-----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, NpSHY2InOtPWylbz4ssQdWLlGcRu3DB8ybxByTvAIvhzjlLu8MU/JGTXdesjLuRa frhBs8whc318mld2ezHZsw== 0000914749-98-000004.txt : 19980223 0000914749-98-000004.hdr.sgml : 19980223 ACCESSION NUMBER: 0000914749-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980220 SROS: NONE 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: 98545926 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, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission File Number: 0-22888 CAI WIRELESS SYSTEMS, INC. (Exact name of registrant as specified in its charter)
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 February 13, 1998: CLASS OUTSTANDING SHARES Common Stock, no par value 40,540,539 PART I. FINANCIAL INFORMATION. ITEM 1. FINANCIAL STATEMENTS. CAI WIRELESS SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 MARCH 31, 1997 ----------------- -------------- (UNAUDITED) ASSETS Cash and cash equivalents $ 2,170,436 $ 10,471,918 Subscriber accounts receivable, net 578,588 695,707 Prepaid expenses 511,679 1,034,106 Property and equipment, net 61,593,527 69,767,017 Wireless channel rights, net 197,042,749 207,680,551 Investment in CS Wireless Systems, Inc. 72,443,527 88,389,527 Investment in TelQuest Satellite Services LLC 3,097,203 - Goodwill, net of accumulated amortization 98,043,766 104,204,716 Debt service escrow 32,862,035 47,865,389 Debt financing costs, net 8,820,690 9,249,934 Other assets 3,508,716 2,980,650 --------------- ------------- Total Assets $ 408,672,916 $ 542,339,515 =============== ============= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Accounts payable $ 5,801,849 $ 6,600,584 Accrued expenses 29,357,122 16,138,811 Wireless channel rights obligations 4,045,767 5,302,600 Obligations payable to TelQuest Satellite Services LLC 894,128 - Interim debt financing 25,000,000 - Term notes 36,599,695 36,786,596 Senior notes 275,000,000 275,000,000 --------------- ------------ 376,698,561 339,828,591 =============== ============ Commitments and Contingencies Mandatorily Redeemable Preferred Stock 14% Senior convertible preferred stock (liquidation value $70,000,000) 69,265,000 69,160,000 Accrued preferred stock dividends 29,681,187 18,660,734 --------------- ------------ 98,946,187 87,820,734 =============== ============ SHAREHOLDERS' EQUITY Common stock, 100,000,000 shares authorized, no par value; 40,540,539 shares issued and outstanding 275,769,414 275,769,414 Accumulated deficit (270,741,246) (161,079,224) --------------- ------------ 5,028,168 114,690,190 -------------- ------------ Total Liabilities and Shareholders' Equity $ 480,672,916 $ 542,339,515 ============= ============
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, ----------------- ------------------ 1997 1996 1997 1996 ---- ---- ---- ---- Revenues $ 21,977,384 $ 27,737,756 $ 6,591,341 $ 9,249,978 ------------- ------------- ------------- ----------- Costs and expenses Programming and licensing 10,973,934 11,989,352 3,702,771 4,129,802 Marketing 1,206,615 1,790,734 376,679 564,717 General and administrative 21,908,478 22,223,561 7,966,799 7,882,671 Depreciation and amortization 26,152,839 24,729,986 10,245,751 8,179,198 ------------- ------------- ------------ ----------- 60,241,866 60,733,633 22,292,000 20,756,388 ------------- ------------- ------------ Operating loss (38,264,482) (32,995,877) (15,700,659) (11,506,410) ------------- ------------- ------------ ----------- Other income (expense) Interest expense (40,128,505) (30,316,613) (17,198,770) (10,012,060) Equity in losses of affiliates (23,118,008) (13,000,000) (9,378,008) (5,200,000) Interest and other income 2,974,426 5,319,251 1,351,399 1,202,680 ------------- ------------- ------------ ----------- (60,272,087) (37,997,362) (25,225,379) (14,009,380) ------------- ------------- ------------ ----------- Loss before income tax benefit (98,536,569) (70,993,239) (40,926,038) (25,515,790) Income tax benefit - 13,500,000 - 4,500,000 ------------- ------------- ------------ ----------- Net loss (98,536,569) (57,493,239) (40,926,038) (21,015,790) Preferred stock dividends (11,125,453) (9,576,367) (3,850,594) (3,306,003) ------------- ------------ ------------ ----------- Loss applicable to common stockholders $(109,662,022) $ (67,069,606) $ (44,776,632) $ (24,321,793) ============= ============ ============ =========== Loss per common share $ (2.70) $ (1.68) $ (1.10) $ (0.60) ======== ======= ======== ======== Average common and equivalent shares outstanding 40,540,539 39,915,020 40,540,539 40,464,356 ============ ============ ============ ===========
See notes to consolidated financial statements. CAI WIRELESS SYSTEMS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED) AND THE YEAR ENDED MARCH 31, 1997
Common Stock -------------------------- Accumulated Shares Amount Deficit Total --------- ---------- ----------- ------------ Balance at April 1, 1996 37,829,482 $257,701,130 $(65,090,206) $192,610,924 Senior preferred stock issuance costs reclassified from project costs - - (661,212) (661,212) Series A 8% redeemable convertible preferred stock converted into common 2,637,742 18,049,955 - 18,049,955 Value assigned to warrants exercised 73,315 18,329 (18,329) - Preferred stock dividends accrued - - (13,011,270) (13,011,270) Net loss - - (82,298,207) (82,298,207) ----------- ----------- ------------ ----------- BALANCE AT MARCH 31, 1997 40,540,539 275,769,414 (161,079,224) 114,690,190 PREFERRED STOCK DIVIDENDS ACCRUED - - (11,125,453) (11,125,453) NET LOSS - - (98,536,569) (98,536,569) ----------- ----------- ------------ ----------- Balance at December 31, 1997 40,540,539 $275,769,414 $(270,741,246) $ 5,028,168 =========== ============ ============= ============
See notes to consolidated financial statements. CAI WIRELESS SYSTEMS, INC. Consolidated Statements of Cash Flows (unaudited)
Nine Months Ended December 31, ---------------------------------------- 1997 1996 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (98,536,569) $ (57,493,239) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 26,152,839 24,729,986 Equity in losses of affiliates 23,118,008 13,000,000 Deferred income tax benefit - (13,500,000) Debt financing costs and discount amortization 8,263,013 1,417,857 Write-off of projects and other costs 559,287 - Gain on sale of assets (538,307) - Other 74,665 (23,143) Changes in assets and liabilities: Subscriber accounts receivable 117,119 246,794 Other assets (406,763) 314,458 Accounts payable and accrued expenses 12,605,498 9,646,300 ------------ ----------- Net cash used in operating activities (28,591,210) (21,660,987) ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of wireless channel rights (2,221,096) (4,642,709) Purchase of equipment (6,336,574) (28,886,102) Proceeds from the sale of equipment 178,759 497,023 Investment in TelQuest Satellite Services LLC (3,138,797) - Proceeds from sale of investments 15,354,855 13,844,342 Payments received from CS Wireless Systems, Inc. 3,529,689 363,900 Loans to related parties, net of collections (297,440) (600,000) ------------ ----------- Net cash provided by (used in) investing activities 7,069,396 (19,423,546) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from interim debt financing 20,793,979 - Repayment of debt (2,608,004) (43,139,640) Debt financing costs paid (4,965,643) - ------------ ----------- Net cash provided by (used in) financing activities 13,220,332 (43,139,640) ------------ ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (8,301,482) (84,224,173) Cash and cash equivalents, beginning of year 10,471,918 103,263,094 ------------ ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,170,436 $ 19,038,921 ============ =========== CASH PAYMENTS FROM THE DEBT SERVICE ESCROW ACCOUNT DURING THE PERIOD FOR INTEREST $ 18,038,893 $ 17,382,855 ============ ============
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 consolidated financial statements include the accounts of CAI Wireless Systems, Inc. and its wholly- owned subsidiaries (the "Company" or "CAI"). All intercompany transactions have been eliminated in consolidation. CAI's 50.7% investment in CS Wireless Systems, Inc. ("CS") at December 31, 1997, and 25% investment in TelQuest Satellite Services LLC ("TSS"; see Note 5) are accounted for on the equity method since CAI does not control day to day operations of either company. Current summarized financial information regarding CS is presented in Note 3. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of results for interim periods have been included. Certain items in the prior period financial statements have been reclassified to conform with the current period's presentation. Operating results for the quarter and nine months ended December 31, 1997 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 1998. The unaudited financial statements presented herein should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended March 31, 1997 which is on file with the Securities and Exchange Commission. GOING CONCERN CAI's recurring losses, restrictions on its ability to obtain additional financing, and substantial commitments raise significant doubt about the continuation of CAI as a going concern. For the last quarter of the fiscal year ending March 31, 1998, the Company is obligated to pay $2,500,000 for minimum license fees and lease payments, approximately $1,200,000 in remaining MMDS license auction fees, and to fund current operating costs. On a short-term basis, CAI has $45,000,000 of 13% Senior Secured Notes (the "Secured Notes") due on June 1, 1998. See Note 4 - Interim Debt Financing. On a long-term basis, CAI has substantial indebtedness which, beginning in fiscal year 1999, will include significant debt service requirements and preferred stock dividend payments. As of December 31, 1997, CAI had outstanding consolidated long-term debt of $311,600,000 and mandatorily redeemable preferred stock (including accrued dividends) totaling $98,946,000. The Company's business strategy has been to explore digital wireless cable services for its MMDS subscription television systems and alternative uses of its MMDS spectrum for a variety of applications, including data and voice transmission such as Internet access and telephony delivery services and to petition the Federal Communications Commission ("FCC") for the establishment of rules governing full two-way flexible use of the MMDS spectrum. In management's opinion, this strategy will help meet current and perceived future competition and, in relation to obtaining a new strategic partner, show the flexibility and increased value of the Company's MMDS spectrum, if such exploration and efforts at the FCC are successful. In connection with achieving these objectives, CAI is committed through additional open purchase orders as of February 13, 1998 to spend approximately $7,900,000, primarily for capital expenditures associated with additional development of the Boston digital transmission facilities. These commitments are to be funded, in part, by the Interim Debt Financing (see Note 4). CAI is continuing to work with its financial advisors to devise a comprehensive plan for meeting the Company's on-going working capital and other financial needs, and has engaged BT Alex. Brown Incorporated as its primary financial advisor. The Company projects that operating cash requirements will be approximately $7,500,000 for the three-month period ending March 31, 1998. Additionally, as of December 31, 1997, the Company had outstanding trade payables of approximately $4,500,000, exclusive of certain disputed amounts. CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company's operating plans, including digital video, voice and two-way data, Internet and intranet access services and testing, will require additional funding. The Company's ability to raise additional funds through secured loans and the issuance of certain equity is limited by the terms of the Indenture governing the Company's 12.25% Senior Notes due 2002, the terms of various outstanding securities and/or the terms of the Secured Notes. The Company continues to implement cost- saving measures while it reviews the alternatives that may be available to it, including without limitation, decreasing video operations, selling non-core assets and the implementation of various plans of financial restructuring. NOTE 2. LITIGATION SHAREHOLDERS' CLASS ACTION. During the year ended March 31, 1997, the Company was named in six class action lawsuits, each alleging various violations of the federal securities laws. These actions were consolidated into one lawsuit entitled IN RE CAI WIRELESS SYSTEMS, INC. SECURITIES LITIGATION (96-CV-1857) (the "Securities Lawsuit"), which is currently pending in the United States District Court for the Northern District of New York. The Securities Lawsuit is in its preliminary stages. The amended, consolidated complaint, which names the Company and certain officers and directors of CAI as defendants, alleges a variety of violations of the antifraud provisions of the federal securities laws by the aforementioned defendants. The defendants filed a motion to dismiss, which motion was heard by the Northern District of New York on October 17, 1997. While the motion is pending, all other deadlines affecting motions and discovery have been postponed. The Company and the individual defendants continue to contest the Securities Lawsuit vigorously and believe it is entirely without merit. Accordingly, management believes that this lawsuit will not have a material adverse effect on the Company's earnings, financial condition, or liquidity. OTHER LITIGATION. The Company is involved in various claims and legal actions arising in the normal course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's earnings, financial condition or liquidity. NOTE 3. INVESTMENTS IN CS WIRELESS SYSTEMS, INC. AND TELQUEST SATELLITE SERVICES LLC CS WIRELESS SYSTEMS, INC. The Company's percentage interest in CS increased from 47.7% to 50.7% at December 31, 1997 due primarily to the rescission of a previously recorded transaction wherein CAI would purchase the Portsmouth, NH wireless channel rights from Heartland Wireless Communications, Inc. ("Heartland") in exchange for approximately 314,000 shares of CS held by CAI. Additionally, the Company's investment in CS reflects an equity loss of $20,146,000 (based on CAI's pro-rata share of CS's net loss of $38,849,000 for the nine-month period ended September 30, 1997) along with $1,800,000 of amortization of the goodwill associated with this investment. Pursuant to the terms of the Participation Agreement dated as of December 12, 1995, as amended by Amendment No. 1 to the Participation Agreement dated as of February 22, 1996, among the Company, CS and Heartland, each of the Company and Heartland, as the case may be, is subject to a true-up adjustment, calculated in accordance with the provisions of the Participation Agreement, in the event that the number of channels available to CS in any market contributed by such party is less than 16. The true-up adjustment for any such channel deficiency may be satisfied by the deficient party by delivering to CS either (i) cash, (ii) a 5-year promissory note, (iii) shares of CS stock, or (iv) any combination of the foregoing. The Company has been notified by Heartland that it believes there is a potential channel deficiency arising out of the number of channels delivered by the Company in connection with its contribution of MMDS assets relating to the Charlotte, North Carolina market. The Company believes that it has delivered 13 of the 16 required channels, and expects to be able to deliver at least three additional channels in Charlotte, NC from applications currently pending at the FCC. Heartland has advised the Company that it believes that the Company has delivered only 6 channels relating to the Charlotte market. The Company disputes Heartland's position, and is in the process of responding to Heartland on this issue. CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3. INVESTMENTS IN CS AND TSS (CONTINUED) The following is an unaudited condensed consolidated balance sheet of CS derived from its Form 10-Q as of September 30, 1997:
ASSETS Cash and cash equivalents $ 83,453,000 Other current assets 6,602,000 Systems and equipment, net 42,837,000 Wireless channel rights, net 169,222,000 Goodwill, net of accumulated amortization 49,175,000 Net assets held for sale 4,609,000 Investment in and loans to equity affiliates 8,932,000 Debt issuance costs and other assets, net 10,924,000 ------------ Total Assets $375,754,000 ============ LIABILITIES AND EQUITY Accounts payable and accrued expenses $ 5,079,000 FCC Auction payable 5,206,000 Other liabilities 2,055,000 Debt 276,112,000 Deferred income taxes 1,357,000 Common stock and paid-in-capital 154,568,000 Treasury stock (40,000) Accumulated deficit (68,583,000) ------------ Total Liabilities and Equity $375,754,000 ============
The following are unaudited condensed consolidated statements of operations of CS derived from its September 30, 1997 Form 10-Q for the periods presented:
Quarter Ended Nine Months Ended SEPTEMBER 30, 1997 SEPTEMBER 30, 1997 ------------------ ------------------ Revenues $ 6,746,000 $ 20,246,000 ------------ ------------- Operating expenses: Systems operations 3,822,000 11,174,000 General and administrative 4,528,000 12,299,000 Depreciation and amortization 6,976,000 20,266,000 ------------ ------------- Total operating expenses 15,326,000 43,739,000 ------------ ------------- Operating loss (8,580,000) (23,493,000) Interest income 1,379,000 4,261,000 Interest expense (7,863,000) (23,952,000) Equity in losses of affiliates (385,000) (385,000) Other ( 7,000) 648,000 ------------ ------------ Loss before income tax benefit (15,456,000) (42,921,000) Income tax benefit 1,358,000 4,072,000 ------------ ------------ Net loss $(14,098,000) $(38,849,000) ============ ============
TELQUEST SATELLITE SERVICES LLC. The Company's investment in TSS reflects an equity loss of $1,137,000 based on CAI's pro-rata share of TSS's net loss of $4,549,000 from inception to December 31, 1997. TSS has negative net worth of $1,078,000 at December 31, 1997, inclusive of the receivables due from CAI and CS in connection with their investment in TSS totaling $1,679,000. CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4. INTERIM DEBT FINANCING FOOTHILL CAPITAL CREDIT FACILITY. On November 25, 1997, the Company repaid all amounts outstanding and owing to Foothill Capital Corporation and affiliates of Canyon Capital Management, L.P. (the "Interim Debt Lenders") The then-outstanding amount owed under the credit facility provided by the Interim Debt Lenders (the "F/C Credit Facility") was approximately $17,300,000, and was repaid out of the proceeds of the sale by CAI and certain subsidiaries of $25,000,000 principal amount of Secured Notes. See discussion below regarding sale and issuance of Secured Notes. The $17,300,000 paid to the Interim Debt Lenders on November 25, 1997 consisted of: $15,329,000 representing the principal amount of the loans outstanding under the F/C Credit Facility; a $1,575,000 fee; and $350,000 representing interest on the outstanding loans and fees. In connection with the early termination of the F/C Credit Facility, the Company recorded a third quarter charge of approximately $4,700,000, representing the costs associated with the F/C Credit Facility that the Company was originally amortizing over the two-year term of the F/C Credit Facility. This non-recurring charge is reflected as interest expense in the Consolidated Statement of Operations for the quarter and nine months ended December 31, 1997. During the quarter ended December 31, 1997 and before the F/C Credit Facility was repaid, the Company executed a series of continuing waiver agreements, which waived compliance by the Company with certain post-closing requirements, increased the interest rates payable on the obligations outstanding under the F/C Credit Facility, and imposed additional and/or modified existing covenants relating to various items, including sales of non-core assets, certain fundamental changes to the Company and the Company's ability to incur additional indebtedness. The two waivers executed during the quarter ended December 31, 1997 were in addition to a waiver agreement executed on September 25, 1997, and all of the waivers executed and delivered by the Company to the Interim Debt Lenders contained a general release of the Interim Debt Lenders. A final general release was required of and delivered by the Company in connection with receipt of the pay-off letter issued by the Interim Debt Lenders in connection with the repayment of all Company obligations under the F/C Credit Facility. 13% SENIOR SECURED NOTES. On November 25, 1997, the Company sold $25,000,000 of its Secured Notes to Merrill Lynch Global Allocation Fund, Inc. (the "Investor"). CAI used approximately $17,300,000 of the proceeds to repay all amounts outstanding under the F/C Credit Facility, and the remaining proceeds of approximately $7,300,000, net of expenses associated with this transaction, for working capital purposes and build-out of the Company's wireless cable business. On January 26, 1998, the Company issued and sold an additional $2,000,000 Secured Note to the Investor, and on February 17, 1998, the Company issued and sold an additional $18,000,000 of its Secured Notes in connection with the consummation of a series of transactions by the Company, the Investor and various affiliates of Bell Atlantic Corporation ("BANX"). See Note 8 - Subsequent Events - Termination of BANX Rights. The Secured Notes are short-term obligations of CAI, maturing on June 1, 1998, and were issued and sold pursuant to the terms of a Note Purchase Agreement between CAI and certain of its wholly-owned subsidiaries and the Investor (the "Note Purchase Agreement"). Interest at the rate of 13% per annum on the Secured Notes is payable at maturity. In addition to fees and expenses associated with the issuance and sale of the Secured Notes, CAI is required to pay a $720,000 commitment fee to the Investor, which is also due at maturity. As collateral for the Notes, CAI granted a blanket lien on all of its assets, including the stock of substantially all of its wholly-owned subsidiaries, as well as a pledge of its interests in CS and TSS. The Note Purchase Agreement contains covenants that are usual and customary for transactions of this type, including a series of negative covenants intended to preserve the value of the collateral pledged by CAI for the benefit of the Investor. CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5. SIGNIFICANT EVENTS TELQUEST SATELLITE SERVICES TSS is a joint venture between the Company, CS and TelQuest Communications, Inc., a company controlled by Mr. Jared E. Abbruzzese, Chairman and Chief Executive Officer of the Company, formed on August 4, 1997, for the purpose of developing and operating satellite systems providing digital services. In connection with the Company's $5,000,000 investment in TSS, the Company made a cash payment of $447,064 to TSS on December 1, 1997. The cash payment is the second of four quarterly installments that the Company is required to make to satisfy the $2,500,000 cash portion of its investment in TSS. As of December 31, 1997, the Company owed TSS a total of $894,128 to satisfy the remaining cash portion of the investment, which amount is payable in two equal installments of $447,064 on March 1, and June 1, 1998. The Company has also contributed a combination of equipment (made available to TSS under the terms of a five-year renewable lease at a nominal rental amount) and cash (in lieu of equipment) in an amount equal to $2,149,211 as part of the $2,500,000 equipment portion of the Company's $5,000,000 investment in TSS. On January 28, 1998 and February 6, 1998, CAI contributed $30,000 and $320,000, respectively, to TSS to complete CAI's equipment obligation. Cash paid by CAI to TSS and credited against the equipment portion of its investment is to be used by TSS for installation and other costs associated with equipment purchased by CAI and leased to TSS. In return for CAI's $5,000,000 investment in TSS, CAI received a 25% interest in TSS, which interest is subject to dilution upon the occurrence of certain events. NOTE 6. SUMMARY OF PERTINENT RIGHTS AND PRIVILEGES OF COMPANY SECURITIES STOCK CAPITALIZATION The stock capitalization is as follows:
Shares Authorized Shares Issued and CLASS OF STOCK AS OF 12/31/97 OUTSTANDING AS OF 12/31/97 - -------------- ----------------- ------------------------- Preferred Stock 14% Senior convertible preferred stock, par value $10,000 per share 15,000 7,000 -------- ------- Series Preferred Stock, no par value Series A 8% preferred stock, no par value 350,000 - Undesignated 4,650,000 - --------- ------- Total series preferred stock 5,000,000 - --------- ------- Voting preferred stock, no par value 2,000,000 - --------- ------- Total preferred stock 7,015,000 7,000 ========= ======= Common stock, no par value 100,000,000 40,540,539 =========== ==========
SECURITIES ISSUED ORIGINALLY TO BANX In March 1995 and in conjunction with the execution of the Business Relationship Agreement (the "BR Agreement") by the Company and BANX, CAI entered into a securities purchase agreement with BANX Partnership, another affiliate of Bell Atlantic and NYNEX (the "BANX Partnership"), pursuant to which (i) BANX Partnership purchased $30,000,000 of the Company's Term Notes due May 9, 2005 ("BANX Term Notes") and warrants (the "BANX Warrants") to purchase cumulative voting preferred stock, no par value (the "Voting Preferred Stock") on May 9, 1995 (the "Stage I Closing"), and (ii) CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6. SUMMARY OF COMPANY SECURITIES (CONTINUED) $70,000,000 of the Company's 14% senior convertible preferred stock, par value $10,000 per share ("Senior Preferred Stock") and additional BANX Warrants (together with the BANX Term Notes, Voting Preferred Stock and Senior Preferred Stock, the "BANX Securities") on September 29, 1995 (the "Stage II Closing"). Upon issuance of the BANX Securities in September 1995, the full conversion or exercise of the BANX Securities would have resulted in the BANX Partnership having to make an additional investment, at that time, in CAI of approximately $202,000,000 (subject to adjustment in accordance with the terms of the Modification Agreement (as defined below)), to increase its ownership interest in CAI, on a pro forma basis, to approximately 45%. On December 12, 1996, the Company and BANX reached an agreement (the "Modification Agreement") that modified certain terms of the BR Agreement and provided CAI or its designee with the right to acquire the BANX Securities. In connection with the Modification Agreement, the average per share exercise/conversion price of the BANX Securities was reduced from $8.19 to $5.31, on full conversion and exercise. This reduction resulted in BANX having to only make an additional investment in CAI of approximately $95,000,000 to acquire the approximately 45% ownership interest in CAI in the event BANX elected to convert or exercise the BANX Securities. The Modification Agreement was subsequently amended on April 29, 1997, pursuant to Amendment No.1 to the Modification Agreement (the "Modification Agreement Amendment"). The Modification Agreement Amendment represented the re-negotiation of an option granted to CAI to repurchase the $100,000,000 face amount of BANX securities held by BANX. The repurchase consideration was $40,000,000 in cash and 100,000 shares of CAI convertible junior preferred stock. The junior preferred stock would have been non-voting, carried no coupon and no maturity, and would have been convertible into 2.5 million shares of CAI Common Stock. The repurchase option was exercisable through February 28, 1998. These agreements, together with the BR Agreement, were terminated on February 17, 1998 and the BANX Securities were transferred by BANX to the Investor. See Note 8 - Subsequent Events - Termination of BANX Rights. A summary of the outstanding Senior Preferred Stock, Voting Preferred Stock and BANX Warrants follows: 14% SENIOR CONVERTIBLE PREFERRED STOCK. As part of the Stage II Closing, BANX purchased 7,000 shares of Senior Preferred Stock. The Senior Preferred Stock has a 14% cumulative dividend, payable quarterly (optionally before December 1, 1998 and mandatorily after December 1, 1998). The dividend rate was increased to 16% pursuant to an adjunct agreement with BANX regarding licensing issues. The terms of the Senior Preferred Stock require mandatory redemption at par plus any accrued dividends on September 29, 2005, absent any conversion. As of December 31, 1997, there were 7,000 shares of Senior Preferred Stock issued and outstanding. VOTING PREFERRED STOCK. The Senior Preferred Stock is convertible into Voting Preferred Stock (based on a formula prescribed in the terms of the Senior Preferred Stock) for a period of five years commencing on September 29, 1995. In turn, the Voting Preferred Stock is convertible into CAI Common Stock, initially at the rate of 100 shares of CAI Common Stock for one share of Voting Preferred Stock. The terms include an conversion feature wherein each outstanding share of Voting Preferred Stock shall automatically be converted into shares of CAI Common Stock based on enumerated conditions and/or events. Voting rights are based on the underlying shares of Common Stock per share of Voting Preferred Stock. Additionally, holders of the Voting Preferred Stock are entitled to receive dividends if, as, or when a dividend is declared on shares of CAI Common Stock and in an amount based on the underlying shares of CAI Common Stock per share of Voting Preferred Stock. In the event of liquidation or dissolution, Voting Preferred Stock is subject to the prior rights of the Senior Preferred Stock but ahead of the CAI Common Stock in an amount equal to the underlying shares of CAI Common Stock per share of Voting Preferred Stock. As of December 31, 1997, there were no shares of Voting Preferred Stock issued and outstanding. CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6. SUMMARY OF COMPANY SECURITIES (CONTINUED) THE BANX WARRANTS. The BANX Warrants entitle the holder thereof to purchase Voting Preferred Stock which and are exercisable at an aggregate price of approximately $95,000,000. In connection with the transactions consummated on February 17, 1998 and described more fully in Note 8 below, the Investor waived all conversion features of the foregoing securities, pending the exchange of such securities for a new subordinated note of the Company. OTHER SECURITIES ISSUED BY CAI COMMON STOCK. The Company's Common Stock is without par value and carries one vote per share. Holders of Company Common Stock are entitled to dividends if, as, or when declared out of funds legally available which consists of current or accumulated earnings. The Company currently has an accumulated deficit. In liquidation or dissolution, all preferred stock including accumulated dividends thereon must be satisfied before holders of Common Stock receive any distribution. As of December 31, 1997, there were 40,540,539 shares of Common Stock issued and outstanding. STOCK OPTION PLANS INCENTIVE AND NONQUALIFIED STOCK OPTION PLANS. The Company's 1995 Incentive Stock Plan (the "1995 Plan") provides for the grant of incentive stock options qualifying under Section 422 of the Internal Revenue Code ("ISO's"), non-qualified stock options ("NQSO's"), stock appreciation rights, performance shares and restricted stock or any combination of the foregoing, as the Compensation Committee of the Board of Directors (the "Committee") may determine. The 1995 Plan will expire on March 27, 2005. The number of shares available for stock option grants is 1,200,000 shares and the 1995 Plan is administered by the Committee. Vesting and the per share exercise price for stock options granted under the 1995 Plan, which will not be less than 100% of the fair market value per share of common stock on the date the option is granted, is determined by the Committee at the time of grant. There have been no options exercised under the 1995 Plan. As of December 31, 1997, there were options to purchase approximately 1,181,000 shares of Company common stock granted under the 1995 Plan. In November 1993, the Company adopted its 1993 Stock Option and Incentive Plan (the "1993 Plan"). Under the 1993 Plan, options to purchase an aggregate of not more than 1,000,000 shares of common stock may be granted, from time to time, to key employees (including officers), advisors and independent consultants to the Company or to any of its subsidiaries. Options granted to officers and employees may be designated as incentive stock options ISO's or NQSO's. Options granted to independent consultants and other nonemployees may only be designated NQSO's. The 1993 Plan is administered by the Committee. Vesting and the per share exercise price for stock options granted under this Plan, which will not be less than 100% of the fair market value per share of common stock on the date the option is granted, is determined by the Committee at the time of grant. There have been no options exercised under the 1993 Plan. As of December 31, 1997, there were options to purchase 997,500 shares of Company common stock granted under the 1993 Plan. Outside Directors' Option Plan. In October 1996, the Company adopted the 1996 Outside Directors' Stock Option Plan (the "1996 Directors' Plan"). Under the 1996 Directors' Plan, options to purchase an aggregate of not more than 45,000 shares of common stock will be granted from time to time to nonemployee directors. Each qualifying director shall be granted an option to purchase 7,500 shares at a price which will not be less than 100% of fair market value on the date of the grant. Such option shall vest: 25% on the date of grant, and 25% on each of the second, third, and fourth anniversaries of the grant. The options under the 1996 Directors' Plan are exercisable for a period of ten years, but not before an initial six-month period. As of March 31, 1997, the Company has granted options under this plan to purchase 30,000 shares of common stock at a weighted average price of $6.63 per share. As of December 31, 1997, there have been no options exercised under the 1996 Directors' Plan, and the CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6. SUMMARY OF COMPANY SECURITIES (CONTINUED) Company has not issued any additional options under the 1996 Directors' Plan during the nine months ended December 31, 1997. In October 1993, the Company adopted the 1993 Outside Directors' Option Plan (the "1993 Directors' Plan"). Under the 1993 Directors' Plan, options to purchase an aggregate of not more than 30,000 shares of common stock may be granted from time to time to nonemployee directors. These options will vest at the rate of 20% a year over five years, beginning one year after date of grant and are exercisable for a period of seven years. The exercise price for stock options granted under the 1993 Directors' Plan will not be less than 100% of the fair market value of the common stock on the grant date. As of March 31, 1997, the Company has granted outstanding options under this plan to purchase 8,334 shares of common stock at $11 per share. As of December 31, 1997, no options have been exercised under the 1993 Directors' Plan, and no additional options have been issued under the 1993 Directors' Plan during the nine months ended December 31, 1997. WARRANTS COMMON STOCK WARRANTS. The Company has issued and outstanding warrants to purchase 5,083,563 shares of Company Common Stock, which warrants were issued to various bridge lenders, and the Interim Debt Lenders in connection with various financings consummated by the Company since its inception. The common stock warrants do not include the warrants issued originally to BANX Partnership. The weighted-average exercise price for the non-BANX warrants, at December 31, 1997 was $3.84 per share. NOTE 7. RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 128 ("SFAS 128") - "Earnings Per Share." The Company has adopted SFAS 128 for the quarter and nine months ended December 31, 1997. Accordingly, the Company replaced the "primary" EPS requirements with a "basic" EPS computation based upon weighted-average shares outstanding. Due to the Company's net losses, only the basic loss per share amounts are reflected in the accompanying Statements of Operations. Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income", which was issued in June 1997 is effective for fiscal years beginning after December 15, 1997. SFAS 130 establishes standards for reporting and disclosure of comprehensive income and its components in a full set of general-purpose financial statements. The Company believes that it does not have a significant amount of comprehensive income (loss) as defined, if any. Accordingly, the Company believes that this statement will not have a material effect on CAI's future financial statement presentations. In June 1997, Statement of Financial Accounting Standards No. 131 "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131") was also issued. This pronouncement is effective for fiscal years beginning after December 15, 1997 and requires disclosures about operating segments and enterprise-wide disclosures about products and services, geographic areas and major customers. Effective April 1, 1998, the Company will comply with the requirements of SFAS 131 and make the necessary disclosures. CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8. SUBSEQUENT EVENTS NASDAQ DE-LISTING. On January 8, 1998, trading of the Company's common stock was removed from The Nasdaq National Market ("NNM") and listed for trading on the Nasdaq SmallCap Market{ SM}. The removal was caused by the Company's failure to meet the net tangible asset listing requirement imposed by Nasdaq upon NNM-listed companies. As a condition to listing on the Nasdaq SmallCap Market{ SM}, the Company was required to maintain compliance with a $1.00 per share bid price for an interim period. Effective January 13, 1998, as a result of failing to maintain the $1.00 per share bid price, CAI's common stock was de-listed from the Nasdaq SmallCap Market{ SM}. The common stock currently trades on the Electronic Bulletin Board system under the CAWS symbol. TERMINATION OF BANX RIGHTS. On February 17, 1998, the Company consummated a series of transactions, including the purchase by the Company of the remaining interest of BANX under the BR Agreement and the acquisition of BANX's approximately 9.9% equity interest in CS. Under the terms of the Termination and Purchase Agreement (the "Termination Agreement"), the Company issued $7,000,000 aggregate principal amount of its Secured Notes to BANX in consideration of the termination of the BR Agreement, Modification Agreement and Modification Agreement Amendment, and the transfer of 1,000,000 shares of CS common stock held by BANX. The parties exchanged general releases in connection with the transaction. The BR Agreement was originally entered into by the parties in March 1995 and provided Bell Atlantic the right to exercise options to utilize CAI's MMDS spectrum in certain of its major markets exclusively for Bell Atlantic video programming. Prior to its termination, none of those major markets had been optioned by BANX. Simultaneously with the closing of the Termination Agreement, the Company and the Investor amended the Note Purchase Agreement to increase the aggregate amount of Secured Notes issued and outstanding thereunder by an additional $18,000,000 to $45,000,000, which amount includes $25,000,000 of Secured Notes issued and sold to the Investor on November 25, 1997, a $2,000,000 Secured Note issued and sold to the Investor on January 26, 1998, $7,000,000 of Secured Notes issued by the Company to BANX in connection with the Termination Agreement and an additional $11,000,000 Secured Note issued by the Company and sold to the Investor on February 17, 1998. The proceeds of the additional Secured Note will be used for working capital and to meet certain other obligations of the Company into the first quarter of its fiscal year beginning April 1, 1998. All of the Secured Notes mature on June 1, 1998. As part of these transactions, the Investor advised CAI that it had completed the purchase from BANX of all of the BANX Securities representing BANX's initial $100,000,000 investment in CAI in 1995, as well as the Secured Notes issued by CAI to BANX in connection with the Termination Agreement. CAI and the Investor have entered into an agreement in principle on February 17, 1998, pursuant to which the Investor agreed to exchange all of the BANX Securities, together with accrued but unpaid interest and dividends thereon, for a $30,000,000 12% subordinated note due 2003, subject to prepayment at a discount of up to $27,000,000 prior to June 1, 1998 in the event that certain circumstances occur that result in the realization of a significant increase in the current market value of CAI's 12 1/4 % Senior Notes due 2002. The exchange is subject to certain conditions, including documentation satisfactory to the parties. Pending the exchange, the Investor has waived all conversion features contained in the BANX Securities. PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The statements contained in this Quarterly Report on Form 10-Q, including the exhibits hereto, relating to the Company's future operations may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Actual results of the Company may differ materially from those in the forward-looking statements and may be affected by a number of factors including the Company's ability to attract one or more new strategic partners and their willingness to enter into arrangements with CAI on a timely basis, the terms of such arrangements, the receipt of regulatory approvals for alternative uses of its MMDS spectrum, the success of CAI's trials in various of its markets, the commercial viability of any alternative use of MMDS spectrum, consumer acceptance of any new products offered or to be offered by CAI, subscriber equipment availability, practical success of CAI's engineered technology, tower space availability, absence of interference and the ability of the Company to redeploy or sell excess equipment, the assumptions, risks and uncertainties set forth below in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere herein, as well as other factors contained herein and in the Company's other securities filings. Furthermore, there can be no assurance that the financing obtained by the Company to date will enable it to meet its future cash needs. BUSINESS DEVELOPMENTS Boston Digital Project. The Company has committed significant funds and substantial engineering and regulatory efforts to the build-out of its digital MMDS system in Boston, Massachusetts. Initially, construction of the Boston system was undertaken in fulfillment of the Company's obligations under the Business Relationship Agreement with affiliates of Bell Atlantic Corporation and NYNEX Corporation (collectively, "BANX") for the provision of subscription video services by BANX using MMDS spectrum. When BANX abandoned its digital video plans, CAI continued to construct the Boston system. In its continuation of the construction, however, the Company sought to build into the system flexibility it believed was necessary to offer one-way, high-speed data services, as well as two-way MMDS services, such as two-way data and telephony services. The Company's Boston system is currently testing digital video, voice and data transmission services, which have been demonstrated to certain third parties that have expressed interest in the Company's technical capabilities. In connection with the build-out of the digital system in Boston, the Company has converted approximately 65% of the Instructional Television Fixed Service ("ITFS") receive sites in Boston enabling the receive sites to receive CAI's digital MMDS signal, as transmitted from its digital head-end and several repeater sites located in the Boston metropolitan area. The Company expects that the remaining Boston ITFS receive sites should be converted within the next 90 days. The technology and equipment deployed and being used in Boston for digital video and other uses was devised primarily by CAI's engineering staff, working in conjunction with various equipment vendors. Since the technology and equipment is relatively new, the Company and its principal vendors have had to reconfigure certain aspects of the technology and equipment. The Company has substantially eliminated many of the minor technical flaws it experienced in the incipient stages of developing and testing the Boston digital video technology, and is working with vendors to improve the technology and prototype equipment deployed in Boston for video and alternative uses such as two-way data and telephony. The Company originally indicated that it would launch a digital subscription video product in Boston during the second half of 1997. The video launch was not only viewed by the Company as important as a means of attracting a strategic investor, but also was required to meet certain covenants imposed by the F/C Credit Facility (defined below). (The covenants imposed upon the Company in connection with the issuance of the Secured Notes (defined below) do not include a digital video requirement in Boston or any other CAI market.) The launch of a commercial digital subscription video product in Boston has been delayed due to three principal factors: the unexpected delays associated with equipment, including customer premises equipment of sufficient quality to support a commercial launch of a digital subscription video product; the Company's limited financial resources, and the absence of a strategic partner willing to utilize the digital MMDS system to the fullest capacity. The Company has made significant progress, in conjunction with its primary vendors, in improving the quality of the digital video product being tested in Boston. The customer premises and other equipment has been reconfigured in some instances in an effort to eliminate many of the technical flaws that were associated with the early versions of this equipment. At this time, however, the Company has no definitive plans to launch a full-scale commercial digital subscription video service in its Boston market, and is instead contemplating limited roll-out of a digital subscription video product once all of the technical flaws experienced by the Company with the equipment have been eliminated to the Company's satisfaction. The Company is fully committed to ensuring that its ITFS licenseholders in Boston can serve their respective receive sites with such licenseholders' digital video programming, a project that the Company believes is substantially completed in Boston The Company believes, however, that its best position in connection with discussions it is having or contemplates having with potential strategic partners, and in light of its limited financial resources, is to delay the full-scale launch of a commercial video service for the immediate future. The Company is pursuing a one-way, high-speed Internet access service on a wholesale basis in its Boston, Rochester and New York City markets. The Company's data transport delivery service currently utilizes a wireless downstream transmitted over CAI's MMDS system and a telephone return path. Acting through its wholly-owned subsidiary CAI Wireless Internet, Inc., the Company will begin to offer bandwidth to Internet Service Providers (ISPs) in the three markets in the first quarter of 1998. By providing transport services to ISPs, the Company believes that it will be able to eliminate a significant amount of capital expenditure associated with providing retail data delivery services. In connection with the Company's wholesale Internet strategy, it has curtailed its efforts with respect to previously-announced commercial trials of its one-way Internet access service in Rochester, New York City and Boston, and is focusing its efforts on the wholesale strategy. TELQUEST SATELLITE SERVICES. TelQuest Satellite Services LLC ("TSS") is a joint venture between the Company, CS Wireless Systems, Inc. ("CS") and TelQuest Communications, Inc., a company controlled by Mr. Jared E. Abbruzzese, Chairman and Chief Executive Officer of the Company, formed on August 4, 1997 for the purpose of developing and operating satellite systems providing digital services. In connection with the Company's $5,000,000 investment in TSS, the Company made a cash payment of $447,064 to TSS on December 1, 1997. The cash payment is the second of four quarterly installments that the Company is required to make to satisfy the $2,500,000 cash portion of its investment in TSS. As of December 31, 1997, the Company owed TSS a total of $894,128 to satisfy the remaining cash portion of the investment, which amount is payable in two equal installments of $447,064 on March 1, and June 1, 1998. The Company has also contributed a combination of equipment (made available to TSS under the terms of a five-year renewable lease at a nominal rental amount) and cash (in lieu of equipment) in an amount equal to $2,149,211 as part of the $2,500,000 equipment portion of the Company's $5,000,000 investment in TSS. On January 28, 1998 and February 6, 1998, CAI contributed an additional $30,000 and $320,000, respectively, to TSS to complete its equipment obligation. Cash paid by CAI to TSS and credited against the equipment portion of its investment is to be used by TSS for installation and other costs associated with equipment purchased by CAI and leased to TSS. In return for CAI's $5,000,000 investment in TSS, CAI received a 25% interest in TSS, which interest is subject to dilution upon the occurrence of certain events. CAI has designated its Boston market as the first of the Company's market to receive TSS digital video programming. TSS is currently broadcasting approximately 40 channels of pre-digitized video programming, which programming is being received at the Company's head-end located in downtown Boston without significant technical flaws. The Company is currently using the TSS programming in Boston to test the digital MMDS delivery platform and the customer premises equipment to be used for a commercial subscription video product. The Company continues to believe that the affiliation agreement it has with TSS is the most cost- efficient means of accessing pre-digitized video programming for use at its transmission facilities. A migration from the C-band satellite capacity that TSS currently is transmitting to the contemplated Ku-band satellite capacity will provide the Company with the opportunity to expand its video offerings to include a direct-to-home product as a supplement to any MMDS-based video delivery system for those potential subscribers that are not capable of receiving the MMDS signal. There can be no assurance, however, that TSS will be able to migrate from C-band satellite capacity to Ku-band satellite capacity, or that the Company will be able to expand its video offerings beyond its current subscription video product. NASDAQ DE-LISTING. On January 8, 1998, trading of the Company's common stock was removed from The Nasdaq National Market ("NNM") and listed for trading on the Nasdaq SmallCap Market{ SM}. The removal was caused by the Company's failure to meet the net tangible asset listing requirement imposed by Nasdaq upon NNM-listed companies. As a condition to listing on the Nasdaq SmallCap Market{ SM}, the Company was required to maintain compliance with a $1.00 per share bid price for an interim period. Effective January 13, 1998, as a result of failing to maintain the $1.00 per share bid price, CAI's common stock was de-listed from the Nasdaq SmallCap Market{ SM}. The common stock currently trades on the Electronic Bulletin Board system under the CAWS symbol. CS WIRELESS TRUE-UP. Pursuant to the terms of the Participation Agreement dated as of December 12, 1995, as amended by Amendment No. 1 to the Participation Agreement dated as of February 22, 1996, among the Company, CS and Heartland Wireless Communications, Inc. ("Heartland"), each of the Company and Heartland, as the case may be, is subject to a true-up adjustment, calculated in accordance with the provisions of the Participation Agreement, in the event that the number of channels available to CS in any market contributed by a party is less than 16. The true- up adjustment for any such channel deficiency may be satisfied by the deficient party by delivering to CS either (i) cash, (ii) a 5-year promissory note, (iii) shares of CS stock, or (iv) any combination of the foregoing. The Company has been notified by Heartland that it believes there is a potential channel deficiency arising out of the number of channels delivered by the Company in connection with its contribution of MMDS assets relating to the Charlotte, North Carolina market. The Company believes that it has delivered 13 of the 16 required channels, and expects to be able to deliver at least three additional channels in Charlotte, NC from applications currently pending at the FCC. Heartland has advised the Company that it believes that the Company has delivered only 6 channels relating to the Charlotte market. The Company disputes Heartland's position, and is in the process of responding to Heartland on this issue. TERMINATION OF BANX RIGHTS. On February 17, 1998, the Company consummated a series of transactions, including the purchase by the Company of the remaining interest of BANX under the BR Agreement and the acquisition of BANX's approximately 9.9% equity interest in CS. Under the terms of the Termination and Purchase Agreement (the "Termination Agreement"), the Company issued $7,000,000 aggregate principal amount of its Secured Notes (defined below) to BANX in connection with the closing of the Termination Agreement. The parties exchanged general releases in connection with the transaction, and terminated the Modification Agreement dated December 12, 1996 by and among CAI and BANX and Amendment No. 1 to Modification Agreement dated April 29, 1997. The BR Agreement was originally entered into by the parties in March 1995 and provided Bell Atlantic the right to exercise options to utilize CAI's MMDS spectrum in certain of its major markets exclusively for Bell Atlantic video programming. Prior to its termination, none of those major markets had been optioned by BANX. Following the consummation of the foregoing transaction and the transactions discussed below in the section entitled, "Liquidity and Capital Resources - Interim Debt Financing - - 13% Senior Secured Notes," BANX ceased to have any interest in the Company. See "Liquidity and Capital Resources - Interim Debt Financing - 13% Senior Secured Notes" below. LIQUIDITY AND CAPITAL RESOURCES NINE MONTHS ENDED DECEMBER 31, 1997 For the nine months ended December 31, 1997, cash and cash equivalents decreased by $8,301,000. Operating activities utilized $28,591,000 of cash, primarily to fund the Company's net losses of $98,537,000, reduced for non- cash expenditures including depreciation and amortization of $26,153,000, equity losses for CS and TSS totaling $23,118,000, and the increase in payables and accruals of $12,605,000 (primarily interest on the 12.25% Senior Notes). Cash provided from financing activities primarily reflects the issuance of $25,000,000 of principal amount of Secured Notes and the use of the proceeds thereof to repay the approximately $17,300,000 outstanding under the prior credit facility with Foothill Capital Corporation and affiliates (see Interim Debt Financing below). The remaining funds, net of issuance fees, are being used by the Company for general operating requirements. The Company's capital expenditures during the nine months ended December 31, 1997 included the purchase of $6,337,000 in equipment, primarily for the Boston digital project, and to acquire $2,221,000 in wireless channel rights. INTERIM DEBT FINANCING Foothill Capital Credit Facility. On November 25, 1997, the Company repaid all amounts outstanding and owing to Foothill Capital Corporation and affiliates of Canyon Capital Management, L.P. (the "Interim Debt Lenders") The then-outstanding amount owed under the credit facility provided by the Interim Debt Lenders (the "F/C Credit Facility") was approximately $17,300,000, and was repaid out of the proceeds of the sale by CAI and certain subsidiaries of $25,000,000 principal amount of Secured Notes. See discussion below regarding sale and issuance of Secured Notes. The $17,300,000 paid to the Interim Debt Lenders on November 25, 1997 consisted of: $15,329,000 representing the principal amount of the loans outstanding under the F/C Credit Facility; a $1,575,000 fee; and $350,000 representing interest on the outstanding loans and fees. In connection with the early termination of the F/C Credit Facility, the Company recorded a third quarter charge of approximately $4,700,000, representing the costs associated with the F/C Credit Facility that the Company was originally amortizing over the two-year term of the F/C Credit Facility. This non-recurring charge is reflected as interest expense in the Consolidated Statement of Operations for the quarter and nine months ended December 31, 1997. During the quarter ended December 31, 1997 and before the F/C Credit Facility was repaid, the Company executed a series of continuing waiver agreements, which waived compliance by the Company with certain post-closing requirements, increased the interest rates payable on the obligations outstanding under the F/C Credit Facility, and imposed additional and/or modified existing covenants relating to various items, including sales of non-core assets, certain fundamental changes to the Company and the Company's ability to incur additional indebtedness. The two waivers executed during the quarter ended December 31, 1997 were in addition to a waiver agreement executed on September 25, 1997, and all of the waivers executed and delivered by the Company to the Interim Debt Lenders contained a general release of the Interim Debt Lenders. A final general release was required of and delivered by the Company in connection with receipt of the pay-off letter issued by the Interim Debt Lenders in connection with the repayment of all Company obligations under the F/C Credit Facility. 13% SENIOR SECURED NOTES. On November 25, 1997, the Company issued and sold $25,000,000 of its 13% Senior Secured Notes due June 1, 1998 (the "Secured Notes") to Merrill Lynch Global Allocation Fund, Inc. (the "Investor"). CAI used approximately $17,300,000 of the proceeds to repay all amounts outstanding under the F/C Credit Facility, and the remaining proceeds of approximately $7,300,000, net of expenses associated with this transaction, for working capital purposes and build- out of the Company's wireless cable business. On January 26, 1998, the Company issued and sold an additional $2,000,000 Secured Note to the Investor, and on February 17, 1998, the Company issued and sold an additional $18,000,000 of Secured Notes in connection with the consummation of a series of transactions by the Company, the Investor and BANX. See "Business Developments - Termination of BANX Rights" above. The Secured Notes are short-term obligations of CAI, maturing on June 1, 1998, and were issued and sold pursuant to the terms of a Note Purchase Agreement between CAI and certain of its wholly-owned subsidiaries and the Investor (the "Note Purchase Agreement"). Interest at the rate of 13% per annum on the Secured Notes is payable at maturity. In addition to fees and expenses associated with the issuance and sale of the Secured Notes, CAI is required to pay a $720,000 commitment fee to the Investor, which is also due at maturity. As collateral for the Notes, CAI granted a blanket lien on all of its assets, including the stock of substantially all of its wholly-owned subsidiaries, as well as a pledge of its interests in CS and TSS. The Note Purchase Agreement contains covenants that are usual and customary for transactions of this type, including a series of negative covenants intended to preserve the value of the collateral pledged by CAI for the benefit of the Investor. Simultaneously with the closing of the Termination Agreement, the Company and the Investor amended the Note Purchase Agreement to increase the aggregate amount of Secured Notes issued and outstanding thereunder by an additional $18,000,000 to $45,000,000, which amount includes $25,000,000 of Secured Notes issued and sold to the Investor on November 25, 1997, the $2,000,000 Secured Note issued and sold to the Investor on January 26, 1998, $7,000,000 of Secured Notes issued by the Company to BANX in connection with the Termination Agreement and an additional $11,000,000 Secured Note issued by the Company and sold to the Investor on February 17, 1998. The proceeds of the additional Secured Note will be used for working capital and to meet certain other obligations of the Company into the first quarter of its fiscal year beginning April 1, 1998. All of the Secured Notes mature on June 1, 1998. As part of these transactions, the Investor advised CAI that it had completed the purchase from BANX of all of the CAI securities issued to BANX in connection with BANX's initial $100,000,000 investment in CAI in 1995, including $30,000,000 of term notes, $70,000,000 of senior preferred stock and warrants to purchase voting preferred stock of CAI (the "BANX Securities"), as well as the Secured Notes issued by CAI to BANX in connection with the Termination Agreement. CAI and the Investor have entered into an agreement in principle on February 17, 1998, pursuant to which the Investor agreed to exchange all of the BANX Securities, together with accrued but unpaid interest and dividends thereon, for a $30,000,000 12% subordinated note due 2003, subject to prepayment at a discount of up to $27,000,000 prior to June 1, 1998 in the event that certain circumstances occur that result in the realization of a significant increase in the current market value of CAI's 12 1/4 % Senior Notes due 2002. The exchange is subject to certain conditions, including documentation satisfactory to the parties. Pending the exchange, the Investor has waived all conversion features contained in the BANX Securities. GOING CONCERN CAI's recurring losses, restrictions on its ability to obtain additional financing, and substantial commitments raise significant doubt about the continuation of CAI as a going concern. For the last quarter of the fiscal year ending March 31, 1998, the Company is obligated to pay $2,500,000 for minimum license fees and lease payments, approximately $1,200,000 in remaining MMDS license auction fees, and to fund current operating costs. On a short-term basis, CAI has $45,000,000 of Secured Notes due on June 1, 1998. See "Interim Debt Financing" above. On a long-term basis, CAI has substantial indebtedness which, beginning in fiscal year 1999, will include significant debt service requirements and preferred stock dividend payments. As of December 31, 1997, CAI had outstanding consolidated long-term debt of $311,600,000 and mandatorily redeemable preferred stock (including accrued dividends) totaling $98,946,000. The Company's business strategy has been to explore digital wireless cable services for its MMDS subscription television systems and alternative uses of its MMDS spectrum for a variety of applications, including data and voice transmission such as Internet access and telephony delivery services and to petition the Federal Communications Commission ("FCC") for the establishment of rules governing full two-way flexible use of the MMDS spectrum. In management's opinion, this strategy will help meet current and perceived future competition and, in relation to obtaining a new strategic partner, show the flexibility and increased value of the Company's MMDS spectrum, if such exploration and efforts at the FCC are successful. In connection with achieving these objectives, CAI is committed through additional open purchase orders as of January 30, 1998 to spend approximately $7,900,000, primarily for capital expenditures associated with additional development of the Boston digital transmission facilities. These commitments are to be funded, in part, by the Interim Debt Financing. CAI is continuing to work with its financial advisors to devise a comprehensive plan for meeting the Company's on-going working capital and other financial needs, and has engaged BT Alex. Brown Incorporated as its primary financial advisor. The Company projects that operating cash requirements will be approximately $7,500,000 for the three-month period ending March 31, 1998. Additionally, as of February 13, 1998, the Company had outstanding trade payables of approximately $4,500,000, exclusive of certain disputed amounts. The Company's operating plans, including digital video, voice and two-way data, Internet and intranet access services and testing, will require additional funding. The Company's ability to raise additional funds through secured loans and the issuance of certain equity is limited by the terms of the Indenture governing the Company's 12.25% Senior Notes due 2002, the terms of various outstanding securities and/or the terms of the Secured Notes. The Company continues to implement cost- saving measures while it reviews the alternatives that may be available to it, including without limitation, decreasing video operations, selling non-core assets and the implementation of various plans of financial restructuring. RESULTS OF OPERATIONS DECEMBER 31, 1997 COMPARED TO DECEMBER 31, 1996 The Company's strategy is not to pursue analog-based television subscriber growth while it evaluates its business opportunities in addition to subscription television including high-speed Internet and Intranet access, as well as digital video and telephony services. The policy has had a negative impact on the Company's subscription revenues. As of December 31, 1997, the Company's subscriber base had decreased by approximately 19,500 to 57,500 subscribers from approximately 77,000 at December 31, 1996. Consequently, subscriber revenues have decreased $2,659,000 and $5,760,000 for the quarter and nine months ended December 31, 1997, compared to the corresponding periods last year. Operating expenses were approximately $60,242,000 and $60,734,000 for the nine months and $22,292,000 and $20,756,000 for the quarters ended December 31, 1997 and 1996, respectively. Programming costs did not decline in proportion to the revenue decline due to minimum provisions provided by certain of the programming agreements. The approximately $500,000 reduction in operating expenses for the nine months of 1997 versus 1996 reflects lower licensing and marketing costs which were in line with the decline in subscribers, offset by an increase in general and administrative expenses of $2,067,000 consisting of financial and corporate restructuring costs, attorneys fees in the class action lawsuit, and various FCC filings. Interest expense was $40,129,000 and $30,317,000 for the nine months ended December 31, 1997 and 1996, respectively, and was $17,199,000 and $10,012,000 for the quarter ended December 31, 1997 and 1996, respectively, and reflects primarily the interest on the $275,000,000 of 12.25% Senior Notes due 2002 and the $30,000,000 of Term Notes issued to BANX. The increase in interest expense for the quarter and nine months ended December 31, 1997 consists of interest incurred on the F/C Credit Facility and Secured Notes, amortization of the financing fees associated with those facilities, and the $4,700,000 non- recurring charge related to the unamortized costs arising from the termination of the F/C Credit Facility. The decrease in CAI's investment in CS reflects primarily the Company's 50.7% pro rata share of the $38,849,000 net loss reported by CS for the nine months ended September 30, 1997, along with $1,800,000 of amortization of the goodwill associated with this investment compared to an aggregate loss of $13,000,000 for the same period last year. The decrease in CAI's investment in TSS reflects primarily the Company's 25% pro-rata share of the $4,549,000 loss reported by TSS since its inception to December 31, 1997. . Other income, comprised primarily of interest income, for the nine months ended December 31, 1997 was $2,974,000 compared to $5,319,000 for the comparable period last year and was $1,351,000 and $1,203,000 for the quarters ended December 31, 1997 and 1996 respectively. Current period interest income on investments declined due to the use of cash in the escrow account for semi-annual interest payments on the Senior Notes totaling approximately $33,700,000 during the prior twelve-month period in addition to usage of the Company's unrestricted accounts for operational requirements and capital expenditures. There are funds available for two remaining semi-annual interest payments in the debt service escrow account. The decline in interest income was partially offset by a $538,000 gain from the sale of certain assets. The Company recorded an income tax benefit of $4,500,000 for the first, second and third quarter of 1996 to offset existing deferred tax liabilities. There is no tax benefit for the current period since there were no available deferred tax liabilities and it is more likely than not that any benefit recorded on the Company's current losses would not be realized in the foreseeable future. RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 128 ("SFAS 128") - "Earnings Per Share." The Company has adopted SFAS 128 for the quarter and nine months ended December 31, 1997. Accordingly, the Company replaced the "primary" EPS requirements with a "basic" EPS computation based upon weighted-average shares outstanding. Due to the Company's net losses, only the basic loss per share amounts are reflected in the accompanying Statements of Operations. Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income", which was issued in June 1997 is effective for fiscal years beginning after December 15, 1997. SFAS 130 establishes standards for reporting and disclosure of comprehensive income and its components in a full set of general-purpose financial statements. The Company believes that it does not have a significant amount of comprehensive income (loss) as defined, if any. Accordingly, the Company believes that this statement will not have a material effect on CAI's future financial statement presentations. In June 1997, Statement of Financial Accounting Standards No. 131 "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131") was also issued. This pronouncement is effective for fiscal years beginning after December 15, 1997 and requires disclosures about operating segments and enterprise-wide disclosures about products and services, geographic areas and major customers. Effective April 1, 1998, the Company will comply with the requirements of SFAS 131 and make the necessary disclosures. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Reference is made to Note 2 of Notes to Consolidated Financial Statements in Part I, Item 1 of this filing. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a) EXHIBITS. The following exhibits are filed herewith or incorporated by reference as indicated:
