DTC and (ii) provide CUSIP numbers for such securities. (l) Enter into such agreement (including an underwriting agreement in such form, scope and substance as is customary in underwritten offerings) and take all such other actions in connection therewith (including those reasonably requested by the managing underwriters, if any, or the Holders of a majority of the Registrable Securities being sold) in order to expedite or facilitate the disposition of such Registrable Securities, and, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration, (i) make such representations and warranties to the Holders of such Registrable Securities and the underwriter or underwriters, if any, with respect to the business of the Company and the subsidiaries of the Company (including with respect to businesses or assets acquired or to be acquired by any of them), and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings, and confirm the same if any when requested; (ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, addressed to each selling Holder of Registrable Securities and each of the underwriters, if any), covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such underwriters; (iii) use their best efforts to obtain customary "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed (where reasonably possible) to each Selling Holder of Registrable Securities and each of the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings; (iv) if an underwriting agreement is entered into, the same shall contain customary indemnification provisions and procedures no less favorable to the Selling Holder and the underwriters, if any, than those set forth in Section 4 hereof (or such other provisions and procedures acceptable to Holders of a majority of Registrable Securities covered by such Registration Statement and the managing underwriter, if any); and (v) deliver such documents and certificates as may be reasonably requested by the Holders of a majority of the Registrable Securities being sold and the managing underwriters or underwriters to evidence the continued validity of the representations and warranties made pursuant to clause (i) above and evidence compliance with any customary conditions contained in the underwriting agreement or other agreements entered into by the Company. (m) Make available for inspection by a representative of the Selling Holders of Registrable Securities, any underwriter participating in any such disposition of Registrable Securities, if any, and any attorney, consultant or accountant retained by such representative of the Selling Holders of Registrable Securities or underwriter (collectively, the "INSPECTORS"), at the offices where normally kept, during the reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Company and the subsidiaries of the Company (including with respect to businesses and assets acquired or to be acquired to the extent that such information is available to the Company), and cause the officers, directors, agents and employees of the Company and its subsidiaries of the Company (including with respect to businesses and assets acquired or to be acquired to the extent that such information is available to the Company) to supply all information in each case reasonably requested by any such Inspector in connection with such Registration Statement; PROVIDED, HOWEVER, that the foregoing investigation shall be coordinated on behalf of the Selling Holders of Registrable Securities by GAX. (n) Comply with all applicable rules, regulations and policies of the SEC and make generally available to its securityholders earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder no later than 60 days after the end of any 12-month period (or 135 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to an underwriter or to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to an underwriter or to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of the relevant Registration Statement, which statements shall cover said such period, consistent with the requirements of Rule 158 under the Securities Act. (o) Use its best efforts to cause all Common Stock or Notes held by the Holders and relating to such Registration Statement to be listed or declared eligible for quotation on each securities exchange, if any, on which similar securities issued by the Company are then listed or quoted. (p) Cooperate with each seller of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends and registered in such names as the Selling Holders may reasonably request at least two business days prior to the closing of any sale of Registrable Securities. (q) Cooperate with each seller of Registrable Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Securities and its respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. The Company may require a Holder of Registrable Securities to be included in a Registration Statement to furnish to the Company such information regarding (i) the intended method of distribution of such Registrable Securities, (ii) such Holder and (iii) the Registrable Securities held by such Holder as is required by law to be disclosed in such Registration Statement and the Company may exclude from such Registration Statement the Registrable Securities of any Holder who fails to furnish such information within a reasonable time after receiving such request. If any such Registration Statement refers to any Holder by name or otherwise as the Holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Holder by name or otherwise is not required by the Securities Act, the deletion of the reference to such Holder in such amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. Each Holder of Registrable Securities agrees by acquisition of such Registrable Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv) or 3(c)(v) hereof, such Holder will forthwith discontinue disposition of such Registrable Securities covered by the Registration Statement or Prospectus until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(j) hereof, or until it is advised in writing (the "ADVICE") by the Company that the use of the applicable Prospectus may be resumed, and in either case has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. If the Company shall give any such notice, the Effectiveness Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of Registrable Securities covered by such Registration Statement shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 3(j) hereof or (y) the Advice, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. Holders of the Registrable Securities shall be obligated to keep confidential the existence of a Suspension Period or any confidential information communicated by the Company to the Holder with respect thereto. SECTION 4. