-----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, VOwcyG9h1WksVZYEgG/X9l1YJZjuMjBED0o2d7gp1s5oHP1NCq88LRX/xEz0fKcC AxSIRjgjJmUIcnY7rdos5A== 0000914749-97-000002.txt : 19970211 0000914749-97-000002.hdr.sgml : 19970211 ACCESSION NUMBER: 0000914749-97-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970207 SROS: NASD 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: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22888 FILM NUMBER: 97520854 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 ( QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended December 31, 1996 OR ( TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission File Number: 0-22888 CAI WIRELESS SYSTEMS, INC. (Exact name of registrant as specified in its charter)
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 _____ Number of shares outstanding of each of registrant's class of common stock at January 31, 1997: CLASS OUTSTANDING SHARES Common Stock, no par value 40,540,539 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31, 1996 1996 (UNAUDITED) * ASSETS Cash and cash equivalents $19,038,921 $103,263,094 Subscriber accounts receivable, less allowance for bad debts of $1,053,000 for December and $1,296,000 for 1,137,205 1,432,674 March Prepaid expenses 463,861 698,482 Property and equipment, net 72,518,407 52,568,619 Wireless channel rights, net 201,988,912 205,973,840 Investment in CS Wireless Systems, Inc. 99,540,261 113,054,069 Debt service escrow 63,846,061 77,621,088 Goodwill, net 124,502,036 131,282,996 Loan acquisition costs, net 9,441,832 10,631,263 Other assets 2,540,619 2,268,847 Total Assets $595,018,115 $698,794,972 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Accounts payable $ 5,627,728 $ 8,244,577 Accrued expenses 22,092,885 10,186,374 Senior debt 275,000,000 275,000,000 Notes payable 37,117,799 43,434,667 Wireless channel rights obligations 5,292,600 41,025,866 Deferred income taxes 21,910,000 35,410,000 367,041,012 413,301,484 Commitments and contingencies Mandatorily Redeemable Preferred Stock 14% Senior convertible preferred stock (liquidation value $70,000,000) 69,125,005 69,020,002 Series A 8% redeemable convertible preferred stock - 18,050,000 Accrued preferred stock dividends 15,260,826 5,812,562 84,385,831 92,882,564 Shareholders' Equity Preferred stock - - Common stock, shares issued and outstanding March 31, 1996 - 37,829,482 December 31, 1996 - 40,540,539 275,769,414 257,701,130 Accumulated deficit (132,178,142) (65,090,206) 143,591,272 192,610,924 Total Liabilities and Shareholders' Equity $595,018,115 $698,794,972
* Summarized from the Company's audited Consolidated Balance Sheet as of that date. See notes to condensed consolidated financial statements. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
NINE-MONTH THREE-MONTH PERIODS ENDED PERIODS ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996 1995 1996 1995 REVENUES $ 27,737,756 $ 20,843,394 $ 9,249,978 $ 12,951,843 Costs and expenses Programming and license 11,989,352 8,555,041 4,129,802 5,144,612 Marketing 1,790,734 2,874,222 564,717 1,118,087 General and administrative 22,223,561 17,755,252 7,882,671 8,717,244 Depreciation and amortization 24,729,986 17,321,653 8,179,198 11,731,767 60,733,633 46,506,168 20,756,388 26,711,710 Operating loss (32,995,877) (25,662,774) (11,506,410) (13,759,867) Other income (expense) Equity in net loss of affiliate (13,000,000) - (5,200,000) - Interest income 5,220,246 3,273,243 1,181,072 3,139,019 Other income 99,005 56,207 21,608 15,580 Interest expense (30,316,613) (13,788,657) (10,012,060) (9,980,621) (37,997,362) (10,459,207) (14,009,380) (6,826,022) Loss before provision for income tax benefit and minority interest (70,993,239) (36,121,981) (25,515,790) (20,585,889) Provision for income tax benefit 13,500,000 6,000,000 4,500,000 6,000,000 Loss before minority interest (57,493,239) (30,121,981) (21,015,790) (14,585,889) Minority interest in loss - 321,910 - - Net loss (57,493,239) (29,800,071) (21,015,790) (14,585,889) Preferred stock dividend (9,576,367) (3,095,286) (3,306,003) (2,352,021) Loss applicable to common stock shareholders $(67,069,606) $(32,895,357) $(24,321,793) $(16,937,910) Loss per common share $ (1.68) $ (1.40) $ (0.60) $ (0.45) Average common and equivalent shares outstanding 39,915,020 23,517,014 40,464,356 37,829,482
See notes to condensed consolidated financial statements. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine-month periods ended December 31, December 31, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (57,493,239) $ (29,800,071) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 24,729,986 17,668,450 Equity in net loss of affiliate 13,000,000 - Deferred income tax benefit (13,500,000) (6,000,000) Loan costs and discounts amortization 1,487,172 1,357,500 Minority interest in loss - (321,910) Debt service escrow interest income (69,315) (1,282,833) Other - 130,814 Changes in assets and liabilities, net of effects from acquisitions: Subscriber accounts receivable 246,794 (517,837) Other assets 315,663 (92,241) Accounts payable and accrued expenses 9,646,300 748,298 Net cash used in operating activities (21,636,639) (18,109,830) CASH FLOWS FROM INVESTING ACTIVITIES Cash paid for companies, net of cash acquired - (77,943,352) Purchase of wireless channel rights (4,642,709) (24,314,941) Purchase of property and equipment (28,886,102) (7,513,368) Proceeds from the sale of property and equipment 497,023 150,433 Investment in CS Wireless 363,900 - Purchase of investments - (250,000) Proceeds from the sale of investments 13,844,342 208,858 Loans to related parties (800,000) - Collections from related parties 200,000 - Other (1,205) (1,786,279) Net cash used in investing activities (19,424,751) (111,448,649) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of senior notes, other debt and warrants - 307,931,686 Payment of senior and other debt (43,139,640) (33,250,000) Cash paid for debt service escrow - (90,638,756) Proceeds from issuance of senior preferred stock and warrants - 70,000,000 Debt financing costs paid - (2,212,549) Proceeds from issuance of common stock - 1,545,979 Registry and other stock issuance costs paid - (3,223,005) Payment of related party debt - (100,000) Other (23,143) (1,006,377) Net cash provided by (used in) financing activities (43,162,783) 249,046,978 Net increase (decrease) in cash and cash equivalents (84,224,173) 119,488,499 Cash and cash equivalents, beginning 103,263,094 1,201,932 Cash and cash equivalents, ending $ 19,038,921 $ 120,690,431