Incorporation by Reference Page REFERENCE EXHIBIT NO. DESCRIPTION (SEE LEGEND) 3.1 Amended and Restated Certificate of Incorporation [1] Exhibit 3.1 of CAI 3.2 Amended and Restated Bylaws of CAI [1] Exhibit 3.2 4.1 Note Purchase Agreement by and among registrant, certain of its subsidiaries and the purchaser named therein 11.1 Schedule Regarding Computation of Loss Per Common Share for the Quarter Ended December 31, 1997 and 1996 11.2 Schedule Regarding Computation of Loss Per Common Share for the Nine Months Ended December 31, 1997 and 1996 27. Financial Data Schedule 99.1 Press Release - CAI Wireless Systems, Inc. Issues Additional $2 Million in 13% Senior Secured Notes 99.2 Press Release - CAI Wireless Systems, Inc. Buys Out Remaining Bell Atlantic Hold on MMDS Spectrum
LEGEND [1] Incorporated by reference to the exhibits to the Quarterly Report on Form 10-Q for 9/30/95. Filed herewith. b) REPORTS ON FORM 8-K. (1) Form 8-K dated November 25, 1997 was filed December 29, 1997, regarding the following items under Item 5, Other Events: FINANCING MATTERS - CAI sold $25,000,000 of its 13% Senior Secured Notes to an existing investor and used approximately $17,300,000 to payoff the existing credit facility. STRATEGIC PARTNER UPDATE - CAI has focused its recent efforts on two telecommunications companies, both of which are currently performing various reviews of the Company and its spectrum. OPERATIONS - business strategy update. BANX UPDATE - The Company made the election to preserve its right to repurchase the BANX securities. NASDAQ NOTIFICATION - The Company was notified that its common stock no longer qualifies for listing on the NASDAQ National Market and the Company could apply for listing on the NASDAQ SmallCap Market. CHANGES TO CORPORATE STRUCTURE - The Company was required to create a number of wholly-owned direct and indirect subsidiaries to hold certain assets in connection with the F/C Credit Facility. (2) Form 8-K dated January 7, 1998 was filed January 22, 1998, regarding the following items under Item 5, Other Events: (A) Excerpts from a conference call for financial analysts on January 14, 1998 concerning the full two-way use of MMDS Spectrum and certain other Company matters. (B) The following news releases were issued: (i) CAI Wireless Systems, Inc. Common Stock to be listed on the Nasdaq SmallCap Market dated January 7,1998. (ii) CAI Wireless Systems, Inc. Common Stock to be delisted on the Nasdaq SmallCap Market dated January 12, 1998. 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 20, 1998 JARED E. ABBRUZZESE and Director (Principal Executive Officer) /S/ JAMES P. ASHMAN Executive VicePresident, Chief February 20, 1998 JAMES P. ASHMAN Financial Officer and Director (Principal Financial Officer) /S/ ARTHUR J. MILLER VicePresident and Controller February 20, 1998 ARTHUR J. MILLER (Principal Accounting Officer)
EX-1 2 EXHIBIT 4.1 CAI WIRELESS SYSTEMS, INC. 18 CORPORATE WOODS BOULEVARD ALBANY, NEW YORK 12211 13.00% Senior Secured Notes due February 20, 1998 As of November 24, 1997 MERRILL LYNCH GLOBAL ALLOCATION FUND, INC. Ladies and Gentlemen: CAI WIRELESS SYSTEMS, INC., a Connecticut corporation (the "COMPANY") and the SUBSIDIARIES of the Company listed on the attached Schedule 1.1 (the "SUBSIDIARY OBLIGORS"; and together with the Company, the "OBLIGORS"), agree with you as follows: 1. AUTHORIZATION OF NOTES. The Obligors will authorize the issue and sale of $25,000,000 aggregate principal amount of their 13.00% Senior Secured Notes due February 20, 1998 (together with the Notes delivered pursuant to Section 2 of this Agreement and any such Notes issued in substitution or exchange therefor pursuant to Section 12 of this Agreement, the "NOTES"). Each of the Notes shall be in substantially the form of Exhibit A attached hereto, with such amendments, supplements and other modifications thereto, if any, as shall be approved from time to time by you and the Obligors. Capitalized terms used in this Agreement shall have the meanings specified in Schedule I attached hereto; and references to a "Schedule" or an "Exhibit" are, unless otherwise specified herein, to a Schedule or an Exhibit attached to this Agreement. 2. SALE AND PURCHASE OF NOTES. The Obligors will issue and sell to you and, subject to the terms and conditions of this Agreement, you will purchase from the Obligors, at the Closing provided for in Section 3, Notes in the aggregate principal amount of $25,000,000. 3. CLOSING. The sale and purchase of the Notes to be purchased by you shall occur at the offices of Shearman & Sterling, 599 Lexington Avenue, New York, New York 10022, at 11:30 A.M. (New York City time), at a closing (the "CLOSING") on November 24, 1997 or on such other Business Day thereafter on or prior to November 26, 1997 as may be agreed upon among the Obligors and you (the "CLOSING DATE"). At the Closing, the Obligors will deliver to you the Notes to be purchased by you in the form of a single Note (or such greater number of Notes in denominations of at least $1,000,000 or integral multiples of $100,000 in excess thereof as you may request) dated the Closing Date and registered in your name (or in the name of your nominee), against delivery by you to the Company or its order of immediately available funds in the amount of the aggregate purchase price therefor by wire transfer of immediately available funds for the account of the Company to Fleet Bank, N.A., Account No. 0001562960. If at the Closing the Obligors shall fail to tender such Notes to you as provided above in this Section 3 or any of the conditions specified in Section 4 shall not have been fulfilled to your satisfaction, you shall, at your election, be relieved of all further obligations under this Agreement, without hereby waiving any rights you may have by reason of such failure or such nonfulfillment. 4. CONDITIONS TO CLOSING. Your obligation to purchase and pay for the Notes to be sold to you at the Closing is subject to the fulfillment to your satisfaction, prior to or at the Closing, of the following conditions: 4.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties of each of the Obligors contained in this Agreement and in each of the other Note Documents shall be complete and correct when made and at the time of the Closing, before and after giving effect to the issue and sale of the Notes and to the application of the proceeds therefrom as contemplated by Section 5.14. 4.2. PERFORMANCE; NO DEFAULT. Each of the Obligors shall have performed and complied with all agreements and conditions contained in this Agreement and the other Note Documents required to be performed or complied with by it prior to or at the Closing and, after giving effect to the issue and sale of the Notes and to the application of the proceeds therefrom as contemplated by Section 5.14, no Default or Event of Default shall have occurred and be continuing. 4.3. DOCUMENTS REQUIRED. You shall have received the following documents, each dated as of the Closing Date (except as otherwise specified below) and in the form of the respective Exhibit attached hereto, if any, or otherwise in form and substance satisfactory to you: (a) SECURITY AGREEMENT. A security agreement, in substantially the form of Exhibit B attached hereto (as amended, supplemented or otherwise modified hereafter from time to time in accordance with the terms hereof and thereof, the "SECURITY AGREEMENT"), duly executed by the Company together with: (i) certificates representing the Pledged Shares referred to therein accompanied by undated stock powers executed in blank and instruments evidencing the Pledged Debt referred to therein indorsed in blank, (ii) acknowledgment copies or stamped receipt copies of proper financing statements, duly filed on or before the Closing Date under the Uniform Commercial Code of the States of Connecticut, New York, Pennsylvania and Virginia, covering the Collateral described in the Security Agreement, (iii) completed requests for information, dated on or before the Closing Date, listing the financing statements referred to in clause (ii) above and all other effective financing statements filed in the jurisdictions referred to in clause (ii) above that name the Company or any other Obligor as debtor, together with copies of such other financing statements, (iv) evidence of the completion of all other recordings and filings of or with respect to the Security Agreement that you may deem necessary or desirable in order to perfect and protect the Liens created thereby, (v) evidence of the insurance required by the terms of the Security Agreement, (vi) copies of the Assigned Agreements referred to in the Security Agreement, together with a consent to such assignment, in substantially the form of Exhibit B to the Security Agreement, duly executed by each party to such Assigned Agreements other than the Company, (vii) the Blocked Account Letters referred to in the Security Agreement, duly executed by each Blocked Account Bank referred to in the Security Agreement, and (viii) evidence that all other action that you may deem necessary or desirable in order to perfect and protect the first priority liens and security interests created under the Security Agreement has been taken. (b) CORPORATE AND SIMILAR DOCUMENTATION. (i) A copy of the charter of the Company and each of its Subsidiaries and each amendment thereto, certified (as of a date reasonably near the Closing Date) by the Secretary of State of the jurisdiction of this incorporation as being a true and correct copy thereof. (ii) A copy of a certificate of the Secretary of State of the jurisdiction of its incorporation, dated reasonably near the Closing Date, listing the charter of the Company and each of its Subsidiaries and each amendment thereto on file in his office and certifying that (A) such amendments are the only amendments to the Company's or such Subsidiary's charter on file in his office, (B) the Company and each of its Subsidiaries have paid all franchise taxes to the date of such certificate and the Company and each of its Subsidiaries are duly incorporated and in good standing under the laws of the State of the jurisdiction of its incorporation. (iii) A copy of a certificate dated reasonably near the Closing Date of the Secretary of State, of each jurisdiction in which the Company or any Subsidiary is qualified as a foreign corporation, stating that the Company or such Subsidiary is duly qualified and in good standing as a foreign corporation in such State and have filed all annual reports required to be filed to the date of such certificate. (c) SECRETARY'S CERTIFICATE. A certificate from the secretary or an assistant secretary (or a person performing similar functions) of each of the Obligors certifying: (i) copies of the resolutions of the board of directors (or persons performing similar functions) of such Obligor approving this Agreement, the Notes and each of the other Note Documents to which it is or is to be a party, and of all documents evidencing other necessary corporate or other necessary action and governmental approvals, if any, with respect thereto, (ii) the names and true signatures of the officers of such Obligor authorized to sign this Agreement, the Notes and each of the other Note Documents to which it is or is to be a party and the other agreements, instruments and other documents to be delivered hereunder and thereunder, and (iii) such other matters relating to the existence and good standing of such Obligor, the corporate and other necessary authority for, and the validity of, each of the Note Documents to which it is or is to be a party and any other matters relevant thereto. (d) OFFICER'S CERTIFICATE. An Officer's Certificate certifying that the conditions specified in Sections 4.1, 4.2 and 4.3(l) have been fulfilled. (e) INSURANCE. Copies of all insurance policies or certificates of insurance of the Company and its Subsidiaries evidencing liability and casualty insurance meeting the requirements of Section 8.3. (f) OTHER COLLATERAL DOCUMENTS. You shall have received the following documents, each dated as of the Closing Date and in form of the respective Exhibit attached hereto, if any, or otherwise in form and substance satisfactory to you: (i) a securities account pledge agreement, substantially in the form of Exhibit C (as amended, supplemented or otherwise modified from time to time in accordance with its terms, the "PLEDGE AGREEMENT"), (ii) a cooperation agreement (as amended, supplemented or otherwise modified from time to time in accordance with its terms, the "FCC COOPERATION AGREEMENT"), (iii) the Collateral Access Agreements from the lessor of the Company's leased premises located in or about Albany, New York, (iv) the Control Agreement, (g) EMPLOYMENT AGREEMENTS. Certified copies of each employment agreement and other compensation arrangement with each officer of the Company and its Subsidiaries (the "EMPLOYMENT AGREEMENTS"). (h) MATERIAL CONTRACTS. Certified copies of all Material Contracts of the Company and its Subsidiaries. (i) AMI MERGER AGREEMENT. The AMI Merger Agreement in form acceptable and substance to you and documents (i) executed or delivered in connection therewith or (ii) necessary to effect such Merger. (j) ADDITIONAL DOCUMENTATION. Such other documents, agreements or information as you may reasonably request. (k) AMI SUBSIDIARIES. The Agent shall have received certificates representing shares of stock of the Subsidiaries of AMI listed in Schedule 4.3(k) (the "AMI SUBSIDIARIES") accompanied by undated stock powers executed in blank and to be held in escrow until the consummation of the AMI Merger. (l) TERMINATION OF EXISTING CREDIT AGREEMENT. Evidence satisfactory to you that all of the obligations of the Company and its Subsidiaries under the Existing Credit Agreement have been repaid in full contemporaneously with the Closing, all commitments of the lenders party to the Existing Credit Agreement have been terminated and all Liens securing the obligations thereunder have been released. 4.4. OPINIONS OF COUNSEL. You shall have received favorable opinions, dated the Closing Date, from: (a) Day, Berry & Howard, counsel for the Obligors, in form and substance acceptable to you, and addressing such other matters incident to the Transaction and the other transactions contemplated hereby as you or your counsel may reasonably request (and the Company hereby instructs its counsel to deliver such opinion to you); (b) Shearman & Sterling and Squire Sanders & Dempsey, your counsel. 4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC. The purchase of and any payment for the Notes to be purchased by you at the Closing (a) shall be permitted by the applicable laws, statutes, rules and regulations, including without limitation the Communications Act, FCC Rules and those relating to copyright of each jurisdiction to which you are subject, (b) shall not violate any applicable law, statute, rule or regulation (including, without limitation, Regulation G, Regulation T or Regulation X) and (c) shall not subject you to any tax, penalty or liability under or pursuant to any applicable law, statute, rule or regulation. You shall have received an Officer's Certificate on or prior to the Closing Date, dated the Closing Date, certifying such matters of fact as you may reasonably specify to enable you to determine whether such purchase and payment are so permitted. 4.6. CONSENTS AND APPROVALS. Except as set forth on Schedule 4.6, all orders, consents and approvals licenses, validations of any Governmental Authority or public body or authority or any subdivision thereof and any other third party (including, but not limited to, Subsidiaries of the Company) including any radio, television or other license, Permit, certificate or approval granted or issued by the FCC or any other Governmental Authority (including any MDS, MMDS, ITFS, business radio, earth station or experimental licenses or permits issued by the FCC) (except for filings to perfect security interests granted pursuant to this Agreement or any other Note Document) necessary in connection with any aspect of the Transaction or this Agreement or any other Note Document shall have been obtained (without the imposition of any conditions that are not acceptable to you) and shall remain in full force and effect; and all applicable waiting periods shall have expired without any action being taken by any competent authority. 4.7. PAYMENT OF SPECIAL COUNSEL FEES. Without limiting the provisions of Section 14.1, the Obligors shall have paid on or before the Closing the reasonable fees, charges and disbursements of your counsel referred to in Section 4.4(b) and any other professional you may retain in connection with the Transaction. 4.8. CHANGES IN CORPORATE STRUCTURE. Except as specified in Schedule 4.8 attached hereto, none of the Obligors shall have changed its jurisdiction of incorporation or been a party to any merger or consolidation and shall not have succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent audited consolidated financial statements of the Company and its Subsidiaries referred to in Section 5.4(a). 4.9. PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the Transaction and the other transactions contemplated hereby and all documents and instruments incident to the Transaction and such other transactions shall be satisfactory to you and your special counsel, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents as you or they may reasonably request. 4.10. NO MATERIAL ADVERSE CHANGE. (a) In your reasonable judgment, before giving effect to the Transaction, there shall have occurred no Material Adverse Change (or development involving a prospective Material Adverse Change) since March 31, 1997 except as otherwise disclosed to you in writing prior to the Closing Date PROVIDED that such disclosure is acceptable to you. (b) No material adverse change (or development involving a prospective Material Adverse Change) shall have occurred in the loan syndication or financial capital market conditions generally from those in effect on the date of the Commitment Letter which could reasonably be expected to adversely affect the consummation of the transactions contemplated hereunder and thereunder. 4.11. LITIGATION. Except as disclosed on Schedule 5.7, there shall exist no action, suit, investigation, litigation or proceeding or counterclaim affecting the Company or any of its Subsidiaries pending or threatened by or before any court or governmental, administrative or regulatory agency or authority, domestic or foreign, seeking to obtain, or having resulted in the entry of, any judgment, order or injunction that (a) would restrain, prohibit or impose adverse conditions on your ability to purchase the Notes, (b) could be reasonably likely to have a Material Adverse Effect, or (c) could purport to affect the legality, validity or enforceability of this Agreement or any of the Note Documents. 4.12. CAPITAL STRUCTURE. You shall be satisfied with the corporate and legal structure and capitalization of the Company and each of its Subsidiaries, including the terms and conditions of the Charter, bylaws and each class of capital stock of the Company and each of its Subsidiaries and of each agreement or instrument relating to such structure or capitalization. 4.13. DUE DILIGENCE. You shall have completed a due diligence investigation of the Company and its Subsidiaries in scope and with results, satisfactory to you and you shall have been given such access to the management, records, books of account, contracts and properties of the Company and its Subsidiaries and shall have received such financial, business and other information regarding the Company and its Subsidiaries as you shall have requested. 4.14. FINANCIAL STATEMENTS. The Company shall have delivered pro forma financial statements as to the Company and its Subsidiaries, in a form satisfactory to you. 4.15. KEY MAN LIFE INSURANCE. You shall have received evidence satisfactory to you that the Company shall have obtained key man life insurance on Jared Abbruzzese, John Prisco and Bruce Kostreski, in an amount, from an insurance company and on terms acceptable to you. 4.16. APPROVED BUDGET. The Company shall have delivered an operating and financial budget for the period from November 15, 1997 through February 20, 1998, which shall be satisfactory in all respects to you (the "APPROVED BUDGET"). 4.17. BANX AGREEMENT. You shall have received evidence satisfactory to you that the Company shall have exercised its option under Section 3 of the BANX Agreement. 4.18. RETAINER AMOUNTS. You shall have received evidence satisfactory to you that the Company shall have paid retainer amounts to Shearman & Sterling, Squire Sanders & Dempsey and the Agent, in amounts acceptable to you, which shall be held as retainer for services rendered to you in connection with the Transaction and the Note Documents and the transactions contemplated thereby. 4.19. ABBRUZZESE NOTE. The Abbruzzese Note shall have been secured by the Haig Interests pursuant to a pledge agreement in form and substance satisfactory to you and such Note and security shall have been pledged and collaterally assigned to you. 4.20. ESCROW ACCOUNT. The Company shall have delivered to you evidence satisfactory to you that the Escrow Account is held by The Chase Manhattan Bank, N.A. in an amount equal to $32,179,588.47 on the Closing Date. 5. REPRESENTATIONS AND WARRANTIES OF THE OBLIGORS. Each of the Obligors represents and warrants to you that: 5.1. ORGANIZATION; POWER AND AUTHORITY. The Company and each of its Subsidiaries are corporations duly organized, validly existing and in good standing under the laws of their respective jurisdictions of incorporation, and are duly qualified as a foreign corporations and are in good standing in each other jurisdiction in which the ownership, lease or operation of their respective property and assets or the conduct of their respective businesses requires such qualification, other than in any such jurisdiction in which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company and each of its Subsidiaries have all corporate and other necessary power and authority, and the legal right, to own or to hold under lease the properties they purport to own or hold under lease and to transact the business they transact and propose to transact. Each of the Obligors has all corporate and other necessary power and authority, and the legal right, to execute and deliver this Agreement, the Notes and the other Note Documents to which it is or is to be a party, and to perform its obligations hereunder and thereunder and to consummate the Transaction. All of the outstanding capital stock of the Company has been validly issued, is fully paid and non-assessable. 5.2. AUTHORIZATION, ENFORCEABILITY, ETC. This Agreement and each of the other Note Documents have been duly authorized by all necessary corporate action (including, without limitation, all necessary shareholder action) on the part of each of the Obligors intended to be a party thereto. This Agreement has been, and each of the other Note Documents, when delivered hereunder, will have been duly executed and delivered by each of the Obligors intended to be a party thereto. This Agreement constitutes, and each of the other Note Documents, when delivered hereunder will constitute, the legal, valid and binding obligation of each of the Obligors intended to be a party thereto, enforceable against such Obligor in accordance with its terms, except as such enforceability may be limited by (a) the effect of applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 5.3. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES; AFFILIATES. (a) Schedule 5.3 attached hereto sets forth (i) all of the Subsidiaries of each Obligor (ii) CS Wireless and (iii) TelQuest as of the Closing Date, showing, as to each such Subsidiary, CS Wireless and TelQuest, the correct name thereof, the jurisdiction of its incorporation and the percentage of shares of each class of its capital stock or similar equity interests or membership interests outstanding as of the Closing Date that are owned by such Obligor and/or one or more of its Subsidiaries. (b) All of the outstanding shares of capital stock or similar equity interests of each Subsidiary, CS Wireless and TelQuest referred to in Schedule 5.3 attached hereto as being owned by such Obligor and/or one or more of its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by such Obligor and/or one or more of its Subsidiaries free and clear of all Liens, except for the Liens created under the Collateral Documents and Liens disclosed on Schedule 9.2(ii). (c) Except for the Seller Restricted Subsidiaries, neither any Subsidiary nor CS Wireless nor TelQuest is a party to or otherwise subject to any legal restriction or any agreement (other than the Collateral Documents and customary limitations imposed by corporate law statutes) restricting the ability of such Subsidiary, CS Wireless or TelQuest to pay dividends out of profits or make any other similar distributions of profits to such Obligor or any of its Subsidiaries that owns shares of capital stock of or similar equity interests in such Subsidiary. 5.4. FINANCIAL STATEMENTS. (a) The audited consolidated balance sheet of the Company and its Subsidiaries as of March 31, 1997 and the audited consolidated statements of earnings and cash flows of the Company and its Subsidiaries for the fiscal years ended March 31, 1995 and March 31, 1996, in each case including the related schedules and notes, copies of each of which have previously been furnished to each Purchaser, (i) have been audited by independent public accountants acceptable to you, (ii) have been prepared in accordance with GAAP consistently applied throughout the periods covered thereby and (iii) present fairly (on the basis disclosed in the footnotes to such financial statements) in all material respects the consolidated financial condition, results of operations and cash flows of the Company and its Subsidiaries as of such dates and for such periods. (b) The unaudited consolidating balance sheet of the Company and its Subsidiaries as of September 30, 1997 and the unaudited consolidating statements of earnings and cash flows of the Company and its Subsidiaries for the six months ended September 30, 1997 in each case including the related schedules and notes, copies of each of which have previously been furnished to each Purchaser, (i) have been prepared in accordance with GAAP consistently applied throughout the periods covered thereby and (ii) present fairly in all material respects the consolidated financial condition, results of operations and cash flows of the Company and its Subsidiaries as of such dates and for such periods. (c) Since March 31, 1997, except as otherwise disclosed to you in writing prior to the Closing Date (PROVIDED that such disclosure is acceptable to you), there has been no sale, transfer or other disposition by the Company or any of its Subsidiaries of any material part of the business or property and assets of the Company and its Subsidiaries, taken as a whole, except for sales of inventory and other assets in the ordinary course of business, and no purchase or other acquisition by any of them of any business or property or assets (including, without limitation, any shares of capital stock of any other Person) material in relation to the consolidated financial condition of the Company and its Subsidiaries, taken as a whole, except for purchases of raw materials, inventory and other property and assets in the ordinary course of business, in each case, which is not reflected in the financial statements referred to in this Section 5.4 or in the notes thereto and has not otherwise been disclosed in writing to each of the Purchasers on or prior to the date of this Agreement. (d) Since March 31, 1997, except as otherwise disclosed to you in writing prior to the Closing Date (PROVIDED that such disclosure is acceptable to you), there has been (i) no change in the condition (financial or otherwise), operations, business, assets, liabilities or properties of the Company and its Subsidiaries, taken as a whole, and (ii) no development or event relating to or affecting the Company or any of its Subsidiaries that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 5.5. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. (a) Except as set forth on Schedule 4.6, the execution, delivery and performance by each of the Obligors of each of the Note Documents to which it is or is to be a party and the consummation of the Transaction and the other transactions contemplated hereby do not and will not (i) contravene such Obligor's charter or bylaws (or equivalent organizational documents), (ii) violate any law, statute, rule or regulation, including without limitation the Communications Act, FCC Rules and those relating to copyright, or any order, writ, judgment, injunction, decree, determination or award in any manner that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, (iii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, including, without limitation, the Senior Note Indenture, mortgage, deed of trust, lease or other instrument binding on or affecting any Obligor, any of its Subsidiaries, CS Wireless, TelQuest, or any of their properties in any manner that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, or (iv) except for the Liens created under the Collateral Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties or revenues of any Obligor or any of its Subsidiaries. Neither any Obligor nor any of its Subsidiaries is in violation of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument referred to in the immediately preceding sentence, the violation or breach of which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (b) Except as disclosed on Schedule 4.6, all Channel Licenses, FCC Licenses and Related Facility Licenses are in full force and effect and there are no pending or threatened complaints, investigations, inquiries or proceedings by or before the FCC or other Governmental Authority or any actions or events that (i) could result in the revocation, cancellation, adverse modification or non-renewal of any Channel License, FCC License, or Related Facility License or the imposition of a material fine or forfeiture, (ii) materially impair the Company's or any of its Subsidiaries' ability to develop or operate any of the Channels or Systems, or (iii) otherwise result in a Material Adverse Change. The Systems, Channels, Channel Licenses, FCC Licenses, and Related Facilities are currently providing and, to the knowledge of the Company, have been providing service to the public (rather than a test signal or color bar) and are being operated and/or developed in material compliance with the respective FCC License, Channel License, Related Facility License, and other Permits and with all other Legal Requirements. (c) Except as set forth on Schedule 4.6, all material reports and other documents required to be filed with the FCC or other Governmental Authority with respect to the Systems, Channels, Channel Licenses, FCC Licenses, Booster Licenses, System Agreements, and Channel Leases have been timely filed, including, without limitation certifications of completion of construction. Notwithstanding anything contained herein to the contrary, to the knowledge of the Company, except as set forth on Schedule 4.6, there have been no failures to make filings with the FCC or any Governmental Authority at any time that would reasonably be likely to have a material adverse effect on any of the Channels, Channel Licenses, FCC Licenses, System Agreements, or Systems, or any of the company or any of its Subsidiaries, or what would reasonably be likely to result in the imposition of a material fine or forfeiture, including copyright filings, extension requests, and reports required by Sections 21.11(a), 21.911 and 21.920 of the FCC Rules. 5.6. GOVERNMENTAL AUTHORIZATIONS, ETC. Except as set forth on Schedule 4.6, no order, consent, approval, license, validation or authorization of, or registration, filing or declaration with, or any exemption by any Governmental Authority or public body or authority or any subdivision thereof or any other third party including any radio, television or other license, Permit, certificate or approval granted or issued by the FCC or any other Governmental Authority (including any MDS, MMDS, ITFS, business radio, earth station or experimental licenses or permits issued by the FCC) (except for filings to perfect security interest granted pursuant to this Agreement or any other Note Document) is required for (a) the due execution, delivery, recordation, filing or performance by any Obligor of this Agreement or any other Note Document to which it is or is to be a party, or for the consummation of any aspect of the Transaction or the other transactions contemplated hereby, (b) the grant by any Obligor of the Liens granted by it pursuant to the Collateral Documents or (c) the perfection or maintenance of the Liens created under the Collateral Documents (including the first priority nature thereof), except for the filing of the financing statements or the equivalent thereof referred to in Section 4.3(a). 