-----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, HqSbRbcivgcZtSQdU3EQj5kRuX9+SRmdJVzMj3zQBinChOoLG3MDKN93gwp1Bciv fid/KjlKYfysJlSbd6ri8w== 0000914749-99-000001.txt : 19990218 0000914749-99-000001.hdr.sgml : 19990218 ACCESSION NUMBER: 0000914749-99-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990216 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: 99543614 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 DECEMBER 31, 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 February 10, 1999: CLASS OUTSTANDING SHARES Common Stock, $.01 par value 17,241,379 PART I. FINANCIAL INFORMATION. ITEM 1. FINANCIAL STATEMENTS. CAI WIRELESS SYSTEMS, INC. Consolidated Balance Sheets
DECEMBER 31, 1998(a) MARCH 31, 1998 -------------------- -------------- (Unaudited) ASSETS Cash and cash equivalents $ 1,785,185 $ 1,275,020 Restricted cash 19,293,330 9,134,651 Debt service escrow - 16,418,922 Subscriber accounts receivable, net 456,768 387,144 Prepaid expenses 606,863 661,669 Property and equipment, net 38,246,981 49,898,337 Wireless channel rights, net 184,565,020 194,050,792 Investment in CS Wireless Systems, Inc. - 43,337,527 Investment in TelQuest Satellite Services LLC 293,240 3,174,732 Goodwill, net of accumulated amortization 21,606,725 22,985,876 Debt financing costs, net 18,672,558 7,079,424 Other assets 2,965,696 3,061,780 ------------ ------------ Total Assets $ 288,492,366 $ 351,465,874 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) LIABILITIES Accounts payable $ 2,148,548 $ 4,852,091 Accrued expenses 7,370,900 8,988,367 Accrued interest 2,076,607 3,264,919 Wireless channel rights obligations 2,825,225 4,832,971 Interim debt financing 80,000,000 45,000,000 Long-term notes 106,456,285 312,088,506 ------------ ----------- 200,877,565 379,026,854 ------------ ----------- Commitments and Contingencies SHAREHOLDERS' EQUITY (DEFICIT) Common stock, 25,000,000 new shares authorized, 40,543,039 no par shares canceled as of October 14, 1998 - 275,770,764 17,241,379 new shares issued and outstanding as of December 31, 1998; par value $.01 172,414 - Additional paid-in capital 104,110,236 101,711,759 Accumulated deficit (b) (16,667,849) (405,043,503) ------------ ------------ 87,614,801 (27,560,980) ------------ ----------- Total Liabilities and Shareholders' Equity (Deficit) $288,492,366 $351,465,874 ============ ============
(a) Reorganized as of October 14, 1998. See Note 2 of the Notes to Consolidated Financial Statements. (b) Accumulated deficit of $289,958,492, net of a $204,345,447 extraordinary gain from the extinguishment of debt in the reorganization, was eliminated as of October 14, 1998. The accumulated deficit shown at December 31, 1998 is for the period from October 14, 1998 to December 31, 1998. See notes to consolidated financial statements.
CAI WIRELESS SYSTEMS, INC. Consolidated Statements of Operations (unaudited)
Nine-Months Ended Three-Months Ended DECEMBER 31, DECEMBER 31, ------------------------------ -------------------------------- 1998 (a) 1997 1998 (a) 1997 -------- ---- -------- ---- Revenues $ 14,972,024 $ 21,977,384 $ 4,119,868 $ 6,591,341 ------------ ------------ ----------- ------------ Costs and expenses Programming 5,461,566 7,506,940 1,538,299 2,292,741 Licensing 5,399,325 3,466,994 1,716,564 1,410,030 General and administrative 15,565,991 23,115,093 4,547,038 8,343,478 Depreciation and amortization 20,454,543 26,152,839 6,817,233 10,245,751 Reorganization costs 1,500,000 - - - ------------ ------------ ------------ ------------ 48,381,425 60,241,866 14,619,134 22,292,000 ------------ ------------ ------------ ------------ Operating loss (33,409,401) (38,264,482) (10,499,266) (15,700,659) ------------ ------------ ------------ ------------ Other income (expense) Interest expense (30,282,932) (40,128,505) (7,730,468) (17,198,770) Equity in losses of affiliates (46,219,019) (23,118,008) (927,164) (9,378,008) Interest and other income 3,983,067 2,974,426 126,451 1,351,399 ------------ ------------ ------------ ------------ (72,518,884) (60,272,087) (8,531,181) (25,225,379) ------------ ------------ ------------ ------------ Loss before extraordinary gain (105,928,285) (98,536,569) (19,030,447) (40,926,038) Extraordinary gain from extinguishment of debt, 204,345,447 - 204,345,447 - ------------ ----------- ------------ ------------ Net income (loss) 98,417,162 (98,536,569) 185,315,000 (40,926,038) Preferred stock dividends - (11,125,453) - (3,850,594) ------------ ----------- ------------ ------------ Net Income (loss) $ 98,417,162 $(109,662,022) $ 185,315,000 $(44,776,632) ============ ============ ============ =========== Loss since October 14, 1998 $ (16,667,849) $ (16,667,849) ============ ============ Loss per new common share(b): $ (0.97) $ (0.97) ======== ======== Average new common and equivalent new shares outstanding since October 14, 1998: 17,241,379 17,241,379 =========== ===========
(a) Reorganized as of October 14, 1998. See Note 2 of the Notes to Consolidated Financial Statements. (b) Based on post-reorganization loss of $16,667,849. Income(loss) per share data for the pre- reorganization periods are not presented as such amounts are not meaningful. See notes to consolidated financial statements
CAI WIRELESS SYSTEMS, INC. Consolidated Statements of Shareholders' Equity (Deficit) For the Pre-Reorganization Period Ended October 14, 1998 (unaudited) which includes the Year Ended March 31, 1998 and the Post-Reorganization Period from October 14, 1998 TO December 31, 1998 (Unaudited) ADDITIONAL COMMON STOCK PAID-IN ACCUMULATED TOTAL SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT) ------ ------ ----------- ----------- ---------------- Pre-Reorganization Period: 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 Income for the period ended October 14, 1998, including extraordinary gain of $204,345,447 - - - 115,085,011 115,085,011 ---------- ----------- ----------- ----------- ----------- Balance at October 14, 1998 40,543,039 275,770,764 101,711,759 (289,958,492) (87,524,031) Reorganization pursuant to a pre-packaged bankruptcy plan: Common shares canceled and new common shares issued in connection with debt forgiveness: Cancel common shares, no par value (40,543,039) (275,770,764) (14,187,728) 289,958,492 - Issue new common shares, par value $.01 15,000,000 150,000 - - 150,000 New shares issued in connection with Exit Facility 2,241,379 22,414 16,586,205 - 16,608,619 Post - Reorganization Period: Net loss for the period October 14, 1998 to December 31, 1998 - - - (16,667,849) (16,667,849) ---------- ----------- ----------- ------------ ----------- Balance at December 31, 1998 17,241,379 $ 172,414 $104,110,236 $ (16,667,849) $ 87,614,801 ========== =========== ============= ============= ============
See notes to consolidated financial statements. CAI WIRELESS SYSTEMS, INC. Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended December 31, 1998 (a) 1997 -------- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 98,417,162 $ (98,536,569) Adjustments to reconcile net income (loss) to net cash used in operating activities: Extraordinary gain on extinguishment of debt (204,345,447) - Depreciation and amortization 20,454,543 26,152,839 Equity in net losses of affiliates 46,219,019 23,118,008 Gain on sale of assets (2,541,328) (538,307) Debt financing costs and discount amortization 6,416,348 8,263,013 Write-off of projects and other costs - 633,952 Changes in assets and liabilities: Subscriber accounts receivable and other assets 215,369 (289,644) Accounts payable and accrued expenses 1,270,488 12,605,498 ------------ ------------ Net cash used in operating activities (33,893,846) (28,591,210) ============ ============ CASH FLOWS FROM INVESTING ACTIVITIES Funds deposited in restricted cash account (10,158,679) - Purchase of wireless channel rights (134,961) (2,221,096) Purchase of equipment (855,931) (6,336,574) Proceeds from sale of equipment 4,913,762 178,759 Proceeds from sale of investments 96,920 626,937 Proceeds from sale of escrow investments 16,375,575 15,083,943 Payments received from CS Wireless Systems, Inc. 331,231 3,529,689 Investment in TelQuest Satellite Services LLC (411,567) (3,138,797) Loan to related parties, net of collections (237,046) (297,440) Cash paid for investment - (356,025) Other (11,939) - ------------ ------------ Net cash provided by investing activities 9,907,365 7,069,396 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from interim debt financing 26,847,439 20,793,979 Repayment of debt including wireless channel rights obligations (2,224,348) (2,608,004) Debt financing costs paid (126,445) (4,965,643) ------------ ------------ Net cash provided by financing activities 24,496,646 13,220,332 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 510,165 (8,301,482) Cash and cash equivalents, beginning of year 1,275,020 10,471,918 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,785,185 $ 2,170,436 ============ ============ CASH PAYMENTS DURING THE PERIOD FOR INTEREST $ 30,596 $ 18,038,893 ======== ============
(a) Reorganized as of October 14, 1998. See Note 2 of the Notes to Consolidated Financial Statements 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. CAI Wireless Systems, Inc. and one of its subsidiaries emerged from a pre-packaged Chapter 11 Bankruptcy on October 14, 1998. Financial accounting during a Chapter 11 proceeding is prescribed in Statement of Position 90-7 of the American Institute of Certified Public Accountants, titled "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90- 7"). The financial statement presentation includes both the pre- and post- reorganization operations in the nine-month and three-month periods to facilitate an overall understanding and comparability relating to the operations. The periods before and after the reorganization are comparable because assets and liabilities were not restated since Fresh Start Reporting requiring restatement did not apply pursuant to SOP 90-7 criteria. The shareholders' equity statement reflects the post-reorganization results of operations on the accumulated deficit line. Income (loss) per share data for the pre-reorganization periods are not presented as the amounts are not meaningful. 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 has a 94% investment (as of December 2, 1998) in CS Wireless Systems, Inc. ("CS Wireless"). CS Wireless has retained CIBC Oppenheimer Corp. ((CIBC() to serve as its financial advisor. CS Wireless and CIBC have begun to evaluate available options with respect to the capitalization of CS Wireless, including financial restructuring alternatives. As a consequence, CAI's investment in CS Wireless is accounted for on the equity method. CAI also has a 30% investment in TelQuest Satellite Services LLC ("TSS"), excluding the 30% interest in TSS held by CS Wireless. CAI's investment in TSS is accounted for on the equity method. 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 nine months ended December 31, 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. REORGANIZATION The Company's reorganization plan (the "Plan") was confirmed on September 30, 1998 and consummated on October 14, 1998. Under the confirmed Plan, each holder of the Company's 12.25% Senior Notes due 2002 (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 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 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). In connection with the reorganization, the Company recorded an extraordinary gain of $204,345,447 reflecting the extinguishment of debt. Long-term notes totaling approximately $308,000,000 including the interest accrued thereon along with the associated issuance costs, were replaced with the $100,000,000 of New Senior Notes. The consolidated balance sheet reflects the New Senior Notes, together with accreted interest thereon from October 14, 1998 to December 31, 1998. 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. CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 2. REORGANIZATION (CONTINUED) 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. NOTE 3. INTERIM FINANCING EXIT FACILITY. On October 14, 1998, in connection with consummating the Plan, the Company obtained an $80,000,000 credit facility (the "Exit Facility") from Merrill Lynch Global Allocation Fund, Inc. ("MLGAF"). The Company received net proceeds from the Exit Facility of $15,953,000, after repaying all outstanding amounts under the debtor-in-possession credit facility (the "DIP Facility") provided to the Company by MLGAF during the Company's Chapter 11 case, 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 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). All interest on amounts outstanding under the Exit Facility accrues at the stated rates and is payable at maturity of the Exit Facility. 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 issued to MLGAF represent 13% of the total New Common Stock issued and outstanding on October 14, 1998 and were valued at $16,608,618 by the Company and recorded as debt financing costs and common stock. 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 and certain individuals had 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 against Jared E. Abbruzzese, chairman and chief executive officer of the Company, John J. Prisco, a former president, chief operating officer and director of the Company, and Alan Sonnenberg, a former president and director of the Company. The amended, consolidated complaint alleges a variety of CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 4. LITIGATION (CONTINUED) 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. 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 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 in JOE HAND PROMOTIONS, INC. V. 601 L & P BAR, INC. 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 an adverse outcome, the amount 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 equity losses limited to the extent of its investment since CAI does not guarantee any CS Wireless debt. CS Wireless' net loss of $100,762,000 for the nine-month period ended September 30, 1998 included a $46,378,000 writedown of goodwill. CAI's ownership interest in CS Wireless increased to approximately 94% as a result of the December 2, 1998 purchase by the Company of 3,836,035 shares of CS Wireless common stock held by Heartland Wireless Communications, Inc. ("Heartland"). Subsequent to the purchase, CS Wireless redeemed the shares of CS Wireless common stock purchased by the Company from Heartland. At December 31, 1998, CAI held 6,421,166 shares of CS Wireless common stock, representing approximately 94% of the issued and outstanding common stock of CS Wireless. CS Wireless has retained CIBC to serve as its financial advisor. CS Wireless and CIBC have begun to evaluate available options with respect to the capitalization of CS Wireless, including financial restructuring alternatives. As a consequence, CAI's investment in CS Wireless is accounted for on the equity method. 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 September 30, 1998 Form 10-Q:
ASSETS Cash and cash equivalents $ 45,394,000 Restricted cash 4,222,000 Other current assets 2,224,000 Systems and equipment, net 54,905,000 Wireless channel rights, net 168,247,000 Investment in and loans to equity affiliates 6,983,000 Debt issuance costs and other assets, net 8,609,000 ----------- Total Assets $290,584,000 ============ LIABILITIES AND EQUITY Accounts payable and accrued expenses $ 6,042,000 FCC Auction payable 3,942,000 Other liabilities 914,000 Debt 308,219,000 Equity (28,533,000) ----------- Total Liabilities and Equity $290,584,000 ============
The following are unaudited condensed consolidated statements of operations of CS Wireless derived from its September 30, 1998 Form 10-Q for the periods presented:
Quarter Ended Nine Months Ended SEPTEMBER 30, 1998 SEPTEMBER 30, 1998 Revenues $ 6,448,000 $ 20,076,000 ------------ ------------ Operating expenses: Systems operations 4,094,000 12,019,000 Selling, general and administrative 4,500,000 13,602,000 Impairment of goodwill - 46,378,000 Depreciation and amortization 7,062,000 22,003,000 ------------ ------------ Total operating expenses 15,656,000 94,002,000 ------------ ------------ Operating loss (9,208,000) (73,926,000) Interest income 803,000 2,746,000 Interest expense (8,765,000) (25,657,000) Equity in losses of affiliates (292,000) (2,057,000) Cumulative effect of change in accounting principle for organizational costs - (1,868,000) ------------ ------------ Net loss $(17,462,000) $(100,762,000) ============ ============
TELQUEST SATELLITE SERVICES LLC. The Company's investment in TSS reflects an equity loss of $2,194,000 based on CAI's pro-rata share of TSS's net losses approximating $6,040,000 for the nine months ended December 31, 1998 plus an adjustment 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 $625,000 in depreciation on the equipment leased to TSS. As of December 31, 1998, TSS has negative net worth of $7,504,000. The Company's investment in TSS excludes a 30% ownership interest in TSS held by CS Wireless. 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 nine months ended December 31, 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 (a) REVENUES: EXTERNAL Three months 6/98 $ - $ 766,300 $ 850,989 $ 3,526,503 $ - $ 489,175 Three months 9/98 - 729,393 766,675 3,255,322 - 467,799 Three months 12/98 - 731,675 674,090 2,241,722 (b) - 472,381 ---------- ---------- ---------- ---------- ---------- ---------- Total nine months $ - $ 2,227,368 $ 2,291,754 $ 9,023,547 $ - $ 1,429,355 =========== =========== =========== =========== ============ =========== INTER-COMPANY Three months 6/98 $ 579,000 $ - $ - $ - $ 4,166,137 $ 72,772 Three months 9/98 579,000 - - - 4,417,308 108,806 Three months 12/98 579,000 - - - 4,170,662 74,828 ----------- ----------- ----------- ----------- ----------- ----------- Total nine months $ 1,737,000 $ - $ - $ - $ 12,754,107 $ 256,406 =========== =========== =========== =========== ============ =========== INTEREST EXPENSE Three months 6/98 $(12,876,382) $ - $ - $ - $ (21,653) $ (11,499) Three months 9/98 (9,632,084) - - - (4,376) (6,470) Three months 12/98 (7,721,206) - - - (4,468) (4,794) ----------- ----------- ----------- ----------- ------------ ----------- Total nine months $(30,229,672) $ - $ - $ - $ (30,497) $ (22,763) ============ =========== =========== =========== ============ =========== 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) Three months 12/98 (518,217) (366,840) (970,170) (2,117,400) (3,117,480) (2,547,606) ------------ ----------- ----------- ----------- ----------- ----------- Total nine months $ (1,556,102) $(1,100,520) $(2,910,510) $(6,352,200) $ (9,352,440) $(7,644,211) ============ =========== =========== =========== ============ ============ SEGMENT INCOME (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) Three months 12/98(c) 193,852,486 (275,513) (1,512,487) (1,550,283) (628,604) (4,570,599) ------------ ----------- ----------- ----------- ------------ ------------ Total nine months $121,214,675 $ (851,510) $(4,410,285) $(1,787,480) $ (1,891,265) $(13,856,973) ============ =========== =========== =========== ============ ============
(a) Includes the Boston Market. (b) The significant decline reflects the sale of certain revenue producing properties to which the company provided analog subscription video services. (c) Includes an extraordinary gain of $204,345,447 from the extinguishment of debt.
CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 6. OPERATING SEGMENT INFORMATION (CONTINUED)
ALBANY NEW YORK PHILADELPHIA CORPORATE MARKET MARKET MARKET AMI ALL OTHER(a) Assets $380,080,778 $ 1,951,194 $ 904,790 $ 6,115,555 $ 177,797,928 $ 31,257,059 Due from segments $290,403,820 $ - $ - $ - $ - $ - Due to parent $ - $(11,240,414) $(31,726,081) $(5,232,594) $(179,677,566) $(62,527,165) Expenditures for segment assets $ 8,729 $ 37,734 $ 9,074 $ 123,858 $ - $ 19,281
(a) Includes the Boston Market Total revenues, income(loss), and assets as of and for the nine months ended December 31, 1998 are reconciled as follows:
EXTERNAL REVENUES INCOME (LOSS) ASSETS Total reported for identified segments $ 13,542,669 $ 112,274,135 $ 566,850,245 Boston Market (included in All Other) - (6,980,768) 15,212,068 All Other (excluding Boston Market) 1,429,355 (6,876,205) 16,044,991 Elimination of inter-segment balances - - (291,829,421) Elimination of inter-segment investments - - (17,785,517) ------------ ------------ ------------ Consolidated totals $ 14,972,024 $ 98,417,162 $ 288,492,366 ============ ============ ============
CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 6: OPERATING SEGMENT INFORMATION (CONTINUED) The following information is provided for operating segments as of and for the nine months ended December 31, 1997 as determined by senior management and subject to meeting quantitative thresholds.
ALBANY NEW YORK PHILADELPHIA CORPORATE MARKET MARKET MARKET AMI ALL OTHER(a) Revenues: External $ - $ 2,447,793 $ 4,042,412 $ 13,385,886 $ - $ 2,101,293 Inter-company $ 1,737,000 $ - $ - $ - $ 9,050,361 $ 245,257 Interest expense $(40,093,996) $ - $ (2,161) $ (3,381) $ (24,479) $ (4,488) Depreciation & amortization $ (6,754,323) $ (1,388,385) $ (2,060,955) $ (8,464,635) $ (7,224,885) $ (6,593,541) Segment loss $(74,849,639) $ (1,277,598) $ (3,350,155) $ (5,419,593) $ (2,009,905) $(11,629,679) Assets $556,937,815 $ 3,402,731 $ 1,253,211 $ 13,536,289 $ 190,062,593 $ 40,871,883 Due from segments $304,862,260 $ - $ - $ - $ - $ - Due to parent $ - $(11,452,701) $(24,581,775) $(26,646,846) $(188,692,341) $(53,488,597) Expenditures for segment assets $ 226,424 $ 256,460 $ 176,884 $ 793,458 $ - $ 728,039
(a) Includes the Boston Market. Total revenues, income(loss), and assets as of and for the nine months ended December 31, 1997 are reconciled as follows:
EXTERNAL REVENUES INCOME (LOSS) ASSETS Total reported for identified segments $19,876,091 $(86,906,890) $ 765,192,639 Boston Market (included in All Other) - (4,231,809) 24,163,779 All Other (excluding Boston Market) 2,101,293 (7,397,870) 16,708,104 Elimination of inter-segment balances - - (307,532,089) Elimination of inter-segment investments - - (17,859,517) ----------- ----------- ------------ Consolidated totals $21,977,384 $(98,536,569) $ 480,672,916 =========== ============ =============
CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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. DEBT OF REORGANIZED COMPANY Reference is made to Notes 2 and 3 above for a description of the October 14, 1998 consummation of CAI's Chapter 11 case and the Exit Facility that CAI entered into in connection therewith. The following debt is outstanding as of December 31, 1998:
LONG-TERM NOTES Senior debt of $100,000,000 accreting at 13% per annum, due October 14, 2004: Amount due at maturity $ 212,909,624 Less unearned discount (110,165,180) ------------ Principal and earned interest outstanding as of December 31, 1998 102,744,444 Note: Principal and interest are payable at maturity. The senior debt is unsecured. Acquisition-related notes 3,708,264 Other 3,577 ------------ Total long-term notes $ 106,456,285 ============= INTERIM DEBT FINANCING (EXIT FACILITY) Senior Secured A Note at 10.5% interest, compounded semi-annually with a first priority lien on Company assets. $ 30,000,000 Senior Secured B Note at 13.0% interest per annum with a second priority lien on Company assets. 50,000,000 ------------ Total interim debt financing $ 80,000,000 =============
CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 9. STOCK CAPITALIZATION The pre and post-reorganization capital structures of the Company are as follows:
Shares Authorized Shares Issued and Outstanding ---------------------------------------- ------------------------------------- CLASS OF STOCK DECEMBER 31, 1998 MARCH 31, 1998 DECEMBER 31, 1998 MARCH 31, 1998 PRE-REORGANIZED COMPANY Preferred stock 14% Senior convertible preferred stock, par value $10,000 per share 15,000 - ----------- ---------- Series preferred stock, no par value Series A 8% redeemable convertible preferred stock, no par value 350,000 - Undesignated 4,650,000 - ----------- ---------- Total series preferred stock 5,000,000 - Voting preferred stock, no par value 2,000,000 - ----------- ---------- Total preferred stock 7,015,000 - =========== ========== Common stock, no par value 100,000,000 40,543,039 =========== ========== POST-REORGANIZED COMPANY Preferred stock, par value $0.01 5,000,000 - ========== ========== Common stock, par value $0.01 25,000,000 17,241,379 ========== ==========
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 or that the Company can obtain financing in the future. REORGANIZATION. 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. The New Senior Notes are governed by that certain Indenture dated as of October 14, 1998 (the "New Senior Notes Indenture") between the Company and State Street Bank and Trust Company, as trustee, a copy of which was filed as an exhibit to the Company's Current Report on Form 8-K filed with the Commission on October 15, 1998. 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. 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). All interest on amounts outstanding under the Exit Facility accrues at the stated rates and is payable at maturity of the Exit Facility. 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, subsequently under the DIP Facility and after reorganization on October 14, 1998, the Exit Facility. Funds provided under these interim financing facilities totalling $26,847,000 were invested in a restricted account controlled by MLGAF and made available to the Company for its operating requirements in accordance with an approved budget. During the nine months ended December 31, 1998, CAI expended $33,894,000 on operating activities. In conjunction with the reorganization, the final escrow payment of $16,376,000 was made to holders of the Old Senior Notes. CAI also expended $2,224,000 in debt payments, $856,000 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 account. At December 31, 1998, CAI had available funds of $21,079,000, of which $19,293,000 was held in the restricted account. CAI is committed through additional open purchase orders as of December 31, 1998 to spend approximately $500,000, primarily for capital expenditures associated with additional development of its two-way and Internet 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 types of equity instruments is currently limited by the terms of the New Senior Notes Indenture 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 DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997 The Company currently operates six analog subscription video systems. The Company has experienced a decline in analog-based video subscribers, which decline has had and will continue to have an adverse effect on the Company's revenues. See Note 6 to the Consolidated Financial Statements included in this Form 10-Q for comparative revenues by market. During the last several quarters, the Company has operated its analog video 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 includes the recovery of out-of-pocket expenses associated with adding a new analog video subscriber by charging such subscriber an up-front installation fee. 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. Accordingly, 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 currently 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 Company's analog video subscriber base has declined over the last several quarters. As of December 31, 1998, the Company's subscriber base had decreased to 33,800 analog video subscribers compared to 57,500 at December 31, 1997. The 23,700 subscriber decrease includes the loss of approximately 10,400 subscribers as a result of the Philadelphia MDU Sale. The decrease in analog video subscribers has resulted in subscriber revenue decreases of $2,471,000 and $7,005,000 for the quarter and nine months ended December 31, 1998, respectively, compared to the corresponding periods last year. Operating expenses were $48,381,000 and $60,242,000 for the nine months ended December 31, 1998 and 1997, respectively. The $11,861,000 reduction in operating expenses for the nine months versus last year's corresponding nine- month period reflects lower technical, customer service and marketing costs approximating $4,528,000 which were in proportion with the decline in subscribers, offset by a $1,500,000 increase in professional fees associated with the reorganization. Programming costs decreased by $754,400 and $2,045,400 for the quarter and nine months ended December 31, 1998, respectively, in proportion with decreased revenues. However, licensing costs were $306,500 and $1,932,000 higher for the quarter and nine months ended December 31, 1998, respectively, due to certain channel payments which had been previously capitalized being currently expensed. The remaining decrease of $5,698,000 reflects lower goodwill amortization relative to the write-down at March 31, 1998, offset in part by greater amortization recorded on the Boston digital project, including amortization of channel payments previously capitalized. Interest expense was $30,283,000 and $40,129,000 for the nine months ended December 31, 1998 and 1997, respectively. The decrease of $9,468,000 in the quarter ended December 31, 1998 compared to the same period last year was due to the consummation of the Company's Chapter 11 case on October 14, 1998 that resulted in a debt reduction of $207,793,000, offset in part by a $20,000,000 increase in interim debt under the Exit Facility. Interest and other income increased by $1,009,000 for the nine months ended December 31, 1998 compared to the same period last year. The $2,642,000 net gain from the Philadelphia MDU Sale was partially offset by the declining interest income on the debt escrow and money market investments. The elimination of the Company's investment in CS Wireless reflects equity losses recorded to the extent of its investment (CAI does not guarantee any CS Wireless debt). CS Wireless' net loss of $100,762,000 for the nine-month period ended September 30, 1998 includes a $46,378,000 write down of goodwill. CAI's ownership interest in CS Wireless increased to approximately 94% as a result of the December 2, 1998 purchase by the Company of 3,836,035 shares of CS Wireless common stock held by Heartland Wireless Communications, Inc. ("Heartland"). Subsequent to the purchase, CS Wireless redeemed the shares of CS Wireless common stock purchased by the Company from Heartland. At December 31, 1998, CAI held 6,421,166 shares of CS Wireless common stock, representing approximately 94% of the issued and outstanding common stock of CS Wireless. THE YEAR 2000 ISSUE OVERVIEW. The Company is continuing to evaluate and address the impact of the Year 2000 date transition on its operations. The Company is in the process of taking steps to (a) inventory and assess for Year 2000 compliance its equipment, software and systems, (b) determine which items will be remediated, replaced or retired, and establish a plan to accomplish these steps, (c) remediate, replace or retire the items, (d) test the items, where required, and (e) provide senior management with a reporting system to support a seamless transition to the Year 2000. STATE OF READINESS. The Company's Year 2000 compliance program focuses on the Company's analog video operations, limited internet operations, and internal business processes, such as accounting. As of December 31, 1998, the inventory, assessment and compliance planning phases for these areas have been materially completed, and remediation, replacement or retirement and testing activities are beginning.. The inventory items that are not assessed as Year 2000 compliant and that require action to avoid service impact are expected to be fixed, replaced, or retired. CAI's goal for its accounting services is to have its accounting software and any other mission critical systems relating directly to the accounting function Year 2000 compliant by April 1, 1999, the beginning of its fiscal year. For all other areas, CAI's goal is to have all mission critical systems Year 2000 compliant by July 1, 1999. VENDOR AND SERVICE PROVIDER ISSUES. The Company has requested that its vendors and service providers provide CAI with information as to the compliance status of products and/or services used by CAI and its operating subsidiaries, which information is subject to Company testing and verification. Although the Company has received information from some of its vendors and service providers, it has not yet received information from each of the vendors and service providers it has identified. The Company will continue to pursue its vendors and service providers in order to obtain the necessary information regarding Year 2000 compliance of such vendors and service providers. COSTS. The Company has estimated that it will cost approximately $375,000 to effect its Year 2000 compliance program, based on information it has received as of December 31, 1998 from vendors and service providers. The Company anticipates that most of the cost associated with its Year 2000 compliance program will be the result of remediation or replacement of non- compliant equipment necessary for the Company's analog video operations and internal business processes. RISKS. The failure to correct a material Year 2000 problem could cause an interruption or failure of certain of the Company's normal business functions or operations, which could have a material adverse effect on its results of operations, liquidity or financial condition. Due to the uncertainty inherent in other Year 2000 issues that are ultimately beyond CAI's control, including, for example, the final Year 2000 readiness of its mission critical vendors and service providers, the Company is unable to determine at this time the likelihood of a material impact on its results of operations, liquidity or financial condition, due to such Year 2000 issues. The costs of the Company's Year 2000 program and the timetable for completing its Year 2000 preparations are based on current estimates, which reflect numerous assumptions about future events, including the continued availability of certain resources, the timing and effectiveness of third- party remediation plans and other factors. The Company can give no assurance that these estimates will be achieved, and actual results could differ materially from those currently anticipated. In addition, there can be no assurance that the Company's Year 2000 program will be effective or that its contingency plans will be sufficient. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct relevant computer software codes and embedded technology, the results of internal and external testing and the timeliness and effectiveness of remediation efforts of third parties. CONTINGENCY PLAN. At December 31, 1998, the Company is not aware of any mission critical aspect of its operations or internal business processes that can not be made Year 2000 compliant, however, its inventory and assessment of Year 2000 compliance is not yet completed. Due to the uncertainties presented by third party Year 2000 problems, and the possibility that, despite its efforts, the Company is unsuccessful in preparing its internal systems and equipment for the Year 2000, the Company expects to develop contingency plans for dealing with the most reasonably likely worst case scenario. The Company's assessment of its most reasonably likely worst case scenario and the exact nature and scope of its contingency plans will be affected by the Company's continued Year 2000 assessment and testing. The Company expects to complete such assessment by July 1, 1999 and to have all contingency systems in place and fully tested by the fourth quarter of 1999. 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 the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1998 and 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), received 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 New Common Stock trades in the over-the-counter market on the electronic bulletin board under the symbol (CWSS.( 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, par value $.01 per share, and 5,000,000 shares of preferred stock, par value $.01 per share, 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 was filed as Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1998. Item 5. Other Information. GOVERNANCE. During the period ending December 31, 1998, following the Company's Chapter 11 case, four individuals were appointed to the Company's board of directors. Named to the Company's board on December 9, 1998 were Paul M. Albert, Jr., Vernon L. Fotheringham, and John B. Newman. Martin G. Mand was appointed to the Company's board on December 16, 1998. Jared E. Abbruzzese, chairman and chief executive officer of CAI, and incumbent director Robert D. Happ comprise the balance of the 6-member board. Previous members of the Company's board resigned in connection with the reorganization. Paul M. Albert, Jr. is a consultant and private investor. From 1996 through 1998, Mr. Albert was employed by or retained as a consultant to The Globecon Group and Eccles Associates. From 1983 to 1996, Mr. Albert was a Managing Director, Investment Banking, at Prudential Securities. Vernon L. Fotheringham is the chairman and chief executive officer of Composite Group, Inc., a product development and venture formation firm located in Woodinville, Washington. Mr. Fotheringham also serves as chairman and CEO of Nutel Corporation and as vice chairman of Angel Technology Corp. Martin G. Mand is the chairman, president and chief executive officer of Mand Associates, Limited, a financial consulting, speaking and writing firm located in Wilmington, Delaware. Mr. Mand previously served as executive vice president and chief financial officer at Northern Telecom, Ltd. and in senior management positions at E.I. du Pont de Nemours & Co., and currently serves on the board of directors of Sun Healthcare Group Inc. and Fuji Bank and Trust Company. John B. Newman has been the chairman of MBNT Financial Holdings Limited, a private investment vehicle since 1990. Immediately prior to that, Mr. Newman was deputy chairman and a member of the Executive Committee of Prudential Securities Canada, having been active in the investment banking business since 1960. Mr. Newman is a director of a number of public and private Canadian corporations engaged in real estate, insurance, investment, manufacturing, distribution and financing. Robert D. Happ has served as a director of the Company since 1995. Prior to his retirement in 1994, Mr. Happ was the senior managing partner of the Boston, Massachusetts office of KPMG Peat Marwick LLP. Mr. Happ also serves as a director of Galileo Corporation, Cambridgeport Bank and the Company's 94%- owned subsidiary, CS Wireless. Jared E. Abbruzzese has been chairman and chief executive officer of the Company since its formation in 1991. Mr. Abbruzzese also serves as chairman of CS Wireless and of TSS. Effective January 1, 1999, John J. Prisco resigned from the Company. Mr. Prisco had held the positions of president and chief operating officer, and was a member of the Company's board of directors from March 1996 until October 14, 1998. Other members of the senior management of CAI have assumed the operational duties previously performed by Mr. Prisco upon his resignation. The Company does not have plans for the replacement of Mr. Prisco at this time. 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 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 preferable 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, operators( activities in contiguous markets. Although the Company has devised such a template, it is not necessary for it to be adopted in any given market for the Company to engage in two-way transmissions. 