THIS SOLICITATION IS BEING CONDUCTED TO OBTAIN SUFFICIENT
ACCEPTANCES OF A JOINT REORGANIZATION PLAN PRIOR TO THE FILING OF VOLUNTARY
REORGANIZATION CASES UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE.
BECAUSE NO CHAPTER 11 CASES HAVE YET BEEN COMMENCED, THIS DISCLOSURE
STATEMENT HAS NOT BEEN APPROVED BY THE BANKRUPTCY COURT AS CONTAINING
ADEQUATE INFORMATION WITHIN THE MEANING OF SECTION 1125(a) OF THE
BANKRUPTCY CODE. FOLLOWING THE COMMENCEMENT OF THEIR CHAPTER 11 CASES, CAI
WIRELESS SYSTEMS, INC. AND PHILADELPHIA CHOICE TELEVISION, INC. EXPECT TO
PROMPTLY SEEK AN ORDER OF THE BANKRUPTCY COURT (i) APPROVING (a) THIS
DISCLOSURE STATEMENT AS HAVING CONTAINED ADEQUATE INFORMATION AND (b) THE
SOLICITATION OF VOTES AS HAVING BEEN IN COMPLIANCE WITH SECTION 1126(b) OF
THE BANKRUPTCY CODE AND (ii) CONFIRMING THE JOINT REORGANIZATION PLAN
DESCRIBED HEREIN.
DISCLOSURE STATEMENT
DATED JUNE 30, 1998
Pre-Petition Solicitation of Votes
With Respect to Prepackaged Joint Reorganization Plan
of
CAI WIRELESS SYSTEMS, INC.
AND
PHILADELPHIA CHOICE TELEVISION, INC.
from the holders of CAI Wireless Systems, Inc.'s
12 1/4% SENIOR NOTES DUE 2002
and certain other
IMPAIRED CREDITORS
NEITHER CAI WIRELESS SYSTEMS, INC. NOR PHILADELPHIA CHOICE TELEVISION, INC.
HAS COMMENCED A CASE UNDER CHAPTER 11 OF THE BANKRUPTCY CODE AT THIS TIME.
THIS DISCLOSURE STATEMENT SOLICITS ACCEPTANCES OF THE PLAN AND CONTAINS
INFORMATION RELEVANT TO A DECISION TO ACCEPT OR REJECT THE PLAN.
THE VOTING DEADLINE TO ACCEPT OR REJECT THE PREPACKAGED REORGANIZATION PLAN
IS 5:00 P.M. (EASTERN TIME) ON JULY 27, 1998, UNLESS EXTENDED BY THE
COMPANIES (THE "VOTING DEADLINE"). IN ORDER TO BE COUNTED, BALLOTS MUST BE
RECEIVED BY THE VOTING AGENT BY THE VOTING DEADLINE.
CAI Wireless Systems, Inc. ("CAI") and Philadelphia Choice Television, Inc.
("PCT" and, together with CAI, the "Companies") are furnishing this
Disclosure Statement and the Exhibits hereto, the accompanying Ballots and
Master Ballots, and the related materials delivered herewith pursuant to
Section 1126(b) of the United States Bankruptcy Code, 11 U.S.C. Sections
101-1330, as amended (the "Bankruptcy Code"), in connection with their
solicitation (the "Solicitation") of acceptances of the proposed
prepackaged joint reorganization plan described herein (the "Plan,"
a copy of which is annexed to this Disclosure Statement as Exhibit A).
CAI and PCT are soliciting such acceptances from all impaired creditors
entitled to vote under the Plan and Section 1126 of the Bankruptcy Code.
The Companies are furnishing this Disclosure Statement to each impaired
creditor entitled to vote to accept or reject the Plan. The Disclosure
Statement is to be used by each such creditor solely in connection with its
evaluation of the Plan; use of the Disclosure Statement for any other
purpose is not authorized. The Disclosure Statement may not be reproduced
or provided to others (other than to those advisors of any recipient of the
Disclosure Statement who may review the information contained herein to
assist such recipient in its evaluation of the Plan) without the prior
written consent of CAI.
The Companies have not commenced reorganization cases under Chapter 11 of
the Bankruptcy Code as of the date of this Disclosure Statement. If,
however, the Companies receive properly completed Ballots and Master
Ballots (that are not subsequently revoked) indicating acceptance of the
Plan in sufficient number and amount to meet the voting requirements
prescribed by Section 1126 of the Bankruptcy Code (the "Requisite
Acceptances"), they intend to file (but hereby expressly reserve the right
not to file) with a United States Bankruptcy Court voluntary petitions for
relief under Chapter 11 of the Bankruptcy Code, and to seek, as promptly
thereafter as practicable, confirmation of the Plan. The Consummation Date
is expected to occur shortly following the Bankruptcy Court's entry of an
order confirming the Plan (the "Confirmation Order"). CAI does not
presently intend to commence a case under Chapter 11 of the Bankruptcy Code
with respect to any of its Subsidiaries other than PCT, or to include any
of its other Subsidiaries in its Chapter 11 case.
In the event that the Requisite Acceptances are not received, or if
received are subsequently revoked, in either case, prior to the termination
of the Solicitation, the Companies hereby reserve the absolute right to use
any and all Ballots and Master Ballots accepting the Plan that were
received pursuant to the Solicitation, and not subsequently revoked, to
seek confirmation of the Plan (or of any modification thereof that does not
materially and adversely affect the treatment of the class(es) of Claims
with respect to which such Ballots or Master Ballots were cast) pursuant to
Section 1129(b) of the Bankruptcy Code. See Section VIII.E.3 -- "Summary
of the Plan -- Confirmation of the Plan -- Confirmation Without Acceptance
of All Impaired Classes" below.
_____________________________
THE PLAN PROVIDES FOR, AMONG OTHER THINGS, (i) CERTAIN DISTRIBUTIONS OF
CASH, (ii) THE ISSUANCE BY REORGANIZED CAI OF (a) THE NEW SENIOR NOTES AND
NEW COMMON STOCK FOR DISTRIBUTION TO CERTAIN HOLDERS OF CLAIMS AGAINST CAI
AND (b) OPTIONS TO PURCHASE NEW COMMON STOCK FOR DISTRIBUTION TO THE
COMPANIES' FINANCIAL ADVISORS AND CERTAIN MEMBERS OF THE SENIOR MANAGEMENT
OF REORGANIZED CAI, (iii) THE SALE AND ASSIGNMENT BY CAI OF APPROXIMATELY
16 CONTRACTS TO PROVIDE CABLE TELEVISION SERVICE TO VARIOUS MULTI-DWELLING
UNITS IN THE PHILADELPHIA MARKET, AND (iv) THE DISTRIBUTION OF THE PROCEEDS
OF THE SALE AND ASSIGNMENT BY PCT OF APPROXIMATELY 48 CONTRACTS TO PROVIDE
CABLE TELEVISION SERVICE TO VARIOUS MULTI-DWELLING UNITS IN THE
PHILADELPHIA MARKET. BECAUSE ACCEPTANCE OF THE PLAN WILL CONSTITUTE
ACCEPTANCE OF ALL THE PROVISIONS THEREOF, CREDITORS ARE URGED TO CONSIDER
CAREFULLY THE INFORMATION REGARDING TREATMENT OF THEIR CLAIMS CONTAINED IN
THIS DISCLOSURE STATEMENT.
THE COMPANIES INTEND TO CONTINUE OPERATING THEIR BUSINESSES IN CHAPTER 11
IN THE ORDINARY COURSE AND TO SEEK TO OBTAIN THE NECESSARY RELIEF FROM THE
BANKRUPTCY COURT TO PAY THEIR EMPLOYEES, TRADE, AND CERTAIN OTHER CREDITORS
IN FULL AND ON TIME. THE CLAIMS OF THE FEDERAL COMMUNICATIONS COMMISSION,
THE COMPANIES' EMPLOYEES, GENERAL UNSECURED CREDITORS (INCLUDING TRADE
CREDITORS, LICENSORS, AND LESSORS), AND SECURED CREDITORS ARE NOT IMPAIRED
UNDER THE PLAN.
THE CONFIRMATION AND EFFECTIVENESS OF THE PLAN ARE SUBJECT TO MATERIAL
CONDITIONS PRECEDENT. SEE SECTION VIII.E.4 -- "SUMMARY OF THE PLAN --
CONFIRMATION OF THE PLAN -- CONDITIONS TO CONFIRMATION AND CONSUMMATION."
THERE CAN BE NO ASSURANCE THAT THOSE CONDITIONS WILL BE SATISFIED.
THE COMPANIES PRESENTLY INTEND TO SEEK TO CONSUMMATE THE PLAN AND TO CAUSE
THE CONSUMMATION DATE TO OCCUR PROMPTLY AFTER CONFIRMATION OF THE PLAN.
THERE CAN BE NO ASSURANCE, HOWEVER, AS TO WHEN AND WHETHER CONFIRMATION OF
THE PLAN AND THE CONSUMMATION DATE ACTUALLY WILL OCCUR. PROCEDURES FOR
DISTRIBUTIONS UNDER THE PLAN, INCLUDING MATTERS THAT ARE EXPECTED TO AFFECT
THE TIMING OF THE RECEIPT OF DISTRIBUTIONS BY HOLDERS OF CLAIMS IN CERTAIN
CLASSES AND THAT COULD AFFECT THE AMOUNT OF DISTRIBUTIONS ULTIMATELY
RECEIVED BY SUCH HOLDERS, ARE DESCRIBED IN SECTION VIII.D.6 -- "SUMMARY OF
THE PLAN -- SUMMARY OF OTHER PROVISIONS OF THE PLAN -- DISTRIBUTIONS UNDER
THE PLAN."
THE TERMS OF THE PLAN HAVE BEEN DEVELOPED IN THE COURSE OF DISCUSSIONS AND
NEGOTIATIONS WITH (i) MLGAF, THE HOLDER OF THE COMPANIES' 13% SENIOR
SECURED NOTES (THE "SECURED NOTES"), (ii) AN UNOFFICIAL COMMITTEE (THE
"UNOFFICIAL NOTEHOLDERS' COMMITTEE") COMPRISED OF CERTAIN HOLDERS OF CAI'S
12 1/4% SENIOR NOTES DUE 2002 (THE "SENIOR NOTES") WHO COLLECTIVELY HOLD OR
MANAGE APPROXIMATELY 73% OF THE SENIOR NOTES, AND (iii) THE HOLDER OF THE
COMPANIES' 12% SUBORDINATED NOTE DUE OCTOBER 1, 2005 (THE "12% SUBORDINATED
NOTE"). ALTHOUGH THE PLAN AND VARIOUS RELATED MATTERS REFERRED TO IN THIS
DISCLOSURE STATEMENT HAVE BEEN REVIEWED BY AND DISCUSSED WITH MLGAF, THE
UNOFFICIAL NOTEHOLDERS' COMMITTEE, AND THEIR RESPECTIVE REPRESENTATIVES,
AND REFLECT TO SOME EXTENT THE VIEWS OF THOSE PARTIES, THE UNOFFICIAL
NOTEHOLDERS' COMMITTEE HAS NOT APPROVED OR ENDORSED THE PLAN OR RECOMMENDED
THAT OTHER HOLDERS OF SENIOR NOTES VOTE TO ACCEPT THE PLAN.
THE BOARDS OF DIRECTORS OF THE COMPANIES HAVE APPROVED THE PLAN AND
RECOMMEND THAT THE HOLDERS OF CLAIMS ENTITLED TO VOTE ON THE PLAN VOTE TO
ACCEPT THE PLAN.
_____________________________
IF THE PLAN IS NOT CONFIRMED AND CONSUMMATED, THE COMPANIES BELIEVE THAT
THERE IS SUBSTANTIAL DOUBT ABOUT THEIR ABILITY (AND THE ABILITY OF CERTAIN
SUBSIDIARIES OR AFFILIATES) TO CONTINUE AS GOING CONCERNS. CAI BELIEVES
THAT IF THE PLAN IS NOT CONFIRMED AND CONSUMMATED, CAI (AND CERTAIN
SUBSIDIARIES OR AFFILIATES) WOULD HAVE TO FILE PETITIONS UNDER CHAPTER 11
OF THE BANKRUPTCY CODE, IF THEY HAVE NOT ALREADY DONE SO. THE COMPANIES
HAVE ARRANGED FOR FINANCING UNDER THE DIP FACILITY (AS DEFINED HEREIN) IN
CONNECTION WITH THE PLAN AND BELIEVE THAT SUCH FINANCING (i) IS NECESSARY
TO CONSUMMATE THE PLAN AND (ii) MAY NOT BE AVAILABLE IN A CASE UNDER THE
BANKRUPTCY CODE THAT DOES NOT HAVE A PRE-PACKAGED REORGANIZATION PLAN.
WITHOUT ADDITIONAL FINANCING, THERE CAN BE NO ASSURANCE THAT THE COMPANIES
WILL BE ABLE TO EMERGE FROM A CASE UNDER CHAPTER 11 OF THE BANKRUPTCY CODE,
AND THE COMPANIES (AND CERTAIN SUBSIDIARIES OR AFFILIATES) MAY BE FORCED
INTO A LIQUIDATION UNDER CHAPTER 7 OF THE BANKRUPTCY CODE. THE COMPANIES
BELIEVE THAT IF THEY ARE LIQUIDATED UNDER CHAPTER 7, THE VALUE OF THE
ASSETS AVAILABLE FOR PAYMENT OF CREDITORS WOULD BE SIGNIFICANTLY LOWER THAN
THE VALUE OF THE DISTRIBUTIONS CONTEMPLATED BY AND UNDER THE PLAN. SEE
SECTION XIV.C -- "FEASIBILITY OF THE PLAN AND THE BEST INTERESTS OF
CREDITORS TEST -- LIQUIDATION ANALYSIS" BELOW.
_____________________________
THE COMPANIES BELIEVE THAT THE PLAN IS IN THE BEST INTERESTS OF THEIR
CREDITORS. ACCORDINGLY, CREDITORS ENTITLED TO VOTE ON THE PLAN ARE URGED
TO VOTE IN FAVOR OF THE PLAN. (VOTING INSTRUCTIONS ARE SET FORTH IN
SECTION XVI OF THIS DISCLOSURE STATEMENT.) TO BE COUNTED, YOUR BALLOT MUST
BE DULY COMPLETED, EXECUTED, AND ACTUALLY RECEIVED NO LATER THAN 5:00 P.M.,
EASTERN TIME, ON JULY 27, 1998. CREDITORS ARE ENCOURAGED TO READ AND
CONSIDER CAREFULLY THIS ENTIRE DISCLOSURE STATEMENT, INCLUDING THE PLAN
ANNEXED HERETO AS EXHIBIT A AND THE MATTERS DESCRIBED IN THIS DISCLOSURE
STATEMENT UNDER "CERTAIN RISK FACTORS," PRIOR TO VOTING.
IN MAKING AN INVESTMENT DECISION, CREDITORS MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANIES AND THE TERMS OF THE PLAN, INCLUDING THE
MERITS AND RISKS INVOLVED. CREDITORS SHOULD NOT CONSTRUE THE CONTENTS OF
THIS DISCLOSURE STATEMENT AS PROVIDING ANY LEGAL, BUSINESS, FINANCIAL, OR
TAX ADVICE. EACH CREDITOR SHOULD CONSULT WITH ITS OWN LEGAL, BUSINESS,
FINANCIAL, AND TAX ADVISORS WITH RESPECT TO ANY SUCH MATTERS CONCERNING
THIS DISCLOSURE STATEMENT, THE SOLICITATION, THE PLAN AND THE TRANSACTIONS
CONTEMPLATED THEREBY. SEE SECTION XI -- "CERTAIN FACTORS TO BE CONSIDERED"
FOR A DISCUSSION OF VARIOUS FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT DECISION.
_____________________________
THIS DISCLOSURE STATEMENT HAS NOT BEEN FILED WITH OR REVIEWED BY, AND THE
NEW SENIOR NOTES AND NEW COMMON STOCK TO BE ISSUED ON THE CONSUMMATION DATE
WILL NOT HAVE BEEN THE SUBJECT OF A REGISTRATION STATEMENT FILED WITH, THE
SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR ANY SECURITIES REGULATORY
AUTHORITY OF ANY STATE UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR UNDER ANY STATE SECURITIES OR "BLUE SKY" LAWS. THE
PLAN HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY STATE
SECURITIES COMMISSION, AND NEITHER THE SEC NOR ANY STATE SECURITIES
COMMISSION HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED HEREIN. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. THIS DISCLOSURE STATEMENT DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED.
CAI IS RELYING ON SECTION 3(a)(9) OF THE SECURITIES ACT AND SIMILAR STATE
LAW PROVISIONS, AND TO THE EXTENT APPLICABLE, ON THE EXEMPTION FROM THE
SECURITIES ACT AND EQUIVALENT STATE LAW REGISTRATION PROVIDED BY SECTION
1145(a)(1) OF THE BANKRUPTCY CODE, TO EXEMPT FROM REGISTRATION UNDER THE
SECURITIES LAWS THE OFFER OF THE NEW SENIOR NOTES AND NEW COMMON STOCK THAT
MAY BE DEEMED TO BE MADE PURSUANT TO THE SOLICITATION. SEE SECTION XII --
"SECURITIES TO BE ISSUED IN CONNECTION WITH THE PLAN" FOR INFORMATION ON
CERTAIN REGISTRATION RIGHTS TO BE GRANTED TO RECIPIENTS OF NEW SENIOR NOTES
AND NEW COMMON STOCK.
THIS DISCLOSURE STATEMENT CONTAINS PROJECTED FINANCIAL INFORMATION
REGARDING THE REORGANIZED COMPANIES AND CERTAIN OTHER FORWARD-LOOKING
STATEMENTS, ALL OF WHICH ARE BASED ON VARIOUS ESTIMATES AND ASSUMPTIONS.
SUCH INFORMATION AND STATEMENTS ARE SUBJECT TO INHERENT UNCERTAINTIES AND
TO A WIDE VARIETY OF SIGNIFICANT BUSINESS, ECONOMIC, AND COMPETITIVE RISKS,
INCLUDING, AMONG OTHERS, THOSE SUMMARIZED HEREIN. SEE SECTION XI --
"CERTAIN FACTORS TO BE CONSIDERED." CONSEQUENTLY, ACTUAL EVENTS,
CIRCUMSTANCES, EFFECTS, AND RESULTS MAY VARY SIGNIFICANTLY FROM THOSE
INCLUDED IN OR CONTEMPLATED BY THE PROJECTED FINANCIAL INFORMATION AND
OTHER FORWARD-LOOKING STATEMENTS CONTAINED HEREIN WHICH, THEREFORE, ARE NOT
NECESSARILY INDICATIVE OF THE FUTURE FINANCIAL CONDITION OR RESULTS OF
OPERATIONS OF THE COMPANIES OR REORGANIZED COMPANIES AND SHOULD NOT BE
REGARDED AS REPRESENTATIONS BY THE COMPANIES, THEIR ADVISORS, OR ANY OTHER
PERSONS THAT THE PROJECTED FINANCIAL CONDITION OR RESULTS CAN OR WILL BE
ACHIEVED. FORWARD-LOOKING STATEMENTS ARE PROVIDED IN THIS DISCLOSURE
STATEMENT PURSUANT TO THE SAFE HARBOR ESTABLISHED UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 AND SHOULD BE EVALUATED IN THE
CONTEXT OF THE ESTIMATES, ASSUMPTIONS, UNCERTAINTIES, AND RISKS DESCRIBED
HEREIN.
Except as set forth in Section XVI.J "The Solicitation; Voting Procedures
- -- Further Information; Additional Copies" below, no person has been
authorized by the Companies in connection with the Plan or the Solicitation
to give any information or to make any representation other than as
contained in this Disclosure Statement and the Exhibits annexed hereto or
incorporated by reference or referred to herein, and, if given or made,
such information or representation may not be relied upon as having been
authorized by the Companies. This Disclosure Statement does not constitute
an offer to sell or the solicitation of an offer to buy any securities
other than those to which it relates, or an offer to sell or a solicitation
of an offer to buy any securities in any jurisdiction in which, or to any
person to whom, it is unlawful to make such offer or solicitation.
The statements contained in this Disclosure Statement are made as of the
date hereof, and neither the delivery of this Disclosure Statement nor any
exchange of Existing Securities made pursuant to the Plan will, under any
circumstance, create any implication that the information contained herein
is correct at any time subsequent to the date hereof. Any estimates of
Claims and Interests set forth in this Disclosure Statement may vary from
the amounts of Claims or Interests ultimately allowed by the Bankruptcy
Court.
The summaries of the Plan and other documents contained in this Disclosure
Statement are qualified in their entirety by reference to the Plan itself,
the exhibits thereto and all documents described therein. The information
contained in this Disclosure Statement, including, but not limited to, the
information regarding the history, businesses, and operations of the
Companies, the historical and projected financial information of the
Companies (including the projected results of operations of the Reorganized
Companies) and the liquidation analysis relating to the Companies is
included herein for purposes of soliciting acceptances of the Plan. As to
contested matters, however, such information is not to be construed as
admissions or stipulations but rather as statements made in settlement
negotiations.
TABLE OF CONTENTS
Page
TABLE OF EXHIBITS
GLOSSARY
I. INTRODUCTION
A. Definitions
B. The Solicitation
C. The Plan
D. Summary Of Classification And Treatment Of Claims And Equity Interests
E. The Confirmation Hearing
II. GENERAL INFORMATION
A. Introduction
B. CAI
C. History Of CAI
1. General
2. Use of the MMDS Spectrum
3. Investment in CS Wireless
4. Interim Financing
5. The Securities Action
D. Recent Developments
1. Extension of Maturity of Secured Notes
2. De-listing by Nasdaq of Old Common Stock
3. Attempts to Identify Strategic Partner
4. Negotiations with Unofficial Noteholders' Committee
E. PCT
1. Acquisition by CAI of ACS Enterprises, Inc.
2. Operations of PCT
F. Regulation In The Wireless Industry
1. General
2. Licensing Procedures
3. Change in Control Issues
4. Interference Issues
5. Certain Legislation Affecting the Wireless Cable Industry
6. Copyright
Retransmission Consent
G. Purposes And Effects Of The Plan
III. BUSINESS PLANS FOR THE REORGANIZED COMPANIES
A. Business And Operating Strategies Of CAI
1. General
2. Wireless Broadband Network
3. Digital Subscription Video
4. High-speed Data Services
5. Telephony Services
6. Analog-based Subscription Video
B. Risk Factors Related To CAI's Business Plan
1. Competition and Technology
2. Dependence on Channel Leases and Licenses; Need for License Extensions
3. Highly Competitive Businesses
4. Competitive Pressures of Rapid Changes in Technology
5. Need for Additional Financing for Operations
6. New Business Strategy/Strategic Partner
C. Business And Operations of PCT
IV. CORPORATE STRUCTURE AND MANAGEMENT OF THE COMPANIES
A. Board Of Directors Of CAI
B. Management Of CAI
C. Board Of Directors And Management Of PCT
D. Employment Agreements
E. Executive Severance Plan
F. Transactions With Affiliates
G. Directors And Officers Of The Reorganized Companies
H. Management Options
V. REASONS FOR THE SOLICITATION; RECOMMENDATION
VI. SUMMARY OF VOTING PROCEDURES
VII. ANTICIPATED EVENTS DURING THE CHAPTER 11 CASE
A. Commencement Of The Chapter 11 Case
1. Applications for Retention of the Companies' Professionals; Ordinary
Course Professionals
2. Motion to Waive Filing of Schedules and Statement of Financial Affairs
3. Motion to Mail Notices and Provide Publication Notice of Section 341
Meeting to Unimpaired Creditors
4. Motion to Approve Pre-Petition Solicitation and to Schedule
Confirmation Hearing
5. Motion to Continue Using Existing Cash Management System
6. Motion for Authority to Pay Pre-Petition Trade Claims in the Ordinary
Course of Business
7. Motion for Authority to Pay Pre-Petition Employee Wages and Benefits
8. Motion for Authority to Incur Post-Petition Indebtedness and Use Cash
Collateral
9. Motion for Authority for the Companies to Sell MDU Assets to OnePoint
B. Anticipated Timetable For The Chapter 11 Case
VIII. SUMMARY OF THE PLAN
A. Introduction
B. Voting On The Plan
1. Voting Deadline
2. Creditors Entitled To Vote On The Plan
3. Vote Required For Class Acceptance
4. Counting Of Ballots And Master Ballots For Determining Acceptance Of
The Plan
C. Certain Matters Regarding Classification And Treatment Of Claims And
Interests
1. Unclassified Claims
2. Unimpaired Classes of Claims Against CAI
3. Impaired Classes of Claims Against CAI
4. Impaired Class of Interests in CAI
5. Unimpaired Classes of Claims Against PCT
6. Impaired Class of Claims Against PCT
7. Unimpaired Class of Interests in PCT
D. Summary Of Other Provisions Of The Plan
1. Exit Financing
2. Releases and Satisfaction of Subordination Rights
3. Continued Corporate Existence
4. Sale Of MDU Assets By the Companies
5. Revesting of Assets
6. Distributions Under the Plan
7. Resolution and Treatment of Disputed, Contingent, and Unliquidated
Claims
8. Surrender and Cancellation of Securities or Instruments
9. Treatment of Executory Contracts and Unexpired Leases
10. Retention of Jurisdiction
11. Bar Dates For Certain Claims
12. Miscellaneous
E. Confirmation Of The Plan
1. Confirmation Hearing
2. Requirements for Confirmation of the Plan
3. Confirmation Without Acceptance of All Impaired Classes --
4. Conditions to Confirmation and Consummation
5. Modifications and Amendments
F. Effects Of Confirmation
1. Binding Effect
2. Discharge Of The Companies
3. Permanent Injunction
4. Exculpation and Limitation on Liability
IX. TREATMENT OF TRADE CREDITORS AND EMPLOYEES DURING THE CHAPTER 11 CASE
A. Trade Creditors
B. Employees
X. FINANCING DURING AND AFTER THE CHAPTER 11 CASE
A. The DIP Facility
1. General
2. Security
3. Covenants
4. Events of Default
5. Additional Significant Provisions
B. Use Of Cash Collateral
C. The New Senior Secured Facility
XI. CERTAIN FACTORS TO BE CONSIDERED
A. Maintenance Of Operations And Post-Petition Financing
B. Certain Bankruptcy Considerations
1. General
2. Effect on Non-Filing Subsidiaries or Affiliates
3. Failure to Receive Requisite Acceptances
4. Failure to Confirm the Plan
5. Failure to Consummate the Plan
C. Certain Tax Considerations
D. Inherent Uncertainty Of Financial Projections
E. Dividends
F. Competition
XII. SECURITIES TO BE ISSUED IN CONNECTION WITH THE PLAN
A. Description Of Securities To Be Issued
1. New Senior Notes
2. New Common Stock
3. Management Options
B. Resale Of Securities Of Reorganized CAI
1. Registration of Securities
2. Registration Rights Agreement
3. Lack of Established Market for New Securities
XIII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
A. Federal Income Tax Consequences To The Companies
1. Cancellation of Indebtedness Income
2. Amount and Utilization of Net Operating Loss Carryforwards
3. Deductions of Accrued Interest and Original Issue Discount by
Reorganized CAI
4. Tax Classification of the New Senior Notes
5. Alternative Minimum Tax
B. Federal Income Tax Consequences To Holders Of Claims
1. Classes CAI-1, CAI-2, and CAI-3; Classes PCT-1, PCT-2, and PCT-3
2. Class CAI-5 Senior Note Claims; Classes CAI-6 and PCT-5 Subordinated
Note Claims
XIV. FEASIBILITY OF THE PLAN AND THE BEST INTERESTS OF CREDITORS TEST
A. Feasibility Of The Plan
B. Best Interests Test
C. Liquidation Analysis
D. Valuation Of Reorganized CAI
1. Valuation Overview
2. Methodology
3. Valuation of Reorganized CAI
XV. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
A. Commencement Of A
B. Alternative Plan(s)
C. Liquidation Under Chapter 7 Or Chapter 11
XVI. THE SOLICITATION; VOTING PROCEDURES
A. Voting Deadline
B. Voting Procedures
C. Special Note For Holders of Senior Notes
1. Beneficial Owners
2. Nominees
3. Securities Clearing Agencies
4. Miscellaneous
5. Delivery of Senior Notes
D. Fiduciaries And Other Representatives
E. Parties In Interest Entitled To Vote
F. Classes Impaired Under The Plan
G. Agreements Upon Furnishing Ballots
H. Waivers Of Defects, Irregularities, Etc.
I. Withdrawal Of Ballots; Revocation
J. Further Information; Additional Copies
XVII. FINANCIAL ADVISORS; VOTING AGENT; FEES AND EXPENSES
XVIII. RECOMMENDATION AND CONCLUSION
TABLE OF EXHIBITS
Exhibit Name
A Reorganization Plan Of CAI Wireless Systems, Inc. And
Philadelphia Choice Television, Inc.
B Form 10-K For CAI For Fiscal Year Ended March 31, 1998
C Description of New Senior Notes
D Liquidation Analysis
E Projected Financial Information
GLOSSARY
ACS ACS Enterprises, Inc.
Administrative Claim a Claim for payment of an administrative expense of
a kind specified in Section 503(b) or 1114(e)(2) of the Bankruptcy Code and
entitled to priority pursuant to Section 507(a)(1) of the Bankruptcy Code,
including, but not limited to, (a) the actual, necessary costs and
expenses, incurred after the Petition Date, of preserving the Estates and
operating the businesses of the Companies, including wages, salaries, or
commissions for services rendered after the commencement of the Chapter 11
Case, (b) Professional Fees, (c) all fees and charges assessed against the
Estates under 28 U.S.C. Section 1930, and (d) all Allowed Claims that are
entitled to be treated as Administrative Claims pursuant to a Final Order
of the Bankruptcy Court under Section 546(c)(2)(A)of the Bankruptcy Code.
Affiliate CAI or any corporation, limited liability company,
joint venture, or partnership in which CAI directly or indirectly owns 20%
or more of the equity interest of such entity.
AFR Applicable Federal Rate.
Allowed Claim a Claim or any portion thereof (a) as to which no
objection to allowance or request for estimation has been interposed on or
before the Consummation Date or the expiration of such other applicable
period of limitation fixed by the Bankruptcy Code, Bankruptcy Rules, or the
Bankruptcy Court, (b) as to which any objection to its allowance has been
settled, waived through payment, or withdrawn, or has been denied by a
Final Order, (c) that has been allowed by a Final Order, (d) as to which
the liability of the Companies, or either of them, and the amount thereof
are determined by final order of a court of competent jurisdiction other
than the Bankruptcy Court, or (e) that is expressly allowed in a liquidated
amount in the Plan; provided, however, that with respect to an
Administrative Claim, "Allowed Claim" means an Administrative Claim as to
which a timely request for payment has been made in accordance with Article
XIV.A.1 of the Plan (if such written request is required) or other
Administrative Claim, in each case as to which the Companies (1) have not
interposed a timely objection or (2) have interposed a timely objection and
such objection has been settled, waived through payment, or withdrawn, or
has been denied by a Final Order; provided further, however, that all Class
CAI-1, CAI-2, CAI-3, CAI-4, PCT-1, PCT-2, PCT-3, and PCT-4 Claims, if any,
shall be treated for all purposes as if the Chapter 11 Case was not filed,
and the determination of whether any such Claims shall be allowed and/or
the amount of any such Claims (as to which no proof of Claim need be filed)
shall be determined, resolved, or adjudicated, as the case may be, in the
manner in which such Claim would have been determined, resolved, or
adjudicated if the Chapter 11 Case had not been commenced.
Allowed when used in reference to a Claim or
Interest within a particular Class, an Allowed Claim or Allowed Interest of
the type described in such Class.
Ballots each of the ballot forms distributed with
this Disclosure Statement to holders of Impaired Claims entitled to vote
under Article II of the Plan to accept or reject the Plan.
Bankruptcy Code the Bankruptcy Reform Act of 1978, as codified in title 11
of the United States Code, 11 U.S.C. Sections 101-1330, as now in effect
or hereafter amended.
Bankruptcy Court the United States Bankruptcy Court for the District
of Delaware or such other court as may have jurisdiction over the Chapter
11 Case.
Bankruptcy Rules the Federal Rules of Bankruptcy Procedure, the
Official Bankruptcy Forms, and the Federal Rules of Civil Procedure, as
amended, and the Local Rules of the Bankruptcy Court, as applicable to the
Chapter 11 Case or proceedings therein, as the case may be.
BANX Affiliates those affiliates of Bell Atlantic and NYNEX that
entered into a strategic partnership with CAI in March 1995.
BANX Partnership a Delaware general partnership comprised of
affiliates of Bell Atlantic Corporation and NYNEX Corporation that
purchased the BANX Securities from CAI pursuant to a Securities Purchase
Agreement dated as of March 28, 1995.
BANX Securities the BANX Term Notes, BANX Warrants, and the Old
Senior Preferred Stock, collectively.
Bar Date(s) the date(s), if any, designated by the Bankruptcy
Court as the last dates for filing proofs of Claim in the Chapter 11 Case.
Bonus Event the completion by CAI of a major financial
restructuring, or the completion of investments by, and/or contractual
relationships with, one or more Strategic Partners valued at not less than
$75 million in the aggregate, as each of the above-referenced events
applies to the deferred bonus plan for certain employees implemented by CAI
in February 1998.
Bott George W. Bott.
Bott Affiliates Bott and the Bott Trust.
Bott Collateral collectively (a) the stock of Housatonic
Wireless, Inc. and Onteo Associates, Inc., each a Subsidiary, which CAI
pledged to Bott, and the channel leases described in the Guarantee and
Security Agreement, dated as of March 30, 1994, between Housatonic
Wireless, Inc., Onteo Associates, Inc. and Bott, in which CAI granted Bott
security interests or liens, all to secure CAI's obligations under the Bott
Note; (b) the stock of Niskayuna Associates, Inc., a Subsidiary, which CAI
pledged to the Bott Trust, and the channel leases described in the
Guarantee and Security Agreement, dated as of March 30, 1994, between
Niskayuna Associates, Inc. and the Bott Trust, in which CAI granted the
Bott Trust security interests or liens, all to secure CAI's obligations
under the 1994 Bott Trust Note; and (c) the stock of Chenango Associates,
Inc., a Subsidiary, which CAI pledged to the Bott Affiliates, and the
channel leases described in the Guarantee and Security Agreement, dated as
of March 30, 1994, between Chenango Associates, Inc. and the Bott Trust, in
which CAI granted the Bott Trust security interests or liens, all to secure
CAI's obligations under the 1996 Bott Trust Note, to the extent that, as of
the Consummation Date, such stock remains pledged to the respective Bott
Affiliate and such channel leases remain encumbered by valid, enforceable
and perfected security interests or liens of the respective Bott Affiliate
in CAI's Estate's interest in such channel leases that are not avoidable
under the Bankruptcy Code or applicable nonbankruptcy law.
Bott Notes collectively the (a) promissory note, dated March
30, 1994 (the "Bott Note"), between CAI, as maker, and Bott, as holder, (b)
promissory note, dated March 30, 1994 (the "1994 Bott Trust Note"), between
CAI, as maker, and the Bott Trust, as holder, and (c) promissory note,
dated January 12, 1996 (the "1996 Bott Trust Note"), between CAI, as maker,
and the Bott Trust, as holder, and all agreements and other documents
relating to the foregoing.
Bott Trust The Bott Family Trust, a charitable remainder
trust.
BR Agreement the agreement memorializing the strategic
relationship formed by CAI and the BANX Affiliates.
BTA(copyright) Basic Trading Area(copyright).
BT Alex. Brown the option(s) to be issued by Reorganized CAI to BT
Option(s) Alex. Brown Incorporated to purchase up to
1/2% of the New Common Stock, on a fully diluted
basis, of Reorganized CAI.
Business Day any day, excluding Saturdays, Sundays or "legal
holidays" (as defined in Fed. R. Bankr. P. 9006(a)), on which commercial
banks are open for business in New York, New York.
CAI CAI Wireless Systems, Inc., a Connecticut
corporation.
Cash legal tender of the United States or equivalents
thereof.
Chapter 11 Case the jointly administered Chapter 11 cases of CAI
and PCT.
Claim a claim against the Companies, or either of them,
whether or not asserted, as defined in Section 101(5) of the Bankruptcy
Code.
Class a category of holders of Claims or Interests.
Collateral any property or interest in property of an Estate
subject to a lien to secure the payment or performance of a Claim, which
lien is not subject to avoidance under the Bankruptcy Code or otherwise
invalid under the Bankruptcy Code or applicable state law.
Collateral Agent Price Waterhouse LLP in its capacity as
administrative agent and collateral agent for the holders of the Secured
Notes.
Companies together, CAI and PCT.
Company CAI.
Confirmation entry by the Bankruptcy Court of the Confirmation
Order.
Confirmation Date the date of entry by the clerk of the Bankruptcy
Court of the Confirmation Order.
Confirmation Hearing the hearing to consider confirmation of the Plan
under Section 1128 of the Bankruptcy Code.
Confirmation Order the order entered by the Bankruptcy Court
confirming the Plan.
Consummation Date the Business Day on which all conditions to the
consummation of the Plan have been satisfied or waived; the effective date
of the Plan.
Creditor any Person who holds a Claim against the Companies
or either of them.
Creditors' Committee the committee of unsecured creditors, if any,
appointed pursuant to Section 1102(a) of the Bankruptcy Code in the Chapter
11 Case.
CS Wireless CS Wireless Systems, Inc., a Delaware corporation.
CS Wireless the stockholders' agreement dated February 23,
1996, to which CAI, CS Wireless and Heartland are
Stockholders' Agreement parties.
CS Wireless the participation agreement, dated as of December
Participation Agreement 12, 1995, as may have been amended from time
to time, between and among CAI, Heartland, and CS
Wireless.
Data Systems CAI Data Systems, Inc.
DBS direct broadcast satellite.
Debt Securities the Secured Notes, Senior Notes, and
Subordinated Notes, collectively.
Debt Securities Claim a Securities Claim arising from a Debt Security.
DIP Facility the debtor-in-possession credit facility to be
provided to CAI during the Chapter 11 Case in the aggregate principal
amount of $60,000,000, pursuant to the DIP Facility Agreement.
DIP Facility Agreement the amended and restated note purchase agreement,
to be dated as of, or prior to, the Petition Date, by and among CAI, MLGAF,
and the other signatories thereto.
DIP Notes promissory notes issued under the DIP Facility
Agreement in an amount equal to (i) the Secured Notes issued under the
existing Note Purchase Agreement, in an amount equal to (a) the aggregate
principal amount of outstanding Secured Notes as of the Petition Date plus
(b) all accrued interest and fees, plus (ii) new notes in an amount equal
to $60,000,000 minus the amount described in (i) above.
Disbursing Agent Reorganized CAI or any party designated by
Reorganized CAI, in its sole discretion, to serve as a disbursing agent
under the Plan.
Disclosure Statement this disclosure statement, as it may be amended,
supplemented, or modified from time to time, prepared and distributed in
accordance with Sections 1125 and 1126(b) of the Bankruptcy Code and Fed.
R. Bankr. P. 3018.
Disputed Claim means any Claim not otherwise Allowed or paid
pursuant to the Plan or an order of the Bankruptcy Court (a) which is
listed on the Schedules as unliquidated, contingent, or disputed, and which
has not been resolved by written agreement of the parties or an order of
the Bankruptcy Court, (b) proof of which was required to be filed by order
of the Bankruptcy Court but as to which a proof of Claim was not timely or
properly filed, (c) proof of which was timely and properly filed and is
listed on the Schedules as unliquidated, disputed or contingent, (d) that
is disputed in accordance with the provisions of the Plan, or (e) as to
which CAI or PCT has interposed a timely objection or request for
estimation in accordance with the Bankruptcy Code, the Bankruptcy Rules,
and any orders of the Bankruptcy Court, or is otherwise disputed by CAI or
PCT in accordance with applicable law, which objection, request for
estimation, or dispute has not been withdrawn or determined by a Final
Order; provided, however, that for purposes of determining whether a
particular Claim is a Disputed Claim prior to the expiration of any period
of limitation fixed for the interposition by the Companies of objections to
the allowance of Claims, any Claim that is not identified by CAI or PCT, as
the case may be, as an Allowed Claim shall be deemed a Disputed Claim.
Distribution Date the date, occurring as soon as practicable, but in
no event later than twenty (20) Business Days after the Consummation Date,
upon which distributions are made by Reorganized CAI or Reorganized PCT, as
the case may be, to holders of Allowed DIP Facility, Administrative,
Priority Tax, and Class CAI-1, CAI-5, CAI-6, PCT-1, and PCT-5 Claims.
Distribution Record Date the record date for purposes of making
distributions under the Plan on account of Allowed Claims, which will be
the seventh (7th) Business Day following the Confirmation Date.
Distribution Reserve the reserve, if any, established and maintained by
the Reorganized Companies, into which the Reorganized Companies will
deposit the amount of Cash, New Senior Notes, New Common Stock, or other
property that would have been distributed on the Distribution Date to
holders of (a) Disputed Claims, (b) contingent liquidated Claims, if such
Claims had been undisputed or noncontingent Claims on the Distribution
Date, pending (i) the allowance of such Claims, (ii) the estimation of such
Claims for purposes of allowance or (iii) the realization of the
contingencies, and (c) unliquidated Claims, if such Claims had been
liquidated on the Distribution Date, such amount to be estimated by the
Bankruptcy Court or agreed upon by the Companies and the holders thereof as
sufficient to satisfy such unliquidated Claim upon such Claim's (x)
allowance, (y) estimation for purposes of allowance, or (z) liquidation,
pending the occurrence of such estimation or liquidation.
ECN Notes collectively, the thirteen (13) subordinated
promissory notes due September 29, 2000, in the aggregate principal amount
of $2,793,000, given by CAI to the ECN Participants.
ECN Participants collectively, Gerard Klauer Mattison & Co., LLC;
Quasar Corporation; NOSROB, L.L.C.; Mellon Bank, N.A., Trustee for Dextor
Corporation, Grantor Trust; Montgomery Small Cap Partners II, L.P.; Roanoke
Partners, L.P.; John Flavin; Flavin, Blake Investors, L.P.; Montgomery
Growth Partners I, L.P.; Richard McKenzie; Haussman, L.L.C.; Les Alexander;
and Eastern Cable Networks Corp.
Employment Agreements the employment agreements to be entered into
between Reorganized CAI and the Key Employees in substantially the form of
the employment agreements to be included in the Plan Supplement.
Equity Securities the Old Common Stock, Old Stock Options, and Old
Warrants, together with any options, warrants, or rights, contractual or
otherwise, to acquire or receive any such stock or ownership interests,
including, but not limited to, the Old Options, the Old Warrants and any
contracts or agreements pursuant to which the non-debtor party was or could
have been entitled to receive shares of stock or other ownership interests
in CAI.
Equity Securities Claim a Securities Claim arising from any Equity
Security.
Estate(s) individually, the estate of CAI or PCT in the
Chapter 11 Case, and, collectively, the estates of CAI and PCT in the
Chapter 11 Case, created pursuant to Section 541 of the Bankruptcy Code.
Estimated Total the approximate number of households within
Service Area a 35 mile radius of CAI's tower sites.
Existing Securities the Equity Securities and the Debt Securities,
collectively.
Exit Lender(s) the lender(s) under the New Senior Secured
Facility.
FCC the Federal Communications Commission, as
constituted from time to time, or any successor governmental agency
performing functions similar to those performed by the Federal
Communications Commission.
Final Order an order or judgment of the Bankruptcy Court, or
other court of competent jurisdiction, as entered on the docket in the
Chapter 11 Case, the operation or effect of which has not been stayed,
reversed, or amended and as to which order or judgment (or any revision,
modification, or amendment thereof) the time to appeal or seek review or
rehearing has expired and as to which no appeal or petition for review or
rehearing was filed or, if filed, remains pending.
General Unsecured a Claim that is not a DIP Facility Claim,
Claim Administrative Claim, Priority Tax Claim, Other
Priority Claim, Secured Claim, Senior Note Claim,
Subordinated Note Claim, Intercompany Claim, or Securities Claim.
Haig Haig Capital, LLC.
Heartland Heartland Wireless Communications, Inc., a Delaware
corporation.
Impaired when used with reference to a Claim or Interest, a
Claim or Interest that is impaired within the meaning of Section 1124 of
the Bankruptcy Code.
Indenture Trustee Chemical Bank or its successor, in either case in
its capacity as indenture trustee for the Senior Notes Indenture.
Intercompany Claim any Claim of (a) any Subsidiary against a Company,
(b) any Subsidiary against any other Subsidiary, or (c) a Company against
any Subsidiary, as the case may be.
Interest the legal, equitable, contractual and other
rights of any Person with respect to Old Common Stock, Old Stock Options,
Old Warrants, or any other Equity Securities of CAI or PCT, and the legal,
equitable, contractual or other rights of any Person to acquire or receive
any of the foregoing.
ISP Internet service provider.
ITFS Instructional Television Fixed Service.
Kbps kilobits per second.
Key Employees the employees of CAI listed on Exhibit G to the
Plan.
Litigation Claims the claims, rights of action, suits, or
proceedings, whether in law or in equity, whether known or unknown, that
the Companies or the Estates may hold against any Person, which are to be
retained by the Reorganized Companies pursuant to Article IV.G of the Plan.
LEC local exchange carrier.
LMDS Local Multipoint Distribution Service.