5.7. LITIGATION. (a) Except as disclosed in Schedule 5.7, there are no actions, suits, investigations or proceedings pending or, to the best knowledge of the Obligors, threatened against or affecting the Company or any of its Subsidiaries or any property or revenues of the Company or any of its Subsidiaries in any court or before any arbitrator of any kind or before or by any Governmental Authority that (i) either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or (ii) purports to adversely affect this Agreement, any of the other Note Documents, the Transaction or any of the other transactions contemplated hereby. (b) Neither the Company nor any Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgement decree or ruling of any count, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including without limitation Environmental Laws) of any Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 5.8. TAXES. (a) The Company and each of its Subsidiaries have filed or caused to be filed all United States federal income tax returns and all other tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all taxes shown to be due and payable on any assessments of which the Company or any such Subsidiary, as the case may be, has received notice and all other taxes, assessments, levies, fees and charges imposed upon it or any of its properties, assets, income or franchises, to the extent such taxes, assessments, levies, fees and charges have become due and payable and before they have become delinquent, except for any tax, assessment, levy, fee or charge (i) the amount of which is not, either individually or in the aggregate, Material or (ii) the amount, applicability or validity of which is being contested in good faith and by appropriate proceedings and with respect to which the Company or such Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. Neither the Company nor any of the its Subsidiaries knows of any basis for any other tax, assessment, levy, fee or charge that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (b) The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of federal, state, local, foreign or other taxes for all fiscal periods through October 31, 1997 are adequate. (c) The United States federal income tax liabilities of the Company and its Subsidiaries have been determined by the Internal Revenue Service and paid, or the time for audit has expired, for all fiscal years of the Company through the fiscal year ended August 31, 1993. (d) Neither the Company nor any of its Subsidiaries has entered into an agreement or waiver or been requested to enter into an agreement or waiver extending any statute of limitations relating to the payment or collection of taxes of the Company or any of its Subsidiaries, or is aware of any circumstances that would cause the taxable years or other taxable periods of the Company or any of its Subsidiaries not to be subject to the normally applicable statute of limitations. Neither the Company nor any of its Subsidiaries has provided, with respect to itself or to any property held by it, any consent under Section 341 of the Internal Revenue Code. 5.9. TITLE TO PROPERTY; LEASES. Each Obligor and each of its Subsidiaries have good and sufficient title to, or a valid and enforceable leasehold interest in, all of the Collateral owned by them and all of their other respective property and assets that, either individually or in the aggregate, are Material, in each case free and clear of all Liens other than the Liens expressly permitted under this Agreement. All leases (other than Channel Leases and the Tower Site Leases) under which each Obligor or any of its Subsidiaries are a lessor or a lessee that, either individually or in the aggregate, are Material are valid and subsisting and are in full force and effect in all material respects. 5.10. LICENSES, PERMITS, ETC. Except as disclosed in Schedule 5.10 attached hereto: (a) the Company and each of its Subsidiaries own or possess all licenses (other than FCC Licenses), permits, franchises, authorizations, consents and approvals and all patents, copyrights, service marks, trademarks and trade names, or rights thereto, that are necessary to own or lease and operate their respective properties and assets and to transact their respective businesses as now conducted or as proposed to be conducted and, either individually or in the aggregate, are Material. Except as set forth in Schedule 5.7 attached hereto, no claim of any Person is pending or, to the best knowledge of any Obligor, is threatened challenging the use of any such license, permit, franchise, authorization, consent, approval, patent, copyright, service mark, trademark, trade name or other right, or the validity or effectiveness thereof, except for any such claim that, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect; (b) no product of any Obligor or any of its Subsidiaries infringes on any license, permit, franchise, authorization, consent, approval, patent, copyright, service mark, trademark, trade name or other right owned by any other Person, except for any such infringement that, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect; and (c) to the best knowledge of each of the Obligors, there is no Material violation by any Person of any right of the Company or any of its Subsidiaries with respect to any license, permit, franchise, authorization, consent, approval, patent, copyright, service mark, trademark, trade name or other right owned or used by the Company or any such Subsidiary, except for any such violation that, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 5.11. SECURITY INTERESTS, ETC. The Collateral Documents create a valid and perfected first priority lien on and security interest in the Collateral in favor of the Agent for the benefit of the Secured Parties, securing the payment of all of the Secured Obligations, and all of the shares of capital stock of each of the Subsidiaries of the Company that are purported to comprise part of the Collateral have been delivered to the Agent, together with undated stock powers executed in blank, and all filings and other actions necessary or desirable to perfect and protect such lien and security interest have been duly made or taken and are in full force and effect or will be duly made or taken in accordance with the terms of the Note Documents. 5.12. COMPLIANCE WITH ERISA. (a) Each Obligor and each ERISA Affiliate have operated and administered each Plan in compliance with its terms and with the provisions of ERISA and all other applicable laws, except to the extent such noncompliance, either individually or in the aggregate, has not resulted in and could not reasonably be expected to result in a Material Adverse Effect. (b) During the immediately preceding five-year period: (i) no Termination Event has occurred or could reasonably be expected to occur with respect to any Plan that has resulted in or could reasonably be expected to result in any Material liability of any Obligor or any ERISA Affiliate to a Plan or to the PBGC; (ii) no "accumulated funding deficiency" (as such term is defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code), whether or not waived, has occurred with respect to any Plan; and (iii) no Lien in favor of the PBGC or a Plan has arisen or could reasonably be expected to arise on account of any Plan. (c) Neither any Obligor nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV or ERISA or the penalty or excise tax provisions of the Internal Revenue Code relating to employee benefit plans (as defined in Section 3 of ERISA), and no event, transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence of any such liability by any Obligor or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of any Obligor or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or 412 of the Internal Revenue Code that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (d) The present value of all "benefit liabilities" under all of the Plans (other than Multiemployer Plans), determined as of the end of each such Plan's most recently completed plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan's most recent actuarial valuation report, whether or not vested, did not exceed the aggregate current value of the assets of all such Plans allocable to such benefit liabilities by more than $1,000,000 in the aggregate. (e) Neither any Obligor nor any ERISA Affiliate has incurred or, to the best knowledge of the Obligors, could reasonably be expected to incur any Withdrawal Liability in respect of any Multiemployer Plan or any Multiple Employer Plan. Neither any Obligor nor any ERISA Affiliate would become subject to any Withdrawal Liability if any such Obligor or any such ERISA Affiliate were to withdraw completely from all Multiemployer Plans and all Multiple Employer Plans as of the most recently completed valuation date. Neither any Obligor nor any ERISA Affiliate has been notified that any Multiemployer Plan is in reorganization (within the meaning of Section 4241 of ERISA), is insolvent (within the meaning of Section 4245 of ERISA) or is being terminated (within the meaning of Title IV of ERISA), and no Multiemployer Plan is, to the best knowledge of the Obligors, reasonably expected to be in reorganization, insolvent or terminated. (f) No prohibited transaction (within the meaning of Section 406 of the Internal Revenue Code) or breach of fiduciary responsibility has occurred with respect to any Plan which has subjected or may subject any Obligor or any ERISA Affiliate to any liability under Section 406, 409, 502(i) or 502(l) of ERISA or Section 4975 of the Internal Revenue Code, or under any agreement or other instrument pursuant to which any Obligor or any ERISA Affiliate has agreed or is required to indemnify any Person against any such liability (g) None of the execution and delivery of this Agreement, the issuance and sale of the Notes hereunder or the consummation of any aspect of the Transaction will involve any transaction that is subject to the prohibitions of Section 406 of ERISA or in connection with which a tax could be imposed pursuant to Section 4975 of the Internal Revenue Code. The representation by the Obligors in the first sentence of this Section 5.12(g) is made in reliance upon and is subject to (i) the accuracy of your representation in Section 6.3 as to the sources of the funds used to pay the purchase price of the Notes to be purchased by you and (ii) the assumption, made solely for the purpose of making such representation, that Department of Labor Interpretive Bulletin 75-2 with respect to prohibited transactions remains valid in the circumstances of the transactions contemplated herein. 5.13. PRIVATE OFFERING BY THE COMPANY. (a) Neither the Company nor any Person acting on its behalf has directly or indirectly offered the Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any Person other than you. Neither the Company nor any Person acting on its behalf has taken, or will take, any action that would subject the issuance and sale of the Notes to the registration requirements of Section 5 of the Securities Act. (b) Neither any Obligor nor any Person acting on its behalf has directly or indirectly offered or sold the Notes by any form of general solicitation or general advertising (including, without limitation, any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or any broadcast over television or radio or any seminar or meeting whose attendees have been invited by any form of general solicitation or general advertising). 5.14. USE OF PROCEEDS; MARGIN REGULATIONS. (a) The proceeds received from the sale of the Notes to the Purchasers will be used solely to refinance the Existing Credit Agreement in aggregate amount (including principal, accrued interest and fees) of up to $17,254,178.06 to pay certain transaction costs and expenses in connection with the Transaction and acceptable to you and to fund certain approved and budgeted corporate purposes in accordance with the Approved Budget. (b) No part of the proceeds from the sale of the Notes will be used, directly or indirectly, for the purpose of purchasing or carrying any "margin stock" (within the meaning of Regulation G or Regulation U) or for the purpose of purchasing, carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X or to involve any broker or dealer in a violation of Regulation T. Upon your request, each Obligor will furnish you with a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in Regulation U. No indebtedness being reduced or retired out of the proceeds of the Notes was or will be incurred for the purpose of purchasing or carrying any "margin stock" (within the meaning of Regulation U) or any "margin security" (within the meaning of Regulation T). Margin stock does not constitute more than 25% of the value of the consolidated property and assets of the Company and its Subsidiaries. None of the transactions contemplated by this Agreement (including, without limitation, the direct and indirect use of proceeds of the Notes) will violate or result in a violation of the Securities Act or the Exchange Act or any of the rules and regulations promulgated thereunder or Regulation G, Regulation T, Regulation U or Regulation X. 5.15. STATUS UNDER CERTAIN STATUTES. (a) Neither the Company nor any of its Subsidiaries is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Act of 1935, as amended, or the Federal Power Act, as amended. (b) Neither the Company nor any of its Subsidiaries is an "investment company," or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company" (each as defined in the Investment Company Act of 1940, as amended). Neither the sale and purchase of the Notes nor the application of the proceeds therefrom or repayment thereof by the Company, nor the consummation of the Transaction or any of the other transactions contemplated hereby, will violate any provision of such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder. (c) Neither the Company nor any of its Subsidiaries is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" (each within the meaning of the Public Utility Holding Company Act of 1935, as amended). (d) The Company and each of its Subsidiaries are current with all reports and documents, if any, required to be filed with any federal or state securities commission or similar agency and are in full compliance with all applicable rules and regulations of such commissions, except where the failure to so comply, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 5.16. FOREIGN ASSETS CONTROL REGULATIONS, COMMUNICATIONS ACT, ETC. (a) Neither the issue and sale of the Notes by any Obligor nor the use of the proceeds therefrom will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto. (b) Each license, permit and other authority issued, granted, approved or otherwise authorized by the FCC for the benefit of the Company or any of its Subsidiaries is in good standing unimpaired by any act or omission of the Company or any of its Subsidiaries or any of their respective officers, directors, employees or agents. None of the Company or any of its Subsidiaries is the subject of any outstanding citation, order or investigation by the FCC that could result in any termination or forfeiture of any FCC License or any monetary forfeiture or could result in any other Material Adverse Effect and, to the knowledge of any Obligor, no such citation, order or investigation is contemplated by the FCC. The Company and its Subsidiaries have filed all reports and applications required to be filed by the FCC or the Communications Act, except where the failure to file could not result in any termination, forfeiture or Material Adverse Effect, and have paid all fees required to be paid by the FCC or the Communications Act. 5.17. ENVIRONMENTAL MATTERS. (a) The operations and properties (whether owned or leased) of the Company and each of its Subsidiaries comply with all Environmental Laws and Environmental Permits, and all necessary Environmental Permits have been obtained and are in effect for all of the operations and properties of the Company and each such Subsidiary, except to the extent that the failure to so comply or to obtain such Environmental Permit, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. All past noncompliance with any such Environmental Laws or Environmental Permits has been resolved without ongoing Material obligations or costs to the Company or any of its Subsidiaries. No circumstances exist that, either individually or in the aggregate, could reasonably be expected to (i) form the basis of an Environmental Action against the Company or any of its Subsidiaries, or any of their respective properties, that, either individually or in the aggregate, could have a Material Adverse Effect or (ii) cause any such property to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law. (b) None of the properties owned or operated by the Company or any of its Subsidiaries is listed or proposed for listing on the NPL or on the CERCLIS or any analogous foreign, state or local list or, to the best knowledge of the Obligors, is adjacent to any such property; there are no and never have been any underground or aboveground storage tanks or any surface impoundments, septic tanks, pits, sumps or lagoons in which Hazardous Materials are being or have been treated, stored or disposed of on any property owned or operated by the Company or any of its Subsidiaries or, to the best knowledge of the Obligors, on any property formerly owned or operated by the Company or any of its Subsidiaries; there is no asbestos or asbestos-containing material on any property owned or operated by the Company or any of its Subsidiaries; and Hazardous Materials have not been released, discharged or disposed of on any property owned or operated by the Company or any of its Subsidiaries in any manner that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (c) Neither the Company nor any of its Subsidiaries is undertaking, nor has any of them completed, either individually or together with other potentially responsible parties, any investigation or assessment or remedial or response action relating to any actual or threatened release, discharge or disposal of Hazardous Materials at any site, location or operation, either voluntarily or pursuant to the order of any Governmental Authority or the requirements of any Environmental Law, excluding, however, any such release, discharge or disposal the consequences of which, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect; and all Hazardous Materials generated, used, treated, handled or stored at, or transported to or from, any property owned or operated by the Company or any of its Subsidiaries have been disposed of in a manner that does not violate or, to the best knowledge of the Obligors, could not reasonably be expected to give rise to liability under, any applicable Environmental Law, except to the extent that such generation, use, treatment, handling, storage or transportation, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (d) Neither the Company nor any of its Subsidiaries has received any notice from any Governmental Authority regarding any violation or alleged violation of, noncompliance or alleged noncompliance with, or liability or potential liability under or in respect of, any Environmental Law or Environmental Permit by it or any of its Subsidiaries, nor does the Company or any of its Subsidiaries have knowledge or reason to believe that any such notice will be received or is being threatened, except for any such notice or threatened notice that, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 5.18. NO BURDENSOME AGREEMENTS. Neither the Company nor any of its Subsidiaries is a party to any indenture, loan or credit agreement, lease or other agreement or instrument or subject to any law, rule, regulation or statute or any charter or corporate or other similar restriction that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, except as has been disclosed to you in writing prior to the date of this Agreement. 5.19. EXISTING INDEBTEDNESS; FUTURE LIENS. (a) Schedule 5.19 sets forth a complete and correct list of all outstanding Indebtedness of the Company and its Subsidiaries as of the Closing Date, since which date there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Indebtedness of the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries is in default and no waiver of default is currently in effect in the payment of any principal or interest on any Indebtedness of the Company or any such Subsidiary and no event or condition exists with respect to any Indebtedness of the Company or any such Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment. (b) Neither the Company nor any of its Subsidiaries has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property or assets, whether now owned or hereafter acquired, to be subject to a Lien not expressly permitted under Section 9.2. 5.20 FCC LICENSES; CHANNEL LEASES; SYSTEM AGREEMENTS; AND THE SYSTEMS. (a) Schedule 5.20(a) sets forth a description of each of the markets in which the Company and each of its Subsidiaries has an Operating System as of the Closing Date. (b) Schedule 5.20(b) lists all System Agreements other than FCC Licenses and Channel Leases. Except as set forth in Schedule 5.20(b), (A) each System Agreement constitutes a legal, valid, and binding obligation of the Company or its Subsidiary that is a party thereto and is in full force and effect and materially complies with all applicable Legal Requirements and has been filed with the FCC to the extent required by the FCC Rules, and no other approval, application, filing, registration, consent, or other action of any Governmental Authority is required to enable the Company or any of its Subsidiaries to operate under such System Agreement to recognize the benefits thereunder, or to comply with applicable Legal Requirements; (B) none of the Company or its Subsidiaries has assigned its rights and interests under any System Agreement to any other Person; (C) none of the Company or any of its Subsidiaries is in material breach or default under any such System Agreement, which breach or default could result in the termination, impairment, or forfeiture of any rights under or any payments being made with respect to any such System Agreement, nor has an event occurred with respect to any System Agreement which (whether with or without notice, the lapse of time, or the happening or occurrence of any other event) would constitute a breach or default under such System Agreement; (D) to the knowledge of the Company, no third party has any rights to assert any interest in any System Agreement or the rights and benefits granted to the Company or any of its Subsidiaries pursuant thereto; (E) there are no contractual restrictions relating to any such System Agreement that reasonably could be expected to materially adversely affect or delay the Collocation of the Channels at their respective Collocation Sites or the implementation of digital technology or Alternative Use Services; (F) there are no material provisions of any such System Agreements that are the subject of negotiation nor has any party to any such System Agreement requested the renegotiation of any material term thereof; (G) none of the System Agreements contain a put or call option with resect to the subject matter thereof; and (H) none of the System Agreements contains any restriction on the assignment of any System Agreement or the granting of a lien or the placing of an encumbrance on the transmission equipment by the Company or any of its Subsidiaries that is a party thereto in accordance with the terms of the Note Documents or any provisions granting the other party thereto the right to terminate the System Agreement upon a change in control of the Company. The Company has delivered to you complete and accurate copies of each of the System Agreements and none of such have been amended in any respect. (c) Schedule 5.20(c) lists all Channel Leases and the monthly payment obligations thereunder. Except as set forth in Schedule 5.20(c), (A) each Channel Lease constitutes a legal, valid, and binding obligation of the Company or its Subsidiary that is a party thereto and is in full force and effect and materially complies with all applicable Legal Requirements and has been filed with the FCC, to the extent required by the FCC Rules, and no other approval, application, filing, registration, consent or other action of any Governmental Authority is required to enable the Company or any of its Subsidiaries to operate under such Channel Lease to recognize the benefits thereunder, or to comply with applicable Legal Requirements; (B) none of the Company or any of its Subsidiaries has assigned its rights and interests under any Channel Lease to any other Person; (C) none of the Company or its Subsidiaries is in material breach or default under any such Channel Lease, which breach or default could result in the termination, impairment, or forfeiture of any rights under or any payments being made with resect to any such Channel Lease, nor has an event occurred with respect to any Channel Lease which (whether with or without notice, the lapse of time, or the happening or occurrence of any other event) would constitute a breach or default under such Channel Lease; (D) to the knowledge of the Company, no third party has any rights to assert any interest in any Channel Lease or the rights and benefits granted to the Company or any of its Subsidiaries pursuant thereto; (E) there are no contractual restrictions relating to any such Channel Lease that reasonably could be expected to materially adversely affect or delay the Collocation of the Channels at their respective Collocation Sties or the implementation of digital technology or Alternative Use Services; (F) there are no material provisions of any such Channel Lease that are the subject of negotiation nor has any party to any such Channel Lease requested the renegotiation of any material term thereof; (G) none of the Channel Leases contain a put or call option with respect to the subject matter thereof; and (H) none of the Channel Leases contains any restriction on the assignment of any Channel Lease or the granting of a lien or the placing of an encumbrance on the transmission equipment by the Company or any of its Subsidiaries that is a party thereto in accordance with the terms of the Note Documents or any provisions granting the other party thereto the right to terminate the Channel Leases upon a change in control of the Company. The Company has delivered to you complete and accurate copies of each of the Channel Leases and none of such have been amended in any respect. (d) Schedule 5.20(d) lists all FCC Licenses and applications for FCC Licenses. As of the Closing date, except as set forth in Schedule 5.20(d), (A) each of such FCC Licenses constitutes a legal, valid, and binding obligation of the Company or its Subsidiaries and is in full force and effect; (B) neither the Company nor any of its Subsidiaries has assigned its rights and interest under any of the FCC Licenses or any application for an FCC License; (C) neither the Company, any of its Subsidiaries nor any lessor under any Channel Lease, as the case may be, is in violation of the terms under the corresponding FCC License, which violation could result in the termination or forfeiture of any rights under or any payments being made with respect to such FCC License, nor has an event occurred with respect to any of the FCC Licenses which (whether with or without notice, the lapse of time, or the happening or occurrence of any other event) would constitute such a violation of the terms of such FCC License that could result in the termination or forfeiture of such FCC License; (D) to the knowledge of the Company, except with respect to the lessors under the Channel Leases, no third party has any rights to assert any interest in any of the FCC Licenses or applications for FCC Licenses; and (E) there are no contractual restrictions relating to any of the FCC Licenses which reasonably could be expected to materially adversely affect the Collocation of the Channels that are the subject thereof at their respective Collocation Site or the implementation of an Alternative Use. The Company has delivered to you complete and accurate copies of each of the FCC Licenses and none of them have been amended in any respect. (e) Schedule 5.20(e) accurately lists, with respect to each of the Systems, all Channels, and accurately describes the following: (i) the status of each FCC License, Channel License, and Booster License, and, for the System relative to Boston, Massachusetts, any other Related Facility License including (A) the expiration date of the license, (B) the renewal deadline and any pending construction deadline and the status of compliance therewith (including whether one or more extensions of the filing deadline have been requested or obtained), (D) the status of any pending applications (including assignment and transfer of control applications) including whether the application has been accepted for filing by the FCC and any pending deadline for filing timely petitions to deny such FCC applications, (E) whether there are any threatened or pending interference issues, petitions to deny, informal objections, competing or conflicting applications, outstanding no-objection letters, comments or waiver requests, and (F) the status of the request for a protected service area or other interference protection; (ii) the status of each Collocation Application, Booster Application and Alternative Use Application and any amendments thereto, including (A) the relevant Collocation Site or other transmission site and proposed technical parameters and conditions for analog and digital operations, (B) whether the application has been accepted for filing by the FCC, (C) whether there are any threatened or pending interference issues, petitions to deny, informal objections, competing or conflicting applications, outstanding no-objection letters, outstanding consent letters, comments or waiver requests, and (D) the status of the request for a protected service are or other interference protection; and (iii) the market trials and operations that the Company or any of its Subsidiaries are conducting, or intend to conduct pursuant to the Approved Budget, with respect to Alternative Uses of the Channels or the Systems and identifies the relevant authorizations used, or to be used, in conjunction with such trial and operations and the conditions contained therein. (f) Complete and correct copies of all of the Permits, Facilities Location Applications and Alternative Use Applications and amendments thereto (with the FCC file date stamped thereon), Channel Licenses, Related Facilities Licenses, FCC Licenses and material related thereto, including pending applications filed with the FCC relating to the Systems and other Permits owned, held or possessed by the Company and any of its Subsidiaries have been provided to you. (g) Except as set forth on Schedule 5.20(g) and except for Channel Licenses held by third parties, with resect to each of the Systems, all of the assets, Permits, and System Agreements relating to each System are owned by one or more of the Company and its Subsidiaries. (h) Except as disclosed in Schedule 5.20(h), (i) the Company and each of its Subsidiaries have obtained and possesses all System Agreements, patents, copyrights, certificates of confirmation, licenses, permits, trademarks, and trade names, or rights thereto, necessary to conduct its business as currently conducted by the Company and each of its Subsidiaries and none of the Company and each of its Subsidiaries are in violation of any valid rights of others with resect to any of the foregoing; (ii) no other license, permit or franchise is necessary to the operation by the Company or any of its Subsidiaries of the Systems as conducted or proposed to be conducted pursuant to the Approved Budget; and (iii) the Company and each of its Subsidiaries have obtained and possess or applied for all licenses, and have obtained and possess all leases, conduit use, equipment rental and microwave or satellite relay agreements necessary for the operation of the Systems as required by the System Agreements. 5.21 INTERFERENCE. Except as set forth on Schedule 5.21, neither any of the Company, any of its Subsidiaries, nor any Licensee of a Channel has accepted or will accept any electrical interference from any source that is likely to result in material adverse electrical interference to any of the Channels in any of the Systems now operating or expected to be operated, including the BTA Authorizations or any newly licensed Channel in any BTA in which any System operates or the Company or any of its Subsidiaries expect to operate. Except as set forth in Schedule 5.21, neither any of the Company, any of its Subsidiaries, nor any Channel Licensee is likely to experience interference from any source authorized by the FCC to its presently authorized facilities in an analog or digital mode or to any facilities that it proposes to construct pursuant to an application currently pending before the FCC. 5.22 LINE OF SITE HOUSEHOLDS. Schedule 5.22 lists the number of line of sight households for each of the Systems and describes any material assumptions for arriving at such determinations. 5.23 LEASE AGREEMENTS. (a) Schedule 5.23 accurately and completely lists and sets forth a description (including location of premises, term and assignability) of the Tower Site Leases and office and studio space and the same constitute the only Tower Site Leases and other leases necessary in connection with the conduct of business by the Company and any of its Subsidiaries as currently conducted. Each of the Company and its Subsidiaries enjoys quiet possession under all leases (including Tower Site Leases) to which it is a party as lessee, and all of such leases are valid, subsisting, and in full force and effect. None of such leases contains any provision restricting the incurrence of indebtedness by the lessee. (b) All of the existing towers owned by the Company or its Subsidiaries and, to the best of each Obligor's knowledge, all of the other existing towers, used in the operation of the Systems are obstruction-marked and lighted to the extent required by, and in accordance with, the rules and regulations of the FAA or FCC. To the best knowledge and good faith belief of the Company and its Subsidiaries, appropriate notification to the FAA has been filed for each tower where required by the rules and regulations of the FAA or FCC. 5.24. EMPLOYEE CONTRACTS; BOARD OF DIRECTORS. (a) There are no employment agreements or other compensation arrangements (including the setting of targets for the payment of bonuses) with any officer of the Company or any of its Subsidiaries except for the Employment Agreements and as disclosed in Schedule 5.24(a) hereto. (b) Set forth on Schedule 5.24(b) is a true and complete list of (a) the Board of Directors of CS Wireless and (b) the Members and the members of the Governing Board of TelQuest. 