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 initial plan applied for may not be the frequency plan ultimately desirable for the future business 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 Instructional Television Fixed Service (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. The strategic business plan of CAI is to become a wholesale provider of MMDS spectrum capacity that can be purchased by one or more strategic partners. Although CAI recognizes that there are significant regulatory, technological and financial issues surrounding its development and implementation, CAI expects to be able eventually to offer, on a wholesale basis, two-way spectrum capacity over a wireless broadband network capable of transmitting video, voice and data throughout its operating territory. CAI believes that it must enter into a joint venture or other business relationship with one or more strategic partners, pursuant to which the strategic partner(s) would commit to purchase all or a portion of CAI's MMDS spectrum capacity in an amount that would be sufficient to enable CAI to raise the capital necessary to implement its business plan. CAI has been vigorously pursuing its strategic business plan. CAI has had, and continues to have, discussions with several potential strategic partners regarding CAI's strategic business plan. In addition to on-going discussions, CAI has demonstrated, and continues to demonstrate, the technological capabilities of the MMDS spectrum for video, voice and data to various potential strategic partners. The nature and frequency of these discussions and of any possible business relationships differs among the potential strategic partners. With certain entities, the Company has discussed their purchasing of spectrum capacity through use of "take-or-pay" or similar arrangements and with other entities, the Company has discussed more comprehensive relationships. The Company is also aware that certain potential strategic partners have had discussions with one or more of CAI's securities holders. All of these discussions are still in an exploratory stage and there can be no assurance that any of these discussions will result in an agreement-in-principle, binding commitment or definitive agreement to enter into any business relationship. The Company's policy is not to comment on particular on-going discussions with respect to strategic business relationships prior to an agreement. Additionally, in connection with the Company's strategic partner search and the issuance of the Two-Way Rules, 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. STOCK OPTION PLANS. In connection with the CAI Bankruptcy, CAI adopted the 1998 Stock Option Plan (the "Management Option Plan") for key employees, a copy of which is filed as an exhibit hereto. The Management Option Plan is intended to provide key employees with a meaningful incentive to pursue CAI's strategic business plan. The Management Option Plan is also intended to align the interests of such employees with those of CAI's shareholders. There are 1.5 million shares of CAI Common Stock reserved for issuance upon the exercise of options granted pursuant to the Management Option Plan. All options granted under the Management Option Plan are intended to be 10-year options, however, options may lapse and expire prior to the expiration of such 10-year period in certain circumstances more fully described in the Management Option Plan. The vesting terms and exercise price of options granted under Management Option Plan are determined by a committee (the (Committee() designated by the Company's board of directors to administer the Management Option Plan. On January 18, 1999 the Committee approved the issuance to several key employees of the Company of options to purchase 1,233,500 shares of CAI Common Stock pursuant to the Management Option Plan, and subject to the surrender of certain options previously granted in connection with the Company's reorganization on October 14, 1998. Upon such surrender, the number of options outstanding will be fewer than the number granted on October 14, 1998. The options approved by the Committee are exercisable at a per share price of $0.875, which represents the closing trading price of the CAI Common Stock on January 19, 1999. The options vest upon the occurrence of specified conditions or the completion of identified tasks, depending upon the department in which the optionee is employed by the Company, the satisfaction of which are determined by the Committee in its reasonable judgment. All options vest in their entirety upon the occurrence of a change of control of the Company. The Committee has also imposed a 120-day waiting period following the occurrence of the vesting events in certain circumstances. In part to attract qualified outside directors, the Company's board of directors has also adopted the 1998 Outside Directors' Stock Option Plan (the "Outside Directors' Plan"), a copy of which is filed as an exhibit hereto. Under the Outside Directors' Plan, each non-employee director of CAI is entitled to an initial grant of options to purchase 25,000 shares of CAI Common Stock at an exercise price equal to the closing trading price on the day on which such individual is deemed to have become a director of the Company following the Company's reorganization. The initial options vest over a one-year period with options to purchase 10,000 shares of CAI Common Stock vesting on the date that is three months after such individual becomes a CAI director, options to purchase 7,500 shares of CAI Common Stock vesting on the date that is eight months after such individual becomes a CAI director and the remaining options to purchase 7,500 shares of CAI Common Stock vesting on the one-year anniversary of the date such individual becomes a director. In addition to the initial grant of option, each individual who has been a CAI director for at least six months prior to each April 1, beginning on April 1, 2000, shall receive options to purchase 7,500 shares of CAI Common Stock at an exercise price equal to the closing trading price on the date of grant, which options vest on the one-year anniversary of the date of grant. All options granted under the Outside Directors' Plan are intended to be 10-year options, however, options may lapse and expire prior to the expiration of such 10-year period in certain circumstances more fully described in the Outside Directors' Plan. The Company board of directors has reserved 400,000 shares of CAI Common Stock for issuance upon the exercise of options granted under the Outside Directors' Plan. As of the date of this report, there were options to purchase 125,000 shares of CAI Common Stock issued and outstanding under the Outside Directors' Plan. The foregoing descriptions of the stock option plans maintained by the Company are summaries of such plans and are qualified in their entirety to the full text of the Management Option Plan and Outside Directors' Plan attached hereto as exhibits. 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 EXHIBIT NO. DESCRIPTION (SEE LEGEND) REFERENCE 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 [7] Exhibit 3.1 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, [7] Exhibit 4.1 1998 by and among CAI, Merrill Lynch Global Allocation Fund, Inc. and Merrill Lynch Equity/Convertible Series Fund (Global Allocation Portfolio) 10.1 1998 Outside Directors' Stock Option Plan 10.2 1998 Stock Option Plan 10.3 Amended and Restated Employment Agreement dated as of October 14, 1998 between CAI and Jared E. Abbruzzese 10.4 Amended and Restated Employment Agreement dated as of October 14, 1998 between CAI and James P. Ashman 10.5 Amended and Restated Employment Agreement dated as of October 14, 1998 between CAI and Gerald Stevens- Kittner 10.6 Amended and Restated Employment Agreement dated as of October 14, 1998 between CAI and Bruce Kostreski 10.7 Amended and Restated Employment Agreement dated as of October 14, 1998 between CAI and Derwood Edge 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 [7] Exhibit 99.1 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. [7] Incorporated by reference to the exhibit to the Company's Quarterly Report on Form 10-Q for September 30, 1998. Filed herewith. b) REPORTS ON FORM 8-K. (1) Form 8-K filed October 15, 1998, reporting the following: Item 3. Bankruptcy or Receivership. CAI and one of its subsidiaries 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. (2) 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 February 16, 1999 JARED E. ABBRUZZESE and Director (Principal Executive Officer) /S/ Executive Vice President, Chief February 16, 1999 JAMES P. ASHMAN Financial Officer (Principal Financial Officer) /S/ Vice President and Controller February 16, 1999 ARTHUR J. MILLER (Principal Accounting Officer)
EX-1 2 1 CAI WIRELESS SYSTEMS, INC. 1998 OUTSIDE DIRECTORS' STOCK OPTION PLAN 1. PURPOSE. The purpose of this 1998 Outside Directors' Stock Option Plan (the "Plan") is to attract and retain the continued services of non-employee directors of CAI Wireless Systems, Inc. (the "Company") with the requisite qualification and to encourage such directors to secure or increase, on reasonable terms, their stock ownership in the Company. The Board of Directors of the Company (the "Board") believes that the granting of options (the "Options") under this Plan will promote continuity of management and increased personal interest in the welfare of the Company by those individuals who are responsible for shaping and carrying out the long-range plans of the Company and securing its continued growth and financial success. 2. EFFECTIVE DATE OF THE PLAN; SHAREHOLDER APPROVAL. The Plan shall become effective upon its approval by the Board of the Company (the "Effective Date"). To the extent the Company is subject to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder, the Company shall seek to obtain shareholder approval or ratification of the Plan in compliance with Rule 16b-3(d)(2) under the Exchange Act. 3. STOCK SUBJECT TO PLAN. Four hundred thousand (400,000) of the authorized but unissued shares of the Company's Common Stock, par value $0.01 per share (the "Shares"), have been reserved for issuance upon the exercise of Options; provided, however, that the number of Shares so reserved may be reduced from time to time to the extent that a corresponding number of treasury Shares are set aside for issuance upon the exercise of Options. If any Options expire or terminate for any reason without having been exercised in full, the unpurchased Shares subject thereto shall again be available for the grant of Options. 4. ADMINISTRATION. The Plan shall be administered by the Committee referred to in Section 5 hereof. Subject to the provisions of the Plan, the Committee shall have complete authority in its discretion to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it and to make all other determinations necessary or advisable for the administration of the Plan; provided, however, that the Committee shall have no discretion to determine the non-employee directors who will receive Options, the number of Shares subject to Options, the terms upon which, the time at which, or the period within which Shares may be acquired or the Option may be acquired and exercised. 5. COMMITTEE. The Board shall designate a committee (the "Committee"), which shall consist of at least two (2) members of the Board, each of whom shall be a "non-employee director," as defined in Rule 16b-3 under the Exchange Act, or any successor rule under the Exchange Act. The Board may remove, at any time and from time to time, any member of the Committee and fill vacancies, however caused, in the Committee. A majority of the members of the Committee shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. Any decision or determination of the Committee reduced to writing and signed by all members of the Committee shall be fully effective as if it had been made at a meeting duly called and held. The Committee may be an existing committee of the Board, provided such existing committee consists of at least 2 "non-employee directors." 6. ELIGIBILITY. An Option may be granted only to members of the Board who are non-employee directors on the date of grant (the "Participants"). 7. GRANT OF OPTIONS AND OPTION PRICE. (a) INITIAL OPTION GRANT. Each individual who is a Participant on the date that such individual is deemed first elected or appointed to the Board (the "Initial Grant Date") shall automatically be granted on such date an option (the "Initial Option") to purchase twenty-five thousand (25,000) Shares, vesting: (i) to the extent of options to purchase 10,000 Shares on the date that is three months after the Initial Grant Date; (ii) to the extent of options to purchase an additional 7,500 Shares on the date that is eight months after the Initial Grant Date, and (iii) to the extent of options to purchase an additional 7,500 Shares on the one-year anniversary of the Initial Grant Date, provided that such individual is a Participant on each such date. (b) SUBSEQUENT ANNUAL OPTION GRANTS. In addition to the Initial Option, each Participant shall receive an automatic grant of an Option (each, a "Subsequent Option") to purchase seven thousand five hundred (7,500) Shares on each April 1st, commencing on April 1, 2000 (each April 1st, a "Subsequent Grant Date"), provided that such Participant has been a member of the Board for at least six months prior to the applicable Subsequent Grant Date. Each Subsequent Option shall vest in its entirety on the one-year anniversary of the applicable Subsequent Grant Date. (c) LIMITATION ON MULTIPLE GRANTS. Notwithstanding the foregoing, no Participant shall receive more than one (1) grant of an Initial Option at any time, even if the Participant ceases for any reason to serve on the Board for any length of time, but is then re-elected or re-appointed. (d) PRICE. The per Share price to be paid by a Participant upon the exercise of an Option (the "Exercise Price") shall not be less than the fair market value of a Share on the date of grant. For purposes hereof, the fair market value of a Share on any date shall be equal to the last reported sales price of the Shares as reported on the NASDAQ National Market System on such date, or, if the Shares are not reported on the NASDAQ National Market System, the last reported sales price of the Shares on such date (or if no such quotation occurred on that date, on the next preceding date on which there was a quotation), as made available for publication by the National Association of Securities Dealers Automated Quotation System, or if no such prices are available, the fair market value as determined rules to be adopted by the Committee. 8. OPTION PERIOD. Participants shall be granted Options which are exercisable for a period of ten (10) years from the date of granting thereof. Notwithstanding the foregoing, except as provided in the following paragraph, to the extent required by Rule 16b-3 under the Exchange Act and the rules and regulations promulgated thereunder, no Option granted under this Plan shall be exercisable until six (6) months after the grant. In the event that a Participant dies or becomes disabled, or in the event of a "change of control" (as defined below) of the Company, all Options held by such Participant which have not yet vested and become exercisable shall become vested and immediately exercisable. For purposes of this Plan, a "change of control" shall be deemed to have occurred if, after the date hereof, (i) any person or two or more persons acting in concert, other than the Company or any employee benefit plan sponsored by the Company, acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act directly or indirectly of thirty-five percent (35%) or more of the total voting power represented by the Company's then outstanding voting securities (calculated as provided in paragraph (d) of Rule 13d-3 under the Exchange Act in the case of rights to acquire voting securities); or (ii) any person or two or more persons acting in concert, other than the Company or any employee benefit plan sponsored by the Company, shall purchase shares of the Company pursuant to a tender offer or exchange offer to acquire any voting securities of the Company (or securities convertible into such voting securities) for cash, securities or any other consideration, provided that after the consummation of the offer, the person or persons in question has beneficial ownership directly or indirectly of thirty-five percent (35%) or more of the total voting power represented by the Company's then outstanding voting securities (all as calculated under clause (i) above)); or (iii) the shareholders of the Company shall approve (A) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation (other than a merger of the Company in which holders of the Common Shares of the Company immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger as immediately before), or pursuant to which Common Shares of the Company would be converted into cash, securities or other property, or (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company; or (iv) a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or not the Company is then subject to such reporting requirement; or (v) there shall have been a change in the composition of the Board of Directors of the Company at any time during any consecutive twenty-four (24) month period such that "continuing directors" cease for any reason to constitute at least a 70% majority of the Board. For purposes of this clause, "continuing directors" means those members of the Board who either were directors at the beginning of such twenty-four month period or were elected by or on the nomination or recommendation of at least a 70% majority of the then-existing "continuing directors." So long as there has not been a "change of control" within the meaning of clause (v), the Board of Directors may adopt by a 70% majority of the "continuing directors" a resolution to the effect that an event described in clauses (i) or (ii) shall not constitute a "change of control." 9. EXERCISE OF OPTIONS. Subject to Sections 7 and 8 hereof, a vested Option may be exercised in whole or in part, at any time after the date it is granted, and only by a written notice of intent to exercise the Option with respect to a specified number of Shares and payment to the Company in cash or by certified check, bank draft or postal or express money order, of the amount of the Option Exercise Price for the number of Shares with respect to which the Option is then exercised. 10. CEASING TO BE A DIRECTOR. (a) TERMINATION. If a Participant terminates service as a director for any reason other than those set forth in clauses (b) and (c) below, any vested Options held by the Participant at the time of such termination shall terminate on the date on which such Options would otherwise expire by their terms, and any unvested Options shall lapse and expire on the date of such termination. (b) DISABILITY OR DEATH. If a Participant's service as a director is terminated by disability or death, the Participant or the representative of the Participant's estate or beneficiaries thereof to whom the Option has been transferred shall have the right during the period commencing on the date of the Participant's disability or death and ending one (1) year after such termination to exercise any then-outstanding Options in whole or in part. (c) TERMINATION FOR CAUSE. If a Participant's service as a director is terminated for cause, all vested and unvested Options held by the Participant at the time of such termination for cause shall lapse and expire immediately upon such termination. 11. DURATION OF PLAN. Unless sooner terminated by the Board, this Plan shall remain in effect for a period of ten (10) years after the Effective Date, and shall thereafter terminate automatically by its terms, without further action by the Board or the Committee. No Options may be granted after the termination of this Plan; provided, however, that termination of this Plan shall not affect any Options previously granted, which Options shall remain in effect until exercised, surrendered or cancelled, or until they have expired, all in accordance with their respective terms. 