LOS line-of-sight; an unobstructed path between the
transmit point and the receiving antenna.
Management Option the stock option agreements, substantially in the
Agreement(s) form of the agreements to be included in the Plan
Supplement, to be entered into by Reorganized CAI
and Management Option Plan Participants pursuant to
which the Management Options will be granted.
Management Option the stock option plan pursuant to which the
Plan Management Options will be issued, substantially in the
form of the plan to be included in the Plan
Supplement, to be adopted by CAI or Reorganized CAI
pursuant to Article IV.C.1.a of the Plan.
Management Option means the employees of Reorganized CAI, listed on
Exhibit H to the Plan, entitled to participate in Plan Participants
the Management Option Plan.
Management Options the options to be issued by Reorganized CAI to the
Management Option Plan Participants to purchase up to 10% of the New Common
Stock, on a fully diluted basis, pursuant to the provisions of the
Management Option Agreement to be entered into under the Management Option
Plan.
Master Ballot the ballot provided to a bank, brokerage firm or
other nominee, or agent or proxy holder thereof holding Senior Notes in its
own name on behalf of a beneficial owner, or any agent thereof.
Mbps megabits per second.
MDS Multichannel Distribution Service.
MDU Assets the assets currently used by PCT in the provision
of analog subscription video services to 64 multi-dwelling units located in
and around the greater Philadelphia area, which are to be sold to OnePoint
pursuant to Section 363(b) of the Bankruptcy Code.
Mester John Mester d/b/a Connecticut Home Theater.
Mester Collateral collectively, (a) the stock of Springfield License,
Inc., a Subsidiary, (b) the equipment described in Schedule A to the Pledge
and Security Agreement, dated August 21, 1997, between CAI, Mester, and
Brown Neitert & Kaufman, Chartered, as pledge agent for Mester, and (c) all
proceeds, profits and products of any sale or other disposition of the
foregoing, which CAI pledged to Mester or in which CAI granted Mester
security interests or liens to secure CAI's obligations under the Mester
Notes, to the extent that, as of the Consummation Date, such stock remains
pledged to Mester and such equipment and proceeds remain encumbered by
valid, enforceable and perfected security interests or liens of Mester in
CAI's Estate's interest in such equipment and proceeds that are not
avoidable under the Bankruptcy Code or applicable nonbankruptcy law.
Mester Notes the two (2) promissory notes, each dated August 21,
1997, between CAI, as maker, and Mester, as holder, and all agreements and
other documents relating thereto.
MLGAF Merrill Lynch Global Allocation Fund, Inc., a Maryland
corporation.
MMDS Multichannel Multipoint Distribution Services.
Modification Agreement the December 12, 1996 agreement between CAI and the
BANX Affiliates that modified certain terms of the BR Agreement and gave
CAI or its designee the right to acquire the BANX Securities.
New Common Stock the 25 million shares of common stock of
Reorganized CAI, $.01 par value per share, authorized under Article
IV.C.1.a of the Plan and the Amended CAI Certificate of Incorporation and
By-laws.
New Options the Management Options and the BT Alex. Brown
Option.
New Securities the New Common Stock, New Senior Notes, and New
Options.
New Senior Notes the 12% Senior Notes due 2004 of Reorganized CAI,
in the principal amount of $100 million, to be issued and distributed
pursuant to the Plan on the Distribution Date and governed by the terms of
the New Senior Notes Indenture.
New Senior the indenture to be entered into between
Notes Indenture Reorganized CAI and an entity to be selected prior to
the Consummation Date, as indenture trustee, under
which the New Senior Notes will be issued, substantially
in the form of the indenture to be included in the Plan
Supplement.
New Senior the new senior secured credit facility in a
Secured Facility principal amount not in excess of $80 million which
Reorganized CAI anticipates entering into
as a condition to the consummation of the Plan.
NOL net operating loss carryforward.
Note Purchase the note purchase agreement, dated as of November
Agreement 24, 1997, as amended from time to time, by and
among CAI, the Subsidiaries named therein, and
MLGAF, pursuant to which the Secured Notes were issued
and sold.
NPRM Notice of Proposed Rulemaking.
Obligor Subsidiaries those Subsidiaries of CAI that are signatories to,
and obligors under, the Note Purchase Agreement.
Old Common Stock CAI's common stock, no par value, together with any
options, warrants, or rights, contractual or otherwise, to acquire or
receive any such stock, including, but not limited to, the Old Stock
Options and Old Warrants.
Old Junior the shares of CAI's non-voting convertible junior
Preferred Stock preferred stock, having a liquidation preference of
$30 million, and options, warrants, or rights,
contractual or otherwise, if any, to acquire
any such non-voting convertible junior preferred
stock.
Old Stock Options the outstanding options to purchase Old Common
Stock, as of the Petition Date.
Old Senior the shares of CAI's 14% Senior Convertible
Preferred Stock Preferred Stock, par value $10,000 per share, and
options, warrants, or rights, contractual or otherwise,
if any, to acquire any such 14% Senior Convertible
Preferred Stock.
Old Voting the shares of CAI's Series C Convertible Preferred
Preferred Stock Stock, no par value per share, and options,
warrants, or rights, contractual or otherwise, if
any, to acquire any such Series C Convertible Preferred
Stock.
Old Warrants the outstanding warrants to purchase Old Common
Stock, as of the Petition Date.
OnePoint Mid-Atlantic Telcom Plus, d/b/a OnePoint
Communications.
Other Priority Claim a Claim entitled to priority pursuant to Section
507(a) of the Bankruptcy Code other than a DIP Facility Claim, Priority Tax
Claim or an Administrative Claim.
PCT Philadelphia Choice Television, Inc., a Delaware
corporation.
Petition Date the date on which CAI and PCT file their petitions
for relief commencing the Chapter 11 Case.
Plan the Chapter 11 reorganization plan for CAI and PCT,
dated June 30, 1998, as the same may be amended, modified or supplemented
from time to time.
Plan Supplement the compilation of documents and forms of documents
specified in the Plan which will be filed with the Bankruptcy Court not
later than five (5) Business Days prior to the commencement of the
Confirmation Hearing.
Priority Tax Claim a Claim that is entitled to priority pursuant to
Section 507(a)(8) of the Bankruptcy Code.
Professional any professional employed in the Chapter 11 Case
pursuant to Sections 327 or 1103 of the Bankruptcy Code or otherwise and
the Persons seeking compensation or reimbursement of expenses in connection
with the Chapter 11 Case pursuant to Section 503(b)(4) of the Bankruptcy
Code.
Professional Fee Claim a Claim of a Professional for compensation or
reimbursement of costs and expenses relating to services incurred after the
Petition Date and prior to and including the Consummation Date.
Projections the projections contained in Exhibit E to the
Disclosure Statement.
Pro Rata the proportion that the Face Amount of a Claim in a
particular Class bears to the aggregate Face Amount of all Claims
(including Disputed Claims, but excluding Disallowed Claims) in such Class.
RBOC Regional Bell Operating Company.
Registrable Securities Securities acquired, by Persons who may be deemed
to be "affiliates" or underwriters of Reorganized CAI for purposes of the
Securities Act, pursuant to or in connection with the Plan, including New
Common Stock, New Senior Notes, and securities issuable in connection with
the New Senior Secured Facility, or acquired by their successors and
permitted assigns in accordance with the Registration Rights Agreement (and
any securities issued or issuable with respect thereto).
Registration Rights the agreement between Reorganized CAI and certain
Agreement Persons who may be deemed to be "affiliates"
or underwriters of Reorganized CAI for purposes of
the Securities Act, governing the registration of
(a) New Senior Notes, (b) New Common Stock, including,
but not limited to, the additional shares of
New Common Stock issuable upon exercise of the New
Options, and (c) securities issuable in connection with
the New Senior Secured Facility.
Reinstated or (i) leaving unaltered the legal, equitable, and
Reinstatement contractual rights to which a Claim entitles the holder
of such Claim so as to leave such Claim unimpaired
in accordance with Section 1124 of the Bankruptcy Code or (ii)
notwithstanding any contractual provision or applicable law that entitles
the holder of such Claim to demand or receive accelerated payment of such
Claim after the occurrence of a default (a) curing any such default that
occurred before or after the Petition Date, other than a default of a kind
specified in Section 365(b)(2) of the Bankruptcy Code; (b) reinstating the
maturity of such Claim as such maturity existed before such default; (c)
compensating the holder of such Claim for any damages incurred as a result
of any reasonable reliance by such holder on such contractual provision or
such applicable law; and (d) not otherwise altering the legal, equitable,
or contractual rights to which such Claim entitles the holder of such
Claim; provided, however, that any contractual right that does not pertain
to the payment when due of principal and interest on the obligation on
which such Claim is based, including, but not limited to, financial
covenant ratios, negative pledge covenants, covenants or restrictions on
merger or consolidation, and affirmative covenants regarding corporate
existence prohibiting certain transactions or actions contemplated by the
Plan, or conditioning such transactions or actions on certain factors,
shall not be required to be reinstated in order to accomplish
Reinstatement.
Reorganized CAI reorganized CAI, on and after the Consummation
Date.
Reorganized Companies individually, Reorganized CAI or Reorganized PCT
and, collectively, Reorganized CAI and Reorganized PCT.
Reorganized PCT reorganized PCT, on and after the Consummation
Date.
Requisite Acceptances with respect to an impaired class of claims, votes
cast to accept the Plan in number and amount equal to (a) at least 2/3 in
amount of the Claims of the holders in such Class who actually cast votes
with respect to the Plan and (b) more than one-half in number of the
holders in such Class who actually cast votes with respect to the Plan.
Restructuring collectively, the transactions and transfers
described in Article IV of the Plan.
Satellite Committee the Satellite Projects Committee of the Board of
Directors of CAI.
Schedules the schedules of assets and liabilities and the
statements of financial affairs, if any, filed in the Bankruptcy Court by
CAI or PCT, as the case may be, as such schedules or statements or may be
amended or supplemented from time to time in accordance with Fed. R. Bankr.
P. 1009 or orders of the Bankruptcy Court.
Section 341 Meeting the first meeting of creditors held pursuant to
Section 341 of the Bankruptcy Code.
Secured Claim a Claim, other than a Setoff Claim, that is secured
by a security interest in or lien upon property, or the proceeds of the
sale of such property, in which a Company has an interest, to the extent of
the value, as of the Consummation Date or such later date as is established
by the Bankruptcy Court, of such interest or lien as determined by a Final
Order of the Bankruptcy Court pursuant to Section 506 of the Bankruptcy
Code or as otherwise agreed upon in writing by such Company or Reorganized
Company and the holder of such Claim.
Secured Notes the 13% Senior Secured Notes of CAI and certain
Subsidiaries, issued and outstanding under the Note Purchase Agreement.
Secured Note Collateral the Collateral referred to in the Secured
Note 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 Collateral Agent for the benefit of the holders of the
Secured Notes.
Secured Note (a) the Security Agreement and Pledge Agreement (as
those terms are defined in the Note Purchase
Collateral Documents Agreement), (b) each other security agreement or
pledge agreement entered into pursuant to Section 8.11 of the Note Purchase
Agreement, and (c) each other agreement that creates or purports to create
or perfect a lien in favor of the Collateral Agent for the benefit of the
holders of the Secured Notes.
Securities Act the Securities Act of 1933, 15 U.S.C. oo 77a-77aa,
as now in effect or hereafter amended.
Securities Action the consolidated class action captioned In re CAI
Wireless Systems, Inc. Securities Litigation, Master File No. 96-CV-1857
(LEK/DRH), pending in the United States District Court for the Northern
District of New York.
Securities Claim a Claim arising from the rescission of a
purchase or sale of a security of CAI, including, but not limited to, Old
Senior Preferred Stock, Old Junior Preferred Stock, Old Voting Preferred
Stock, Old Common Stock, Old Stock Options, Old Warrants, Senior Notes,
Secured Notes, Subordinated Notes, all other debt instruments and any and
all other rights to acquire Equity Securities of CAI, for damages arising
from the purchase or sale of such a security, or for reimbursement,
contribution or indemnification allowed under Section 502 of the Bankruptcy
Code on account of such Claim, including, without limitation, a Claim with
respect to any action pending against CAI and/or its current or former
officers and directors in which Securities Claims are asserted, including
the Securities Action.
Senior Note Claim a Claim of a Senior Note Holder arising under or as
a result of the Senior Notes.
Senior Note Escrow the escrow account established pursuant to the
terms of Section 2 of the Senior Note Escrow Agreement.
Senior Note the escrow agreement, dated as of September 15,
Escrow Agreement 1995, by and among CAI, Chemical Bank, as
escrow agent, and the Indenture Trustee, pursuant to
which the Senior Note Escrow was established.
Senior Note Holder a holder of Senior Notes.
Senior Notes CAI's 12 1/4% senior notes due 2002.
Senior Notes Indenture the indenture, dated September 15, 1995, as
modified by the First Supplemental Indenture, dated as of January 31, 1996,
between CAI and Chemical Bank, as trustee, pursuant to which the Senior
Notes were issued.
Severance Plan the existing Executive Severance Pay Plan of CAI,
as more fully described in Section IV.E -- "Corporate Structure and
Management of the Companies -- Executive Severance Plan" of this Disclosure
Statement.
Solicitation the solicitation by the Companies from holders of
Senior Notes and Subordinated Notes of acceptances of the Plan pursuant to
Section 1126(b) of the Bankruptcy Code.
Solicitation Package the package provided by the Companies that includes
the Disclosure Statement and related materials and, where appropriate,
Ballots or Master Ballots.
Strategic Partner a Person or entity ready, willing, and able to (a)
enter into a business relationship with the Companies pursuant to which the
Companies would provide video, voice, and/or data services to such Person's
or entity's customers in the Companies' markets, or (b) provide financing
sufficient to permit the Companies to implement their business plan.
Subordinated Notes the ECN Notes and the 12% Subordinated Note.
Subsidiaries the direct and indirect subsidiaries of CAI listed
on Exhibit C to the Plan.
Telecom Support Telecom Service Support LLC.
Termination Agreement the agreement under which CAI issued $7,000,000
aggregate principal amount of its Secured Notes to BANX in consideration of
the termination of the BR Agreement and Modification Agreement, as amended,
and the transfer of 1,000,000 shares of CS Wireless common stock held by
BANX.
Trade Claim any Unsecured Claim against a Company arising from
or with respect to the sale of goods or services to such Company, prior to
the Petition Date, in the ordinary course of such Company's business,
including any Claim of an employee that is not an Other Priority Claim, but
only to the extent that the holder of such Claim continued to provide goods
and/or services to the Company pursuant to customary or ordinary trade
terms.
Trigger Event with respect to the Management Option Plan, a
material third party acquisition or merger, material equity investment in
CAI, or material joint venture, and/or a material take-or-pay arrangement
or other third party transaction with respect to the use of CAI's spectrum,
and/or any other material third party transaction having a substantially
similar economic effect as the foregoing.
12% Subordinated Note the 12% subordinated note due October 1, 2005, in
the principal amount of $30,000,000, given by CAI and the Obligor
Subsidiaries to MLGAF.
Unimpaired Claim a Claim that is not an Impaired Claim.
Unofficial Noteholders' means the unofficial committee of certain holders
Committee of Senior Note Claims formed prior to the Petition
Date, the members of which include MLGAF, Conseco
Capital Management, Inc., Romulus Holdings, Prospect Street Investment
Management Co., Inc., Dabney Flanigan, LLC, and The Chase Manhattan Bank,
as Indenture Trustee (ex-officio), as the same may be reconstituted from
time to time, provided that such committee at all times must represent at
least 50% in principal amount of the holders of the Senior Notes.
Unsecured Claim any Claim against CAI or PCT, other than a DIP
Facility Claim or a Secured Claim.
Voting Agent The Altman Group, 60 East 42nd Street, Suite 1241,
New York, New York 10165.
Voting Deadline July 27, 1998.
Voting Record Date with respect to identification of the holders of
Impaired Claims entitled to vote on the Plan, June 23, 1998.
WBN wireless broadband network.
I. INTRODUCTION
CAI Wireless Systems, Inc., a Connecticut corporation ("CAI" or the
"Company"), and Philadelphia Choice Television, Inc., a Delaware
corporation ("PCT" and, together with CAI, the "Companies") hereby transmit
this disclosure statement (the "Disclosure Statement") pursuant to Section
1126(b) of the United States Bankruptcy Code, 11 U.S.C. Sections 101-1330, as
amended (the "Bankruptcy Code"), for use in the solicitation of votes (the
"Solicitation") to accept their prepackaged joint reorganization plan,
dated June 30, 1998 (the "Plan," a copy of which is annexed to this
Disclosure Statement as Exhibit A). The Solicitation is being conducted at
this time in order to obtain (prior to the commencement of a Chapter 11
case) sufficient acceptances to enable the Plan to be confirmed by the
Bankruptcy Court pursuant to the provisions of the Bankruptcy Code. The
Companies believe that this pre-petition Solicitation will significantly
simplify, shorten, and reduce the cost of the administration of, and
minimize disputes during, their Chapter 11 case. (CAI does not intend to
commence Chapter 11 cases for any of its Subsidiaries other than PCT.) CAI
believes that this will minimize the disruption of the Companies'
businesses that could result from a traditional bankruptcy case, which
would likely be contested and protracted. Further, in a lengthy bankruptcy
case, CAI believes that there is a substantial risk that recoveries by the
Companies' creditors would be significantly less than the proposed
recoveries under the Plan.
CAI's operating strategy, since the potential availability of digital
technology deployment on a commercial basis (approximately late-1994) has
been to execute a business plan with one or more strategic users of its
most valuable asset, a substantial amalgamation of MMDS spectrum
concentrated in the northeastern and mid-Atlantic regions of the United
States. Recognizing that there are significant capital expenditures
associated with the construction and operation of a broad-based MMDS system
capable of serving a large segment of its markets, CAI formulated a
business plan whereby a large portion of such expenditures would be borne
by a Strategic Partner. Under this business plan, CAI would become a
wholesale transport services provider, and, over time, not engage directly
in any retail business.
In March 1995, CAI sought to implement this business plan with Bell
Atlantic Corporation ("Bell Atlantic") and NYNEX Corporation ("NYNEX"),
regional bell operating companies with a combined operating territory
substantially identical to the spectrum footprint of CAI. The joint
venture, which was memorialized in a Business Relationship Agreement (the
"BR Agreement") between CAI and certain affiliates of Bell Atlantic and
NYNEX (the "BANX Affiliates") and coupled with a $100,000,000 investment by
the BANX Partnership, was consummated by September 1995, simultaneous with
(i) the consummation by CAI of five acquisitions, including the purchase of
ACS Enterprises, Inc., a publicly-held MMDS operator based in Philadelphia,
PA, and (ii) the $275,000,000 offering of the Senior Notes.
The BR Agreement contemplated that the BANX Affiliates, at their option,
could elect to become the provider of subscription video programming in any
of CAI's markets utilizing CAI's MMDS spectrum in such markets. The video
programming, which was to be assembled and packaged by Tele-TV, a joint
venture formed by Bell Atlantic, NYNEX and Pacific Telesis, would be
delivered to CAI's state-of-the art digital MMDS transmission facilities,
and transmitted to Bell Atlantic/NYNEX customers under the Bell
Atlantic/NYNEX name. In fulfillment of its obligations under the BR
Agreement, CAI began the construction of such digital transmission
facilities in Hampton Roads, VA and Boston, MA, the first two markets
identified by the BANX Affiliates as potential markets for this new digital
subscription video product.
Notwithstanding the significant expenditure of resources by all involved,
neither BANX Affiliate ever exercised an election to provide digital
transport services in Hampton Roads, Boston or any other market originally
subject to the BR Agreement. In December 1996, when it became apparent to
CAI that the focus of Bell Atlantic and NYNEX had shifted away from
subscription video utilizing CAI's transport system, CAI and Bell
Atlantic/NYNEX entered into a series of agreements that resulted in a
termination of the BR Agreement and the disposition and eventual
cancellation or exchange of all of the CAI securities originally issued to
the BANX Partnership in connection with their $100,000,000 investment in
CAI.
During the period of inaction by Bell Atlantic/NYNEX, and due in part to
the Company's concerns over such inaction, CAI embarked upon a strategy of
preserving its MMDS spectrum and expanding the authorized uses of such
spectrum to fully realize the spectrum's technical capabilities. Through a
series of demonstrations and trials, CAI has been an industry leader in its
efforts to engineer and obtain regulatory authority for fixed, flexible
two-way use of the MMDS spectrum for services such as data transmission and
telephony. In addition to a series of specific flexible use authorizations
received by CAI during the last two years, CAI has participated with the
industry trade group in seeking to obtain from the FCC authority for fixed,
flexible two-way use of the MMDS spectrum on an industry-wide basis. CAI
expects the FCC to issue such authority during the summer of 1998.
CAI continues to believe that a Strategic Partner is necessary for the MMDS
industry to fully realize the potential of this spectrum. Since the
departure of Bell Atlantic/NYNEX, CAI has aggressively sought one or more
national-level Strategic Partners with the financial resources and
infrastructure to fully utilize the MMDS spectrum for video, voice and data
transmission. CAI has demonstrated, and continues to demonstrate, its
technological capabilities to several potential Strategic Partners, and is
currently conducting an on-site trial for a telecommunications company,
providing wireless Internet and corporate intranet access for trial
participants at various locations in the greater New York City area.
Recently, this trial has been expanded to include two-way data transmission
with the deployment of first generation transverters developed by a
high-technology equipment manufacturer in conjunction with CAI engineers.
CAI also has invested in TelQuest Satellite Services LLC in order to access
pre-digitized video programming and to provide a vehicle for a
complementary Direct-to-Home (DTH) video service that could, eventually,
free additional MMDS spectrum for these alternative uses.
CAI's Plan, described herein, is designed to assist in the implementation
of CAI's long-term objective of obtaining one or more Strategic Partners
interested in pursuing further the full capabilities of the MMDS spectrum
for video, voice and data transmission. CAI believes that "Reorganized
CAI" will be in a better position to attract one or more Strategic
Partners, and that it will be in a better position to assist such Strategic
Partners with a broader aggregation of MMDS spectrum.
This Disclosure Statement sets forth certain detailed information regarding
CAI's history, projections for the future, and significant events expected
to occur during the Chapter 11 Case. This Disclosure Statement also
describes the Plan, alternatives to the Plan, effects of confirmation of
the Plan, and the manner in which distributions will be made under the
Plan. In addition, this Disclosure Statement discusses the confirmation
process and the voting procedures that holders of Claims in impaired
Classes must follow for their votes to be counted.
FOR A DESCRIPTION OF THE PLAN AS IT RELATES TO HOLDERS OF CLAIMS AGAINST
AND INTERESTS IN CAI AND PCT, PLEASE SEE SECTION VIII - "SUMMARY OF THE
PLAN."
THIS DISCLOSURE STATEMENT CONTAINS SUMMARIES OF CERTAIN PROVISIONS OF THE
PLAN, STATUTORY PROVISIONS, DOCUMENTS RELATED TO THE PLAN, ANTICIPATED
EVENTS IN THE COMPANIES' CHAPTER 11 CASES, AND FINANCIAL INFORMATION.
ALTHOUGH THE COMPANIES BELIEVE THAT THE PLAN AND RELATED DOCUMENT SUMMARIES
ARE FAIR AND ACCURATE, SUCH SUMMARIES ARE QUALIFIED TO THE EXTENT THAT THEY
DO NOT SET FORTH THE ENTIRE TEXT OF SUCH DOCUMENTS OR STATUTORY PROVISIONS.
FACTUAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT HAS BEEN
PROVIDED BY MANAGEMENT, EXCEPT WHERE OTHERWISE SPECIFICALLY NOTED. THE
COMPANIES ARE UNABLE TO WARRANT OR REPRESENT THAT THE INFORMATION CONTAINED
HEREIN, INCLUDING THE FINANCIAL INFORMATION, IS WITHOUT ANY INACCURACY OR
OMISSION.
NOTHING CONTAINED HEREIN SHALL CONSTITUTE AN ADMISSION OF ANY FACT OR
LIABILITY BY ANY PARTY, BE ADMISSIBLE IN ANY NONBANKRUPTCY PROCEEDING
INVOLVING CAI, PCT OR ANY OTHER PARTY, OR BE DEEMED CONCLUSIVE ADVICE ON
THE TAX OR OTHER LEGAL EFFECTS OF THE PLAN AS TO HOLDERS OF CLAIMS OR
INTERESTS. YOU SHOULD CONSULT YOUR PERSONAL COUNSEL OR TAX ADVISOR ON ANY
QUESTIONS OR CONCERNS REGARDING TAX OR OTHER LEGAL CONSEQUENCES OF THE
PLAN.
THE COMPANIES INTEND TO CONTINUE OPERATING THEIR BUSINESSES IN CHAPTER 11
IN THE ORDINARY COURSE AND TO SEEK TO OBTAIN THE NECESSARY RELIEF FROM THE
BANKRUPTCY COURT TO PAY THEIR EMPLOYEES, TRADE, AND CERTAIN OTHER CREDITORS
IN FULL AND ON TIME. THE CLAIMS OF THE FEDERAL COMMUNICATIONS COMMISSION,
THE COMPANIES' EMPLOYEES, GENERAL UNSECURED CREDITORS (INCLUDING TRADE
CREDITORS, LICENSORS, AND LESSORS), AND SECURED CREDITORS ARE NOT IMPAIRED
UNDER THE PLAN.
A. Definitions
Unless otherwise defined in the Glossary or elsewhere in this Disclosure
Statement, capitalized terms used herein have the meanings ascribed to them
in the Plan.
B. The Solicitation
At this time, the Companies have not commenced cases under Chapter 11 of
the Bankruptcy Code but are soliciting acceptances of the Plan from the
following holders of Impaired Claims against CAI and PCT: (i) holders of
Class CAI-5 Senior Note Claims, (ii) holders of Class CAI-6 Subordinated
Note Claims, and (iii) the holder of the Class PCT-5 Subordinated Note
Claim. If sufficient votes for acceptance of the Plan are received, the
Companies expect to commence the Chapter 11 Case and to promptly seek
Confirmation of the Plan. If the Companies do not receive the Requisite
Acceptances by the Voting Deadline (as defined below), they will be forced
to evaluate other available options, including filing one or more
traditional, non-prepackaged Chapter 11 cases. See Section XV --
"Alternatives to Confirmation and Consummation of the Plan."
THE COMPANIES BELIEVE THAT THE PLAN IS IN THE BEST INTERESTS OF ALL
CREDITORS. ALL CREDITORS ENTITLED TO VOTE ARE URGED TO VOTE IN FAVOR OF
THE PLAN NOT LATER THAN THE VOTING DEADLINE OF JULY 27, 1998.
C. The Plan
If the Companies receive the Requisite Acceptances and the Plan is
confirmed by the Bankruptcy Court and consummated by the Companies, the
following, among other things, will occur: (i) the balance of Cash
remaining in the Senior Note Escrow on the Consummation Date will be
distributed on a Pro Rata basis to holders of Class CAI-5 Senior Note
Claims; (ii) CAI will issue $100 million in New Senior Notes, to be
distributed on a Pro Rata basis to holders of Class CAI-5 Senior Note
Claims; (iii) CAI will issue 15 million shares of New Common Stock, to be
distributed (a) ninety-one percent (91%) to holders of Class CAI-5 Senior
Note Claims (on a Pro Rata basis) and (b) nine percent (9%) to holders of
Class CAI-6 Subordinated Note Claims (on a Pro Rata basis), in each case
subject to a potential aggregate maximum dilution of up to 10.5% that may
result from the exercise of New Options to purchase New Common Stock that
will be granted to certain members of the senior management of Reorganized
CAI and to BT Alex. Brown, CAI's financial advisor; (iv) CAI will emerge
from Chapter 11 with a significantly improved capital structure and balance
sheet and significantly reduced debt service obligations; (v) CAI will
sell, under Section 363(b) of the Bankruptcy Code, approximately 16
contracts to provide cable television programming to certain multi-dwelling
units in the Philadelphia market; and (vi) PCT will distribute the proceeds
of the sale and assignment, pursuant to Section 363(b) of the Bankruptcy
Code, of approximately 48 contracts to provide cable television programming
to certain multi-dwelling units in the Philadelphia market.
D. Summary Of Classification And Treatment Of Claims And Equity Interests
Under the Plan, all Claims against and Interests in CAI and PCT that will
exist on the date the Companies file their voluntary petitions for
reorganization relief under Chapter 11 of the Bankruptcy Code (the
"Petition Date") are divided into 14 Classes (eight that relate to Claims
against and Interests in CAI and six that relate to Claims against and
Interests in PCT), exclusive of certain Claims, including DIP Facility
Claims, Administrative Claims, and Priority Tax Claims, which, pursuant to
Section 1123(a)(1) of the Bankruptcy Code, are not required to be
classified. Only holders of Allowed Claims in Classes CAI-5, CAI-6, and
PCT-5 will receive distributions under the Plan. All other Claims against
the Companies (except for Class CAI-7 Securities Claims) and all Interests
in PCT will be Unimpaired under the Plan. All holders of Equity Securities
Interests in CAI, as well as all holders of Class CAI-7 Securities Claims,
are Impaired and will neither receive nor retain any property under the
Plan.
The following table summarizes the classification and treatment under the
Plan of the principal Claims against and Interests in the Companies. The
summary contained therein is qualified in its entirety by reference to the
provisions of the Plan, a copy of which is annexed hereto as Exhibit A, and
the balance of this Disclosure Statement. The classification and treatment
for all Classes of Claims and Interests are described in more detail
elsewhere in this Disclosure Statement. See Section VIII.C -- "Summary of
the Plan -- Certain Matters Regarding Classification and Treatment of
Claims and Interests."
The amounts listed in this summary under the heading "Estimated Allowed
Amount" are based on the Companies' books and records as of the date of
this Disclosure Statement. There can be no assurance that these estimates
are correct, and actual Allowed Amounts may be significantly different from
the estimates below. The amounts listed under the heading "Estimated
Recovery" are based on valuation analyses prepared by the Companies'
financial advisors. These amounts are not precise and the actual
recoveries of the Companies' creditors, particularly creditors holding
Class CAI-5 Senior Note Claims and Class CAI-6 Subordinated Note Claims,
may vary materially from the estimates below, depending on a variety of
factors including, but not limited to, the market for the New Senior Notes
and New Common Stock, as well as various other factors related to the
ultimate disposition of the disputed, contingent, and unliquidated claims
that have been or may be asserted against the Companies.
SUMMARY OF TREATMENT OF CLAIMS AGAINST
AND INTERESTS IN CAI AND PCT UNDER THE PLAN
Description of Claims or Interests
Treatment Under the Plan
DIP Facility Claims -- Unclassified
Estimated Amount: $60,000,000 plus
interest and fees
The holder of an Allowed DIP Facility Claim will receive (i) cash
equal to the unpaid portion of such Allowed DIP Facility Claim or (ii) such
other treatment as to which the Companies and such holder shall have agreed
upon in writing.
Estimated Recovery -- 100%
Administrative Claims -- Unclassified
Estimated Amount: $5,000,000
Subject to the requirements of Article XIV.A.2 of the Plan, the
holder of an Allowed Administrative Claim will receive (i) Cash equal to
the unpaid portion of such Allowed Administrative Claim or (ii) such other
treatment as to which the Companies and such holder will have agreed upon
in writing; provided, however, that Allowed Administrative Claims with
respect to liabilities incurred by the Companies in the ordinary course of
business during the Chapter 11 Case will be paid in the ordinary course of
business in accordance with the terms and conditions of any agreements
relating thereto.
Estimated Recovery -- 100%
Priority Tax Claims -- Unclassified
Estimated Amount: $160,000
The holder of an Allowed Priority Tax Claim will receive (i) Cash
equal to the unpaid portion of such Allowed Priority Tax Claim, (ii) such
other treatment as to which the Companies and such holder will have agreed
upon in writing, or (iii) at the Reorganized Companies' sole discretion,
deferred Cash payments having a value, as of the Consummation Date, equal
to such Allowed Priority Tax Claim, over a period not exceeding six years
after the date of assessment of such Allowed Priority Tax Claim.
Estimated Recovery -- 100%
Class CAI-1- Other Priority Claims
Estimated Amount: de minimis
Unimpaired -- The holder of an Allowed Other Priority Claim against
CAI will receive (i) Cash equal to the amount of such Allowed Other
Priority Claim or (ii) such other treatment as to which CAI and such holder
will have agreed upon in writing.
Estimated Recovery -- 100%
Class CAI-2 - Secured Claims
Estimated Amount: $4,250,000
C Unimpaired -- The holder of an Allowed Secured Claim against CAI,
in full satisfaction, settlement, release, and discharge of and in exchange
for such Allowed Secured Claim, will, at the sole discretion of CAI, (a)
receive Cash in an amount equal to such Allowed Secured Claim, (b) have its
Allowed Secured Claim Reinstated, or (c) receive such other treatment as to
which CAI and such holder shall have agreed upon in writing.
Estimated Recovery -- 100%
Class CAI-3 - General Unsecured Claims
Estimated Amount: $5,000,000
Unimpaired -- The holder of an Allowed General Unsecured Claim
against CAI will receive in full satisfaction, settlement, release, and
discharge of and in exchange for such Allowed General Unsecured Claim (a)
treatment that leaves unaltered the legal, equitable, and contractual
rights to which such Allowed General Unsecured Claim entitles the holder of
such Claim, (b) notwithstanding any contractual provision or applicable law
that entitles the holder of such Allowed General Unsecured Claim to demand
or receive accelerated payment of such Claim after the occurrence of a
default, treatment that (i) cures any such default that occurred before or
after the Petition Date, other than a default of a kind specified in
Section 365(b)(2) of the Bankruptcy Code, (ii) reinstates the maturity of
such Allowed General Unsecured Claim as such maturity existed before such
default, (iii) compensates the holder of such Allowed General Unsecured
Claim for any damages incurred as a result of any reasonable reliance by
such holder on such contractual provision or such applicable law, and (iv)
does not otherwise alter the legal, equitable, or contractual rights to
which such Allowed General Unsecured Claim entitles the holder of such
Claim, or (c) such other treatment as to which CAI and such holder shall
have agreed upon in writing.
Estimated Recovery -- 100%
Class CAI-4 - Intercompany Claims
Estimated Amount: de minimis
Unimpaired -- The holder of an Allowed Intercompany Claim against
CAI will receive in full satisfaction, settlement, release, and discharge
of and in exchange for such Allowed Intercompany Claim (a) treatment that
leaves unaltered the legal, equitable, and contractual rights to which such
Allowed Intercompany Claim entitles the holder of such Claim, (b)
Reinstatement, or (c) such other treatment as to which CAI and such holder
shall have agreed upon in writing.
Estimated Recovery -- 100%
Class CAI-5 - Senior Note Claims
Estimated Amount: $275,000,000 plus accrued
interest through the Petition Date
Impaired -- The holder of an Allowed Senior Note Claim against CAI,
in full satisfaction, settlement, release, and discharge of and in exchange
for such Allowed Senior Note Claim, will receive such holder's Pro Rata
share of (a) the New Senior Notes and (b) ninety-one percent (91%) of the
New Common Stock to be issued pursuant to Article IV.C of the Plan. In
addition, on the Distribution Date, the holder of an Allowed Senior Note
Claim against CAI will receive the Pro Rata share of the balance of the
Senior Note Escrow that otherwise would have been payable to such holder on
September 1, 1998 in accordance with the terms of the Senior Notes
Indenture.
Estimated Recovery -- 84.4%
Class CAI-6 - Subordinated Note Claims
Estimated Amount: $32,793,000 plus accrued interest through the Petition
Date
Impaired -- The holder of an Allowed Subordinated Note Claim
against CAI, in full satisfaction, settlement, release, and discharge of
and in exchange for such Allowed Subordinated Note Claim, will receive its
Pro Rata share of nine percent (9%) of the New Common Stock to be issued
pursuant to Article IV.C of the Plan. In consideration of the treatment
afforded its Class CAI-6 Subordinated Note Claim, the holder of the 12%
Subordinated Note will be deemed to release all obligations under the 12%
Subordinated Note of each Obligor Subsidiary.
Estimated Recovery -- 39.9%
Class CAI-7 - Securities Claims
Estimated Amount: Contingent and unliquidated
Impaired -- The holders of Securities Claims will not receive or
retain any property under the Plan on account of such Securities Claims.
Estimated Recovery -- 0%
Class CAI-8 - Equity Securities Interests
Impaired -- The holders of Equity Security Interests will not
receive or retain any property under the Plan on account of such Equity
Security Interests.
Estimated Recovery -- 0%
Class PCT-1- Other Priority Claims
Estimated Amount: de minimis
Unimpaired -- The holder of an Allowed Other Priority Claim against
PCT will receive on account of such Allowed Other Priority Claim (i) Cash
equal to the amount of such Allowed Other Priority Claim or (ii) such other
treatment as to which PCT and such holder will have agreed upon in writing.
Estimated Recovery -- 100%
Class PCT-2 - Secured Claims
Estimated Amount: de minimis
Unimpaired -- The holder of an Allowed Secured Claim against PCT,
in full satisfaction, settlement, release, and discharge of and in exchange
for such Allowed Secured Claim, will, at the sole discretion of PCT, (a)
receive Cash in an amount equal to such Allowed Secured Claim, (b) have its
Allowed Secured Claim Reinstated, or (c) receive such other treatment as to
which PCT and such holder shall have agreed upon in writing.
Estimated Recovery -- 100%
Class PCT-3 - General Unsecured Claims
Estimated Amount: Included in Class CAI-3
General Unsecured Claims
Unimpaired -- The holder of an Allowed General Unsecured Claim
against PCT will receive in full satisfaction, settlement, release, and
discharge of and in exchange for such Allowed General Unsecured Claim (a)
treatment that leaves unaltered the legal, equitable, and contractual
rights to which such Allowed General Unsecured Claim entitles the holder of
such Claim, (b) notwithstanding any contractual provision or applicable law
that entitles the holder of such Allowed General Unsecured Claim to demand
or receive accelerated payment of such Claim after the occurrence of a
default, treatment that (i) cures any such default that occurred before or
after the Petition Date, other than a default of a kind specified in
Section 365(b)(2) of the Bankruptcy Code, (ii) reinstates the maturity of
such Allowed General Unsecured Claim as such maturity existed before such
default, (iii) compensates the holder of such Allowed General Unsecured
Claim for any damages incurred as a result of any reasonable reliance by
such holder on such contractual provision or such applicable law, and (iv)
does not otherwise alter the legal, equitable, or contractual rights to
which such Allowed General Unsecured Claim entitles the holder of such
Claim, or (c) such other treatment as to which PCT and such holder shall
have agreed upon in writing.
Estimated Recovery -- 100%
Class PCT-4 - Intercompany Claims
Estimated Amount: $17,411,000
Unimpaired -- The holder of an Allowed Intercompany Claim against
PCT will receive in full satisfaction, settlement, release, and discharge
of and in exchange for such Allowed Intercompany Claim (a) treatment that
leaves unaltered the legal, equitable, and contractual rights to which such
Allowed Intercompany Claim entitles the holder of such Claim, (b)
Reinstatement, or (c) such other treatment as to which PCT and such holder
shall have agreed upon in writing.
Estimated Recovery -- 100%
Class PCT-5 - Subordinated Note Claims
Estimated Amount: $30,000,000 plus accrued interest through the Petition
Date
Impaired -- Each Allowed Class PCT-5 Subordinated Note Claim will
be fully and finally satisfied by the satisfaction of the applicable Class
CAI-6 Subordinated Note Claim in accordance with Article III.C.2 of the
Plan.
Estimated Recovery -- 39.9%
Class PCT-6 - Equity Securities Interests
Unimpaired -- Each Allowed Equity Securities Interest in PCT will be
Reinstated.
Estimated Recovery -- 100%
For a more detailed description of the treatment of all Classes of Claims
against and Interests in the Companies, see Section VIII.C -- "Summary of
the Plan -- Certain Matters Regarding Classification and Treatment of
Claims and Interests."
E. The Confirmation Hearing
If the Companies receive the Requisite Acceptances with respect to the
Plan, the Companies intend to file voluntary petitions to commence the
Chapter 11 Case and request that the Bankruptcy Court schedule a hearing to
consider confirmation of the Plan (the "Confirmation Hearing") as soon as
possible, at the United States Bankruptcy Court for the District of
Delaware, Marine Midland Plaza, 824 Market Street, Wilmington, Delaware
19899. The Companies will request confirmation of the Plan, as it may be
modified from time to time, under Section 1129(b) of the Bankruptcy Code,
and they have reserved the right to (i) modify the Plan to the extent, if
any, that confirmation pursuant to Section 1129(b) of the Bankruptcy Code
requires modification and (ii) use any and all Ballots and Master Ballots
accepting the Plan that were received pursuant to the Solicitation, and not
subsequently revoked, to seek confirmation of the Plan (or of any
modification thereof that does not materially and adversely affect the
treatment of the class(es) of Claims with respect to which such Ballots or
Master Ballots were cast) pursuant to Section 1129(b) of the Bankruptcy
Code.
II. GENERAL INFORMATION
A. Introduction
The primary purpose of the Plan is to effectuate a restructuring of CAI's
capital structure (the "Restructuring") in order to align its capital
structure with its present and future operating prospects. In addition,
the Companies anticipate that the Restructuring will serve as the vehicle
for the prompt and efficient sale by CAI, and distribution of the proceeds
of the sale and assignment by PCT, pursuant to Section 363(b) of the
Bankruptcy Code, of approximately 64 contracts (16 by CAI and 48 by PCT) to
provide cable television programming to certain multi-dwelling units in the
Philadelphia, PA market (the "MDU Assets") to Mid-Atlantic Telcom Plus,
d/b/a OnePoint Communications ("OnePoint"). The Reorganized Companies
shall use a portion of the proceeds of the sale of the MDU Assets to
establish and fund a Distribution Reserve for and on account of certain
Disputed Claims against PCT. All sale proceeds remaining after the
establishment and funding of the Distribution Reserve shall be used by the
Reorganized Companies, first to fund distributions required to be made
under the Plan, and second, for general working capital purposes.
At present, the funds generated by CAI are insufficient to meet debt
service requirements. The Restructuring would reduce significantly the
principal amount of CAI's outstanding indebtedness by converting a
substantial portion of CAI's indebtedness into New Common Stock. By
offering the holders of Senior Notes ninety-one percent (91%) of the equity
of CAI on a post-Restructuring basis, CAI intends that such holders will
participate in the long-term appreciation of CAI's business, which CAI
expects will be enhanced by the reduction of its debt service and the
implementation of the new business plan described in more detail below.
See Section III.A-- "Business Plans for the Reorganized Companies --
Business and Operating Strategies of CAI." The Restructuring would also
enhance CAI's ability to attract a Strategic Partner and contemplates a new
senior secured credit facility of at least $70 million, thereby
significantly enhancing the liquidity, and the opportunity for success, of
Reorganized CAI. During the pendency of the Restructuring and thereafter,
both CAI and PCT expect to make payment in full on all General Unsecured
Claims, including the Claims of trade creditors, and to continue to operate
their businesses in the ordinary course.
B. CAI
CAI is a Connecticut corporation, with its principal executive offices
located at 18 Corporate Woods Boulevard, Albany, New York 12211. CAI also
maintains offices at 101 Ponds Edge Drive, Suite 300, Chadds Ford,
Pennsylvania 19317, where its operational headquarters, including the
president and chief operating officer and CAI's accounting and human
resources departments are located, and at 2101 Wilson Boulevard, Suite 100,
Arlington, Virginia 22201, where CAI's engineering and regulatory affairs
departments are located.
CAI, primarily through its Operating Subsidiaries, is a leading developer,
owner and operator, in terms of number of subscription television
subscribers and number of Estimated Total Service Area households, of
wireless telecommunications transport systems utilizing Multichannel
Multipoint Distribution Services ("MMDS") spectrum. In CAI's 14 primary
markets, there are a total of 16,135,174 Estimated Total Service Area
households. Initially, CAI focused on the development of MMDS subscription
television systems in major metropolitan markets, primarily in the
northeast and mid-Atlantic regions of the United States. CAI then focused
on the development and build-out of digital MMDS television systems in
connection with its joint venture with Bell Atlantic Corporation and NYNEX
Corporation. Following the termination of this joint venture, CAI has
endeavored to develop alternative uses of its MMDS spectrum and has pursued
development of other lines of business, including high speed Internet and
intranet access, as well as digital video and fixed wireless telephony
services. See Section III.A -- "Business Plans for the Reorganized CAI --
Business And Operating Strategies of CAI." CAI had approximately 50,000
analog video subscribers as of May 31, 1998.
MMDS subscription television programming and other MMDS-based
telecommunications transport services are transmitted through the air via
microwave frequencies from a central transmission facility to a small
receiving antenna at each subscriber's location, and require a
line-of-sight ("LOS") path between the transmit point and the receiving
antenna. Thus, in communities with tall trees, hilly terrain, tall
buildings or other obstructions in the transmission path, in which MMDS
transmission can be difficult or impossible to receive at certain
locations, CAI has used low power signal repeaters (known as "beambenders")
or signal boosters, which retransmit an otherwise blocked signal over a
limited area to improve coverage. The use of beambenders and/or signal
boosters increases the costs per subscriber. In addition, CAI has designed
cellular networks which utilize a main transmission facility and additional
cell sites that rebroadcast the signal within a smaller area to improve
coverage.