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to indemnify and hold harmless each Holder, each underwriter, if any, who participates in an offering of Registrable Securities, and their respective directors, officers, employees, agents and each Person, if any, who controls any of such parties within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) pursuant to which Registrable Securities were registered under the Securities Act, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever, in each case, based upon any such untrue statement or omission, or any such alleged untrue statement or omission; PROVIDED that (subject to Section 4(d) below) any such settlement is effected with the written consent of the Company; and (iii) against any and all expenses whatsoever, as incurred (including the reasonable fees and disbursements of counsel chosen by GAX), incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any court or governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) of this Section 4(a); PROVIDED, HOWEVER, that this indemnity agreement does not apply to any loss, liability, claim, damage or expense to the extent arising out of an untrue statement or omission or alleged untrue statement or omission (A) made in or omitted from a preliminary Prospectus or Registration Statement and corrected or included in a subsequent Prospectus or Registration Statement or any amendment or supplement thereto, (B) made in reliance upon and in conformity with written information furnished to the Company by the Selling Holders of Registrable Securities, any Holder, or any underwriter expressly for use in the Registration Statement (or any amendment thereto) or the Prospectus (or any amendment or supplement thereto) or (C) resulting from the use of the Prospectus during a period when the use of the Prospectus has been suspended for sales thereunder in accordance with Section 2.2(d), 2.3(c), 2.4, 2.5 or 2.7 hereof, PROVIDED, in each case, that Holders received prior notice of such suspension or other unavailability. (b) In the case of any registration of Registrable Securities, each Holder agrees, severally and not jointly, to indemnify and hold harmless the Company, each underwriter, if any, who participates in an offering of Registrable Securities and the other Selling Holders and each of their respective directors and officers (including each director and officer of the Company who signed the Registration Statement) and each Person, if any, who controls the Company, any underwriter or any Selling Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in Section 4(a) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such Holder expressly for use in the Registration Statement (or any amendment thereto), or the Prospectus (or any amendment or supplement thereto); PROVIDED, HOWEVER, that no such Holder shall be liable for any claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Registrable Securities pursuant to such Registration Statement. (c) In case any action shall be commenced involving any Person in respect of which indemnity may be sought pursuant to either paragraph (a) or (b) above, such Person (the "INDEMNIFIED PARTY") shall give notice as promptly as reasonably practicable to each Person against whom such indemnity may be sought (the "INDEMNIFYING PARTY"), but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of such action; PROVIDED, HOWEVER, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying party or parties be liable for the fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 4 (whether or not the indemnified parties are actual or potential parties thereof), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 4(a)(ii) hereof effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. (e) If the indemnification provided for in any of the indemnity provisions set forth in this Section 4 is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, in such proportion as is appropriate to reflect the relative fault of such indemnifying party or parties on the one hand, and such indemnified party or parties on the other hand, in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party or parties on the one hand, and such indemnified party or parties on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or parties or such indemnified party or parties and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Holders of the Registrable Securities agree that it would not be just and equitable if contribution pursuant to this Section 4 were determined by pro rata allocation (even if the Selling Holders of Registrable Securities were treated as one entity for such purpose) or by another method of allocation which does not take account of the equitable considerations referred to above in Section 4. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 4 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by an governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 4, each Person, if any, who controls a Holder within the meaning of this Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as such Holder, and each director of the Company, each officer of the Company who signed the Registration Statement, and each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Company. SECTION 5. MISCELLANEOUS. (a) RESALES BY AFFILIATES. In the event that, and for so long as, any Affiliate of a Holder, or any successor thereto, in its opinion, is or becomes an Affiliate of the Company, or any successor thereto, and is making a market in the shares of Common Stock or the Notes, the Company (or its successor) shall use its best efforts to keep effective a Shelf Registration Statement providing for the resale of any shares of Common Stock or Notes, as the case may be, acquired by such Person from time to time until such time as each such Person shall, in its opinion, cease to be an Affiliate of the Company, as evidenced by written notice sent promptly upon such event. (b) REMEDIES. In the event of a breach by the Company of any of its obligations under this Agreement, each Holder, in addition to