See notes to condensed consolidated financial statements PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1. Basis of Presentation The condensed consolidated financial statements include the accounts of CAI Wireless Systems, Inc. and its wholly-owned subsidiaries (the "Company" or "CAI"). The balance sheets presented herein reflect the acquisitions of ACS Enterprises, Inc. and its subsidiaries ("ACS") and Eastern Cable Networks of Washington, Inc. ("ECNW") which were effective as of September 29, 1995. However, consistent with the purchase method of accounting, the statement of operations for the nine and three-month periods ended December 31, 1995 include the operations of ACS and ECNW from September 30, 1995. A 52% owned subsidiary, CS Wireless Systems, Inc. ("CS"), is accounted for on the equity method. Current summarized financial information regarding CS is presented in Note 3 below. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of the Management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine- month period ended December 31, 1996 are not necessarily indicative of the results that may be expected for the year ending March 31, 1997. Note 2. Shareholders' Equity During the nine-month period ended December 31, 1996, all of the shares of 8% Series A Preferred Stock were converted into 2,637,742 shares of common stock, resulting in an increase of $18,049,955 in common stock. Also during that same period, warrants were exercised in a cashless transaction whereby 75,000 warrants were surrendered for 73,315 shares of common stock with a charge to accumulated deficit and a credit to common stock for $18,329, the warrant conversion value. Note 3. Investment in CS Wireless Systems, Inc. The Company's equity in net loss of affiliate of approximately $13,000,000 is based on CAI's pro-rata share of CS Wireless Systems, Inc.'s net loss of $19,334,000 for the nine-month period ended September 30, 1996, taking into account CAI's complete ownership prior to February 23, 1996, plus CAI's amortization of the excess of its cost less its pro-rata share of equity acquired over a fifteen year period as follows: CAI's share of affiliate's net loss $11,300,000 Amortization of CAI's excess cost 1,700,000 Equity in net loss of affiliate $13,000,000 The summarized financial information disclosed below is extracted from CS Wireless Systems, Inc. unaudited historical September 30, 1996 financial statements. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Note 3. Investment in CS Wireless Systems, Inc. continued The following is an unaudited condensed consolidated balance sheet of CS Wireless Systems, Inc. and Subsidiaries as of September 30, 1996:
ASSETS Cash and cash equivalents $136,844,000 Subscriber receivables, net 2,232,000 Prepaid expenses and other 442,000 Plant and equipment, net 41,076,000 Wireless channel rights, net 172,668,000 Goodwill, net 51,746,000 Debt issuance costs and other assets, net 10,302,000 Total Assets $415,310,000 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Accounts payable and accrued expenses $ 6,773,000 FCC Auction payable 8,728,000 Other liabilities 644,000 Debt 260,048,000 Deferred income taxes 8,668,000 284,861,000 STOCKHOLDERS' EQUITY Common stock 10,000 Additional paid-in-capital 150,980,000 Accumulated deficit (20,541,000) Total Stockholders' Equity 130,449,000 $415,310,000
The following is an unaudited condensed consolidated statement of operations of CS Wireless Systems, Inc. and Subsidiaries for the nine months ended September 30, 1996:
Revenues $ 15,994,000 Operating expenses: Systems operations 9,400,000 General and administrative 9,726,000 Depreciation and amortization 13,853,000 Total operating expenses 32,979,000 Operating loss ( 16,985,000) Other income (expense): Interest income 4,907,000 Interest expense (17,490,000) ( 12,583,000) Loss before income taxes (29,568,000) Income tax benefit 10,234,000 Net loss $(19,334,000)
PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The statements contained in this Quarterly Report on Form 10-Q, including the exhibits hereto, relating to the Company's operating results, and plans and objectives of management for future operations, which are not historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results of the Company may differ materially from those in the forward-looking statements and may be affected by a number of factors including the receipt of regulatory approvals, the availability of new strategic partners and their willingness to enter into arrangements with the Company, the terms of such arrangements, the success of the Company's trials in various of its markets and its implementation of digital technology, subscriber equipment availability, tower space availability, absence of interference and the ability of the Company to redeploy or sell excess equipment, the assumptions, risks and uncertainties set forth below in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere herein, as well as other factors contained herein and in the Company's other securities filings. OPERATIONS As of December 31, 1996, CAI Wireless Systems, Inc. and Subsidiaries (the "Company" or "CAI") had approximately 76,400 wireless systems subscribers as compared to 119,000 subscribers as of December 31, 1995. Approximately 33,500 subscribers for December 31, 1995 are attributable to CS Wireless Systems, Inc. ("CS"), which became an unconsolidated subsidiary of the Company on February 23, 1996, upon closing of the transactions contemplated by the Participation Agreement dated December 12, 1995, among the Company, CS and Heartland Wireless Communications, Inc. On a pro forma basis, giving effect to the CS transaction as if such transaction had occurred on December 31, 1995, the Company would have had as of December 31, 1995 approximately 85,500 subscribers compared to 76,400 subscribers as of December 31, 1996. The 9,100 net decrease in subscribers is due primarily to the New York System decrease of approximately 4,500 subscribers, the Philadelphia System decrease of approximately 3,700 subscribers and other system net decreases of approximately 900 subscribers for the comparable periods. The New York System is losing subscribers to hardwire cable operators primarily due to the system's inferior channel capacity. This trend in New York is likely to continue. The Company has implemented a program to increase retention of subscribers in Philadelphia and other systems through an increase in installation fees, which the Company believes will increase subscriber commitment, and thus, retention. This retention policy has slowed subscriber additions. The decrease in subscribers experienced in the other systems was primarily due to a curtailment of marketing efforts in the nine-month period ended December 31, 1996, in anticipation of the then expected implementation of the BR Agreement which was suspended as described below. On December 12, 1996, CAI entered in a Modification Agreement (the "Modification Agreement") with various affiliates of Bell Atlantic Corporation and NYNEX Corporation, including NYNEX MMDS Company, Inc. and MMDS Holdings, Inc. (together, the "BANX Affiliates") and BANX Partnership. The Modification Agreement suspends the Business Relationship Agreement among CAI and the BANX Affiliates for one year, including the ability of each of the BANX Affiliates to elect to become the marketer and provider of wireless cable services within various markets located in their respective operating territories using CAI's wireless delivery platform. For the one-year suspension period, the Modification Agreement suspends the right of the BANX Affiliates to option these markets, and, therefore, relieves CAI of (i) its obligations to reserve its Multichannel Multipoint Distribution Service (MMDS) spectrum for imminent use by the BANX Affiliates as a video delivery platform and (ii) related construction obligations. All deadlines for construction and other obligations are tolled for one year and will be reinstated in the event that the BR Agreement is not terminated in accordance with its terms or the terms of the Modification Agreement. PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED In addition to suspending CAI's obligations under the BR Agreement for one year, the Modification Agreement provides CAI or its designee the right to acquire all, but not less than