5.25. SUBSIDIARIES WITHOUT ASSETS OR LIABILITIES. Set forth on Schedule 5.25 is a true and complete list of each "shell" corporation formed for the benefit of the Company in connection with the Existing Credit Agreement having no assets or liabilities and for which there are no shares of capital stock, subscriptions or other offers to purchase shares, currently outstanding or contemplated as of the Closing Date. 5.26. MAINTENANCE OF SEPARATENESS. Each of the Company and each of its Subsidiaries has conducted its dealings with each of its Subsidiaries on an independent and arm's-length basis and has observed and maintained, its separate identity from that of each of its Subsidiaries by (i) not allowing its funds or other assets to be commingled with the funds or other assets of any of its Subsidiaries, (ii) maintaining separate corporate and financial records from those of each of its Subsidiaries and observing all corporate formalities, including corporate minute books and acting pursuant to corporate resolutions, (iii) paying its liabilities from its own assets, (iv) maintaining bank accounts and accounting systems separate from those of each of its Subsidiaries and (v) conducting its dealings with third parties in its own name and as a corporate entity separate and distinct from each of its Subsidiaries. 5.27. MATERIAL CONTRACTS. Set forth on Schedule 5.27 is a complete and accurate list of all Material Contracts of each Obligor, showing as of the date hereof the parties, subject matter and term thereof. Each such Material Contract has been duly authorized, executed and delivered by all parties thereto, has not been amended or otherwise modified, is in full force and effect and is binding upon and enforceable against all parties thereto in accordance with its terms, and there exists no default under any Material Contract by any party thereto. 5.28. ACCOUNTS. Neither the Company nor any of its Subsidiaries has any deposit accounts or other checking or operating accounts other than the accounts listed on the attached Schedule 5.28. 6. REPRESENTATIONS OF THE PURCHASER. 6.1. PURCHASE FOR INVESTMENT. You represent that you are purchasing the Notes for your own account or for one or more separate accounts maintained by you or for the account of one or more pension or trust funds and not with a view to the distribution thereof; PROVIDED that the disposition of your or their property shall at all times be within your or their control. You understand that the Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by applicable law, and that no Obligor is required to register the Notes. 6.2. ACCREDITED INVESTOR. You are an "accredited investor" (as defined in Rule 501 of Regulation D under the Securities Act) and by reason of your business and financial experience, and the business and financial experience of those Persons retained by you to advise you with respect to your investment in the Notes, you, together with such advisors, have such knowledge, sophistication and experience in business and financial matters as to be capable of evaluating the merits and risks of the prospective investment, are able to bear the economic risk of such investment and, at the present time, are able to afford a complete loss of such investment. You are not purchasing the Notes in reliance upon any investigation made by any other Person. 6.3. SOURCE OF FUNDS. You represent that at least one of the following statements is an accurate representation as to each source of funds (a "FUNDS SOURCE") to be used by you to pay the purchase price of the Notes to be purchased by you hereunder: (a) the Funds Source constitutes assets of an "investment fund" (within the meaning of Part V of the QPAM Exemption) managed by a "qualified professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM Exemption), no employee benefit plan's assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Parts I(c) and I(g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of "CONTROL" in Section V(e) of the QPAM Exemption) owns more than a 5% interest in the Company and (i) the identity of such QPAM and (ii) the names of all employee benefit plans the assets of which are included in such investment fund have been disclosed to the Company in writing pursuant to this Section 6.3(a); and (b) the Funds Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA. 7. PREPAYMENTS AND REPURCHASES OF THE NOTES. 7.1. REQUIRED PREPAYMENTS. The Obligors will prepay the aggregate principal amount of all of the Notes outstanding on such date at 100% of the aggregate principal amount of the Notes so prepaid together with all interest accrued and unpaid thereon to the date of such prepayment upon receipt of the Net Cash Proceeds (i) from the sale of assets of the Company (excluding such sales in the ordinary course of business and sales permitted under Sections 9.5(b)(ii) and (iv) unless used in accordance with the Approved Budget), (ii) of Extraordinary Receipts unless used in accordance with the Approved Budget and (iii) from all proceeds from the issuance of additional debt (subject to Section 7.2 below) or equity permitted under this Agreement. The aggregate outstanding principal amount of the Notes, together with all interest accrued and unpaid thereon, shall be due and payable by the Obligors on the Maturity Date. Upon and during the continuance of an Event of Default, the Obligors shall pay interest at the Default Rate. 7.2. OPTIONAL PREPAYMENTS. (a) Each Obligor may, at its option, upon notice as provided in Section 7.2(b), prepay at any time all, or from time to time any part of, the Notes, in an aggregate principal amount of not less than $250,000 or integral multiples of $50,000 in excess thereof (or, if less, the remaining aggregate principal amount of the Notes outstanding at such time), at 105% of the aggregate principal amount of the Notes so prepaid; PROVIDED, HOWEVER, that (i) if you have refinanced the aggregate principal amount outstanding under the Notes plus accrued interest thereon under a debtor in possession financing with the Company or any other Obligor or (ii) if you have failed to provide the Company or any other Obligor with a commitment letter for debtor in possession financing on commercially reasonable terms, such Obligor may prepay all of the Notes at 100% of the aggregate principal amount of the Notes; PROVIDED FURTHER, HOWEVER, that if you have provided the Company or any other Obligor with a commitment letter for debtor in possession financing on commercially reasonable terms, such Obligor may prepay the Notes at 105% of the aggregate outstanding principal amount of the Notes plus all accrued and unpaid interest thereon to the date of such prepayment, payable in cash upon the earlier of (i) the signing of a commitment for debtor in possession financing with lenders other than you or (ii) the making of the initial advance under a debtor in possession financing with lenders other than you. (b) Each Obligor will give each holder of Notes written notice of each optional prepayment under this Section 7.2 not less than 5 days and not more than 10 days prior to the date fixed for such prepayment. Each such notice shall specify the date fixed for such prepayment, the aggregate principal amount of the Notes to be prepaid on such date, the principal amount of each Note held by such holder to be prepaid (determined in accordance with Section 7.5), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid and shall state that such prepayment is to be made pursuant to this Section 7.2. 7.3. ALLOCATION OF PARTIAL PREPAYMENTS. In the case of each partial prepayment of the Notes, the principal amount of the Notes to be prepaid shall be allocated (in integral multiples of $1,000) among all of the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment. 7.4. MATURITY; SURRENDER, ETC. In the case of each prepayment of Notes pursuant to this Section 7, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date. From and after such date, unless any Obligor shall fail to pay such principal amount when so due and payable, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and cancelled and shall not be reissued, and no Note shall be issued in lieu of any prepaid or repurchased principal amount of any Note. 7.5. PURCHASE OF NOTES. No Obligor will or will permit any of its Subsidiaries or Affiliates to purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes except upon the payment or, prepayment of the Notes in accordance with the terms of this Agreement and the Notes. Such Obligor will promptly cancel all Notes acquired by it or any of its Affiliates pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Agreement, and no Notes may be issued in substitution or exchange for any such Notes. 7.6 JOINT AND SEVERAL OBLIGATION; LIMITATION OF LIABILITY. (a) Notwithstanding anything contained herein or in the Notes to the contrary, the Subsidiary Obligors shall not receive proceeds from the sale of the Notes in an amount that exceeds $10,000,000 in the aggregate. The obligation to repay the Notes is the joint and several obligation of the Obligors. (b) (i) Each of the Obligors and the Purchasers hereby confirm that it is the intention of all such parties that this Agreement not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to this Agreement. To effectuate the foregoing intention, each of the Obligors and the Purchaser hereby irrevocably agree that the obligations of each Subsidiary Obligor under this Agreement shall not exceed the lesser of (i) $10,000,000 and (ii) the greater of (A) the net benefit realized by such Subsidiary Obligor from the proceeds of the Notes made available to such Subsidiary Obligor and the advances made from time to time by the Company to such Subsidiary Obligor or any subsidiary of such Subsidiary Obligor and (B) the maximum amount that will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Subsidiary Obligor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Subsidiary Obligor in respect of the Obligations of such other Subsidiary Obligor under this Agreement or the Notes, result in the Obligations of such Subsidiary Obligor under this Agreement or the Notes not constituting a fraudulent transfer or conveyance. For purposes hereof, "BANKRUPTCY LAW" means Title 11, U.S. Code, or any similar Federal or state law for the relief of debtors. (ii) Each Subsidiary Obligor agrees that, in the event any payment shall be required to be made to the Purchaser under this Agreement or the Notes, such Subsidiary Obligor will contribute, to the maximum extent permitted by law, such amounts to each other Subsidiary Obligor and each other Obligor so as to maximize the aggregate amount paid to the Purchaser under the Note Documents. 8. AFFIRMATIVE COVENANTS. From the date of this Agreement and, thereafter, so long as any of the Notes shall be outstanding, each Obligor will perform and comply with each of the following covenants: 8.1. FINANCIAL AND BUSINESS INFORMATION. The Company will furnish to each holder of Notes without cost to you: (a) REQUESTED INFORMATION. With reasonable promptness, any information relating to the financial condition, business, operations, assets, liabilities or properties of the Company or any of its Subsidiaries, including but not limited to information regarding FCC activity or relating to the ability of any Obligor to perform its obligations under any of the Note Documents to which it is a party as from time to time may be reasonably requested by any such holder of Notes, including, without limitation, all monthly bank statements of the Company and its Subsidiaries. (b) AUDITOR'S REPORTS. Promptly upon receipt thereof, copies of all "management letters" or other written reports submitted to the Company or any of its Subsidiaries by any independent certified public accountants of the Company or any such Subsidiary in connection with each annual, interim or special audit of its financial statements made by such accountants (including, without limitation, any comment letter submitted by such accountants to management of the Company or any such Subsidiary in connection with their annual audit and any reports addressing internal accounting controls of the Company or any such Subsidiary submitted by such accountants), and, promptly upon completion thereof, copies of any response report from the Company or any such Subsidiary to such accountants. (c) SEC AND OTHER REPORTS. Promptly upon transmission or receipt thereof, (i) copies of any filings and registrations with, and any reports or notices to or from, the Securities and Exchange Commission, or any successor agency, and copies of all financial statements, proxy statements, notices and reports that the Company or any of its Subsidiaries shall send to a holder of any Indebtedness owed by the Company or any of its Subsidiaries in its capacity as such a holder, (ii) copies of all press releases and other statements made available by the Company or any of its Subsidiaries to the public concerning developments that are Material, (iii) upon your reasonable request, all reports and written information to and from the United States Environmental Protection Agency, or any state or local agency responsible for environmental matters, the United States Occupational Health and Safety Administration, or any state or local agency responsible for health and safety matters, or any successor agencies or authorities to any of the foregoing, concerning environmental, health or safety matters and (iv) all reports and applications required to be filed by the FCC or the Communications Act for which the failure to file could have a Material Adverse Effect. (d) NOTICE OF DEFAULT, ETC. Promptly, and in any event within five days after a Responsible Officer obtains knowledge thereof, notice of the occurrence of each Default or Event of Default or any event, development or occurrence that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect continuing on the date of such statement, setting forth in reasonable detail the nature of such Default, Event of Default or event, development or occurrence and the action that the Company has taken and proposes to take with respect thereto. (e) MATERIAL ADVERSE CHANGE. Promptly after the occurrence thereof, notice of a Material Adverse change in the business, operations, properties, prospects or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, or the occurrence of a development which might result in such Material Adverse Change. (f) LITIGATION. Promptly after the commencement thereof, notice of all actions, suits, investigations and proceedings in any court or before any arbitrator or before or by any Governmental Authority binding on or affecting the Company or any of its Subsidiaries or any of their respective properties of the type described in Section 5.7 which would, if adversely decided, reasonably be expected to have a Material Adverse Effect on the business operations, properties, prospects or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole. (g) ERISA MATTERS. Promptly, and in any event within five days after a Responsible Officer becomes aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that any Obligor or any ERISA Affiliate proposes to take with respect thereto: (i) Any event or condition, including, but not limited to, any Reportable Event, that constitutes, or could reasonably be expected to result in, a Termination Event; (ii) With respect to any Multiemployer Plan, the receipt of any notice as prescribed in ERISA or otherwise of any Withdrawal Liability assessed against any Obligor or any ERISA Affiliate, or of a determination that any Multiemployer Plan is in reorganization or insolvent (both within the meaning of Title IV of ERISA); (iii) The taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by any Obligor or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; (iv) The failure to make full payment on or before the due date (including extensions thereof) of all amounts that any Obligor or any ERISA Affiliate is required to contribute to each Plan pursuant to its terms and as required to meet the minimum funding standard set forth in ERISA and the Internal Revenue Code with respect thereto; (v) Any change in the funding status of any Plan that could reasonably be expected to have a Material Adverse Effect; or (vi) Any event, transaction or condition not otherwise described in this Section 8.1(g) that could result in the incurrence of any liability by any Obligor or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Internal Revenue Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of any Obligor or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect. Promptly upon your reasonable request, such additional information concerning any Plan as you may have reasonably requested, including, but not limited to, copies of each annual report/return (Form 5500 series) and all schedules and attachments thereto required to be filed with the Department of Labor and/or the Internal Revenue Service pursuant to ERISA and the Internal Revenue Code, respectively, for each "plan year" (within the meaning of Section 3(39) of ERISA). 8.2. COMPLIANCE WITH LAW. The Company will and will cause each of its Subsidiaries to comply with all laws, ordinances, rules, regulations, including without limitation the Communications Act, FCC Rules and those relating to copyright and orders to which each of them and their properties are subject and all applicable restrictions imposed on each of them and their properties by any Governmental Authority (including, without limitation, all Environmental Laws), and will obtain and maintain in effect all licenses, certificates, permits, franchises, consents and other authorizations of any Governmental Authority or public body or authority or any subdivision thereof or any other third party including any radio, television or other license, Permit, certificate or approval granted or issued by the FCC or any other Governmental Authority (including any MDS, MMDS, ITFS, business radio, earth station or experimental licenses or permits issued by the FCC) (except for filings to perfect security interest granted pursuant to this Agreement or any other Note Document) necessary for the ownership or leasing and operation of their respective properties or the conduct of their respective businesses, in each case to the extent necessary to ensure that any noncompliance with such laws, ordinances, rules, regulations or orders or any failure to obtain or maintain in effect such licenses, certificates, permits, franchises, consents and other authorizations, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 8.3. MAINTENANCE OF INSURANCE. The Company will and will cause each of its Subsidiaries at all times to maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated or as may otherwise be required by applicable law, including, without limitation, workers' compensation insurance, liability insurance, casualty insurance and business interruption insurance. 8.4. MAINTENANCE OF PROPERTIES. The Company will and will cause each of its Subsidiaries to maintain and keep, or cause to be maintained and kept, their respective properties and assets, owned or leased, used or useful in the conduct of its business, that, either individually or in the aggregate, are Material in good repair, working order and condition (other than ordinary wear and tear and as a result of casualty and condemnation), so that the business carried on in connection therewith may be properly conducted at all times. 8.5. PAYMENT OF TAXES AND CLAIMS; PERFORMANCE OF MATERIAL OBLIGATIONS. (a) The Company will and will cause each of its Subsidiaries to pay and discharge, and maintain appropriate reserves in respect of, all taxes, assessments and governmental charges or levies imposed upon them or any of their properties, assets, income or franchises, to the extent such taxes, assessments, charges or levies have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might by law become a Lien upon any property or assets of the Company or any of its Subsidiaries or any part thereof; PROVIDED, HOWEVER, that neither the Company nor any of its Subsidiaries shall be required to pay or to discharge any such tax, assessment, charge, levy or claim that is being contested in good faith and by appropriate proceedings and as to which adequate reserves are being maintained in accordance with GAAP, unless and until any Lien resulting therefrom attaches to its property and assets and becomes enforceable against its other creditors. (b) The Company will and will cause each of its Subsidiaries to perform all of its obligations under the terms of each contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting it, except where the failure to so perform could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (c) The Company will and will cause each of its Subsidiaries to pay when due all rents and other amounts payable under any leases and Systems Agreements to which the Company or any of its Subsidiaries is a party or by which any of its properties and assets are bound, except where the failure to so pay could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 8.6. PRESERVATION OF CORPORATE EXISTENCE, ETC. The Company will at all times preserve and keep in full force and effect its corporate existence and its rights (charter and statutory). Except with respect to the AMI Merger, the Company will at all times preserve and keep in full force and effect the corporate existence of each of its Subsidiaries and all permits, licenses, approvals, rights, privileges and franchises of the Company and its Subsidiaries. 8.7. MAINTENANCE OF BOOKS AND RECORDS; INSPECTION. (a) The Company will and will cause each of its Subsidiaries to keep proper records and books of account in which full, true and correct entries in conformity with generally accepted accounting principles in effect from time to time in the United States of America consistently applied or as otherwise required by applicable rules and regulations of any governmental agency or regulatory authority having jurisdiction over the Company and its Subsidiaries and all requirements of law shall be made of all financial transactions and all of the assets and businesses of the Company and each such Subsidiary (including, without limitation, the establishment and maintenance of adequate and appropriate reserves). (b) The Company shall and shall cause each of its Subsidiaries to permit each holder of Notes that is an Institutional Investor and any of the agents or representatives thereof: (i) NO DEFAULT. If no Default or Event of Default has occurred and is continuing, at the expense of the Company and upon reasonable prior written notice to the Company, at any reasonable time and from time to time (as often as may be requested), to visit and inspect any of the offices and properties, and to examine and make copies of and abstracts from the records and books of account, of the Company and/or any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Company or any such Subsidiary, as the case may be, with, and be advised as to the same by, their officers or directors and with or by their independent certified public accountants (and by this Section 8.7(b)(i) the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries with such Persons). (ii) DEFAULT. If a Default or Event of Default has occurred and is continuing, at the expense of the Company and without prior notice, at any time and from time to time (as often as may be requested), to visit and inspect any of the offices or properties, and to examine and make copies of and abstracts from the records and books of account, of the Company and/or any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Company or any such Subsidiary, as the case may be, with, and be advised as to the same by, their officers or directors and with or by their independent public accountants (and by this Section 8.7(b)(ii) the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries with such Persons). 8.8. USE OF PROCEEDS. The Company will use the proceeds of the issue and sale of the Notes solely for the purposes set forth in Section 5.14(a). 8.9. CAPITAL STOCK. The Company will at all times be the direct, legal and beneficial owner of 100% of the outstanding capital stock of each of its directly owned Subsidiaries as set forth in Schedule 5.3, and the indirect legal and beneficial owner of 100% of the outstanding capital stock of each of its indirectly owned Subsidiaries free and clear of any lien, security interest, option or other charge or encumbrance. 8.10. FULL COOPERATION. The Company agrees that, at all times, it will cooperate fully with you and provide all information reasonably requested by you in connection with the Refinancing, including information, term sheets, drafts of agreements with strategic partners, lenders, acquirors or equity investors. 8.11. OBLIGATIONS OF ADDITIONAL OBLIGORS. The Company will cause (a)(i) all of the shares of capital stock of each First Tier Subsidiary of the Company, (ii) its membership interest in TelQuest, (iii) its shares of capital stock of CS Wireless, (iv) all of the shares of capital stock of the AMI Subsidiaries immediately following the consummation of the AMI Merger and (v) all of the shares of capital stock of each Subsidiary of an Unrestricted Subsidiary, in each case, now or hereafter owned by the Company or any of its Unrestricted Subsidiaries and (b) such other present and future property and assets of each Unrestricted Subsidiary as you may request, including, without limitation, proceeds from the liquidation of FCC licenses, FCC leases, owned real estate, leaseholds, fixtures, accounts, license rights, patents, trademarks, tradenames, copyrights, chattel paper, insurance proceeds, contract rights, hedge agreements, cash bank accounts, tax refunds, documents, instruments, general intangibles, inventory, equipment and other goods to be pledged to the Agent pursuant to the terms and conditions of the Security Agreement or a security agreement in substantially the form of Exhibit B attached hereto and otherwise in form and substance reasonably acceptable to you and the Agent. In furtherance of the foregoing provisions of this Section 8.11, the Company agrees that: (i) at the time that any Person becomes a Subsidiary, the Company shall so notify you and the Agent and shall cause (a) such Person to cause 100% (or, if less, the full amount owned, directly or indirectly, by the Company or any Unrestricted Subsidiary), of the shares of capital stock of such Person to be delivered to the Agent (together with undated stock powers executed in blank) and (b) such other present and future property and assets of each Unrestricted Subsidiary as you may request, including, without limitation, proceeds from the liquidation of FCC licenses, FCC leases, owned real estate, leaseholds, fixtures, accounts, license rights, patents, trademarks, tradenames, copyrights, chattel paper, insurance proceeds, contract rights, hedge agreements, cash bank accounts, tax refunds, documents, instruments, general intangibles, inventory, equipment and other goods and pledged to the Agent pursuant to security agreement(s) in substantially the form of Exhibit B attached hereto and otherwise in form and substance reasonably acceptable to you and the Agent, (ii) to cause such Person to deliver such other documentation as you or the Agent may reasonably request in connection with the foregoing, including, without limitation, certified resolutions, UCC Financing Statements and other organizational and authorizing documents of such Person and favorable opinions of counsel to such Person (which shall cover, among other things, the legality, validity, binding effect and enforceability of the documentation referred to above in Section 8.11(i)), all in form, substance and scope reasonably satisfactory to you and the Agent, and (iii) upon the release of the shares of capital stock of the Seller Restricted Subsidiaries, the Company shall deliver certificates representing such shares to you accompanied by undated stock powers executed in blank. 8.12. PAYMENT OF FEES. (a) The Company will pay the Commitment Fee on the Maturity Date. (b) The Company will pay all fees required to be paid by the FCC and the Communications Act. 8.13. AMI MERGER. As soon as practicable, but in any event within 5 days of receipt of all necessary approvals from the FCC, take or cause to be taken any and all action necessary or desirable to effect the merger of AMI into the Company as provided in the AMI Merger Agreement. 8.14. MAINTENANCE OF SEPARATENESS. Each of the Obligors and each of its Subsidiaries will conduct, its dealings with each of its Subsidiaries on an independent and arm's-length basis and will observe and maintain, its separate identity from that of each of its Subsidiaries by (i) not allowing its funds or other assets to be commingled with the funds or other assets of any of its Subsidiaries, (ii) maintaining separate corporate and financial records from those of each of its Subsidiaries and observing all corporate formalities, including corporate minute books and acting pursuant to corporate resolutions, (iii) paying its liabilities from its own assets, (iv) maintaining bank accounts and accounting systems separate from those of each of its Subsidiaries and (v) conducting its dealings with third parties in its own name and as a corporate entity separate and distinct from each of its Subsidiaries. 8.15. PERFORMANCE OF MATERIAL CONTRACTS. Each of the Obligors and each of its Subsidiaries will perform and observe all of the terms and provisions of each Material Contract to be performed or observed by it, maintain each such Material Contract in full force and effect, enforce each such Material Contract in accordance with its terms, take all such action to such end as may be from time to time requested by the Purchaser and, upon request of the Purchaser, make to each other party to each such Material Contract such demands and requests for information and reports or for actions as such Obligor is entitled to make under such Material Contract, and cause each of its Subsidiaries to do so except, in any case, where the failure to do so, either individually or in the aggregate could not have a Material Adverse Effect. 8.16. ACCOUNTS. The Company will maintain the Account (as defined in the Pledge Agreement and listed in Part IV of Schedule 5.28), the Cash Collateral Account (as defined in the Security Agreement and listed in Part IV of Schedule 5.28), the payroll account listed in Part IV of Schedule 5.28 and the Lockbox Account listed in Part I of Schedule 5.28 into which, among other things, all proceeds of Collateral are paid, in each case with Fleet National Bank or one or more banks acceptable to the Purchaser that have accepted the assignment of such accounts to the Purchaser pursuant to the Security Agreement. Neither the Company nor any of its Subsidiaries will establish any deposit accounts other than those set forth on Schedule 5.28. Each Obligor shall instruct (i) each bank listed in Part I of Schedule 5.28 to transfer to the Cash Collateral Account, at the end of each Business Day, in same day funds, an amount equal to the credit balance of such account in such bank, (ii) each bank listed in Part II of Schedule 5.28 to transfer to the Cash Collateral Account, at the end of the next Business Day, in same day funds, an amount equal to the credit balance of such account minus $20,000 and (iii) each bank listed in Part III of Schedule 5.28 to transfer to the Cash Collateral Account no later than December 3, 1997, in same day funds, all funds, if any, in such accounts and immediately thereafter to close such accounts. 9. NEGATIVE COVENANTS. From the date of this Agreement and, thereafter, so long as any of the Notes shall be outstanding, the Company and its Subsidiaries will perform and comply with each of the following covenants: 9.1. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. Except as otherwise permitted in this Agreement, the Company will not and will not permit any of its Subsidiaries to directly or indirectly enter into or engage in any transaction or series of related transactions (including, without limitation, the purchase, lease, sale or exchange of property or assets of any kind or the rendering of any service) with any of its Affiliates, except in the ordinary course and pursuant to the reasonable requirements of the Company's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would be obtainable in a comparable arm's-length transaction with a Person not an Affiliate thereof; PROVIDED that the foregoing restrictions of this Section 9.1 shall not apply to any tax sharing agreements in existence on the date of closing and approved by the Purchaser. 9.2. LIMITATIONS ON LIENS. The Company will not and will not permit any of its Subsidiaries to (a) create, incur, assume or suffer to exist any Lien on or with respect to any of its property or assets of any character (including, without limitation, accounts), whether now owned or hereafter acquired, (b) sign or file or suffer to exist under the Uniform Commercial Code or any similar statute of any jurisdiction, a financing statement (or the equivalent thereof) that names the Company or any of its Subsidiaries as debtor, (c) sign or suffer to exist any security agreement authorizing any secured party thereunder to file such financing statement (or the equivalent thereof), or (d) assign any accounts or other right to receive income; EXCLUDING, HOWEVER, from the operation of the foregoing restrictions the following: (i) Permitted Liens; (ii) Liens existing on the date of this Agreement and described in Schedule 9.2(ii) attached hereto; (iii) purchase money Liens upon or in real property or equipment acquired or held by the Company or any of its Subsidiaries in the ordinary course of business to secure the purchase price of such real property or equipment or to secure Indebtedness incurred solely for the purpose of financing the acquisition, construction or improvement of such real property or equipment to be subject to such Liens, or Liens existing on any such real property or equipment at the time of its acquisition (other than any such Liens created in contemplation of such acquisition that do not secure the purchase price of such real property or equipment); PROVIDED, HOWEVER, that no such Lien shall extend to or cover any property other than the real property or equipment being acquired, constructed or improved; and PROVIDED FURTHER that the aggregate principal amount of Indebtedness secured by Liens permitted under this Section 9.2(iii) shall not exceed $200,000; and (iv) deposits to secure the performance of leases of property (whether real, personal or mixed) of the Company and its Subsidiaries (excluding Capitalized Leases) in the ordinary course of business, in an aggregate principal amount not to exceed $1,400,000. If the Company shall create, assume or suffer to exist any Lien upon any of its property or assets, or the property or assets of any of its Subsidiaries, whether now owned or hereafter acquired, other than any Liens expressly permitted under clauses (i) through (iv) of this Section 9.2, the Company will make or cause to be made effective provision whereby the Notes and all of the other Obligations of the Obligors under the Note Documents will be secured equally and ratably with any and all other Obligations of the Company and its Subsidiaries secured thereby; PROVIDED that the securing of the Notes and all of the other Obligations of the Obligors under the Note Documents equally and ratably with such other Obligations of the Company and its Subsidiaries will in no way be deemed to remedy or waive any Default or Event of Default resulting from the incurrence, assumption, existence or continuation of any such Lien. 9.3. LIMITATIONS ON INDEBTEDNESS. The Company will not and will not permit any of its Subsidiaries to create, incur, assume or suffer to exist any Indebtedness other than: (a) Indebtedness arising under the Note Documents; (b) Indebtedness owed to the Company by any of its Subsidiaries so long as such indebtedness is evidenced by a promissory note, in an amount and in form and substance satisfactory to you, and delivered to the Collateral Agent under the Security Agreement; (c) Indebtedness listed on Schedule 5.19; (d) Indebtedness secured by Liens permitted under Section 9.2(c)(iii); (e) the $1,000,000 payment due under the BANX Agreement; and (f) Indebtedness of the Company in respect of interest rate or currency rate Hedge Agreements; PROVIDED that all such Hedge Agreements shall be nonspeculative in nature. 