being entitled to exercise all rights provided herein, in the Plan, the Purchase Agreement or granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement. (c) NO INCONSISTENT AGREEMENTS. The Company will not enter into any agreement which is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's other issued and outstanding securities, if any, under any such agreements. (d) NO PIGGY-BACK ON DEMAND REGISTRATIONS. The Company shall not grant to any of its securityholders (other than the Holders in such capacity) the right to include any of their securities in any Registration Statement filed pursuant to a Demand Registration. (e) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of the Holders of not less than a majority of each class and series of Registrable Securities; PROVIDED, HOWEVER, that, for the purposes of this Agreement, Registrable Securities that are owned, directly or indirectly, by the Company or any of its Affiliates (other than the Holders existing on the date hereof and any of their respective affiliates) shall be deemed not to be outstanding. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of one or more Holders and that does not directly or indirectly affect the rights of other Holders may be given by a majority of the Holders so affected; PROVIDED, HOWEVER, that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. Notwithstanding the foregoing, no amendment, modification, supplement, waiver or consent with respect to Section 4 shall be made or given otherwise than the prior written consent of each Person affected thereby. (f) NOTICES. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, registered first-class mail, facsimile, or any courier guaranteeing overnight delivery (i) if to a Holder, at the most current address of such Holder as set forth in the register for the Registrable Securities; and (ii) if to the Company, initially to CAI WIRELESS SYSTEMS, INC., 18 Corporate Woods Blvd., Albany, NY 12211, Facsimile: (518) 462-3045, Attention: James P. Ashman, and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 5(f). All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next Business Day, if timely delivered to an air courier guaranteeing overnight delivery. (g) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. If any transferee of any Holder shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such Person shall be entitled to receive the benefits hereof. The Company may not assign any of its rights or obligations hereunder without the prior written consent of each Holder of Registrable Securities. Notwithstanding the foregoing, no successor or assignee of the Company shall have any rights granted under the Agreement until such person shall acknowledge its rights and obligations hereunder by a signed written statement of such person's acceptance of such rights and obligations. (h) COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same Agreement. (I) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (j) SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (k) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (l) ENTIRE AGREEMENT. This Agreement, together with the Purchase Agreement, the Plan and any other documents entered into pursuant thereto, is intended by the parties as a final expression of their agreement, and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. This Agreement, the Purchase Agreement, the Plan and any other documents entered into pursuant thereto supersede all prior agreements and understandings between the parties with respect to such subject matter. (m) SECURITIES HELD BY THE COMPANY OR ITS AFFILIATES. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or by any of its Affiliates (other than the Holders existing on the date hereof and any of their respective affiliates) shall not be counted (in either the numerator or the denominator) in determining whether such consent or approval was given by the Holders of such required percentage. (n) TERMINATION OF AGREEMENT. This Agreement shall terminate on the Termination Date; PROVIDED, HOWEVER, that the obligations, representations and warranties in Sections 2.1(c), 4, 5(a), 5(b), 5(m) and all obligations of the Company relating to the payment of Registration Expenses shall survive termination of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. CAI WIRELESS SYSTEMS, INC. By: /S/ JAMES P. ASHMAN Name: James P. Ashman Title: Executive Vice President Confirmed and accepted as of the date first above written: MERRILL LYNCH GLOBAL ALLOCATION FUND, INC. By: /S/_________________________________ Name: Title: MERRILL LYNCH EQUITY/CONVERTIBLE SERIES: GLOBAL ALLOCATION PORTFOLIO By: /S/__________________________________ Name: Title: EX-3 4 Exhibit 99.5 CAI WIRELESS SYSTEMS, INC. INTRODUCTION TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The following unaudited pro forma financial information of CAI Wireless Systems, Inc. ("CAI" or the "Company") consists of the unaudited Pro Forma Balance Sheet as of September 30, 1998. The pro forma adjustments reflect the financial restructuring transactions under Chapter 11 of the U.S. Bankruptcy Code which were consummated on October 14, 1998 as if they had occurred on September 30, 1998. Such transactions include: 1) the issuance by CAI of $100,000,000 (aggregate principal discounted amount at issuance) of 13% Senior Notes due 2004 to holders of CAI's previously issued 12.25% Senior Notes due 2002 in the aggregate principal amount of $275,000,000, 2) the cancellation of 40,543,039 previously issued and outstanding shares of CAI common stock, without par value, and the issuance of 17,241,379 shares of CAI common stock, par value $.01 per share, and 3) the consummation of an $80,000,000 financing facility (the "Exit Facility"). At the Exit Facility closing, the Company paid $1,800,000 in commitment fees to Merrill Lynch Global Allocation Fund, Inc., the Exit Facility lender ("MLGAF") and paid $61,900,000 to MLGAF in repayment of the outstanding principal, interest and commitment fees on the DIP Facility made available to CAI during its Chapter 11 case. CAI has accrued an additional $2,500,000 in commitment fees payable to MLGAF at the maturity of the Exit Facility. The balance of the net proceeds provided to CAI under the Exit Facility will be classified as Restricted Cash and used to fund CAI's general operating requirements in accordance with a budget approved by MLGAF.