MMDS spectrum is regulated by the Federal Communications Commission
("FCC"), which governs, among other things, the issuance, renewal,
assignment, transfer and modification of licenses necessary for MMDS
systems to operate. "MMDS" is the vernacular term used to describe CAI's
business and includes both MMDS and Multichannel Distribution Service
("MDS") channels, as well as Instructional Television Fixed Service
("ITFS") channels. To date, the MMDS spectrum has been licensed by the FCC
for one-way video and data transmission on an industry-wide basis. In
addition, CAI has applied for and received a variety of authorizations from
the FCC for fixed, flexible use of its MMDS spectrum in certain of CAI's
markets. CAI has received from the FCC (i) authorization for a market
trial of up to 500 customers for its high speed one-way Internet access
product (which uses a telephone line for the return path) in Rochester, NY,
(ii) authorization for a market trial of up to 1,000 customers for its high
speed one-way Internet access product in New York City, (iii) permanent
authorization for fixed, two-way flexible use of five channels for 16
customer sites located in and around the Boston market, (iv) permanent
authorization for fixed, two-way flexible use of two channels for unlimited
customer sites within ten miles of seven hub sites (four of which require
further FCC authorizations) located in and around Boston, MA, and (v)
authorization from the FCC to utilize its MMDS spectrum in Pittsburgh, PA
for a variety of tests, including the simulation of a commercial roll-out
of fixed, two-way services to customers located within a 20-mile radius of
CAI's main transmission facility in Pittsburgh. CAI has also received
developmental authorization to test fixed, flexible two-way uses on two
channels located in its Hartford, CT market; however, CAI does not have any
plans to conduct any testing in that market at this time.
C. History Of CAI
1. General
CAI was formed in 1991 to invest in and operate MMDS subscription
television systems. Initially, CAI focused on the development of analog
MMDS subscription television systems in major metropolitan markets,
primarily in the northeast and mid-Atlantic regions of the United States.
Starting with an operating analog system in Albany, NY, and systems planned
for Rochester, NY, Norfolk, VA, Hartford, CT and Boston, MA, CAI made its
initial public offering of 3,400,000 shares of Old Common Stock on February
17, 1994. The offering price was $11.00 per share, and CAI raised
$34,782,000, after deduction of underwriting discounts and commissions.
CAI used the proceeds of the initial public offering for capital
expenditures and operating expenses incurred in connection with the
construction, launch, and development of the Rochester system, the
acquisition, construction, launch and development of the Norfolk system,
the upgrading and further development of the Albany system, and the launch
and development of the Hartford system. The Old Common Stock was listed
under the symbol "CAWS" on various Nasdaq markets until trading of the Old
Common Stock was transferred to the Electronic Bulletin Board system on
January 13, 1998. See Section II.D.2 -- "General Information -- Recent
Developments -- De-listing by Nasdaq of Old Common Stock." As of June 15,
1998, CAI had 40,543,039 shares of Old Common Stock issued and outstanding.
CAI believed that the MMDS spectrum had greater potential than simply the
delivery of analog subscription video services, but recognized the
challenges that expanded use of the MMDS spectrum would present it in terms
of balance sheet issues, lack of brand identity and infrastructure, and the
inability of the MMDS industry to compel technology companies and equipment
manufacturers to develop and manufacture equipment that could take full
advantage of the capabilities provided by MMDS spectrum. In an effort to
address many of these issues, CAI devised a business plan that called for
the continued aggregation of a significant concentration of MMDS spectrum
that would be attractive to a Strategic Partner interested in utilizing the
MMDS spectrum to service its customers. CAI identified the regional bell
operating companies ("RBOCs") as likely partners in light of the
pronouncements then being made by the hard-wire cable companies regarding
their desire to enter into the phone business. CAI believed that RBOCs
would be interested in developing a digital video strategy that provided
the RBOCs with video delivery platform that could be implemented faster
than the contemplated plant upgrades many RBOCs faced in order to offer
enhanced services. CAI thus began to negotiate with Bell Atlantic
Corporation and NYNEX Corporation.
Simultaneously with these negotiations, CAI began to acquire additional
MMDS spectrum to attempt to replicate the Bell Atlantic/NYNEX operating
territories. Through a series of acquisitions culminating in the September
29, 1995 acquisition of ACS Enterprises, Inc. ("ACS"), an MMDS operator
based in Philadelphia, Pennsylvania (with operating systems in
Philadelphia, Cleveland, Ohio and Bakersfield, California), and Eastern
Cable Networks of Washington, Inc. ("ECNW"), which operated the Washington,
D.C. MMDS system, CAI has aggregated a significant amount of owned and
leased MMDS spectrum in the Bell Atlantic/NYNEX operating territories. CAI
enhanced its spectrum capacity during 1996 by being the top bidder in an
FCC auction with bids totaling $36.2 million for the Basic Trading Area
("BTA") rights for its existing markets as well as for its new markets.
Joint venture negotiations with Bell Atlantic and NYNEX culminated in the
March 1995 execution of the BR Agreement with the BANX Affiliates and the
Securities Purchase Agreement (the "SPA") with the BANX Partnership. In
September 1995, CAI completed the series of transactions contemplated by
the BR Agreement and the SPA, including the purchase on May 9, 1995 by the
BANX Partnership of $30 million of convertible term notes due May 9, 2005
(the "BANX Term Notes") and warrants (the "BANX Warrants") to purchase
convertible voting preferred stock, no par value (the "Old Voting Preferred
Stock") (the "Stage I Closing"), and the purchase on September 29, 1995 by
the BANX Partnership of $70 million of 14% Senior Convertible Preferred
Stock, par value $10,000 per share (the "Old Senior Preferred Stock") and
additional BANX Warrants (the "Stage II Closing"). (The BANX Term Notes,
BANX Warrants, and the Old Senior Preferred Stock are hereinafter referred
to collectively as the "BANX Securities.") Upon issuance of the BANX
Securities in September 1995, the full conversion or exercise of the BANX
Securities would have resulted in (a) the BANX Partnership being required
to make an additional investment in CAI, at that time, of approximately
$202 million (subject to adjustment in accordance with the terms of the
Modification Agreement (as defined below)), and (b) the BANX Partnership's
pro forma ownership interest in CAI increasing to approximately 45%.
The purpose of the BR Agreement was to allow CAI to realize revenue in
certain of its markets without making the substantial capital expenditures
generally required for subscriber equipment and installation and to
eliminate most operating costs, other than channel license fees and
distribution system expenses. Under the BR Agreement, CAI granted to each
BANX Affiliate the option, on a market-by-market basis, to become the
marketer and provider of subscription television services using CAI's MMDS
transmission systems in each market in their respective service areas, in
exchange for monthly service revenues payable to CAI based on the number of
serviceable households and subscribers in each market so optioned by a BANX
Affiliate.
Simultaneous with the consummation of the BANX transactions, CAI raised
$265 million, net of underwriting discounts and commissions and expenses,
through an offering of $275 million in aggregate principal amount of its
12*% Senior Notes due 2002 (the "Senior Notes"). The proceeds from the
issuance and sale of the Senior Notes were used by CAI to fund the cash
portion of certain acquisitions and to fund a debt service escrow account
(the "Senior Note Escrow") in accordance with the indenture (the "Senior
Notes Indenture") dated as of September 15, 1995 between CAI and The Chase
Manhattan Bank (as successor to Chemical Bank), as trustee (the "Indenture
Trustee"), governing the terms of the Senior Notes. The Senior Notes are
general unsecured obligations of CAI, except for a first priority security
interest in the Senior Note Escrow granted by CAI to the Indenture Trustee
for the benefit of the holders of the Senior Notes. The Senior Notes rank
equal in right of payment with any other senior indebtedness of CAI that is
or may be issued from time to time and rank senior in right of payment to
CAI's other unsecured debt. The indebtedness evidenced by the Senior Notes
is effectively subordinated to all secured debt of CAI to the extent of the
value of the assets securing such debt.
The Senior Notes Indenture requires semi-annual payments of interest on the
Senior Notes at the per annum rate of 12-1/4% on each of March 15 and
September 15. Proceeds of the Senior Notes offering deposited into the
Senior Note Escrow at closing equaled an amount sufficient to cover such
semi-annual interest payments until March 1999. The principal amount of
the Senior Notes is due in full on September 15, 2002. The Senior Notes
Indenture imposes certain limitations and restrictions on CAI and its
restricted Subsidiaries, including, without limitation, restrictions on
CAI's ability to incur additional indebtedness, pay dividends, make
investments, consummate certain assets sales, enter into certain
transactions with affiliates, suffer to exist certain liens, engage in
unrelated business and consummate mergers and/or consolidations without the
prior consent of a majority in interest of the holders of the Senior Notes.
In connection with CAI's obligations under the BR Agreement, CAI
substantially completed the construction of digital video delivery systems
in Boston, MA and Hampton Roads, VA. Through December 12, 1996, however,
neither BANX Affiliate had exercised its respective options under the BR
Agreement in these or any other markets contemplated by the BR Agreement.
Concurrently with the construction of these systems, the environment in
which the RBOCs decided to pursue a subscription video strategy was
changing dramatically. During an eight month period following the
September 1995 joint venture closing, (a) the Telecommunications Act of
1996 was enacted into law, permitting, among other things, RBOCs to enter
into the long distance business, (b) Bell Atlantic and NYNEX announced
plans to merge, and (c) cable companies acknowledged that their plans to
deploy the "Information Superhighway" complete with phone service, as well
as expanded cable services, were substantially behind anticipated
schedules, thereby dissipating the perceived threat to the RBOCs. With
these changes, CAI began to realize that Bell Atlantic/NYNEX's priorities
were shifting away from subscription video, and any commitment these RBOCs
had to the CAI joint venture. In response, CAI devised a plan that would
allow it to re-focus its efforts and seek to sever all relationships it
then had with Bell Atlantic/NYNEX.
On December 12, 1996, CAI and the various BANX entities reached an
agreement (the "Modification Agreement") modifying certain terms of the BR
Agreement and providing 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 would result in the BANX Partnership having to make an additional
investment in CAI of approximately $95.0 million to acquire an
approximately 45% ownership interest in CAI. The Modification Agreement
was subsequently amended on April 29, 1997, pursuant to Amendment No.1 to
the Modification Agreement ( the "Amendment").
The Amendment represented the renegotiation of an option granted to CAI to
repurchase the $100 million face amount of BANX Securities held by the BANX
Partnership. The repurchase consideration contemplated by the Amendment
was $40 million in cash and 100,000 shares of non-voting convertible junior
preferred stock of CAI, having a liquidation preference of $30 million (the
"Old Junior Preferred Stock"). The repurchase option was exercisable
through February 28, 1998.
As part of the Amendment, the BANX Affiliates also immediately released CAI
from its obligation under the BR Agreement to make CAI's wireless MMDS
spectrum available to the BANX Affiliates at a future date in Boston, MA,
Pittsburgh, PA and Albany, Syracuse and Buffalo, NY. Upon a repurchase of
the BANX Securities, as contemplated by the Amendment, the BR Agreement was
to have lapsed in its entirety, releasing similar obligations in CAI's
other markets. In connection with the execution of the Amendment, the BANX
Partnership also suspended or released CAI from a number of covenant
restrictions and governance rights and provided CAI with a blanket proxy on
the approximately 10% interest in CS Wireless held by BANX entities. If
the repurchase were consummated in accordance with the terms of the
Amendment, the CS Wireless shares would have been returned to CAI without
additional consideration. The parties also exchanged mutual releases and
reached an agreement to share certain patent and intellectual property
rights related to their digital wireless venture.
On February 17, 1998, CAI consummated a series of transactions, including
the purchase by CAI of the remaining interest of BANX under the BR
Agreement and the acquisition of BANX's approximately 10% equity interest
in CS Wireless. Under the terms of the Termination and Purchase Agreement
(the "Termination Agreement"), CAI 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 Wireless common stock
held by BANX. The parties exchanged general releases in connection with
the transaction.
As part of the transactions comprising the termination of CAI's
relationship with the BANX Affiliates, Merrill Lynch Global Allocation
Fund, Inc. ("MLGAF") advised CAI that it had completed the purchase from
BANX of all of the BANX Securities, including $30,000,000 of BANX Term
Notes, $70,000,000 of Old Senior Preferred Stock and the BANX Warrants to
purchase Old Voting Preferred Stock of CAI, as well as the Secured Notes
issued by CAI to BANX in connection with the Termination Agreement. On
March 3, 1998, CAI exchanged the BANX Securities then held by MLGAF for a
new $30 million subordinated 12% note due October 1, 2005 (the "12%
Subordinated Note"). As a result of the exchange transaction, the Company
(i) eliminated approximately $117 million of Old Senior Preferred Stock,
accumulated preferred stock dividends thereon, and accrued interest on the
BANX Term Notes, of which approximately $102 million was reclassed to
paid-in capital, and (ii) recorded a $10,046,000 extraordinary gain from
the early extinguishment of debt.
The 12% Subordinated Note, which is a joint and several obligation of CAI
and certain of the Subsidiaries, accrues interest at the rate of 12% per
annum, compounded semi-annually, is payable at maturity on October 1, 2005,
and is expressly subordinate to the Secured Notes and Senior Notes. In
conjunction with the transaction, CAI also exchanged 2,500 shares of Old
Common Stock for all warrants to purchase Old Common Stock that were held
by BANX and acquired by MLGAF on February 17, 1998. This Old Common Stock
was issued in reliance upon an exemption from the registration requirements
of the Securities Act of 1933, as amended, and contains a legend
restricting its transfer without such registration or an exemption
therefrom. The issuance of this Old Common Stock to MLGAF increased the
number of issued and outstanding shares to 40,543,039 at March 31, 1998.
2. Use of the MMDS Spectrum
While pursuing the complete severing of its relationships with Bell
Atlantic/NYNEX, CAI embarked upon a strategy of preserving its MMDS
spectrum and expanding the authorized uses of such spectrum to fully
realize the spectrum's technical capabilities, developing new two-way
equipment and transmission technology that would enable CAI to take full
advantage of expanded regulatory uses of the MMDS spectrum if and when such
uses were approved by the FCC, and continuing the search for one or more
Strategic Partners interested in utilizing CAI's spectrum capabilities.
Through a series of demonstrations and trials, CAI has been an industry
leader in its efforts to engineer and obtain regulatory authority for
fixed, flexible two-way use of the MMDS spectrum for services such as data
transmission and telephony. In addition to a series of specific flexible
use authorizations received by CAI during the last two years, CAI has
participated with the industry trade group in seeking to obtain from the
FCC authority for fixed, flexible two-way use of the MMDS spectrum on an
industry-wide basis. CAI expects the FCC to issue such authority during
the summer of 1998.
CAI has assembled one of the strongest engineering departments in the MMDS
industry. CAI's engineering efforts with regard to one- and two-way MMDS
transmission networks have resulted in the development of a wireless
broadband network architecture designed to maximize the available MMDS
capacity within a given market while providing the MMDS operator with as
much flexibility as possible to offer video, voice, and data, or some
combination thereof. CAI has determined that, assuming receipt of the
requisite regulatory approvals, it can now design and construct a wireless
broadband network achieving these goals in a time period of 6-9 months at a
cost of approximately $15 -$25 per home passed. As part of this
architecture, CAI has reconfigured the manner in which digital video would
be distributed to and within individual markets. By incorporating
satellite services into the MMDS network architecture, CAI would only need
to develop, construct, and staff one digital compression center, which,
with the introduction of satellite services, would be capable of serving
all of CAI's markets. This element of CAI's network architecture would
relieve CAI from the expense associated with the construction and staffing
of a digital compression center in each operating market at a cost of $6
- -$8 million per compression center.
The introduction of satellite services resulted in the formation of
TelQuest Satellite Services LLC ("TelQuest"), a satellite operator formed
as a joint venture among CAI, CS Wireless and TelQuest Communications,
Inc., a privately-held corporation controlled by Jared E. Abbruzzese,
chairman and chief executive officer of CAI. TelQuest initially operated a
digital compression center and uplink facility at the Loral Skynet
Telemetry, Tracking and Control Center in Hawley, Pennsylvania, and is
presently relocating this operation to a facility located in Atlanta,
Georgia. TelQuest is currently providing pre-digitized video programming
to CS Wireless customers in Dallas, TX and to CAI's Boston facility, where
CAI is currently using the satellite feed for testing and demonstration
purposes. CAI believes that the introduction of satellite services, in
conjunction with digital MMDS facilities, will decrease the number of MMDS
channels necessary to be allocated for a subscription video product, and
thereby increase the number of available MMDS channels for data and
telephony delivery services, when and as such services are approved by the
FCC.
CAI believes that expanded uses of the MMDS spectrum and enhanced network
architecture must be accompanied by the development of enhanced equipment
of varying capabilities. CAI has worked with several technology companies
and equipment manufacturers to design and test new one- and two-way
equipment for use in the delivery of video, voice, and data services via
MMDS spectrum. Often starting with equipment originally designed for
hard-wire or hybrid fiber-coaxial platforms, CAI's engineers and these
equipment manufacturers have successfully revamped such equipment for use
in an MMDS environment. Recently, one such manufacturer delivered to CAI,
and CAI has deployed on a trial basis in connection with an on-site,
long-term demonstration conducted by CAI for a potential Strategic Partner,
first generation two-way transverters that allow a user to receive data
transmissions at downstream speeds of up to 7 Mbps and upload data at 600
Kbps return capacity. CAI believes that it has broadened the availability
of equipment capable of supporting alternative uses of MMDS spectrum, such
as two-way data delivery services and telephony.
CAI continues to believe that a Strategic Partner is necessary for
the MMDS industry to fully realize the potential of this spectrum.
Believing that a national-level Strategic Partner has the financial
resources and infrastructure to fully utilize the MMDS spectrum for video,
voice, and data transmission, CAI has aggressively sought one or more
Strategic Partners since the departure of Bell Atlantic/NYNEX. To date,
CAI has demonstrated its technological capabilities to several potential
Strategic Partners, and is in discussions with several entities regarding a
possible strategic alliance. Additionally, CAI is currently conducting an
on-site trial, including the recent deployment of the two-way transverters,
for a telecommunications company, providing wireless Internet and corporate
intranet access for trial participants at various locations in the greater
New York City area. Business discussions between CAI and these entities
have been wide-ranging, and no definitive agreement has been reached with
any entity at this time.
Currently, in CAI's 14 primary markets, there are a total of 16,135,174
Estimated Total Service Area households, making it the largest MMDS
operator in the United States based upon the number of television
households. CAI had approximately 50,000 analog video subscribers as of
May 31, 1998.
3. Investment in CS Wireless
In addition to the MMDS assets it owns and its interest in TelQuest, CAI
has a 60% interest in CS Wireless Systems, Inc. ("CS Wireless"). Pursuant
to the terms of a participation agreement dated December 12, 1995 (as
amended, the "Participation Agreement") between CAI, CS Wireless, and
Heartland Wireless Communications, Inc. ("Heartland"), an MMDS subscription
television operator of small- and medium-sized markets, CAI and Heartland
agreed to contribute to CS Wireless certain wireless cable assets,
including related operating liabilities, or the stock of subsidiaries
owning wireless cable assets for systems located primarily in the mid- and
southwestern regions of the United States. The combination of these assets
into CS Wireless resulted in a company with approximately 7.7 million
Estimated Total Service Area households and 56,500 analog video
subscribers, as of March 31, 1996, making it one of the largest wireless
cable companies in the United States (in terms of subscribers and Estimated
Total Service Area households).
The transaction closed on February 23, 1996 (the "CS Closing").
Immediately following the CS Closing, and after giving effect to the
issuance of equity by CS Wireless in connection with the Unit Offering
(defined below) and certain true-up adjustments contemplated by the
Participation Agreement, the equity in CS Wireless was owned approximately
52% by CAI, approximately 37% by Heartland, and approximately 10% by
affiliates of Bell Atlantic and NYNEX. The remaining 1% equity interest
was sold, contemporaneously with the CS Closing, in a private placement to
purchasers of an aggregate of 100,000 units (the "Unit Offering"), each
consisting of (i) four $1,000 principal amount at maturity of 11d% Senior
Discount Notes due 2006 and 1.1 shares of common stock of CS Wireless. The
notes accrete in value for five years and cash interest is scheduled to be
paid beginning in 2001. The gross proceeds of the Unit Offering to CS
Wireless were approximately $230.0 million. A portion of the net proceeds
of the Unit Offering was used to make a cash payment to Heartland at the CS
Closing, as required under the Participation Agreement, and the remainder
has been, and will continue to be, used by CS Wireless for capital
expenditures required to build out its systems and add subscribers, certain
formation costs, working capital, and general corporate purposes.
Prior to the contributions contemplated by the Participation Agreement, CS
Wireless was a wholly-owned subsidiary of CAI, operating a wireless cable
system in Cleveland, Ohio. Under the Participation Agreement, CS Wireless
acquired, or had contributed to it (i) the stock of subsidiaries of CAI
owning wireless cable systems or channel rights, and operating wireless
cable systems and (ii) wireless channel rights held by (a) CAI in
Bakersfield, California, Charlotte, North Carolina, and Stockton/Modesto,
California, all of which were located outside the operating territories of
Bell Atlantic and NYNEX (the "CAI Properties"), and (b) Heartland in
Dallas, Fort Worth, and San Antonio, Texas, Dayton, Ohio, Maysville and
Sweet Springs, Missouri, Minneapolis, Minnesota, Grand Rapids, Michigan,
and Salt Lake City, Utah (the "Heartland Properties").
The Participation Agreement contemplated a true-up adjustment of the
amounts contributed to CS Wireless by each of CAI and Heartland based on
the value of MMDS assets or channel rights or stock of entities owning such
assets or rights. In connection with one aspect of the true-up, CAI's 52%
interest in CS Wireless was reduced to approximately 51% and Heartland's
interest was increased to approximately 39% by the issuance of additional
CS Wireless equity to Heartland. In addition, as part of the series of
transactions consummated by CAI and BANX during the fourth quarter of
fiscal year 1998, CAI received BANX's approximately 10% interest in CS
Wireless, thereby increasing CAI's ownership interest in CS Wireless to
approximately 60%.
CAI and Heartland are also subject to a true-up adjustment in the event
that the number of channels available to CS Wireless 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 Wireless either (i) cash, (ii) a 5-year promissory note,
(iii) shares of CS Wireless stock, or (iv) any combination of the
foregoing. CAI has been notified by Heartland that Heartland believes
there is a potential channel deficiency arising out of the number of
channels delivered by CAI in connection with its contribution of MMDS
assets relating to the Charlotte, North Carolina market. CAI believes that
it has delivered 13 of the 16 required channels, and expects to be able to
deliver at least three additional channels in the Charlotte market from
applications currently pending at the FCC. Heartland has advised CAI that
it believes that CAI has delivered only 6 channels relating to the
Charlotte market. CAI has disputed Heartland's position, and is in
discussions with Heartland on this issue.
CAI, CS Wireless, and Heartland are also parties to a stockholders'
agreement, dated as of February 23, 1996 (the "CS Stockholders'
Agreement"), which provides for, among other things, a minimum permissible
level of ownership of CS Wireless stock by CAI, the conditions under which
CAI or Heartland may transfer all or part of their CS Wireless stock,
certain rights and obligations of CAI and Heartland with respect to the
composition of the board of directors of CS Wireless, and super-majority
voting requirements for certain items of business of CS Wireless. CAI
currently is evaluating its alternatives under Section 365 of the
Bankruptcy Code with respect to the CS Stockholders' Agreement.
4. Interim Financing
The construction of the digital facilities in Boston and Norfolk/Virginia
Beach required the expenditure of significant capital by CAI.
Additionally, CAI's focus on expanding the regulatory landscape, designing
a broadband wireless network architecture, and locating a Strategic
Partner, has required capital expenditures by CAI that have exceeded
revenue from analog operations since CAI's inception. To address its cash
needs, CAI sought interim debt financing beginning in late 1996, and on
June 6, 1997, closed a $30 million interim credit facility provided by
Foothill Capital Corporation and affiliates of Canyon Capital Management,
L.P. (the "Interim Lenders"). The credit facility was governed by the
terms of a Loan and Security Agreement, dated as of May 16, 1997 (the
"Interim Loan Agreement"), and was comprised of $25 million of two-year
term debt bearing interest at the rate of 13% per annum (the "Term
Facility"), of which $10 million was made available at closing, and $5
million in revolving credit (the "Revolving Facility" and, together with
the Term Facility, the "Interim Credit Facility"). The balance of the Term
Facility (i.e., in excess of the $10 million made available at closing),
was to be made available to CAI upon the achievement of certain agreed-upon
operational benchmarks. As long as CAI was not in default of its
obligations under the Interim Loan Agreement, it could elect to have
one-half of the interest on the Term Facility accrue and be added to the
principal amount outstanding on the Term Facility. The remaining portion
of the interest on the Term Facility was payable, and was paid, monthly in
arrears. The Term Facility was scheduled to mature on March 1, 1999, at
which time all accrued and unpaid interest on and principal of the
outstanding amount of the Term Facility was to be due and payable in full.
In addition to the $10 million under the Term Facility, the Interim Lenders
also made $3 million available to CAI under the Revolving Facility at the
closing of the Interim Credit Facility. The remaining $2 million was to be
made available to CAI upon the achievement of certain operational
benchmarks. The Revolving Facility bore interest at four and three-quarters
percent above the Reference Rate, as announced from time to time by Norwest
Bank. Principal and interest on the Revolving Facility, which was
scheduled to expire on March 1, 1999, was payable, and was paid, monthly in
arrears.
The entire Interim Credit Facility was collateralized by a pledge of the
assets of CAI, including the stock of its wholly-owned Subsidiaries,
certain investments held by CAI, and a pledge of the stock of CS Wireless
held by CAI. In connection with the closing of the Interim Credit
Facility, CAI was to be required to effect certain corporate restructurings
in an effort to enhance the Interim Lenders' collateral position. The
proceeds from the Interim Credit Facility were used by CAI to continue to
build-out its wireless cable business and for general working capital
purposes.
In addition to $1.5 million in fees payable to the Interim Lenders at the
closing of the Interim Credit Facility and the fees and expenses (including
the fees and expenses of counsel and special FCC counsel to the Interim
Lenders) incurred by the Interim Lenders in connection with the Interim
Credit Facility, CAI also was required to (i) pay to the Interim Lenders an
additional $1.5 million fee, evidenced by a two-year promissory note
bearing interest at the rate of 14% per annum, which interest was to accrue
and be payable in full upon maturity of the note, and (ii) issue to the
Interim Lenders warrants (the "Foothill/Canyon Warrants") to purchase Old
Common Stock at any time between the closing of the Interim Credit Facility
and the fifth anniversary thereof. The holders of the Foothill/Canyon
Warrants were to be entitled to purchase in the aggregate that number of
shares of Old Common Stock equal to the quotient of (x) the maximum amount
outstanding (including principal and accrued interest) on the
above-referenced promissory note, divided by (y) the lowest of (A) $1.90
per share, (B) the lowest effective net price for the Old Common Stock (or
its equivalent) that CAI received in connection with any new capital
investment, merger, strategic partnership, joint venture or other
significant corporate transaction that made available to CAI in excess of
$50 million, (C) the lowest 20-day fair market value of the Old Common
Stock following the consummation of a transaction of the type described in
clause (B) above, and (D) the 20-day fair market value of the Old Common
Stock immediately following confirmation of a plan of reorganization under
Chapter 11 of the Bankruptcy Code. The Foothill/ Canyon Warrants contained
certain anti-dilution provisions and registration rights, and were
allocated among the Interim Lenders.
On November 25, 1997, CAI repaid all amounts outstanding and owing to the
Interim Lenders out of the proceeds of the sale by CAI and certain
Subsidiaries of $25 million principal amount of 13% Senior Secured Notes,
due February 20, 1998 (the "Secured Notes"), to MLGAF, the holder of
approximately $94 million in face amount of CAI's Senior Notes. The
then-outstanding amount under the Interim Credit Facility was approximately
$17.3 million, consisting of $15.329 million in principal, $1.575 million
in fees, and $350,000 in interest on the principal and fees.
The repayment of the Interim Credit Facility in November 1997 represented
the early termination of the Interim Credit Facility. Prior to its
termination and repayment in full, CAI executed a series of continuing
waiver agreements, which waived compliance by CAI with certain post-closing
requirements, increased the interest rates payable on the obligations
outstanding under the Interim Credit Facility, and imposed additional
and/or modified existing covenants relating to various items, including
sales of non-core assets, certain fundamental changes to CAI and CAI's
ability to incur additional indebtedness. All of the waivers executed and
delivered by CAI to the Interim Lenders contained a general release of the
Interim Lenders. A final general release was required of and delivered by
CAI in connection with receipt of the pay-off letter issued by the Interim
Lenders in connection with the repayment of all obligations under the
Interim Credit Facility. The early termination of the Interim Credit
Facility resulted in CAI recording a third quarter charge of approximately
$4.7 million, representing the costs associated with the Interim Credit
Facility that CAI was originally amortizing over the two-year term of such
facility.
CAI used the remaining proceeds from the issuance and sale to MLGAF of
Secured Notes, approximately $7,300,000, net of expenses associated with
this transaction, for working capital purposes and build-out of CAI's
wireless cable business. On January 26, 1998, CAI issued and sold an
additional $2,000,000 of Secured Notes to MLGAF, and on February 17, 1998,
CAI issued and sold an additional $18,000,000 of Secured Notes in
connection with the consummation of a series of transactions by CAI, MLGAF
and the BANX Affiliates.
The Secured Notes, which are short term obligations of CAI (currently
maturing on June 30, 1998), were issued and sold pursuant to the terms of a
Note Purchase Agreement between CAI and certain of the Subsidiaries and
MLGAF (as amended from time to time, the "Note Purchase Agreement").
Interest accruing 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 $730,000
commitment fee to MLGAF, which is also due at maturity. As collateral for
the Secured Notes, CAI granted a blanket lien on all of its assets,
including the stock of substantially all of the Subsidiaries, as well as a
pledge of its 60% interest in CS Wireless and 25% interest in TelQuest and
certain accounts receivable held by CAI. 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 MLGAF.
5. The Securities Action
CAI has been named in six lawsuits alleging various violations of the
federal securities laws filed in the United States District Court for the
Northern District of New York. The actions were consolidated into one
lawsuit entitled In Re CAI Wireless Systems, Inc. Securities Litigation
(96-CV-1857) (the "Securities Action"), which is currently pending in the
Northern District of New York. The amended, consolidated complaint, which
names the Company, Jared E. Abbruzzese, chairman and chief executive
officer of CAI, John J. Prisco, president, chief operating officer and a
director of CAI, and Alan Sonnenberg, the former president of CAI and a
former member of its Board of Directors, as defendants, alleges a variety
of violations of the anti-fraud provisions of the Federal securities laws
by CAI arising out of its alleged disclosure (or alleged omission from
disclosure) regarding its Internet and other flexible use of MMDS spectrum,
as well as its business relationship with Bell Atlantic and NYNEX.
Specifically, the complaint alleges that the defendants violated Sections
10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Rule 10b-5 promulgated under the Exchange Act, during
the specified Class Period (May 23, 1996 through December 6, 1996).
CAI and the individual defendants are contesting the Securities Action
vigorously at this time, believe it is entirely without merit, and do not
believe that it will have a material adverse effect on CAI's earnings,
financial condition, or liquidity. CAI has notified the carrier of its
directors' and officers' liability insurance policy, which is intended to
cover not only CAI's officers and directors, but also the Company itself,
for liability on account of claims such as those made in the Securities
Action. The policy covers up to $5 million of any covered liability,
subject to a retention amount of $500,000.
The Securities Action is still in its preliminary stages. A scheduling
conference was held on June 3, 1997, at which the briefing schedule for
defendants' motion to dismiss was agreed upon among the parties. The
defendants' motion to dismiss was heard by the Northern District of New
York on October 17, 1997, and is still pending. While the motion is
pending, all other deadlines affecting motions and discovery have been
postponed.
Under the Plan, all Claims against CAI arising under, out of, or related to
the Securities Action are classified as Class CAI-7.02 Equity Securities
Claims, the holders of which are not entitled to receive or retain any
property on account of such Claims. See Section VIII.C -- "Summary of the
Plan -- Certain Matters Regarding Classification And Treatment Of Claims
And Interests."
D. Recent Developments
1. Extension of Maturity of Secured Notes
On June 1, 1998, the Companies announced an extension until June 15, 1998
of the maturity of $45,000,000 in Secured Notes issued under the Note
Purchase Agreement and held by MLGAF. Since that time, the Companies have
announced a further extension of the maturity of the Secured Notes through
June 30, 1998. The Company has requested that the maturity of the Secured
Notes be extended to the Petition Date. If the Chapter 11 Case is
commenced, all amounts outstanding under the Note Purchase Agreement as of
the Petition Date will be converted into and deemed to be outstanding
obligations under the proposed DIP Facility. See Section X.A -- "Financing
During and After the Chapter 11 Case -- The DIP Facility".
2. De-listing by Nasdaq of Old Common Stock
On January 8, 1998, the Old 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 CAI'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, CAI
was required to maintain compliance with a $1.00 per share bid price for a
defined interim period. Effective January 13, 1998, as a result of failing
to maintain the $1.00 per share bid price, the Old Common Stock was
de-listed from the Nasdaq SmallCap Market SM. The Old Common Stock
currently trades on the Electronic Bulletin Board system under the CAWS
symbol.
3. Attempts to Identify Strategic Partner
CAI has sought to identify one or more Strategic Partners that would be
willing to (a) enter into a business relationship with CAI pursuant to
which CAI would provide video, voice and/or data services to such Strategic
Partner's customers in CAI's markets or (b) provide financing sufficient to
permit CAI to implement its business plan. CAI has demonstrated its
technological capabilities for each of video, voice and data to several
potential Strategic Partners. In addition to a variety of demonstrations,
CAI has been conducting an on-site trial for a telecommunications company,
providing transport services for Internet access and such company's
corporate intranet, which services recently have included two-way data
transmission with the deployment of first generation transverters developed
by CAI and a high-technology equipment manufacturer. Business discussions
between CAI and these entities have been wide ranging and continue;
however, no definitive agreement has been reached with any entity at this
time.
4. Negotiations with Unofficial Noteholders' Committee
During the Spring of 1998, CAI engaged in informal discussions with
representatives of MLGAF with respect to CAI's prospects and various
restructuring alternatives. During May 1998, CAI entered into
confidentiality agreements with certain other large holders of Senior Notes
with a view to engaging in discussions relating to restructuring
alternatives. Noteholders, including MLGAF, who collectively hold or
manage approximately 73% of the outstanding Senior Notes, formed the
Unofficial Noteholders' Committee and retained Stroock & Stroock & Lavan
LLP as counsel and Dabney Flanigan, LLC as financial advisor. CAI has
agreed to pay the reasonable fees and expenses of Stroock & Stroock & Lavan
LLP and fees of $200,000 for the 60-day period commencing June 5, 1998 and
$100,000 per month thereafter to Dabney Flanigan, LLC in connection with
the restructuring.
Although the Plan and various related matters referred to in this
Disclosure Statement have been reviewed by and discussed with the
Unofficial Noteholders' Committee, MLGAF, and their respective
representatives, and reflect to some extent the views of those parties, the
Unofficial Noteholders' Committee has not approved or endorsed the Plan or
recommended that other holders of Senior Notes vote to accept the Plan.
E. PCT
1. Acquisition by CAI of ACS Enterprises, Inc.
PCT is a wholly-owned Subsidiary of CAI, and is the successor by merger to
ACS Home Systems, Inc., formerly a wholly-owned subsidiary of CAI. PCT and
ACS Home Systems, Inc. were originally wholly-owned subsidiaries of ACS
Enterprises, Inc. ("ACS"), a publicly-held MMDS operator with systems in
Philadelphia, PA, Cleveland, OH, and Bakersfield, CA. On September 29,
1995, CAI acquired ACS in a merger transaction, pursuant to which ACS was
merged into a wholly-owned subsidiary of CAI and the holders of ACS common
stock immediately prior to the merger received a combination of Old Common
Stock and cash. Following the acquisition, CAI merged ACS with and into
CAI; thereupon PCT and ACS Home Systems, Inc. became wholly-owned, direct
subsidiaries of CAI.
On March 29, 1996, CAI caused the merger of ACS Home Systems, Inc. with and
into PCT, then known as Apartment Cable Systems, Inc. Simultaneous with
the merger, Apartment Cable Systems, Inc. changed its name to Philadelphia
Choice Television, Inc. On May 5, 1997, PCT, then a Pennsylvania
corporation, reincorporated in the State of Delaware. PCT has authorized
30 shares of Class A voting common stock, no par value, and 39,970 shares
of Class B non-voting common stock, no par value, all of which are issued
and held by CAI.
2. Operations of PCT
PCT operates CAI' s largest analog subscription video system (in terms of
subscribers), covering the greater Philadelphia area. Located at 2510
Metropolitan Avenue, Trevose, PA, PCT offers a 30 to 35 channel video
product to single family and multi-dwelling units and commercial
establishments. As of May 31, 1998, PCT had approximately 31,100 analog
video subscribers.
PCT leases MMDS spectrum sufficient to provide subscribers with its channel
line-up from PC License, Inc., a wholly-owned Subsidiary of CAI, which
holds MMDS spectrum-type assets relating to the Philadelphia area. Video
programming is obtained by PCT either through the participation by CAI and
its Subsidiaries, including PCT, in Wireless Enterprises, L.L.C., a joint
venture formed by certain MMDS operators to assemble programming, or
through direct contractual arrangements with programmers whose programs are
not available through Wireless Enterprises, L.L.C.
In addition to the analog video service, PCT also maintains a customer
service call center for the benefit of CAI's Philadelphia, New York City
and Washington systems. The call center, which, as a result of
cost-cutting measures implemented by CAI, recently decreased the available
hours per day of its customer service representatives, handles all customer
service-related phone calls, including installation requests, pay-per-view
orders, and service call and disconnect orders.
CAI intends for PCT to continue to operate the analog subscription video
business in the Philadelphia area after the sale of the MDU Assets to
OnePoint. See Section VIII.D.4 -- "Summary of the Plan -- Summary of Other
Provisions of the Plan -- Sale Of MDU Assets By PCT." Upon consummation of
the sale, PCT will focus its efforts on maintaining its current single
family and commercial unit subscriber base. It will not seek to compete,
and indeed will be prohibited pursuant to the purchase and sale agreements
relating to the sale of the MDU Assets, from competing against OnePoint at
any of the transferred MDUs for any video, voice, or data service.
F. Regulation In The Wireless Industry
1. General
The wireless cable industry is subject to regulation by the FCC pursuant to
the Communications Act of 1934, as amended (the "Communications Act"). The
Communications Act empowers the FCC, among other things, to issue, revoke,
modify and renew licenses within the spectrum available to wireless cable;
to approve the assignment and/or transfer of control of such licenses; to
approve the location of wireless cable system headends; to regulate the
kind, configuration and operation of equipment used by wireless cable
systems; and to impose certain equal employment opportunity and other
obligations and reporting requirements on wireless cable channel license
holders and operators.
The FCC has determined that wireless cable systems are not "cable systems"
for purposes of the Communications Act. Accordingly, a wireless cable
system does not require a local franchise and is subject to fewer local
regulations than a hard-wire cable system. Moreover, all transmission and
reception equipment for a wireless cable system can be located on private
property; hence, there is no need to make use of utility poles or dedicated
easements or other public rights of way. Although wireless cable operators
typically have to lease from third parties the right to use a certain
portion of the channels utilized in any given system, unlike hard-wire
cable operators they do not have to apply for and be awarded a local
franchise or pay local franchise fees. Recently, legislation has been
introduced in some states, including Illinois, Maryland, Pennsylvania and
Virginia, to authorize state and local authorities to impose on all video
program distributors (including wireless cable operators) a tax on the
distributors' gross receipts comparable to the franchise fees cable
operators pay. Similar legislation might be introduced in several other
states. While the proposals vary among states, the bills all would
require, if passed, as much as 5% of gross receipts to be paid by wireless
distributors to local authorities. Efforts are underway by the industry
trade association to preempt such state taxes through federal legislation.
In addition, the industry is opposing the state bills as they are
introduced, and, in Virginia and Maryland, it has succeeded in either
blocking the legislation or being exempted from the video tax that was
eventually enacted into law. However, it is not possible to predict
whether new state laws will be enacted which impose new taxes on wireless
cable operators.
The FCC licenses and regulates the use of channels by license holders and
system operators. In the 50 largest markets, 33 6-MHz channels are
available for wireless cable delivery services (in addition to any local
broadcast television channels that can be offered to subscribers via an
off-air antenna). In each geographic service area of all other markets, 32
6-MHz channels are available for wireless cable (in addition to any local
broadcast television channels that can be offered to subscribers via an
off-air antenna). Except in limited circumstances, 20 wireless cable
channels in each of these geographic service areas are generally licensed
only to qualified non-profit educational organizations (commonly referred
to as ITFS channels). In general, each of these channels must be used a
minimum of 20 hours per week per channel for instructional programming.
The remaining "excess air time" on an ITFS channel may be leased to
wireless cable operators for commercial use, without further restrictions
(other than the right of the ITFS license holder, at its option, to
recapture up to an additional 20 hours of air time per week for educational
programming). Lessees of ITFS' "excess air time," including CAI, generally
have the right to transmit to their customers the educational programming
provided by the lessor at no incremental cost. The FCC's rules permit ITFS
license holders to consolidate their educational programming on one or more
of their ITFS channels, thereby providing wireless cable operators leasing
such channels, including CAI, greater flexibility in their use of ITFS
channels. The remaining 13 channels available in most of CAI's operating
and targeted markets are made available by the FCC for full-time usage
without programming restrictions.
2. Licensing Procedures
The actual number of wireless cable channels available for licensing in any
market is determined by the FCC's interference protection and channel
allocation rules. The FCC awards ITFS and MMDS licenses based upon
applications demonstrating that the applicant is legally, financially and
technically qualified to hold the license and that the operation of the
proposed station will not cause harmful interference to other stations or
proposed stations entitled to interference protection.
During the year ended March 31, 1996, CAI participated in the FCC's MMDS
Spectrum auction (the "FCC Auction") for awarding available commercial
wireless spectrum in 493 markets (the "Auction Markets") throughout the
United States, identified as Basic Trading Areas in accordance with
material copyrighted by Rand McNally & Company. The winner of an Auction
Market has the right to apply for the available MMDS frequencies throughout
the Auction Market, consistent with certain specified interference criteria
that protect existing ITFS and MMDS channels. Existing ITFS and MMDS
channel right holders also must protect the Auction Market winner's
spectrum from power increases, tower relocations, or other changes to
their stations. CAI was the successful bidder for 32 Auction Markets,
costing CAI a total of $48.8 million. Pursuant to an agreement with CS
Wireless, CAI has transferred five Auction Markets located in CS Wireless'
operating regions and for which CAI was the successful bidder, costing an
aggregate of $12.6 million, to CS Wireless at cost, and will transfer two
additional Auction Markets located in CS Wireless' operating regions and
for which CAI was the successful bidder upon the granting of such Auction
Market awards by the FCC. For each of the Auction Markets in which CAI was
the successful bidder, CAI was required to submit the requisite FCC
applications and make a down-payment (20% of such successful bid offset by
amounts previously paid) within five business days of the announcement by
public notice of the successful bid. When the authorization for an Auction
Market is ready to be issued by the FCC, the FCC will release a public
notice to that effect. Within 5 business days of such public notice, the
successful bidder is required to remit the balance of its bid to the FCC,
whereupon the Auction Market authorization will be issued by the FCC. As
of March 31, 1998, authorizations for all but two Auction Markets for which
CAI was the successful bidder (excluding those markets that are required to
be conveyed at cost to CS Wireless) have been issued by the FCC and paid
for by CAI. Authorizations for the remaining two Auction Markets are
expected to be issued during the fiscal year ending March 31, 1999, and
payment, in the aggregate amount of $1.1 million for such remaining Auction
Markets, will be due upon such issuance.
In February 1995, the FCC amended its rules and established "windows" for
the filing of new ITFS applications or major modifications to authorized
ITFS facilities. The first filing "window" was October 16-20, 1995. (CAI
supported a number of ITFS new station and major modification
applications.) Where two or more ITFS applicants file applications for the
same channels and the proposed facilities could not be operated without
impermissible interference, the FCC employs a set of comparative criteria
to select from among the competing applicants. More recently, the FCC
commenced a rulemaking proceeding that contemplates conducting auctions
where two or more ITFS applicants file competing applications. That
rulemaking proceeding remains pending, and it is uncertain whether the FCC
will conduct auctions or maintain the existing comparative selection
process. Construction of ITFS stations generally must be completed within
18 months of the date of grant of the authorization. If construction of
MMDS or ITFS stations is not completed within the authorized construction
period, the licensee must file an application with the FCC seeking
additional time to construct the station and demonstrate therein compliance
with certain FCC standards. If the extension application is not filed or
is not granted, the license will be deemed forfeited. ITFS and MMDS
licenses generally have terms of 10 years. Licenses must be renewed
thereafter, and may be revoked for cause in a manner similar to other FCC
licenses. FCC rules prohibit the sale for profit of a conditional MMDS
license or a controlling interest in the conditional licensee prior to
construction of the station or, in certain circumstances, prior to the
completion of one year of operation. However, the FCC does permit the
leasing of 100% of an MMDS licensee's spectrum to a wireless cable operator
and the granting of options to purchase a controlling interest in a license
even before such holding period has lapsed.