12. CHANGES IN CAPITAL STRUCTURE, ETC. In the event of changes in the outstanding Common Stock of the Company by reason of stock dividends, stock splits, recapitalizations, mergers, consolidations, combination or exchange of shares, separations, reorganization, or liquidations, the number of Shares available under the Plan in the aggregate and the number of Shares as to which Options may be granted to any Participant shall be correspondingly adjusted by the Committee. In addition, the Committee shall make appropriate adjustments in the number of Shares as to which outstanding Options, or portions thereof then unexercised, shall relate, to the end that the Participant's appropriate interest shall be maintained as before the occurrence of such event; such adjustment shall be made without change in the total price applicable to the unexercised portion of Options and with a corresponding adjustment in the Option price per share. 13. RIGHTS AS SHAREHOLDER. A Participant entitled to Shares as a result of the exercise of an Option shall not be deemed for any purpose to be, or have rights as, as shareholder of the Company by virtue of such exercise, except to the extent a stock certificate is issued therefor and then only from the date such certificate is issued. No adjustments shall be made for dividends or distributions or other rights for which the record date is prior to the date such stock certificate is issued. 14. EXPENSES. The expenses of this Plan shall be borne by the Company. 15. COMPLIANCE WITH APPLICABLE LAW. Notwithstanding anything herein to the contrary, the Company shall not be obligated to cause to be issued or delivered any certificates evidencing Shares to be delivered pursuant to the exercise of an Option, unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws and regulations of governmental authority. The Company shall in no event be obligated to register any securities pursuant to the Securities Act of 1933 (as now in effect or as hereafter amended), or to take any other action in order to cause the issuance and delivery of such certificate to comply with any such law or regulation. The Committee may require, as a condition of the issuance and delivery of such certificates and in order to ensure compliance with such laws and regulations, that the Participant make such covenants, agreement and representations as the Committee, in its sole discretion, deems necessary or desirable. 16. APPLICATION OF FUNDS. Any cash proceeds received by the Company from the sale of Shares pursuant to Options will be used for general corporate purposes. 17. AMENDMENT OF THE PLAN. The Board may, from time to time, suspend or discontinue this Plan or revise or amend it in any respect whatsoever, except that no such suspension, discontinuance, revision or amendment shall in any manner affect any grant theretofore made without the consent of the Participant or the transferee of the Participant, unless necessary to comply with applicable law. EX-2 3 CAI WIRELESS SYSTEMS INC. 1998 STOCK OPTION PLAN 1. PURPOSE The purpose of the CAI Wireless Systems Inc. 1998 Stock Option Plan is to motivate selected Key Employees of the Company and its subsidiaries to increase shareholder value and to reward such employees for the related success of the Company. Options will be granted, effective on the Consummation Date, to the Initial Optionees and shares issuable pursuant to any forfeited or expired Initial Optionee options will again be available for option grants thereafter by the Committee to Key Employees pursuant to the terms of this Option Plan. 2. DEFINITIONS When used herein, the following terms shall have the meanings indicated below: "Act" means the Securities Exchange Act of 1934. "Applicable Tranche Exercise Price" has the meaning set forth in the Initial Option Agreement and on Schedule A hereto. "Beneficiary" means the beneficiary or beneficiaries designated pursuant to Paragraph 10 who may exercise any outstanding Options upon the death of a Key Employee to the extent permitted under the Option Plan. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as now in effect or as hereafter amended. (All citations to sections of the Code are to such sections as they may from time to time be amended or renumbered.) "Committee" means the Stock Option or Compensation Committee of the Board or such other committee as may be designated by the Board to administer the Option Plan. In the absence of the appointment of such a Committee, the Board shall act as the Committee. "Company" means CAI Wireless Systems, Inc., and its successors and assigns. "Consummation Date" means the date so identified in accordance with the Reorganization Plan. "Fair Market Value" means the fair market value as determined by rules to be adopted by the Committee. "Incentive Stock Option" means a stock option qualified under Section 422 of the Code. "Key Employee" means an employee of any Participating Company whose responsibilities and decisions, in the judgment of the Committee, materially affect the performance of the Company and its subsidiaries and includes each Initial Optionee. "Initial Option Agreement" means an Option Agreement in the form attached as Exhibit I hereto. "Initial Optionee" means the individuals specified on Schedule A hereto. "Option" means an option awarded under Paragraph 4 of the Option Plan to purchase Stock of the Company, which option may be an Incentive Stock Option or a non-qualified stock option. "Option Agreement" means the written agreement evidencing each Option granted to a Key Employee under the Option Plan, including an Initial Option Agreement. "Option Plan" means this CAI Wireless Systems Inc. 1998 Stock Option Plan, as the same may be amended, administered or interpreted from time to time. "Participating Company" means the Company or any corporation that at the time an award is granted qualifies as a "subsidiary" of the Company under Section 425(f) of the Code. "%age of Option Plan Shares" means the percentage of the shares of Stock initially subject to the Option Plan as determined pursuant to Paragraph 3, to which an individual Initial Optionee is entitled, as specified on Schedule A hereto. "Reorganization Plan" means the Chapter 11 reorganization plan for the Company and Philadelphia Choice Television, Inc., dated June 30, 1998, as the same may be amended, modified or supplemented from time to time. "Stock" means the new common shares of the Company issued in connection with the Reorganization Plan. "Total Disability" means a permanent and total disability as defined in Section 22(e)(3) of the Code. "Total Plan Shares" has the meaning set for the in Paragraph 3 hereof. "Tranche" means a grouping of Options, A through D, at a given Exercise Price as determined in accordance with Paragraph 4(A) hereof. 3. SHARES SUBJECT TO THE OPTION PLAN The number of shares of Stock cumulatively available for Options under the Option Plan shall be fixed as of the Consummation Date and shall be equal to ten percent (10%) of the total number of shares of Stock to be issued and outstanding on the Consummation Date pursuant to the Reorganization Plan (the "Total Plan Shares"). Subject to the above limitation, shares of Stock to be issued under the Option Plan may be made available from the authorized but unissued shares, or from shares purchased in the open market. If any Options under the Option Plan are forfeited, terminated, expire unexercised or are exchanged for other Options, the shares of Stock that were theretofore subject to such Options shall again be available for Options under the Option Plan to the extent of such forfeiture or expiration of such Options. 4. GRANT OF OPTIONS AND OPTION AGREEMENTS (a) Options shall be awarded each Initial Optionee employed by the Company as of the Consummation Date in the number determined by applying the individual Initial Optionee(s %age of Option Plan Shares, as shown on Schedule A hereto, to the Total Plan Shares and such number shall be divided twenty percent (20%) to each of Tranches A through C and forty percent (40%) to Tranche D. The Applicable Tranche Exercise Price for each Tranche shall be determined as specified on Schedule A hereto. (b) With respect to Options other than those granted pursuant to Paragraph 4(A) above, the Committee shall (i) determine and designate from time to time those Key Employees or groups of Key Employees to whom Options are to be granted; (ii) determine the type or types of Options to be granted to any Key Employee; (iii) determine the number of shares of Stock subject to each Option, and (iv) determine the terms and conditions of each Option. (c) Each Option granted under the Option Plan shall be evidenced by a written Option Agreement. Such agreement shall be subject to and incorporate the express terms and conditions, if any, required under the Option Plan or required by the Committee. The Options granted to the Initial Optionees pursuant to Paragraph 4(A) shall be evidenced by a written Initial Option Agreement in the form attached as Exhibit I hereto. 5. STOCK OPTIONS (a) The Options granted pursuant to Paragraph 4(A) above, as specified on Schedule A hereto, shall be governed by the terms provided in the form of Initial Option Agreement attached as Exhibit I hereto. With respect to all other Options, the Committee shall (i) authorize the granting of Incentive Stock Options, non-qualified stock options, or a combination of Incentive Stock Options and non-qualified stock options; (ii) determine the number of shares of Stock subject to each Option, and (iii) determine the time or times when and the manner in which each Option shall be exercisable and the duration of the exercise period. (b) Any Option issued hereunder that is intended to qualify as an Incentive Stock Option shall be subject to such limitations or requirements as may be necessary for the purposes of Section 422 of the Code or any regulations and rulings thereunder to the extent and in such form as determined by the Committee in its discretion. (c) The exercise period for a non-qualified stock option shall not exceed ten years and two days from the date of grant, and the exercise period for an Incentive Stock Option shall not exceed ten years from the date of grant. (d) The Option price per share for the Options provided to the Initial Optionees pursuant to Paragraph 4(A) shall be the Applicable Tranche Exercise Price as set forth in Schedule A. The exercise price for such other Options as may be granted by the Committee from time to time shall be determined by the Committee at the time the Option is granted and shall not be less than the Fair Market Value of one share of Stock on the date the Option is granted. (e) Except for the Options provided to the Initial Optionees pursuant to Paragraph 4(A), no part of any Option may be exercised until the Key Employee who has been granted the Option shall have remained in the employ of a Participating Company for such period after the date of grant as the Committee may specify, if any, and the Committee may further require exercisability in installments; provided, however, that except for the Options provided to the Initial Optionees pursuant to Paragraph 4(A), the period during which an Option is exercisable shall commence no earlier than six months following the date the Option is granted. (f) The purchase price of the shares as to which an Option shall be exercised shall be paid to the Company at the time of exercise either (i) in cash, or (ii) in Stock already owned by the optionee having a total Fair Market Value equal to the purchase price, or (iii) provided the Company has adopted such a procedure at this time, by submitting an "Irrevocable Letter of Instruction" and "Cashless Exercise and Sale Form" authorizing the delivery for sale of the exercised Stock, or (iv) a combination of cash, Stock or cashless exercise, having a total Fair Market Value equal to the purchase price. The Committee shall determine acceptable methods for tendering Stock as payment upon exercise of an Option and may impose such limitations and prohibitions on the use of Stock to exercise an Option as it deems appropriate. The Committee may also establish procedure for a cashless exercise of Options. (g) Except for Options provided to the Initial Optionees pursuant to Paragraph 4(A), which shall be governed by the terms provided in the Initial Option Agreement, the following provisions shall apply to all other Options granted hereunder in case of termination of the Optionee(s employment: (1) If a Key Employee who has been granted an Option shall die before such Option has expired, his or her Option may be exercised to the extent it was exercisable as of the date of death by the Key Employee's Beneficiary, at any time, or from time to time, within one year after the date of the Key Employee's death or within such other period, and subject to such terms and conditions as the Committee may specify, but not later than the expiration date specified in Paragraph 5(C) above. (2) If the Key Employee's employment by any Participating Company terminates because of his or her Total Disability, he or she may exercise his or her Options to the extent they were exercisable as of the date of termination of employment at any time, or from time to time, within one year after the date of the termination of his or her employment or within such other period, and subject to such terms and conditions as the Committee may specify, but not later than the expiration date specified in Paragraph 5(C) above. (3) If the Key Employee is terminated for cause, as defined in the employment agreement of such Key Employee with the Company, or absent an employment agreement, defined as neglect of duty or misconduct as reasonably determined by the Committee, the Options shall be canceled coincident with the effective date of the termination of employment. (4) If the Key Employee's employment terminates for any other reason, he or she may exercise his or her Options, to the extent that he or she shall have been entitled to do so at the date of the termination of his or her employment, at any time, or from time to time, within three months after the date of the termination of his or her employment or within such other period, and subject to such terms and conditions as the Committee may specify, but not later than the expiration date specified in Paragraph 5(C) above. (h) No Option granted under the Option Plan shall be transferable other than to a Beneficiary upon the death of the Key Employee to whom the Option is granted. During the lifetime of the optionee, an Option shall be exercisable only by the Key Employee to whom the Option is granted. (i) With respect to an Incentive Stock Option, the Committee shall specify such terms and provisions as the Committee may determine to be necessary or desirable in order to qualify such Option as an "incentive stock option" within the meaning of Section 422 of the Code. 6. STOCK CERTIFICATES (a) The Company shall not be required to issue or deliver any certificates for shares of Stock prior to (i) the listing of such shares on any stock exchange on which the Stock may then be listed and (ii) the completion of any registration or qualification of such shares under any federal or state law, or any ruling or regulation of any government body which the Company shall, in its sole discretion, determine to be necessary or advisable. (b) All certificates for shares of Stock delivered under the Option Plan shall be subject to such stop-transfer orders and other restrictions as the Committee may deem necessary and advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Stock is then listed and any applicable federal or state securities laws, and the Committee may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. (c) Each Key Employee entitled to receive Stock in settlement of an Option shall have all of the rights of a shareholder with respect to the shares representing such Stock, including the right to vote the shares and receive dividends and other distributions from and after the date of payment pursuant to the exercise of the related Option. 7. ADMINISTRATION OF THE OPTION PLAN (a) All decisions, determinations or actions of the Committee made or taken pursuant to grants of authority under the Option Plan shall be made or taken in the sole discretion of the Committee and shall be final, conclusive and binding on all persons for all purposes. (b) The Committee shall have full power, discretion and authority to interpret, construe and administer the Option Plan and any part thereof, and its interpretations and constructions thereof and actions taken thereunder shall be, except as otherwise determined in good faith by the Board, final, conclusive and binding on all persons for all purposes. (c) The Committee's decisions and determinations under the Option Plan need not be uniform and may be made selectively among Key Employees, whether or not such Key Employees are similarly situated. (d) The Committee may, in its sole discretion, delegate such of its powers as it deems appropriate. 8. AMENDMENT, EXTENSION OR TERMINATION The Board may, at any time, amend or terminate the Option Plan. However, no amendment shall, without approval of the Company's stockholders representing a majority of its issued Stock, (a) alter the group of persons eligible to participate in the Option Plan, (b) except as provided in Paragraph 9 increase the maximum number of shares of Stock which are available for Options under the Option Plan, (c) materially increase the benefits available to persons under the Option Plan or (d) extend the termination date for the Option Plan. No amendment or termination shall impair the rights of any person with respect to a prior Option. 9. ADJUSTMENTS IN EVENT OF CHANGE IN COMMON STOCK In the event of any recapitalization, reclassification, split-up or consolidation of shares of Stock or, stock dividend, merger or consolidation of the Company or sale by the Company of all or a portion of its assets, the Committee may make such adjustments in the Stock subject to Options or the terms, conditions or restrictions on Options, including the price payable upon the exercise of such Option, as the Committee deems equitable. 10. BENEFICIARY (a) Each Key Employee shall file with the Company a written designation of one or more persons as the Beneficiary who shall be entitled to exercise the Options, if any, exercisable under the Option Plan upon his or her death. A Key Employee may from time-to-time revoke or change his or her Beneficiary designation without the consent of any prior Beneficiary by filing a new designation with the Company. The last such designation received by the Company shall be controlling; provided, however, that no designation, or change or revocation thereof shall be effective unless received by the Company prior to the Key Employee(s death, and in no event shall it be effective as of a date prior to such receipt. (b) If no such Beneficiary designation is in effect at the time of a Key Employee(s death, or if no designated Beneficiary survives the Key Employee or if such designation conflicts with law, the Key Employee(s estate shall be entitled to exercise the Options, if any, exercisable under the Option Plan upon his or her death. 11. MISCELLANEOUS (a) Nothing in this Option Plan or any Option granted hereunder shall confer upon any employee any right to continue in the employ of any Participating Company or interfere in any way with the right of any Participating Company to terminate his or her employment at any time. No Option under the Option Plan shall be deemed to give rise to salary or compensation for the purpose of computing benefits under any employee benefit plan or other arrangement of any Participating Company for the benefit of its employees unless the Company shall determine otherwise. No Key Employee shall have any claim to an Option until it is actually granted under the Option Plan. (b) The Committee may cause to be made, as a condition precedent to the exercise of any Option or otherwise, appropriate arrangements with the Key Employee, for the withholding of any federal, state, local or foreign taxes. (c) The Option Plan and the grant of Options shall be subject to all applicable federal and state laws, rules, and regulations and to such approvals by any government or regulatory agency as may be required. The Company shall take such actions as may be necessary to cause the Option Plan to be registered with the Securities and Exchange Commission on Form S-8. (d) The terms of the Option Plan shall be binding upon the Company and its successors and assigns. (e) Captions preceding the paragraphs hereof are inserted solely as a matter of convenience and in no way define or limit the scope or intent of any provision hereof. 