CAI WIRELESS SYSTEMS, INC. PRO FORMA CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1998 UNAUDITED IN ($000'S) Pro Forma Pro Forma ASSETS Consolidated Refinancing [i] Restructuring [ii] As Adjusted Cash and cash equivalents $ 1,448 $ - $ - $ 1,448 Restricted cash 11,095 16,300 a,b - 27,395 Debt service escrow 16,914 - (16,914) c - Subscriber receivables, net 702 - - 702 Prepaid expenses 549 - - 549 Property and equipment, net 41,460 - - 41,460 Wireless channel rights, net 187,730 - - 187,730 Investment in TelQuest Satellite Services LLC 1,220 - - 1,220 Goodwill, net 22,066 - - 22,066 Debt financing costs, net 5,838 20,909 b,h (5,838) d 20,909 Other assets 3,060 - - 3,060 ----------- ----------- ----------- ----------- TOTAL ASSETS $ 292,082 $ 37,209 $ (22,752) $ 306,539 =========== =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) LIABILITIES Accounts payable $ 3,125 $ (600) b $ - $ 2,525 Accrued expenses - interest 20,518 (1,300) b (19,218) b - Accrued expenses - other 6,917 2,500 b - 9,417 Wireless channel rights obligations 2,922 - - 2,922 DIP financing facility 60,000 (60,000) b - - Exit financing facility - 80,000 a - 80,000 Notes payable 36,558 - (32,793) f 3,765 Senior notes - extinguished 275,000 - (275,000) c - Senior discount notes - - 100,000 c 100,000 ----------- ---------- --------- --------- TOTAL LIABILITIES 405,040 20,600 (227,011) 198,629 ----------- ---------- --------- --------- Stockholders' Equity (Deficit) Preferred stock - - - - Common stock - extinguished 275,771 - (275,771) e - Common stock - new issue - 22 h 150 f 172 Additional paid-in capital 101,712 16,587 h (10,561) g 107,738 Accumulated deficit (490,441) - 490,441 g - ----------- ---------- ---------- --------- TOTAL EQUITY (112,958) 16,609 204,259 107,910 ----------- ---------- ---------- --------- TOTAL LIABILITIES AND EQUITY $ 292,082 $ 37,209 $ (22,752) $ 306,539 =========== ========== ========== ==========
CAI WIRELESS SYSTEMS, INC. NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1998 (UNAUDITED) [i] Adjustments to reflect the Company's refinancing transactions, including: a. Consummation of an $80,000,000 Exit Facility with MLGAF. b. Reflects the use of the proceeds from the Exit Facility to (i) repay the outstanding $60,000,000 DIP Facility provided by MLGAF, including a $60,000,000 principal payment, $1,300,000 interest payment and a $600,000 commitment fee, and (ii) pay a $1,800,000 commitment fee to MLGAF for the Exit Facility. The balance of the proceeds (approximately $16,000,000) will be used by the Company to fund its general operating requirements in accordance with the approved budget. An additional $2,500,000 commitment fee is payable to MLGAF at the maturity of the Exit Facility. [ii] Adjustments to reflect the restructuring transactions as the Company emerges from Chapter 11, including: c. The cancellation of $275,000,000 of indebtedness of CAI previously evidenced by CAI's 12.25% Senior Notes due 2002 (the "Old Senior Notes") in exchange for $100,000,000 aggregate principal discounted amount at issuance of 13% Senior Notes due 2004 of CAI, the payment of the semiannual interest on the Old Senior Notes from the debt service escrow account, plus additional interest accrued on that semiannual payment from September 16, 1998 to September 30, 1998 and the issuance of New Common Stock (described in (f) below). d. Reflects the write-off of capitalized costs associated with the original issuance of the Old Senior Notes. e. Reflects the cancellation of 40,543,039 shares of CAI Common Stock, without par value (the "Old Common Stock"). f. Reflects the issuance by CAI of 15,000,000 shares of common stock, $.01 par value (the "New Common Stock"), of which 13,650,000 shares were issued on a pro rata basis to the holders of Old Senior Notes and 1,350,000 shares were issued on a pro rata basis to holders of certain subordinated indebtedness of CAI. The subordinated indebtedness and any interest accrued thereon was cancelled in this transaction. g. Indicates the recapitalization of the Company resulting from the restructuring transactions described above. h. Reflects the issuance by CAI of 2,241,379 shares of New Common Stock to MLGAF as a fee for providing the Exit Facility. EX-27 5
5 CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES FINANCIAL DATA SCHEDULE AS OF AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 6-MOS MAR-31-1999 APR-01-1998 SEP-30-1998 12,543,316 0 954,010 252,375 0 0 85,743,853 44,284,791 292,082,165 0 311,558,053 0 0 275,770,764 (390,229,582) 292,082,165 0 10,852,156 0 33,762,291 45,291,855 82,000 22,552,464 (86,897,838) 0 (86,897,838) 0 0 0 (86,897,838) (2.14) (2.14)
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