all, of the $100 million in CAI Securities (as defined below) held by BANX Partnership and its general partners. If notice to purchase the CAI Securities is received by BANX Partnership within the first 120 days after December 12, 1996, the purchase price is $121,000,000; if received in the next 120 days, the purchase price is $100,000,000, together with accrued interest and dividends, plus $10 million, and if notice is received in the balance of the year, the purchase price is $100,000,000, together with accrued interest and dividends, plus $20 million. The BANX Partnership's $100 million investment in CAI includes convertible debt and preferred stock and warrants (as more fully described below, the "CAI Securities") all of which, if fully converted and exercised, would result in the right to acquire up to 45% of the equity of CAI. In connection with the arrangement, the average per share exercise/conversion price of the CAI Securities is reduced from $8.19 to $5.31, on full conversion and exercise. The exercise price is subject to readjustment in certain events. In the event that CAI does not purchase the CAI Securities or cannot locate a third party purchaser to do so within the first 270 days after December 12, 1996, BANX Partnership has the right to sell the CAI Securities. If, after one year, the CAI Securities have not been purchased by CAI or a third party, the BR Agreement is reinstated. Upon the purchase of the CAI Securities, the BR Agreement terminates. In connection with the one-year suspension, CAI expects to expand the markets for which it is currently seeking regulatory approval for flexible use of its MMDS spectrum. To date, CAI has begun exploring mixed use of the spectrum for video, voice and data, including a commercial trial of a high speed Internet access service in Rochester, NY, where FCC has granted authority for a market trial of up to 500 customers. In addition, CAI has been granted authority to conduct a commercial market trial of up to 1,000 subscribers for high speed Internet access service in its New York City market. Most recently, CAI received permanent authority for two-way flexible use of five channels for 16 sites located around the Boston market. This authority represents the first of its kind awarded to an MMDS operator. The Company's digital video transport systems in Boston and Virginia Beach are two of the first state-of-the-art digital MMDS systems. CAI believes that 75% or better line-of-sight (LOS) targets can be obtained with minor modifications to these systems, including relocation of boosters and adjustments to the height of certain antennas. CAI has a definitive timetable to roll-out digital video and internet services in Boston during the summer of 1997, subject to the contractual availability of certain equipment and satellite use authorizations. CAI does not have a present timetable during which it may deploy a digital video service in Virginia Beach and may re-deploy portions of the equipment in Boston to other markets. There can be no assurance that such services will be deployed. There can be no assurance that the Company will be granted permanent authority with respect to any of its pending applications or market trials, that any of the tests currently being conducted or contemplated by the Company will be successful or that the commercial deployment, if any, of any new products will be possible on a widespread basis or commercially successful. The Company intends to expand its applications for such use of its MMDS spectrum in other markets and to seek strategic relationships with companies in aligned industries in these markets, although there can be no assurance that such applications will be granted or that such relationships will materialize. PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED The Company is vacating certain of its booster transmitter locations in Boston. In connection with such action, the Company is removing certain transmission and other portable equipment from such locations and abandoning certain leasehold improvements. Excess equipment will be held for other CAI markets to be built out where permitted pursuant to duly received regulatory approval or made available for sale. There can be no assurance that the Company will apply for and receive any and all regulatory approvals necessary for the build out of other CAI markets. CAI anticipates that it will incur a loss, not expected to exceed $1 million, through the abandonment of leasehold improvements, lease terminations, installation costs and removal costs, however, there can be no assurance that such loss will not exceed $1 million. LIQUIDITY AND CAPITAL RESOURCES During the nine-month period ended December 31, 1996, CAI expended approximately $28.9 million to purchase equipment, $21.6 million to fund operating activities, $4.6 million to acquire wireless channel rights and $43.1 million to pay senior and other debt including $32.9 million against the amount due on the FCC MMDS License auctions. During this period, CAI funded its cash requirements out of existing cash balances. At December 31, 1996, CAI had cash and cash equivalents of approximately $19.0 million. Pursuant to the Company's capital expenditure plans for fiscal 1997, CAI is committed as of December 31, 1996 through open purchase orders to expend approximately $7.1 million primarily for capital expenditures associated with the development of digital transmission facilities. In addition, during the three-month period ending March 31, 1997, the Company is obligated to pay approximately $2.2 million in MMDS license auction fees, of which CS is obligated to reimburse CAI $0.7 million for licenses transferred to CS, and approximately $1.6 million of minimum license fees and lease payments. The Company's operating plans, including digital video, two-way voice and data, Internet and Intranet access services and testing, will require additional funds during the first quarter of fiscal year 1998. Such additional funds may take the form of debt or equity securities issuances, borrowings under loan arrangements or sales of assets including channel rights or wireless cable systems. CAI's ability to engage in financings, asset sales or acquisition transactions is limited by the contractual arrangements entered into with BANX Partnership, and significant transactions likely will require its prior consent. In addition, the Company's 12 1/4 % Senior Notes due 2002 (the "Senior Notes") impose similar restrictions on the incurrence of additional debt and on the ability to effect asset sales. Currently, the Company is actively seeking to obtain $25 million to $50 million of interim collateralized financing by April 1997 and to secure longer term financing through obtaining a new strategic partner(s) to replace the BANX Partnership. Although certain qualified parties have expressed strong interest in providing interim financing to the Company, CAI has not yet reached a definitive agreement with any such qualified party. There can be no assurance that any additional financings will be available to the Company on satisfactory terms and conditions, if at all. Failure to obtain additional financings or consummate asset sales will have a material adverse effect on the Company. PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED RESULTS OF OPERATIONS The following tables illustrate the changes discussed below in the management's discussion of the results of operations.