Wireless cable transmissions are subject to FCC regulations governing
interference and reception quality. These regulations specify important
signal characteristics such as modulation (i.e., AM/FM) or encoding formats
(analog or digital). Until recently, FCC regulations required wireless
cable systems to transmit only analog signals and those regulations needed
to be modified, either by rulemaking or by individual application, to
permit the use of digital transmissions. CAI was a party to a petition for
declaratory ruling filed in July 1995 seeking adoption of interim
regulations authorizing digital transmission. This petition was granted on
July 9, 1996, and allows wireless license holders to operate digitally
under current FCC interference rules. The license holder is, however,
required to file for digital authorization. It is likely that, in the
longer term, the FCC will consider adopting both new technical and service
rules tailored to digital operations. The service rules could modify the
respective rights and obligations of the ITFS lessors and their commercial
lessees of "excess air time" in light of the increased capacity that would
result from digital compression. Even if the FCC does adopt new service
rules governing the allocation of "excess air time" in a digital
environment, it is anticipated that there would be a dramatic increase in
the number of channels that will be available to CAI following the
conversion to digital transmission. CAI demonstrated transmission of
digital satellite television programming and digital local broadcast
television signals in its Rochester, NY market in June 1996, and believes
that the necessary FCC approvals will be obtained to permit use of digital
compression by the time it becomes commercially available on a wide-spread
basis; however, there can be no assurance that these approvals will be
forthcoming or timely. In addition, such modifications filed with the FCC
after the FCC Auction will be subject to the interference protection rights
of adjacent FCC Auction winners.
The FCC also regulates transmitter locations and signal strength. The
operation of a wireless cable television system requires the co-location of
a commercially viable number of MMDS channels and operations with similar
transmission characteristics (such as power and polarity). In order to
commence the operations of certain of CAI's markets, applications have been
or will be filed with the FCC to relocate and modify existing transmission
facilities. Under current FCC regulations, a wireless cable operator
generally may serve subscribers anywhere within the line of sight ("LOS")
of its transmission facility, provided that the signal complies with FCC
interference standards. Under rules adopted by the FCC on June 15, 1995
and effective as of September 15, 1995, an MMDS channel license holder
generally has a protected service area of 35 miles around its transmitter
site. In launching or upgrading a system, CAI may wish to relocate its
transmission facility or increase its height or power. If such changes
cause CAI's signal to violate interference standards with respect to the
protected service area of other wireless license holders, CAI would be
required to obtain the consent of such other license holders; however,
there can be no assurance that such consents would be received.
3. Change in Control Issues
Under federal law, the FCC must grant prior approval to any assignment or
transfer of control involving an entity that holds an FCC license. The
governing statute and the FCC's rules distinguish between minor and major
changes of control, and the FCC thus has two different processes tailored
to fit the extent to which the licensed entity undergoes changes: (a) a
"short form" or pro forma change of control process that takes
approximately two weeks from filing to grant, for use when, among other
things, a licensed entity files a petition for relief under Chapter 11 of
the Bankruptcy Code and (b) a "long form" change of control process that
generally takes a minimum of two to three months, for use when, among other
things, a licensed entity proposes to undergo a permanent change in the
ownership of fifty percent (50%) or more of its voting securities.
The short form application generally should be filed within one week of the
filing of a Chapter 11 petition. The application does not require public
notice. The long form application generally should be filed as soon as the
composition of the licensed entity's post-confirmation voting securities
ownership can be determined with reasonable certainty. Once filed, there
is a thirty-day public notice period, during which time interested parties
may file comments challenging the FCC's proposed grant of approval to the
application.
There are relatively few bases upon which an interested party can
successfully challenge an application of this nature. Generally, other
than determining that the prospective owners of the licensed entity are
citizens of the United States and do not hold significant interests in
hard-wire cable companies whose franchises overlap with the licensed
entity's areas of operation, the FCC will not perform an extensive analysis
of the identity and characteristics of the proposed assignees or
transferees of the entity's voting securities. Thus, absent a challenge, a
long form application generally will be granted within approximately two to
three months. A challenge would extend the grant period by another two to
three months, although predictions as to when the FCC will dispose of a
challenge are inherently unpredictable.
Because the Restructuring of CAI's capital structure contemplated by the
Plan would involve the transfer of ownership of more than 50% of CAI's
voting securities, CAI and CS Wireless will be required to file long form
change in control applications. Due to the inherent uncertainties in the
application and notice process (e.g., a challenge to CAI's and/or CS
Wireless' applications), there can be no assurance that CAI's and/or CS
Wireless' applications will be granted within two to three months of their
filing, or even at all.
4. Interference Issues
Interference from other wireless cable systems can limit the ability of a
wireless cable system to serve any particular site. In licensing ITFS and
MMDS systems, a primary concern of the FCC is avoiding situations where
proposed stations are predicted to cause interference with the reception of
previously authorized or proposed stations. Pursuant to FCC rules, a
wireless cable system is generally protected from interference within a
radius of 35 miles of the transmission site. In addition, modification and
new station applications submitted after the FCC Auction will be required
to protect FCC Auction winners from interference. The FCC's interference
protection standards may make one or more of these proposed modifications
or new grants unavailable. In such event, it may be necessary to negotiate
interference agreements with the licensees of the systems which would
otherwise block such modifications or grants. There can be no assurance
that CAI will be able to negotiate necessary interference agreements on
terms acceptable to CAI. In the event CAI cannot obtain interference
agreements required to implement CAI's plans for a market, CAI may have to
curtail or modify operations in that market, utilize a less optimal tower
location, or reduce the height or power of the transmission facility, any
of which could have a material adverse effect on CAI's growth in that
market. In addition, while CAI's leases with ITFS and MMDS licensees
require their cooperation, it is possible that one or more of CAI's channel
lessors may hinder or delay CAI's efforts to use the channels in accordance
with CAI's plans for the particular market.
5. Certain Legislation Affecting the Wireless Cable Industry
(a) The 1992 Cable Act
On October 5, 1992, Congress enacted the 1992 Cable Act, which compels the
FCC to, among other things, (i) adopt comprehensive federal standards for
the local regulation of certain rates charged by hard-wire cable operators,
(ii) impose customer service standards on hard-wire cable operators, (iii)
govern carriage of certain broadcast signals by all multi-channel video
providers, and (iv) compel non-discriminatory access to programming owned
or controlled by vertically-integrated cable operators.
The rate regulations adopted by the FCC do not regulate cable rates once
other multi-channel video providers serve, in the aggregate, at least 15%
of the households within the cable franchise area. The customer service
rules adopted by the FCC establish certain minimum standards to be
maintained by traditional hard-wire cable operators. These standards
include prompt responses to customer telephone inquiries, reliable and
timely installations and repairs, and readily understandable billing
practices. These rules do not apply to wireless cable operators, although
CAI believes that it provides and will continue to provide customer service
superior to its hard-wire cable competitors.
Under the retransmission consent provisions of the 1992 Cable Act and the
FCC's implementing regulations, all multi-channel video providers
(including both hard-wire and wireless cable) seeking to retransmit certain
commercial broadcast signals must first obtain the permission of the
broadcast station. Hard-wire cable systems, but not wireless cable
systems, are required under the 1992 Cable Act and the FCC's "must carry"
rules to retransmit a specified number of local commercial television or
qualified low power television signals. See Section II.F.7 -- "General
Information -- Regulation in the Wireless Industry -- Retransmission
Consent."
The 1992 Cable Act and the FCC's implementing regulations impose limits on
exclusive programming contracts and prohibit programmers in which a cable
operator has an attributable interest from discriminating against cable
competitors with respect to the price, terms and conditions of programming.
Certain provisions of the 1992 Cable Act and the FCC's implementing
regulations have been challenged in the courts and before the FCC. Under
the Telecommunications Act of 1996 (the "1996 Act"), Congress has directed
the FCC to eliminate cable rate regulations for "small systems," as defined
in the 1996 Act, and for large systems under certain prescribed
circumstances, and for all cable systems effective three years after
enactment of the 1996 Act.
While current FCC regulations are intended to promote the development of a
competitive subscription television industry, the rules and regulations
affecting the wireless cable industry may change, and any future changes in
FCC rules, regulations, policies and procedures could have a material
adverse effect on CAI. In addition, a number of legal challenges to the
1992 Cable Act and the regulations promulgated thereunder have been filed,
both in the courts and before the FCC. These challenges, if successful,
could result in increases in CAI's operating costs and otherwise have a
material adverse effect on CAI. CAI's costs to acquire satellite-delivered
programming may be affected by the outcome of those challenges. Other
aspects of the 1992 Cable Act that have been challenged, the outcome of
which could adversely affect CAI, include the 1992 Cable Act's provisions
governing rate regulation to be met by traditional hard-wire cable
companies. The 1992 Cable Act empowered the FCC to regulate the basic
subscription rates charged by traditional hard-wire cable operators. The
FCC recently issued rules requiring such cable operators, under certain
circumstances, to reduce the rates charged for non-premium services by as
much as 17%. Should these regulations withstand court and regulatory
challenges, the extent to which wireless cable operators may continue to
maintain a price advantage over traditional hard-wire cable operators could
be diminished. On the other hand, continued strict rate regulation of
cable rates would tend to impede the ability of hard-wire cable operators
to upgrade their cable plant and gain a competitive advantage over wireless
cable.
(b) The 1996 Act
The Telecommunications Act of 1996 (the "1996 Act"), enacted in February
1996, could have a material impact on the MMDS industry and the competitive
environment in which CAI operates. The 1996 Act has and will continue to
result in comprehensive changes to the regulatory environment for the
telecommunications industry as a whole. The legislation, among other
things, substantially reduced regulatory authority over cable rates.
Another provision of the 1996 Act afforded hard-wire cable operators
greater flexibility to offer lower rates to certain of its subscribers, and
would permits cable operators to offer discounts on hard-wire cable service
to CAI's subscribers or prospective subscribers. The legislation also
permits telephone companies to enter the video distribution business,
subject to certain conditions. The entry of telephone companies into the
video distribution business, with greater access to capital and other
resources, could provide significant competition to the companies in the
MMDS industry, including CAI. In addition, the legislation afforded relief
to direct broadcast satellite ("DBS") providers by exempting such providers
from local restrictions on reception antennas and preempting the authority
of local governments to impose certain taxes. CAI cannot predict the
substance of future rules and policies to be adopted by the FCC in
implementing the provisions of the legislation.
6. Copyright
Under the federal copyright laws, permission from the copyright holder
generally must be secured before a video program may be retransmitted.
Under Section 111 of the Copyright Act, certain "cable systems" are
entitled to engage in the secondary transmission of programming without the
prior permission of the holders of copyrights in the programming. In order
to do so, a cable system must secure a compulsory copyright license. Such
a license may be obtained upon the filing of certain reports with and the
payment of certain fees to the U.S. Copyright Office. In 1994, Congress
enacted the Satellite Home Viewers Act of 1994 which enables operators of
wireless cable television systems to rely on the cable compulsory license
under Section 111 of the Copyright Act. For the year ended March 31, 1998,
CAI paid approximately $180,000 in copyright fees.
7. Retransmission Consent
Under the retransmission consent provisions of the 1992 Cable Act, wireless
and hard-wire cable operators seeking to retransmit certain commercial
television broadcast signals must first obtain the permission of the
broadcast station in order to retransmit their signal. However, wireless
cable systems, unlike hard-wire cable systems, are not required under the
FCC's "must carry" rules to retransmit a specified number of local
commercial television or qualified low power television signals. Although
there can be no assurances that CAI will be able to obtain requisite
broadcaster consents, CAI believes in most cases it will be able to do so
for little or no additional cost.
In addition to regulation by the FCC, MMDS operators are subject to
regulations by the Federal Aviation Administration ("FAA") with respect to
construction of transmission towers and to certain local zoning regulations
affecting construction of towers and other facilities. There also may be
restrictions imposed by local authorities, neighborhood associations and
other similar organizations limiting the use of certain types of reception
equipment used by CAI. Future changes in the foregoing regulations or any
other regulations applicable to CAI could have a material adverse effect on
CAI's results of operations and financial condition.
Certain states have legislated that each resident of a Multiple Dwelling
Unit ("MDU") should not be denied access to programming provided by
franchised cable systems, notwithstanding the fact that the MDU entered
into an exclusive agreement with a non-franchised video program
distributor. States with such "mandatory access" laws where CAI provides
MMDS service include Connecticut, Delaware, the District of Columbia, New
Jersey, New York, Pennsylvania and Rhode Island. In several district
courts, mandatory access laws have been held unconstitutional. Such laws
could increase the competition for subscribers in MDUs. There may also be
restrictions imposed by local authorities. There can be no assurance that
CAI will not be required to incur additional costs in complying with such
regulations or restrictions.
Due to the regulated nature of the subscription television industry, CAI 's
growth and operations may be adversely impacted by the adoption of new, or
changes to existing, laws or regulations or the interpretations thereof.
G. Purposes And Effects Of The Plan
The primary purposes of the Plan and the Restructuring are to reduce CAI's
debt service requirements and overall level of indebtedness, including the
principal amount thereof, to realign its capital structure, and to provide
CAI with greater liquidity and thereby increase the likelihood that it will
survive in a manner that will permit it to attract and retain a Strategic
Partner. If consummated, the Restructuring would reduce the principal
amount of CAI's indebtedness, significantly lessen CAI's debt service
requirements, and transfer ownership of CAI from its present Equity
Security holders primarily to the present holders of Senior Notes, with
more limited equity participation by the holders of Subordinated Notes. In
addition, the Plan will provide PCT with the most efficient means of
distributing the proceeds of the expected sale of certain non-essential
assets, i.e., the MDU Assets, pursuant to Section 363(b) of the Bankruptcy
Code.
The Restructuring will strengthen CAI's balance sheet primarily by
substantially reducing CAI's overall level of indebtedness, which will
permit it to borrow on a senior secured basis sufficient cash to survive
until it is able to attract an appropriate Strategic Partner. As of March
31, 1998, CAI had a shareholders' deficit of approximately $27,560,980. On
a pro forma basis, as of March 31, 1998, after giving effect to the Plan,
CAI's shareholders' equity is estimated to be approximately $158.5 million.
TRADE CREDITORS ARE INTENDED TO BE UNAFFECTED BY THE PLAN AND
RESTRUCTURING, AND THE COMPANIES EXPECT TO BE ABLE TO CONTINUE TO PAY ALL
TRADE CREDITORS WHO CONTINUE TO PROVIDE NORMAL TRADE CREDIT TERMS IN THE
ORDINARY COURSE OF BUSINESS, SUBJECT TO ANY REQUIRED BANKRUPTCY COURT
APPROVAL.
III. BUSINESS PLANS FOR THE REORGANIZED COMPANIES
A. Business And Operating Strategies Of CAI
1. General
CAI, since its formation, has focused on the development and operation of
MMDS subscription television systems concentrated in major metropolitan
areas located in the northeast and mid-Atlantic regions of the United
States. With the suspension of the BR Agreement and the receipt of
regulatory approvals not previously sought by MMDS operators or granted by
the FCC, CAI has endeavored to develop the full capabilities of its MMDS
spectrum in addition to subscription television. CAI believes that its MMDS
spectrum can be utilized as the transport system for fixed, flexible
two-way uses that eventually could be combined into a wireless broadband
network ("WBN"). Although CAI recognizes that there are significant
regulatory, technological and financial issues surrounding the development
of such a system in any of CAI's markets, CAI believes that such systems
can be deployed in a reasonable manner to develop a commercially-viable
means of delivering video, voice and data transmission services.
CAI has been aggressively seeking one or more Strategic Partners interested
in developing and utilizing wireless broadband networks. The Company has
demonstrated, and continues to demonstrate, its technological capabilities
for each of video, voice and data to several potential Strategic Partners.
In addition to a variety of demonstrations, the Company has been conducting
an on-site trial for one telecommunications company providing trial
participants with Internet access and corporate intranet access services,
which services have recently included two-way data transmission at
transmission speeds of up to 7 Mbps for downstream transmissions and 600
Kbps return capacity. The two-way transmission services are provided using
first-generation developed by a high technology equipment manufacturer in
conjunction with CAI engineers, and manufactured specifically for MMDS
spectrum. Business discussions between CAI and these entities have been
wide ranging, and no definitive agreement has been reached with any entity
at this time.
CAI has assembled significant spectrum rights in the northeast and
mid-Atlantic regions of the United States. CAI is focused on preserving
these substantial channel rights in anticipation of developing digital
systems that will allow CAI to utilize higher output power and compression
technologies to increase channel capacity. CAI began to acquire its
spectrum capacity in preparation for its obligations under the BR
Agreement, which required CAI to deliver a minimum number of channels in
each of the markets subject to the BR Agreement. With the termination of
the BANX rights, CAI has continued to implement a preservation strategy
that will allow CAI to utilize its significant spectrum capacity for the
delivery of video, voice and data services, or various combinations
thereof, subject to regulatory approval, as necessary for one or more
Strategic Partners. This preservation strategy includes the continued
build-out of the transmission facilities in conformity with the FCC license
perfection regulations, as well as the re-negotiation of spectrum leases
when and as such leases mature.
Although CAI believes that it will be possible to offer all three services
in any given market once regulatory approval for fixed, flexible two-way
use of the MMDS spectrum is obtained for such market, the allocation of
channels among the various services is expected to be driven by the needs
of a Strategic Partner, whose needs, presumably, will be driven by consumer
demand for such services in CAI's markets. Not all services may be offered
in all markets, and there can be no assurance that CAI will be able to
locate one or more Strategic Partners interested in utilizing CAI's
spectrum for such services. CAI's initial efforts with respect to the
development of fixed, flexible two-way use of the MMDS spectrum have been
limited primarily to its Boston and greater New York City markets and have
been limited to the conduct of tests.
CAI believes that fixed, flexible two-way use of the MMDS spectrum offers a
significantly enhanced service capability and would present new
opportunities for CAI and other MMDS operators. On October 10, 1997, the
FCC issued a Notice of Proposed Rulemaking ("NPRM") with respect to fixed,
flexible two-way wireless transmissions for MMDS and ITFS licensees. CAI
believes that the FCC has acknowledged that two-way use of MMDS spectrum is
permitted, and that the focus of the NPRM is on the technical and
engineering parameters that must be met in order for MMDS operators to use
their spectrum in a coordinated two-way environment. Comments on the NPRM
were due at the FCC by January 8, 1998 and reply comments were submitted by
February 9, 1998.
The NPRM is consistent with CAI's strategy of expanding the use of MMDS
spectrum beyond analog video services to a full complement of
telecommunications services including two-way data transmission and
telephony services. CAI believes that the proposed rules, if adopted,
would streamline the process by which CAI could apply for two-way authority
for its MMDS spectrum and increase its opportunities to implement this
strategy, and in turn help CAI to meet the current and perceived future
competition and, in relation to obtaining a new Strategic Partner, show the
flexibility and increased value of CAI's MMDS spectrum.
Prior to and during the pendency of the NPRM process, CAI has received from
the FCC authorizations permitting it to develop two-way, fixed flexible
uses of its MMDS spectrum in specified CAI markets for specific customer
locations. CAI has applied for, and received from the FCC, a permanent
authorization for fixed, flexible two-way use of five of its MMDS channels
for 16 customer sites located in and around CAI's Boston market. In
response to another application, CAI received FCC authorization to use 10
MHz of MMDS spectrum for two-way transmissions to and from customer
locations located throughout the greater Boston metropolitan area. The
applications contemplated that the customer locations would be served by
seven strategically located cell sites, three of which were previously
authorized, and four of which need further FCC authorization, that would
transmit and collect information to and from the customer locations.
CAI believes that two-way, fixed flexible use of its MMDS spectrum should
include telephony delivery services. CAI believes that the combination of
digital compression, fiber loop and cellular technologies can be integrated
into the MMDS network architecture, resulting in a single wireless platform
capable of delivering a wide range of services, including telephony
delivery services. Adaptation of newly available, but as of yet
commercially untested, technologies has been explored by CAI, with the
intention of assessing Broadband MMDS spectrum's ability to simultaneously
provide a combination of video, voice and data delivery services. CAI
believes that an MMDS system having one main transmitter and multiple
booster sites can be designed using standard cellular network design
principles to produce a relatively low-cost telephony delivery platform.
CAI has commenced preliminary testing and has taken initial steps in
furtherance of developing a telephony application for its MMDS spectrum.
Although CAI believes that an MMDS system can be designed to provide
telephony delivery services, there can be no assurance that such a system
could be designed, or that CAI would be capable of designing and
constructing such a system. Furthermore, in the event that such a system
could be designed, there can be no assurance that CAI would receive the
requisite regulatory approval to offer a telephony delivery service, that
CAI would have the financial resources, alone or in conjunction with a
Strategic Partner, necessary to design and construct a telephony delivery
service in one or more of its markets, or that such service, if it was
designed and constructed by CAI in one or more markets, could be
successfully deployed in a commercially successful manner.
2. Wireless Broadband Network
Subject to receipt of regulatory approval for fixed, flexible use of its
MMDS spectrum and successful testing, the successful deployment of digital
video, one- and two-way data transmission and telephony delivery services
utilizing the MMDS platform and sufficient capital resources, CAI intends
to launch a wireless broadband network (the "WBN"). CAI believes that this
network would be able to provide quick and relatively inexpensive household
coverage on a broad scale. CAI believes that the concept of a WBN will
enhance CAI's ability to attract one or more Strategic Partners by giving
such partners the ability to provide competitive access products over CAI's
MMDS spectrum. CAI also believes that its network design will be capable
of providing a combination of analog and/or digital video services for
residential, as well as for corporate and institutional/instructional
subscribers, bundled with high speed Internet and intranet access services,
and telephony delivery services. CAI expects to be able to alter the
channel allocation among the various services depending on the needs of the
Strategic Partner and consumer demand, thereby increasing the potential to
derive multiple revenue streams from each system.
CAI has not yet implemented a WBN system in any of its markets. CAI
believes that the various regulatory approvals it has received and the
joint development projects with which it is involved will enable CAI to
assess the viability of broadband, large-scale systems in any of its
markets. CAI has not, however, tested a broadband system in any of its
markets. There are a number of risk factors, including, without
limitation, receipt of all requisite regulatory approvals, technology
development and the availability of additional financing, that will affect
the implementation of a broadband system in any of CAI's markets, some of
which are outside the control of CAI. There can be no assurance that CAI
will be able to develop a broadband system in any of its markets, or that
if a WBN system is developed, that CAI will be able to deploy a variety of
services in a commercially reasonable manner, if at all.
In furtherance of its development of the WBN, and in an effort to attract
one or more Strategic Partners, CAI has actively participated in the
industry-wide effort to change FCC regulations governing the use of MMDS
spectrum for two-way transmission services, has developed two-way equipment
in conjunction with high-technology equipment manufacturers, and has sought
to educate inter-exchange carriers and other large telecommunications and
technology companies with respect to CAI's proposed expanded service
capabilities.
Additionally, in an effort to maximize the potential of the WBN, CAI has
reconfigured the distribution of digital video signals to and within
individual markets. By utilizing satellite services, CAI, through its
participation in TelQuest, has developed one digital compression center
capable of servicing all of CAI's markets. This strategy eliminates the
need for the construction and operation of multiple compression centers
(one for each market in which a digital video service is launched), and
results in a projected construction cost-savings of $6 to $8 million for
each compression center. CAI also believes that in areas within markets
where the WBN could not deliver services (due to LOS constraints), CAI
could provide digital satellite DTH video services and potentially one-way
high-speed data. CAI would also have the opportunity to migrate future
digital MMDS video customers from the WBN to the satellite in the event
capacity on the WBN was needed for voice and data customers.
In the 18 months since the strategy was developed, CAI has made substantial
progress. CAI believes it is positioned to execute a strategic transaction
with one or more large telecommunication companies and execute its business
plan utilizing the WBN. The Company's business plan going forward assumes
an investment and a contract for significant usage of the WBN in all of its
markets by a Strategic Partner. CAI's role in the business case is to
provide the transmission infrastructure and bandwidth enabling a
high-quality commercial launch of simultaneous video, voice and data
services.
CAI has designed cellular networks for each of its markets with each cell
having a five-mile radius. The five-mile network design is the result of
an exhaustive engineering study of propagation and coverage statistics and
design parameters such as the availability of transmission towers,
modulation schemes, and transmit power requirements from the subscriber
premises. the design also incorporates a 2 times frequency usage pattern
within each cell. By segmenting each cell into four quadrants, each
frequency set for two-way communications can be used twice within each
cell.
As an example, the Boston market is built out with 25 cells by the tenth
year of the plan and covers approximately 88% of the homes and businesses
in the market area. The Company estimates the total cost for each cell is
approximately $857,000. Current analysis indicates that this cellular
design is economical on an incremental cell basis down to approximately
20,000 homes and businesses per cell.
Under the Company's proposed business plan, the Strategic Partner would
purchase WBN capacity, on a wholesale basis, and retail the digital video,
voice and data services provided via the WBN to its customers. The
Strategic Partner would market, sell, install, bill and service the
customer and fund all acquisition and equipment costs. The wholesale fees
CAI anticipates it will charge should allow the Strategic Partner to price
the services at the retail level to compete with the Local Exchange Carrier
and/or cable or satellite operator in a particular market and earn a
reasonable return. The prices to end-customers will be determined by the
Strategic Partner. The plan anticipates that the Strategic Partner will
offer a full-range of telecommunications services to its customers in
addition to the video, voice and data provided by CAI. The wholesale
prices for the CAI services are expected to consist of monthly recurring
charges based on the number of customers for each service. The business
plan further anticipates that the Strategic Partner will be retain
applicable installation fees.
The new business plan segments the potential market into five sectors:
residential, home business, small business, medium business and large
business. With input from an outside consulting group, the Company
determined penetration rates for each service within each market segment as
well as the expected retail prices from which it derived the wholesale
price CAI would charge the Strategic Partner.
3. Digital Subscription Video
CAI has committed significant funds and substantial engineering and
regulatory efforts to the build-out of its digital MMDS system in Boston,
MA. Initially, construction of the Boston system was undertaken in
fulfillment of CAI's obligations under the BR Agreement with 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, CAI
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. CAI's Boston system is
currently testing digital video, voice and data transmission services.
In connection with the build-out of the digital system in Boston, CAI has
converted nearly 100% of the ITFS receive sites in Boston enabling the
receive sites to receive the ITFS signals, as transmitted from CAI's
digital head-end and several repeater sites located in the Boston
metropolitan area. 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, CAI and its principal
vendors have had to reconfigure certain aspects of the technology and
equipment. CAI 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.
CAI 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 CAI as important as a means of attracting a Strategic
Partner, but also was required to meet certain covenants imposed by the
Interim Credit Facility prior to its early termination in November 1997.
(The covenants imposed upon CAI in connection with the issuance of the
Secured Notes 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:
unexpected delays associated with equipment, including customer premises
equipment of sufficient quality to support a commercial launch of a digital
subscription video product; CAI's limited financial resources; and the
absence of a Strategic Partner willing to utilize the digital MMDS system
to the fullest capacity.
CAI, in conjunction with its primary vendors, has made significant progress
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, CAI has no definitive plans to launch, on its own, 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 CAI with the
equipment have been eliminated to CAI's satisfaction. CAI is fully
committed to ensuring that its ITFS license holders in Boston can serve
their respective receive sites with such license holders digital video
programming, a project that CAI believes is substantially completed in
Boston. CAI 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.
Under the new WBN business plan, CAI projects a monthly charge to the
Strategic partner for the digital video service of $18.75 per basic
subscriber per month for a 72-channel video product. The rates for premium
services, pay-per-view movies and pay-per-view events are forecast at
$8.25, $12.50, and $17.50, respectively. These prices are projected to
increase slightly throughout the projection period. The business plan
includes the sale of the digital MMDS signal and does not contemplate the
resale of TelQuest's digital satellite signal to customers unable to
receive the MMDS signal. Furthermore, the business plan projects the
digital video service being sold only in the residential sector of the
Company's markets. The penetration rate for such video service in the
fifth year of the plan is 6.8% of addressable homes and 10% in the tenth
year. The proposed business plan does not contemplate offering digital
video services in New York City due to the limitations on the number of
usable channels in that market.
4. High-speed Data Services
CAI believes that MMDS technology presents a viable option to traditional
telephony providers as a "pipeline" through which Internet and commercial
on-line services can be carried, especially for small- to medium -sized
businesses seeking a cost-effective means of accessing such on-line
services. To date, except for limited circumstances in which two-way use
is authorized, the FCC has licensed the MMDS spectrum for one-way video and
data transmission. CAI further believes that the MMDS industry's systems,
which can currently reach more than 50% of the nation's households, are
superior to traditional telephone lines in terms of speed. An MMDS system
can transmit data at speeds of up to 27 Mbps, nearly 1,000 times faster
than traditional telephony rates of 28.8 Kbps. Several MMDS operators,
including CAI, have successfully tested one-way Internet access
capabilities over their existing systems, using a traditional telephone
line for the typically less data-intensive return path. During the fall of
1996, CAI began commercial trials of its one-way Internet access service in
its New York, Rochester, NY and Boston markets. This service transmitted
data at speeds of up to 27 Mbps downstream and utilized a telephony return
path. Approximately 200 recipients participated in the trials.
In connection with the development of CAI's Internet strategy, CAI engaged
a national Internet consulting firm, Maloff Group International ("MGI"),
and appointed MGI's principal, Joel Maloff, as CAI's acting Senior Vice
President and General Manager of Internet Services. In consultation with
MGI, CAI developed a wholesale Internet access strategy. This strategy
includes CAI providing retransmission services to Internet Service
Providers ("ISPs") on a market-by-market basis. Pursuant to CAI's standard
form of retransmission agreement, an ISP can purchase MMDS spectrum
capacity from CAI in 1.544 Mbps bandwidth segments (each a "T1 Equivalent")
for a fixed monthly rate. The ISP can serve as many subscribers from the
T1 Equivalent as it chooses, however, CAI recommends serving not more than
300 subscribers per T1 Equivalent to fully maximize download transmission
speeds. The ISP maintains the subscriber relationship, although in most
instances, CAI provides the installation services to the ISP for a fee.
CAI has currently contracted with four ISPs, which provide Internet access
services in Rochester, New York City and Boston.
Under the WBN business plan, CAI intends to sell, on a wholesale basis and
subject to regulatory approval, a two-way, high-speed data service to a
Strategic Partner for $22.50 per month per subscriber, initially, which
price is expected to decline over the projection period. The installation
charge would be determined and collected by the Strategic Partner.
Subscriber installation charges are expected to be determined and collected
by the Strategic Partner, who would be responsible for such installation
services at subscribers' premises. The Company's business plan further
assumes that each data subscriber is configured with one cable modem unit,
which is expected to be provided by the Strategic Partner.
The business plan further assumes downstream capacity of 27 Mbps and an
upstream capacity of 3.5 Mbps. Each downstream channel is projected to
have a capacity of approximately 1,900 subscribers. Five-year penetration
rate assumptions for various market sectors are as follows: residential -
5.9%; home office - 3.2%; small business - 4.8%; medium business - 2.6%,
and large business 0.0%.
5. Telephony Services
The Companies' business plan also assumes that CAI sells, on a wholesale
basis and subject to regulatory approval, a telephony transmission service
to the Strategic Partner. The expected base charge for this service is
$18.75 per customer per month, plus a usage charge of $0.01 per minute per
64 Kbps line. Under the usage assumptions contained in the Company's
business plan, this rate structure would produce an average revenue to the
Company of $81.70 per month per customer. The telephony service capacity
currently being tested by the Company produces speeds of up to 256 Kbps in
each direction. The Company believes that the speed of this service will
increase to 512 Kbps with the next generation of equipment.
This telephony service is projected to be primarily a home office and small
business product and is not expected to be offered to residential
customers. The penetration of addressable locations at the end of five
years in the five sectors are as follows: residential - 0.0%, home office
- - 7.8%, small business - 7.8%, medium business - 4.9%, and large business -
1.5%.
6. Analog-based Subscription Video
CAI currently operates six analog-based subscription video systems in New
York City, Rochester and Albany, NY; Philadelphia, PA; Washington, DC, and
Norfolk/Virginia Beach, VA. In addition, CAI has a portfolio of wireless
cable channel rights in eight additional markets, including Long Island,
Buffalo and Syracuse, NY; Providence, RI; Hartford, CT; Boston, MA;
Baltimore, MD, and Pittsburgh, PA. As of May 31, 1998, CAI provided
subscription video services to approximately 50,000 subscribers. CAI 's
principal subscription video competitors in each of its markets are the
hard-wire cable companies, and include Comcast Corp., Tele-Communications,
Inc., Cox Cable Communications, Time Warner Cable and Cablevision Systems
Corp.
The table below outlines as of March 31, 1998 (except as indicated in the
footnotes) the characteristics of the markets in which CAI has an
operational subscription television system or in which CAI holds
significant spectrum rights:
TABLE I
Estimated Number of New
Total Service Analog/Digital Analog/Digital
DMA Area Channels Channels Number of
MARKET RANK(1) HOUSEHOLDS(2) AVAILABLE(3) APPLIED FOR SUBSCRIBERS(4)
------ ---- ---------- --------- ----------- -----------
New York City 1 4,996,976 40 0 6,100
Long Island(5) N/A 1,083,780 20 8 0
Philadelphia 4 2,154,389 41 2 30,900
Boston 6 1,007,198 31 2 0
Washington, DC 7 1,479,278 28 0 700
Pittsburgh 19 1,011,310 32 1 0
Baltimore 23 1,053,959 32 1 0
Hartford 26 471,532 22 0 0
Buffalo 39 501,314 33 0 0
Norfolk 40 531,833 32 1 1,900
Providence 46 842,658 24 9 500
Albany 52 320,742 32 0 7,700
Syracuse 69 278,630 22 3 0
Rochester 73 401,575 27 6 1,800
---------- ------
SUB TOTAL 16,135,174 49,600
======
BTA MARKETS (SEE TABLE II BELOW) 3,022,138
----------
GRAND TOTAL 19,157,312
==========
(1) DMA is the Designated Market Area as determined by A.C. Nielsen
Company as of December 1995.
(2) The Estimated Total Service Area Households in the service area
represents the approximate number of households within a 35 mile radius of
CAI's Tower sites. These households may have been adjusted downward if any
of CAI's markets overlapped with a newly acquired market (see Table II).
This information is based on estimates of CAI obtained using two ED
Engineering software programs, MSITETM and POP90TM. Both of these programs
use 1990 Census data to compile their information. Some of these
households will be "shadowed" and therefore unable to receive CAI's service
due to LOS constraints. The percentage of Estimated Households in the
Service Area that CAI estimates may be shadowed due to LOS constraints
generally ranges from 10% to 60% depending upon the market. A certain
amount of these LOS constraints may be overcome by the placement of
beambenders and/or signal boosters or by properly designing a cellular
network within a service area.
(3) The Number of Channels Available comprises wireless cable channels
and local broadcast channels that can be received by subscribers. Wireless
cable channels are either licensed to CAI or leased to CAI from other
license holders. The Number of Channels Available includes 10 off-air
channels in Philadelphia and 11 in New York City. The Number of Channels
Available includes certain channels that are subject to FCC approvals or
third party interference agreements. CAI has pending FCC applications
concerning co-location of transmission sites and/or an increase in
broadcast power with respect to 5 channels in Hartford, 8 channels in New
York City, 17 channels in Providence, 3 channels in Buffalo, 15 channels in
Norfolk, 5 channels in Boston and 6 channels in Long Island. The Number of
Channels Available includes ITFS channels that may not be available for
commercial programming by CAI. CAI also has rights, either through
licenses or leases, to 5 channels in Greensboro (1 available and 4 applied
for), 8 available channels in Memphis, and 2 available channels in
Winston-Salem.
(4) The Number of Subscribers represents the number of analog
subscription video subscribers as of May 31, 1998.
(5) The Long Island market includes Nassau and Suffolk counties in New
York State.
The table below outlines as of March 31, 1998 the characteristics of the
potential markets for which CAI was the successful bidder at the completion
of the FCC Auction (defined below). The Estimated Service Area households
in Table I above may have been adjusted if the 35-mile Protected Service
Area (PSA) overlapped with any of the markets identified below. To the
extent there was overlap between two PSAs, the number of Estimated Total
Service Area households in such overlapping area was divided equally
between the two affected markets.
Table II
Estimated Number of New
Total Service Analog/Digital Analog/Digital
DMA Area Channels Channels
MARKET RANK HOUSEHOLDS AVAILABLE(1) APPLIED FOR
------ ---- ---------- --------- -----------
Dover, DE N/A 155,360 3 12
Hyannis, MA N/A 213,629 1 0
Manchester, NH N/A 316,004 1 0
Worcester, MA N/A 352,646 9 0
New Haven, CT N/A 541,263 3 6
New London, CT N/A 96,380 1 0
Springfield, MA 102 366,198 9 20
Poughkeepsie, NY N/A 258,221 2 4
Pittsfield, MA N/A 116,365 1 0
Glens Falls, NY N/A 141,702 4 9
Ithaca, NY N/A 183,496 1 8
Utica, NY 166 153,219 2 4
Summit, NJ N/A 127,655 8 0
---------
TOTAL 3,022,138
=========
(1) The number of channels currently owned or leased by CAI.
CAI has not actively sought to increase its video subscriber base in its
existing analog operating systems. Originally, this decision was made in
connection with the BR Agreement, which contemplated that CAI would be
required to transfer all of its analog video subscribers to the appropriate
BANX Affiliate at the time such BANX Affiliate became the provider of video
programming in a particular market. CAI was not entitled to any
compensation for subscribers so transferred, and there was no incentive for
CAI to increase its subscriber base. With the suspension of the BR
Agreement, CAI continues to explore the full capabilities of its MMDS
spectrum, including uses for such spectrum other than subscription video
delivery. Consequently, CAI has maintained its strategy of not pursuing
video subscriber growth while it evaluates its business opportunities other
than subscription video services. The policy of not pursuing subscriber
growth has had a negative impact on CAI's revenues, which is only partially
mitigated by the cost-savings associated with reduced marketing and other
efforts ordinarily pursued in connection with increasing a subscriber base.
In each of the principal analog-based subscription video markets served by
CAI there is, and CAI believes there will continue to be, significant
competition for households that are presently subscribers of a hard-wire
cable service. Additionally, CAI has experienced loss of subscribers to
hard-wire cable providers in markets where CAI's channel offering is
significantly less, as a result of channel capacity limitations inherent in
an analog-based MMDS operation, than the hard-wire cable providers, such as
in CAI's New York City market.
The Company's proposed business plan assumes that CAI will continue to
operate its analog video business in an effort to maximize current cash
flow until the infrastructures necessary for the implementation of the WBN
are constructed, which is projected to occur in 1999. At that point, it is
assumed that the Company no longer has an analog video service and that the
Company does not receive any remuneration from a Strategic Partner for the
transfer of any of its former analog subscribers to the Strategic Partner.
B. Risk Factors Related To CAI's Business Plan
1. Competition and Technology
The subscription television industry is highly competitive. CAI's
principal subscription television competitors in each market are
traditional hard-wire cable, DBS and private cable operators. Premium
movie services offered by the cable television systems have encountered
significant competition from the home video cassette recorder industry. In
areas where several local off-air VHF/UHF broadcast channels can be
received without the benefit of subscription television, cable television
systems also have faced competition from the availability of broadcast
signals generally and have found market penetration to be more difficult.
Legislative, regulatory and technological developments may result in
additional and significant competition, including competition from local
telephone companies.
(a) Hard-Wire Cable
CAI's principal subscription television competitors in each market are
traditional hard-wire cable operators. Hard-wire cable companies are
generally well established and known to potential customers and have
significantly greater financial and other resources than CAI. The
hard-wire cable companies competing in CAI's markets generally offer
significantly increased channel line-ups, compared to between 22 to 42
channels (consisting of between 17 and 33 wireless cable channels and
between 5 and 10 local off-air VHF/UHF broadcast channels) generally
offered by CAI in its markets. According to a report issued by the FCC in
September, 1995, of the approximately 96,000,000 total television
households nationwide, approximately 85,000,000 are passed by hard-wire
cable systems, and of those homes that are passed by cable, approximately
62,000,000 are hard-wire cable subscribers.
(b) Direct-to-Home ("DTH")
DTH satellite television services originally were available via satellite
receivers which generally were 7-to-12 foot dishes mounted in the yards of
homes to receive television signals from orbiting satellites. Until the
implementation of encryption, these dishes enabled reception of any and all
signals without payment of fees. Having to purchase decoders and pay for
programming has reduced their popularity, although CAI will to some degree
compete with these systems in marketing its services. Another form of DTH
service is DBS, which involves the transmission of an encoded signal direct
from a satellite to the customer's home. Because the signal is at a higher
power level and frequency than most satellite-transmitted signals, its
reception can be accomplished with a relatively small (18-inch) dish
mounted on a rooftop or in the yard. DBS cannot, for technical and legal
reasons, provide local VHF/UHF broadcast channels as part of its service,
although many DBS subscribers receive such channels via standard over-the
air receive antennas. Moreover, DBS may provide subscribers with access to
broadcast network distant signals only when such subscribers reside in
areas unserved by any broadcast station. The cost to a DBS subscriber for
equipment and service is generally substantially higher than the cost to
wireless cable subscribers. According to DBS Digest, there are
approximately 5,800,000 subscribers using DBS services.
(c) Private Cable
Private cable, also known as satellite master antenna television, is a
multi-channel subscription television service where the programming is
received by satellite receiver and then transmitted via coaxial cable
throughout private property, often MDUs, without crossing public rights of
way. Private cable operates under an agreement with a private landowner to
service a specific MDU, commercial establishment or hotel. The FCC amended
its rules to provide point-to-point delivery of video programming by
private cable operators and other video delivery systems in the 18 GHz
band. Private cable operators compete with CAI for exclusive rights of
entry into larger MDUs.
(d) Telephone Companies
The 1996 Act removed many of the restrictions on the ability of local
exchange carriers ("LECs"), including RBOCs, to provide video programming
directly to subscribers in their respective telephone service areas. Thus,
while there remains a prohibition against an LEC acquiring a hard-wire
cable operator within its telephone service area, LECs can build their own
hard-wire cable systems. In addition to having the opportunity to install
traditional hard-wire cable, LECs also have the option of installing high
capacity fiber optic facilities. CAI believes that it will continue to
maintain a cost advantage over installing hard-wire, fiber optic or open
video distribution platforms due to the high capital expenditures
associated with such technologies. Bell South Corporation has acquired
wireless cable channel rights in Atlanta, GA, New Orleans, LA, and Miami,
FL and begun to offer services in New Orleans. Pacific Telesis Group
recently launched a 150 channel digital video system in Los Angeles, CA.
The competitive effect of the entry of telephone companies into the
subscription television business, including wireless cable, in still
uncertain.
(e) Local Off-Air VHF/UHF Broadcasts
Local off-air VHF/UHF broadcast television stations (such as ABC, NBC, CBS
and Fox) provide free programming to the public. Previously, subscription
television operators could retransmit these broadcast signals without
permission. However, effective October 6, 1993, pursuant to the 1992 Cable
Act, local broadcasters may require that subscription television operators
obtain their consent before retransmitting local television broadcasts.
CAI has obtained such consents for its operating systems. CAI also will be
required to obtain such consents in certain of its markets to re-broadcast
any such channels. CAI believes that it will be able to obtain such
consents, but no assurance can be given that it will be able to obtain all
such consents. The FCC also has recently permitted broadcast networks to
acquire, subject to certain restriction, ownership interests in hard-wire
cable systems. In some areas, several low power television ("LPTV")
stations authorized by the FCC are used to provide multi-channel
subscription television service to the public. LPTV transmits on
conventional VHF/UHF broadcast channels, but is restricted to very low
power levels, which limits the area where a high-quality signal can be
received.
(f) Local Multi-Point Distribution Service ("LMDS")
In 1993, the FCC initially proposed to redesignate the 28 GHz band to
create a new video programming delivery service referred to as LMDS. In
July 1995, the FCC proposed to award licenses in each of 493 BTAs- pursuant
to auctions. Final rules were issued by the FCC, and the auction for LMDS
spectrum was conducted, in February 1998. Bidders bid on an A-block
license, consisting of 1,150 MHz of spectrum, and a B-block license,
consisting of 150 MHz of spectrum, in each BTA-. A total of 864 licenses
were sold to 104 bidders for bids totaling $578.6 million. 122 licenses
were not sold, including 109 A-block licenses. The FCC intends to
re-auction the unsold licenses at an undetermined date in the future.
The LMDS licensees share the 28 GHz frequency band with the Mobile
Satellite Service and the 31 GHz band with state and local governments.
The FCC contemplates allowing the LMDS licensees to use the spectrum for a
variety of services, including telephony, interactive video, video
distribution, data transmission, teleconferencing, and other applications.
Depending on the type and number of services offered, the cost of the
customer-premises equipment could range from $300 (for a video receive
antenna) to $1,000 (for telephony, video, and data capabilities).
In addition, within each market, CAI initially must compete with others to
acquire, from the limited number of MMDS channels issued or issuable,
rights to a minimum number of MMDS channels needed to establish a
commercially viable system. Digital capability is essential for MMDS to
compete with hard-wire cable, which in its current analog state offers
between 36 to 90 channel offerings depending on a given market. With the
deployment of digital, hard-wire cable is expected to offer over 150
channels. CAI has lost television subscribers to hard-wire cable
competitors in each of its markets due to the channel capacity limitations
inherent in an analog-based MMDS operation. In addition, within each
market, CAI initially must compete with others to acquire, from the limited
number of MMDS channels issued or issuable, rights to a minimum number of
MMDS channels needed to establish a commercially viable system. Aggressive
price competition or the passing of a substantial number of presently
unpassed households by any existing or new subscription television service
could have a material adverse effect on CAI's results of operations and
financial condition.