12. EFFECTIVE DATE, TERM OF OPTION PLAN AND SHAREHOLDER APPROVAL The effective date of the Option Plan shall be the Consummation Date, the date the Option Plan shall be deemed approved by the Company's shareholders. No Option shall be granted under this Option Plan after the Option Plan's termination date. The Option Plan's termination date shall be the tenth anniversary of the Consummation Date. The Option Plan will continue in effect for existing Options as long as any such Option is outstanding. EX-3 4 AMENDED AND RESTATED EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") made as of the Consummation Date (defined below) by and between the undersigned employee, residing at the address indicated below (hereinafter referred to as "Employee") and CAI WIRELESS SYSTEMS, INC., a Connecticut corporation having its principal place of business at 18 Corporate Woods Boulevard, Third Floor, Albany, New York 12211 (hereinafter referred to as the "Company"). 1. EMPLOYMENT. The Company hereby employs Employee and Employee agrees to work for the Company with the title specified on Schedule A below during the Term (as defined below) of and upon the terms and conditions set forth in this Agreement. 2. COMPENSATION/BENEFITS. (a) BASE SALARY. During the Term of this Agreement, the Company agrees to pay Employee the base annual salary specified on Schedule A below ("Base Salary"). Such Base Salary shall be reviewed no less frequently than annually during the term of this Agreement and may be increased but not decreased by the Company=s board of directors. Such Base Salary shall be payable in accordance with the Company's normal business practices or in such other amounts and at such other times as the parties may mutually agree. (b) BONUSES. During the Term of this Agreement, the Company shall pay to the Employee an annual bonus of up to 25% of Base Salary, based upon the Company's achievement of performance targets established by the Company's board of directors. These targets will be revised annually within ninety days of the beginning of each fiscal year in consultation with the Employee. The bonus may be structured as a part of a deferred compensation arrangement. (c) INCENTIVE COMPENSATION. During the Term of this Agreement, Employee shall be entitled to participate in any pooled incentive programs established by the Company for executive employees. (d) BENEFITS/VACATION. During the Term of this Agreement, the Company also shall provide Employee with such other benefits, including medical, disability, pension and severance plans, as are made generally available to executive employees of the Company from time to time. Employee shall be entitled to twenty-six bank days as the vacation, personal and sick benefit during each year of the Term in accordance with the policy set forth in the Employee Manual of the Company. Accrued vacation may be carried over or "sold back" to the Company to the extent permitted by, and in accordance with, the policy set forth in the Employee Manual of the Company. (e) LIFE INSURANCE. Subject to Employee's submitting to any required physical examinations, the Company shall purchase and maintain in effect a term insurance policy with a face amount of $1,000,000 or other greater amount as may be specified in the Company's executive benefit policies or plans on the life of Employee and shall permit Employee to designate the beneficiary thereof. (f) Office/Secretary, etc. During the Term, Employee shall be entitled to secretarial services and a private office commensurate with his title and duties. (g) Club Membership. The Company will pay, or at Employee's election reimburse, all of the costs of a country club membership at the club of Employee's choice in the greater Albany area. 3. SERVICES. Employee agrees to devote substantially all of his working time, attention and energies to the business of the Company and its Affiliates under the general direction of the board of directors. Nothing herein shall be interpreted to preclude Employee from participating as an officer or director of, or advisor to, any charitable or other tax exempt or civic organization. 4. TERM. The term of this Agreement (the "Term" or the "Term of this Agreement") shall be for an eighteen (18)-month period beginning on the Consummation Date and continuing until the first day of the nineteenth month following the Consummation Date, and shall be automatically renewed annually thereafter for successive one year periods on terms no less favorable than are contained herein unless either party gives notice to the other of its intention not to renew this Agreement within sixty days of the expiration of the Term of this Agreement. The Consummation Date is the date so designated under the Plan. 5. EARLY TERMINATION. (a) IN GENERAL. The Employee's employment hereunder shall be terminated and, other than the obligations listed in Paragraph 5(b), the Company's obligations hereunder shall cease, including the obligation to pay compensation for any period after the date of termination, (i) without the necessity of notice, upon the death of the Employee, or (ii) upon written notice of a finding by the Company(s board of directors that the Employee has (a) acted with gross negligence or willful misconduct in connection with the performance of his duties hereunder, (b) engaged in a material act of insubordination or of common law fraud against the Company or its employees, or (c) acted against the best interests of the Company in a manner that has or could have a material adverse affect on the financial condition of the Company (any such finding is referred to herein as "Cause"). Upon any termination of Employee's employment, the Term of this Agreement shall expire. In the event of Employee's death or Employee's termination of employment by the Company other than for Cause, Employee shall be entitled to severance in an amount equal to one and one-half times his then Base Salary under Paragraph 2 (the "Severance Amount"), payable in twelve equal monthly installments. If, within eighteen months following the Consummation Date, (a) Employee terminates his or her employment for Good Reason, or (b) the Company terminates Employee's employment other than for Cause, the Company shall pay the Severance Amount in a lump sum not later than ten (10) days after the date the Company selects as Employee's last day of active employment (the "Effective Date"), provided, however, that at Employee's option, the Severance Amount shall be payable to Employee in the form of equal periodic payments ("Deferred Payment") according to the Company's regular payroll schedule or at any other intervals elected by Employee for a period commencing on the first regular payroll pay date beginning after the Effective Date (the "Deferred Payment Period"). In order to receive Deferred Payment during a Deferred Payment Period, Employee must elect such Deferred Payment in writing and specify the Deferred Payment Period, which may not exceed the number of months of Base Monthly Salary payable to Employee as the Severance Amount. In the event of Employee's death during the Deferred Payment Period, any unpaid Deferred Payment shall be paid in a lump sum to such beneficiary or beneficiaries designated by Employee in writing or, failing such designation, to Employee's spouse if Employee is married or to Employee's estate if Employee is unmarried. (b) PAYMENTS UPON TERMINATION. Upon termination of this Agreement for any reason, Employee shall be entitled to all compensation and benefits earned but not yet paid up to and including the termination date, including Base Salary, bonus and any other incentive compensation. Unless otherwise specified in this Agreement, unused vacation shall be treated in accordance with the policy set forth in the Employee Manual of the Company. (c) GOOD REASON. For purposes of this Agreement, Good Reason shall mean, with respect to Employee, (i) the assignment to Employee of any material duties materially inconsistent with Employee's position, authority, duties or responsibilities immediately before the Consummation Date, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by Employee; (ii) any material reduction in Employees Base Salary, opportunity to earn annual bonuses or other compensation or employee benefits, other than as a result of an isolated and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by Employee; (iii) the Company's requiring Employee to relocate his or her principal place of business to a place that is more than thirty- five miles from his or her previous principal place of business, or (iv) any purported termination of this Agreement otherwise than as expressly permitted by this Agreement. (d) DISABILITY. If Employee shall become unable efficiently to perform the essential functions of his job, even with reasonable accommodation, as a result of a disability or illness, as such terms are defined by the Americans with Disabilities Act, he shall be entitled to his regular compensation until the total period of disability or illness (whether or not continuous and whether or not the same disability or illness) shall exceed 60 days during any calendar year in the Term hereunder. This Agreement may thereafter be terminated by the Company and, if such termination is not within two years of the Consummation Date, the Company's obligations hereunder shall cease, including the obligation to pay compensation for any period after the date of termination. Any amounts payable as compensation during the period of disability or illness shall be reduced by any amounts paid during such period under any disability plan or similar insurance of the Company. 6. EMPLOYER'S AUTHORITY. Employee agrees to observe and comply with the rules and regulations of the Company as adopted by the Company's board of directors respecting the performance of his duties and to carry out and perform orders, directions and policies communicated to him from time to time. 7. EXPENSES. During the Term of this Agreement, the Company shall reimburse Employee for the reasonable business expenses incurred by Employee in the course of performing his duties for the Company hereunder in accordance with the procedures then in place for such reimbursement. 8. AUTOMOBILE ALLOWANCE. During the Term of this Agreement, Employee shall be entitled to an automobile allowance as specified on Schedule A below, payable monthly in arrears. 9. NON-DISCLOSURE/NON-COMPETITION. (a) Employee has executed a Nondisclosure Agreement of the Company. Said agreement shall survive termination of employment hereunder. (b) Because Employee's services to the Company are special and because Employee has access to the Company's confidential information, Employee covenants and agrees that if (i)(x) Employee's employment is terminated by the Company for Cause or (y) Employee voluntarily terminates his employment relationship hereunder with the Company other than for Good Reason, for a period of six (6) months following the termination of this Agreement, or (ii) Employee's employment is terminated and Employee is receiving the Severance Amount, for the period during which Employee is receiving such Severance Amount under Paragraph 5 hereof, whichever is applicable, he will not, directly or indirectly, either on his own behalf or on behalf of any person, partnership, corporation or otherwise, (a) engage in any business or undertaking in a capacity that is directly competitive with any business (each a "Related Business") being carried on by the Company or any Affiliate thereof at the time of Employee's termination of employment, or (b) be employed by or provide consulting services to or be an investor, partner, member or shareholder in, any entity or other person in a Related Business within 25 miles of any city in which the Company or any Affiliate thereof, does business at time of execution or any other city or community in which the Company or any Affiliate thereof, has a transmission license at the time of termination, without the prior written consent of the Company's board of directors. The parties agree that the time period and geographical area of non-competition specified above are reasonable and necessary in light of the transactions entered into in this Agreement. If, however, it shall be determined at any time by a court of competent jurisdiction that either the time period restriction or the geographical area restriction, or both, are invalid or unenforceable, the parties agree that any such restriction determined to be invalid or unenforceable shall be deemed so amended as to make such restriction valid and enforceable in the determination of said court, and such restriction, as so amended, shall be enforceable between the parties to the same extent as if such amendment had been made as of the date of this Agreement. This subparagraph 9(b) shall survive the termination of this Agreement. Notwithstanding anything contained herein to the contrary, Employee may during and after the Term engage in the following permitted activities: (i) participate as an officer or director of, or advisor to, any charitable or other tax exempt organization; and (ii) to the extent not in a Related Business, may engage in providing services to or investing in entities, businesses or persons other than the Company, including but not limited to (A) purchasing securities in private placements by any corporation or other business entity, PROVIDED, that, if such investments would otherwise be prohibited by the terms of this paragraph 9, such investments shall not result in his collectively owning beneficially at any time ten percent or more of the equity securities of any corporation or other business entity, (B) engaging in any telecommunications businesses or ventures, and (C) providing services as an officer, director, employee or consultant to TelQuest Communications, Inc., TelQuest Satellite Services LLC, Haig Capital L.L.C., Crest International Holdings LLC and any Affiliates or successors thereof, so long as those efforts by Employee individually or collectively do not adversely impact on the business of the Company. 10. EXECUTION, DELIVERY AND PERFORMANCE. To the best of Employee's knowledge, the execution, delivery and performance by Employee of this Agreement or any other agreement, instrument or document contemplated herein or hereby will not result in a breach of or conflict with any terms of any other agreement, instrument or document to which Employee is a party or by which Employee or his property is bound. No consent or approval of any person or entity, other than those that have been obtained by Employee, is required for Employee to execute, deliver and perform its obligations under this Agreement or any agreement, instrument or document contemplated herein or hereby. 11. NOTICES. Any notice permitted or required hereunder shall be deemed sufficient when hand-delivered or mailed by certified mail, postage prepaid, and addressed if to the Company at the address indicated above and if to the Employee at the address indicated below (or to such other address as may be provided by written notice received at least five (5) business days prior to the hand delivery or mailing of any such notice). 12. MISCELLANEOUS. (a) This Agreement (i) constitutes the entire agreement between the parties concerning the subjects hereof and supersedes any and all prior agreements or understandings, (ii) may not be assigned by Employee without the prior written consent of the Company, and (iii) may be assigned by the Company to any Affiliate of the Company or to the successors or assigns of the Company, provided such successors or assigns carry on substantially the Company's telecommunications business as conducted at the time of assignment and shall be binding upon, and inure to the benefit of, any such Affiliate, successor or assign. (b) Headings herein are for convenience of reference only and shall not define, limit or interpret the contents hereof. (c) As used herein, the term "Affiliate" shall mean any entity controlled by or under common control with the Company. 13. AMENDMENT. This Agreement may be amended, modified or supplemented by the mutual consent of the parties in writing, but no oral amendment, modification or supplement shall be effective. 14. SPECIFIC ENFORCEMENT. The parties acknowledge that the Company would be irreparably damaged and there would be no adequate remedy at law for the Employee's breach of Paragraph 9 of this Agreement, and accordingly, the terms thereof shall be specifically enforced. Employee hereby consents to the entry of any temporary restraining order or preliminary injunction, in addition to any other remedies available at law or in equity, to enforce the provisions hereof, provided sufficient facts are shown to warrant such relief. 15. SEVERABILITY. The provisions of this Agreement are severable. The invalidity of any provision shall not affect the validity of any other provision. 16. GOVERNING LAW. This Agreement shall be construed and regulated in all respects under the laws of the State of New York. - ------------------------------------------------------------------------ Schedule A Name: Jared E. Abbruzzese Title: Chairman and Chief Executive Officer Base Salary: $350,000.00 Car Allowance: $750.00 Home Address: 59 Old Niskayuna Road Loudonville, New York 12211 IN WITNESS WHEREOF, this Agreement is entered into as of the date and year first above written. CAI WIRELESS SYSTEMS, INC. EMPLOYEE: By:_____________________________ _______________________________ Name: James P. Ashman Name: Jared E. Abbruzzese Title: Executive Vice President and Chief Financial Officer ( EX-4 5 AMENDED AND RESTATED EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") made as of the Consummation Date (defined below) by and between the undersigned employee, residing at the address indicated below (hereinafter referred to as "Employee") and CAI WIRELESS SYSTEMS, INC., a Connecticut corporation having its principal place of business at 18 Corporate Woods Boulevard, Third Floor, Albany, New York 12211 (hereinafter referred to as the "Company"). 1. EMPLOYMENT. The Company hereby employs Employee and Employee agrees to work for the Company with the title specified on Schedule A below during the Term (as defined below) of and upon the terms and conditions set forth in this Agreement. 2. COMPENSATION/BENEFITS. (a) BASE SALARY. During the Term of this Agreement, the Company agrees to pay Employee the base annual salary specified on Schedule A below ("Base Salary"). Such Base Salary shall be reviewed no less frequently than annually during the term of this Agreement and may be increased but not decreased by the Company(s board of directors. Such Base Salary shall be payable in accordance with the Company's normal business practices or in such other amounts and at such other times as the parties may mutually agree. (b) BONUSES. During the Term of this Agreement, the Company shall pay to the Employee an annual bonus of up to 25% of Base Salary, based upon the Company's achievement of performance targets established by the Company's board of directors. These targets will be revised annually within ninety days of the beginning of each fiscal year in consultation with the Employee. The bonus may be structured as a part of a deferred compensation arrangement. (c) INCENTIVE COMPENSATION. During the Term of this Agreement, Employee shall be entitled to participate in any pooled incentive programs established by the Company for executive employees. (d) BENEFITS/VACATION. During the Term of this Agreement, the Company also shall provide Employee with such other benefits, including medical, disability, pension and severance plans, as are made generally available to executive employees of the Company from time to time. Employee shall be entitled to twenty-six bank days as the vacation, personal and sick benefit during each year of the Term in accordance with the policy set forth in the Employee Manual of the Company. Accrued vacation may be carried over or "sold back" to the Company to the extent permitted by, and in accordance with, the policy set forth in the Employee Manual of the Company. (e) LIFE INSURANCE. Subject to Employee's submitting to any required physical examinations, the Company shall purchase and maintain in effect a term insurance policy with a face amount of one times Employee's Base Salary or other greater amount as may be specified in the Company's executive benefit policies or plans on the life of Employee and shall permit Employee to designate the beneficiary thereof. 