9.4. LIMITATIONS ON LEASE OBLIGATIONS. The Company will not and will not permit any of its Subsidiaries at any time to create, incur, assume or suffer to exist, any obligations as lessee for the rental or hire of real or personal property of any kind under leases or agreements to lease, including, but not limited to, Capitalized Leases, except as identified on Schedule 9.4. 9.5. LIMITATIONS ON MERGERS, CONSOLIDATIONS, SALES OF ASSETS, ETC. (a) The Company will not and will not permit any of its Subsidiaries to merge or consolidate with or into, or convey, transfer, lease or otherwise dispose (whether in one transaction or a series of transactions) of its property and assets (whether now owned or hereafter acquired) to, any Person, except that, so long as no Default or Event of Default shall have occurred and be continuing or shall occur as a consequence thereof: (i) the Company may merge or consolidate with, or convey, transfer, lease or otherwise dispose of all or substantially all of its property and assets to, any of its Subsidiaries so long as that the Company is the surviving corporation; (ii) any Subsidiary may merge or consolidate with, or convey, transfer, lease or otherwise dispose of all or substantially all of its property and assets to, any First Tier Subsidiary of the Company other than the Seller Restricted Subsidiaries; and (iii) the Company may convey, transfer, lease or otherwise dispose of a portion of its property and assets, and any Subsidiary of the Company may convey, transfer, lease or otherwise dispose of all or a portion of its property and assets, if such conveyance, transfer, lease or other disposition is otherwise expressly permitted under Section 9.5(b) or identified on Schedule 9.5(a). (b) The Company will not and will not permit any of its Subsidiaries to sell, lease, transfer or otherwise dispose (whether in one transaction or a series of transactions) of any property and assets (whether now owned or hereafter acquired), including, without limitation, pursuant to any sale and leaseback transaction, other than: (i) sales of inventory in the ordinary course of business and for fair consideration; (ii) the sale or disposition of property and assets of the Company and its Subsidiaries identified on Schedule 9.5(b) for fair market value at least 75% of which is received in cash, PROVIDED that the proceeds from such sale or disposition are used in accordance with the Approved Budget; (iii) the sale for cash and for fair consideration PROVIDED, HOWEVER, that the proceeds of such sale are used to prepay the Notes; and (iv) the sale or disposition of obsolete property and assets of the Company and its Subsidiaries no longer useful in the conduct of their respective businesses having an aggregate book value not in excess of $1,000,000 for all such sales and dispositions provided that the proceeds from such sale are used in accordance with the Approved Budget. PROVIDED, HOWEVER, notwithstanding anything to the contrary set forth in this Section 9.5(b), the Company shall be permitted to (A) transfer to CS Wireless the Channels and Channel Leases (or interests therein) relating to the Charlotte, North Carolina market in fulfillment of the Company's obligations under that certain Participation Agreement dated as of December 12, 1995 (as amended, the "Participation Agreement") among the Company, CS Wireless and Heartland Wireless Communications, Inc., and (B) transfer to CS Wireless the BTA Authorizations awarded to the Company by the FCC for the Cleveland-Akron, Ohio and Stockton, California BTAs, when and as awarded by the FCC, and to take all actions necessary in connection therewith, all in fulfillment of the Company's obligations under the Participation Agreement (as in effect on the date hereof). 9.6. LIMITATIONS ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. (a) The Company will not and will not permit any of its Subsidiaries to declare or pay any dividends, purchase, redeem, retire or otherwise acquire for value any of its capital stock or any warrants, rights or options to acquire such capital stock, now or hereafter outstanding, return any capital to its stockholders as such, make any distribution of assets, capital stock, warrants, rights, options, obligations or securities to its stockholders as such or issue or sell any capital stock or any warrants, rights or options to acquire such capital stock other than any dividend or distribution made by a direct or indirect wholly owned Subsidiary of the Company to its parent corporation. (b) The Company will not and will not permit any of its Subsidiaries to directly or indirectly create or otherwise cause, incur, assume, suffer or otherwise permit to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Subsidiary (i) to pay dividends or to make any other distribution on any shares of capital stock of (or other ownership or profit interest in) such Subsidiary owned by the Company or any of its Subsidiaries, (ii) to pay or to subordinate any Indebtedness owed to the Company or any of its Subsidiaries, (iii) to make loans or advances to the Company or any of its Subsidiaries or (iv) to transfer any of its property or assets to the Company or any of its Subsidiaries, except with respect to any encumbrance or restriction on the Seller Restricted Subsidiaries as in effect on the date hereof. 9.7. LIMITATIONS ON PREPAYMENTS OF INDEBTEDNESS, ETC. If any Default or Event of Default has occurred and is continuing or would occur, directly or indirectly, as a consequence thereof, the Company will not and will not permit any of its Subsidiaries (a) after the issuance thereof, to amend, modify or otherwise change in any manner (or permit the amendment, modification or other change in any manner of) any of the terms of any Indebtedness of the Company or any such Subsidiary if such amendment, modification or change would shorten the final maturity or average life to maturity of, or require any payment to be made sooner than originally scheduled on, such Indebtedness, increase the interest rate applicable thereto or change any subordination provision thereof, (b) to make (or give any notice with respect thereto) any voluntary or optional payment, prepayment, redemption or acquisition for value of any Indebtedness of the Company or any such Subsidiary (including, without limitation, by way of depositing money or securities with the trustee therefor before the date required for the purpose of paying when due) of any Indebtedness of the Company or any such Subsidiary, or refund, refinance, replace or exchange any other Indebtedness for any such Indebtedness or (c) to amend, modify or otherwise change its articles of incorporation or bylaws (or other similar organizational documents) if such amendment, modification or change, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 9.8. LIMITATIONS ON NEGATIVE PLEDGES. The Company will not permit any of its Subsidiaries to enter into, assume or suffer or permit to exist any agreement prohibiting, conditioning or otherwise restricting the creation or assumption of any Lien upon its properties or assets, whether now owned or hereafter acquired, or requiring the grant of any assignment or security for such obligation if an assignment or security is given for some other obligation, other than: (a) the Note Documents; (b) in connection with any Indebtedness described on Schedule 5.19 attached hereto to the extent such agreement is in effect on the date hereof; (c) any such agreement prohibiting other encumbrances on specific property and assets of the Company or any of its Subsidiaries, which encumbrance secures the payment of Indebtedness incurred solely to acquire, construct or improve such property or assets or to finance the purchase price therefor and which Indebtedness is otherwise permitted to be incurred under the terms of this Agreement; (d) any agreement setting forth customary restrictions on the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract of similar property or assets; (e) any restriction or encumbrance with respect to any Subsidiary of the Company imposed pursuant to an agreement that has been entered into for the sale, transfer or other disposition of all or substantially all of the property and assets of such Subsidiary so long as such sale or disposition is otherwise expressly permitted under the terms of this Agreement; and (f) any agreement evidencing Indebtedness outstanding on the date a Subsidiary of the Company first becomes a Subsidiary of the Company or any of its Subsidiaries. 9.9. LIMITATIONS ON CHANGES IN FISCAL YEAR. The Company will not and will not permit any of its Subsidiaries to change its fiscal year. 9.10. LIMITATIONS ON SPECULATIVE REAL ESTATE INVESTMENTS. Notwithstanding anything to the contrary set forth in this Agreement, the Company will not and will not permit any of its Subsidiaries to acquire, lease, assume or otherwise invest in any real property solely for investment purposes. 9.11. LIMITATION ON INVESTMENTS. The Company will not and will not permit any of its Subsidiaries to make or hold any Investment in any Person other than (i) purchases of assets permitted under Section 9.12, (ii) intercompany Indebtedness permitted pursuant to Section 9.3, (iii) Investments in Cash Equivalents, (iv) existing Investments set forth on Schedule 9.11 and (v) Investments provided for in the Approved Budget. 9.12. LIMITATION ON ASSET PURCHASES. The Company will not and will not permit any of its Subsidiaries to purchase any assets other than (i) inventory occurring in the ordinary course of business consistent with past practice and (ii) purchases of assets provided for in the Approved Budget. 9.13. LIMITATION ON CAPITAL STOCK. The Company will not and will not permit any of its Subsidiaries to (a) purchase, redeem or otherwise acquire for value any shares of any capital stock or any warrants, rights or options to acquire any such shares, now or hereafter outstanding, or the voluntary prepayment, redemption or repurchase in respect of any debt; or (b) issue any capital stock or any warrants, rights or options to acquire any such capital stock other than employee stock options issued pursuant to plans approved or to be approved by the Company's shareholders and other than the issuance by the Company of capital stock that is not Prohibited Stock. 9.14. LIMITATION ON TERMINATION OF LICENSES. Except as disclosed on Schedule 9.14, the Company will not and will not permit any of its Subsidiaries to lose, fail to hold, or fail to renew for a full license term, forfeit, revoke, rescind or materially impair any Channels, Channel Licenses or FCC Licenses. 9.15. LIMITATION ON LINE OF BUSINESS. The Company will not and will not permit any of its Subsidiaries to engage in any line of business other than in accordance with the Approved Budget and in the usual and ordinary course and other than in a manner that is consistent with past practice. 9.16. LIMITATION ON TERMINATION OF EMPLOYER PLANS. The Company will not and will not permit any of its Subsidiaries to create or otherwise cause to exist or become effective any consensual risk of termination of any single employer plan or multiemployer plan by the Pension Benefit Guaranty Corporation if the occurrence of such event could reasonably be expected to have a material adverse effect on the business operations, properties, prospects, or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole. 9.17. LIMITATION ON INVESTMENT COMPANY ACT. The Company will not and will not permit any of its Subsidiaries to be or become an investment company subject to the registration requirements of the Investment Company Act of 1940, as amended. 9.18. LIMITATIONS ON AMENDMENT, ETC. OF BANX AGREEMENT OR MATERIAL CONTRACTS. (a) The Company will not, at any time cancel or terminate the BANX Agreement or any Material Contract or consent to or accept any cancellation or termination thereof, amend, modify or change in any manner, any term or condition of the BANX Agreement or any Material Contract or give any consent, waiver or approval thereunder, waive any default under or any breach of any term or condition of the BANX Agreement or any Material Contract, or agree in any manner to any other amendment, modification or change of any term or condition of the BANX Agreement or any Material Contract. (b) No Obligor shall enter into any agreement, commitment or Material Contract (except such Material Contracts delivered pursuant to Section 4.3(h)) which may, upon the occurrence or non-occurrence of any subsequent event or otherwise,require the payment by any Obligor of any amount in excess of $1,000,000. 9.19. LIMITATION ON PRESS RELEASES. The Company will not and will not permit any of its Subsidiaries to issue a press release or other public disclosure containing any reference to you or any of your Affiliates without your express written consent except as otherwise may be required by applicable law. 9.20. LIMITATION ON CREATION OF SUBSIDIARIES. The Company will not and will not permit its Subsidiaries to create any Subsidiary not in existence on the date hereof. 9.21. LIMITATIONS ON EMPLOYMENT CONTRACTS. The Company will not and will not permit any of its Subsidiaries: (a) to waive, amend, supplement or otherwise modify any of the Employment Agreements or other employment agreements or compensation arrangements described in Section 5.24(a); or (b) to directly or indirectly enter into or create, incur, assume or suffer to exist any obligation in connection with any employment agreement or other compensation arrangement other than the Employment Agreements and the employment agreements and other compensation arrangements described in Schedule 5.24(a); (c) to set, determine or otherwise establish any target or levels for the determination of any bonuses or additional compensation arrangements other than as provided in the Employment Agreements; or (d) to pay or make any other distribution of any bonus or additional compensation other than pursuant to the Employment Agreements. 10. FINANCIAL COVENANTS. From the date of this Agreement and, thereafter, so long as any of the Notes shall be outstanding, the Company will perform and comply in all material respects with the Approved Budget. 11. EVENTS OF DEFAULT. 11.1. EVENTS OF DEFAULT. An "Event of Default" shall exist if any of the following conditions or events shall occur and be continuing (each, an "EVENT OF DEFAULT"): (a) any Obligor defaults in the payment of any principal on any Note when the same becomes due and payable, whether by scheduled maturity or at a date fixed for prepayment or repurchase or by declaration, demand or otherwise; or (b) any Obligor defaults in the payment of any interest on any Note, or any Obligor defaults in the payment of any other amount owing under any of the Note Documents, when the same becomes due and payable, whether by scheduled maturity or at a date fixed for prepayment or repurchase or by declaration, demand or otherwise; or (c) any Obligor defaults in the performance of or compliance with any term, covenant or agreement contained in this Agreement on its part to be performed or complied with; or (d) any Obligor defaults in the performance of or compliance with any term, covenant or agreement contained in any of the Note Documents on its part to be performed or complied with and such default shall remain unremedied for 5 days after the earlier of the first date on which (i) a Responsible Officer obtains becomes aware of such default and (ii) the Company receives written notice of such default from any holder of a Note; or (e) any representation or warranty made or deemed made by or on behalf of any Obligor or by any officer of any Obligor under or in connection with this Agreement or any other Note Document or in any writing furnished in connection with the Transaction or any of the other transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which it was made or deemed to have been made; or (f) the Company or any of its Subsidiaries shall fail to pay any principal of, premium or interest on or any other amount payable in respect of, any Indebtedness that is outstanding in a principal or notional amount of at least U.S.$1,500,000 (or the equivalent thereof in one or more other currencies), either individually or in the aggregate (but excluding Indebtedness outstanding hereunder), of the Company and its Subsidiaries, when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness; or any other event shall occur or condition shall exist under any agreement or instrument evidencing, securing or otherwise relating to any such Indebtedness and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness or otherwise to cause, or to permit the holder or holders thereof (or a trustee or agent on behalf of such holders) to cause such Indebtedness to mature; or any such Indebtedness shall be declared to be due and payable or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Indebtedness shall be required to be made, in each case prior to the stated maturity thereof; or (g) the Company or any of its Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Company or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its property and assets and, in the case of any such proceeding instituted against it (but not instituted by it) that is being diligently contested by it in good faith, either such proceeding shall remain undismissed or unstayed for a period of 30 days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or any substantial part of its property and assets) shall occur; or the Company or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this Section 11.1(g); or (h) one or more judgments or orders for the payment of money aggregating $1,000,000 (or the equivalent thereof in one or more other currencies) or more are rendered against one or more of the Company and its Subsidiaries and remain unsatisfied and either (i) enforcement proceedings shall have been commenced by any creditor upon any such judgment or order or (ii) there shall be a period of at least 30 days after entry thereof during which a stay of enforcement of any such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; PROVIDED, HOWEVER, that any such judgment or order shall not give rise to an Event of Default under this Section 11.1(h) if and for so long as (A) the amount of such judgment or order is covered by a valid and binding policy of insurance between the defendant and the insurer covering full payment thereof and (B) such insurer has been notified, and has not disputed the claim made for payment, of the amount of such judgment or order; or (i) any provision of any Note Document after delivery thereof pursuant to Section 4 or 8.11 shall for any reason (other than pursuant to the express terms thereof) cease to be valid and binding on or enforceable against any Obligor intended to be a party to it or to give you or the Agent any of the rights, powers or privileges purported to be created thereunder, or any such Obligor shall so state in writing; or (j) any Collateral Document after delivery thereof pursuant to Section 4 or 8.11 shall for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected first priority lien on and security interest in the Collateral purported to be covered thereby; or (k) any Termination Event shall have occurred with respect to a Plan and the sum (determined as of the date of occurrence of such Termination Event) of the Insufficiency of such Plan and the Insufficiency of any and all other Plans with respect to which a Termination Event shall have occurred and be continuing (or the liabilities of the Obligors and the ERISA Affiliates related to such Termination Event) exceeds an aggregate amount of $2,500,000 (or the equivalent thereof in one or more other currencies); or (l) any Obligor or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan in an amount that, when aggregated with all other amounts required to be paid to Multiemployer Plans by the Obligors and the ERISA Affiliates as Withdrawal Liability (determined as of the date of such notification), exceeds $2,500,000 (or the equivalent thereof in one or more other currencies); or (m) any Obligor or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization, is insolvent or is being terminated, within the meaning of Title IV of ERISA, and, as a result of such reorganization, insolvency or termination, the aggregate annual contributions of the Obligors and the ERISA Affiliates to all Multiemployer Plans that are in reorganization or being terminated at such time have been or will be increased over the amounts contributed to such Multiemployer Plans for the plan years of such Multiemployer Plans immediately preceding the plan year in which such reorganization, insolvency or termination occurs by an amount exceeding $2,500,000 (or the equivalent thereof in one or more other currencies); or (n) any "accumulated funding deficiency" (as defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code), whether or not waived, shall exist with respect to one or more Plans in excess of $2,500,000 (or the equivalent thereof in one or more other currencies) in the aggregate, or any Lien shall exist on the property and assets of any Obligor or any ERISA Affiliate in favor of the PBGC or a Plan; or (o) any prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code) or any breach of fiduciary responsibility shall occur that may subject any Obligor or any ERISA Affiliate to any liability under Section 406, 409, 502(i) or 502(l) of ERISA or Section 4975 of the Internal Revenue Code, or under any agreement or instrument pursuant to which any Obligor or any ERISA Affiliate has agreed or is required to indemnify any Person against such liability; or (p) the BANX Agreement shall for any reason be cancelled or terminated. 11.2. ACCELERATION. (a) If an Event of Default with respect to the Company or any of its Subsidiaries described in Section 11.1(g) shall occur, all of the Notes then outstanding shall automatically become immediately due and payable. (b) If any other Event of Default shall occur and be continuing, any holder or holders of more than 50% in aggregate principal amount of the Notes at the time outstanding may at any time, at its or their option, by notice or notices to the Company, declare all of the Notes then outstanding to be immediately due and payable. (c) If any Event of Default described in Section 11.1(a) or 11.1(b) has occurred and is continuing, any holder or holders of Notes at the time outstanding may at any time, at its or their option, by notice or notices to the Company, declare all of the Notes held by it or them to be immediately due and payable. If any holder of a Note shall exercise its rights under this Section 11.2(c) at any time, the Company will give prompt notice thereof to the holders of all other Notes at such time outstanding and each such holder may (whether or not such notice is given or received), by written notice to the Company, declare the aggregate principal amount of all Notes held by it to be, and the same shall forthwith become, due and payable. Upon any Notes becoming due and payable under this Section 11.2, whether automatically or by declaration, such Notes will forthwith mature and the entire unpaid principal amount of such Notes, plus all accrued and unpaid interest thereon, shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice of any kind, all of which are hereby waived by the Obligors. Each Obligor acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by any Obligor (except as herein specifically provided for). 11.3. OTHER REMEDIES. If one or more Defaults or Events of Default shall occur and be continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 11.2(a), the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any other Note Document, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. 11.4. RESCISSION. At any time after any Notes have been declared due and payable pursuant to Section 11.2(b) or 11.2(c), as the case may be, the holders of not less than 51% in aggregate principal amount of the Notes then outstanding, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Obligors have paid all overdue interest on the Notes, all principal of any Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal, and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, at the Default Rate, (b) all Defaults and Events of Default, other than nonpayment of amounts that have become due solely by reason of such declaration, have been remedied or have been waived pursuant to Section 16, and (c) no judgment or decree has been entered for the payment of any monies due pursuant hereto, to the Notes or to any other Note Document. No rescission and annulment under this Section 11.4 will extend to or affect any subsequent Default or Event of Default or impair any right consequent thereon. 11.5. RESTORATION OF RIGHTS AND REMEDIES. If any holder of any Note has instituted any proceeding to enforce any right or remedy under this Agreement or any other Note Document and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to such holder, then, and in each such case, the Obligors and the other holders of Notes shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder and, thereafter, all rights and remedies of the holders of Notes shall continue as though no such proceeding had been instituted. 11.6. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any other Note Document upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of each of the Company and the other Obligors under Section 14, the Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 11, including, without limitation, reasonable attorneys' fees, expenses and disbursements. 12. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES. 12.1. REGISTRATION OF NOTES. The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note that is an Institutional Investor, promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes. 12.2. TRANSFER AND EXCHANGE OF NOTES. Upon surrender of any Note at the principal executive office of the Company for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), the Obligors shall execute and deliver, at the Company's expense (except as provided below), one or more new Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be in substantially the form of Exhibit A attached hereto. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $100,000, PROVIDED that, if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $100,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representations set forth in Section 6.3. 12.3. REPLACEMENT OF NOTES. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (PROVIDED that if the holder of such Note is, or is a nominee for, an original Purchaser or any other Institutional Investor, such Person's own unsecured agreement of indemnity shall be deemed to be satisfactory), or (b) in the case of mutilation, upon surrender and cancellation thereof, each Obligor, at its own expense, shall execute and deliver, in lieu thereof, a new Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon. 13. PAYMENTS ON NOTES. 13.1. PLACE OF PAYMENT. Subject to Section 13.2, payments of principal and interest becoming due and payable on the Notes shall be made in New York, New York, at the principal office of the Company in such jurisdiction. The Company may, at any time, by notice to you, change the place of payment of the Notes so long as such place of payment shall be either the principal office of the Company in such jurisdiction or the principal office of a bank or trust company in such jurisdiction. 13.2. HOME OFFICE PAYMENT. So long as you or your nominee shall be the holder of any Note, and notwithstanding anything contained in Section 13.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal and interest by the method and at the address specified for such purpose below your name on the signature page attached hereto, or by such other method or at such other address as you shall have from time to time specified to the Company and the Agent in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, you shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 13.1. Prior to any sale, transfer or other disposition of any Note held by you or your nominee, you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section 12.2. The Company will afford the benefits of this Section 13.2 to any Institutional Investor that is the direct or indirect transferee of any Note purchased by you under this Agreement and that has made the same agreement relating to such Note as you have made in this Section 13.2. 14. EXPENSES, ETC. 14.1. TRANSACTION EXPENSES. Whether or not any aspect of the Transaction or any of the other transactions contemplated hereby are consummated, the Company will pay all costs and expenses (including reasonable attorneys' fees of a special counsel, local or other counsel, financial advisors and outside accountants) incurred by you or holder of a Note in connection with the preparation, execution, delivery and administration of this Agreement, the Notes and the other Note Documents and in connection with any amendments, waivers or consents under or in respect of this Agreement, the Notes or any of the other Note Documents (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the Commitment Fee, (b) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement, the Notes or any of the other Note Documents or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement, the Notes or any of the other Note Documents, or by reason of being a holder of any Note, and (c) the costs and expenses, including financial advisors' fees, incurred in connection with the insolvency or bankruptcy of the Company or any of its Subsidiaries or in connection with any work-out, renegotiating or restructuring of the Transaction or any of the other transactions contemplated hereby, by the Notes and by the other Note Documents. The Company further agrees to indemnify you and each of your transferees from and hold you and each of them harmless from and against any and all present and future transfer, stamp, documentary or other similar taxes, assessments or charges made by any Governmental Authority by reason of the execution, delivery or performance of this Agreement, any Note or any other Note Document and all costs, expenses, taxes, assessments and other charges incurred in connection with any filing or perfection of any lien, pledge or security interest contemplated by any of the Collateral Documents or any other document referred to therein. The Company will pay, and will save you and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses, if any, of brokers and finders (other than those retained by you). 14.2. INDEMNITY. Each Obligor agrees to indemnify the Purchaser and its affiliates and their respective directors, officers, employees, agents, investment advisors and controlling persons (the Purchaser and each such person being an "INDEMNIFIED PARTY") from and against any and all losses, claims, damages and liabilities, joint or several, to which such Indemnified Party may become subject under any applicable federal or state law, or otherwise, and related to or arising out of the Notes, the Note Purchase Agreement, the Refinancing or any other transaction contemplated by this Agreement and the performance by the Purchaser of the services contemplated by this Agreement and will reimburse any Indemnified Party for all expenses (including reasonable counsel fees and expenses) as they are incurred in connection with the investigation of, preparation for or defense of any pending or threatened claim or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party and whether or not such claim, action or proceeding is initiated or brought by or on behalf of the Company or any other Obligor. No Obligor will be liable under the foregoing indemnification provision to the extent that any loss, claim, damage, liability or expense is found in a final judgment by a court to have resulted from the Purchaser's bad faith or gross negligence. Each Obligor also agrees that no Indemnified Party shall have any liability (whether direct or indirect, in contract or tort or otherwise) to such Obligor or its security holders or creditors related to or arising out of the performance by the Purchaser of the services contemplated by, this Agreement except to the extent that any loss, claim, damage or liability is found in a final judgment by a court to have resulted from the Purchaser's bad faith or gross negligence. If the indemnification of an Indemnified Party provided for in this Agreement is for any reason held unenforceable, each Obligor agrees to contribute to the losses, claims, damages and liabilities for which such indemnification is held unenforceable (i) in such proportion as is appropriate to reflect the relative benefits to the Obligors, on the one hand, and the Purchaser, on the other hand, of the Notes or the Refinancing as contemplated by this Agreement (whether or not the Notes or the Refinancing is consummated) or (ii) if (but only if) the allocation provided for in clause (i) is for any reason held unenforceable, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of such Obligor or Obligors, on the one hand, and the Purchaser, on the other hand, as well as any other relevant equitable considerations. Each Obligor agrees that for the purposes of this paragraph the relative benefits to the Obligors and the Purchaser of the Notes or the Refinancing as contemplated shall be deemed to be in the same proportion that the total amount of the Notes or the Refinancing, as the case may be, bears to the fees paid or to be paid to the Purchaser under this Agreement or in connection with the Notes; PROVIDED, HOWEVER, that, to the extent permitted by applicable law, in no event shall the Indemnified Parties be required to contribute an aggregate amount in excess of the aggregate fees actually paid to the Purchaser under this Agreement or in connection with the Notes. Each Obligor agrees that, without the Purchaser's prior written consent, it will not settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding in respect of which indemnification could be sought under the indemnification provision of this Agreement (whether or not the Purchaser or any other Indemnified Party is an actual or potential party to such claim, action or proceeding), unless such settlement, compromise or consent includes an unconditional release of each Indemnified Party from all liability arising out of such claim, action or proceeding. In the event that an Indemnified Party is requested or required to appear as a witness in any action brought by or on behalf of or against any Obligor or any affiliate of such Obligor in which such Indemnified Party is not named as a defendant, the Company and the other Obligors agree to reimburse the Purchaser for all reasonable expenses incurred by it in connection with such Indemnified Party's appearing and preparing to appear as such a witness, including, without limitation, the fees and disbursements of its legal counsel. 