OPERATING REVENUES (in millions of dollars) NINE MONTHS ENDED DECEMBER 31, THREE MONTHS ENDED DECEMBER 31, 1996 1995 CHANGE 1996 1995 CHANGE Same systems $10.3 $11.5 $(1.2) $ 3.4 $ 3.7 $(0.3) Acquired systems (FY 96) n/a n/a - 5.8 6.0 (0.2) Total same systems 10.3 11.5 (1.2) 9.2 9.7 (0.5) Acquisitions & disposals: Acquired Systems (FY 96) 17.4 6.0 11.4 n/a n/a - Disposed Systems (FY 96) - 3.3 (3.3) - 3.3 (3.3) Total operating revenues $27.7 $20.8 $6.9 $ 9.2 $13.0 $(3.8)
OPERATING EXPENSES (in millions of dollars) NINE MONTHS ENDED DECEMBER 31, THREE MONTHS ENDED DECEMBER 31, 1996 1995 CHANGE 1996 1995 CHANGE S> Same systems $20.4 $24.2 $(3.8) $ 6.7 $ 7.6 $(0.9) Acquired systems (FY 96) n/a n/a - 8.5 8.7 (0.2) Corporate operations 14.5 8.5 6.0 5.6 5.3 0.3 Total same operations 34.9 32.7 2.2 20.8 21.6 (0.8) Acquisitions & disposals: Acquired Systems (FY 96) 25.8 8.7 17.1 n/a n/a - Disposed Systems (FY 96) - 5.1 (5.1) - 5.1 (5.1) Total operating expenses $60.7 $46.5 $14.2 $20.8 $26.7 $(5.9)
NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO NINE MONTHS ENDED DECEMBER 31, 1995 CAI's revenue increased $6.9 million ($27.7 million FY 1997; $20.8 million FY 1996) in the nine-month period ended December 31, 1996 over the same period in the prior year. The increase resulted primarily from the acquisition of ACS Enterprises, Inc. ("ACS"), with operating systems in Philadelphia, Cleveland, and Bakersfield, and the acquisition of Eastern Cable Networks of Washington, Inc. ("ECNW"), with an operating system in Washington D.C. Both acquisitions were made on September 29, 1995. Revenue from operations that were owned throughout both nine-month periods ("Same Systems") decreased $1.2 million ($10.3 million FY 1997; $11.5 million FY 1996) in the nine-month period ended December 31, 1996 from the same period in the prior year, primarily due to the decrease in the number of subscribers mentioned above. During December 1996, CAI instituted a $2 per subscriber rate increase that is expected to increase the average revenue per subscriber; however, this may cause additional net losses of subscribers. PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED Operating expenses were $60.7 million and $46.5 million for the nine months ended December 31, 1996 and 1995, respectively. The $14.2 million increase is attributable primarily to increases in (1) system operations of acquired systems (ACS and ECNW) of $7.7 million ($15.9 million FY 1997; $8.2 million FY 1996), excluding depreciation and amortization, due to nine months of operations of the Philadelphia and Washington systems in FY 1997 versus only three months of the Philadelphia, Washington, Cleveland, and Bakersfield systems in FY 1996; (2) general and administrative corporate operations of $1.9 million ($5.7 million FY 1997; $3.8 million FY 1996) primarily due to increased staffing and effort to maintain a larger operation, developing digital markets, and developing other potential uses of the wireless channel rights; and (3) depreciation and amortization of $7.4 million ($24.7 million FY 1997; $17.3 million FY 1996) primarily due to the acquisition of ACS and ECNW fixed assets, wireless channel rights, and goodwill; offset by a decrease in marketing costs of the Same Systems of $1.5 million ($.6 million FY 1997; $2.1 million FY 1996) due to a concentrated effort to reduce marketing costs and limit subscriber growth in light of the then anticipated implementation of the BR Agreement with BANX. CAI has a $13.0 million equity in net loss of affiliate in the nine months ended December 31, 1996, relating to its 52% investment in CS. In the prior year, CAI's operating systems contributed to CS on February 23, 1996 were fully consolidated in the operating results of CAI's third fiscal quarter of FY 1996. Interest income increased $1.9 million ($5.2 million FY 1997; $3.3 million FY 1996) for the nine-month period ended December 31, 1996 compared to the same period in the prior year. The increase is primarily due to interest earned on the Debt Service Escrow established in connection with The Company's offering of 12.25% Senior Notes Due 2002 and the investment of the cash remaining from the net proceeds of the Senior Notes offering and other concurrent September 29, 1995 transactions. Interest income has steadily decreased since the Debt Service Escrow and investments have been used to fund debt service, project costs, capital purchases, and operating deficits. Interest expense increased $16.5 million ($30.3 million FY 1997; $13.8 million FY 1996) for the nine-month period ended December 31, 1996 compared to the same period in the prior year. The increase is primarily due to interest expense incurred on the Senior Notes issued on September 29, 1995. PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1995 CAI's revenue decreased $3.8 million ($9.2 million FY 1997; $13.8 million FY 1996) in the three-month period ended December 31, 1996 over the same period in the prior year. The decrease resulted primarily from the spin off of operating systems in Cleveland and Bakersfield to CS. Same Systems decreased $.5 million ($9.2 million FY 1997; $9.7 million FY 1996) in the three-month period ended December 31, 1996 from the same period in the prior year, primarily due to the decrease in the number of subscribers mentioned above. Operating expenses were $20.8 million and $26.7 million for the three months ended December 31, 1996 and 1995, respectively. The $5.9 million decrease is attributable primarily to the spin off of operating systems to CS representing $5.1 million of expenses in the three-month period ended December 31, 1995. CAI has a $5.2 million equity in net loss of affiliate in the three months ended December 31, 1996, relating to its 52% investment in CS. In the prior year, CAI's operating systems contributed to CS on February 23, 1996 were fully consolidated in the operating results of CAI's third fiscal quarter ending December 31, 1995. Interest income decreased $2.0 million ($1.2 million FY 1997; $3.2 million FY 1996) for the three-month period ended December 31, 1996 compared to the same period in the prior year. The decrease is primarily due to CAI owning fewer assets earning interest since the Debt Service Escrow and investments have been used to fund debt service, project costs, capital purchases, and operating deficits. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS During the quarter ended December 31, 1996 and later periods, the Company was named in four class action lawsuits, each alleging various violations of the federal securities laws. The lawsuits were filed in the United States District Court for the Northern District of New York. The complaints name the Company, certain directors of CAI, as well as a significant shareholder in the Company and its members as defendants. Plaintiffs in each of the lawsuits allege that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, during various Class Periods beginning on May 23, 1996 and ending on various dates, the latest of which being December 13, 1996. Plaintiffs claims arise out of alleged material misstatements and omissions in the Company's public disclosures during the various Class Periods, which produced a scheme to inflate the price of CAI securities enabling the individual defendants to sell CAI securities at such inflated prices. Plaintiffs are seeking to be declared a plaintiff class action, unspecified damages and fees and expenses. The Company has denied the allegations in each of the Complaints, does not believe that the lawsuits have merit and intends to vigorously defend the actions. PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Annual Meeting of Shareholders of CAI Wireless Systems, Inc. was held on October 16, 1996, for the purpose of electing a Board of Directors, approving a new 1996 Outside Directors' Stock Option Plan, and approving certain amendments to the Company's 1993 Stock Option and Incentive Plan. (b) All of management's nominees for directors as listed in the proxy statement were elected with the following vote: Shares Voted Shares "For" "Withheld" Jared E. Abbruzzese 28,839,707 1,003,588 John J. Prisco 28,839,807 1,003,488 George M. Williams 28,839,807 1,003,488 James P. Ashman 28,839,807 1,003,488 Arthur C. Belanger 28,839,707 1,003,588 Harold A. Bouton 28,839,807 1,003,488 David M. Tallcott 28,791,707 1,051,588 Alan Sonnenberg 28,839,807 1,003,488 Robert D. Happ 28,839,807 1,003,488 (c) The other matters voted upon were as follows: The 1996 Outside Directors' Stock Option Plan was approved with the following vote: Votes For: 27,280,367 Votes Against: 2,404,621 Abstentions: 62,507 Broker non-votes: 95,800 The Amendments to the Company's 1993 Stock Option and Incentive Plan were approved with the following vote: Votes For: 22,531,807 Votes Against: 7,115,671 Abstentions: 100,017 Broker non-votes: 95,800 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits The following Exhibits are filed herewith or incorporated by reference as indicated:
Incorporation by Reference Page EXHIBIT NO. DESCRIPTION (SEE LEGEND) REFERENCE 3.1 Amended and Restated Certificate of Incorporation of CAI 1-Exhibit 3.1 3.2 Amended and Restated Bylaws of CAI 1-Exhibit 3.2 10. Modification Agreement dated December 12, 18-27 1996, among the Registrant and various affiliates of Bell Atlantic Corporation and NYNEX Corporation 11.1 Schedule Regarding Computation of Loss 28 Per Common Share 11.2 Schedule Regarding Computation of Fully 29 Diluted Loss Per Common Share 27. Financial Data Schedule 30 99.1 Media Release - CAI announces 1996 second 2-Exhibit 99.1 quarter and six-month results. 99.2 Media Release - CAI responds to class action 3-Exhibit 99.1 lawsuit. 99.3 Media Release - CAI responds to recent news. 3-Exhibit 99.2 99.4 Media Release - CAI receives first FCC market 3-Exhibit 99.3 trial approval to use wireless cable spectrum for two-way services
LEGEND 1 Incorporated by reference to the exhibits to the Quarterly Report on Form 10-Q for September 30, 1995. 2 Incorporated by reference to the exhibits to the Current Report on Form 8-K dated November 6,1996. 3 Incorporated by reference to the exhibits to the Current Report on Form 8-K dated November 25, 1996. Filed herewith. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K CONTINUED b) Reports on Form 8-K b1) Form 8-K dated November 5, 1996 (filed November 6, 1996), regarding the following item: Item 5. OTHER EVENTS The Company announces 1996 second quarter and six-month results on November 5, 1996 (see exhibit 99.1). b2) Form 8-K dated November 25, 1996 (filed January 3, 1997), regarding the following item: Item 5. OTHER EVENTS CAI Wireless Systems, Inc. (CAI) entered into a Modification Agreement dated December 12, 1996 with affiliates of Bell Atlantic Corporation and NYNEX Corporation (the "RBOCs") pursuant to which the Business Relationship Agreement among the parties has been suspended for one year and CAI or its designee has been granted an option to purchase the $100 million RBOC investment in CAI (see Exhibit 10.). CAI announced that it has retained J. P. Morgan Securities Inc. and Smith Barney Inc. to act as financial advisors to CAI in connection with exploring strategic alternatives for the Company. CAI has been named in a class action lawsuit alleging various violations of the federal securities laws. In addition, the Company issued three news releases at various times. see exhibits 99.1 (news release on November 25, 1996), 99.2 (news release on December 6, 1996), and 99.3 (news release on December 16, 1996). 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/ JARED E. ABBRUZZESE Chairman, Chief Executive Officer February 5, 1997 JARED E. ABBRUZZESE and Director (Principal Executive Officer) /S/ JAMES P. ASHMAN Executive Vice President, Chief February 5, 1997 JAMES P. ASHMAM Financial Officer and Director (Principal Financial Officer) /S/ CRAIG J. KESSLER Vice President and Controller February 5, 1997 CRAIG J. KESSLER (Principal Accounting Officer)
EX-1 2 EXHIBIT 10. MODIFICATION AGREEMENT MODIFICATION AGREEMENT dated as of December 12, 1996 among CAI WIRELESS SYSTEMS, INC., a Connecticut corporation ("CAI"), the subsidiaries of CAI listed on the signature pages hereto (collectively with CAI, the "COMPANY"), BANX PARTNERSHIP, a Delaware general partnership ("BANX"), MMDS HOLDINGS, INC., a Delaware corporation ("MMDS HOLDINGS"), MMDS HOLDINGS II, INC., a Delaware corporation ("MMDS HOLDINGS II"), NYNEX MMDS COMPANY, a Delaware corporation ("NYNEX MMDS"), and NYNEX MMDS HOLDING COMPANY, a Delaware corporation ("NYNEX MMDS HOLDING"). RECITALS . The Company and BANX are parties to a Securities Purchase Agreement dated as of March 28, 1995, as amended (the "SECURITIES PURCHASE AGREEMENT"; capitalized terms defined therein and used but not defined herein being used as therein defined), pursuant to which CAI issued and sold and BANX purchased (i) CAI's Term Notes due 2005 (the "NOTES") in an aggregate original principal amount of $30,000,000, (ii) 7,000 shares of CAI's 14% Senior Preferred Stock, par value $10,000 per share (the "SENIOR PREFERRED STOCK"), and (iii) warrants (the "WARRANTS") to purchase CAI's Series C Convertible Preferred Stock. The Notes, the Senior Preferred Stock and the Warrants are referred to herein collectively as the "PURCHASED SECURITIES". . The Company, NYNEX MMDS and MMDS Holdings are parties to a Business Relationship Agreement dated as of March 28, 1995, as amended (the "BR AGREEMENT"), pursuant to which the Company has, among other things, granted to NYNEX MMDS and MMDS Holdings options, on a market by market basis, to cause the Company to provide wireless cable transmission services to NYNEX MMDS and MMDS Holdings using the Company's transmission systems in specified markets in their respective service areas. . The parties desire to modify their contractual arrangements under the Securities Purchase Agreement and the BR Agreement and with respect to the Purchased Securities, as set forth herein. Accordingly, the parties hereby agree as follows: Section 1. OPTION TO PURCHASE SECURITIES. BANX and its partners, NYNEX MMDS Holding and MMDS Holdings II, hereby grant to CAI or its designee the right and option, exercisable for a period of twelve (12) months following the date of this Agreement, to purchase all (but not less than all) of the Purchased Securities, including all accrued and unpaid dividends thereon, for an aggregate purchase price equal to the Purchase Price specified below. The option shall be exercised by written notice to BANX, NYNEX MMDS and MMDS Holdings II in accordance with the Securities Purchase Agreement, which notice shall identify any designee and shall provide information in reasonable detail with respect to the creditworthiness of any designee and of the expected source of funds for the purchase. If the designee (which for purposes of this sentence shall include the ultimate parent or entity which controls the designee) is not required to file reports pursuant to the Securities Exchange Act of 1934, then CAI shall have thirty (30) days from the date of the notice to provide the financial information (including the expected source of funds) required under the immediately preceding sentence. If the notice from CAI includes a request to keep the identity of the designee (if any) confidential, the sellers will not publicly disclose the designee's identity, until such time as the identity of the designee as the purchaser of the Purchased Securities is otherwise made public, except as may otherwise be required by any applicable law, rule, regulation, court order or requirement of a government entity, including without limitation, the rules or regulations of any securities exchange. Upon such exercise, the purchase and sale of the Purchased Securities shall occur at the offices of NYNEX MMDS Holding in New York City on the date, not later than ninety (90) days following the date of the notice of exercise, as shall be specified by CAI in such notice of exercise, at which closing BANX, NYNEX MMDS Holding and MMDS Holdings II shall deliver the certificates or other instruments representing the Purchased Securities to CAI or its designee (without representation or warranty except as to title) against payment of the Purchase Price in immediately