3. SERVICES. Employee agrees to devote substantially all of his working time, attention and energies to the business of the Company and its Affiliates under the general direction of the board of directors acting through its Chairman and delegated officers. Nothing herein shall be interpreted to preclude Employee from participating as an officer or director of, or advisor to, any charitable or other tax exempt or civic organization. 4. TERM. The term of this Agreement (the "Term" or the "Term of this Agreement") shall be for a period beginning on the Consummation Date and continuing until the first anniversary of the Consummation Date, and shall be automatically renewed annually thereafter for successive one year periods on terms no less favorable than are contained herein unless either party gives notice to the other of its intention not to renew this Agreement within sixty days of the expiration of the Term of this Agreement. The Consummation Date is the date so designated under the Plan. 5. EARLY TERMINATION. (a) IN GENERAL. The Employee's employment hereunder shall be terminated and, other than the obligations listed in Paragraph 5(b), the Company's obligations hereunder shall cease, including the obligation to pay compensation for any period after the date of termination, (i) without the necessity of notice, upon the death of the Employee, or (ii) upon written notice of a finding by the Company(s board of directors that the Employee has (a) acted with gross negligence or willful misconduct in connection with the performance of his duties hereunder, (b) engaged in a material act of insubordination or of common law fraud against the Company or its employees, or (c) acted against the best interests of the Company in a manner that has or could have a material adverse affect on the financial condition of the Company (any such finding is referred to herein as "Cause"). Upon any termination of Employee's employment, the Term of this Agreement shall expire. In the event of Employee's death or Employee's termination of employment by the Company other than for Cause, Employee shall be entitled to severance in an amount equal to his then Base Salary under Paragraph 2 (the "Severance Amount"), payable in twelve equal monthly installments. If, within eighteen months following the Consummation Date, (a) Employee terminates his employment for Good Reason, or (b) the Company terminates Employee's employment other than for Cause, the Company shall pay the Severance Amount in a lump sum not later than ten (10) days after the date the Company selects as Employee's last day of active employment (the "Effective Date"), provided, however, that at Employee's option, the Severance Amount shall be payable to Employee in the form of equal periodic payments ("Deferred Payment") according to the Company's regular payroll schedule or at any other intervals elected by Employee for a period commencing on the first regular payroll pay date beginning after the Effective Date (the "Deferred Payment Period"). In order to receive Deferred Payment during a Deferred Payment Period, Employee must elect such Deferred Payment in writing and specify the Deferred Payment Period, which may not exceed the number of months of Base Monthly Salary payable to Employee as the Severance Amount. In the event of Employee's death during the Deferred Payment Period, any unpaid Deferred Payment shall be paid in a lump sum to such beneficiary or beneficiaries designated by Employee in writing or, failing such designation, to Employee's spouse if Employee is married or to Employee's estate if Employee is unmarried. (b) PAYMENTS UPON TERMINATION. Upon termination of this Agreement for any reason, Employee shall be entitled to all compensation and benefits earned but not yet paid up to and including the termination date, including Base Salary, bonus and any other incentive compensation. Unless otherwise specified in this Agreement, unused vacation shall be treated in accordance with the policy set forth in the Employee Manual of the Company. (c) GOOD REASON. For purposes of this Agreement, Good Reason shall mean, with respect to Employee, (i) the assignment to Employee of any material duties materially inconsistent with Employee's position, authority, duties or responsibilities immediately before the Consummation Date, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by Employee; (ii) any material reduction in Employee's Base Salary, opportunity to earn annual bonuses or other compensation or employee benefits, other than as a result of an isolated and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by Employee; (iii) the Company's requiring Employee to relocate his principal place of business to a place that is more than thirty-five miles from his previous principal place of business, or (iv) any purported termination of this Agreement otherwise than as expressly permitted by this Agreement. (d) DISABILITY. If Employee shall become unable efficiently to perform the essential functions of his job, even with reasonable accommodation, as a result of a disability or illness, as such terms are defined by the Americans with Disabilities Act, he shall be entitled to his regular compensation until the total period of disability or illness (whether or not continuous and whether or not the same disability or illness) shall exceed 60 days during any calendar year in the Term hereunder. This Agreement may thereafter be terminated by the Company and, if such termination is not within two years of the Consummation Date, the Company's obligations hereunder shall cease, including the obligation to pay compensation for any period after the date of termination. Any amounts payable as compensation during the period of disability or illness shall be reduced by any amounts paid during such period under any disability plan or similar insurance of the Company. 6. EMPLOYER'S AUTHORITY. Employee agrees to observe and comply with the rules and regulations of the Company as adopted by the Company's President or Chief Executive Officer or by the Company's board of directors respecting the performance of his duties and to carry out and perform orders, directions and policies communicated to him from time to time. 7. EXPENSES. During the Term of this Agreement, the Company shall reimburse Employee for the reasonable business expenses incurred by Employee in the course of performing his duties for the Company hereunder in accordance with the procedures then in place for such reimbursement. 8. AUTOMOBILE ALLOWANCE. During the Term of this Agreement, Employee shall be entitled to an automobile allowance as specified on Schedule A below, payable monthly in arrears. 9. NON-DISCLOSURE/NON-COMPETITION. (a) Employee has executed a Nondisclosure Agreement of the Company. Said agreement shall survive termination of employment hereunder. (b) Because Employee's services to the Company are special and because Employee has access to the Company's confidential information, Employee covenants and agrees that if (i)(x) Employee's employment is terminated by the Company for Cause or (y) Employee voluntarily terminates his employment relationship hereunder with the Company other than for Good Reason, for a period of six (6) months following the termination of this Agreement, or (ii) Employee's employment is terminated and Employee is receiving the Severance Amount, for the period during which Employee is receiving such Severance Amount under Paragraph 5 hereof, whichever is applicable, he will not, directly or indirectly, either on his own behalf or on behalf of any person, partnership, corporation or otherwise, (a) engage in any business or undertaking in a capacity that is directly competitive with any business (each a "Related Business") being carried on by the Company or any Affiliate thereof at the time of Employee's termination of employment, or (b) be employed by or provide consulting services to or be an investor, partner, member or shareholder in, any entity or other person in a Related Business within 25 miles of any city in which the Company or any Affiliate thereof, does business at time of execution or any other city or community in which the Company or any Affiliate thereof, has a transmission license at the time of termination, without the prior written consent of the Company=s board of directors. The parties agree that the time period and geographical area of non-competition specified above are reasonable and necessary in light of the transactions entered into in this Agreement. If, however, it shall be determined at any time by a court of competent jurisdiction that either the time period restriction or the geographical area restriction, or both, are invalid or unenforceable, the parties agree that any such restriction determined to be invalid or unenforceable shall be deemed so amended as to make such restriction valid and enforceable in the determination of said court, and such restriction, as so amended, shall be enforceable between the parties to the same extent as if such amendment had been made as of the date of this Agreement. This subparagraph 9(b) shall survive the termination of this Agreement. 10. EXECUTION, DELIVERY AND PERFORMANCE. To the best of Employee's knowledge, the execution, delivery and performance by Employee of this Agreement or any other agreement, instrument or document contemplated herein or hereby will not result in a breach of or conflict with any terms of any other agreement, instrument or document to which Employee is a party or by which Employee or his property is bound. No consent or approval of any person or entity, other than those that have been obtained by Employee, is required for Employee to execute, deliver and perform its obligations under this Agreement or any agreement, instrument or document contemplated herein or hereby. 11. NOTICES. Any notice permitted or required hereunder shall be deemed sufficient when hand-delivered or mailed by certified mail, postage prepaid, and addressed if to the Company at the address indicated above and if to the Employee at the address indicated below (or to such other address as may be provided by written notice received at least five (5) business days prior to the hand delivery or mailing of any such notice). 12. MISCELLANEOUS. (a) This Agreement (i) constitutes the entire agreement between the parties concerning the subjects hereof and supersedes any and all prior agreements or understandings, (ii) may not be assigned by Employee without the prior written consent of the Company, and (iii) may be assigned by the Company to any Affiliate of the Company or to the successors or assigns of the Company, provided such successors or assigns carry on substantially the Company's telecommunications business as conducted at the time of assignment and shall be binding upon, and inure to the benefit of, any such Affiliate, successor or assign. (b) Headings herein are for convenience of reference only and shall not define, limit or interpret the contents hereof. (c) As used herein, the term "Affiliate" shall mean any entity controlled by or under common control with the Company. 13. AMENDMENT. This Agreement may be amended, modified or supplemented by the mutual consent of the parties in writing, but no oral amendment, modification or supplement shall be effective. 14. SPECIFIC ENFORCEMENT. The parties acknowledge that the Company would be irreparably damaged and there would be no adequate remedy at law for the Employee's breach of Paragraph 9 of this Agreement, and accordingly, the terms thereof shall be specifically enforced. Employee hereby consents to the entry of any temporary restraining order or preliminary injunction, in addition to any other remedies available at law or in equity, to enforce the provisions hereof, provided sufficient facts are shown to warrant such relief. 15. SEVERABILITY. The provisions of this Agreement are severable. The invalidity of any provision shall not affect the validity of any other provision. 16. GOVERNING LAW. This Agreement shall be construed and regulated in all respects under the laws of the State of New York. --------------------------------------------------------- Schedule A Name: James P. Ashman Title: Executive Vice President and Chief Financial Officer Base Salary: $183,000.00 Car Allowance: $650.00 Home Address: 53 Upper Loudon Road Loudonville, New York 12211 IN WITNESS WHEREOF, this Agreement is entered into as of the date and year first above written. CAI WIRELESS SYSTEMS, INC. EMPLOYEE: By:_____________________________ __________________________ Name: Jared E. Abbruzzese Name: James P. Ashman Title: Chairman and Chief Executive Officer EX-5 6 AMENDED AND RESTATED EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") made as of the Consummation Date (defined below) by and between the undersigned employee, residing at the address indicated below (hereinafter referred to as "Employee") and CAI WIRELESS SYSTEMS, INC., a Connecticut corporation having its principal place of business at 18 Corporate Woods Boulevard, Third Floor, Albany, New York 12211 (hereinafter referred to as the "Company"). . EMPLOYMENT. The Company hereby employs Employee and Employee agrees to work for the Company with the title specified on Schedule A below during the Term (as defined below) of and upon the terms and conditions set forth in this Agreement. . COMPENSATION/BENEFITS. () BASE SALARY. During the Term of this Agreement, the Company agrees to pay Employee the base annual salary specified on Schedule A below ("Base Salary"). Such Base Salary shall be reviewed no less frequently than annually during the term of this Agreement and may be increased but not decreased by the Company's board of directors. Such Base Salary shall be payable in accordance with the Company's normal business practices or in such other amounts and at such other times as the parties may mutually agree. () BONUSES. During the Term of this Agreement, the Company shall pay to the Employee an annual bonus of up to 25% of Base Salary, based upon the Company's achievement of performance targets established by the Company's board of directors. These targets will be revised annually within ninety days of the beginning of each fiscal year in consultation with the Employee. The bonus may be structured as a part of a deferred compensation arrangement. () INCENTIVE COMPENSATION. During the Term of this Agreement, Employee shall be entitled to participate in any pooled incentive programs established by the Company for executive employees. () BENEFITS/VACATION. During the Term of this Agreement, the Company also shall provide Employee with such other benefits, including medical, disability, pension and severance plans, as are made generally available to executive employees of the Company from time to time. Employee shall be entitled to twenty-six bank days as the vacation, personal and sick benefit during each year of the Term in accordance with the policy set forth in the Employee Manual of the Company. Accrued vacation may be carried over or "sold back" to the Company to the extent permitted by, and in accordance with, the policy set forth in the Employee Manual of the Company. (e) LIFE INSURANCE. Subject to Employee's submitting to any required physical examinations, the Company shall purchase and maintain in effect a term insurance policy with a face amount of one times Employee's Base Salary or other greater amount as may be specified in the Company's executive benefit policies or plans on the life of Employee and shall permit Employee to designate the beneficiary thereof. 3. SERVICES. Employee agrees to devote substantially all of his working time, attention and energies to the business of the Company and its Affiliates under the general direction of the board of directors acting through its Chairman and delegated officers. Nothing herein shall be interpreted to preclude Employee from participating as an officer or director of, or advisor to, any charitable or other tax exempt or civic organization. 4. TERM. The term of this Agreement (the "Term" or the "Term of this Agreement") shall be for a period beginning on the Consummation Date and continuing until the first anniversary of the Consummation Date, and shall be automatically renewed annually thereafter for successive one year periods on terms no less favorable than are contained herein unless either party gives notice to the other of its intention not to renew this Agreement within sixty days of the expiration of the Term of this Agreement. The Consummation Date is the date so designated under the Plan. 5. EARLY TERMINATION. (a) IN GENERAL. The Employee's employment hereunder shall be terminated and, other than the obligations listed in Paragraph 5(b), the Company's obligations hereunder shall cease, including the obligation to pay compensation for any period after the date of termination, (i) without the necessity of notice, upon the death of the Employee, or (ii) upon written notice of a finding by the Company's board of directors that the Employee has (a) acted with gross negligence or willful misconduct in connection with the performance of his duties hereunder, (b) engaged in a material act of insubordination or of common law fraud against the Company or its employees, or (c) acted against the best interests of the Company in a manner that has or could have a material adverse affect on the financial condition of the Company (any such finding is referred to herein as "Cause"). Upon any termination of Employee's employment, the Term of this Agreement shall expire. In the event of Employee's death or Employee's termination of employment by the Company other than for Cause, Employee shall be entitled to severance in an amount equal to his then Base Salary under Paragraph 2 (the "Severance Amount"), payable in twelve equal monthly installments. If, within eighteen months following a the Consummation Date, (a) Employee terminates his employment for Good Reason, or (b) the Company terminates Employee's employment other than for Cause, the Company shall pay the Severance Amount in a lump sum not later than ten (10) days after the date the Company selects as Employee's last day of active employment (the "Effective Date"), provided, however, that at Employee's option, the Severance Amount shall be payable to Employee in the form of equal periodic payments ("Deferred Payment") according to the Company's regular payroll schedule or at any other intervals elected by Employee for a period commencing on the first regular payroll pay date beginning after the Effective Date (the "Deferred Payment Period"). In order to receive Deferred Payment during a Deferred Payment Period, Employee must elect such Deferred Payment in writing and specify the Deferred Payment Period, which may not exceed the number of months of Base Monthly Salary payable to Employee as the Severance Amount. In the event of Employee's death during the Deferred Payment Period, any unpaid Deferred Payment shall be paid in a lump sum to such beneficiary or beneficiaries designated by Employee in writing or, failing such designation, to Employee's spouse if Employee is married or to Employee's estate if Employee is unmarried. (b) PAYMENTS UPON TERMINATION. Upon termination of this Agreement for any reason, Employee shall be entitled to all compensation and benefits earned but not yet paid up to and including the termination date, including Base Salary, bonus and any other incentive compensation. Unless otherwise specified in this Agreement, unused vacation shall be treated in accordance with the policy set forth in the Employee Manual of the Company. (c) GOOD REASON. For purposes of this Agreement, Good Reason shall mean, with respect to Employee, (i) the assignment to Employee of any material duties materially inconsistent with Employee's position, authority, duties or responsibilities immediately before the Consummation Date, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by Employee; (ii) any material reduction in Employee's Base Salary, opportunity to earn annual bonuses or other compensation or employee benefits, other than as a result of an isolated and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by Employee; (iii) the Company's requiring Employee to relocate his principal place of business to a place that is more than thirty-five miles from his previous principal place of business, or (iv) any purported termination of this Agreement otherwise than as expressly permitted by this Agreement. (d) DISABILITY. If Employee shall become unable efficiently to perform the essential functions of his job, even with reasonable accommodation, as a result of a disability or illness, as such terms are defined by the Americans with Disabilities Act, he shall be entitled to his regular compensation until the total period of disability or illness (whether or not continuous and whether or not the same disability or illness) shall exceed 60 days during any calendar year in the Term hereunder. This Agreement may thereafter be terminated by the Company and, if such termination is not within two years of the Consummation Date, the Company's obligations hereunder shall cease, including the obligation to pay compensation for any period after the date of termination. Any amounts payable as compensation during the period of disability or illness shall be reduced by any amounts paid during such period under any disability plan or similar insurance of the Company. 