New and advanced technologies for the subscription television industry,
such as digital compression, fiber optic networks, DBS transmission, video
dialtone, and LMDS are in various stages of development of commercial
deployment. These technologies are being developed and supported by
entities, such as hard-wire cable companies and RBOCs, that have
significantly greater financial and other resources than CAI. These new
technologies could have a material adverse effect on the demand for MMDS
subscription television services. There can be no assurance that CAI will
be able to compete successfully with existing competitors or new entrants
in the market for subscription television services.
CAI also will face intense competition from other providers of data and
telephony transmission services if CAI implements, on a commercial basis,
such services. Such competition is increased due to the fact that MMDS
spectrum has not traditionally been utilized to deliver such alternative
services, and consumer acceptance of such services delivered via MMDS
technology is unknown at this time. Many of the existing providers of data
transmission and telephony services, such as long distance and regional
telephone companies, have significantly greater financial and other
resources than CAI. In addition, there can be no assurance that there will
be consumer demand for alternative uses of the MMDS spectrum such as data
transmission, including Internet access services, and telephony delivery
services, that CAI will be able to compete successfully against other
providers of such services, or that CAI will be able to achieve
profitability from such services in future years.
2. Dependence on Channel Leases and Licenses; Need for License Extensions
CAI is dependent upon leases of transmission capacity from various
third-party license holders for much of its channel rights. MMDS and ITFS
licenses generally are granted for a term of ten years and are subject to
renewal by the FCC. FCC licenses also specify construction deadlines
which, if not met, could result in the loss of the license. Requests for
additional time to construct a channel may be filed and are subject to
review pursuant to FCC rules. Certain of CAI's MMDS and ITFS channel
rights are subject to pending extension requests and it is anticipated that
additional extensions will be required. There can be no assurance that the
FCC will grant any particular extension request or license renewal request.
CAI's channel leases typically cover four ITFS channels and/or one to four
MMDS channels each. Under the rules of the FCC, the term of leases for
ITFS channels, which constitute between 20 and, in rare instances, 28 of
the 33 available wireless channels within any major wireless cable market,
may not exceed 10 years. The ITFS channel leases under which CAI operates
generally provide that following the expiration of the initial term of the
lease, the ITFS license holders may negotiate for the lease of channel
capacity for one or more additional or renewal terms with only CAI or its
sublessor. (The MMDS channel leases held by CAI generally grant CAI the
right to renew the channel lease.) If a renewal agreement is not reached
within a specified time frame during which only CAI or its sublessor has
the use of the channel capacity, CAI would thereafter typically have a
right of first refusal to match any competing offers from one or more third
parties. For these and other reasons, including CAI's status as the entity
that controls the tower lease and the equipment, CAI anticipates that it
will be able to negotiate additional renewals with either the incumbent
license holder, or with successor license holders, although there is no
assurance that it will be successful.
All ITFS and MMDS channel leases are dependent upon the continued validity
of the corresponding FCC license. CAI anticipates that upon the expiration
of the current license terms, all such FCC licenses will be renewed
following completion of the FCC review process, although there is no
assurance that the FCC will grant these renewal applications. The
termination of or failure to renew a channel license or lease (due to a
breach by CAI or its lessor, cancellation of the license held by a third
party lessor for failure to timely construct and/or perfect the wireless
cable facility, or otherwise) or the failure to grant an application for an
extension of the time to construct an authorized station, could result in
CAI being unable to deliver services on such channel(s) unless it were able
to lease excess capacity from a successor license holder. Such a
termination or failure in a market which CAI actively serves could have a
material adverse effect on Reorganized CAI and its operations.
3. Highly Competitive Businesses
The subscription television, high speed data, and local telephone services
businesses are highly competitive. The competitors for the services in each
market are traditional hard-wire cable, direct broadcast satellite (DBS),
private cable operators, regional telephone companies, CLEC's and Internet
service providers. Many of these competitors are well established and
known to potential customers and have significantly greater financial and
other resources than CAI.
New and advanced technologies for the delivery of telecommunications
services, such as fiber optic networks, ADSL, 28 GHz microwave transmission
(LMDS), and 22 GHz microwave transmission, are in various stages of
development. Certain of these technologies are being developed and
supported by entities, such as hard-wire cable companies and regional
telephone companies, that have significantly greater financial and other
resources than CAI. These new technologies could have material adverse
effect on the demand for Reorganized CAI's services. There can be no
assurance that Reorganized CAI will be able to compete successfully with
existing or new entrants in the market for subscription television and
telecommunications services.
4. Competitive Pressures of Rapid Changes in Technology
The subscription television and telecommunications services industries in
general are subject to rapid and significant changes in technology. These
changes may increase competitive pressures on Reorganized CAI or require
capital investments by Reorganized CAI (to remain competitive) in excess of
its available resources. Because of the rapid and high level of
technological change in the industry, the effect of technological changes
on Reorganized CAI's businesses of cannot be predicted with any certainty.
5. Need for Additional Financing for Operations
Reorganized CAI's new business plan will require one or more substantial
investments to finance projected capital expenditures and operating
expenses for system development. These activities may be financed in whole
or in part by Reorganized CAI through debt or equity financings, joint
ventures, or other arrangements. There are no assurances, however, that
the financing necessary to expand the build-out of the wireless broadband
networks will be available on satisfactory terms and conditions, if at all.
Additional debt could result in a substantial portion of Reorganized CAI'S
cash flow from operations being dedicated to the payment of principal and
interest on such indebtedness and may render Reorganized CAI more
vulnerable to competitive pressures and economic downturns. The failure to
obtain additional financing could adversely affect the growth of
Reorganized CAI and its ability to compete successfully in the subscription
television and telecommunications services industries.
6. New Business Strategy/Strategic Partner
The provision of subscription television services utilizing the MMDS
spectrum is not new; however, the provision of video services packaged
together with high speed data and telephone services, on a wholesale basis
to one or more Strategic Partners, as contemplated by Reorganized CAI's
business plan, is a new and untested concept. Thus, Reorganized CAI will
face a number of the difficulties and uncertainties generally associated
with new businesses, such as lack of consumer acceptance, difficulty in
obtaining financing, increasing competition, advances in competing
technologies and changes in laws and regulations. Although CAI has
developed prototype equipment, which is currently installed and being
demonstrated in New York and Boston, the equipment is not yet commercially
available. There can be no assurance that the wireless broadband network
will develop as planned. In addition, while CAI has conducted lengthy
discussions with several potential Strategic Partners, and believes that,
primarily due to the tremendous cost and "time to market" advantages of the
wireless broadband network over competing networks, it ultimately will be
successful in attracting a Strategic Partner, there can be no assurance
that any transaction with a Strategic Partner actually will be consummated.
C. Business And Operations of PCT
Following consummation of the Plan, PCT will continue to provide analog
subscription video services to its single family and commercial unit
subscribers in the Philadelphia market. See Section II.E -- "General
Information -- PCT -- Operations of PCT"
IV. CORPORATE STRUCTURE AND MANAGEMENT OF THE COMPANIES
A. Board Of Directors Of CAI
The following persons currently comprise the Board of Directors of CAI:
Jared E. Abbruzzese has been Chairman of the Board and Chief Executive
Officer of CAI since its formation in August 1991. From August 1992 until
September 1993, he served in various capacities for the prior operator of a
wireless cable system in Albany, New York. Mr. Abbruzzese served as
President of The Diabetes Institute Foundation in Virginia Beach, Virginia
from October 1988 until August 1991. Since February 1996, he also has
served as Chairman and Chief Executive Officer of CS Wireless.
John J. Prisco has been President and Chief Operating Officer of CAI since
March 1, 1996. Mr. Prisco also has been a director of CAI since 1996. He
came to CAI from Bell Atlantic Network Services, Inc., where he spent the
last three years as a corporate officer, most recently as President of
CellularVision of New York, the only LMDS (28 GHz) wireless cable operator
in the United States. In 1986, Mr. Prisco founded Penn Access Corporation,
which operated a fiber optic network in the greater Pittsburgh,
Pennsylvania area. Mr. Prisco served as President and Chief Executive
Officer of Penn Access until its sale in 1993 to Tele-Communications, Inc.
Penn Access currently operates as part of the Teleport Communications
Group.
James P. Ashman has been Executive Vice President and Chief Financial
Officer of CAI since December 1995. Previously, he was Senior Vice
President and Treasurer of CAI from September 1994 to December 1995. He
has been a director of CAI since March 1994. From November 1992 to
September 1994, he was a senior advisor of, and independent consultant
affiliated with, Carolina Barnes Capital, Inc. ("CBC"), a registered broker
dealer. CBC served as a financial advisor to CAI from January 1993 until
September 1994. Since February 1996, Mr. Ashman has served as a director
of CS Wireless.
George M. Williams has been Treasurer and Secretary of CAI since December
1995 and a director of CAI since 1993. Mr. Williams served as CAI's Chief
Administrative Officer from December 1995 until January 1998, when he
became general manager of CAI's Albany and Rochester, NY operating systems.
Mr. Williams previously served as Executive Vice President of Finance and
Chief Financial Officer of CAI from August 1993 until December 1995. Mr.
Williams has been a director of CAI since August 1993 and was Treasurer
from March 1994 through September 1994. Mr. Williams was a financial
consultant to CAI from September 1992 until joining CAI in August 1993.
From 1986 until August 1993 he was a partner in Cable Management Services
providing management consultation to the hard-wire and wireless cable
industries in both the domestic and international markets. He was involved
in the start-up of Schomann Entertainment, Inc., a small hard-wire cable
multiple systems operator, as a partner and controller with operational
responsibilities from 1987 until August 1993. He also has been a
consultant in the cable television industry since 1986. Mr. Williams is
currently a 20% shareholder and officer of Hamilton County Cable TV, Inc.,
a hard-wire cable system operator.
Arthur C. Belanger has been a director of CAI since 1994. From December
1979 to 1984, Mr. Belanger served as Vice President and General Manager of
GE Cablevision, which had merged with United Artists Communications, Inc.
("UA") in 1979. From 1984 until his retirement in January 1992, Mr.
Belanger served as UA's Executive Vice President and Chief Operating
Officer. Mr. Belanger also is a director of TCI Ventures Five, Inc.
Harold A. Bouton has been a director of CAI since 1994. Since 1983, Mr.
Bouton has been the President and Chief Executive Officer of WTVI, Channel
42, the Public Broadcast Service ("PBS") affiliate in Charlotte, North
Carolina.
David M. Tallcott has been a director of CAI since 1995. Since 1990, Mr.
Tallcott has been President of Lortech Corporation, a full service large
mainframe commercial data center serving the insurance industry, labor
unions and direct mailers.
Robert D. Happ has been a director of CAI since 1995. Mr. Happ served as
Senior Managing Partner of the Boston, Massachusetts office of KPMG Peat
Marwick LLP from 1985 until his retirement in 1994. Mr. Happ also is a
director of Galileo Corporation and Cambridgeport Bank, and since February
1996, has served as a director of CS Wireless.
B. Management Of CAI
The following is a list of CAI's executive officers and their positions
with CAI as of June 15, 1998:
Name Position(s) with CAI
Jared E. Abbruzzese Chairman of the Board and Chief Executive Officer
John J. Prisco President and Chief Operating Officer
James P. Ashman Executive Vice President and Chief Financial Officer
Gerald Stevens-Kittner Senior Vice President -- Spectrum Management
Bruce W. Kostreski Senior Vice President -- Engineering and Chief
Technical Officer
For additional information concerning the Company's officers and directors,
see CAI's Form 10-K for the year ended March 31, 1998, a copy of which is
annexed hereto as Exhibit B.
C. Board Of Directors And Management Of PCT
The Board of Directors of PCT currently is comprised of Messrs. Prisco and
Ashman. The following is a list of PCT's officers and their positions with
PCT as of June 15, 1998:
Name Position(s) with PCT
John J. Prisco President
James P. Ashman Executive Vice President
Gerald Stevens-Kittner Senior Vice President -- Spectrum Management
George J. Parise Vice President, Controller and Treasurer
Sabino Rodriguez, III Secretary
D. Employment Agreements
CAI has entered into employment agreements with Messrs. Abbruzzese, Prisco,
Ashman, Stevens-Kittner and Kostreski, as well as certain other Key
Employees who are not executive officers listed above. Such agreements
continue in effect until March 21, 1999, in the case of Mr. Abbruzzese;
until January 3, 1999 in the case of Mr. Prisco; until February 28, 1999 in
the case of Mr. Ashman; until March 18, 1999 in the case of Mr.
Stevens-Kittner; and until March 8, 1999 in the case of Mr. Kostreski. The
employment agreements are automatically renewable for successive one-year
terms, unless otherwise terminated.
Under the terms of their respective employment agreements: Mr. Abbruzzese
serves as Chairman and Chief Executive Officer of CAI and is entitled to an
annual base salary of $350,000; Mr. Prisco serves as President and Chief
Operating Officer of CAI and is entitled to a base salary of $200,000; Mr.
Ashman serves as Executive Vice President and Chief Financial Officer of
CAI and is entitled to a base salary of $183,000; Mr. Stevens-Kittner
serves as Senior Vice President - Spectrum Management and is entitled to a
base salary of $180,000, and Mr. Kostreski serves as Senior Vice President
- - Engineering and is entitled to a base salary of $143,750. Each of the
foregoing executive officers also is entitled to an annual bonus to be
determined by the Compensation Committee.
Pursuant to their respective employment agreements, Messrs. Abbruzzese,
Prisco, Ashman, Stevens-Kittner and Kostreski agree to devote substantially
all of their working time to the business of CAI. Mr. Abbruzzese has
agreed to devote not less than 75% of his working time to CAI and Mr.
Stevens-Kittner may devote up to 20% of his working time to the business of
CS Wireless. Each of the employment agreements entitles the executive to
his base salary and certain benefits for 12 months following termination of
such executive's employment without cause (as defined in the employment
agreement). All of the named executives are subject to nondisclosure
agreements with respect to the confidential information of CAI and are
subject to a noncompetition provision in each of their employment
agreements.
In connection with the consummation of the Plan, Reorganized CAI will enter
into new one-year employment agreements with the Key Employees, in
substantially the same form as the existing agreements, but amending the
severance payable upon certain terminations of employment. The severance
amount payable in the event of a termination other than for cause (as
defined in the agreements) will be equal to one year's base salary for all
Key Employees, other than Mr. Abbruzzese, for whom the severance amount
will be equal to eighteen month's base salary. The severance amount
payable in the event of a termination of employment as a result of an
individual's death or disability will be equal to one year's base salary,
except for Mr. Abbruzzese, for whom the severance amount will be equal to
eighteen month's base salary; provided, however, any severance payment paid
to an individual as a result of disability will be reduced by the amount of
disability insurance proceeds received by the individual pursuant to a
Company-provided policy.
The new Employment Agreements also provide for payment of the severance
amount in the event of a voluntary termination of employment for Good
Reason within 18 months following the Consummation Date. Good Reason
means, with respect to the employee, (i) the assignment to the employee of
any material duties materially inconsistent with the employee's position,
authority, duties or responsibilities immediately before the Consummation
Date, excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith that is remedied by Reorganized CAI promptly
after receipt of notice of such action given by the affected employee; (ii)
any material reduction in the employee's base salary, opportunity to earn
annual bonuses or other compensation or employee benefits, other than as a
result of an isolated and inadvertent action not taken in bad faith that is
remedied by Reorganized CAI promptly after receipt of notice of such action
given by the affected employee; (iii) Reorganized CAI's requiring the
employee to relocate his or her principal place of business to a place that
is more than thirty-five miles from his or her previous principal place of
business; or (iv) any purported termination of the agreement other than as
expressly permitted by the agreement.
In February 1998, CAI implemented a deferred bonus plan for certain
employees. Under the terms of the plan, bonuses in amounts determined by
the Compensation Committee would be paid to plan participants upon the
earlier of (a) the completion by CAI of a major financial restructuring, or
(b) the completion of investments by, and/or contractual relationships
with, one or more Strategic Partners valued at not less than $75 million in
the aggregate (each a "Bonus Event"). Under the plan, a total of
approximately $1,200,000 would be paid within 60 days of a Bonus Event. In
approving the deferred bonus plan, the Compensation Committee, while
recognizing CAI'S financial status, was concerned that CAI honor its
contractual obligations to those individual employees with whom CAI had
employment agreements entitling them to an annual bonus. The Compensation
Committee was also guided by the need to provide certain employees with an
appropriate incentive as CAI sought to implement its long-term plans.
In recognition of the consummation of a series of transactions during the
fourth quarter of fiscal year 1998 that resulted in a complete termination
of all rights and interests previously held by the BANX Affiliates in CAI's
spectrum and the BANX Securities, and the importance of the termination of
such rights and interests in CAI's search for one or more Strategic
Partners, the Compensation Committee waived the Bonus Event requirement and
approved the payment of 45% of the bonus amount to members of CAI's senior
management and 90% of the bonus amount to other plan participants at the
end of February 1998. Simultaneously, the Compensation Committee approved
the payment of an additional 45% of the bonus amount on June 15, 1998 to
those plan participants that received 45% of the bonus amount at the end of
February 1998 in the form of a retention bonus, subject to the condition
that such participant continue to be an active employee of CAI through June
15, 1998.
On June 10, 1998, the Unofficial Noteholders' Committee requested that CAI
defer the required payment of the retention bonuses until the Committee
could review, and CAI and the Committee could resolve, all outstanding
arrangements and issues with respect to the employment and compensation of
continuing management. In response to this request, CAI's board of
directors agreed to defer for one week, with the consent of the affected
employees, the retention bonuses due to Messrs. Abbruzzese, Prisco, and
Ashman (representing approximately 53.9% of the total), but to pay the
remainder when due on June 15 to other participating employees. On June
19, 1998, the Committee and CAI reached agreement on employment and
compensation matters concerning continuing management and, accordingly, CAI
paid Messrs. Abbruzzese, Prisco, and Ashman their retention bonuses on June
22, 1998. The remaining 10% of the aggregate bonus amount due each
participating employee is still subject to the originally-approved Bonus
Events.
E. Executive Severance Plan
CAI currently maintains an Executive Severance Pay Plan (the "Severance
Plan") pursuant to which executive employees of CAI identified and
designated by the Compensation Committee as eligible participants are
entitled to certain severance benefits upon a Qualifying Termination of
Employment in the event of a change in control (as defined under the
Severance Plan). Individuals designated by the Compensation Committee as
Tier I participants are eligible for a lump sum payment equal to 30 months
of such individual's base salary, as well as the maintenance of certain
other benefits (or a reasonable equivalent thereof) for a prescribed period
following the Qualifying Termination of Employment. Individuals designated
by the Compensation Committee as Tier II participants are eligible for a
lump sum payment of 18 months of such individual's base pay, as well as the
maintenance of certain other benefits (or a reasonable equivalent thereof)
for a prescribed period following the Qualifying Termination of Employment.
The Compensation Committee has reserved the right, in its sole discretion,
to add or remove participants from the Severance Plan from time to time
prior to a change in control of CAI.
Under the Severance Plan, a "Qualifying Termination of Employment" occurs
if, within two years of a change in control of CAI, (a) a participant
terminates her employment as a result of (i) the assignment to such
participant of any duties inconsistent in any respect with participant's
position (including status, offices, titles, and reporting requirements),
authority, duties or responsibilities immediately before the change in
control, or any other action by CAI that results in a significant
diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by CAI promptly after
receipt of notice thereof given by participant; (ii) any material reduction
in participant's base pay, opportunity to earn annual bonuses or other
compensation or employee benefits, other than as a result of an isolated
and inadvertent action not taken in bad faith and that is remedied by CAI
promptly after receipt of notice thereof given by participant; (iii) CAI's
requiring participant to relocate his or her principal place of business to
a place which is more than thirty-five miles from his or her previous
principal place of business; (iv) any purported termination of the Plan
otherwise than as expressly permitted by the Severance Plan; or (v)
termination of the participant's employment as a result of participant's
death or disability within 24 months following a change in control, or (b)
CAI terminates a participant's employment. A participant is not entitled
to separation benefits under the Severance Plan in the event that such
participant's employment is terminated for cause or the participant
voluntarily resigns from CAI.
For purposes of the Severance Plan, each of the following events
constitutes a "Change in Control": (i) a report on Schedule 3d shall be
filed with the Securities and Exchange Commission pursuant to Section 13(d)
of the Exchange Act disclosing that any person other than CAI, or any
employee benefit plan sponsored by CAI, is the beneficial owner (as the
term is defined in Rule 3d-3 under the Exchange Act), directly or
indirectly, of thirty-five percent or more of the total voting power
represented by CAI's then outstanding voting securities (calculated as
provided in paragraph (d) of Rule 3d-3 in the case of rights to acquire
voting securities); or (ii) any person, other than CAI or any employee
benefit plan sponsored by CAI, shall purchase shares pursuant to a tender
offer or exchange offer to acquire any voting securities of CAI (or
securities convertible into such voting securities) for cash, securities or
any other consideration, provided that after consummation of the offer, the
person in question is the beneficial owner, directly or indirectly, of
thirty-five percent or more of the total voting power represented by CAI's
then outstanding voting securities (all as calculated under clause (i)); or
(iii) the stockholders of CAI shall approve (A) any consolidation or merger
of CAI in which CAI is not the continuing or surviving corporation (other
than a merger of CAI in which holders of Old Common Stock immediately prior
to the merger have the same proportionate ownership of Old Common Stock of
the surviving corporation immediately after the merger as immediately
before), or pursuant to which Old Common Stock would be converted into
cash, securities or other property, or (B) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of
all or substantially all the assets of CAI; or (iv) CAI shall have filed,
or an involuntary filing shall have been made in respect of CAI, for
protection from creditors under the Bankruptcy Code, or (v) there shall
have been a change in the composition of the Board of Directors of CAI at
any time during any consecutive twenty-four-month period such that
"continuing directors" cease for any reason to constitute at least a fifty
percent majority of the Board. So long as there has not been a "change of
control" within the meaning of clause (iv), the Board of Directors may
adopt by a seventy percent majority vote of the "continuing directors" a
resolution to the effect that an event described in clauses (i) or (ii)
shall not constitute a "change of control." In connection with the
consummation of the Plan, the Severance Plan will be terminated.
F. Transactions With Affiliates
Certain officers and directors are involved in other relationships and
transactions with CAI, including interests in certain affiliated companies
and in companies which provide CAI and/or the Subsidiaries with certain
services. Recent transactions with affiliates are summarized below.
Satellite Services. CAI has pursued three satellite ventures in addition
to its investment is TelQuest Satellite Services LLC (described more fully
below), through the following wholly-owned Subsidiaries (collectively, the
"Satellite Subsidiaries"): (i) MMDS Satellite Ventures, Inc., which was
formed for the purpose of pursuing Ku-band satellite opportunities; (ii)
CAI Data Systems, Inc., formed for the purpose of pursuing Ka-band
satellite opportunities, and (iii) CAI Satellite Communications, Inc.,
formed for the purpose of pursuing V-band satellite opportunities.
MMDS Satellite Ventures, Inc. has been inactive since the summer of 1997,
primarily due to a perceived lack of interest on the part of any potential
joint venture partner in pursuing a Ku-band satellite strategy. CAI Data
Systems, Inc. ("Data Systems") announced on July 23, 1997 that it had filed
an application with the FCC to construct, launch, and operate a Ka-band
satellite. The application, which is currently pending before the FCC,
contemplates a July 1999 launch date for the satellite. The estimated cost
of constructing and launching the satellite is approximately $292,500,000,
which Data Systems plans to finance through the issuance of its own debt
and/or equity securities. There can be no assurance that Data Systems'
application will be granted by the FCC or, if granted, that Data Systems
will be able to secure financing necessary to construct and launch a
satellite. CAI Satellite Communications, Inc. filed a V-band application
on September 25, 1997 for the same orbital slots that were identified in
Data System's Ka-band application. The application is currently awaiting
FCC review. The rationale for seeking identical orbital slots in the
V-band application was to permit the co-location of multiple satellites in
the same orbit, which potentially could result in the saving of enormous
launch costs at the appropriate time. Before the FCC can grant any orbital
position in the V-band, however, it must first file a request with the
World Radio Conference for the United States to be allocated the particular
V-band frequency. CAI has expended approximately $344,000 on these
entities to date, including approximately $87,500 for the FCC filing fee.
The Satellite Projects Committee (the "Satellite Committee") of the Board
of Directors of CAI has authorized the sale, subject to the receipt of
consent from MLGAF, CAI's senior secured lender, of up to one-half of the
equity interests in these entities to Haig Capital, LLC ("Haig"), an entity
in which Jared E. Abbruzzese, chairman and chief executive officer of CAI
has an approximately 75% interest. Under the terms of the transaction as
approved by the Satellite Committee, CAI would transfer one-half of the
equity in each of the Satellite Subsidiaries to Haig in exchange for Haig's
agreement to fund the future capital and other expenditures of the
Satellite Subsidiaries, including the salaries and benefits payable to
certain employees, up to the amount expended by CAI through the date of
transfer of such equity interest. From and after the date that Haig has
matched the capital investment made by CAI, Haig and CAI would bear the
on-going costs on a pro rata basis.
TelQuest Satellite Services. TelQuest is a joint venture between CAI, CS
Wireless, and TelQuest Communications, Inc., a company controlled by Mr.
Abbruzzese. TelQuest was formed on August 4, 1997 for the purpose of
developing and operating satellite systems providing digital services. In
connection with CAI's $5,000,000 investment in TelQuest, CAI made four
cash payments totaling $2,500,000. CAI also contributed to TelQuest a
combination of equipment (made available to TelQuest pursuant to a
five-year renewable lease at a nominal rental amount) and cash (in lieu of
equipment) totaling $2,149,211, as part of the $2,500,000 equipment portion
of CAI'S investment in TelQuest. In return for CAI'S $5,000,000 investment
in TelQuest, CAI received a 25% interest in the company, subject to
dilution upon the occurrence of certain events.
CAI has designated its Boston market as the first of its markets to receive
TelQuest digital video programming. TelQuest 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. CAI is currently using the
TelQuest programming in Boston to test the digital MMDS delivery platform
and the customer premises equipment to be used for a commercial
subscription video product.
In conjunction with its investment in TelQuest, CAI also has entered into
an affiliation agreement with TelQuest that will enable CAI to purchase
pre-digitized video programming from TelQuest for those markets, if any, in
which CAI launches a commercial digital subscription video product. CAI
continues to believe that the affiliation agreement with TelQuest 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 TelQuest currently is transmitting to the contemplated
Ku-band satellite capacity will provide CAI 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 TelQuest will be able to migrate from C-band satellite
capacity to Ku-band satellite capacity, that CAI will be able to expand its
video offerings beyond its current subscription video product, or that CAI
will launch a digital subscription video product in a commercial manner in
any of its markets.
Wave Air, Inc. CAI periodically charters an airplane owned by Wave Air,
Inc., which is primarily owned by Mr. Abbruzzese, in order to carry out
business when airline schedules are not compatible. Wave Air charges CAI
for this service on an hourly basis at or below market rates for such
services. Transactions with Wave Air, Inc. amounted to approximately
$154,000 for the year ended March 31, 1998.
Loans to Officers. On March 31, 1997, Mr. Abbruzzese executed and
delivered a demand promissory note in the principal amount of $780,054.33
in favor of CAI. The note evidences various indebtedness owed by Mr.
Abbruzzese and affiliated entities, which Mr. Abbruzzese has agreed to
assume, including the outstanding balance on an $800,000 loan made by CAI
to Haig. The obligation bears interest at 14% per annum and is secured by
a pledge of Mr. Abbruzzese's interest in Haig. Mr. Abbruzzese repaid
$86,045 of this obligation during the fiscal year ended March 31, 1998. In
addition, in June 1998, Mr. Abbruzzese made a $45,000 payment on the
obligation, reducing the principal outstanding balance to approximately
$650,000.
Installation Services. In October 1996, two CAI employees formed Telecom
Service Support LLC ("Telecom Support") to provide subscriber installation,
service call, and warehouse services to the subscription television
industry. CAI incurred $452,000 for such services during the year ended
March 31, 1998. Services provided by Telecom Support to CAI were on terms
at least as favorable to those available to CAI from unrelated parties.
Additionally, CAI advanced $20,000 and provided leased vehicles and certain
facilities to Telecom Support for the year ended March 31, 1998.
Equipment Sales and Purchases. During the year ended March 31, 1998, CAI
sold to CS Wireless approximately $3,706,000 of equipment at $116,000 over
book value, for 20% down and the balance due 30 days after delivery. The
equipment consisted primarily of equipment no longer needed for CAI's
Boston, MA project. Additionally, during April 1997, CAI placed purchase
orders approximating $1,612,000 with CS Wireless for equipment needed for
the Boston project, taking advantage of CS Wireless' favorable pricing
arrangements with its vendors. In March 1997, CAI purchased certain used
equipment for $107,000 for the Boston project from Haig. All equipment
purchased from Haig was sold by Haig to CAI at or below fair market value
for such items.
Consulting Arrangement. Until February 1998, CAI was a party to a
consulting agreement with Alan Sonnenberg, the former president and vice
chairman of CAI, pursuant to which Mr. Sonnenberg agreed to provide CAI
with certain consulting services for an annual fee of $75,000. Under the
agreement, Mr. Sonnenberg received $62,500 during the year ended March 31,
1998. The agreement was terminated in February 1998.
Engineering and Spectrum Management Services. CAI has arrangements with CS
Wireless pursuant to which CAI personnel provide engineering and spectrum
management services CS Wireless. CAI provides engineering consulting
services to CS Wireless in connection with the digital build-out by CS
Wireless of its Dallas market. CAI receives $10,000 per month plus
reimbursement for all reasonable expenses incurred in the performance of
such consulting services.
CAI also provides spectrum management services and subleases office space
in its Arlington, Virginia office to CS Wireless. Up to 20% of the
professional time of Mr. Gerald Stevens-Kittner, CAI's Senior Vice
President -- Spectrum Management, is devoted to CS Wireless spectrum
management matters, including regulatory issues before the FCC. CS
Wireless compensates Mr. Stevens-Kittner directly for such services. CAI
charges CS Wireless a pro rata portion of the monthly rent payment for its
Arlington office space, based on the office space used by one CS Wireless
employee resident in the Arlington office.
G. Directors And Officers Of The Reorganized Companies
It is anticipated that the boards of directors of the Reorganized Companies
will include two (2) members of current management of CAI. The composition
of the remainder of the boards of the Reorganized Companies will be
determined by the Companies and the Unofficial Noteholders' Committee,
subject to the requirements of Section 1129(a)(5) of the Bankruptcy Code.
The Companies and the Unofficial Noteholders' Committee intend to announce
prior to the Confirmation Date the identities of any individuals proposed
to serve as directors or officers of the Reorganized Companies. If and to
the extent possible, the identities of such individuals will be announced
by inclusion of a list of proposed directors and/or officers in the Plan
Supplement, which will be filed with the Bankruptcy Court at least five (5)
Business Days prior to the commencement of the Confirmation Hearing.
H. Management Options
In connection with the Plan, CAI or Reorganized CAI will adopt a management
stock option plan (the "Management Option Plan") for the Management Option
Plan Participants (each, a "Participant") that is intended to provide an
incentive to complete one or more transactions that would increase
shareholder value. Specifically, the Management Option Plan is intended to
provide incentives that will motivate those highly competent individuals
that comprise the senior management of Reorganized CAI to continue in their
efforts to attract a Strategic Partner or effectuate a Trigger Event. The
Management Option Plan is also intended to align the interests of such
employees with those of Reorganized CAI's shareholders.
Pursuant to the Management Option Plan, the Participants would be given
options (the "Management Options") to acquire, in the aggregate, up to 10
percent of the outstanding shares of Reorganized CAI issued upon
consummation of the Plan. Under the proposed Plan, 15 million shares of
New Common Stock are anticipated to be issued to holders of Class CAI-5 and
CAI-6 Claims; thus, the number of shares available under the Management
Option Plan would be 1.5 million. Approval of the Plan will be deemed an
approval or ratification, as the case may be, of the Management Option Plan
pursuant to which the Management Options will be granted. The Management
Option Plan may be adopted prior to the Consummation Date by the Board of
Directors of CAI, although no options will be granted until the
Consummation Date.
The Management Options will vest and become exercisable upon
completion of one or more Trigger Events, other than a Trigger Event with a
person or persons with whom no member of Reorganized CAI's management team
had discussions, or was otherwise materially involved, either before or
after the Consummation Date. The Trigger Events include, among other
events, a material third party acquisition or merger, material equity
investment in CAI, or joint venture, and/or a material take-or-pay
arrangement or other material third party transaction with respect to the
use of CAI's spectrum, and/or any other third party transaction having a
substantially similar economic effect as the foregoing.
The price at which Management Options can be exercised will be established
on the Consummation Date in accordance with a formula based on the deemed
recovery of the holders of Class CAI-5 Claims (the "Bondholder Recovery").
In the aggregate, based on the proposed Plan, Management Options
representing up to 300,000 shares (2% of the outstanding shares) will be
exercisable at $4.96, reflecting a 60% Bondholder Recovery; Management
Options representing up to 300,000 shares will be exercisable at $6.78,
reflecting a 70% Bondholder Recovery; Management Options representing up to
300,000 shares will be exercisable at $8.79, reflecting a 80% Bondholder
Recovery, and Management Options representing 600,000 shares (4% of the
outstanding shares) will be exercisable at $10.81, reflecting a 90%
Bondholder Recovery. For this purpose, the Bondholder Recovery equals the
percentage of $275 million represented by the sum of: (i) the accreted
value of the New Senior Notes on the date of issuance thereof and (ii) the
value of the New Common Stock received by holders of Class CAI-5 Claims
under the Plan.
Vesting will be accelerated for 50% of the Management Options if the
average trading price of the New Common Stock is at or above $12.82,
corresponding to a 100% Bondholder Recovery, for 60 consecutive trading
days following the Consummation Date (assuming an appropriate average
trading volume). The unvested portion of the Management Options will be
reduced by 50% (on a pro rata basis from each price tranche) after the 18th
monthly anniversary of the Consummation Date. The unvested portion of the
Management Options will be reduced by 100% after the 24th monthly
anniversary of the Consummation Date.
In the event of a termination of employment prior to the 9 month
anniversary of the Consummation Date other than for Cause or in the event
of a voluntary termination for Good Reason (as defined in the Employment
Agreements), the Participant's Management Options continue unaffected by
the termination and remain subject to the terms of the Management Option
Plan, provided that 50% of such Management Options, to the extent
exercisable, must be exercised within six (6) months of the effective date
of the termination of employment. Any of that 50% portion of the
Participant's Management Options that are not exercisable within such six
(6) month period will thereafter lapse. If a Participant's employment has
not terminated within the 9 months following the Consummation Date, all of
that Participant's Management Options will continue unaffected by any
subsequent termination of employment and will remain subject to the terms
of the Management Option Plan.
THIS SOLICITATION OF THE HOLDERS OF SENIOR NOTES, WHO, IN THE AGGREGATE,
WILL RECEIVE 91% OF THE NEW COMMON STOCK, WILL BE DEEMED A SOLICITATION FOR
APPROVAL OF THE MANAGEMENT OPTION PLAN. CAI BELIEVES THAT THE CONFIRMATION
ORDER SHOULD CONSTITUTE APPROVAL OF THE MANAGEMENT OPTION PLAN FOR PURPOSES
OF SECTIONS 422 AND 162(m) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE "TAX CODE"). THERE CAN BE NO ASSURANCE, HOWEVER, THAT THE INTERNAL
REVENUE SERVICE WILL AGREE WITH SUCH POSITION.
V. REASONS FOR THE SOLICITATION; RECOMMENDATION
Chapter 11 of the Bankruptcy Code provides that, in order for the
Bankruptcy Court to confirm the Plan as a consensual plan, the holders of
Claims in each Impaired Class who cast votes in favor of the Plan must (a)
hold at least 2/3 in amount of the Claims of the holders in such Class who
actually cast votes with respect to the Plan and (b) comprise more than
one-half in number of the holders in such Class who actually cast votes
with respect to the Plan (together, the "Requisite Acceptances").
The Solicitation is being conducted at this time in order to obtain (prior
to the filing of voluntary petitions for reorganization of the Companies
under Chapter 11 of the Bankruptcy Code) the Requisite Acceptances. The
Companies anticipate that by conducting the Solicitation in advance of
commencing the Chapter 11 Case, the duration of the Chapter 11 Case will be
significantly shortened, and the administration of the case, which
otherwise can be lengthy, complex, and extremely expensive, will be
significantly shortened, greatly simplified, and much less costly.
In light of the significant benefits to be attained by the Companies'
Impaired Creditors pursuant to consummation of the transactions
contemplated by the Plan, each of the Companies' Boards of Directors
recommends that such Creditors vote to accept the Plan. The Boards have
reached this decision after considering the alternatives to the Plan that
are available to the Companies and their likely effect on the Companies'
business operations, creditors, and shareholders. These alternatives
include liquidation of the Companies under Chapter 7 of the Bankruptcy Code
or a reorganization under Chapter 11 of the Bankruptcy Code without
pre-petition solicitation. The Boards determined, after consulting with
financial and legal advisors, that the Plan would result in a larger
distribution to creditors than would any other Chapter 11 reorganization or
a liquidation under Chapter 7. For a comparison of estimated distributions
under Chapter 7 of the Bankruptcy Code and under the Plan, see Section
XIV.C -- "Feasibility of the Plan and the Best Interests of Creditors Test
- -- Liquidation Analysis." The Boards also concluded that initiating a
Chapter 11 case without pre-petition solicitation would result in a
significant delay in confirmation of a plan, which, compared to
confirmation of the Plan, would result in higher fees and expenses and
increase the possibility that a reorganization case would damage the
Companies' businesses, and would increase the possibility that the
Companies would not be able to reorganize and therefore would be forced to
liquidate. In addition, the Companies were advised that the DIP Facility
would be available only in the context of a prepackaged plan. For all of
these reasons, the Boards support the Plan and urge all Impaired Creditors
to accept and support the Plan.
ALTHOUGH THE PLAN AND VARIOUS RELATED MATTERS REFERRED TO IN THIS
DISCLOSURE STATEMENT HAVE BEEN REVIEWED BY AND DISCUSSED WITH MLGAF, THE
UNOFFICIAL NOTEHOLDERS' COMMITTEE, AND THEIR RESPECTIVE REPRESENTATIVES,
AND REFLECT TO SOME EXTENT THE VIEWS OF THOSE PARTIES, THE UNOFFICIAL
NOTEHOLDERS' COMMITTEE HAS NOT APPROVED OR ENDORSED THE PLAN OR RECOMMENDED
THAT OTHER HOLDERS OF SENIOR NOTES VOTE TO ACCEPT THE PLAN.
VI. SUMMARY OF VOTING PROCEDURES
This Disclosure Statement, including all Exhibits hereto, together with the
related materials included herewith, are being furnished to all known
holders of Impaired Claims against CAI and PCT, including (i) holders of
Senior Notes whose names (or the names of whose nominees) appear as of the
Voting Record Date (as defined in the next paragraph) on the securityholder
lists maintained by the Indenture Trustee pursuant to the Senior Note
Indenture or, if applicable, who are listed as participants in a clearing
agency's security position listing and (ii) all other holders of Impaired
Claims known to CAI and PCT. IF SUCH ENTITIES DO NOT HOLD FOR THEIR OWN
ACCOUNT, THEY SHOULD PROVIDE COPIES OF THIS DISCLOSURE STATEMENT, THE PLAN
AND, IF APPLICABLE, APPROPRIATE BALLOTS TO THE BENEFICIAL OWNERS.
All votes to accept or reject the Plan must be cast by using the ballot
(the "Ballot") enclosed with this Disclosure Statement or, in the case of a
bank, brokerage firm or other nominee holding Senior Notes in its own name
on behalf of a beneficial owner, or any agent thereof (each, a "Nominee"),
the master ballot (the "Master Ballot") provided to such Nominee under
separate cover (or manually executed facsimiles thereof). No other votes
will be counted. Consistent with the provisions of Fed. R. Bankr. P. 3018,
the Companies have fixed June 23, 1998 (the "Voting Record Date") as the
date for the determination of holders of record of Impaired Claims entitled
to receive a copy of this Disclosure Statement and the related materials
and to vote to accept or reject the Plan. Ballots and Master Ballots must
be RECEIVED by the Voting Agent no later than 5:00 p.m. (Eastern Time) on
July 27, 1998, unless the Companies, in their sole discretion, and from
time to time, extend, by oral or written notice to the Voting Agent, such
date, in which event the period during which Ballots and Master Ballots
will be accepted will terminate at 5:00 p.m. (Eastern Time) on such
extended date (in either case, the "Voting Deadline"). Except to the
extent requested by the Companies or as permitted by the Bankruptcy Court
pursuant to Fed. R. Bankr. P. 3018, Ballots and Master Ballots received
after the Voting Deadline will not be counted or otherwise used in
connection with the Companies' request for confirmation of the Plan (or any
permitted modification thereof). In addition, the Companies reserve the
right to use acceptances of the Plan received in this Solicitation to seek
confirmation of the Plan under any other circumstances, including, without
limitation, the filing of an involuntary bankruptcy petition against CAI or
PCT or the voluntary commencement of a non-prepackaged Chapter 11 case by
CAI or PCT.
After the Consummation Date, CAI (or its agent) will furnish to each Senior
Note Holder a letter of transmittal for remittance to CAI (or its agent) of
the certificates which represent such holder's Senior Notes. Holders whose
Senior Notes are not remitted in proper form for transfer together with a
properly completed letter of transmittal will not receive their Pro Rata
share of New Senior Notes and New Common Stock. See Section VIII.D.8 --
"Summary of the Plan -- Summary of Other Provisions of the Plan --
Surrender and Cancellation of Securities or Instruments."
The Companies reserve the absolute right to amend the Plan either before or
after the Petition Date. Amendments to the Plan that do not materially and
adversely affect the treatment of Claims and Interests may be approved by
the Bankruptcy Court at the Confirmation Hearing without the necessity of
resoliciting votes. In the event resolicitation is required, the Companies
will furnish new Ballots and/or Master Ballots to be used to vote to accept
or reject the Plan, as amended.
Although the Solicitation relates to voluntary petitions for reorganization
of the Companies under Chapter 11 of the Bankruptcy Code, no such filings
have yet been made. The Companies intend to file their Chapter 11
petitions when the Requisite Acceptances have been received or when the
Companies otherwise determine that such filing is necessary or appropriate
to protect their property and interests. In addition, the Companies
expressly reserve the right to extend, by oral or written notice to the
Voting Agent, the Voting Deadline and the Voting Record Date until the
Requisite Acceptances have been received.
VII. ANTICIPATED EVENTS DURING THE CHAPTER 11 CASE
A. Commencement Of The Chapter 11 Case
If, in response to the Solicitation occurring pursuant to this Disclosure
Statement, the Companies receive the Requisite Acceptances, the Companies
intend to commence promptly the Chapter 11 Case. From and after the
Petition Date, the Companies will continue to operate their businesses and
manage their properties as debtors-in-possession pursuant to Sections 1107
and 1108 of the Bankruptcy Code.
The Companies do not expect the Chapter 11 Case to be protracted. To
expedite their emergence from Chapter 11, the Companies intend to seek,
among other things, the relief detailed below from the Bankruptcy Court on
the Petition Date. If granted, this relief will facilitate the
administration of the Chapter 11 Case; there can be no assurance, however,
that the Bankruptcy Court will grant the requested relief.
1. Applications for Retention of the Companies' Professionals; Ordinary
Course Professionals
The Companies intend to seek Bankruptcy Court authority to retain and
employ certain professionals to represent them and assist them in
connection with the Chapter 11 Case. Some of these professionals were
intimately involved with the negotiation and development of the Plan and
include, among others: (i) Skadden, Arps, Slate, Meagher & Flom LLP, as
counsel for the Companies; (ii) Day, Berry & Howard LLP, as special counsel
to the Companies; (iii) BT Alex. Brown, as financial advisor to the
Companies; (iv) Coopers & Lybrand LLP, as accountants to the Companies; and
(v) The Altman Group, as solicitation and noticing agents for the
Companies. The Companies also intend to seek authority to retain certain
professionals to assist with the operations of their businesses in the
ordinary course; these so-called "ordinary course professionals" will not
be involved in the administration of the Chapter 11 Case.
2. Motion to Waive Filing of Schedules and Statement of Financial Affairs
Section 521 of the Bankruptcy Code and Fed. R. Bankr. P. 1007 direct that,
unless otherwise ordered by the court, debtors must prepare and file
certain schedules of claims, executory contracts and unexpired leases and
related information (the "Schedules") and a statement of financial affairs
(the "Statement") within 15 days of the commencement of a Chapter 11 case.
The purpose of this requirement is to provide a debtor's creditors, equity
security holders and other interested parties with sufficient information
to make informed decisions with respect to the debtor's reorganization. In
appropriate circumstances, however, a bankruptcy court may modify or
dispense with the filing of the Schedules and the Statement pursuant to
Section 521 of the Bankruptcy Code. The Companies believe that such
circumstances would exist in its Chapter 11 Case and that they should not
be required to file the Statement and the Schedules. The Companies thus
intend to request that the Bankruptcy Court waive the necessity of filing
the Schedules and the Statement.