14.3. SURVIVAL. The obligations of the Obligors under this Section 14 shall survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement, the Notes or any other Note Document, and the termination of this Agreement and, in respect of any Person who was at any time a Purchaser or in whose name or for whose benefit such Person held any Note, the date on which such person no longer holds, or no longer holds in the name of or for the benefit of such other Person, any Note. 15. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein and in the other Note Documents shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by you of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of you or any other holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of any Obligor pursuant to this Agreement or any other Note Document shall be deemed representations and warranties of the Company and the other Obligors under this Agreement. Subject to the immediately preceding sentence, this Agreement, the Notes and the other Note Documents embody the entire agreement and understanding between you and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. 16. AMENDMENT AND WAIVER. 16.1. REQUIREMENTS. This Agreement and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and the Required Holders, except that (a) no amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 20 hereof, or any defined term (as it is used therein), will be effective as to you unless consented to by you in writing, and (b) no such amendment or waiver may, without the written consent of the holder of each Note at the time outstanding affected thereby: (i) subject to the provisions of Section 11 relating to acceleration or rescission, change the amount or time of any prepayment or repurchase or payment of principal of, or reduce the rate or change the time of payment or method of computation of interest on, the Notes; (ii) change the percentage of the aggregate principal amount of the Notes the holders of which are required to consent to any such amendment or waiver; (iii) subordinate the Notes (or any of them) to any other obligations of the Company or any other Obligor now or hereafter existing; (iv) reduce or limit any Obligor's liability with respect to any Obligations owing to you or any other holder of any Note; (v) release a material portion of the Collateral in any transaction or any series of related transactions; (vi) permit the creation, incurrence, assumption or existence of any Lien on a material portion of the Collateral in any transaction or any series of related transactions to secure any obligations other than obligations owing to you and the other holders of Notes under the Note Documents; or (vii) amend any of Sections 7, 11.1(a), 11.1(b), any of 11.2 through 11.6, 16 or 19. 16.2. SOLICITATION OF HOLDERS OF NOTES. (a) SOLICITATION. The Company will provide each holder of the Notes (irrespective of the amount of Notes then owned by it at the time) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the other Note Documents. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 16 to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes. (b) PAYMENT. The Company will not directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any holder of Notes as consideration for or as an inducement to the entering into by any holder of Notes or any waiver or amendment of any of the terms and provisions hereof or of the other Note Documents, unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment. 16.3. BINDING EFFECT, ETC. Any amendment or waiver consented to as provided in this Section 16 applies equally to all holders of Notes and is binding upon them, upon each future holder of any Note and upon each Obligor without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company, any other Obligor and the holder of any Note nor any delay in exercising any right, power or privilege hereunder or under any other Note Document shall operate as a waiver of any right of any holder of such Note; nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided under this Agreement and the other Note Documents are cumulative and not exclusive of any rights and remedies provided by applicable law. 16.4. NOTES HELD BY COMPANY, ETC. Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or any other Note Document, or have directed the taking of any action provided herein or in any other Note Document to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding. 17. NOTICES. All notices and communications provided for hereunder shall be in writing and delivered (a) by telecopy if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), (b) by registered or certified mail with return receipt requested (postage prepaid) or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent: (i) if to you or your nominee, to you or it at the address specified for such communications on the signature page attached hereto, or at such other address as you or it shall have specified to the Company and the Agent in writing; (ii) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company and the Agent in writing; or (iii) if to any Obligor, in care of the Company at its address set forth on the first page of this Agreement (Telecopier No. (518) 462-3045) to the attention of James P. Ashman, Executive Vice President and Chief Financial Officer, or at such other address as the Company shall have specified to the holder of each Note and the Agent in writing. All notices and communications provided for under this Section 17 will be deemed given and effective only when actually received. 18. REPRODUCTION OF DOCUMENTS. This Agreement, each of the other Note Documents and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications of this Agreement or any other Note Document that may hereafter be executed, (b) documents received by you at the Closing (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to you, may be reproduced by you by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and you may destroy any original document so reproduced. Each Obligor agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by you in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 18 shall not prohibit any Obligor or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction. 19. CONFIDENTIAL INFORMATION. You hereby agree to maintain the confidentiality of all Confidential Information in accordance with procedures adopted by you in good faith to protect confidential information of third parties delivered to you; PROVIDED that you may deliver or disclose Confidential Information to (a) your directors, officers, employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by your Notes), (b) your counsel or your financial and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 19, (c) any other holder of any Note or to the Agent or any Bank, (d) any Institutional Investor to which you sell or offer to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 19), (e) any Person from which you offer to purchase any security of the Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 19), (f) any federal or state regulatory authority having jurisdiction over you, or (g) any other Person to which such delivery or disclosure may be necessary or appropriate (i) to effect compliance with any law, rule, regulation or order applicable to you, (ii) in response to any subpoena or other legal process, (iii) in connection with any litigation to which you, any other holder of any Note or the Agent are a party or (iv) if an Event of Default shall have occurred and be continuing, to the extent you may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under your Notes, this Agreement and the other Note Documents. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 19 as though it were a party to this Agreement. Upon the reasonable request of the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying the provisions of this Section 19. 20. SUBSTITUTION OF PURCHASER. You shall have the right to substitute any one of your Affiliates as the purchaser of the Notes that you have agreed to purchase hereunder, by written notice to the Company, which notice shall be signed by both you and such Affiliate, shall contain such Affiliate's agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representations set forth in Section 6. Upon receipt of such notice, wherever the word "you" is used in this Agreement (other than in this Section 20), such word shall be deemed to refer to such Affiliate in lieu of you. In the event that such Affiliate is so substituted as a purchaser hereunder and such Affiliate thereafter transfers to you all of the Notes then held by such Affiliate, upon receipt by the Company of notice of such transfer, wherever the word "you" is used in this Agreement (other than in this Section 20), such word shall no longer be deemed to refer to such Affiliate, but shall refer to you, and you shall have all the rights of an original holder of the Notes under this Agreement. 21. MISCELLANEOUS. 21.1. SUCCESSORS AND ASSIGNS. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not. 21.2. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the items payable on such next succeeding Business Day. 21.3. SATISFACTION REQUIREMENT. Except as otherwise provided herein, or in any other Note Document, if any agreement, certificate or other writing, or any action taken or to be taken, is by the terms of this Agreement or any other Note Document required to be satisfactory to you or to the Required Holders, the determination of such satisfaction shall be made by you or the Required Holders, as the case may be, in the sole and exclusive judgment (exercised in good faith) of the Person or Persons making such determination. 21.4. SEVERABILITY. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction. 21.5. CONSTRUCTION. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. 21.6. COMPUTATION OF TIME PERIODS. In this Agreement, in the computation of periods of time from a specific date to a later specified date, the word "FROM" means "from and including", the word "THROUGH" means "through and including", and the words "TO" and "UNTIL" each mean "to but not excluding". 21.7. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. 21.8. GOVERNING LAW; SUBMISSION TO JURISDICTION, ETC. (a) This Agreement shall be governed by, and construed and enforced in accordance with, the law of the State of New York. (b) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York state court or federal court of the United States of America sitting in New York City, New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, the Notes or the other Note Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York state court or, to the extent permitted by applicable law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or the Notes in the courts of any jurisdiction. (c) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement, the Notes or the other Note Documents in any New York state or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) To the extent that any Obligor has or hereafter may acquire any immunity from the jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, such Obligor hereby irrevocably waives such immunity in respect of its obligations under this Agreement and the Notes. (e) Each Obligor hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to any of the Note Documents, the transactions contemplated thereby or the actions of the Agent or the Purchaser in the negotiation, administration, performance or enforcement thereof. * * * * * If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterpart of this Agreement and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Obligors. Very truly yours, AMI LICENSE CORP. ATLANTIC MICROSYSTEMS, INC. BALTIMORE CHOICE TELEVISION, INC. BALTIMORE LICENSE, INC. BUFFALO CHOICE TELEVISION, INC. BUFFALO LICENSE, INC. CAI DATA SYSTEMS, INC. CAI SATELLITE COMMUNICATIONS, INC. CAI WIRELESS INTERNET, INC. COMMONWEALTH CHOICE TELEVISION, INC. COMMONWEALTH LICENSE, INC. CONNECTICUT CHOICE TELEVISION, INC. CONNECTICUT LICENSE, INC. EASTERN NEW ENGLAND TV, INC. EASTERN NEW ENGLAND LICENSE, INC. GREATER ALBANY WIRELESS SYSTEMS, INC. GREATER ALBANY LICENSE, INC. GREENSBORO CHOICE TELEVISION, INC. GREENSBORO LICENSE, INC. HAMPTON ROADS WIRELESS, INC. HAMPTON ROADS LICENSE, INC. LONG ISLAND CHOICE TELEVISION, INC. LONG ISLAND LICENSE, INC. MEMPHIS CHOICE TELEVISION, INC. MEMPHIS LICENSE, INC. MMDS SATELLITE VENTURES, INC. NEW YORK CHOICE TELEVISION, INC. NEW YORK LICENSE, INC. ONONDAGA WIRELESS, INC. PC LICENSE, INC. PHILADELPHIA CHOICE TELEVISION, INC. PITTSBURGH CHOICE TELEVISION, INC. PITTSBURGH LICENSE, INC. ROCHESTER CHOICE TELEVISION, INC. ROCHESTER LICENSE, INC. SPRINGFIELD CHOICE TELEVISION, INC. SPRINGFIELD LICENSE, INC. By: /S/ James P. Ashman Executive Vice President SYRACUSE CHOICE TELEVISION, INC. SYRACUSE LICENSE, INC. WASHINGTON CHOICE TELEVISION, INC. WASHINGTON LICENSE, INC. WINSTON-CHOICE LICENSE, INC. WINSTON-SALEM CHOICE TELEVISION, INC. By: /S/ James P. Ashman Executive Vice President CAI WIRELESS SYSTEMS, INC. By: /S/ James P. Ashman Executive Vice President and Chief Financial Officer CAI/AMI SPECTRUM MANAGEMENT, INC. By: /S/ Timothy J. Santora President CAI CT HOLDINGS CORP. COMMUNICATIONS TRANSPORT, INC. CAI DEVELOPMENT, INC. By: /S/ John J. Prisco President The foregoing is hereby agreed to as of the date first above written. MERRILL LYNCH GLOBAL ALLOCATION FUND, INC. By: /S/ Name: Bryan N. Ison Title: Vice President Address: Merrill Lynch Asset Management 800 Scudders Mill Road Plainsboro, NJ 08536 Telecopier: (609) 282-6916 SCHEDULE I DEFINED TERMS As used in this Agreement, the following terms shall have the respective meanings set forth below (such meanings to be equally applicable to both the singular and plural forms of the term defined): "ABBRUZZESE NOTE" means that certain promissory note dated March 31, 1997 made by Jared E. Abbruzzese, payable to CAI Wireless Systems, Inc., in the principal amount of $780,054.33. "AFFILIATE" means, with respect to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person, or is a director or officer of such Person. For purposes of this definition, the term "CONTROL" (including the terms "CONTROLLING", "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") of a Person means the possession, direct or indirect, of the power to vote 5% or more of the Voting Stock of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock, by contract or otherwise. "AGENT" means Price Waterhouse in its capacity as administrative agent and collateral agent under the Collateral Documents for the holders of the Notes. "ALTERNATIVE USE" means the provision of service other than Wireless Cable Service through the use of, among others, ITFS, MDS, and MMDS channels, including two-way transmission services and fixed or mobile telecommunications services. "ALTERNATIVE USE APPLICATION" means an application filed by the Company or any of its Subsidiaries or the Licensee of a Channel to provide an Alternative Use, including an application for developmental authority, experimental authority, or special temporary authority or any Booster Application requesting to provide an Alternative Use. "AMI" means Atlantic Microsystems, Inc., a Delaware corporation. "AMI MERGER AGREEMENT" means that certain Plan of Merger of CAI Wireless Systems, Inc. and Atlantic Microsystems, Inc. dated as of November 26, 1997. "AMI SUBSIDIARIES" has the meaning set forth in Section 4.4(k). "APPROVED BUDGET" has the meaning specified in Section 4.16. "BANX AGREEMENT" means that certain Modification Agreement dated as of December 12, 1996 among CAI Wireless Systems, Inc., the subsidiaries of CAI listed therein, BANX Partnership, MMDS Holdings, Inc., MMDS Holdings II, Inc., NYNEX MMDS Company and NYNEX MMDS Holding Company (collectively, the "BANX Parties"), as amended by that certain Amendment No. 1 to the Modification Agreement dated April 29, 1997 among CAI and the subsidiaries of CAI listed therein and the BANX Parties. "BENEFIT LIABILITIES" has the meaning specified in Section 3 of ERISA. "BOOSTER LICENSE" means a License for a booster station. "BTA" means basic trading area, as defined by Rand McNally and used by the FCC in licensing MDS and MMDS channels pursuant to the competitive bidding process. "BTA AUTHORIZATION" means the Permit granted by the FCC to apply for individual MDS and MMDS channels with a certain BTA. "BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on which commercial banks in New York, New York, are required or authorized by law to be closed. "CAPITALIZED LEASE" means any lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP. "CASH EQUIVALENTS" means, at any time, (i) any evidence of Indebtedness with a maturity of 180 days or less issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof); (ii) certificates of deposit or acceptances with a maturity of 180 days or less of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $500,000,000; (iii) certificates of deposit with a maturity of 180 days or less of any financial institution that is not organized under the laws of the United States, any state thereof or the District of Columbia that are rated at least A-1 by S&P or at least P-1 by Moody's or at least an equivalent rating category of another nationally recognized securities rating agency; (iv) repurchase agreements and reverse repurchase agreements relating to marketable direct obligations issued or unconditionally guaranteed by the government of the United States of America or issued by any agency thereof and backed by the full faith and credit of the United States of America, in each case maturing within 180 days from the date of acquisition; PROVIDED that the terms of such agreements comply with the guidelines set forth in the Federal Financial Agreements of Depository Institutions With Securities Dealers and Others, as adopted by the Comptroller of the Currency on October 31, 1985. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time. "CERCLIS" means the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the U.S. Environmental Protection Agency. "CHANNEL LEASES" means all leases to use transmission capacity held by or for benefit of one or more of the Company or any of its Subsidiaries of transmission capacity on ITFS, MDS, or MMDS frequencies licensed by the FCC. "CHANNEL LICENSE" means any Permits for a Channel granted by the FCC to any one or more of the Company or its Subsidiaries or leased to the Company or any of its Subsidiaries by a lessor of a Channel Lease, or any application pending before the FCC for such Permit. "CHANNELS" means the ITFS, MDS, or MMDS frequencies licensed, or expected to be licensed, to one or more of the Company or any of its Subsidiaries by the FCC pursuant to an FCC License or made available to one or more of the Company or any of its Subsidiaries by an ITFS, MDS, or MMDS applicant, permittee, conditional licensee or licensee pursuant to a Channel lease, including any frequencies associated with any booster station, repeater station, response station hub or any facility used to provide an Alternative Use. "CLOSING" has the meaning specified in Section 3. "CLOSING DATE" has the meaning specified in Section 3. "COLLATERAL" means all "Collateral" referred to in the Collateral Documents and all other property and assets that are or are intended under the terms of the Collateral Documents to be subject to any Lien in favor of the Agent for the benefit of the Secured Parties. "COLLATERAL ACCESS AGREEMENT" means a landlord waiver or consent, mortgagee waiver or consent, bailee letter, or a similar acknowledgement agreement of any warehouseman, processor, or other Person in possession of Collateral, in each case, in form and substance reasonably satisfactory to you. "COLLATERAL DOCUMENTS" means, collectively, the Security Agreement, the Pledge Agreement, each other security or pledge agreement entered into pursuant to Section 8.11 and each other agreement that creates or purports to create or perfect a Lien in favor of the Agent for the benefit of the Secured Parties. "COLLOCATE" means to construct, modify, or relocate a facility of an ITFS, MDS, or MMDS application, permittee, conditional license, or licensee, pursuant to FCC approval and in accordance with FCC Rules, at a common transmitter site with other ITFS, MDS, and MMDS licensees in the same market pursuant to common technical characteristics. "COLLOCATION SITE" means the site at which the facilities for the corresponding Channel are, or are to be, collocated at a common transmitter site with other Channels that are used to provide Wireless Telecommunications Service on the System. "COMMITMENT FEE" means $250,000 payable to the Purchaser on the Maturity Date. "COMMITMENT LETTER" means the commitment letter dated November 14, 1997 executed by the Purchaser and accepted by the Company. "COMMUNICATIONS ACT" means the Communications Act of 1934, as amended, 47 U.S.C. sec. 151 ET SEQ. "COMPANY" has the meaning specified on page one of this Agreement. "CONFIDENTIAL INFORMATION" means information delivered to you by or on behalf of the Company or any of its Subsidiaries in connection with this Agreement or the Transaction or the other transactions contemplated hereby that is proprietary in nature and that was clearly marked, labeled or otherwise adequately identified when received by you as being confidential information of the Company or such Subsidiary, but does not include any such information that (a) is or was generally available to the public (other than as a result of a breach of your confidentiality obligations hereunder), (b) becomes known or available to you on a nonconfidential basis other than through disclosure by the Company or any of its Subsidiaries or (c) constitutes financial statements delivered to you under Section 5.4 or 8.1 that are otherwise publicly available. "CONTROL AGREEMENT" means a control agreement, in form and substance satisfactory to each Purchaser, between the Company, Agent, and the applicable securities intermediary, that provides (among other things) that, from and after the giving of notice by Agent to such securities intermediary (a "Notice of Exclusive Control") such securities intermediary shall take instructions solely from Agent with respect to the applicable Securities Account and related Investment Property. "CS WIRELESS" means CS Wireless Systems, Inc. a Delaware corporation. "CURRENT VALUE" has the meaning specified in Section 3 of ERISA. "DEFAULT" means any Event of Default or any event or condition that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "DEFAULT RATE" means that rate of interest that is the greater of 3% per annum above the rate of interest stated in clause (a) of the first paragraph of the Notes. "EMPLOYEE BENEFIT PLAN" has the meaning specified in Section 3 of ERISA. "ENVIRONMENTAL ACTION" means any action, suit, demand, demand letter, claim, notice of noncompliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement relating in any way to any Environmental Law, any Environmental Permit or any Hazardous Materials or arising from alleged injury or threat to health, safety or the environment, including, without limitation, (a) by any Governmental Authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any Governmental Authority or other third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief. "ENVIRONMENTAL LAW" means any federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, writ, judgment, injunction, decree or judicial, ministerial or agency interpretation, policy or guidance relating to pollution or to protection of the environment, health, safety or natural resources, including, without limitation, those relating to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials. "ENVIRONMENTAL PERMIT" means any permit, approval, license, identification number or other authorization required under any Environmental Law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and the rulings issued thereunder from time to time. "ERISA AFFILIATE" means any Person that for purposes of Title IV of ERISA is a member of the controlled group of the Company or any of its Subsidiaries, or under common control with the Company or any of its Subsidiaries, within the meaning of Section 414 of the Internal Revenue Code. "ESCROW ACCOUNT" means that certain account maintained at The Chase Manhattan Bank, N.A. pursuant to the Escrow Agreement dated as of September 15, 1995, among CAI, Chemical Bank, as escrow agent, and Chemical Bank, as trustee, for the deposit of $90,638,765.40 of the net proceeds from the sale of the Senior Notes, and the proceeds from the investment thereof. "EVENT OF DEFAULT" has the meaning specified in Section 11. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, and the regulations promulgated and the rulings issued thereunder from time to time. "EXISTING CREDIT AGREEMENT" means the Credit Agreement dated as of May 16, 1997 among the Company and certain of its Subsidiaries party thereto, the banks party thereto and Foothill Capital Corporation, as the Agent thereunder, as amended, supplemented or otherwise modified to the date hereof. "EXTRAORDINARY RECEIPT" means any cash received by or paid to or for the account of any Person not in the ordinary course of business, including, without limitation, tax refunds, pension plan reversions, judgment awards, proceeds of insurance (other than proceeds of business interruption insurance to the extent such proceeds constitute compensation for lost earnings), condemnation awards (and payments in lieu thereof) and indemnity payments. "FAA" means the Federal Aviation Administration or any other federal governmental agency which may hereafter perform its functions. "FCC COOPERATION AGREEMENT" has the meaning specified in Section 4. "FCC LICENSES" means the Permits, including construction permits, issued by the FCC to the Company or any of its Subsidiaries or any lessor under a Channel Lease, or that are the subject of an application filed with the FCC by the Company or any Subsidiary or any such lessor under a Channel Lease, to operate one or more of the Channels, including any BTA Authorization, individual Permit to construct or operate Channels within a BTA, and any Alternative Use Permit. "FCC RULES" means Title 47 of the Code of Federal Regulations, as amended at any time and from time to time, and FCC decisions issued pursuant to the adoption of such regulations. "FIRST TIER SUBSIDIARY" means any Subsidiary directly and wholly- owned by the Company. "FUNDED INDEBTEDNESS" means, with respect to any Person (without duplication), (a) all Indebtedness of such Person of the character described in clauses (a), (b), (c), (e) and (f) of the definition of "INDEBTEDNESS" set forth in this Schedule I and (b) all Indebtedness of such Person of the character described in clauses (k) and (l) of the definition of "INDEBTEDNESS" set forth in this Schedule I to the extent such Indebtedness guarantees or in effect guarantees or secures or in effect secures Indebtedness of another Person of the type described in clause (a) above. The Funded Indebtedness of any Person (i) shall include all Indebtedness of the character described in clause (a) or (b) of the immediately preceding sentence of any partnership or joint venture in which such Person is a general partner or joint venturer and (ii) shall not include any Indebtedness of any Person and one or more of its Subsidiaries. "FUNDS SOURCE" has the meaning specified in Section 6.3. "GAAP" means generally accepted accounting principles as in effect in the United States of America and as are applied in the financial statements of a Person on a consistent basis. "GOVERNMENTAL AUTHORITY" means any nation or government, any state, province or other political subdivision thereof, and any governmental, executive, legislative, judicial, administrative or regulatory agency, department, authority, instrumentality, commission, board or similar body, whether federal, state, provincial, territorial, local or foreign. "GOVERNMENTAL PLAN" has the meaning specified in Section 3 of ERISA. "HAIG INTERESTS" means the economic rights associated with the membership interest held by Jared E. Abbruzzese in Haig Capital L.L.C, a Delaware limited liability company. "HAZARDOUS MATERIALS" means (a) petroleum or petroleum products, byproducts or breakdown products, radioactive materials, asbestos- containing materials, polychlorinated biphenyls and radon gas and (b) any other chemicals, materials or substances designated, classified or regulated as hazardous or toxic or as a pollutant or contaminant under any Environmental Law. "HEDGE AGREEMENTS" means interest rate swap, cap or collar agreements, interest rate future or option contracts, commodity future or option contracts, currency swap agreements, currency future or option contracts and other similar agreements. "HOLDER" means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 12.1. "INDEBTEDNESS" means, with respect to any Person (without duplication): (a) all indebtedness of such Person for borrowed money; (b) all Obligations of such Person for the deferred purchase price of property and assets or services (other than trade payables that are incurred in the ordinary course of such Person's business and are not overdue by more than 60 days); (c) all Obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, or upon which interest payments are customarily made; (d) all Obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property or assets acquired by such Person, even though the rights and remedies of the seller or the lender under such agreement in the event of default are limited to repossession or sale of such property or assets; (e) all Obligations of such Person as lessee under Capitalized Leases; (f) all Obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities; (g) all Obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any shares of capital stock of (or other ownership or profit interest in) such Person or in any other Person, or any warrants, rights or options to acquire such shares (or such other ownership or profit interest), other than any such Obligations for accrued and unpaid dividends thereon; (h) all Obligations of such Person in respect of Hedge Agreements, commodities agreements or take-or-pay or other similar arrangements; (i) all Obligations of such Person under any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing if the transaction giving rise to such Obligation is considered indebtedness for borrowed money for tax purposes but is classified as an operating lease in accordance with GAAP; (j) all Obligations of such Person for production payments from property operated by or on behalf of such Person and other similar arrangements with respect to natural resources; (k) all Indebtedness of other Persons referred to in clauses (a) through (j) above or clause (l) below guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (i) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor) property or assets, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to supply funds to or in any other manner to invest in the debtor (including any agreement to pay for property, assets or services irrespective of whether such property or assets are received or such services are rendered) or (iv) otherwise to assure a creditor against loss; and (l) all Indebtedness referred to in clauses (a) through (k) above of another Person secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property or assets (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness. The Indebtedness of any Person shall include (i) all obligations of any partnership or joint venture of the character described in clauses (a) through (l) above in which such person is a general partner or a joint venturer and (ii) all obligations of such Person of the character described in clauses (a) through (l) above to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP. "INDEMNIFIED LIABILITIES" has the meaning specified in Section 14.2. "INDEMNIFIED PARTY" has the meaning specified in Section 14.2. "INSUFFICIENCY" means, with respect to any Plan, the amount, if any, of its unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA). "INSTITUTIONAL INVESTOR" means (a) any original purchaser of a Note, (b) any holder of a Note holding more than 25% of the aggregate principal amount of the Notes outstanding on any date of determination and (c) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and the rulings issued thereunder from time to time. "INVESTMENT" means, with respect to any Person, any loan or advance to such Person, any purchase or other acquisition of any shares of capital stock (or other ownership or profit interest), warrants, rights, options, obligations or other securities of such Person, any capital contribution to such Person or any other investment in such Person, including, without limitation, any arrangement pursuant to which the investor incurs Indebtedness of the types referred to in clause (k) or (l) of the definition of "INDEBTEDNESS" in respect of such Person. "ITFS" means the Instructional Television Fixed Service, a class of microwave frequencies licensed by the FCC pursuant to Part 74 of the FCC Rules primarily to educational organizations to be used primarily for the transmission of instructional, cultural, and other types of educational material to fixed receiving stations, the excess capacity of which may be leased for commercial operations pursuant to the terms and conditions set forth in the FCC Rules. "LEGAL REQUIREMENTS" means all applicable international, foreign, federal, state, and local laws, judgments, decrees, orders, statutes, ordinances, rules, regulations, or Permits including the Communications Act and all orders issued and regulations promulgated under the Communications Act. "LICENSEE" means an applicant, permittee, conditional licensee, or licensee of a facility regulated by the FCC. "LIEN" means, with respect to any Person, any mortgage, lien, pledge, charge, hypothecation, assignment, deposit arrangement, security interest, encumbrance priority, charge or other preference of any kind (including, without limitation, any agreement to give any of the foregoing), or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capitalized Lease, upon or with respect to any property or asset of such Person (including, in the case of shares of capital stock, stockholder agreements, voting trust agreements and other similar arrangements). "MATERIAL" means material in relation to the business, operations, condition (financial or otherwise), assets, liabilities or properties of the Company and its Subsidiaries, taken as a whole. "MATERIAL ADVERSE CHANGE" means any material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company or any of its Subsidiaries taken as a whole. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the business, operations, condition (financial or otherwise), assets, liabilities or properties of the Company and its Subsidiaries, taken as a whole, (b) the ability of any of the Obligors to perform its obligations under this Agreement or any other Note Document to which it is or is to be a party or (c) other than solely as a result of an action or inaction by you, the rights and remedies afforded to you and the Agent under this Agreement or any other Note Document. "MATERIAL CONTRACT" means, with respect to any Person, the Assigned Agreements (as defined in the Security Agreement) and each contract to which such Person is a party involving aggregate consideration payable to or by such Person of $1,000,000 or more in any year or otherwise material to the business, condition (financial or otherwise), operations, performance, properties or prospects of such Person. "MATURITY DATE" means the earlier of February 20, 1998 and the date the Notes have become or are declared to be immediately due and payable pursuant to Section 11. "MDS" means the Multipoint Distribution Service, a domestic transmission service licensed by the FCC pursuant to Part 21 of the FCC Rules using the frequencies of 2150 to 2162 MHZ, rendered on microwave frequencies and used primarily for the distribution of commercial visual and audio programming. "MMDS" means Multichannel Multipoint Distribution Service, a domestic transmission service licensed by the FCC pursuant to Part 21 of the FCC Rules using the frequency of 2596 to 2644 MHZ, rendered on microwave frequencies and used primarily for the distribution of commercial visual and audio programming. "MULTIEMPLOYER PLAN" means a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) to which any Obligor or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "MULTIPLE EMPLOYER PLAN" means a single employer plan (as defined in Section 4001(a)(15) of ERISA) that (a) is maintained for employees of any Obligor or any ERISA Affiliate and at least one Person other than the Obligors and the ERISA Affiliates or (b) was so maintained and in respect of which any Obligor or any ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "NET CASH PROCEEDS" means, with respect to any sale, lease, transfer or other disposition of any asset or the sale or issuance of any Indebtedness or capital stock or other ownership interest, any securities convertible into or exchangeable for capital stock or other ownership or profit interest or any warrants, rights, options or other securities to acquire capital stock or other ownership or profit interest by any Person or any Extraordinary Receipt received by or paid to or for the account of any Person, the aggregate amount of cash received from time to time (whether as initial consideration or through payment or disposition of deferred consideration) by or on behalf of such Person in connection with such transaction after deducting therefrom only (without duplication) (a) reasonable and customary brokerage commissions, underwriting fees and discounts, legal fees, finder's fees and other similar fees and commissions, (b) the amount of taxes payable in connection with or as a result of such transaction and (c) the amount of any Indebtedness secured by a Lien on such asset that, by the terms of such transaction, is required to be repaid upon such disposition, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid to a Person that is not an Affiliate of such Person or the Company or any of its Subsidiaries or any Affiliate of any of the Company or any of its Subsidiaries and are properly attributable to such transaction or the asset that is the subject thereof. "NOTE DOCUMENTS" means, collectively, this Agreement, the Notes, if any, the Collateral Documents, the Control Agreement, and each other agreement evidencing any Obligation of the Obligors secured by the Collateral Documents, in each case as amended, supplemented or otherwise modified hereafter from time to time in accordance with the terms hereof and thereof. "NOTES" has the meaning defined in Section 1. "NPL" means the National Priorities List under CERCLA. "OBLIGATION" means, with respect to any Person, any payment, performance or other obligation of such Person of any kind, including, without limitation, any liability of such Person on any claim, whether or not the right of any creditor to payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any proceeding referred to in Section 11.1(g). "OBLIGORS" means, collectively, the Company and each Subsidiary Obligor and each other Subsidiary that is a party to a security agreement (or other similar document) after the date of this Agreement pursuant to Section 8.11. "OFFICER'S CERTIFICATE" means a certificate of a Senior Financial Officer or of any other officer of the Company whose responsibilities extend to the subject matter of such certificate. "PARTY IN INTEREST" has the meaning specified in Section 3 of ERISA. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. "PERMITS" of a Person shall mean all rights, franchises, permits, authorities, licenses, certificates of approval or authorizations, including licenses and other authorizations issuable by a Governmental Authority, which pursuant to applicable Legal Requirements are necessary to permit such Person lawfully to conduct and operate its business as currently conducted and to own and use its assets. "PERMITTED LIENS" means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced: (a) Liens for taxes, assessments and governmental charges or levies to the extent not otherwise required to be paid under Section 8.5(a); (b) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's, storage and repairmen's Liens and other similar Liens arising in the ordinary course of business and securing obligations (other than Indebtedness for borrowed money) that (i) are not overdue for a period of more than 60 days or (ii) are being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained in accordance with GAAP; (c) pledges or deposits to secure obligations incurred in the ordinary course of business under workers' compensation laws, unemployment insurance or other similar legislation (other than in respect of employee benefit plans subject to ERISA) or to secure public or statutory obligations; (d) Liens securing the performance of, or payment in respect of, bids, tenders, government contracts (other than for the repayment of borrowed money), surety and appeal bonds and other obligations of a similar nature incurred in the ordinary course of business; (e) any interest or title of a lessor or sublessor and any restriction or encumbrance to which the interest or title of such lessor or sublessor may be subject that is incurred in the ordinary course of business and, either individually or when aggregated with all other Permitted Liens in effect on any date of determination, could not be reasonably expected to have a Material Adverse Effect; (f) Liens in favor of customs and revenue authorities arising as a matter of law or pursuant to a bond to secure payment of customs duties in connection with the importation of goods; (g) customary rights of setoff upon deposits of cash in favor of banks or other depository institutions; and (h) easements, rights of way, zoning restrictions and other encumbrances on title to real property that do not, either individually or in the aggregate, render title to the property encumbered thereby unmarketable or materially and adversely affect either the use of such property for its present purposes or the conduct of the business of the Company or any of its Subsidiaries in the ordinary course. "PERSON" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "PLAN" means a Single Employer Plan or a Multiple Employer Plan. "PLEDGE AGREEMENT" has the meaning specified in Section 4.3. "PLEDGED DEBT" has the meaning specified in the Security Agreement. "PLEDGED SHARES" has the meaning specified in the Security Agreement. "PRESENT VALUE" has the meaning specified in Section 3 of ERISA. "PROHIBITED STOCK" means any class or series of equity securities of the Company or any Subsidiary that by its terms is, on or before January 1, 2003, (a) mandatorily redeemable or subject to any other payment obligation (including any obligation to pay dividends other than in capital stock that is not Prohibited Stock), or (b) redeemable at the option of the holder thereof for cash, other assets or distributions of Prohibited Stock and in respect of which no required cash dividend is payable. "PROPERTY" or "PROPERTIES" means, unless otherwise expressly stated in this Agreement, real or personal property of any kind, tangible or intangible, choate or inchoate. "PURCHASER" means the Merrill Lynch Global Allocation Fund, Inc. "QPAM EXEMPTION" means Prohibited Transaction Class Exemption 84-14 issued by the United States Department of Labor. "REFINANCING" shall mean [the refinancing of the Notes]. "REGULATION G" shall mean Regulation G of the Board of Governors of the Federal Reserve System as from time to time in effect (and any successor to all or a portion thereof). "REGULATION T" shall mean Regulation T of the Board of Governors of the Federal Reserve System as from time to time in effect (and any successor to all or a portion thereof). "REGULATION U" shall mean Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect (and any successor to all or a portion thereof). "REGULATION X" shall mean Regulation X of the Board of Governors of the Federal Reserve System as from time to time in effect (and any successor to all or a portion thereof). "REPORTABLE EVENT" means any of the events set forth in Section 4043(c) of ERISA other than those events as to which the post-event notice requirement is waived under subsections .13, .14, .18, .19, or .20 of PBGC Reg. '2615. "REQUIRED HOLDERS" means, at any time, the holders of at least a majority in interest of the aggregate principal amount of all of the Notes outstanding at such time (excluding from any calculation thereof any Notes then owned or held by the Company or any of its Subsidiaries or other Affiliates). "RESPONSIBLE OFFICER" means any Senior Financial Officer and any other officer of the Company or any of its Subsidiaries responsible for overseeing the administration of or reviewing compliance with all or any portion of this Agreement or any other Note Document. "SECURED OBLIGATIONS" has the meaning specified in Section 2 of the Security Agreement. "SECURED PARTIES" means the Agent, the holders of the Notes and the other Persons, if any, the Obligations owing to which are or are purported to be secured by the Collateral under the terms of the Collateral Documents. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time. "SECURITY AGREEMENT" has the meaning specified in Section 4.3 "SELLER RESTRICTED SUBSIDIARIES" means, collectively, Chenango, Niskayuna, Onteo, Housatonic, Springfield License, Inc. and AMI License. "SENIOR FINANCIAL OFFICER" means the chief financial officer, the principal accounting officer, the treasurer or the comptroller of the Company. "SENIOR NOTE INDENTURE" means the Indenture dated as of September 15, 1995 between the Company and Chemical Bank, as trustee. "SEPARATE ACCOUNT" has the meaning specified in Section 3 of ERISA. "SINGLE EMPLOYER PLAN" means a single employer plan (as defined in Section 4001(a)(15) of ERISA) that (a) is maintained for employees of any Obligor or any ERISA Affiliate and no Person other than the Obligors and the ERISA Affiliates or (b) was so maintained and in respect of which any Obligor or any ERISA Affiliate could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "SUBSIDIARY" means, with respect to any Person, any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of: (a) the issued and outstanding shares of capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time shares of capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency); (b) the interest in the capital or profits of such partnership, joint venture or limited liability company; or (c) the beneficial interest in such trust or estate, is at the time, directly or indirectly, owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. "SYSTEM AGREEMENTS" means, collectively, all FCC Licenses for Channels and booster stations, Channel Leases, Tower Site Leases, programming agreements, retransmission agreements, non-interference or cooperation agreements (excluding no-objection letters issued in the ordinary course of business), equipment agreements or instruments, licenses, permits, and other material agreements pertaining to the transmission of video, voice, or data signals through wireless cable transmission facilities, of each of the Company and each of its Subsidiaries now existing or hereafter acquired or obtained, relative to the Channels or the construction an operation of the Systems. "SYSTEMS" means (a) the wireless telecommunications system constructed and operated by one or more of the Company and each of its Subsidiaries as of the Closing Date for the provision of Wireless Telecommunications service and (b) the wireless telecommunications systems constructed and operated by one or more of the company and each of its Subsidiaries from and after the Closing Date for the provision of Wireless Telecommunications Service. "TELQUEST" means TelQuest Satellite Services, LLC, a limited liability company whose initial members shall consist of the Company, CS Wireless, and TelQuest Communications, Inc., a Delaware corporation. "TERMINATION EVENT" means: (a) (i) the occurrence of a reportable event, within the meaning of Section 4043(c) of ERISA, with respect to any Plan unless the 30-day notice requirement with respect to such event has been waived by the PBGC or (ii) the requirements of paragraph (1) of Section 4043(b) of ERISA (without regard to paragraph (2) of such Section) are met with a contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA would reasonably be expected to occur with respect to such Plan within the following 30 days; (b) the application for a minimum funding waiver with respect to a Plan; (c) the provision by the administrator of any Plan of a notice of intent to terminate such Plan pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (d) the cessation of operations at a facility of any Obligor or any ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA; (e) the withdrawal by any Obligor or any ERISA Affiliate from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions for the imposition of a lien under Section 302(f) of ERISA shall have been met with respect to any Plan; (g) the adoption of an amendment to a Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA; or (h) the institution by the PBGC of proceedings to terminate a Plan pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA, that constitutes grounds for the termination of, or the appointment of a trustee to administer, a Plan. "TOWER SITE LEASE" means each agreement between each of the Company and each of its Subsidiaries and any Person relating to the location of towers and transmitters. "TRANSACTION" means, collectively, (a) the entering into by the Obligors of the Note Documents and (b) the repayment of all amounts owing under the Existing Credit Facilities. "UNRESTRICTED SUBSIDIARY" has the meaning specified in the Senior Note Indenture. "VOTING STOCK" means shares of capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. "WIRELESS CABLE SERVICE" means the provision of subscription video or entertainment and additional programming services and services ancillary thereto through the use of, among other, ITFS, MDS, and MMDS channels. "WIRELESS TELECOMMUNICATIONS SERVICE" means any service that is permitted under FCC rules and regulations or authorized by the FCC to be provided on or by means of the transmission capacity on an ITFS, MDS, or MMDS channel, including Wireless Cable Services and Alternative Use services. "WITHDRAWAL LIABILITY" has the meaning specified in Part I of Subtitle E of Title IV of ERISA. EX-2 3
EXHIBIT 11.1 CAI WIRELESS SYSTEMS, INC. COMPUTATION OF LOSS PER COMMON SHARE QUARTER ENDED DECEMBER 31, ------------------------------ 1997 1996 ---- ---- BASIC LOSS PER COMMON SHARE 1 Net loss $(40,926,038) $(21,015,790) 2 Less preferred dividends (3,850,594) (3,306,003) ------------- ------------- 3 Loss applicable to common shareholders $(44,776,632) $(24,321,793) ============= ============= 4 Weighted average shares outstanding 40,540,539 40,464,356 5 Add additional shares issuable upon exercise of outstanding stock options and warrants * - - ------------- ------------- 6 Adjusted weighted average shares outstanding 40,540,539 40,464,356 ============= ============= 7 Net loss per common share (line 3 line 6) $(1.10) $(0.60) ======= ======= FULLY DILUTED LOSS PER COMMON SHARE: 8 Line 3 above $(44,776,632) $(24,321,793) 9 Add back preferred dividends 3,850,594 3,306,003 10 Add back interest, net of tax, assuming conversion of Term Notes 999,000 459,000 11 Add back interest, net of tax, assuming proceeds from exercise of warrants and options in excess of the 20% treasury stock buyback applied against short-term debt 1,023,000 4,694,000 ------------- ------------- 12 Adjusted net loss $(38,904,038) $(15,862,790) ============= ============= 13 Weighted average shares outstanding (line 4) 40,540,539 40,464,356 14 Add additional shares issuable upon the assumed exercise of outstanding stock options 2,195,937 2,152,604 15 Add additional shares issuable upon the assumed exercise of BANX warrants (Term Notes and Senior Preferred Stock) 36,751,085 36,751,083 16 Add additional shares issuable upon the assumed exercise of other warrants 5,083,563 2,235,541 17 Add Series A preferred stock (not converted until November 1996) - - 18 Deduct treasury stock repurchased with proceeds from the assumed exercise of all options and warrants (8,108,108) (8,108,108) ------------- ------------- 19 Adjusted weighted average shares outstanding 76,463,016 73,495,476 ============= ============= 20 Net loss per common share (line 12 line 19) ** $(0.51) $(0.22) ======= =======
* For the calculation of loss per share, the inclusion of the assumed exercise of options and warrants is not dilutive for the periods presented and, therefore, such assumed exercise is excluded from the per share calculations. ** The fully diluted loss per share is anti-dilutive and is, therefore, not presented in the Consolidated Statements of Operations. EX-3 4
EXHIBIT 11.2 CAI WIRELESS SYSTEMS, INC. COMPUTATION OF LOSS PER COMMON SHARE NINE MONTHS ENDED DECEMBER 30, ------------------------------------ 1997 1996 ---- ---- BASIC LOSS PER COMMON SHARE: 1 Net loss $(98,536,569) $(57,493,239) 2 Less preferred dividends (11,125,453) (9,576,367) ------------ ------------ 3 Loss applicable to common shareholders $(109,662,022) $(67,069,606) ============= ============= 4 Weighted average shares outstanding 40,540,539 39,915,020 5 Add additional shares issuable upon exercise of outstanding stock options and warrants * - - ------------ ------------ 6 Adjusted weighted average shares outstanding 40,540,539 39,915,020 ============ ============ 7 Net loss per common share (line 3 line 6) $(2.70) $(1.68) ======= ======= FULLY DILUTED LOSS PER COMMON SHARE: 8 Line 3 above $(109,662,022) $(67,069,606) 9 Add back preferred dividends 11,125,453 9,576,367 10 Add back interest, net of tax, assuming conversion of Term Notes 2,997,000 1,917,000 11 Add back interest, net of tax, assuming proceeds from exercise of warrants and options in excess of the 20% treasury stock buyback applied against short-term debt 3,894,000 10,994,000 ------------- ------------- 12 Adjusted net loss $(91,645,569) $(44,582,239) ============= ============= 13 Weighted average shares outstanding (line 4) 40,540,539 39,915,020 14 Add additional shares issuable upon the assumed exercise of outstanding stock optons 2,195,937 2,152,604 15 Add additional shares issuable upon the assumed exercise of BANX warrants (Term Notes and Senior Preferred Stock) 36,751,085 36,751,083 16 Add additional shares issuable upon the assumed exercise of other warrants 5,083,563 2,235,541 17 Add Series A preferred stock (not converted until November 1996) - - 18 Deduct treasury stock repurchased with proceeds from the assumed exercise of all options and warrants (8,108,108) (8,108,108) ------------ ------------ 19 Adjusted weighted average shares outstanding 76,463,016 72,946,140 ============ ============ 20 Net loss per common share (line 12 line 19) ** $(1.20) $(0.62) ======= =======
* For the calculation of loss per share, the inclusion of the assumed exercise of options and warrants is not dilutive for the periods presented and, therefore, such assumed exercise is excluded from the per share calculations. ** The fully diluted loss per share is anti-dilutive and is, therefore, not presented in the Consolidated Statements of Operations. EX-4 5 FOR IMMEDIATE RELEASE EXHIBIT 99.1 Investor Relations Contact: Company Contact: Michael Glickman James P. Ashman, CFO Lippert/Heilshorn & Associates CAI Wireless Systems, Inc. 212/838-3777 518/462-2632 CAI WIRELESS SYSTEMS, INC. ISSUES ADDITIONAL $2 MILLION IN 13% SENIOR SECURED NOTES Albany, N.Y., January 29, 1998 - CAI Wireless Systems, Inc. (OTC Symbol: CAWS)("CAI") announced that it sold an additional $2 million of its 13% Senior Secured Notes (the "Notes") to an existing investor that had previously purchased $25 million of the Notes in November 1997. The sale of the additional Notes increases the total amount of Notes held by the investor to $27 million. The Notes, which are secured by a blanket lien on all of CAI's assets, are short-term obligations of CAI, maturing on February 20, 1998, and were sold pursuant to the terms of the November 1997 Note Purchase Agreement which was amended to provide for the additional $2 million Notes purchase. Interest on the Notes is payable at maturity. CAI is required to pay an additional $20,000 commitment fee to the purchaser of the Notes, making the total commitment fee for the Notes equal to $270,000, which fee is also due at maturity. CAI is continuing to work with its financial advisors to devise a comprehensive plan for financing to meet the Company's on-going needs, which plan may include a financial restructuring of its existing debt. CAI, based in Albany, NY, currently operates six analog-based MMDS subscription video systems in New York City, Rochester and Albany, NY, Philadelphia, PA, Washington, DC and Norfolk/Virginia Beach, VA, and provides Internet access services in Rochester, New York City and Boston. CAI also owns a portfolio of MMDS channel rights in eight additional markets, including Long Island, Buffalo and Syracuse, NY, Providence, RI, Hartford, CT, Boston, MA, Baltimore, MD and Pittsburgh, PA. In addition, CAI owns approximately 50.7% of CS Wireless Systems, Inc., an MMDS operator based in Plano, TX. THE STATEMENTS CONTAINED IN THIS PRESS RELEASE RELATING TO CAI'S PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, INCLUDING PLANS OR OBJECTIVES RELATING TO CAI'S PRODUCTS AND SERVICES, CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ACTUAL RESULTS OF THE COMPANY MAY DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS AND MAY BE AFFECTED BY A NUMBER OF FACTORS INCLUDING THE RECEIPT OF REGULATORY APPROVALS FOR ALTERNATIVE USES OF ITS MMDS SPECTRUM, THE AVAILABILITY OF NEW STRATEGIC PARTNERS AND THEIR WILLINGNESS TO ENTER INTO ARRANGEMENTS WITH CAI, THE TERMS OF SUCH ARRANGEMENTS, THE SUCCESS OF CAI'S TRIALS IN VARIOUS OF ITS MARKETS, THE COMMERCIAL VIABILITY OF ANY ALTERNATIVE USE OF MMDS SPECTRUM, CONSUMER ACCEPTANCE OF ANY NEW PRODUCTS OFFERED OR TO BE OFFERED BY CAI, SUBSCRIBER EQUIPMENT AVAILABILITY, TOWER SPACE AVAILABILITY, ABSENCE OF INTERFERENCE AND THE ABILITY OF CAI TO REDEPLOY OR SELL EXCESS EQUIPMENT, AS WELL AS OTHER FACTORS CONTAINED HEREIN AND IN CAI'S SECURITIES FILINGS. FURTHERMORE, THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL BE ABLE TO SECURE FINANCING NECESSARY TO MEET ITS FUTURE CASH NEEDS ON TERMS AND CONDITIONS SATISFACTORY TO THE COMPANY. EX-5 6 FOR IMMEDIATE RELEASE EXHIBIT 99.2 Investor Relations Contact: Company Contact: Michael W. Glickman James P. Ashman Lippert/Heilshorn & Associates CFO, CAI Wireless Systems, Inc. 212-838-3777 518-462-2632 CAI WIRELESS SYSTEMS, INC. BUYS-OUT REMAINING BELL ATLANTIC HOLD ON MMDS SPECTRUM - CAI Extends and Increases Short-term Credit Facility - - Investor Succeeds to Bell Atlantic Preferred Stock and Debt and Agrees in Principle to Exchange for New Subordinated Debt - ALBANY, N.Y., February 18, 1998. CAI Wireless Systems, Inc. ("CAI") announced today that it had bought out the remaining interest of affiliates of Bell Atlantic Corporation ("BANX") under the so-called Business Relationship Agreement ("BR Agreement") pursuant to which BANX had retained the right to exercise options to utilize CAI's MMDS spectrum in certain of its major markets exclusively for Bell Atlantic video programming. Under the terms of the buy-out agreement, CAI also acquired BANX's approximately 9.9% stake in CS Wireless Systems, Inc., CAI's joint venture with Heartland Wireless Communications, Inc. in the mid-west. CAI also announced that it had simultaneously increased its short- term secured debt facility (the "Debt Facility") by an additional $18 million to $45 million. BANX received $7 million in senior secured notes of CAI (the "Secured BANX Notes") under the Debt Facility in consideration for the termination of the BR Agreement and the purchase of the CS Wireless shares. An additional note in the principal amount of $11 million was sold to an existing financial investor in the Company (the "Investor"). The Investor is the Company's senior secured lender and holder of the balance of the notes issued under the Debt Facility. The proceeds of the new note will be used for working capital and to meet certain other obligations of the Company into the first quarter of its fiscal year beginning April 1, 1998. All of the notes under the Debt Facility mature on June 1, 1998. As part of a series of transactions closing simultaneously with the foregoing, the Investor advised CAI that it had purchased from BANX all of BANX's remaining debt and equity interests in CAI, including the CAI preferred stock, subordinated note and certain warrants that represented BANX's initial $100 million investment in CAI in 1995 (collectively, the "BANX Securities"), as well as the new Secured BANX Notes issued by CAI in consideration for the termination of the BR Agreement and the purchase of the CS Wireless stock. CAI also announced that it had entered into an agreement in principle with the Investor, pursuant to which it would exchange all of the BANX Securities, together with accrued but unpaid interest and dividends thereon, for a new $30 million 12% subordinated note due 2003, subject to prepayment at a discount of up to $27 million prior to June 1, 1998 in the event that certain circumstances occur that result in the realization of a significant increase in the current market value of CAI's 12 1/4 % Senior Notes due 2002 (the "Senior Notes"). The exchange is subject to certain conditions, including documentation satisfactory to the parties. Pending the exchange, the Investor has waived all conversion features contained in the BANX Securities. Following the closings announced today, Bell Atlantic affiliates cease to hold any interests in CAI Wireless Systems, Inc. "We want to acknowledge Bell Atlantic for affording us the opportunity to terminate early its remaining options on CAI's wireless spectrum and the Company's related construction obligations, " said Jared Abbruzzese, CAI's chairman and chief executive officer. "While CAI's future is by no means certain, with this significant cloud over our spectrum lifted, we intend to redouble our efforts to locate a strategic partner to help CAI realize its potential for voice and data, as well as video applications." Mr. Abbruzzese added, "the Company will continue to work with its advisor BT Alex. Brown Incorporated in this process and to explore various restructuring alternatives." BACKGROUND At the inception of the arrangement in the spring of 1995, the BR Agreement was considered a strategic path to allow affiliates of Bell Atlantic and NYNEX to enter the subscription television market. It provided them the right to option digital transport systems constructed by CAI and CAI's MMDS spectrum in their respective operating territories as their delivery platform for digital video services. In anticipation of an option exercise, CAI constructed digital transport systems in Boston and Virginia Beach; however, no markets were optioned. In anticipation of the BR Agreement, CAI acquired MMDS spectrum in a number of principal BANX markets, including the acquisition of ACS Enterprises, Inc., with analog subscription television businesses in Philadelphia, PA, Cleveland, OH and Bakersfield, CA, and wireless properties in Stockton/Modesto, CA. CAI also acquired analog subscription television businesses in New York City and Washington, D.C., and access to MMDS spectrum in Baltimore, MD, Boston, MA and Pittsburgh, PA. Combined with its analog systems in Virginia Beach, VA and Albany, NY, and other MMDS spectrum in various Upstate New York markets, these acquisitions made CAI the largest wireless cable company in terms of LOS households. Subsequently, CAI contributed certain MMDS properties outside the BANX region to the joint venture with Heartland Wireless Communications, Inc. know as CS Wireless Systems, Inc. BANX received its equity stake in CS Wireless in connection with that transaction To finance the MMDS spectrum acquisitions and build-out of digital transport systems, among other things, BANX invested $100 million in CAI and the Company raised $275 million in a public offering of its Senior Notes in September 1995. The BANX investment consisted of $30 million in Term Notes, $70 million Senior Preferred Stock and warrants to purchase convertible preferred stock, which, when combined with the conversion features of the Term Notes and Senior Preferred Stock, resulted in the right to acquire up to 45% of the equity of CAI. None of the conversion features were ever exercised by BANX. On December 13, 1996, the Company announced that it had agreed with BANX to suspend for one year CAI's obligation to reserve its MMDS spectrum for use by BANX as a video delivery platform and related construction obligations under the BR Agreement (the "Modification Agreement"). In addition to suspending CAI's obligations under the BR Agreement for one year, the Modification Agreement provided CAI (or its designee) the right to acquire all of the BANX Securities, including the convertible debt, preferred stock and warrants. On April 30, 1997, the Company announced an amendment to the Modification Agreement that renegotiated the option to repurchase the BANX Securities, the termination of the BR Agreement and the repurchase of the CS Wireless shares for consideration of $40 million in cash and 100,000 shares of convertible junior preferred stock. The repurchase option was exercisable through February 28, 1998. Upon the closing today of the transactions with the Company, the BR Agreement and the Modification Agreement have been terminated and BANX's equity stake in CS Wireless was transferred to CAI. Upon the closing of the purchase of the BANX Securities and the BANX Secured Notes by the Investor, BANX ceases to hold any securities of the Company. CAI, based in Albany, NY, currently operates six analog-based MMDS subscription video systems in New York City, Rochester and Albany, NY, Philadelphia, PA, Washington, DC and Norfolk/Virginia Beach, VA, and provides Internet access services in Rochester, New York City and Boston. CAI also owns a portfolio of MMDS channel rights in eight additional markets, including Long Island, Buffalo and Syracuse, NY, Providence, RI, Hartford, CT, Boston, MA, Baltimore, MD and Pittsburgh, PA. In addition, CAI owns approximately 50.7% of CS Wireless Systems, Inc., an MMDS operator based in Plano, TX. THE STATEMENTS CONTAINED IN THIS PRESS RELEASE RELATING TO CAI'S PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, INCLUDING PLANS OR OBJECTIVES RELATING TO CAI'S PRODUCTS AND SERVICES, CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ACTUAL RESULTS OF THE COMPANY MAY DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS AND MAY BE AFFECTED BY A NUMBER OF FACTORS INCLUDING THE RECEIPT OF REGULATORY APPROVALS FOR ALTERNATIVE USES OF ITS MMDS SPECTRUM, THE COMPANIES' ABILITY TO ATTRACT ONE OR MORE NEW STRATEGIC PARTNERS AND THEIR WILLINGNESS TO ENTER INTO ARRANGEMENTS WITH CAI ON A TIMELY BASIS, THE TERMS OF SUCH ARRANGEMENTS, THE SUCCESS OF CAI'S TRIALS IN VARIOUS OF ITS MARKETS, THE COMMERCIAL VIABILITY OF ANY ALTERNATIVE USE OF MMDS SPECTRUM, CONSUMER ACCEPTANCE OF ANY NEW PRODUCTS OFFERED OR TO BE OFFERED BY CAI, SUBSCRIBER EQUIPMENT AVAILABILITY, TOWER SPACE AVAILABILITY, ABSENCE OF INTERFERENCE AND THE ABILITY OF CAI TO REDEPLOY OR SELL EXCESS EQUIPMENT, AS WELL AS OTHER FACTORS CONTAINED HEREIN AND IN CAI'S SECURITIES FILINGS. FURTHERMORE, THERE CAN BE NO ASSURANCE THAT THE FINANCING OBTAINED BY THE COMPANY TO DATE WILL ENABLE CAI TO MEET ITS FUTURE CASH NEEDS. ### EX-27 7
5 9-MOS MAR-31-1998 APR-01-1997 DEC-31-1997 2,170,436 0 967,082 388,494 0 0 102,242,410 40,648,883 480,672,916 0 311,599,695 98,946,187 0 275,769,414 (270,741,246) 480,672,916 0 21,977,384 0 60,241,866 23,118,008 636,200 40,128,505 (98,536,569) 0 (98,536,569) 0 0 0 (98,536,569) (2.70) 0
-----END PRIVACY-ENHANCED MESSAGE-----