6. EMPLOYER'S AUTHORITY. Employee agrees to observe and comply with the rules and regulations of the Company as adopted by the Company's President or Chief Executive Officer or by the Company's board of directors respecting the performance of his duties and to carry out and perform orders, directions and policies communicated to him from time to time. 7. EXPENSES. During the Term of this Agreement, the Company shall reimburse Employee for the reasonable business expenses incurred by Employee in the course of performing his duties for the Company hereunder in accordance with the procedures then in place for such reimbursement. 8. AUTOMOBILE ALLOWANCE. During the Term of this Agreement, Employee shall be entitled to an automobile allowance as specified on Schedule A below, payable monthly in arrears. 9. NON-DISCLOSURE/NON-COMPETITION. (a) Employee has executed a Nondisclosure Agreement of the Company. Said agreement shall survive termination of employment hereunder. (b) Because Employee's services to the Company are special and because Employee has access to the Company's confidential information, Employee covenants and agrees that if (i)(x) Employee's employment is terminated by the Company for Cause or (y) Employee voluntarily terminates his employment relationship hereunder with the Company other than for Good Reason, for a period of six (6) months following the termination of this Agreement, or (ii) Employee's employment is terminated and Employee is receiving the Severance Amount, for the period during which Employee is receiving such Severance Amount under Paragraph 5 hereof, whichever is applicable, he will not, directly or indirectly, either on his own behalf or on behalf of any person, partnership, corporation or otherwise, (a) engage in any business or undertaking in a capacity that is directly competitive with any business (each a "Related Business") being carried on by the Company or any Affiliate thereof at the time of Employee's termination of employment, or (b) be employed by or provide consulting services to or be an investor, partner, member or shareholder in, any entity or other person in a Related Business within 25 miles of any city in which the Company or any Affiliate thereof, does business at the time of execution of this Agreement or any other city or community in which the Company or any Affiliate thereof, has a transmission license at the time of termination, without the prior written consent of the Company's board of directors. Notwithstanding the foregoing, Employee shall be permitted to be employed by or become a member of a law firm engaged in the private practice of law and to render legal services in connection with such employment or membership to clients of such law firm that are in direct competition with the Company without violating the provisions of this Paragraph 9(b). Employee shall at all times remain subject to the restrictions imposed upon Employee set forth under Paragraph 9(a) above with respect to any subsequent employment obtained by Employee following the termination of this Agreement and the provisions of the applicable Code of Professional Responsibility with respect to former clients. The parties agree that the time period and geographical area of non-competition specified above are reasonable and necessary in light of the transactions entered into in this Agreement. If, however, it shall be determined at any time by a court of competent jurisdiction that either the time period restriction or the geographical area restriction, or both, are invalid or unenforceable, the parties agree that any such restriction determined to be invalid or unenforceable shall be deemed so amended as to make such restriction valid and enforceable in the determination of said court, and such restriction, as so amended, shall be enforceable between the parties to the same extent as if such amendment had been made as of the date of this Agreement. This subparagraph 9(b) shall survive the termination of this Agreement. 10. EXECUTION, DELIVERY AND PERFORMANCE. To the best of Employee's knowledge, the execution, delivery and performance by Employee of this Agreement or any other agreement, instrument or document contemplated herein or hereby will not result in a breach of or conflict with any terms of any other agreement, instrument or document to which Employee is a party or by which Employee or his property is bound. No consent or approval of any person or entity, other than those that have been obtained by Employee, is required for Employee to execute, deliver and perform its obligations under this Agreement or any agreement, instrument or document contemplated herein or hereby. 11. NOTICES. Any notice permitted or required hereunder shall be deemed sufficient when hand-delivered or mailed by certified mail, postage prepaid, and addressed if to the Company at the address indicated above and if to the Employee at the address indicated below (or to such other address as may be provided by written notice received at least five (5) business days prior to the hand delivery or mailing of any such notice). 12. MISCELLANEOUS. (a) This Agreement (i) constitutes the entire agreement between the parties concerning the subjects hereof and supersedes any and all prior agreements or understandings, (ii) may not be assigned by Employee without the prior written consent of the Company, and (iii) may be assigned by the Company to any Affiliate of the Company or to the successors or assigns of the Company, provided such successors or assigns carry on substantially the Company's telecommunications business as conducted at the time of assignment and shall be binding upon, and inure to the benefit of, any such Affiliate, successor or assign. (b) Headings herein are for convenience of reference only and shall not define, limit or interpret the contents hereof. (c) As used herein, the term "Affiliate" shall mean any entity controlled by or under common control with the Company. 13. AMENDMENT. This Agreement may be amended, modified or supplemented by the mutual consent of the parties in writing, but no oral amendment, modification or supplement shall be effective. 14. SPECIFIC ENFORCEMENT. The parties acknowledge that the Company would be irreparably damaged and there would be no adequate remedy at law for the Employee's breach of Paragraph 9 of this Agreement, and accordingly, the terms thereof shall be specifically enforced. Employee hereby consents to the entry of any temporary restraining order or preliminary injunction, in addition to any other remedies available at law or in equity, to enforce the provisions hereof, provided sufficient facts are shown to warrant such relief. 15. SEVERABILITY. The provisions of this Agreement are severable. The invalidity of any provision shall not affect the validity of any other provision. 16. GOVERNING LAW. This Agreement shall be construed and regulated in all respects under the laws of the State of New York. ---------------------------------------------- Schedule A Name: Gerald Stevens-Kittner Title: Senior Vice President - Spectrum Management Base Salary: $180,000.00 Car Allowance: $500.00 Home Address: 4300 North 40{th} Street Arlington, Virginia 22207 IN WITNESS WHEREOF, this Agreement is entered into as of the date and year first above written.
CAI WIRELESS SYSTEMS, INC. EMPLOYEE: By:____________________________ ____________________________ Name: James P. Ashman Name: Gerald Stevens-Kittner Title: Executive Vice President and Chief Financial Officer
EX-6 7 AMENDED AND RESTATED EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") made as of the Consummation Date (defined below) by and between the undersigned employee, residing at the address indicated below (hereinafter referred to as "Employee") and CAI WIRELESS SYSTEMS, INC., a Connecticut corporation having its principal place of business at 18 Corporate Woods Boulevard, Third Floor, Albany, New York 12211 (hereinafter referred to as the "Company"). 1. EMPLOYMENT. The Company hereby employs Employee and Employee agrees to work for the Company with the title specified on Schedule A below during the Term (as defined below) of and upon the terms and conditions set forth in this Agreement. 2. COMPENSATION/BENEFITS. (a) BASE SALARY. During the Term of this Agreement, the Company agrees to pay Employee the base annual salary specified on Schedule A below ("Base Salary"). Such Base Salary shall be reviewed no less frequently than annually during the term of this Agreement and may be increased but not decreased by the Company's board of directors. Such Base Salary shall be payable in accordance with the Company's normal business practices or in such other amounts and at such other times as the parties may mutually agree. (b) BONUSES. During the Term of this Agreement, the Company shall pay to the Employee an annual bonus of up to 25% of Base Salary, based upon the Company's achievement of performance targets established by the Company's board of directors. These targets will be revised annually within ninety days of the beginning of each fiscal year in consultation with the Employee. The bonus may be structured as a part of a deferred compensation arrangement. (c) INCENTIVE COMPENSATION. During the Term of this Agreement, Employee shall be entitled to participate in any pooled incentive programs established by the Company for executive employees. (d) BENEFITS/VACATION. During the Term of this Agreement, the Company also shall provide Employee with such other benefits, including medical, disability, pension and severance plans, as are made generally available to executive employees of the Company from time to time. Employee shall be entitled to twenty-six bank days as the vacation, personal and sick benefit during each year of the Term in accordance with the policy set forth in the Employee Manual of the Company. Accrued vacation may be carried over or "sold back" to the Company to the extent permitted by, and in accordance with, the policy set forth in the Employee Manual of the Company. (e) LIFE INSURANCE. Subject to Employee's submitting to any required physical examinations, the Company shall purchase and maintain in effect a term insurance policy with a face amount of one times Employee's Base Salary or other greater amount as may be specified in the Company's executive benefit policies or plans on the life of Employee and shall permit Employee to designate the beneficiary thereof. 3. SERVICES. Employee agrees to devote substantially all of his working time, attention and energies to the business of the Company and its Affiliates under the general direction of the board of directors acting through its Chairman and delegated officers. Notwithstanding the foregoing, Employee, during the Term hereof, shall be permitted to provide consulting services for entities other than the Company provided that the provision of such services by Employee (i) does not materially interfere with or detract from the performance by Employee of his obligations to the Company hereunder, (ii) is commenced only after Employee has given the Company prior written notice of such proposed engagement, which notice shall indicate the identity of the person for whom Employee proposes to provide consulting services and the general nature of the proposed engagement and, (iii) in the case of any person that is a direct competitor of the Company at the time of the proposed engagement and for whom Employee has not, previously during the Term hereof, provided any consulting services, is subject to the written consent of the Company permitting such engagement. Employee shall at all times remain subject to the restrictions imposed upon Employee set forth under Paragraph 9(a) below with respect to the provision of any consulting services permitted by this Paragraph 3. Nothing herein shall be interpreted to preclude Employee from participating as an officer or director of, or advisor to, any charitable or other tax exempt or civic organization. 4. TERM. The term of this Agreement (the "Term" or the "Term of this Agreement") shall be for a period beginning on the Consummation Date and continuing until the first anniversary of the Consummation Date, and shall be automatically renewed annually thereafter for successive one year periods on terms no less favorable than are contained herein unless either party gives notice to the other of its intention not to renew this Agreement within sixty days of the expiration of the Term of this Agreement. The Consummation Date is the date so designated under the Plan. 5. EARLY TERMINATION. () IN GENERAL. The Employee's employment hereunder shall be terminated and, other than the obligations listed in Paragraph 5(b), the Company's obligations hereunder shall cease, including the obligation to pay compensation for any period after the date of termination, (i) without the necessity of notice, upon the death of the Employee, or (ii) upon written notice of a finding by the Company's board of directors that the Employee has (a) acted with gross negligence or willful misconduct in connection with the performance of his duties hereunder, (b) engaged in a material act of insubordination or of common law fraud against the Company or its employees, or (c) acted against the best interests of the Company in a manner that has or could have a material adverse affect on the financial condition of the Company (any such finding is referred to herein as "Cause"). Upon any termination of Employee's employment, the Term of this Agreement shall expire. In the event of Employee's death or Employee's termination of employment by the Company other than for Cause, Employee shall be entitled to severance in an amount equal to his then Base Salary under Paragraph 2 (the "Severance Amount"), payable in twelve equal monthly installments. If, within eighteen months following the Consummation Date, (a) Employee terminates his or her employment for Good Reason, or (b) the Company terminates Employee's employment other than for Cause, the Company shall pay the Severance Amount in a lump sum not later than ten (10) days after the date the Company selects as Employee's last day of active employment (the "Effective Date"), provided, however, that at Employee's option, the Severance Amount shall be payable to Employee in the form of equal periodic payments ("Deferred Payment") according to the Company's regular payroll schedule or at any other intervals elected by Employee for a period commencing on the first regular payroll pay date beginning after the Effective Date (the "Deferred Payment Period"). In order to receive Deferred Payment during a Deferred Payment Period, Employee must elect such Deferred Payment in writing and specify the Deferred Payment Period, which may not exceed the number of months of Base Monthly Salary payable to Employee as the Severance Amount. In the event of Employee's death during the Deferred Payment Period, any unpaid Deferred Payment shall be paid in a lump sum to such beneficiary or beneficiaries designated by Employee in writing or, failing such designation, to Employee's spouse if Employee is married or to Employee's estate if Employee is unmarried. (b) PAYMENTS UPON TERMINATION. Upon termination of this Agreement for any reason, Employee shall be entitled to all compensation and benefits earned but not yet paid up to and including the termination date, including Base Salary, bonus and any other incentive compensation. Unless otherwise specified in this Agreement, unused vacation shall be treated in accordance with the policy set forth in the Employee Manual of the Company. (c) GOOD REASON. For purposes of this Agreement, Good Reason shall mean, with respect to Employee, (i) the assignment to Employee of any material duties materially inconsistent with Employee's position, authority, duties or responsibilities immediately before the Consummation Date, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by Employee; (ii) any material reduction in Employees Base Salary, opportunity to earn annual bonuses or other compensation or employee benefits, other than as a result of an isolated and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by Employee; (iii) the Company's requiring Employee to relocate his or her principal place of business to a place that is more than thirty- five miles from his or her previous principal place of business, or (iv) any purported termination of this Agreement otherwise than as expressly permitted by this Agreement. (d) DISABILITY. If Employee shall become unable efficiently to perform the essential functions of his job, even with reasonable accommodation, as a result of a disability or illness, as such terms are defined by the Americans with Disabilities Act, he shall be entitled to his regular compensation until the total period of disability or illness (whether or not continuous and whether or not the same disability or illness) shall exceed 60 days during any calendar year in the Term hereunder. This Agreement may thereafter be terminated by the Company and, if such termination is not within two years of the Consummation Date, the Company's obligations hereunder shall cease, including the obligation to pay compensation for any period after the date of termination. Any amounts payable as compensation during the period of disability or illness shall be reduced by any amounts paid during such period under any disability plan or similar insurance of the Company. 6. EMPLOYER'S AUTHORITY. Employee agrees to observe and comply with the rules and regulations of the Company as adopted by the Company's President or Chief Executive Officer or by the Company's board of directors respecting the performance of his duties and to carry out and perform orders, directions and policies communicated to him from time to time. 7. EXPENSES. During the Term of this Agreement, the Company shall reimburse Employee for the reasonable business expenses incurred by Employee in the course of performing his duties for the Company hereunder in accordance with the procedures then in place for such reimbursement. 8. AUTOMOBILE ALLOWANCE. During the Term of this Agreement, Employee shall be entitled to an automobile allowance as specified on Schedule A below, payable monthly in arrears. 9. NON-DISCLOSURE/NON-COMPETITION. (a) Employee has executed a Nondisclosure Agreement of the Company. Said agreement shall survive termination of employment hereunder. (b) Because Employee's services to the Company are special and because Employee has access to the Company's confidential information, Employee covenants and agrees that if (i)(x) Employee's employment is terminated by the Company for Cause or (y) Employee voluntarily terminates his employment relationship hereunder with the Company other than for Good Reason, for a period of six (6) months following the termination of this Agreement, or (ii) Employee's employment is terminated and Employee is receiving the Severance Amount, for the period during which Employee is receiving such Severance Amount under Paragraph 5 hereof, whichever is applicable, he will not, directly or indirectly, either on his own behalf or on behalf of any person, partnership, corporation or otherwise, (a) engage in any business or undertaking in a capacity that is directly competitive with any business (each a "Related Business") being carried on by the Company or any Affiliate thereof at the time of Employee's termination of employment, or (b) be employed by or provide consulting services to or be an investor, partner, member or shareholder in, any entity or other person in a Related Business within 25 miles of any city in which the Company or any Affiliate thereof, does business at time of execution or any other city or community in which the Company or any Affiliate thereof, has a transmission license at the time of termination, without the prior written consent of the Company's board of directors; provided, however, that Employee shall be permitted to provide or continue to provide consulting services to any person for whom Employee provided consulting services during the Term hereof in accordance with the terms of Paragraph 3 above. The parties agree that the time period and geographical area of non-competition specified above are reasonable and necessary in light of the transactions entered into in this Agreement. If, however, it shall be determined at any time by a court of competent jurisdiction that either the time period restriction or the geographical area restriction, or both, are invalid or unenforceable, the parties agree that any such restriction determined to be invalid or unenforceable shall be deemed so amended as to make such restriction valid and enforceable in the determination of said court, and such restriction, as so amended, shall be enforceable between the parties to the same extent as if such amendment had been made as of the date of this Agreement. This subparagraph 9(b) shall survive the termination of this Agreement. 