3. Motion to Mail Notices and Provide Publication Notice of Section 341
Meeting to Unimpaired Creditors
Pursuant to the Bankruptcy Rules, the clerk of the Bankruptcy Court, or
another party that the Bankruptcy Court may direct, must provide notice of
the commencement of the Chapter 11 Case and of the first meeting of
creditors held pursuant to Section 341 of the Bankruptcy Code (the "Section
341 Meeting") to all creditors. In addition, at least two other notices,
notice of the hearing to approve the Disclosure Statement and consider
confirmation of the Plan and notice of the entry of an order confirming the
Plan must be given to all creditors and equity security holders. Due to
the size of the Chapter 11 Case and the large number of Creditors and
Interest holders, the Companies will request that CAI, or its authorized
noticing agent, be authorized to mail all required notices in the Chapter
11 Case. In addition, because all classes of Claims and Interests other
than Classes CAI-5, CAI-6, CAI-7, CAI-8, and PCT-5 are not Impaired under
the Plan and will pass through the Chapter 11 Case unaffected, the
Companies will request that they be authorized to provide only publication
notice of the events set forth above, in several newspapers of national
circulation, to holders of Unimpaired Claims.
4. Motion to Approve Pre-Petition Solicitation and to Schedule
Confirmation Hearing
To facilitate the prompt confirmation and consummation of the Plan, the
Companies intend to immediately seek an order scheduling the hearing on (i)
approval of the pre-petition solicitation procedures, including this
Disclosure Statement, (ii) approval of a short form disclosure statement
and summary of the Plan (the "Short Form Disclosure Statement") to holders
of unclassified and Unimpaired Claims, as well as Claims and Interests that
are not entitled to receive or retain any property or interest in property
under the Plan, and (iii) confirmation of the Plan, for a date immediately
following the end of the notice period therefor, or as soon thereafter as
the Bankruptcy Court's calendar permits.
5. Motion to Continue Using Existing Cash Management System
Because the Companies expect the entire Chapter 11 Case to last for less
than three months, and because of the administrative hardship that any
operating changes would impose on the Companies and the other Subsidiaries,
the Companies intend to seek Bankruptcy Court authority to continue using
their existing cash management system, bank accounts (which are subject to
the security interests and liens of MLGAF) and business forms and to follow
their current internal investment and deposit guidelines. Absent the
Bankruptcy Court's authorization of the continued use of the cash
management system, cash flow among CAI and the Subsidiaries would be
severely impeded, to the detriment of CAI's estate and creditors, as well
as PCT and the other Subsidiaries.
Continued use of the existing cash management system will facilitate the
Companies' smooth and orderly transition into Chapter 11, minimize the
disruption to their businesses while in Chapter 11, and expedite their
emergence from Chapter 11. Requiring the Companies to adopt and implement
a new cash management system would likely increase the costs of the Chapter
11 Case, primarily as a result of the significant time and expense
associated with the transition to a new cash management system. For the
same reasons, requiring the Companies to cancel their existing bank
accounts and establish new accounts or requiring them to create new
business forms would only frustrate the Companies' efforts to reorganize
expeditiously.
6. Motion for Authority to Pay Pre-Petition Trade Claims in the Ordinary
Course of Business
Trade Claims are defined in the Plan as pre-petition Unsecured Claims
against CAI or PCT arising from or with respect to the delivery of goods or
services to CAI or PCT in the ordinary course of business; they are among
the Claims included in the classes of Claims denominated Class CAI-3
General Unsecured Claims and Class PCT-3 General Unsecured Claims.
Notwithstanding provisions of the Bankruptcy Code that would otherwise
require the Companies to defer payment of Trade Claims until the
Distribution Date, the Companies intend to seek authority from the
Bankruptcy Court to pay, in the ordinary course of business, the Trade
Claims of those providers of goods and services that agree, in writing, to
continue to provide the Companies with customary trade terms on an ongoing
basis. Because certain goods and services are essential to the Companies'
businesses, the relief sought in this motion is critical to the Companies'
uninterrupted operations during the Chapter 11 Case.
7. Motion for Authority to Pay Pre-Petition Employee Wages and Benefits
The Companies believe that any delay in paying pre-petition compensation or
benefits would destroy their relationships with employees and irreparably
harm employee morale at a time when the dedication, confidence and
cooperation of the Companies' employees is most critical. Accordingly, the
Companies will seek authority to pay compensation and benefits that had
accrued but remained unpaid as of the Petition Date.
8. Motion for Authority to Incur Post-Petition Indebtedness and Use Cash
Collateral
If the Companies elect to commence the Chapter 11 Case, CAI expects to
obtain immediate short-term working capital financing in the form of a
debtor-in-possession facility (the "DIP Facility") from MLGAF, as well as
Bankruptcy Court authorization to use MLGAF's cash collateral (the "Cash
Collateral"). Prompt Bankruptcy Court approval of the DIP Facility and the
use of the Cash Collateral will facilitate the normal operations of the
Companies and the other Subsidiaries and the maintenance of strong
relationships with the Companies' vendors and suppliers during the Chapter
11 Case. CAI believes that the DIP Facility likely will be conditioned
upon CAI's granting MLGAF, with Bankruptcy Court approval, a priority over
virtually all other claims in the Chapter 11 Case, including Administrative
Claims, and security interests in or liens on substantially all of the
assets of CAI and the Guarantor Subsidiaries. Based on currently projected
financing needs, CAI expects to seek and obtain Bankruptcy Court approval
of a DIP Facility in the aggregate amount of $60 million (which amount
includes the conversion of approximately $45,000,000 in Secured Notes, plus
accrued interests and fees, to DIP Notes). Under the Bankruptcy Rules,
this facility likely will be approved by interim order on or about the
Petition Date, and by Final Order approximately two to three weeks later.
There can be no assurance, however, that the Bankruptcy Court will approve,
either by interim or Final Order, the DIP Facility or the use of the Cash
Collateral.
9. Motion for Authority for the Companies to Sell MDU Assets to OnePoint
The Companies have entered into a binding letter of intent (the "Letter of
Intent") with Mid-Atlantic Telcom Plus, d/b/a OnePoint Communications
(AOnePoint@), providing for the sale by the Companies of their MDU Assets
to OnePoint for $6,000,000 in cash. Consummation of the sale is subject to
the satisfaction of a variety of conditions, including Bankruptcy Court
approval. Accordingly, the Companies intend to seek immediately an order
of the Bankruptcy Court authorizing, among other things, the sale of the
MDU Assets and the assumption and assignment to OnePoint of the contracts
forming the basis of the MDU Assets. Prompt approval of the sale and the
assumption and assignment of the contracts will not only permit the
Companies to maximize the value of the MDU Assets by consummating
expeditiously the transactions contemplated by the Letter of Intent, which,
in turn, would provide the Companies with an additional source of funds for
working capital purposes, but will alleviate the possibility of a
diminution in value of the MDU Assets that could result if the sale were
delayed until confirmation and consummation of the Plan.
B. Anticipated Timetable For The Chapter 11 Case
Following the Petition Date, the Companies expect the Chapter 11 Case to
proceed on the following estimated timetable. There can be no assurance,
however, that the Bankruptcy Court's orders to be entered on the Petition
Date will permit the Chapter 11 Case to proceed as expeditiously as
anticipated.
The Companies anticipate that the hearing to consider the adequacy of the
Disclosure Statement and confirmation of the Plan would occur 30-45 days
after the Petition Date. Assuming that the Plan is confirmed at that
hearing, the Plan provides that the Consummation Date will be the Business
Day on which all conditions to the consummation of the Plan (as set forth
in Article X.B of the Plan) have been satisfied or waived (as provided in
Article X.C of the Plan). See Section VIII.E.4 -- "Summary of the Plan --
Conditions to Confirmation and Consummation." Based upon information
currently available to them, the Companies believe that the Consummation
Date could occur as early as ten days following the Confirmation Date,
although the process of obtaining FCC approval of the transfer of control
of CAI and CS Wireless could significantly delay the Consummation Date.
Under this timetable, the Companies would emerge from Chapter 11 within 45
to 60 days after the Petition Date. There can be no assurance, however,
that this projected timetable can be achieved.
VIII. SUMMARY OF THE PLAN
A. Introduction
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under Chapter 11, a debtor is authorized to reorganize
its business for the benefit of itself and its creditors and shareholders.
In addition to permitting rehabilitation of the debtor, Chapter 11 promotes
equality of treatment of creditors and equity security holders who hold
substantially similar claims against or interests in the debtor and its
assets. In furtherance of these two goals, upon the filing of a petition
for relief under Chapter 11, Section 362 of the Bankruptcy Code provides
for an automatic stay of substantially all acts and proceedings against the
debtor and its property, including all attempts to collect claims or
enforce liens that arose prior to the commencement of the Chapter 11 case.
The consummation of a plan of reorganization is the principal objective of
a Chapter 11 case. A plan of reorganization sets forth the means for
satisfying claims against and interests in a debtor. Confirmation of a
plan of reorganization by the Bankruptcy Court makes the plan binding upon
the debtor, any issuer of securities under the plan, any person or entity
acquiring property under the plan, and any creditor of or equity security
holder in the debtor, whether or not such creditor or equity security
holder (i) is impaired under or has accepted the plan or (ii) receives or
retains any property under the plan. Subject to certain limited exceptions
and other than as provided in the plan itself or the confirmation order,
the confirmation order discharges the debtor from any debt that arose prior
to the date of confirmation of the plan and substitutes therefor the
obligations specified under the confirmed plan, and terminates all rights
and interests of equity security holders.
THE REMAINDER OF THIS SECTION PROVIDES A SUMMARY OF THE STRUCTURE AND MEANS
FOR IMPLEMENTATION OF THE COMPANIES' PLAN, AND OF THE CLASSIFICATION AND
TREATMENT OF CLAIMS AND INTERESTS UNDER THE PLAN, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE PLAN (AS WELL AS THE EXHIBITS THERETO AND
DEFINITIONS THEREIN), WHICH IS ANNEXED TO THIS DISCLOSURE STATEMENT AS
EXHIBIT A.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT INCLUDE SUMMARIES OF
THE PROVISIONS CONTAINED IN THE PLAN AND IN DOCUMENTS REFERRED TO THEREIN.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT DO NOT PURPORT TO BE
PRECISE OR COMPLETE STATEMENTS OF ALL THE TERMS AND PROVISIONS OF THE PLAN
OR DOCUMENTS REFERRED TO THEREIN, AND REFERENCE IS MADE TO THE PLAN AND TO
SUCH DOCUMENTS FOR THE FULL AND COMPLETE STATEMENTS OF SUCH TERMS AND
PROVISIONS.
THE PLAN ITSELF AND THE DOCUMENTS REFERRED TO THEREIN CONTROL THE ACTUAL
TREATMENT OF CLAIMS AGAINST AND INTERESTS IN THE COMPANIES UNDER THE PLAN
AND WILL, UPON OCCURRENCE OF THE CONSUMMATION DATE, BE BINDING UPON ALL
HOLDERS OF CLAIMS AGAINST AND INTERESTS IN CAI AND PCT, THEIR ESTATES,
REORGANIZED CAI AND REORGANIZED PCT, ALL PARTIES RECEIVING PROPERTY UNDER
THE PLAN, AND OTHER PARTIES IN INTEREST. IN THE EVENT OF ANY CONFLICT
BETWEEN THIS DISCLOSURE STATEMENT, ON THE ONE HAND, AND THE PLAN OR ANY
OTHER OPERATIVE DOCUMENT, ON THE OTHER HAND, THE TERMS OF THE PLAN AND/OR
SUCH OTHER OPERATIVE DOCUMENT WILL CONTROL.
B. Voting On The Plan
1. Voting Deadline
A copy of this Disclosure Statement with the annexed Plan (including all
Exhibits to the Plan and this Disclosure Statement) is being distributed
to all Impaired Creditors. In addition, a Ballot, together with a
postage-paid return envelope, is enclosed with each copy of this Disclosure
Statement being delivered to those Impaired Creditors that are entitled to
vote to accept or reject the Plan. Master Ballots will be provided under
separate cover to Nominees. In order to be counted, all Ballots and Master
Ballots indicating acceptance or rejection of the Plan MUST BE RECEIVED by
the Voting Agent at its address set forth in Section XVI.J -- "The
Solicitation; Voting Procedures -- Further Information; Additional Copies"
of this Disclosure Statement no later than 5:00 p.m. (Eastern Time) on July
27, 1998 (the "Voting Deadline"), unless the Voting Deadline is extended by
the Companies.
2. Creditors Entitled To Vote On The Plan
As more fully described below, the Plan designates eight separate classes
of Claims against and Interests in CAI and six separate classes of Claims
against and Interests in PCT (other than DIP Facility Claims,
Administrative Claims, and Priority Tax Claims). See Section VIII.C --
"Summary of the Plan -- Certain Matters Regarding Classification And
Treatment Of Claims And Interests." Only the holders of Impaired Claims in
Classes CAI-5, CAI-6, and PCT-5 are being solicited and are entitled to
vote to accept or reject the Plan. In addition to holders of DIP Facility
Claims, Administrative Claims and Priority Tax Claims (which are not
classified under the Plan), pursuant to Section 1126(f) of the Bankruptcy
Code, holders of Claims or Interests in Classes CAI-1, CAI-2, CAI-3, CAI-4,
PCT-1, PCT-2, PCT-3, PCT-4, and PCT-6 are not entitled to vote to accept
or reject the Plan, and are deemed to have accepted the Plan, because such
Classes are Unimpaired under the Plan. Pursuant to Section 1126(g) of the
Bankruptcy Code, Classes CAI-7 and CAI-8 are not entitled to vote to accept
or reject the Plan, and are deemed to have rejected the Plan, because the
holders of Impaired Claims or Interests in such Classes will neither
receive nor retain any property or interest in property under the Plan.
3. Vote Required For Class Acceptance
The Bankruptcy Court will determine whether sufficient acceptances have
been received to confirm the Plan. An Impaired Class of Claims will have
accepted the Plan if the holders of Claims in that Class voting in favor of
the Plan (i) hold at least 2/3 in aggregate amount of the Claims of the
holders in such Class who actually cast votes with respect to the Plan and
(ii) comprise more than one-half in number of the holders in such Class who
actually cast votes with respect to the Plan.
4. Counting Of Ballots And Master Ballots For Determining Acceptance Of
The Plan
The Companies intend to count all Ballots and Master Ballots received prior
to the Voting Deadline for purposes of determining whether each Impaired
Class entitled to vote has accepted or rejected the Plan. Fed. R. Bankr.
P. 3018(b) prescribes the conditions that must be satisfied in order to
count the ballots solicited with respect to a plan of reorganization prior
to the commencement of a Chapter 11 case. Rule 3018(b) requires that (i)
the Chapter 11 plan must have been disseminated to substantially all
impaired creditors in the class(es) entitled to vote, (ii) the time
prescribed for voting on the plan must not have been unreasonably short,
and (iii) the solicitation must have been conducted in accordance with
Section 1126(b) of the Bankruptcy Code, which requires that the
solicitation be conducted in compliance with all applicable non-bankruptcy
laws, rules, or regulations or, if there are no such applicable laws, rules
or regulations, that the disclosure statement with respect to the plan
contains "adequate information," as defined in Section 1125(a) of the
Bankruptcy Code. Section 1125(a) defines "adequate information" as
information of a kind and in sufficient detail as far as is reasonably
practicable in light of the nature and history of a company and the
condition of such company's books and records, that would enable a
hypothetical reasonable investor typical of holders of claims or equity
interests of the relevant class to make an informed judgment about the plan
of reorganization.
The Companies believe that all of the requirements of Fed. R. Bankr. P.
3018(b) will be satisfied. This Disclosure Statement and the Plan (annexed
hereto as Exhibit A), together with all of the accompanying materials, are
being transmitted to all known Impaired Creditors. The solicitation period
determined by the Board for voting on the Plan is approximately 20 Business
Days, which is approximately the time normally prescribed by the SEC for an
exchange offer pursuant to Rule 13e-4 under the Exchange Act. The
Companies believe that this Disclosure Statement contains adequate
information (within the meaning of Section 1125(a)(1) of the Bankruptcy
Code) for all Impaired Creditors entitled to vote to accept or reject the
Plan to make an informed judgment about the Plan.
C. Certain Matters Regarding Classification And Treatment Of Claims And
Interests
Section 1123 of the Bankruptcy Code provides that a plan of reorganization
must classify the claims and interest of a debtor's creditors and equity
interest holders. In accordance with Section 1123, the Plan divides Claims
and Interests into Classes and sets forth the treatment for each Class
(other than DIP Facility Claims, Administrative Claims and Priority Tax
Claims which, pursuant to Section 1123(a)(1), need not be and have not been
classified). The Companies also are required, under Section 1122 of the
Bankruptcy Code, to classify Claims against and Interests in CAI and PCT
into Classes that contain Claims and Interests that are substantially
similar to the other Claims and Interests in such Class. The Companies
believe that the Plan has classified all Claims and Interests in compliance
with the provisions of Section 1122, but once the Chapter 11 Case has been
commenced, it is possible that a holder of a Claim or Interest may
challenge the Companies' classification of Claims and Interests and that
the Bankruptcy Court may find that a different classification is required
for the Plan to be confirmed. In that event, the Companies intend, to the
extent permitted by the Bankruptcy Code, the Plan, and the Bankruptcy
Court, to make such reasonable modifications of the classifications under
the Plan to permit confirmation and to use the Plan acceptances received in
this Solicitation for purposes of obtaining the approval of the
reconstituted Class or Classes of which each accepting holder ultimately is
deemed to be a member. Any such reclassification could adversely affect
the Class in which such holder initially was a member, or any other Class
under the Plan, by changing the composition of such Class and the vote
required of that Class for approval of the Plan. Furthermore, a
reclassification of a Claim or Interest after approval of the Plan could
necessitate a resolicitation of acceptances of the Plan.
The amount of any Impaired Claim that ultimately is allowed by the
Bankruptcy Court may vary from the estimated allowed amount of such Claim
and, accordingly, the total Claims ultimately allowed by the Bankruptcy
Court with respect to each Impaired Class of Claims may also vary from the
estimates contained herein with respect to the aggregate Claims in any
Impaired Class. Thus, the value of the property that ultimately will be
received by a particular holder of an Allowed Claim under the Plan may be
adversely or favorably affected by the aggregate amount of Claims
ultimately allowed in the applicable Class. There can be no assurance that
the actual aggregate amounts of Allowed Claims in Impaired Classes will not
materially exceed the aggregate amounts estimated by the Companies. Thus,
no representation can be or is being made with respect to the accuracy of
the expected percentage recovery by the holder of an Allowed Claim in any
particular Class.
The classification of Claims and Interests and the nature of distributions
to members of each Class are summarized below. The Companies believe that
the consideration, if any, provided under the Plan to holders of Claims and
Interests reflects an appropriate resolution of their Claims and Interests,
taking into account the differing nature and priority (including applicable
contractual subordination) of such Claims and Interests. The Bankruptcy
Court must find, however, that a number of statutory tests are met before
it may confirm the Plan. See Section VIII.E -- "Summary of the Plan --
Confirmation of the Plan." Many of these tests are designed to protect the
interests of holders of Claims or Interests who are not entitled to vote on
the Plan, or do not vote to accept the Plan, but who will be bound by the
provisions of the Plan if it is confirmed by the Bankruptcy Court. The
"cramdown" provisions of Section 1129(b) of the Bankruptcy Code, for
example, permit confirmation of a Chapter 11 plan in certain circumstances
even if the plan has not been accepted by all impaired classes of claims
and interests. See Section VIII.E -- "Summary of the Plan -- Confirmation
of the Plan." Because the holders of Claims and Interests in Classes CAI-7
and CAI-8 will receive no distributions under the Plan on account of their
Claims and Interests and, accordingly, will be deemed to have rejected the
Plan, the Companies intend to request confirmation pursuant to the cramdown
provisions of Section 1129(b). Although the Companies believe that the
Plan could be confirmed under Section 1129(b), there can be no assurance
that the requirements of such section would be satisfied.
1. Unclassified Claims
(a) DIP Facility Claims (Unimpaired)
DIP Facility Claims consist of the Claims of MLGAF arising under the DIP
Facility. The DIP Facility will be comprised of the combined deemed and
actual purchase on the date of closing of $60,000,000 of DIP Notes. The
DIP Notes will consist of promissory notes issued under the DIP Facility
Agreement in the amount of (i) the Secured Notes issued under the existing
Note Purchase Agreement (which Secured Notes will be converted into DIP
Notes as if there had been a purchase under the DIP Facility Agreement in
an amount equal to (a) the aggregate principal amount of outstanding
Secured Notes as of the Petition Date plus (b) all accrued interest and
fees), plus (ii) new notes in an amount equal to $60,000,000 minus the
amount described in (i) above.
Pursuant to the terms of the DIP Facility, CAI's obligations to MLGAF under
the DIP Facility are secured by substantially all of the assets of CAI and
each Subsidiary guarantor of CAI's obligations under the DIP Facility and
are entitled to priority over all other expenses of administration in the
Chapter 11 Case, subject only to a carve-out (the "Carve-Out") in an
aggregate amount not to exceed $1,000,000 for (i) following the occurrence
of an Event of Default or an event that would constitute an Event of
Default with the giving of notice or the lapse of time or both, the payment
of Allowed Professional Fees incurred by the Companies and any statutory
committee appointed in the Chapter 11 Case or the Unofficial Noteholders'
Committee (in addition to compensation previously awarded, whether or not
paid), (ii) fees payable pursuant to 28 U.S.C. ' 1930, and (iii) fees
payable to the Clerk of the Bankruptcy Court. Under the Plan, the holder
of an Allowed DIP Facility Claim will receive cash equal to the unpaid
portion of such Allowed DIP Facility Claim or such other treatment as to
which CAI and such holder have agreed upon in writing. As of the date of
this Disclosure Statement, CAI has not finalized the terms of the proposed
DIP Facility with MLGAF. Accordingly, CAI cannot, and does not, make any
representations with respect to the estimated amount of DIP Facility Claims
that will be Allowed in the Chapter 11 Case, if commenced.
(b) Administrative Claims (Unimpaired)
The Plan provides that Administrative Claims are Unimpaired.
Administrative Claims consist of the actual and necessary costs and
expenses of the Chapter 11 Case that are allowed under Sections 503(b) and
507(a)(1) of the Bankruptcy Code. They include, among other things, the
cost of operating the Companies' businesses following the Petition Date
(e.g., the post-petition salaries and other benefits for the Companies'
employees, post-petition rent, amounts owed to vendors providing goods and
services to the Companies during the Chapter 11 Case, tax obligations
incurred after the Petition Date, certain statutory fees and charges
assessed under 28 U.S.C. ' 1930) and the actual, reasonable fees and
expenses of the professionals retained by the Companies and the Creditors'
Committee, if one is appointed, or the Unofficial Noteholders' Committee in
the Chapter 11 Case. All payments to professionals in connection with the
Chapter 11 Case for compensation and reimbursement of expenses and all
payments to reimburse expenses of members of the Creditors' Committee (if
one were to be appointed) would be made in accordance with the procedures
established by the Bankruptcy Code and the Bankruptcy Rules and would be
subject to approval of the Bankruptcy Court as being reasonable.
Administrative expenses representing liabilities incurred in the ordinary
course of business by the Companies, consistent with past practice, will be
paid by the Companies in accordance with the terms and conditions of the
particular transaction and any related agreements and instruments. All
other holders of Allowed Administrative Claims will receive Cash equal to
the unpaid portion of such Allowed Administrative Claim or such other
treatment as to which the Companies and such holder have agreed upon in
writing.
CAI, which is a holding company, has relatively few direct operating
expenses, other than payroll and rent. PCT is an Operating Subsidiary and,
accordingly, has significantly more operating expenses than CAI.
Nevertheless, the Companies anticipate that most of the Administrative
Claims against CAI and PCT will be paid as they come due during the Chapter
11 Case and that the Administrative Claims to be paid on the Consummation
Date will, for the most part, consist of the allowed but unpaid fees and
expenses incurred by professionals retained in the Chapter 11 Case. As of
the date of this Disclosure Statement, the Companies have not commenced the
Chapter 11 Case. Accordingly, the Companies cannot, and do not, make any
representations with respect to the estimated amount of Administrative
Claims that will be Allowed in the Chapter 11 Case, if commenced.
(c) Priority Tax Claims (Unimpaired)
Priority Tax Claims are Unsecured Claims asserted by federal and state
governmental authorities for taxes specified in Section 507(a)(8) of the
Bankruptcy Code, such as certain income taxes, property taxes, excise
taxes, and employment and withholding taxes. These Unsecured Claims are
given a statutory priority in right of payment. The Plan provides that
Priority Tax Claims, if any, are Unimpaired.
Under the Plan, except to the extent that a holder of an Allowed Priority
Tax Claim has been paid by CAI or PCT prior to the Consummation Date or has
agreed in writing to a different treatment, each holder of an Allowed
Priority Tax Claim will be paid, at the sole discretion of Reorganized CAI
or Reorganized PCT, as the case may be, (i) in full by Reorganized CAI or
Reorganized PCT, as the case may be, in the ordinary course of business in
accordance with the terms and conditions of any law, regulation, agreement,
instrument or other document relating to such claims or (ii) deferred Cash
payments, having a value as of the Consummation Date equal to such Allowed
Priority Tax Claim, over a period not exceeding six years after the date of
assessment of such Allowed Priority Tax Claim, plus interest on the unpaid
portion thereof at the rate of seven percent (7%) per annum from the
Consummation Date through the date of payment thereof. Cash payments of
principal will be made in annual installments equal to ten percent (10%) of
such Allowed Priority Tax Claim plus accrued and unpaid interest, with the
first payment to be due on or before the first anniversary of the
Consummation Date, or as soon thereafter as is practicable, and subsequent
payments to be due on the anniversary of the first payment date or as soon
thereafter as is practicable; provided, however, that any installments
remaining unpaid on the date that is six years after the date of assessment
of the tax that is the basis for the Allowed Priority Tax Claim will be
paid on the first Business Day following such date, or as soon thereafter
as is practicable together with any accrued and unpaid interest to the date
of payment; and provided further, that the Companies reserve the right to
pay any Allowed Priority Tax Claim, or any remaining balance of any Allowed
Priority Tax Claim, in full at any time on or after the Distribution Date
without premium or penalty; and provided further, that no holder of an
Allowed Priority Tax Claim will be entitled to any payments on account of
any pre-Consummation Date interest accrued on or penalty arising after the
Petition Date with respect to or in connection with such Allowed Priority
Tax Claim. The Companies estimate that the aggregate amount of Allowed
Priority Tax Claims will be approximately $160,000.
2. Unimpaired Classes of Claims Against CAI
(a) Class CAI-1: Other Priority Claims
Class CAI-1 Other Priority Claims include Claims against CAI, other than
DIP Facility Claims, Administrative Claims and Priority Tax Claims, that
are entitled to priority under Section 507(a) of the Bankruptcy Code, such
as unsecured Claims for accrued employee compensation, including vacation,
severance, and sick-leave pay, earned within 90 days before the Petition
Date, to the extent of $4,300 per employee, and contributions to employee
benefit plans arising from services rendered within the 180-day period
preceding the Petition Date, but only for such plans to the extent of the
number of employees covered by such plans multiplied by $4,300, less the
aggregate amount paid to such employees for accrued employee compensation.
Under the Plan, the holder of an Allowed Other Priority Claim against CAI
will receive (a) Cash equal to the unpaid portion of such Allowed Class
CAI-1 Other Priority Claim or (b) such other treatment as to which CAI and
such holder have agreed upon in writing. CAI anticipates that it will have
few, if any, Allowed Other Priority Claims because it intends to seek
Bankruptcy Court approval on the Petition Date to continue to pay all
employee claims in the ordinary course.
(b) Class CAI-2: Secured Claims
Each holder of a Class CAI-2 Secured Claim will be treated as a separate
class for all purposes under the Plan, and each holder of an Allowed Class
CAI-2 Secured Claim will receive the treatment set forth below. To the
extent, if any, that the value of the collateral securing a Class CAI-2
Secured Claim is less than the total amount of such Claim, the difference
shall be treated as a Class CAI-3 General Unsecured Claim. CAI
specifically reserves all rights to challenge the validity, nature and
perfection of, and to avoid pursuant to the provisions of the Bankruptcy
Code and other applicable law, any purported liens and security interests.
(i) Class CAI-2.01: Bott Secured Claims
Class CAI-2.01 consists of all Claims against CAI, directly or indirectly
arising from or under, or relating in any way to, the Bott Notes, and
secured by the Bott Collateral, but only to the extent of the value (if
any) of the Bott Affiliates' interest in CAI's interest in the Bott
Collateral. Under the Plan, the holder of an Allowed Bott Secured Claim,
will, in the sole discretion of CAI, (a) receive Cash in an amount equal to
such Allowed Bott Secured Claim, (b) have its Allowed Bott Secured Claim
Reinstated, or (c) receive such other treatment as to which CAI and such
holder shall have agreed upon in writing. CAI estimates that on the
Petition Date, Allowed Class 2.01 Bott Secured Claims will aggregate
approximately $3,841,000.
(ii) Class CAI-2.02: Mester Secured Claims
Class CAI-2.02 consists of all Claims against CAI, directly or indirectly
arising from or under, or relating in any way to, the Mester Notes and
secured by the Mester Collateral, but only to the extent of the value (if
any) of Mester's interest in CAI's interest in the Mester Collateral.
Under the Plan, the holder of an Allowed Mester Secured Claim will, in the
sole discretion of CAI, (a) receive Cash in an amount equal to such Allowed
Secured Mester Claim, (b) have its Allowed Secured Mester Claim Reinstated,
or (c) receive such other treatment as to which CAI and such holder shall
have agreed upon in writing. CAI estimates that on the Petition Date,
Allowed Class 2.02 Mester Secured Claims will aggregate approximately
$400,000.
(iii) Class CAI-2.03: Other Secured Claims
Class CAI-2.03 consists of all Secured Claims against CAI other than the
Secured Claims included in Classes 2.01 through 2.02, but only to the
extent of the value (if any) of any collateral held by or granted to a
holder of a Secured Claim to secure such Claim. Under the Plan, the holder
of an Allowed Other Secured Claim will, in the sole discretion of CAI, (a)
receive Cash in an amount equal to such Allowed Other Secured Claim, (b)
receive deferred cash payments totaling at least the allowed amount of such
Allowed Other Secured Claim, of a value, as of the Consummation Date, of at
least the value of such holder's interest in CAI's Estate's interest in the
collateral securing the Allowed Other Secured Claim, (c) upon abandonment
by CAI, receive the collateral securing such holder's Allowed Other Secured
Claim, (d) receive payments or liens amounting to the indubitable
equivalent of the value of such holder's interest in CAI's Estate's
interest in the collateral securing the Allowed Other Secured Claim, (e)
have its Allowed Other Secured Claim Reinstated, or (f) receive such other
treatment as CAI and such holder have agreed upon in writing. CAI
estimates that on the Petition Date, the aggregate amount of Allowed Class
CAI-2.03 Other Secured Claims will be de minimis.
(c) Class CAI-3: General Unsecured Claims
General Unsecured Claims consist of each Claim against CAI that is not a
DIP Facility Claim, Administrative Claim, Priority Tax Claim, Other
Priority Claim, Secured Claim, Senior Note Claim, Intercompany Claim,
Subordinated Note Claim, or Securities Claim. Under the Plan, each holder
of an Allowed General Unsecured Claim against CAI will receive in full
satisfaction, settlement, release and discharge of and in exchange for such
Allowed General Unsecured Claim (a) treatment that leaves unaltered the
legal, equitable, and contractual rights to which such Allowed General
Unsecured Claim entitles the holder of such Claim; (b) notwithstanding any
contractual provision or applicable law that entitles the holder of such
Allowed General Unsecured Claim to demand or receive accelerated payment of
such Claim after the occurrence of a default, treatment that (i) cures any
such default that occurred before or after the Petition Date, other than a
default of a kind specified in Section 365(b)(2) of the Bankruptcy Code,
(ii) reinstates the maturity of such Allowed General Unsecured Claim as
such maturity existed before such default, (iii) compensates the holder of
such Allowed General Unsecured Claim for any damages incurred as a result
of any reasonable reliance by such holder on such contractual provision or
such applicable law, and (iv) does not otherwise alter the legal,
equitable, or contractual rights to which such Allowed General Unsecured
Claim entitles the holder of such Claim; or (c) such other treatment as to
which CAI and such holder have agreed upon in writing. CAI estimates that
on the Petition Date, Allowed Class CAI-3 General Unsecured Claims will
aggregate no more than $5,000,000.
(d) Class CAI-4: Intercompany Claims
Class CAI-4 consists of all Claims against CAI held by a direct or indirect
Subsidiary of CAI, including, without limitation, any account reflecting
intercompany book entries by a Subsidiary with respect to CAI, any Claim
not reflected in such book entries that is held by a Subsidiary, and any
derivative Claim asserted by or on behalf of a Subsidiary against CAI.
Under the Plan, each holder of an Allowed Intercompany Claim against CAI,
in full satisfaction, settlement, release and discharge of and in exchange
for such Allowed Intercompany Claim, will, in the sole discretion of CAI,
(a) receive treatment that leaves unaltered the legal, equitable, and
contractual rights to which such Allowed Intercompany Claim entitles the
holder of such Claim, (b) be Reinstated, or (c) receive such other
treatment as CAI and such holder have agreed upon in writing. CAI
estimates that on the Petition Date, Allowed Class CAI-4 Intercompany
Claims will be de minimis.
3. Impaired Classes of Claims Against CAI
(a) Class CAI-5: Senior Note Claims
Class CAI-5 consists of all Claims of a Senior Note Holder arising under or
as a result of the Senior Notes. Notwithstanding anything in the Plan to
the contrary, on the Consummation Date the Senior Note Claims will be
deemed Allowed Claims in the aggregate amount of $275,000,000 plus accrued
interest through the Petition Date. Under the Plan, each holder of an
Allowed Senior Note Claim will receive, in full satisfaction, settlement,
release, and discharge of and in exchange for such Allowed Senior Note
Claim, its Pro Rata share of (a) the New Senior Notes and (b) ninety-one
percent (91%) of the New Common Stock to be issued pursuant to Article IV.C
of the Plan. For a more complete description of and certain risk factors
associated with the New Senior Notes and the New Common Stock, see Section
XII.B -- "Securities To Be Issued In Connection With The Plan -- Resale of
Securities of Reorganized CAI."
In addition, on the Distribution Date, each holder of an Allowed Senior
Note Claim against CAI will receive its Pro Rata share of the balance of
the Senior Note Escrow that otherwise would have been payable to such
holder on September 1, 1998 in accordance with the terms of the Senior
Notes Indenture.
(b) Class CAI-6: Subordinated Note Claims
Class CAI-6 consists of all Claims against CAI arising under or as a result
of (i) the 12% Subordinated Note and (ii) the ECN Notes. Under the Plan,
the holder of an Allowed Subordinated Note Claim against CAI will receive,
in full satisfaction, settlement, release, and discharge of and in exchange
for such Allowed Subordinated Note Claim, its Pro Rata share of nine
percent (9%) of the New Common Stock to be issued pursuant to Article IV.C
of the Plan. In consideration of the treatment of its Class CAI-6
Subordinated Note Claim, the holder of the 12% Subordinated Note will
provide a release of all obligations under such note to each Subsidiary
that is an obligor thereunder. CAI estimates that the aggregate amount of
Allowed Class CAI-6 Subordinated Note Claims will be approximately
$32,793,000 plus accrued interest through the Petition Date.
(c) Class CAI-7: Securities Claims
Class CAI-7 consists of all Claims against CAI arising from the rescission
of a purchase or sale of a security of CAI, including, but not limited to,
Old Senior Preferred Stock, Old Junior Preferred Stock, Old Voting
Preferred Stock, Old Common Stock, Old Stock Options, Old Warrants, Senior
Notes, Subordinated Notes, all other debt instruments and any and all other
rights to acquire Equity Securities of CAI, for damages arising from the
purchase or sale of such a security, or for reimbursement, contribution or
indemnification allowed under Section 502 of the Bankruptcy Code on account
of such Claim, including, without limitation, a Claim with respect to those
actions pending against CAI and/or their current or former officers and
directors in which Securities Claims are asserted, including the Securities
Action. Under Section 510(b) of the Bankruptcy Code, these Claims are to
be subordinated to all Claims or Interests that are senior to or equal the
Claim or Interest represented by the security in question, except if the
security in question is common stock, in which case the Claim has the same
priority as common stock.
(i) Class CAI-7.01: Debt Securities Claims
Class CAI-7.01 consists of all Securities Claims arising from, under, or in
any way related to, a Debt Security. The holders of Class CAI-7.01 Debt
Securities Claims will not be entitled to, and will not, receive or retain
any property or interest in property on account of such Claims.
(ii) Class CAI-7.02: Equity Securities Claims
Class CAI-7.02 consists of all Securities Claims arising from, under, or in
any way related to, an Equity Security. The holders of Class CAI-7.02
Equity Securities Claims will not be entitled to, and will not, receive or
retain any property or interest in property on account of such Claims.
Pursuant to Section 1126(g) of the Bankruptcy Code, Class CAI-7 is deemed
to reject the Plan because the holders of Claims in Class CAI-7 will not
receive or retain any property or interest in property under the Plan. The
Bankruptcy Court may confirm the Plan notwithstanding the deemed rejection
by Class CAI-7, provided that the Plan does not "discriminate unfairly" and
is "fair and equitable." See Section VIII.E.3 -- "Summary of the Plan --
Confirmation of the Plan - Confirmation Without Acceptance of All Impaired
Classes - 'Cramdown'." CAI believes the Plan does not "discriminate
unfairly" and is "fair and equitable" to Class CAI-7.
4. Impaired Class of Interests in CAI
Class CAI-8: Equity Securities Interests
Class CAI-8 consists of all Interests directly or indirectly arising from,
under, or in any way relating to, any of the Equity Securities. The Equity
Securities and Interests being canceled under the Plan include the Old
Common Stock, Old Stock Options, and Old Warrants, together with any
options, warrants, or rights, contractual or otherwise, to acquire or
receive any such stock or ownership interests, including, but not limited
to, the Old Options, the Old Warrants and any contracts or agreements
pursuant to which the non-debtor party was or could have been entitled to
receive shares of stock or other ownership interests in CAI and (ii) any
other common or preferred stock of or other ownership interest in CAI,
options or warrants to purchase or acquire such common or preferred stock
or other ownership interest in CAI.
Pursuant to Section 1126(g) of the Bankruptcy Code, Class CAI-8 is deemed
to reject the Plan because the holders of Interests in Class CAI-8 will not
receive or retain any property or interest in property under the Plan. The
Bankruptcy Court may confirm the Plan notwithstanding the deemed rejection
by Class CAI-8, provided that the Plan does not "discriminate unfairly" and
is "fair and equitable." See Section VIII.E.3 -- "Summary of the Plan --
Confirmation of the Plan - Confirmation Without Acceptance of All Impaired
Classes - 'Cramdown'." CAI believes the Plan does not "discriminate
unfairly" and is "fair and equitable" to Class CAI-8.
5. Unimpaired Classes of Claims Against PCT
(a) Class PCT-1: Other Priority Claims
Class PCT-1 Other Priority Claims include Claims against PCT, other than
DIP Facility Claims, Administrative Claims and Priority Tax Claims, that
are entitled to priority under Section 507(a) of the Bankruptcy Code, such
as unsecured Claims for accrued employee compensation, including vacation,
severance, and sick-leave pay, earned within 90 days before the Petition
Date, to the extent of $4,300 per employee, and contributions to employee
benefit plans arising from services rendered within the 180-day period
preceding the Petition Date, but only for such plans to the extent of the
number of employees covered by such plans multiplied by $4,300, less the
aggregate amount paid to such employees for accrued employee compensation.
Under the Plan, the holder of an Allowed Other Priority Claim against PCT
will receive (a) Cash equal to the unpaid portion of such Allowed Class
PCT-1 Other Priority Claim or (b) such other treatment as to which PCT and
such holder have agreed upon in writing. PCT estimates that the aggregate
amount of Allowed Other Priority Claims against PCT will be de minimis.
(b) Class PCT-2: Secured Claims
Each holder of a Class PCT-2 Secured Claim will be treated as a separate
class for all purposes under the Plan, and each holder of an Allowed Class
PCT-2 Secured Claim will receive the treatment set forth below. To the
extent, if any, that the value of such holder's interest in PCT's interest
in the collateral securing a Class PCT-2 Secured Claim is less than the
total amount of such Claim, the difference shall be treated as a Class
PCT-3 General Unsecured Claim. PCT specifically reserves all rights to
challenge the validity, nature and perfection of, and to avoid pursuant to
the provisions of the Bankruptcy Code and other applicable law, any
purported liens and security interests.
Under the Plan, the holder of an Allowed Secured Claim against PCT will, in
the sole discretion of PCT, (a) receive Cash in an amount equal to such
Allowed Secured Claim, (b) receive deferred cash payments totaling at least
the allowed amount of such Allowed Secured Claim, of a value, as of the
Consummation Date, of at least the value of such holder's interest in PCT's
Estate's interest in the collateral securing the Allowed Secured Claim, (c)
upon abandonment by PCT, receive the collateral securing such holder's
Allowed Secured Claim, (d) receive payments or liens amounting to the
indubitable equivalent of the value of such holder's interest in PCT's
Estate's interest in the collateral securing the Allowed Secured Claim, (e)
have its Allowed Secured Claim Reinstated, or (f) receive such other
treatment as PCT and such holder have agreed upon in writing. PCT
estimates that on the Petition Date, Allowed Class PCT-2 Secured Claims
will be de minimis.
(c) Class PCT-3: General Unsecured Claims
General Unsecured Claims consist of each Claim against PCT that is not a
DIP Facility Claim, Administrative Claim, Priority Tax Claim, Other
Priority Claim, Secured Claim, Intercompany Claim, or Subordinated Note
Claim. Under the Plan, each holder of an Allowed General Unsecured Claim
against PCT will receive in full satisfaction, settlement, release and
discharge of and in exchange for such Allowed General Unsecured Claim (a)
treatment that leaves unaltered the legal, equitable, and contractual
rights to which such Allowed General Unsecured Claim entitles the holder of
such Claim; (b) notwithstanding any contractual provision or applicable law
that entitles the holder of such Allowed General Unsecured Claim to demand
or receive accelerated payment of such Claim after the occurrence of a
default, treatment that (i) cures any such default that occurred before or
after the Petition Date, other than a default of a kind specified in
Section 365(b)(2) of the Bankruptcy Code, (ii) reinstates the maturity of
such Allowed General Unsecured Claim as such maturity existed before such
default, (iii) compensates the holder of such Allowed General Unsecured
Claim for any damages incurred as a result of any reasonable reliance by
such holder on such contractual provision or such applicable law, and (iv)
does not otherwise alter the legal, equitable, or contractual rights to
which such Allowed General Unsecured Claim entitles the holder of such
Claim; or (c) such other treatment as to which PCT and such holder have
agreed upon in writing. The estimated amount of Allowed Class PCT-3
General Unsecured Claims is included in the estimate of Allowed Class CAI-3
General Unsecured Claims.
(d) Class PCT-4: Intercompany Claims
Class PCT-4 consists of all Claims against PCT held by CAI or any direct or
indirect Subsidiary of CAI, including, without limitation, any account
reflecting intercompany book entries by a CAI or a Subsidiary with respect
to PCT, and any Claim not reflected in such book entries that is held by a
CAI or a Subsidiary. Under the Plan, each holder of an Allowed
Intercompany Claim against PCT, in full satisfaction, settlement, release
and discharge of and in exchange for such Allowed Intercompany Claim, will,
in the sole discretion of PCT, (a) receive treatment that leaves unaltered
the legal, equitable, and contractual rights to which such Allowed
Intercompany Claim entitles the holder of such Claim, (b) be Reinstated, or
(c) receive such other treatment as PCT and such holder have agreed upon in
writing. PCT estimates that on the Petition Date, Allowed Class PCT-4
Intercompany Claims will be approximately $17,411,000.
6. Impaired Class of Claims Against PCT
Class PCT-5: Subordinated Note Claims
Class PCT-5 consists of all Claims against PCT arising under or as a result
of any Subordinated Note. Under the Plan, each Allowed Class PCT-5
Subordinated Note Claim will be fully and finally satisfied by the
satisfaction of the applicable Class CAI-6 Subordinated Note Claim in
accordance with Article III.C.2 of the Plan.
7. Unimpaired Class of Interests in PCT
Class PCT-8: Equity Securities Interests
Class PCT-6 consists of all Interests in PCT directly or indirectly arising
from or under, or relating in any to, any of the Equity Securities of PCT.
Pursuant to the Plan, each Allowed Class PCT-6 Equity Securities Interest
will be Reinstated.
D. Summary Of Other Provisions Of The Plan
1. Exit Financing
The Companies anticipate that they will finalize the material terms of a
new senior secured facility (the "New Senior Secured Facility") prior to
the Confirmation Date, pursuant to which the Companies would have access to
sufficient working capital to maintain their operations, as well as the
operations of the Subsidiaries, during CAI's continued efforts to attract a
Strategic Partner. CAI has commenced discussions with MLGAF, which has
informed CAI that it is considering providing a portion of the New Senior
Secured Facility. In addition, BT Alex. Brown, the Companies' financial
advisor has begun to contact additional potential participants; however, no
definitive agreement has been reached with any entity at this time.