available funds, and CAI shall deliver such legal opinions, opinions of financial advisors and officers' certificates as may reasonably be requested by the sellers or as may be customary for transactions of such nature, provided that if CAI or its designee is unable to close within such 90-day period solely due to the document deliveries required pursuant to this sentence, then at the election of CAI in writing to sellers not less than 2 business days prior to the expiration of such 90-day period, the full Purchase Price may be deposited in an interest bearing account for a period of up to thirty (30) days in order to permit the purchaser to satisfy such delivery requirements and the closing shall be deemed timely if consummated within such 30-day period provided the sellers shall be paid all interest accrued on such funds during such period in addition to the Purchase Price. The parties will use reasonable efforts to agree upon the form of such documents within forty five (45) days after the execution of this Agreement; PROVIDED, HOWEVER, that the failure of the parties to so agree shall not relieve any party of its obligation to deliver the required documents in a form reasonably satisfactory to the receiving parties. The Purchase Price for the Purchased Securities shall equal the amount specified below opposite the applicable number of days following the date of this Agreement on which the notice of exercise is delivered by CAI to BANX, NYNEX MMDS Holding and MMDS Holdings II: NOTICE OF OPTION EXERCISE PURCHASE PRICE up to 120 days $121,000,000 after 120 days up to 240 days $100,000,000 plus payment in full of all accrued interest and dividends under the Notes and Senior Preferred Stock as of the date of notice plus $10,000,000. after 240 days up to 365 days $100,000,000 plus payment in full of all accrued interest and dividends under the Notes and Senior Preferred Stock as of the date of notice plus $20,000,000. Notwithstanding anything to the contrary herein, (i) in the event CAI shall fail to consummate the purchase of the Purchased Securities in accordance with the terms of this Agreement and without limitation to any other remedies of BANX, NYNEX MMDS or MMDS Holdings occasioned by such failure, the option to purchase pursuant to this Section 1 shall terminate automatically and without further action of the parties, and (ii) in the event the option to purchase pursuant to this Section 1 is not exercised in accordance herewith on or before the 270th day following the date of this Agreement, BANX, NYNEX MMDS Holding and MMDS Holdings II shall have the right to sell the Purchased Securities free and clear of the option granted hereby and the rights of the Company pursuant hereto upon twenty (20) days' prior notice to CAI, provided that CAI or its designee does not exercise the option in accordance herewith within a period of ten (10) days following the date of such notice to CAI. During the option period, CAI shall make commercially reasonable efforts to secure the funds required to exercise the option or to otherwise find a purchaser for the Purchased Securities. If CAI engages in discussions or negotiations with entities which have an interest in investing in the Company, it shall offer such entities the option of acquiring the Purchased Securities. CAI agrees that it shall take no action, (other than actions in the ordinary course of its business) the effect of which could reasonably expected to make the acquisition of the Purchased Securities less attractive to a prospective purchaser. If CAI obtains funds sufficient to acquire the Purchased Securities, it shall use commercially reasonable efforts to obtain any consents or other authorizations required to permit it to exercise the option hereunder. Section 2. EXERCISE AND CONVERSION PRICES. (a) Effective upon the execution and delivery of this Agreement, (i) the Initial Tier I Conversion Price and the Initial Tier I Exercise Price for the Senior Preferred Stock and the Warrants, respectively, shall be reduced to an amount equal the product of the Preferred Conversion Ratio (as defined in the Purchased Securities) multiplied by $3.86, and (ii) the Initial Tier 2 Exercise Price, the Initial Tier 3 Exercise Price and the Initial Tier 4 Exercise Price shall be reduced by multiplying such amounts by a fraction, the numerator of which is equal to the Initial Tier I Exercise Price immediately after giving effect to the reduction pursuant to clause (i) of this Section 2(a) and the denominator of which is equal to the Initial Tier I Exercise Price immediately prior to giving effect to such reduction. (b) In the event CAI shall not have exercised its option to purchase the Purchased Securities on or prior to 180 days after the date of this Agreement, (i) the Initial Tier I Conversion Price and the Initial Tier I Exercise Price for the Senior Preferred Stock and the Warrants, respectively, in each case shall be further reduced by an amount equal to 15% of the Initial Tier 1 Exercise Price immediately prior to any and all such adjustments, and (ii) in each case the Initial Tier II Exercise Price, the Initial Tier III Exercise Price and the Initial Tier IV shall be reduced by multiplying such price by a fraction, the numerator of which is equal to the Initial Tier I Exercise Price immediately after giving effect to the reduction pursuant to clause (i) of this Section 2(b) and the denominator of which is equal to the Initial Tier I Exercise Price immediately prior to giving effect to such reduction. (c) Each reduction pursuant to this Section 2 shall be cumulative with and in addition to any other reductions or adjustments to the applicable prices pursuant hereto or under the other applicable documents governing the Purchased Securities and each adjustment pursuant hereto shall be affected prior to any adjustments pursuant to such other documents. (d) The reduction provided for in Section 2(b) above shall not apply in the event of an exercise of the conversion rights of the Notes or Senior Preferred Stock or an exercise of the Warrants by BANX or its affiliates. Section 3. SUSPENSION OF BR AGREEMENT. Effective upon the execution and delivery of this Agreement, the right of NYNEX MMDS and MMDS Holdings to exercise the options, and the obligations of the Company to perform by the specified dates, under the BR Agreement shall be suspended and the running of all other time periods thereunder shall be tolled. If CAI shall purchase all of the Purchased Securities pursuant to the exercise of its option in accordance with Section 1 of this Agreement, the BR Agreement and all rights and obligations of the parties thereunder shall terminate. If CAI shall fail to provide notice of the exercise of its option to purchase the Purchased Securities pursuant to Section 1 hereof on or prior to the first anniversary of the date of this Agreement and consummate a purchase transaction pursuant to Section 1 hereof, the BR Agreement and the rights and obligations of the parties shall be reinstated automatically and without further action of the parties, and all time periods for performance or the exercise of any rights or obligations thereunder, including the right to exercise the options by NYNEX MMDS and MMDS Holdings thereunder, shall be extended by a period equal to the period of the suspension of the BR Agreement pursuant to this Section 3, provided that, following the end of the suspension period, the parties agree to negotiate in good faith to amend the BR Agreement; provided further however, that the parties are under no obligation to agree to any amendments, modifications or waivers of the BR Agreement other than with respect to the elimination of the existing "Fulfillment Dates" (as defined in the BR Agreement"). The suspension of the BR Agreement, and any reinstatement thereof, shall not effect a waiver of any rights, obligations or claims of the parties thereto for any period prior to such suspension or after such reinstatement and this Agreement shall not constitute a consent to any modification of such rights, obligations or claims except as expressly provided hereunder. Section 4. CS CONSENT