10. EXECUTION, DELIVERY AND PERFORMANCE. To the best of Employee's knowledge, the execution, delivery and performance by Employee of this Agreement or any other agreement, instrument or document contemplated herein or hereby will not result in a breach of or conflict with any terms of any other agreement, instrument or document to which Employee is a party or by which Employee or his property is bound. No consent or approval of any person or entity, other than those that have been obtained by Employee, is required for Employee to execute, deliver and perform its obligations under this Agreement or any agreement, instrument or document contemplated herein or hereby. 11. NOTICES. Any notice permitted or required hereunder shall be deemed sufficient when hand-delivered or mailed by certified mail, postage prepaid, and addressed if to the Company at the address indicated above and if to the Employee at the address indicated below (or to such other address as may be provided by written notice received at least five (5) business days prior to the hand delivery or mailing of any such notice). 12. MISCELLANEOUS. (a) This Agreement (i) constitutes the entire agreement between the parties concerning the subjects hereof and supersedes any and all prior agreements or understandings, (ii) may not be assigned by Employee without the prior written consent of the Company, and (iii) may be assigned by the Company to any Affiliate of the Company or to the successors or assigns of the Company, provided such successors or assigns carry on substantially the Company's telecommunications business as conducted at the time of assignment and shall be binding upon, and inure to the benefit of, any such Affiliate, successor or assign. (b) Headings herein are for convenience of reference only and shall not define, limit or interpret the contents hereof. (c) As used herein, the term "Affiliate" shall mean any entity controlled by or under common control with the Company. 13. AMENDMENT. This Agreement may be amended, modified or supplemented by the mutual consent of the parties in writing, but no oral amendment, modification or supplement shall be effective. 14. SPECIFIC ENFORCEMENT. The parties acknowledge that the Company would be irreparably damaged and there would be no adequate remedy at law for the Employee's breach of Paragraph 9 of this Agreement, and accordingly, the terms thereof shall be specifically enforced. Employee hereby consents to the entry of any temporary restraining order or preliminary injunction, in addition to any other remedies available at law or in equity, to enforce the provisions hereof, provided sufficient facts are shown to warrant such relief. 15. SEVERABILITY. The provisions of this Agreement are severable. The invalidity of any provision shall not affect the validity of any other provision. 16. GOVERNING LAW. This Agreement shall be construed and regulated in all respects under the laws of the State of New York. ---------------------------------------------- SCHEDULE A Name: Bruce W. Kostreski Title: Senior Vice President and Chief Technical Officer Base Salary: $180,000.00 Car Allowance: $500.00 Home Address: 11507 Orebaugh Avenue Wheaton, MD 20902 IN WITNESS WHEREOF, this Agreement is entered into as of the date and year first above written. CAI WIRELESS SYSTEMS, INC. EMPLOYEE: By: _______________________ ____________________________ Name: James P. Ashman Name: Bruce Kostreski Title: Executive Vice President EX-7 8 AMENDED AND RESTATED EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") made as of the Consummation Date (defined below) by and between the undersigned employee, residing at the address indicated below (hereinafter referred to as "Employee") and CAI WIRELESS SYSTEMS, INC., a Connecticut corporation having its principal place of business at 18 Corporate Woods Boulevard, Third Floor, Albany, New York 12211 (hereinafter referred to as the "Company"). 1. EMPLOYMENT. The Company hereby employs Employee and Employee agrees to work for the Company with the title specified on Schedule A below during the Term (as defined below) of and upon the terms and conditions set forth in this Agreement. 2. COMPENSATION/BENEFITS. (a) BASE SALARY. During the Term of this Agreement, the Company agrees to pay Employee the base annual salary specified on Schedule A below ("Base Salary"). Such Base Salary shall be reviewed no less frequently than annually during the term of this Agreement and may be increased but not decreased by the Company=s board of directors. Such Base Salary shall be payable in accordance with the Company's normal business practices or in such other amounts and at such other times as the parties may mutually agree. (b) BONUSES. During the Term of this Agreement, the Company shall pay to the Employee an annual bonus of up to 25% of Base Salary, based upon the Company's achievement of performance targets established by the Company's board of directors. These targets will be revised annually within ninety days of the beginning of each fiscal year in consultation with the Employee. The bonus may be structured as a part of a deferred compensation arrangement. (c) INCENTIVE COMPENSATION. During the Term of this Agreement, Employee shall be entitled to participate in any pooled incentive programs established by the Company for executive employees. (d) BENEFITS/VACATION. During the Term of this Agreement, the Company also shall provide Employee with such other benefits, including medical, disability, pension and severance plans, as are made generally available to executive employees of the Company from time to time. Employee shall be entitled to twenty-six bank days as the vacation, personal and sick benefit during each year of the Term in accordance with the policy set forth in the Employee Manual of the Company. Accrued vacation may be carried over or "sold back" to the Company to the extent permitted by, and in accordance with, the policy set forth in the Employee Manual of the Company. (e) LIFE INSURANCE. Subject to Employee's submitting to any required physical examinations, the Company shall purchase and maintain in effect a term insurance policy with a face amount of one times Employee's Base Salary or other greater amount as may be specified in the Company's executive benefit policies or plans on the life of Employee and shall permit Employee to designate the beneficiary thereof. 3. SERVICES. Employee agrees to devote substantially all of his working time, attention and energies to the business of the Company and its Affiliates under the general direction of the board of directors acting through its Chairman and delegated officers. Nothing herein shall be interpreted to preclude Employee from participating as an officer or director of, or advisor to, any charitable or other tax exempt or civic organization. 4. TERM. The term of this Agreement (the "Term" or the "Term of this Agreement") shall be for a period beginning on the Consummation Date and continuing until the first anniversary of the Consummation Date, and shall be automatically renewed annually thereafter for successive one year periods on terms no less favorable than are contained herein unless either party gives notice to the other of its intention not to renew this Agreement within sixty days of the expiration of the Term of this Agreement. The Consummation Date is the date so designated under the Plan. 5. EARLY TERMINATION. (a) IN GENERAL. The Employee's employment hereunder shall be terminated and, other than the obligations listed in Paragraph 5(b), the Company's obligations hereunder shall cease, including the obligation to pay compensation for any period after the date of termination, (i) without the necessity of notice, upon the death of the Employee, or (ii) upon written notice of a finding by the Company's board of directors that the Employee has (a) acted with gross negligence or willful misconduct in connection with the performance of his duties hereunder, (b) engaged in a material act of insubordination or of common law fraud against the Company or its employees, or (c) acted against the best interests of the Company in a manner that has or could have a material adverse affect on the financial condition of the Company (any such finding is referred to herein as "Cause"). Upon any termination of Employee's employment, the Term of this Agreement shall expire. In the event of Employee's death or Employee's termination of employment by the Company other than for Cause, Employee shall be entitled to severance in an amount equal to his then Base Salary under Paragraph 2 (the "Severance Amount"), payable in twelve equal monthly installments. If, within eighteen months following the Consummation Date, (a) Employee terminates his employment for Good Reason, or (b) the Company terminates Employee's employment other than for Cause, the Company shall pay the Severance Amount in a lump sum not later than ten (10) days after the date the Company selects as Employee's last day of active employment (the "Effective Date"), provided, however, that at Employee's option, the Severance Amount shall be payable to Employee in the form of equal periodic payments ("Deferred Payment") according to the Company's regular payroll schedule or at any other intervals elected by Employee for a period commencing on the first regular payroll pay date beginning after the Effective Date (the "Deferred Payment Period"). In order to receive Deferred Payment during a Deferred Payment Period, Employee must elect such Deferred Payment in writing and specify the Deferred Payment Period, which may not exceed the number of months of Base Monthly Salary payable to Employee as the Severance Amount. In the event of Employees death during the Deferred Payment Period, any unpaid Deferred Payment shall be paid in a lump sum to such beneficiary or beneficiaries designated by Employee in writing or, failing such designation, to Employee's spouse if Employee is married or to Employee's estate if Employee is unmarried. (b) PAYMENTS UPON TERMINATION. Upon termination of this Agreement for any reason, Employee shall be entitled to all compensation and benefits earned but not yet paid up to and including the termination date, including Base Salary, bonus and any other incentive compensation. Unless otherwise specified in this Agreement, unused vacation shall be treated in accordance with the policy set forth in the Employee Manual of the Company. (c) GOOD REASON. For purposes of this Agreement, Good Reason shall mean, with respect to Employee, (i) the assignment to Employee of any material duties materially inconsistent with Employee's position, authority, duties or responsibilities immediately before the Consummation Date, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by Employee; (ii) any material reduction in Employee's Base Salary, opportunity to earn annual bonuses or other compensation or employee benefits, other than as a result of an isolated and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by Employee; (iii) the Company's requiring Employee to relocate his principal place of business to a place that is more than thirty-five miles from his previous principal place of business, or (iv) any purported termination of this Agreement otherwise than as expressly permitted by this Agreement. (d) DISABILITY. If Employee shall become unable efficiently to perform the essential functions of his job, even with reasonable accommodation, as a result of a disability or illness, as such terms are defined by the Americans with Disabilities Act, he shall be entitled to his regular compensation until the total period of disability or illness (whether or not continuous and whether or not the same disability or illness) shall exceed 60 days during any calendar year in the Term hereunder. This Agreement may thereafter be terminated by the Company and, if such termination is not within two years of the Consummation Date, the Company's obligations hereunder shall cease, including the obligation to pay compensation for any period after the date of termination. Any amounts payable as compensation during the period of disability or illness shall be reduced by any amounts paid during such period under any disability plan or similar insurance of the Company. 6. EMPLOYER'S AUTHORITY. Employee agrees to observe and comply with the rules and regulations of the Company as adopted by the Company's President or Chief Executive Officer or by the Company's board of directors respecting the performance of his duties and to carry out and perform orders, directions and policies communicated to him from time to time. 7. EXPENSES. During the Term of this Agreement, the Company shall reimburse Employee for the reasonable business expenses incurred by Employee in the course of performing his duties for the Company hereunder in accordance with the procedures then in place for such reimbursement. 8. AUTOMOBILE ALLOWANCE. During the Term of this Agreement, Employee shall be entitled to an automobile allowance as specified on Schedule A below, payable monthly in arrears. 9. NON-DISCLOSURE NON-COMPETITION. (a) Employee has executed a Nondisclosure Agreement of the Company. Said agreement shall survive termination of employment hereunder. (b) Because Employee's services to the Company are special and because Employee has access to the Company's confidential information, Employee covenants and agrees that if (i)(x) Employee's employment is terminated by the Company for Cause or (y) Employee voluntarily terminates his employment relationship hereunder with the Company other than for Good Reason, for a period of six (6) months following the termination of this Agreement, or (ii) Employee's employment is terminated and Employee is receiving the Severance Amount, for the period during which Employee is receiving such Severance Amount under Paragraph 5 hereof, whichever is applicable, he will not, directly or indirectly, either on his own behalf or on behalf of any person, partnership, corporation or otherwise, (a) engage in any business or undertaking in a capacity that is directly competitive with any business (each a "Related Business") being carried on by the Company or any Affiliate thereof at the time of Employee's termination of employment, or (b) be employed by or provide consulting services to or be an investor, partner, member or shareholder in, any entity or other person in a Related Business within 25 miles of any city in which the Company or any Affiliate thereof, does business at time of execution or any other city or community in which the Company or any Affiliate thereof, has a transmission license at the time of termination, without the prior written consent of the Company's board of directors. The parties agree that the time period and geographical area of non-competition specified above are reasonable and necessary in light of the transactions entered into in this Agreement. If, however, it shall be determined at any time by a court of competent jurisdiction that either the time period restriction or the geographical area restriction, or both, are invalid or unenforceable, the parties agree that any such restriction determined to be invalid or unenforceable shall be deemed so amended as to make such restriction valid and enforceable in the determination of said court, and such restriction, as so amended, shall be enforceable between the parties to the same extent as if such amendment had been made as of the date of this Agreement. This subparagraph 9(b) shall survive the termination of this Agreement. 10. EXECUTION, DELIVERY AND PERFORMANCE. To the best of Employee's knowledge, the execution, delivery and performance by Employee of this Agreement or any other agreement, instrument or document contemplated herein or hereby will not result in a breach of or conflict with any terms of any other agreement, instrument or document to which Employee is a party or by which Employee or his property is bound. No consent or approval of any person or entity, other than those that have been obtained by Employee, is required for Employee to execute, deliver and perform its obligations under this Agreement or any agreement, instrument or document contemplated herein or hereby. 11. NOTICES. Any notice permitted or required hereunder shall be deemed sufficient when hand-delivered or mailed by certified mail, postage prepaid, and addressed if to the Company at the address indicated above and if to the Employee at the address indicated below (or to such other address as may be provided by written notice received at least five (5) business days prior to the hand delivery or mailing of any such notice). 12. MISCELLANEOUS. (a) This Agreement (i) constitutes the entire agreement between the parties concerning the subjects hereof and supersedes any and all prior agreements or understandings, (ii) may not be assigned by Employee without the prior written consent of the Company, and (iii) may be assigned by the Company to any Affiliate of the Company or to the successors or assigns of the Company, provided such successors or assigns carry on substantially the Company's telecommunications business as conducted at the time of assignment and shall be binding upon, and inure to the benefit of, any such Affiliate, successor or assign. (b) Headings herein are for convenience of reference only and shall not define, limit or interpret the contents hereof. (c) As used herein, the term "Affiliate" shall mean any entity controlled by or under common control with the Company. 13. AMENDMENT. This Agreement may be amended, modified or supplemented by the mutual consent of the parties in writing, but no oral amendment, modification or supplement shall be effective. 14. SPECIFIC ENFORCEMENT. The parties acknowledge that the Company would be irreparably damaged and there would be no adequate remedy at law for the Employee's breach of Paragraph 9 of this Agreement, and accordingly, the terms thereof shall be specifically enforced. Employee hereby consents to the entry of any temporary restraining order or preliminary injunction, in addition to any other remedies available at law or in equity, to enforce the provisions hereof, provided sufficient facts are shown to warrant such relief. 15. SEVERABILITY. The provisions of this Agreement are severable. The invalidity of any provision shall not affect the validity of any other provision. 16. GOVERNING LAW. This Agreement shall be construed and regulated in all respects under the laws of the State of New York. --------------------------------------------- Schedule A Name: Derwood Edge Title: Chief Systems Officer Base Salary: $140,000.00 Car Allowance: $500.00 Home Address: 1617 Dey Cove Drive Virginia Beach, Virginia 23454 IN WITNESS WHEREOF, this Agreement is entered into as of the date and year first above written. CAI WIRELESS SYSTEMS, INC. EMPLOYEE: By:_____________________________ _______________________ Name: James P. Ashman Name: Derwood Edge Title: Executive Vice President and Chief Financial Officer EX-27 9
5 CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES FINANCIAL DATA SCHEDULE AS OF AND FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 9-MOS MAR-31-1999 APR-01-1998 DEC-31-1998 21,078,515 0 741,722 284,954 0 0 85,627,391 47,380,410 288,492,366 0 106,456,285 0 0 172,414 87,442,387 288,492,366 0 14,972,024 0 48,381,425 46,219,019 159,300 30,282,932 (105,928,285) 0 (105,928,285) 0 204,345,447 0 98,417,162 (0.97) (0.97)
-----END PRIVACY-ENHANCED MESSAGE-----