The Companies anticipate that the New Senior Secured Facility, which would
be used to (a) refinance amounts outstanding on the Consummation Date under
the DIP Facility and (b) provide additional borrowing capacity to
Reorganized CAI and the Subsidiaries following the Consummation Date, may
consist of two tranches of secured debt. The first tranche would be
secured by a first priority lien on and security interest in substantially
all of CAI's assets and the second tranche would be secured by a second
priority lien on and security interest in the same assets.
Based on its experience, BT Alex. Brown has compiled a list of potential
lenders to participate in the New Senior Secured Facility. As of June 25,
1998, eight potential lenders have expressed some interest in participating
in the facility and have requested confidentiality agreements. Four of
those eight potential lenders have signed a confidentiality agreement and
have received information regarding the restructuring. As of that same
date, BT Alex. Brown had not received any proposals or term sheets for any
portion of the New Senior Secured Facility from any potential lender other
than MLGAF, which has indicated a willingness to participate in a portion
of such facility, subject to agreement on satisfactory terms and
conditions. BT Alex. Brown expects that any potential New Senior Secured
Facility lender, including MLGAF, will require a market interest rate and
an equity stake in Reorganized CAI. Additional information regarding the
status and terms of the New Senior Secured Facility is expected to be
provided before the Voting Deadline by a supplement to the Disclosure
Statement.
2. Releases and Satisfaction of Subordination Rights
All Claims of the holders of the Secured Notes, Senior Notes and the
Subordinated Notes against CAI or PCT and all rights and claims between or
among such holders relating in any manner whatsoever to any claimed
subordination rights (if any), will be deemed satisfied by the
distributions under, described in, contemplated by, and/or implemented by
the Plan to holders of Claims having such subordination rights, and such
subordination rights will be deemed waived, released, discharged, and
terminated as of the Consummation Date, and all actions related to the
enforcement of such subordination rights will be permanently enjoined.
Distributions under, described in, contemplated by, and/or implemented by
the Plan to the various Classes of Claims thereunder will not be subject to
levy, garnishment, attachment, or like legal process by any holder of a
Claim, including, but not limited to, holders of Secured Note Claims,
Senior Note Claims and Subordinated Note Claims, by reason of any claimed
subordination rights or otherwise, so that each holder of a Claim will have
and receive the benefit of the distributions in the manner set forth in the
Plan.
3. Continued Corporate Existence
Following confirmation and consummation of the Plan, each of the Companies
and the other Subsidiaries will continue to exist as separate corporate
entities in accordance with the laws of their respective states of
incorporation and pursuant to their respective certificates of
incorporation and by-laws in effect prior to Consummation, except to the
extent such certificates of incorporation and by-laws are amended under the
Plan. The certificate of incorporation and by-laws of each of the
Companies will be amended as necessary to satisfy the provisions of the
Plan and the Bankruptcy Code and will include, among other things, pursuant
to Section 1123(a)(6) of the Bankruptcy Code, (x) a provision prohibiting
the issuance of non-voting equity securities, and if applicable (y) a
provision as to the classes of securities issued pursuant to the Plan or
thereafter possessing voting power, for an appropriate distribution of such
power among such classes, including, in the case of any class of equity
securities having a preference over another class of equity securities with
respect to dividends, adequate provisions for the election of directors
representing such preferred class in the event of default in the payment of
such dividends. The Amended Certificate of Incorporation of CAI also will
include, among other things, a provision authorizing a capital stock of 25
million shares of New Common Stock, $.01 par value per share.
4. Sale Of MDU Assets By the Companies
PCT and CAI have entered into a binding letter of intent (the ALOI@) with
Mid-Atlantic Telcom Plus, d/b/a OnePoint Communications (AOnePoint@),
providing for the sale by the Companies to OnePoint of their assets used in
the provision of subscription video services to 64 multi-dwelling units
located in and around the greater Philadelphia area (the AMDU Assets").
The proposed purchase price for the MDU Assets is $6 million, 92% of which
will be delivered to CAI and PCT at closing and 8% of which will be held in
escrow for a period up to 6 months, pending the technical conversion
required to convert the MDUs to OnePoint's distribution system.
Consummation of the transactions contemplated by the LOI is subject to the
satisfaction of a variety of conditions, including Bankruptcy Court
approval.
5. Revesting of Assets
Pursuant to Section 1141(b) of the Bankruptcy Code, all property of each
Company's Estate, together with any property of either Company that is not
property of its Estate and that is not specifically disposed of pursuant to
the Plan, shall revest in CAI or PCT, as the case may be, on the
Confirmation Date. Thereafter, the Companies may operate their businesses
and may use, acquire, and dispose of property free of any restrictions of
the Bankruptcy Code, the Bankruptcy Rules, and the Bankruptcy Court. As of
the Confirmation Date, all property of each Company shall be free and clear
of all Claims and Interests, except as specifically provided in the Plan or
the Confirmation Order. Without limiting the generality of the foregoing,
each Company may, without application to or approval by the Bankruptcy
Court, pay fees that it incurs after the Confirmation Date for professional
fees and expenses.
6. Distributions Under the Plan
(a) General
On or as soon as is practicable after the Consummation Date, to the extent
that the Plan provides for distributions on account of Allowed Claims in
the applicable Class, each holder of an Allowed Claim will receive the full
amount of the distributions that the Plan provides for Allowed Claims in
the applicable Class. Beginning on the Distribution Date and every 180
days thereafter, distributions will also be made, pursuant to Articles III,
VII, and IX of the Plan, respectively, to (a) holders of Claims to whom a
distribution has become deliverable during the period since the immediately
preceding distribution date and (b) to holders of Disputed Claims whose
Claims were Allowed during the period since the immediately preceding
distribution date. Such interim distributions will also be in the full
amount that the Plan provides for Allowed Claims in the applicable Class.
Except as otherwise provided in the Plan or the Confirmation Order, all
Cash necessary for the Reorganized Companies to make payments pursuant to
the Plan will be obtained from Reorganized CAI's existing Cash balances,
Reorganized CAI's ongoing operations, or the New Senior Secured Facility.
CAI or such third party Disbursing Agent(s) as it may employ in its sole
discretion will initially make all distributions of Cash, New Senior Notes,
New Common Stock and other property required to be distributed under the
applicable provisions of the Plan. Any Disbursing Agent (including, if
applicable, Reorganized CAI in its capacity as such) may employ or contract
with other entities to assist in or make the distributions required by the
Plan. Each Disbursing Agent will serve without bond, and each third party
Disbursing Agent will receive, without further Bankruptcy Court approval,
reasonable compensation for distribution services rendered pursuant to the
Plan and reimbursement of reasonable out-of-pocket expenses incurred in
connection with such services from Reorganized CAI on terms acceptable to
Reorganized CAI.
Cash payments made pursuant to the Plan will be in U.S. dollars by checks
drawn on a domestic bank selected by Reorganized CAI, or by wire transfer
from a domestic bank, at the option of Reorganized CAI. Cash payments of
$1,000,000 or more to be made pursuant to the Plan will, to the extent
requested in writing no later than five days after the Confirmation Date,
be made by wire transfer from a domestic bank. Cash payments to foreign
creditors may be made, at the option of Reorganized CAI, in such funds and
by such means as are necessary or customary in a particular foreign
jurisdiction.
(b) Distributions For Claims Allowed As Of The Consummation Date
Except as otherwise provided in the Plan or as ordered by the Bankruptcy
Court, distributions to be made on account of Claims that are Allowed
Claims as of the Consummation Date will be made on the Distribution Date,
or as soon thereafter as practicable. Securities to be issued will be
deemed issued as of the Distribution Date regardless of the date on which
they are actually distributed. Distributions on account of Claims that
first become Allowed Claims after the Consummation Date shall be made
pursuant to Articles III, VII, and IX of the Plan.
(c) Record Date For Distributions To Holders Of Senior Notes
The record date for distributions to holders of Senior Notes will be the
seventh (7th) Business Day following entry of the Confirmation Order (the
"Distribution Record Date"). At the close of business on the Distribution
Record Date, the transfer ledgers for the Senior Notes including, but not
limited to the transfer ledgers of the Indenture Trustee, will be closed,
and there will be no further changes in the record holders of the Senior
Notes. Reorganized CAI, the Indenture Trustee, and the Disbursing Agent,
if any, will have no obligation to recognize any transfer of such Senior
Notes occurring after the Distribution Record Date and will be entitled
instead to recognize and deal for all purposes with only those record
holders stated on the transfer ledgers as of the close of business on the
Distribution Record Date.
(d) Calculation Of Distribution Amounts Of New Common Stock
No fractional shares or units of New Common Stock will be issued or
distributed under the Plan or by Reorganized CAI or any Disbursing Agent,
indenture trustee, agent, or servicer. Each Person entitled to receive New
Common Stock will receive the total number of whole shares of New Common
Stock to which such Person is entitled. Whenever any distribution to a
particular Person would otherwise call for distribution of a fraction of a
share of New Common Stock, the Disbursing Agent will allocate separately
one whole share to such Persons in order of the fractional portion of their
entitlements, starting with the largest such fractional portion, until all
remaining whole shares have been allocated. Upon the allocation of a whole
share to a Person in respect of the fractional portion of its entitlement,
such fractional portion will be canceled. If two or more Persons are
entitled to equal fractional entitlements and the number of Persons so
entitled exceeds the number of whole shares which remain to be allocated,
the Disbursing Agent will allocate the remaining whole shares to such
holders by random lot or such other impartial method as the Disbursing
Agent deems fair. Upon the allocation of all of the whole shares
authorized under the Plan, all remaining fractional portions of the
entitlements will be canceled and will be of no further force and effect.
(e) Delivery Of Distributions
Distributions to holders of Allowed Claims will be made by the Disbursing
Agent or the appropriate indenture trustee, agent, or servicer, as the case
may be, (a) at the addresses set forth on the proofs of Claim filed by such
holders (or at the last known addresses of such holders if no proof of
Claim is filed or if the applicable Company has been notified of a change
of address), (b) at the addresses set forth in any written notices of
address changes delivered to the Disbursing Agent after the date of any
related proof of Claim, (c) at the addresses reflected in the Schedules if
no proof of Claim has been filed and the Disbursing Agent has not received
a written notice of a change of address, (d) in the case of the holder of a
Claim that is governed by an indenture or other agreement and is
administered by an indenture trustee, agent, or servicer, at the addresses
contained in the official records of such indenture trustee, agent, or
servicer, or (e) at the addresses set forth in a properly completed letter
of transmittal accompanying securities properly remitted to the Companies.
If any holder's distribution is returned as undeliverable, no further
distributions to such holder will be made unless and until the Disbursing
Agent or the appropriate indenture trustee, agent, or servicer is notified
of such holder's then current address, at which time all missed
distributions will be made to such holder without interest. Amounts in
respect of undeliverable distributions made through the Disbursing Agent or
the indenture trustee, agent, or servicer, shall be returned to the
Reorganized Companies until such distributions are claimed. All claims for
undeliverable distributions must be made on or before the second (2nd)
anniversary of the Consummation Date, after which date all unclaimed
property will revert to the Reorganized Companies free of any restrictions
thereon and the claim of any holder or successor to such holder with
respect to such property will be discharged and forever barred,
notwithstanding any federal or state escheat laws to the contrary.
(f) Fractional Dollars; De Minimis Distributions
Any other provision of the Plan notwithstanding, no payments of fractions
of dollars will be made. Whenever any payment of a fraction of a dollar
under the Plan would otherwise be called for, the actual payment made will
reflect a rounding of such fraction to the nearest whole dollar (up or
down), with half dollars being rounded down. The Disbursing Agent, or any
indenture trustee, agent, or servicer, as the case may be, will not make
any payment of less than twenty-five dollars ($25.00) with respect to any
Claim unless a request therefor is made in writing to such Disbursing
Agent, indenture trustee, agent, or servicer, as the case may be.
7. Resolution and Treatment of Disputed, Contingent, and Unliquidated
Claims
(a) Objection Deadline; Prosecution Of Objections
The Companies or Reorganized Companies, as the case may be, will be allowed
up to 120 days after the Consummation Date (unless extended by an order of
the Bankruptcy Court) to file objections to Claims with the Bankruptcy
Court and serve such objections upon the holders of each of the Claims to
which objections are made. Notwithstanding the foregoing, nothing
contained in the Plan will limit the Reorganized Companies' right to object
to Claims, if any, filed or amended more than 120 days after the
Consummation Date.
(b) No Distributions Pending Allowance
No payments or distributions will be made with respect to all or any
portion of a Disputed Claim unless and until all objections to such
Disputed Claim have been settled or withdrawn or have been determined by
Final Order, and the Disputed Claim, or some portion thereof, has become an
Allowed Claim. Disputed Claims are Claims, or portions of Claims, that are
neither Allowed Claims nor Disallowed Claims and include, but are not
limited to, Claims that have not been Scheduled by the Companies; Claims
that have been Scheduled at zero or as contingent, unliquidated or
disputed; Claims that are the subject of a proof of Claim that differs in
nature, amount, or priority from the Companies' Schedules; and Claims that
have not yet been allowed or disallowed by a Final Order.
(c) Distribution Reserve
The Reorganized Companies or the Disbursing Agent, as the case may be,
will, on the Consummation Date or as soon thereafter as practicable,
establish and fund (from the Cash, New Senior Notes, New Common Stock, or
other property to be distributed under the Plan) the Distribution Reserve.
In general, the purpose of the Distribution Reserve is to ensure that
sufficient Cash or other property is set aside to distribute to holders of
Disputed Claims the amounts to which they are entitled under the Plan if,
as, and when their Disputed Claims become Allowed Claims. The amount of
Cash or other property to be withheld by the Disbursing Agent on account of
each Disputed Claim will be determined in accordance with the provisions of
Article IX.C.1 of the Plan.
Neither the Disbursing Agent, nor any other party, shall be entitled to
vote any shares of the New Common Stock held in the Distribution Reserve.
In the event that any matter requires approval by the shareholders of
Reorganized CAI prior to the distribution or cancellation of all shares of
New Common Stock from the Distribution Reserve, the shares of New Common
Stock held by the Disbursing Agent shall be deemed not to have been issued,
for voting purposes only.
(d) Distributions After Allowance
The Reorganized Companies or the Disbursing Agent, as the case may be, will
make payments and distributions from the Distribution Reserve to each
holder of a Disputed Claim that has become an Allowed Claim in accordance
with the provisions of the Plan governing the class of Claims to which such
holder belongs. On the next succeeding interim distribution date after the
date that the order or judgment of the Bankruptcy Court allowing all or
part of such Claim becomes a Final Order, the Disbursing Agent will
distribute to the holder of such Claim any Cash, New Senior Notes, New
Common Stock, or other property in the Distribution Reserve that would have
been distributed on the Distribution Date had such Allowed Claim been
allowed on the Distribution Date. After a Final Order has been entered, or
other final resolution has been reached, with respect to each Disputed
Claim (i) any New Senior Notes or New Common Stock held in the
Distribution Reserve will be distributed Pro Rata to holders of Allowed
Claims entitled thereto under the terms of the Plan and (ii) any Cash or
other property remaining in the Distribution Reserve will become property
of the Reorganized Companies. All distributions made under Article IX.D of
the Plan on account of an Allowed Claim will be made together with any
dividends, payments, or other distributions made on account of, as well as
any obligations arising from, the distributed property, as if such Allowed
Claim had been an Allowed Claim on the Distribution Date. In no event,
however, will the Disbursing Agent be required to make distributions under
Article IX.D of the Plan more frequently than once every 180 days or to
make any individual payments in an amount less than $25.00.
8. Surrender and Cancellation of Securities or Instruments
On or before the Distribution Date, or as soon as practicable thereafter,
each holder of an instrument evidencing a Claim on account of Debt
Securities which are not being Reinstated (a "Certificate") must surrender
such Certificate to the Disbursing Agent, or, with respect to indebtedness
that is governed by an indenture or other agreement, the respective
indenture trustee, agent, or servicer, as the case may be, and such
Certificate will be canceled. No distribution of property under the Plan
will be made to or on behalf of any such holder unless and until the
Certificate is received by the Disbursing Agent or the respective indenture
trustee, agent, or servicer, as the case may be, or the unavailability of
such Certificate is reasonably established to the satisfaction of the
Disbursing Agent or the respective indenture trustee, agent, or servicer,
as the case may be. Any such holder who fails to surrender or cause to be
surrendered such Certificate or fails to execute and deliver an affidavit
of loss and indemnity reasonably satisfactory to the Disbursing Agent or
the respective indenture trustee, agent, or servicer, as the case may be,
prior to the second (2nd) anniversary of the Consummation Date, will be
deemed to have forfeited all rights and Claims in respect of such
Certificate and will not participate in any distribution hereunder, and all
property in respect of such forfeited distribution, including interest
accrued thereon, will revert to Reorganized CAI notwithstanding any federal
or state escheat laws to the contrary.
9. Treatment of Executory Contracts and Unexpired Leases
Under section 365 of the Bankruptcy Code, the Companies have the right,
subject to Bankruptcy Court approval, to assume or reject any executory
contracts or unexpired leases. If CAI or PCT rejects an executory contract
or unexpired lease that was entered into before the Petition Date, it will
be treated as if it had been breached on the date immediately preceding the
Petition Date, and the other party to the agreement may assert a General
Unsecured Claim for damages incurred as a result of the rejection. In the
case of rejection of employment agreements and real property leases,
damages are subject to certain limitations imposed by Sections 365 and 502
of the Bankruptcy Code.
(a) Assumed Contracts and Leases; Related Payments
Except as otherwise provided in the Plan, or in any contract, instrument,
release, indenture or other agreement or document entered into in
connection with the Plan, as of the Consummation Date each of the Companies
will be deemed to have assumed each executory contract and unexpired lease
to which it is a party, unless such contract or lease (i) was previously
assumed or rejected by CAI or PCT, as the case may be, (ii) previously
expired or terminated pursuant to its own terms, or (iii) is the subject of
a motion to reject filed on or before the Confirmation Date. The
Confirmation Order will constitute an order of the Bankruptcy Court under
Section 365 of the Bankruptcy Code approving the contract and lease
assumptions described above, as of the Consummation Date.
Each executory contract and unexpired lease that is assumed and relates to
the use, ability to acquire, or occupancy of real property will include (a)
all modifications, amendments, supplements, restatements, or other
agreements made directly or indirectly by any agreement, instrument, or
other document that in any manner affect such executory contract or
unexpired lease and (b) all executory contracts or unexpired leases
appurtenant to the premises, including all easements, licenses, permits,
rights, privileges, immunities, options, rights of first refusal, powers,
uses, usufructs, reciprocal easement agreements, vaults, tunnel or bridge
agreements or franchises, and any other interests in real estate or rights
in rem related to such premises, unless any of the foregoing agreements has
been rejected pursuant to an order of the Bankruptcy Court or is the
subject of a motion to reject filed on or before the Confirmation Date.
Any monetary amounts by which each executory contract and unexpired lease
to be assumed pursuant to the Plan is in default will be satisfied, under
Section 365(b)(1) of the Bankruptcy Code, at the option of CAI or PCT, or
the assignee of CAI or PCT assuming such contract or lease, by Cure. If
there is a dispute regarding (i) the nature or amount of any Cure, (ii) the
ability of a Reorganized Company or any assignee to provide "adequate
assurance of future performance" (within the meaning of Section 365 of the
Bankruptcy Code) under the contract or lease to be assumed, or (iii) any
other matter pertaining to assumption, Cure will occur following the entry
of a Final Order resolving the dispute and approving the assumption or
assumption and assignment, as the case may be.
(b) Rejected Contracts and Leases; Bar to Rejection Damages
As of the date of this Disclosure Statement, the Companies have not
determined that any of the executory contracts and unexpired leases to
which they, or either of them, are parties will be rejected; provided,
however, that pursuant Section 365 (d)(2) of the Bankruptcy Code, the
Companies reserve the right, at any time prior to the Confirmation Date, to
seek to reject any executory contract or unexpired lease to which they, or
either of them, are a party.
If the rejection by CAI or PCT, pursuant to the Plan or otherwise, of an
executory contract or unexpired lease results in a Claim, then such Claim
will be forever barred and unenforceable against CAI or PCT, or Reorganized
CAI or Reorganized PCT, as the case may be, or the properties of any of
them, unless a proof of Claim is filed with the clerk of the Bankruptcy
Court and served on counsel for the Companies within thirty (30) days after
service of the earlier of (i) notice of entry of the Confirmation Order or
(ii) other notice that the executory contract or unexpired lease has been
rejected.
(c) Compensation and Benefit Programs
Except and to the extent previously assumed by an order of the Bankruptcy
Court on or before the Confirmation Date, all employee compensation and
benefit programs of the Companies, including programs subject to Sections
1114 and 1129(a)(13) of the Bankruptcy Code, entered into before or after
the Petition Date and not since terminated, will be deemed to be, and will
be treated as though they are, executory contracts that are assumed under
Article VIII.A of the Plan, but only to the extent that rights under such
programs are held by the Companies or Persons who are employees of the
Companies as of the Confirmation Date, and the Companies' obligations under
such programs to persons who are employees of the Companies on the
Confirmation Date will survive confirmation of the Plan, except for (i)
executory contracts or plans specifically rejected pursuant to the Plan (to
the extent such rejection does not violate Sections 1114 and 1129(a)(13) of
the Bankruptcy Code) and (ii) executory contracts or plans as have
previously been rejected, are the subject of a motion to reject, or have
been specifically waived by the beneficiaries of any plans or contracts.
Notwithstanding the foregoing, the Employment Agreements to be entered into
with the Key Employees on the Consummation Date will amend and supersede
any other employment agreements and severance plans with or for the benefit
of the Key Employees, and, as amended, will be assumed under the Plan. On
the Consummation Date, the Severance Plan will be terminated. In addition,
pursuant to the requirements of Section 1129(a)(13) of the Bankruptcy Code,
the Plan provides for the continuation of payment by the Companies of all
"retiree benefits," as defined in Section 1114(a) of the Bankruptcy Code,
if any, at previously established levels. The Companies, however, have no
obligations to pay "retiree benefits."
10. Retention of Jurisdiction
Pursuant to Sections 105(a) and 1142 of the Bankruptcy Code, and
notwithstanding entry of the Confirmation Order and occurrence of the
Consummation Date, the Bankruptcy Court will, to the fullest extent
permitted by law, retain exclusive jurisdiction over all matters arising
out of, and related to, the Chapter 11 Case and the Plan, as more fully set
forth in Article XII of the Plan.
11. Bar Dates For Certain Claims
(a) Administrative Claims
The Confirmation Order will establish an Administrative Claims Bar Date for
filing Administrative Claims (except for Professional Fees and the expenses
of the members of the Creditors' Committee (if one has been appointed)),
which date will be 45 days after the Confirmation Date. Holders of
asserted Administrative Claims, except for Professional Fees and the
expenses of the members of the Creditors' Committee (if one has been
appointed), not paid prior to the Confirmation Date must submit proofs of
Claim on or before such Administrative Claims Bar Date or forever be barred
from doing so. The notice of Confirmation to be delivered pursuant to Fed.
R. Bankr. P. 3020(c) and 2002(f) will set forth such date and constitute
notice of this Administrative Claims Bar Date. The Companies, or the
Reorganized Companies, as the case may be, will have 45 days (or such
longer period as may be allowed by order of the Bankruptcy Court) following
the Administrative Claims Bar Date to review and object to such
Administrative Claims before a hearing for determination of allowance of
such Administrative Claims.
(b) Professional Fee Claims
All final requests for compensation or reimbursement of Professional Fees
pursuant to Sections 327, 328, 330, 331, 503(b) or 1103 of the Bankruptcy
Code for services rendered to CAI or the Creditors' Committee (if one has
been appointed) prior to the Consummation Date, including requests under
Section 503(b)(4) of the Bankruptcy Code by any Professional or other
entity for making a substantial contribution in the Chapter 11 Case, must
be filed and served on the Reorganized Companies and their counsel no later
than 45 days after the Consummation Date, unless otherwise ordered by the
Bankruptcy Court. Objections to applications of such Professionals or
other entities for compensation or reimbursement of expenses must be filed
and served on the Reorganized Companies and their counsel, and the
requesting Professional or other entity no later than 45 days (or such
longer period as may be allowed by order of the Bankruptcy Court) after the
date on which the applicable application for compensation or reimbursement
was served.
12. Miscellaneous
(a) Interest On Claims
Unless otherwise specifically provided for in the Plan or Confirmation
Order, or required by applicable bankruptcy law, post-petition interest
will neither accrue nor be paid on Claims, and no holder of a Claim will be
entitled to interest accruing on or after the Petition Date on any Claim.
In addition, interest will neither accrue nor be paid upon any Disputed
Claim in respect of the period from the Petition Date to the date a final
distribution is made thereon if and after such \Disputed Claim becomes an
Allowed Claim.
(b) Preservation Of Rights Of Action; Settlement of Litigation Claims
Except as otherwise provided in the Plan, the Confirmation Order, or in any
document, instrument, release, or other agreement entered into in
connection with the Plan, in accordance with Section 1123(b) of the
Bankruptcy Code, the Reorganized Companies will retain all claims, rights
of action, suits, or proceedings, whether in law or in equity, whether
known or unknown, that the Companies or their Estates may hold against any
person or entity (collectively, "Litigation Claims"), and may enforce, sue
on, settle, or compromise (or decline to do any of the foregoing) any or
all of such Litigation Claims. The failure of the Companies to
specifically list any claim, right of action, suit, or proceeding herein or
in the Plan does not, and will not be deemed to, constitute a waiver or
release by the Companies of such claim, right of action, suit, or
proceeding, and the Reorganized Companies will retain the right to pursue
additional Claims, rights of action, suits or proceedings. In addition, at
any time after the Petition Date and before the Consummation Date,
notwithstanding anything in the Plan to the contrary, the Companies or the
Reorganized Companies may settle some or all of the Litigation Claims with
the approval of the Bankruptcy Court pursuant to Fed. R. Bankr. P. 9019.
(c) Withholding And Reporting Requirements
In connection with the Plan and all distributions thereunder, the
Reorganized Companies shall comply with all withholding and reporting
requirements imposed by any federal, state, local, or foreign taxing
authority, and all distributions hereunder shall be subject to any such
withholding and reporting requirements.
E. Confirmation Of The Plan
Described below are certain important considerations under the Bankruptcy
Code in connection with confirmation of the Plan.
1. Confirmation Hearing
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court, after
notice, to hold a hearing on confirmation of the Plan (the "Confirmation
Hearing"). Section 1128(b) of the Bankruptcy Code provides that any party
in interest may object to confirmation of the Plan.
If the Companies file petitions for relief under Chapter 11 of the
Bankruptcy Code and seek confirmation of the Plan, the Bankruptcy Court
will schedule a Confirmation Hearing. The Companies will provide notice of
the Confirmation Hearing to all known Creditors and Interest holders or
their representatives (the "Confirmation Notice"). The Confirmation
Hearing may be adjourned from time to time by the Bankruptcy Court without
further notice except for an announcement of the adjourned date made at the
Confirmation Hearing or any adjournment thereof. Objections to
confirmation must be filed and served in the manner and within the time set
forth in the Confirmation Notice and must (a) be in writing, (b) comply
with the Federal Rules of Bankruptcy Procedure and the Local Bankruptcy
Rules, (c) set forth the name of the objector, and the nature and amount of
any Claim or Interest asserted by the objector against or in CAI or PCT,
the applicable Estate or its property, and (d) state with particularity the
legal and factual bases for the objection. OBJECTIONS TO CONFIRMATION THAT
ARE NOT TIMELY FILED AND SERVED WILL NOT BE CONSIDERED BY THE BANKRUPTCY
COURT AND WILL BE OVERRULED.
2. Requirements for Confirmation of the Plan
The Bankruptcy Court will determine at the Confirmation Hearing whether the
following requirements for confirmation, set forth in Section 1129 of the
Bankruptcy Code, have been satisfied:
(a) The Plan complies with the applicable provisions of the Bankruptcy
Code.
(b) The Companies have complied with the applicable provisions of the
Bankruptcy Code.
(c) The Plan has been proposed in good faith and not by any means
forbidden by law.
(d) Any payment made or promised by the Companies or by a person issuing
securities or acquiring property under the Plan for services or for costs
and expenses in, or in connection with, the Chapter 11 Case, or in
connection with the Plan and incident to the Chapter 11 Case, has been
disclosed to the Bankruptcy Court, and any such payment made before
confirmation of the Plan is reasonable, or if such payment is to be fixed
after confirmation of the Plan, such payment is subject to the approval of
the Bankruptcy Court as reasonable.
(e) The Companies have disclosed (i) the identity and affiliations of (x)
any individual proposed to serve, after confirmation of the Plan, as a
director, officer, or voting trustee of the Reorganized Companies , (y) any
affiliate of CAI or PCT participating in a joint plan with CAI or PCT, or
(z) any successor to the Companies under the Plan (and the appointment to,
or continuance in, such office of such individual(s) is consistent with the
interests of Creditors and Interest holders and with public policy), and
(ii) the identity of any insider that will be employed or retained by the
Companies and the nature of any compensation for such insider.
(f) With respect to each Class of Claims or Interests, each Impaired
Creditor and Impaired Interest holder either has accepted the Plan or will
receive or retain under the Plan an account of the Claims or Interests held
by such entity, property of a value, as of the Consummation Date, that is
not less than the amount that such entity would receive or retain if the
Companies were liquidated on such date under Chapter 7 of the Bankruptcy
Code. See Section XIV.B -- "Feasibility of the Plan -- Best Interests
Test."
(g) The Plan provides that Administrative Claims and Priority Claims other
than Priority Tax Claims will be paid in full on the Consummation Date and
that Priority Tax Claims will receive on account of such Claims deferred
cash payments, over a period not exceeding six years after the date of
assessment of such Claims, of a value, as of the Consummation Date, equal
to the Allowed Amount of such Claims, except to the extent that the holder
of any such Claim has agreed to a different treatment.
(h) If a Class of Claims is Impaired under the Plan, at least one Class of
Impaired Claims has accepted the Plan, determined without including any
acceptance of the Plan by insiders holding Claims in such Class.
(i) Confirmation of the Plan is not likely to be followed by the
liquidation, or the need for further financial reorganization, of the
Companies or any successor to the Companies under the Plan, unless such
liquidation or reorganization is proposed in the Plan. See Section XIV.A
- -- "Feasibility of the Plan."
(j) The Plan provides for the continuation after the Consummation Date of
all retiree benefits, if any, at the level established pursuant to Section
1114(e)(1)(B) or 1114(g) of the Bankruptcy Code at any time prior to
confirmation of the Plan, for the duration of the period the Companies have
obligated themselves to provide such benefits.
The Companies believe that, upon receipt of the Requisite Acceptances, the
Plan will satisfy all the statutory requirements of Chapter 11 of the
Bankruptcy Code, that the Companies have complied or will have complied
with all of the requirements of Chapter 11, and that the Plan is being
proposed and will be submitted to the Bankruptcy Court in good faith.
3. Confirmation Without Acceptance of All Impaired Classes -- "Cramdown"
CAI will request confirmation of the Plan, as it may be modified from time
to time, under Section 1129(b) of the Bankruptcy Code, and has reserved the
right to modify the Plan to the extent, if any, that confirmation pursuant
to Section 1129(b) of the Bankruptcy Code requires modification.
Section 1129(b) of the Bankruptcy Code provides that a plan can be
confirmed even if it is not accepted by all impaired classes of claims and
interests, as long as at least one impaired class of claims has accepted
it. Thus, if the Requisite Acceptances are received, the Bankruptcy Court
may confirm the Plan notwithstanding the rejection, deemed or otherwise, of
an Impaired Class of Claims or Interests if the Plan "does not discriminate
unfairly" and is "fair and equitable" as to each Impaired Class that has
rejected, or is deemed to have rejected, the Plan.
A plan does not discriminate unfairly within the meaning of the Bankruptcy
Code if a rejecting impaired class is treated equally with respect to other
classes of equal rank. A plan is fair and equitable as to a class of
secured claims that rejects the plan if, among other things, the plan
provides (a) (i) that the holders of claims in the rejecting class retain
the liens securing those claims (whether the property subject to those
liens is retained by the debtor or transferred to another entity) to the
extent of the allowed amount of such claims and (ii) that each holder of a
claim in the rejecting class receives on account of its claim deferred cash
payments totaling at least the allowed amount of that claim, of a value, as
of the effective date of the plan, of at least the value of the holder's
interest in the estate's interest in such property; (b) for the sale,
subject to Section 363(k) of the Bankruptcy Code, of any property that is
subject to the liens securing the claims included in the rejecting class,
free and clear of the liens, with the liens to attach to the proceeds of
the sale, and the treatment of the liens on proceeds under clause (a) or
(c) of this subparagraph; or (c) for the realization by such holders of the
indubitable equivalent of such claims.
A plan is fair and equitable as to a class of unsecured claims that rejects
the plan, if, among other things, the plan provides (a) that each holder of
a claim in the rejecting class will receive or retain on account of its
claim property that has a value, as of the effective date of the plan,
equal to the allowed amount of the claim; or (b) that no holder of a claim
or interest that is junior to the claims of the rejecting class will
receive or retain under the Plan any property on account of such junior
claim or interest.
A plan is fair and equitable as to a class of equity interests that rejects
the plan if the plan provides (a) that each holder of an interest included
in the rejecting class receive or retain on account of that interest
property that has a value, as of the effective date of the plan, equal to
the greatest of the allowed amount of any fixed liquidation preference to
which such holder is entitled, any fixed redemption price to which such
holder is entitled, or the value of such interest; or (b) that no holder of
an interest that is junior to the interest of the rejecting class will
receive or retain under the Plan any property on account of such junior
interest.
As described above, holders of Claims and Interests in Classes CAI-7 and
CAI-8 will not receive or retain property under the Plan on account of
their Claims and Interests in such Classes. Accordingly, under Section
1126(g) of the Bankruptcy Code, such Classes are presumed to have rejected
the Plan. The Companies (a) intend to request confirmation of the Plan
under Section 1129(b) of the Bankruptcy Code notwithstanding the deemed
rejection of the Plan by Classes CAI-7 and CAI-8 and (b) reserve the right
to seek confirmation of the Plan under Section 1129(b) of the Bankruptcy
Code notwithstanding the rejection of the Plan by other classes of Claims.
The Companies believe that the Plan may be confirmed pursuant to the
above-described "cramdown" provisions, over the dissent of certain Classes
of Claims and Interests, in view of the treatment proposed for such
Classes. The Companies believe that the treatment under the Plan of the
holders of Claims and Interests in Classes CAI-7 and CAI-8 will satisfy the
"fair and equitable" test since, although no distribution will be made in
respect of Claims and Interests in such Classes and, as a result, such
Classes will be deemed to have rejected the Plan, no Class junior to these
non-accepting Classes will receive or retain any property under the Plan.
In addition, the Companies do not believe that the Plan unfairly
discriminates against any dissenting Class because all dissenting Classes
of equal rank are treated equally under the Plan.
4. Conditions to Confirmation and Consummation
(a) Conditions To Confirmation
The following are conditions precedent to confirmation of the Plan:
(i) The proposed Confirmation Order shall be in form and substance
reasonably acceptable to the Companies, the Unofficial Noteholders'
Committee, and the Exit Lenders.
(ii) The Companies shall have arranged for credit availability under the
New Senior Secured Facility, in amount, form and substance acceptable to
CAI, to provide the Reorganized Companies with working capital to meet
ordinary and peak requirements and additional borrowings to support future
projects.
(b) Conditions To Consummation
The following are conditions precedent to the occurrence of the
Consummation Date, each of which may be satisfied or waived in accordance
with Article X.C of the Plan:
(i) The Confirmation Order, in form and substance reasonably acceptable to
the Companies, the Unofficial Noteholders' Committee, and the Exit Lenders,
confirming the Plan, as the same may have been modified, must have become a
Final Order and must, among other things, provide that:
(A) the Companies and Reorganized Companies are authorized and directed to
take all actions necessary or appropriate to enter into, implement and
consummate the contracts, instruments, releases, leases, indentures and
other agreements or documents created in connection with the Plan or the
Restructuring;
(B) the provisions of the Confirmation Order are nonseverable and mutually
dependent;
(C) all executory contracts or unexpired leases assumed or assumed and
assigned by the Companies during the Chapter 11 Case or under the Plan
shall remain in full force and effect for the benefit of the Reorganized
Companies or their assignees notwithstanding any provision in such
contract or lease (including those described in Sections 365(b)(2) and (f)
of the Bankruptcy Code) that prohibits such assignment or transfer or that
enables, permits or requires termination of such contract or lease;
(D) the transfers of property by the Companies (a) to the Reorganized
Companies (i) are or will be legal, valid, and effective transfers of
property, (ii) vest or will vest the Reorganized Companies with good title
to such property free and clear of all liens, charges, Claims,
encumbrances, or interests, except as expressly provided in the Plan or
Confirmation Order, (iii) do not and will not constitute avoidable
transfers under the Bankruptcy Code or under applicable bankruptcy or
nonbankruptcy law, and (iv) do not and will not subject any Reorganized
Company to any liability by reason of such transfer under the Bankruptcy
Code or under applicable nonbankruptcy law, including, without limitation,
any laws affecting successor or transferee liability, and (b) to holders of
Claims under the Plan are for good consideration and value and are in the
ordinary course of the Companies' business;
(E) except as expressly provided in the Plan, the Companies are discharged
effective upon the Confirmation Date from any "debt" (as that term is
defined in Section 101(12) of the Bankruptcy Code), and the Companies'
liability in respect thereof is extinguished completely, whether reduced to
judgment or not, liquidated or unliquidated, contingent or noncontingent,
asserted or unasserted, fixed or unfixed, matured or unmatured, disputed or
undisputed, legal or equitable, or known or unknown, or that arose from any
agreement of CAI or PCT that has either been assumed or rejected in the
Chapter 11 Case or pursuant to the Plan, or obligation of CAI or PCT
incurred before the Confirmation Date, or from any conduct of CAI or PCT
prior to the Confirmation Date, or that otherwise arose before the
Confirmation Date, including, without limitation, all interest, if any, on
any such debts, whether such interest accrued before or after the Petition
Date;
(F) the Plan does not provide for the liquidation of all or substantially
all of the property of the Companies and its confirmation is not likely to
be followed by the liquidation of the Reorganized Companies or the need for
further financial reorganization;
(G) all Interests in CAI shall be terminated effective upon the
Consummation Date; and
(H) the New Senior Notes and New Common Stock issued under the Plan in
exchange for Claims against CAI are exempt from registration under the
Securities Act of 1933 pursuant to Section 1145 of the Bankruptcy Code,
except to the extent that holders of New Senior Notes and New Common Stock
are "underwriters," as that term is defined in Section 1145 of the
Bankruptcy Code.
(ii) The Reorganized Companies shall have credit availability under the
New Senior Secured Facility, in amount, form and substance acceptable to
CAI, to provide the Reorganized Companies with working capital to meet
ordinary and peak requirements and additional borrowings to support future
projects.
(iii) The FCC shall have granted CAI's and CS Wireless' transfer of
control applications concerning the ownership changes contemplated by the
Plan on terms and conditions reasonable satisfactory to CAI.
(iv) The FCC's grant of CAI's and CS Wireless' transfer of control
applications shall have become final on terms and conditions reasonably
satisfactory to CAI.
(v) The following agreements, in form satisfactory to the Companies, shall
have been executed and delivered, and all conditions precedent thereto
shall have been satisfied:
(A) Amended Certificate of Incorporation and By-laws of CAI;
(B) Amended Certificate of Incorporation and By-laws of PCT;
(C) New Senior Notes Indenture;
(D) Management Option Plan and Management Option Agreements;
(E) Employment Agreements;
(F) Registration Rights Agreement; and
(G) New Senior Secured Facility.
(vi) All actions, documents and agreements necessary to implement the Plan
shall have been effected or executed.
(c) Waiver Of Conditions
The conditions set forth in Articles X.A and X.B of the Plan, other than
those set forth in Articles X.A.1 and X.B.1, may be waived in whole or in
part by the Companies or the Reorganized Companies without further notice
or a hearing.
5. Modifications and Amendments
The Companies may alter, amend, or modify the Plan or any Exhibits thereto
under Section 1127(a) of the Bankruptcy Code at any time prior to the
Confirmation Date. After the Confirmation Date and prior to "substantial
consummation" of the Plan, as defined in Section 1101(2) of the Bankruptcy
Code, the Companies may, under section 1127(b) of the Bankruptcy Code,
institute proceedings in the Bankruptcy Court to remedy any defect or
omission or reconcile any inconsistencies in the Plan, the Disclosure
Statement approved with respect to the Plan, or the Confirmation Order, and
such matters as may be necessary to carry out the purpose and effect of the
Plan so long as such proceedings do not adversely affect the treatment of
holders of Claims or Interests under the Plan; provided, however, that
prior notice of such proceedings shall be served in accordance with the
Federal Rules of Bankruptcy Procedure or order of the Bankruptcy Court.
F. Effects Of Confirmation
1. Binding Effect
From and after the Consummation Date, the Plan will be binding upon and
inure to the benefit of the Companies, all present and former holders of
Claims against and Interests in the Companies, whether or not such holders
will receive or retain any property or interest in property under the Plan,
their respective successors and assigns, including, but not limited to, the
Reorganized Companies, and all parties-in-interest in the Chapter 11 Case.
2. Discharge Of The Companies
All consideration distributed under the Plan will be in exchange for, and
in complete satisfaction, settlement, discharge, and release of, all Claims
of any nature whatsoever against the Companies or any of their assets or
properties, and, except as otherwise provided in the Plan or in the
Confirmation Order, and regardless of whether any property will have been
distributed or retained pursuant to the Plan on account of such Claims,
upon the Consummation Date, the Companies shall be deemed discharged and
released under Section 1141(d)(1)(A) of the Bankruptcy Code from any and
all Claims, including, but not limited to, demands and liabilities that
arose before the Confirmation Date, any liability (including withdrawal
liability) to the extent such Claims relate to services performed by
employees of the Companies prior to the Petition Date and that arises from
a termination of employment or a termination of any employee or retiree
benefit program regardless of whether such termination occurred prior to or
after the Confirmation Date, and all debts of the kind specified in
Sections 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not
(a) a proof of Claim based upon such debt is filed or deemed filed under
Section 501 of the Bankruptcy Code, (b) a Claim based upon such debt is
Allowed under Section 502 of the Bankruptcy Code, or (c) the holder of a
Claim based upon such debt accepted the Plan. The Confirmation Order will
constitute be a judicial determination of discharge of all liabilities of
the Companies, subject to the Consummation Date occurring.
3. Permanent Injunction
Except as otherwise expressly provided in the Plan or the Confirmation
Order, all entities who have held, hold or may hold Claims against, or
Interests in, the Companies will be permanently enjoined, on and after the
Consummation Date, from (i) commencing or continuing in any manner any
action or other proceeding of any kind with respect to any such Claim or
Interest, (ii) the enforcement, attachment, collection or recovery by any
manner or means of any judgment, award, decree or order against CAI or PCT
on account of any such Claim or Interest, (iii) creating, perfecting or
enforcing any encumbrance of any kind against CAI or PCT or against the
property or interests in property of CAI or PCT on account of any such
Claim or Interest and (iv) asserting any right of setoff, subrogation or
recoupment of any kind against any obligation due from CAI or PCT or
against the property or interests in property of CAI or PCT on account of
any such Claim or Interest. The foregoing injunction will extend to
successors of the Companies (including, without limitation, the Reorganized
Companies) and their respective properties and interests in property.
4. Exculpation and Limitation on Liability
Neither the Reorganized Companies, nor any statutory committee appointed in
the Chapter 11 Case, nor MLGAF or the Unofficial Noteholders' Committee,
nor any of their respective present or former members, officers, directors,
employees, advisors, attorneys, or agents, will have or incur any liability
to any holder of a Claim or an Interest, or any other party in interest, or
any of their respective agents, employees, representatives, financial
advisors, attorneys, or affiliates, or any of their successors or assigns,
for any act or omission in connection with, relating to, or arising out of,
the Solicitation, the Chapter 11 Case, the pursuit of confirmation of the
Plan, the consummation of the Plan, or the administration of the Plan or
the property to be distributed under the Plan, except for their willful
misconduct, and in all respects shall be entitled to reasonably rely upon
the advice of counsel with respect to their duties and responsibilities
under the Plan.
Notwithstanding any other provision of the Plan, no holder of a Claim or
Interest, no other party in interest, none of their respective agents,
employees, representatives, financial advisors, attorneys, or affiliates,
and no successors or assigns of the foregoing, will have any right of
action against the Reorganized Companies, or any statutory committee
appointed in the Chapter 11 Case, or MLGAF or the Unofficial Noteholders'
Committee, or any of their respective present or former members, officers,
directors, employees, advisors, attorneys, or agents, for any act or
omission in connection with, relating to, or arising out of, the
Solicitation, the Chapter 11 Case, the pursuit of confirmation of the Plan,
the consummation of the Plan, or the administration of the Plan or the
property to be distributed under the Plan, except for their willful
misconduct.
The foregoing exculpation and limitation on liability will not, however, in
any manner limit, abridge or otherwise affect the rights, if any, of the
Reorganized Companies to enforce, sue on, settle, or compromise the
Litigation Claims retained pursuant to Article IV.G of the Plan.