RIGHTS; CONVEYANCE OF STOCK. (a) All rights of BANX and its affiliates to consent to the exercise by CAI of its right to approve or disapprove of the taking of any actions by CS Wireless Systems, Inc. pursuant to the terms of the Consent dated February 23, 1996 (the "CS Consent") among CAI, BANX and its affiliates shall be terminated effective upon the execution and delivery of this Agreement. During the option period, BANX and its affiliates party hereto agree to grant CAI a proxy for the purposes of voting their respective shares of CS Wireless Systems, Inc. ("CS") common stock; PROVIDED, HOWEVER, that with respect to votes regarding the following matters, CAI must vote the shares of CS held by BANX and its affiliates as directed by such parties: any shareholder approval sought in connection with a public offering of CS equity securities in the event that CAI proposes to vote against such a transaction; any shareholder approval in connection with a merger, business combination, sale of all or substantially all of CS' assets or any similar transaction, other than a transaction in which the holders of CS common stock would become the holders of tradable securities in a publicly traded entity, unless CAI has notified BANX that it proposes to vote in favor of such transaction; any shareholder approval in connection with a transaction between CS and CAI and/or any of their respective affiliates; any shareholder approval in connection with a redemption or repurchase of CS' equity securities or the declaration of any dividends; and any transaction, other than a sale of CS equity securities for cash, that would dilute the interest of BANX and its affiliates in CS or grant any entity greater voting rights. CAI will inform BANX if it proposes to exercise the proxy granted hereunder. If the proxy would be voted in connection with one or more of the items listed in this Section 4(b), CAI will describe the action to be approved and CAI's intention to exercise the proxy for or against such matter, and the notice containing the foregoing shall be delivered as soon as possible, but in no event less than ten (10) business days prior to the date of the vote. Unless BANX notifies CAI prior to the actual vote that it objects to CAI's proposed vote, CAI shall exercise the proxy as indicated in the notice. In the event CAI exercises the proxy granted hereunder other than at the express direction of BANX, CAI shall defend, indemnify and hold harmless each Indemnitee (as hereinafter defined) from and against any and all Claims (as hereinafter defined) arising out of, in connection with or as a result of exercise of the proxy. (c) Upon the consummation of a purchase by CAI or its designee in accordance with the provisions of Section 1 hereof, BANX and its partners will transfer to CAI, for no additional consideration, the shares of CS common stock conveyed to them pursuant to the CS Consent. CAI shall pay any and all taxes (other than income tax) or other costs and expenses payable to third parties as a result of such transfer. Section 5. MODIFICATION OF COVENANTS. The covenants of CAI in the Securities Purchase Agreement and in the Purchased Securities shall be modified (i) to permit the Company to sell, transfer or otherwise dispose of assets having a fair market value not in excess of $2,000,000 in any one transaction or series of related transactions from time to time to the extent permitted under the terms of the Indenture governing CAI's 12-1/4% Senior Notes due 2002 as in effect on the date of this Agreement and (ii) to suspend during the term of the suspension of the BR Agreement pursuant to Section 3 hereof the right of BANX and its affiliates to approve of the Business Plan of CAI and the following covenants in the Stage II Warrants (and the corresponding provisions of the Stage I Warrants, the Term Notes and the Senior Preferred Stock): Section 7.8 (other than the last sentence thereof), 7.10(b), 7.19(d),, clause (iii) of 7.24 and 7.25. Actions taken by CAI during the one-year period which would otherwise have required consent under the suspended covenants shall not be deemed to be a breach of such covenants following the termination of such suspension; but only to the extent of actions completed or transactions consummated as of the end of the suspension period, provided, however, that CAI may continue to take actions, ministerial or administrative in nature, required of CAI subsequent to the one-year period in furtherance of the actions taken by CAI during the one-year period, which actions shall not be deemed to be a breach of such covenants following the termination of the suspension period. Section 6. REMOVAL OF EQUIPMENT. Until the expiration of the options under the BR Agreement with respect to the Virginia Beach and Boston markets, the Company will maintain the transmission systems in Virginia Beach and Boston intact and will not, unless consented to in writing by NYNEX MMDS or MMDS Holdings, as applicable, sell, transfer or otherwise dispose of or remove from the site any of the fixed assets or equipment located at or utilized in the transmission systems in Virginia Beach or Boston, provided that CAI may remove and utilize for other purposes (i) booster transmitters and associated equipment in Boston, other than any equipment located at or used for the main transmitter and associated systems at One Financial in Boston and (ii) booster transmitters and associated equipment in Virginia Beach, other than equipment used at the Virginia Beach main transmitter. Section 7. COOPERATION. The parties shall provide reasonable cooperation to each other in connection with facilitating the sale of the Purchased Securities; PROVIDED, HOWEVER, that such cooperation shall not require the parties to make any representations, warranties or statements or incur any obligations other than those set forth in Section 1. Section 8. FCC MATTERS. For a period of one year from the date hereof, each of BANX and its affiliates party hereto agrees that it shall not oppose any FCC filing or application by CAI solely for the purpose of: (i) transferring any of its MMDS, MDS or ITFS leases or licenses; or (ii) modifying its authority to use such spectrum for uses other than that permitted under existing law or regulations, PROVIDED, HOWEVER, that BANX and its affiliates party hereto will not be restricted from opposing any application or filing described in clause (ii) where such application or filing, if granted, could reasonably be expected to have the effect of restricting the conduct of their business. Nothing in this Agreement shall have the effect of limiting the ability of BANX and its affiliates to respond to any communication to the FCC which they determine makes false, misleading and/or negative reference (directly or indirectly) to BANX or any of its affiliates. Section 9.PUBLICITY. The parties will make reasonable efforts to consult with each other prior to the issuance of a press release regarding this Agreement. Following the dissemination of an initial press release, the parties' obligations with respect to the disclosure of the details of this Agreement shall be governed by the applicable provisions of the agreements which this Agreement modifies. Section 10. NO WAIVER. Failure by either party to insist on strict performance or observance of any provision of this Agreement or to exercise any right or remedy shall not be construed as a waiver of any right or remedy with respect to any existing or subsequent breach or default. This Agreement shall not constitute a waiver, compromise or relinquishment of any claims relating to the BR Agreement or the documentation governing the Purchased Securities. Section 11. REPRESENTATIONS AND WARRANTIES. Each party hereto represents and warrants to the other party that (a) such party has all requisite legal power and authority to execute and deliver this Agreement and to perform its obligations hereunder, (b) the execution, delivery and performance hereof has been duly authorized by all requisite corporate action on the part of such party, including with respect to the Company by express Board of Directors authorization, and (c) this Agreement (i) has been duly executed and delivered by such party and (ii) subject to the due execution and delivery of this Agreement by the other party hereto, this Agreement constitutes a legal, valid and binding obligation of such party, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws or other laws affecting creditors' rights generally and subject further to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Notwithstanding anything to the contrary herein, the effectiveness of Section 1 hereof shall be contingent on the approval of this Agreement to the extent required by the Boards of Directors of Bell Atlantic Corporation and NYNEX Corporation, which if required BANX and its affiliates agree to seek promptly following the date hereof. Section 12. EFFECT ON AGREEMENTS. The provisions of this Agreement shall be narrowly construed in accordance with the express provisions hereof and except as expressly amended or modified herein, the Stock Purchase Agreement, the Purchased Securities and the BR Agreement and each of the provisions thereof shall remain in full force and effect in accordance with their respective terms. Section 13. MISCELLANEOUS. () ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes any and all previous agreements, representations and understandings between the parties hereto with respect to such matters whether oral or in writing. () GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the law of the State of New York. () SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validly or enforceability of any other provisions of this Agreement, each of which shall remain in full force and effect. () NO THIRD PARTY BENEFICIARIES. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Nothing in this Agreement shall create or be deemed to create any third party beneficiary rights in any person not party to this Agreement. () AMENDMENTS. This Agreement may be amended, supplemented or modified, and any provision hereof may be waived, only pursuant to a written instrument making specific reference to this Agreement signed by each of the parties hereto. () COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 13. EXPENSES AND INDEMNIFICATION. Without limitation to Section 7.1 and 7.2 of the Securities Purchase Agreement: (i) each party will pay its own costs and expenses (including reasonable fees, charges and disbursements of counsel) incurred in connection with the preparation, negotiation and execution of this Agreement; and (ii) the Company agrees to indemnify BANX and its affiliates and their respective directors, officers, employees and agents (each such Person being an "INDEMNITEE") against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities, penalties and related costs and expenses (collectively, "Claims"), including counsel fees, charges and disbursements, incurred by or asserted against any Indemnitee arising out of, in any way in connection with, or as a result of (i) the execution, delivery or performance of this Agreement or of any document contemplated hereby or the consummation of any of the transactions contemplated hereby, (ii) any exercise by any Indemnitee of its rights and remedies hereunder, or (iii) any claim litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto; PROVIDED, HOWEVER, that such indemnity shall not, as to any Indemnitee, apply to any such losses, claims, damages, liabilities, penalties or related costs and expenses or portion thereof arising exclusively from the material breach, gross negligence or wilful misconduct of such Indemnitee, or from any act or failure to act of an Indemnitee under any other agreement or legal obligation of such Indemnitee where the Indemnitee was under a legal obligation to act or abstain from acting, in any such case, as determined by final order of a court of competent jurisdiction. IN WITNESS WHEREOF, the parties hereto have executed this Agreement through their duly authorized representatives on the day and year first above written. CAI WIRELESS SYSTEMS, INC. By: Name: Title: ROCHESTER CHOICE TELEVISION, INC. By: Name: Title: HAMPTON ROADS WIRELESS, INC. By: Name: Title: EASTERN NEW ENGLAND TV, INC. By: Name: Title: CONNECTICUT CHOICE TELEVISION, INC. By: Name: Title: COMMONWEALTH CHOICE TELEVISION, INC. By: Name: Title: ATLANTIC MICROSYSTEMS, INC. By: Name: Title: HOUSATONIC WIRELESS, INC. SYSTEMS, INC., d/b/a CAPITAL CHOICE TELEVISION By: Name: Title: NISAKAYUNA ASSOCIATES, INC. By: Name: Title: ONTEO ASSOCIATES, INC. By: Name: Title: NEW YORK CHOICE TELEVISION, INC. By: Name: Title: CAI TRANSACTIONS P, INC. By: Name: Title: CAI TRANSACTIONS W, INC. By: Name: Title: CAI VA TRANSACTIONS, INC. By: Name: Title: CAI CT HOLDINGS CORP. By: Name: Title: BANX PARTNERSHIP By: MMDS Holdings Inc. By: Name: Title: By: NYNEX MMDS Company By: Name: Title: MMDS HOLDINGS INC. By: Name: Title: MMDS HOLDINGS II INC. By: Name: Title: NYNEX MMDS COMPANY By: Name: Title: NYNEX MMDS HOLDING COMPANY By: Name: Title: EX-2 3
EXHIBIT 11.1 CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES Computation of Loss per Common Share For the Nine-Month Period Ended December 31, 1996 Net loss $ (57,493,239) Preferred stock dividend (9,576,367) Loss applicable to common stock shareholders $ (67,069,606) Weighted average number of shares outstanding 39,915,020 Loss per common share $ (1.68)
COMPUTATION OF WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING Weighted Average SHARES SHARES FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 Beginning Balance 37,829,482 37,829,482 Series A Preferred Stock - converted 2,637,742 2,028,219 Warrants exercised 73,315 57,319 Warrants - BANX 36,751,083 0 Warrants - Other 2,235,541 0 Options 2,152,604 0 39,915,020
(a) Outstanding convertible preferred stock, warrants and options are not considered for the purposes of calculating the weighted average shares outstanding since these securities are anti-dilutive. (b) The Series A Redeemable Convertible Preferred Stock have been converted as of December 31, 1996. EX-3 4 EXHIBIT 11.2
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES Computation of Fully Diluted Loss Per Common Share For the Nine-Month Period Ended December 31, 1996 Loss applicable to common stock shareholders $ (67,069,606) Less: Preferred stock dividends 9,576,367 Net loss used to calculate fully diluted loss per common share, before adjustments (57,493,239) LESS : ADJUSTMENTS Interest expense on term notes assumed to be CONVERTED, NET OF DEFERRED TAX EFFECT....................... 1,917,000 Interest expense reduction resulting from the assumed proceeds from exercise of warrants and options in excess of the 20 % buyback applied against short and long term debt, net of deferred tax effect........................................ 10,994,000 Adjusted net loss $(44,582,239) Weighted average fully diluted loss per common share $ (0.62) Weighted average common and equivalent shares outstanding as of December 31, 1996 39,915,020 ADD SHARES ASSUMING CONVERSION OF : Warrants, BANX 36,751,083 Warrants, other 2,235,541 Options 2,152,604 Treasury stock repurchase with proceeds (8,108,108) Weighted average number of shares used to compute fully diluted loss per common share 72,946,140
a. Interest expense reduction resulting from excess proceeds (over 20% treasury stock purchase) used to reduce debt is calculated based on actual interest expense incurred on the Senior Notes. b. Treasury method used to the extent of the 20% limit on the shares outstanding as of December 31, 1996. This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive result. EX-27 5
5 This schedule contains summary financial information extracted from the December 31, 1996 financial statements contained in this Form 10-Q and is qualified in its entirety by reference to such financial statements. 9-MOS MAR-31-1997 DEC-31-1996 19,038,921 0 2,190,161 1,052,956 0 0 97,945,275 25,426,868 595,018,115 0 312,117,799 69,125,005 0 275,769,414 (132,178,142) 595,018,115 0 27,737,756 0 23,651,959 13,000,000 2,219,772 30,316,613 (70,993,239) (13,500,000) (57,493,239) 0 0 0 (57,493,239) (1.68) 0
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