IX. TREATMENT OF TRADE CREDITORS AND EMPLOYEES
DURING THE CHAPTER 11 CASE
A. Trade Creditors
If the Companies commence the Chapter 11 Case and seek confirmation of the
Plan, then, notwithstanding provisions of the Bankruptcy Code that would
otherwise require payment of such pre-petition claims to be deferred until
consummation of the Plan, the Companies intend to seek the approval of the
Bankruptcy Court (on, or as soon as possible after, the Petition Date) to
make payments on account of Trade Claims to holders of Trade Claims who
continue to provide the Companies with normal trade credit. If and to the
extent that the Bankruptcy Court does not approve such payments, the Plan
provides that holders of Trade Claims will be paid in full. There can be
no assurance, however, that the Bankruptcy Court will permit an early
payment to the holders of Trade Claims.
B. Employees
If the Companies commence the Chapter 11 Case and seek confirmation of the
Plan, the Companies intend that salaries, wages, accrued paid vacation,
health related benefits, (other than the severance benefits of senior
management, see Section IV.D -- "Corporate Structure and Management of the
Companies -- Employment Agreements") and similar employee benefits will be
unaffected. Employee benefit claims that accrue pre-petition will be
Unimpaired under the terms of the Plan. To ensure the continuity of the
Companies' work force and to further accommodate the Unimpaired treatment
of employee benefits, the Companies intend to seek the approval of the
Bankruptcy Court (on, or as soon as possible after, the Petition Date) to
honor payroll checks outstanding as of the Petition Date (or to issue
replacement checks), to permit employees to use their accrued vacation time
(as long as they remain employees of the Companies ) and to continue paying
medical benefits under the Companies' health plan. There can be no
assurance that the Bankruptcy Court would permit payment of pre-petition
claims of employees at that time or if it does, that it would not impose
limitations on such payments. Employee claims and benefits not paid or
honored, as the case may be, prior to consummation of the Plan will be paid
or honored in full upon consummation of the Plan or as soon thereafter as
such payment or other obligation becomes due or performable.
X. FINANCING DURING AND AFTER THE CHAPTER 11 CASE
A. The DIP Facility
THE FOLLOWING IS A SUMMARY OF CERTAIN TERMS OF THE PROPOSED DIP FACILITY
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DIP FACILITY
AGREEMENT. CERTAIN TERMS USED HEREIN AND NOT OTHERWISE DEFINED HEREIN HAVE
THE MEANINGS ASSIGNED TO THEM IN THE DIP FACILITY AGREEMENT. A COPY OF THE
DIP FACILITY AGREEMENT WILL BE FILED WITH THE BANKRUPTCY COURT IF CAI SEEKS
AUTHORITY TO ENTER INTO THE DIP FACILITY. AS OF THE DATE OF THIS
DISCLOSURE STATEMENT, CAI INTENDS TO SEEK BANKRUPTCY COURT APPROVAL OF THE
DIP FACILITY IF THE COMPANIES COMMENCE THE CHAPTER 11 CASE.
ALTHOUGH THE PLAN AND VARIOUS RELATED MATTERS REFERRED TO IN THIS
DISCLOSURE STATEMENT HAVE BEEN REVIEWED BY AND DISCUSSED WITH MLGAF, THE
UNOFFICIAL NOTEHOLDERS' COMMITTEE, AND THEIR RESPECTIVE REPRESENTATIVES,
AND REFLECT TO SOME EXTENT THE VIEWS OF THOSE PARTIES, THE UNOFFICIAL
NOTEHOLDERS' COMMITTEE HAS NOT APPROVED OR ENDORSED THE PLAN OR RECOMMENDED
THAT OTHER HOLDERS OF SENIOR NOTES VOTE TO ACCEPT THE PLAN. NEVERTHELESS,
MLGAF, THE HOLDER OF A SUBSTANTIAL PRINCIPAL AMOUNT OF SENIOR NOTES, HAS
AGREED TO PROVIDE THE DIP FACILITY, SUBJECT TO FINAL DOCUMENTATION AND
CUSTOMARY CONDITIONS.
1. General
The DIP Facility, which would be provided by MLGAF, is proposed to consist
of the combined deemed and actual purchase on the date of closing of
$60,000,000 of DIP Notes (the "Commitment"). The DIP Notes will consist of
promissory notes to be issued under the DIP Facility Agreement in an amount
equal to (i) the Secured Notes issued under the existing Note Purchase
Agreement, which Secured Notes will be converted into DIP Notes as if there
had been a purchase under the DIP Facility Agreement in an amount equal to
(a) the aggregate principal amount of outstanding Secured Notes as of the
Petition Date plus (b) all accrued interest and fees, plus (ii) new notes
in an amount equal to $60,000,000 minus the aggregate amount of principal,
accrued interest, and fees outstanding under the existing Note Purchase
Agreement as of the Petition Date. The DIP Notes will bear interest at the
rate of 13% per annum, payable at maturity; provided, however, upon receipt
of a fully executed commitment for a New Senior Secured Facility, or other
exit financing satisfactory to MLGAF in its sole discretion, the interest
rate on the DIP Notes will be reduced by 100 basis points. The Commitment
would terminate and all outstanding DIP Facility obligations would be due
and payable on the date (the "Termination Date") that is the earliest of
(a) six (6) months from the date of the commencement of the Chapter 11 Case
and the filing of the Plan by the Companies, (b) the Consummation Date, or
(c) the date of any occurrence of an Event of Default (as defined in the
amended and restated note purchase agreement evidencing the DIP Facility).
The proceeds of the DIP Facility will be used to pay certain transaction
costs and expenses and to provide working capital for the Companies in
accordance with the Budget (as defined in the DIP Facility Agreement). No
portion of the proceeds may be used to commence or prosecute any action or
objection with respect to MLGAF, its claims against the Companies under the
DIP Facility Agreement, or the collateral therefor.
2. Security
The DIP Facility Claims will be (a) entitled to superpriority claim status
under Section 364(c)(1) of the Bankruptcy Code, subject only to a carve-out
(the "Carve-Out") in an aggregate amount not to exceed $1,000,000 for (i)
following the occurrence of an Event of Default or an event that would
constitute an Event of Default with the giving of notice or the lapse of
time or both, the payment of Allowed Professional Fees incurred by the
Companies and any statutory committee appointed in the Chapter 11 Case or
the Unofficial Noteholders' Committee (in addition to compensation
preciously awarded, whether or not paid), (ii) fees payable pursuant to 28
U.S.C. ' 1930, and (iii) fees payable to the Clerk of the Bankruptcy Court;
(b) secured under Section 364(c)(2) of the Bankruptcy Code, subject to the
Carve-Out, by a first priority lien on and security interest in all present
and after acquired property of CAI; (c) secured under Section 364(c)(3) of
the Bankruptcy Code, subject to the Carve-Out, by a junior lien on and
security interest in all property of CAI that is otherwise subject to a
valid and perfected lien or security interest on the Petition Date (other
than a lien or security interest with respect to the Secured Notes, which
will continue to secure CAI's obligations under the DIP Facility); and (d)
secured by a lien on and security interest in substantially all present and
after acquired property of each of the Subsidiaries.
3. Covenants
The DIP Facility contains substantially the same affirmative and negative
covenants as those contained in the existing Note Purchase Agreement. In
addition, the DIP Facility provides for certain informational and other
requirements customary for a debtor-in-possession financing facility, such
as (a) the provision by the Companies of monthly financial statements,
budgets, cash forecasts, and other financial data; (b) the maintenance of
certain cash collateral, lockbox, and other blocked accounts with a bank
satisfactory to MLGAF; (c) restrictions on the payment of pre-petition
Claims (other than those pre-petition Claims that the Companies are
permitted by Bankruptcy Court order to pay); (d) restrictions on the
granting of additional superpriority Claims to any other party; and (e)
certain financial covenants.
4. Events of Default
The DIP Facility contains substantially the same Events of Default as those
contained in the existing Note Purchase Agreement. In addition, the
occurrence of any of the following is an Event of Default under the DIP
Facility: (a) the Chapter 11 Case is dismissed or converted to a
liquidation under Chapter 7 of the Bankruptcy Code; (b) a trustee or
examiner with enlarged powers is appointed in the Chapter 11 Case; (c) any
other superpriority claim or lien equal or superior in priority to those
granted with respect to the DIP Facility is granted in the Chapter 11 Case;
(d) an order granting final approval of the DIP Facility is not entered by
the Bankruptcy Court within 30 days after the Petition Date; (e) any
interim order approving the DIP Facility or the Final Order is stayed,
modified, reversed, or vacated; (f) a material disruption in the senior
management of the Companies or in the composition of the board of directors
of CAI occurs without the prior consent of MLGAF; (g) the Companies'
request to confirm the Plan is withdrawn or the Plan is amended or modified
in a material respect; and (h) the Bankruptcy Court enters an order
granting relief from the automatic stay so as to allow a third to proceed
against any material asset or assets of the Companies.
5. Additional Significant Provisions
The following are certain additional significant provisions of the proposed
DIP Facility: (a) a commitment fee of (x) 1% for the three month period
commencing with the Petition Date, (y) 4% for the next succeeding three
month period, and (z) 2% for each three month period thereafter, of the
aggregate principal amount of the DIP Notes will be due quarterly in
advance and payable on the Maturity Date (as defined in the DIP Facility
Agreement); (b) CAI's obligations under the DIP Facility Agreement will be
guaranteed by each of Subsidiaries that is an obligor under the existing
Note Purchase Agreement; (c) CAI will be required to maintain its existing
cash management system; (d) CAI will be responsible for all costs and
expenses of MLGAF (including attorneys' fees and costs) relating to the
negotiation, documentation, administration, and enforcement of obligations
under the DIP Facility; and (e) MLGAF's obligation to close the DIP
Facility is conditioned upon, among other things, receipt by the Companies
of the Requisite Acceptances of the Plan, the filing of the Plan with the
Bankruptcy Court, entry (within 15 days after the Petition Date) of an
interim order approving the DIP Facility, and receipt by MLGAF of certain
financial information from CAI; and (f) MLGAF will have the right, but not
the obligation, in its sole discretion, to assume up to 35% of any
commitment by another Exit Lender or Lenders in connection with
consummation of an acceptable reorganization plan, on terms at least as
favorable as those set forth in such commitment.
B. Use Of Cash Collateral
The Companies' obligations under the Secured Notes are secured by
substantially all of the assets of CAI and certain of the Subsidiaries.
Cash proceeds of such collateral constitutes "cash collateral" as that term
is defined in Section 363(a) of the Bankruptcy Code. The Bankruptcy Code
requires court approval of the use of cash collateral, unless all parties
holding an interest in such cash collateral consent to the use thereof. In
order to allow the Companies' continued normal operation during the Chapter
11 Case, MLGAF has consented to the Companies' use of its cash collateral
in accordance with the Approved Budget, as that term is defined in the DIP
Facility Agreement.
C. The New Senior Secured Facility
THE FOLLOWING IS A SUMMARY OF CERTAIN ANTICIPATED TERMS OF THE NEW SENIOR
SECURED FACILITY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE NEW
SENIOR SECURED FACILITY. CERTAIN TERMS USED HEREIN AND NOT OTHERWISE
DEFINED HEREIN HAVE THE MEANINGS ASSIGNED TO THEM IN THE NEW SENIOR SECURED
FACILITY.
MLGAF, THE HOLDER OF A SUBSTANTIAL PRINCIPAL AMOUNT OF SENIOR NOTES, IS
CONSIDERING PROVIDING A PORTION OF THE NEW SENIOR SECURED FACILITY, SUBJECT
TO AGREEMENT ON TERMS, FINAL DOCUMENTATION, AND SATISFACTION OF CUSTOMARY
CONDITIONS.
Amounts due and owing under the DIP Facility must be repaid in full on the
Consummation Date in accordance with the terms of the loan agreement
relating to that Facility, unless otherwise expressly agreed by MLGAF.
MLGAF cannot be required to extend the DIP Facility beyond the Consummation
Date. Accordingly, following the Consummation Date, the Companies will
need financing to replace the DIP Facility and to carry on their businesses
and operations. The Companies anticipate that they will finalize the
material terms of a new senior secured facility (the "New Senior Secured
Facility") prior to the Confirmation Date, pursuant to which the Companies
would have access to sufficient working capital to maintain their
operations, as well as the operations of the Subsidiaries, during CAI's
continued efforts to attract a Strategic Partner. CAI has commenced
discussions with MLGAF, which has informed CAI that it is considering
providing a portion of the New Senior Secured Facility. BT Alex. Brown has
begun contacting other potential participants for the facility, but as of
the date of this Disclosure Statement, no definitive agreement has been
executed.
The Companies anticipate that the New Senior Secured Facility, which would
be used to (a) refinance amounts outstanding on the Consummation Date under
the DIP Facility and (b) provide additional borrowing capacity to
Reorganized CAI and the Subsidiaries following the Consummation Date, may
consist of two tranches of secured debt. The first tranche would be secured
by a first priority lien on and security interest in substantially all of
CAI's assets and the second tranche would be secured by a second priority
lien on and security interest in the same assets. As of June 25, 1998, the
Companies had not received any proposals or term sheets for any portion of
the New Senior Secured Facility from any potential lender other than MLGAF,
which has indicated a willingness to participate in a portion of such
facility, subject to agreement on satisfactory terms and conditions. The
Companies' financial advisor, BT Alex. Brown, expects that any potential
New Senior Secured Facility lender, including MLGAF, will require a market
interest rate and an equity stake in Reorganized CAI.
XI. CERTAIN FACTORS TO BE CONSIDERED
Holders of Impaired Claims who are entitled to vote on the Plan should
carefully consider the following factors before deciding whether to vote to
accept or to reject the Plan.
A. Maintenance Of Operations And Post-Petition Financing
The Companies believe that the Solicitation with respect to the Plan and
the subsequent commencement of the Chapter 11 Case in connection with the
Plan should not materially adversely affect the Companies' relationships
with programmers, customers, employees, and suppliers, as well as the FCC,
provided that the Companies can demonstrate (i) sufficient liquidity to
continue to operate their businesses and (ii) a likelihood of success for
the Plan in a reasonably short time frame. The Companies believe that this
Solicitation offers the most expeditious means to achieve success for the
Plan.
CAI believes that it will be able to obtain debtor-in-possession financing
sufficient to operate its businesses following the commencement of the
Chapter 11 Case. Indeed, CAI already has reached an agreement with MLGAF
for an aggregate commitment of $60 million in debtor-in possession
financing. See Section X.A --"Financing During and After the Chapter 11
Case -- The DIP Facility." A condition to the proposed DIP Facility is
that the Companies receive the Requisite Acceptances of the Plan. Thus,
there can be no assurance at this time that such financing will be
available, that it will be approved by the Bankruptcy Court, or that even
with such financing the Companies will have adequate working capital.
Nevertheless, the Companies believe that each condition can be satisfied
and the DIP Facility will be available. In addition, PCT and certain
non-debtor affiliates of CAI may require additional financing during the
Chapter 11 Case. Although the Companies believes that any such financing
would be available, similarly, no assurances can be given. The Companies'
inability to obtain such financing, in whole or in part, would pose serious
risks to the Companies' viability, and could preclude consummation of the
Plan or any other recapitalization or reorganization. Finally, it is
possible that despite the belief and intent of the Companies, the
Solicitation or the subsequent commencement of the Chapter 11 Case could
materially adversely affect the relationships between the Companies and
their programming suppliers, customers, employees, lessors, or the FCC. If
such relationships were materially adversely affected, the Companies'
working capital position could materially deteriorate. This deterioration
could adversely affect the Companies' ability to complete the Solicitation
or, if the Solicitation is successfully completed, to obtain confirmation
of the Plan.
B. Certain Bankruptcy Considerations
1. General
Although the Companies believe that the successful pre-petition
Solicitation of votes to accept the Plan should lessen the impact of a
subsequent Chapter 11 filing to confirm the Plan, the filing of bankruptcy
petitions by or against the Companies and the publicity attendant thereto
nevertheless may adversely affect the Companies' businesses. The Companies
believe that any such adverse effects may worsen during the pendency of a
protracted bankruptcy case.
2. Effect on Non-Filing Subsidiaries or Affiliates
The filing of the Chapter 11 Case by the Companies and the publicity
attendant thereto might also adversely affect the businesses of the
non-filing Operating Subsidiaries. Because the business of CAI is closely
related to the businesses of the non-filing Operating Subsidiaries, any
downturn in the businesses of the non-filing entities could affect CAI's
prospects also. Although CAI does not believe that the commencement of the
Chapter 11 Case will adversely affect the businesses of the nonfiling
Subsidiaries, if there is a protracted chapter 11 case, the possibility of
adverse effects on such Subsidiaries may increase. Further, while CAI does
not believe that creditors of the Subsidiaries can assert any legal right
to take actions with respect to any Subsidiaries due to the commencement of
the Chapter 11 Case, certain of these creditors could try to take such
actions nonetheless. If this were to occur, the affected Subsidiaries
would not have the benefit of the "automatic stay." Although there can be
no assurance, CAI believes that such actions, if any, by creditors of the
Subsidiaries would not have a material adverse effect on the business or
financial condition of the Subsidiaries, and therefore, on CAI.
3. Failure to Receive Requisite Acceptances
If the Requisite Acceptances are received, the Companies intend to file
voluntary petitions for relief under Chapter 11 of the Bankruptcy Code and
to seek, as promptly thereafter as practicable, confirmation of the Plan.
If the Requisite Acceptances are not received, the Companies may
nevertheless file petitions for relief under Chapter 11 and seek
confirmation of the Plan notwithstanding the dissent of certain Classes of
Claims or Interests. In such event, it is possible that, to satisfy the
Bankruptcy Code's standards for a "cramdown" confirmation, including the
absolute priority rule, the Plan may be modified in a manner that will
materially and adversely affect the treatment provided to any Class that
has rejected the Plan. Alternatively, the Companies may seek to accomplish
an alternative restructuring of its capitalization and its obligations to
securityholders and other creditors and obtain their consent to any such
restructuring plan by means of another out-of-court solicitation for
acceptance of a plan of reorganization for the Companies, or otherwise.
There can be no assurance that the terms of any such alternative
restructuring arrangement or plan would be similar to or as favorable to
the Companies' Creditors as those proposed in the Plan.
4. Failure to Confirm the Plan
Even if the Requisite Acceptances are received and, with respect to those
Classes deemed to have rejected the Plan the requirements for "cramdown"
are met, the Bankruptcy Court, which, as a court of equity may exercise
substantial discretion, may choose not to confirm the Plan. Section 1129
of the Bankruptcy Code requires, among other things, a showing that
confirmation of the Plan will not be followed by liquidation or the need
for further financial reorganization of the Companies (see Section XIV.A --
"Feasibility of the Plan and the Best Interests of Creditors Test --
Feasibility of the Plan"), and that the value of distributions to
dissenting holders of Claims and Interest may not be less than the value
such holders would receive if the Companies were liquidated under Chapter 7
of the Bankruptcy Code (see Section XIV.B -- "Feasibility of the Plan and
the Best Interests of Creditors Tests -- Best Interests Test"). Although
the Companies believe that the Plan will meet such tests, there can be no
assurance that the Bankruptcy Court will reach the same conclusion.
Additionally, the Solicitation must comply with the requirements of Section
1126(b) of the Bankruptcy Code and the applicable Bankruptcy Rules with
respect to the length of the solicitation period, compliance with
applicable non-bankruptcy law, if any, and in the absence of applicable
non-bankruptcy law, the adequacy of the information contained in this
Disclosure Statement, as well as in the Short Form Disclosure Statement.
If the Bankruptcy Court were to find that the Solicitation did not so
comply, all acceptances received pursuant to the Solicitation could be
deemed invalid and the Companies could be forced to resolicit acceptances
under Section 1125(b) of the Bankruptcy Code, in which case confirmation of
the Plan could be delayed and possibly jeopardized. The Companies believe
that the Solicitation complies with the requirements of Section 1126(b) of
the Bankruptcy Code, that duly executed Ballots will be in compliance with
applicable provisions of the Bankruptcy Code, and that the Plan, if the
Requisite Acceptances are received, should be confirmed by the Bankruptcy
Court. There can be no assurance, however, that the Plan will ever be
filed and, if the Plan is filed, there can be no assurance that
modifications thereof will not be required for confirmation, or that such
modifications would not result in a resolicitation of acceptances.
5. Failure to Consummate the Plan
Consummation of the Plan is conditioned upon, among other things, entry of
the Confirmation Order and an order (which may be the Confirmation Order)
approving the assumption and assignment of all executory contracts and
unexpired leases (other than those specifically rejected by the Companies )
to the Reorganized Companies or their assignees, the negotiation and
execution of definitive agreement governing the New Senior Secured
Facility, and FCC approval of CAI's and CS Wireless' transfer of control
applications. As of the date of this Disclosure Statement, there can be no
assurance that any or all of the foregoing conditions will met (or waived)
or that the other conditions to consummation, if any, will be satisfied.
Accordingly, even if the Plan is confirmed by the Bankruptcy Court, there
can be no assurance that the Plan will be consummated and the Restructuring
completed.
C. Certain Tax Considerations
THERE ARE A NUMBER OF MATERIAL INCOME TAX CONSIDERATIONS, RISKS AND
UNCERTAINTIES ASSOCIATED WITH CONSUMMATION OF THE PLAN. INTERESTED PARTIES
SHOULD READ CAREFULLY THE DISCUSSION SET FORTH IN SECTION XIII OF THIS
DISCLOSURE STATEMENT, ENTITLED "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF
THE PLAN" FOR A DISCUSSION OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES
AND RISKS FOR HOLDERS OF CLAIMS AND THE COMPANIES RESULTING FROM THE
TRANSACTIONS OCCURRING IN CONNECTION WITH THE PLAN.
D. Inherent Uncertainty Of Financial Projections
The Projections set forth in Exhibit E hereto cover the Companies'
operations through the period ending March 31, 2008. These Projections are
based on numerous assumptions that are an integral part of the Projections,
including confirmation and consummation of the Plan in accordance with its
terms, the anticipated future performance of the Reorganized Companies,
industry performance, general business and economic conditions, FCC
approvals, competition, adequate financing, absence of material contingent
or unliquidated litigation or indemnity claims, and other matters, many of
which are beyond the control of the Reorganized Companies and some or all
of which may not materialize. In addition, unanticipated events and
circumstances occurring subsequent to the date of this Disclosure Statement
may affect the actual financial results of the Reorganized Companies'
operations. These variations may be material and may adversely affect the
ability of the Reorganized Companies to pay the obligations owing to
certain holders of Claims entitled to distributions under the Plan and
other post-Consummation Date indebtedness. Because the actual results
achieved throughout the periods covered by the Projections may vary from
the projected results, the Projections should not be relied upon as a
guaranty, representation, or other assurance of the actual results that
will occur.
E. Dividends
Reorganized CAI does not anticipate that any dividends will be paid with
respect to the New Common Stock in the near term. The Projections
contemplate no payment of dividends through at least the end of the
projection period ending March 31, 2008.
F. Competition
The subscription television industry is highly competitive. The principal
subscription television competitors in each market are traditional
hard-wire cable, DBS and private cable operators. Hard-wire cable
companies generally are well established and known to potential customers
and have significantly greater financial and other resources than the
Companies. Premium movie services offered by the cable television systems
have encountered significant competition from the home video cassette
recorder industry. In areas where several local off-air VHF/UHF broadcast
channels can be received without the benefit of subscription television,
cable television systems also have faced competition from the availability
of broadcast signals generally and have found market penetration to be more
difficult. Legislative, regulatory and technological developments also may
result in additional and significant competition, including competition
from local telephone companies and from the proposed new LMDS wireless
service. For a more complete discussion of the competition faced by the
Companies, see Section III.B.1 -- "Business Plans for the Reorganized
Companies -- Risk Factors Related to CAI's Business Plan -- Competition and
Technology."
XII. SECURITIES TO BE ISSUED IN CONNECTION WITH THE PLAN
As of the Distribution Date, Reorganized CAI will issue the New Senior
Notes, New Common Stock, and Management Options, referred to collectively
in the Plan as the "New Securities." The New Securities will be issued for
distribution in accordance with the Plan to or for the benefit of holders
of Allowed Claims as follows: (a) the New Senior Notes will be issued to
the holders of Senior Notes on account of their Allowed Class CAI-5 Claims;
(b) the New Common Stock will be issued to the holders of Senior Notes and
the holders of Subordinated Notes on account of their respective Allowed
Class CAI-5, CAI-6, and PCT-5 Claims; and (c) the Management Options will
be issued to certain members of the senior management of Reorganized CAI.
The following discussion summarizes the material provisions of the New
Senior Notes, New Common Stock, and Management Options, including
references, where applicable, to the Amended Certificate of Incorporation
and By-laws of Reorganized CAI. This summary does not purport to be
complete and is qualified in its entirety by reference to the full text of
the New Senior Notes Indenture and Amended CAI Certificate of Incorporation
and By-laws.
A. Description Of Securities To Be Issued
1. New Senior Notes
The principal terms of the New Senior Notes are set forth in Exhibit C to
this Disclosure Statement. The summary contained therein is qualified by
reference to, and may be modified by, the New Senior Notes Indenture
substantially in the form of the indenture to be included in the Plan
Supplement.
2. New Common Stock
The principal terms of the New Common Stock to be issued by Reorganized CAI
under the plan shall be as follows:
Authorization: 25 million shares
Initial Issuance: 15 million shares
Par Value: $.01 per share
Voting Rights: One vote per share
Preemptive Rights: None
Dividends: Payable at the discretion
of the board of directors of Reorganized CAI
3. Management Options
Management Options to purchase up to 10% of the issued shares of New Common
Stock will be issued to certain members of the continuing management of
Reorganized CAI on the Consummation Date pursuant to the Management Option
Plan. For a more detailed discussion of the Management Options, see
Section IV.C -- "Corporate Structure and Management of the Companies --
Management Options."
B. Resale Of Securities Of Reorganized CAI
1. Registration of Securities
Under Section 1145(a) of the Bankruptcy Code, the issuance of the New
Senior Notes and New Common Stock to be distributed under the Plan in
exchange for Claims against CAI and the subsequent resale of such
securities by entities that are not "underwriters" (as defined in Section
1145(b) of the Bankruptcy Code) are not subject to the registration
requirements of Section 5 of the Securities Act of 1933. BECAUSE OF THE
COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A PARTICULAR HOLDER
MAY BE AN UNDERWRITER, CAI MAKES NO REPRESENTATION CONCERNING THE ABILITY
OF ANY PERSON TO DISPOSE OF THE SECURITIES TO BE DISTRIBUTED UNDER THE
PLAN.
Section 1145(b)(1) of the Bankruptcy Code provides:
(b) (1) Except as provided in paragraph (2) of this subsection and except
with respect to ordinary trading transactions of an entity that is not an
issuer, an entity is an underwriter under section 2(11) of the Securities
Act of 1933, if such entity --
(A) purchases a claim against, interest in, or claim for an
administrative expense in the case concerning, the debtor, if such purchase
is with a view to distribution of any security received or to be received
in exchange for such a claim or interest;
(B) offers to sell securities offered or sold under the plan
for the holders of such securities;
(C) offers to buy securities offered or sold under the plan
from the holders of such securities, if such offer to buy is --
(i) with a view to distribution of such securities;
and
(ii) under an agreement made in connection with the
plan, with the consummation of the plan, or with the offer or sale of
securities under the plan; or
(D) is an issuer, as used in such section 2(11), with respect
to such securities.
(2) An entity is not an underwriter under section 2(11) of the
Securities Act of 1933 or under paragraph (1) of this subsection with
respect to an agreement that provides only for --
(A) (i) the matching or combining of fractional interests in
securities offered or sold under the plan into whole interests, or
(ii) the purchase or sale of such fractional interests
from or to entities receiving such fractional interests under the plan; or
(B) the purchase or sale for such entities of such fractional
or whole interests as are necessary to adjust for any remaining fractional
interests after such matching.
(3) An entity other than an entity of the kind specified in paragraph
(1) of this subsection is not an underwriter under section 2(11) of the
Securities Act of 1933 with respect to any securities offered or sold to
such entity in the manner specified in subsection (a)(1) of this section.
(c) An offer or sale of securities of the kind and in the manner specified
under subsection (a)(1) of this section is deemed to be a public offering.
(d) The Trust Indenture Act of 1939 does not apply to a note issued under
the plan that matures not later than one year after effective date of the
plan.
Except as otherwise provided in Section XII.B.2 below, CAI has no present
intention to register under the Securities Act of 1933 the New Senior Notes
or New Common Stock to be (a) distributed to holders of Allowed Senior Note
Claims and Subordinated Note Claims on account of and in exchange for such
Claims or (b) reserved for future purchase pursuant to the exercise of the
Management Options, but does intend to apply for listing of the New Common
Stock on a national securities exchange or quoting in a United States
automated inter-dealer quotation system and to comply with the reporting
requirements of the Exchange Act with respect to the New Common Stock.
2. Registration Rights Agreement
(a) Demand Rights
Reorganized CAI and certain holders of shares of New Common Stock who may
be deemed to be "underwriters" or "affiliates" for purposes of the
Securities Act will enter into a Registration Rights Agreement (the
"Registration Rights Agreement") on or prior to the Consummation Date.
Pursuant to the Registration Rights Agreement, Reorganized CAI will agree
to file with the SEC as soon as practicable after receiving a request from
the holders of not less than 10% of the shares of New Common Stock (subject
to adjustments for stock splits), a registration statement (the
"Registration Statement") on Form S-1 or Form S-3, if use of such a form is
then available, to cover resales of "Registrable Securities" (as defined in
the Registration Rights Agreement) by the holders thereof who satisfy
certain conditions relating to the provision of information in connection
with the Registration Statement. Reorganized CAI will use commercially
reasonable efforts to cause the Registration Statement to be declared
effective by the SEC within 180 days of such demand.
Under the Registration Rights Agreement, "Registrable Securities" means
securities acquired by persons pursuant to or in connection with the Plan
(including New Common Stock, New Senior Notes and securities issuable in
connection with the New Senior Secured Facility or acquired by their
successors and permitted assigns in accordance with the Registration Rights
Agreement (and any securities issued or issuable with respect thereto). If
New Common Stock (or any securities issued or issuable with respect
thereto) are listed on any national securities exchange or included in any
interdealer quotation system, only those securities held by persons deemed
to be "underwriters" or "affiliates" for purposes of the Securities Act
will be deemed to be Registrable Securities.
Pursuant to the terms of the Registration Rights Agreement, the requisite
holders of Registrable Securities who are a party to such agreement will
have the right to make up to two demands each year during the six-year term
thereof for the filing of a Registration Statement; and, if requested, to
maintain the effectiveness of such Registration Statement for 90 days,
provided, however, that such holders may not make a second demand for
registration until 12 months after the date on which the Registration
Statement filed pursuant to the first demand for registration shall have
been declared effective. Only those holders who are deemed to be
"underwriters" or "affiliates" of Reorganized CAI for purposes of the
Securities Act will be permitted to demand the registration of Registrable
Securities pursuant to a shelf registration statement. Reorganized CAI
shall, upon receipt of the demand by the requisite holders, provide notice
within 15 days to all holders of Registrable Securities who are a party to
Registration Rights Agreement. Such holders who respond by requesting the
right to include their Registrable Securities for resale pursuant to the
Registration Statement (the "Participating Holders") shall be entitled to
so participate, subject to certain restrictions and limitations, including,
the right of underwriters to reduce the number of shares being offered for
resale (in the case of an underwritten offering). In the case of any such
reduction, then Reorganized CAI shall include in such registration that
amount of Registrable Securities that Reorganized CAI is so advised can be
sold in (or during the time of) the offering, as follows: first,
securities of any Participating Holder that is an "underwriter" or an
"affiliate" of Reorganized CAI in an amount sufficient to include all the
shares of New Common Stock (or other Registrable Securities, as the case
may be) offered by such Participating Holder or an amount sufficient to
reduce the amount of such Participating Holder's shares of New Common Stock
(or other Registrable Securities, as the case may be) held after the
offering to a level that would cause such Participating Holder to no longer
be an "underwriter" or an "affiliate" of Reorganized CAI, whichever amount
is less; second, such securities duly requested to be included in such
Registration Statement by any other Participating Holder, pro rata on the
basis of the amount of such securities held by such holder; and third, all
other securities of Reorganized CAI duly requested to be included in such
Registration Statement.
(b) Piggyback Rights
If, during the six-year term of the Registration Rights Agreement,
Reorganized CAI proposes to register any of its equity securities under the
Securities Act (other than by a registration statement on Form S-4 or Form
S-8) in a form and a manner that would permit registration of Registrable
Securities held by holders that are parties to such agreement, Reorganized
CAI shall give notice to such holders of such registration. Upon a written
request from such a holder of Registrable Securities requesting that such
holder's shares be included in such registration (which request must be
received by Reorganized CAI within 20 days after such notice has been
given), Reorganized CAI shall use its commercially reasonable efforts to
effect the registration of such Registrable Securities. If Reorganized
CAI's underwriters advise that the Registrable Securities requested to be
included in the registration statement cannot be sold in the time or manner
requested by Reorganized CAI, then Reorganized CAI shall include in such
registration that amount of Registrable Securities that Reorganized CAI is
so advised can be sold in (or during the time of) the offering, as follows:
first, all securities proposed by Reorganized CAI to be sold for its own
account; second, securities of any holder of Registrable Securities that
has properly requested that its Registrable Securities be included in such
registration and that is an "underwriter" or an "affiliate" of Reorganized
CAI in an amount sufficient to include all the shares of New Common Stock
(or other Registrable Securities, as the case may be) offered by such
holder or an amount sufficient to reduce the amount of such holder's shares
of New Common Stock (or other Registrable Securities, as the case may be)
held after the offering to a level that would cause such holder to no
longer be an "underwriter" or an "affiliate" of Reorganized CAI, whichever
amount is less; third, such securities duly requested to be included in
such registration statement by any other holder, pro rata on the basis of
the amount of such securities held by such holder; and fourth, all other
securities of Reorganized CAI duly requested to be included in such
registration statement.
(c) Other
The Registration Rights Agreement contains a variety of other provisions
applicable to either demand or piggyback registrations. Reorganized CAI is
required to pay specified expenses in connection with such registrations
and is required to indemnify the selling stockholders against certain
liabilities, including liabilities under the Securities Act. The
registration rights provided for in the Registration Rights Agreement are
transferable to permitted transferees of Registrable Securities that comply
with specified procedures. Reorganized CAI securities registrable under
such agreement do not include securities listed on a national securities
exchange or included in any interdealer quotation system, except such
securities held by persons deemed to be "underwriters" or "affiliates" of
Reorganized CAI.
3. Lack of Established Market for New Securities
There may be certain restrictions on the ability of holders of New
Securities to sell, transfer, or otherwise freely dispose of such New
Securities received under the Plan if the holders are "issuers" or
"dealers" under Sections 2(11) and 2(12), respectively, of the Securities
Act of 1933, or "underwriters," as defined in Section 1145(b) of the
Bankruptcy Code. Moreover, the New Securities will be issued pursuant to
the Plan to holders of Allowed Senior Note Claims and Allowed Subordinated
Note Claims, some of whom may prefer to liquidate their investment rather
than hold such securities on a long-term basis. Accordingly, the market
for the New Securities may be volatile, at least for an initial period
after the Distribution Date, and indeed may be depressed for a period of
time immediately following the Consummation Date until the market has had
time to absorb these sales and to observe the post-Consummation Date
performance of Reorganized CAI. Other factors, such as the statutory
restrictions on transferability and the likelihood that Reorganized CAI
will not declare dividends for the foreseeable future, may further depress
the market for the New Common Stock. In addition, although the Plan and
the Projections were prepared based upon an assumed reorganization value
range as described below in Section XIV.D -- "Feasibility of the Plan and
the Best Interests of Creditors Test -- Valuation Of Reorganized CAI," such
valuation was not an estimate of the price at which the New Securities may
trade in the market, and CAI has not attempted to make any such estimate in
connection with the development of the Plan. No assurance can be given as
to the market price that will prevail following the Distribution Date. See
Section XIV.D -- "Feasibility of the Plan and the Best Interests of
Creditors Test -- Valuation Of Reorganized CAI".
XIII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
THE FOLLOWING DISCUSSION, WHICH WAS PREPARED BY CAI AFTER CONSULTATION WITH
ITS COUNSEL, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, SUMMARIZES CERTAIN
ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS PROPOSED IN
THE PLAN TO THE COMPANIES AND TO THE HOLDERS OF CLAIMS AGAINST THE
COMPANIES. THE SUMMARY IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND IS
BASED ON THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "TAX CODE"),
THE TREASURY REGULATIONS PROMULGATED THEREUNDER, JUDICIAL AUTHORITY AND
CURRENT ADMINISTRATIVE RULINGS AND PRACTICE, ALL AS IN EFFECT AS OF THE
DATE HEREOF AND ALL OF WHICH ARE SUBJECT TO CHANGE, POSSIBLY WITH
RETROACTIVE EFFECT THAT COULD ADVERSELY AFFECT THE COMPANIES, THEIR
CREDITORS AND THEIR EQUITY SECURITY HOLDERS.
THE SUMMARY DOES NOT ADDRESS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT
MAY BE RELEVANT TO A PARTICULAR HOLDER OF A CLAIM IN LIGHT OF ITS
PARTICULAR FACTS AND CIRCUMSTANCES OR TO CERTAIN TYPES OF HOLDERS OF CLAIMS
SUBJECT TO SPECIAL TREATMENT UNDER THE TAX CODE (FOR EXAMPLE, FOREIGNERS,
FINANCIAL INSTITUTIONS, BROKER-DEALERS, LIFE INSURANCE COMPANIES AND
TAX-EXEMPT ORGANIZATIONS) AND ALSO DOES NOT DISCUSS ANY ASPECTS OF STATE,
LOCAL, OR FOREIGN TAXATION. FURTHERMORE, THIS DISCUSSION DOES NOT ADDRESS
THE TAX CONSEQUENCES OF THE REORGANIZATION TO CREDITORS HOLDING CLASS CAI-4
AND PCT-4 CLAIMS.
IN ADDITION, A SUBSTANTIAL AMOUNT OF TIME MAY ELAPSE BETWEEN THE
CONFIRMATION DATE AND THE RECEIPT OF A FINAL DISTRIBUTION UNDER THE PLAN.
EVENTS SUBSEQUENT TO THE DATE OF THIS DISCLOSURE STATEMENT, SUCH AS THE
ENACTMENT OF ADDITIONAL TAX LEGISLATION, COURT DECISIONS OR ADMINISTRATIVE
CHANGES, COULD AFFECT THE FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN AND
THE TRANSACTIONS CONTEMPLATED THEREUNDER. NO RULING WILL BE SOUGHT FROM
THE INTERNAL REVENUE SERVICE (THE "SERVICE") WITH RESPECT TO ANY OF THE TAX
ASPECTS OF THE PLAN AND NO OPINION OF COUNSEL HAS HERETOFORE BEEN OBTAINED
BY THE COMPANIES WITH RESPECT THERETO. ACCORDINGLY, EACH HOLDER OF A CLAIM
IS STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISOR REGARDING THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PLAN.
A. Federal Income Tax Consequences To The Companies
1. Cancellation of Indebtedness Income
A taxpayer generally must include in gross income the amount of any
discharged indebtedness realized during the taxable year, except to the
extent payment of such indebtedness would have given rise to a deduction.
Such amounts, however, are not included in income where the discharge of
indebtedness is accomplished pursuant to a plan approved by the court in a
case under the Bankruptcy Code. Instead, the amount of discharged
indebtedness that would otherwise have been required to be included in
income will be applied to reduce certain tax attributes of the taxpayer in
the following order: net operating loss carryovers ("NOLs"), general
business credit carryovers, capital loss carryovers, the taxpayer's basis
in property and foreign tax credit carryovers.
Under the Plan, satisfaction of the Claims would give rise to discharge of
indebtedness income to the Reorganized Companies in an amount equal to the
difference between (i) the sum of the adjusted issue prices of those Claims
that constitute securities for federal income tax purposes and the amount
of those Claims that do not so constitute securities and (ii) the sum of
(a) the amount of Cash, if any, paid by the Reorganized Companies in
partial satisfaction of such Claims and (b) the issue price of any debt
instrument and the fair market value of stock and other consideration
issued in satisfaction of such Claims, except to the extent that the
discharged Claims would have given rise to a deduction had they been paid
in full and a deduction for such amounts has not already been claimed.
CAI estimates that as of July 27, 1998, the amount of its indebtedness that
would be impaired under the Plan is approximately $322 million, which
includes approximately $14 million of accruals of interest that have not
been deducted in computing taxable income (loss) and that CAI believes
would have given rise to a deduction if paid, and that the aggregate amount
of consideration to be issued in satisfaction of such indebtedness is
approximately $260 million as determined for federal income tax purposes
based on the projected recoveries under the Plan (see Section I--
"Introduction -- Summary Of Classification And Treatment Of Claims And
Equity Interests") resulting in discharge of indebtedness of approximately
$62 million. The foregoing dollar figures assume that the issue price
(i.e., the fair market value on the Consummation Date) of the New Senior
Notes (provided that public trading occurs on an "established securities
market") is $100 million. To the extent the issue price of the New Senior
Notes differs from $100 million, the foregoing dollar figures must be
adjusted accordingly. In addition, the appropriate valuation of the
consideration to be paid, is subject to both legal and factual uncertainty
(including issues relating to the proper classification of the securities
to be issued, whether or not they are publicly traded and other factors
discussed), and thus the amount of discharge of indebtedness could differ
substantially from the amounts set forth above.
Because the discharge will be accomplished pursuant to a plan approved by a
court in a case under the Bankruptcy Code and affects certain accruals
which have not been deducted in computing taxable income, Reorganized CAI
will not be required to recognize income in respect of such discharge.
Instead, the amount of such discharge (less the amount of discharged
accruals which have not been deducted in computing taxable income) will
reduce tax attributes existing after the determination of Reorganized CAI's
taxable income for the taxable year in which the discharge occurs.
2. Amount and Utilization of Net Operating Loss Carryforwards
(a) General Limitation on Utilization of NOLs Following an Ownership
Change
Based on its tax returns as filed and its estimates for its fiscal year
ended March 31, 1998, CAI believes that, as of March 31, 1998, it had
approximately $257.9 million of NOLs on a consolidated federal income tax
basis ("Consolidated NOLs") of which approximately $140 million are
separately allocable to CAI. CAI estimates that following consummation of
the Plan (and application of the discharge of indebtedness rules discussed
above and the attribute reduction rules of the Tax Code Section 382
Bankruptcy Exception discussed below), it will have Consolidated NOLs of
approximately $157 million, of which approximately $40 million will be
separately allocable to Reorganized CAI.
In general, a corporation is permitted to carry forward an unutilized net
operating loss for 15 years (20 years for such losses incurred in taxable
years beginning after August 5, 1997) following the year in which the net
operating loss is incurred and may use such NOLs to offset taxable income
recognized in years prior to expiration of the NOLs. The schedule set
forth below shows CAI's estimates of the approximate amount of NOLs
expiring in each of the years indicated.
EXPIRATIONS OF PRE-PLAN NOLS
(AS OF MARCH 31, 1998)
Approximate Pre-Plan NOLs
(Thousands omitted)
Expires Tax
Year Ending March 31 CAI Subsidiaries Total
1999 $ 100 $ 15 $ 115
2000 350 170 520
2001 0 80 80
2002 0 795 795
2003 0 685 685
2004 330 775 1,105
2005 400 1,900 2,300
2006 290 1,240 1,530
2007 485 1,640 2,125
2008 940 3,035 3,975
2009 2,400 6,370 8,770
2010 20,250 17,975 38,225
2011 21,760 27,160 48,920
2012 42,875 24,690 67,565
2013 49,850 31,340 81,190
TOTALS $140,030 $117,700 $257,900
As a result of the issuance of New Common Stock to holders of Class CAI -5
and CAI-6 Claims pursuant to the Plan, CAI and each of its consolidated
Subsidiaries will experience an "ownership change" as defined in Section
382(g) of the Tax Code. In general, an ownership change for these purposes
occurs when the total percentage of stock (determined on the basis of
value) of a corporation owned by one or more "5% shareholders" of the
corporation has increased by more than 50 percentage points of the total
amount of stock in the corporation over the lowest total of the percentage
of such stock that was owned by such "5% shareholders" at any time during
the applicable testing period. For these purposes, certain "public groups"
of less-than 5% shareholders are treated as a single 5% shareholder. The
testing period is generally the shorter of (i) three years or (ii) the
period of time since the corporation's most recent prior ownership change.
CAI's and each of its consolidated Subsidiaries' ownership change should
occur on the Consummation Date (the "Change Date").
Section 382 of the Tax Code generally restricts a corporation's utilization
of its NOLs after the corporation undergoes an ownership change by limiting
the amount of income earned by the corporation after the ownership change
that may be offset by the NOLs that arose prior to the ownership change to
an annual amount equal to the equity value of the corporation on the Change
Date multiplied by the "long term tax-exempt rate," currently 5.15% (the
"Section 382 Limitation"). Where the general Section 382 Limitation
applies, if the loss corporation does not continue its pre-ownership change
business enterprise for two years following the Change Date, its Section
382 Limitation will be zero (the "Continuity of Business Requirement").
CAI has taken the position in filing its tax returns to date that it
underwent an ownership change on September 29, 1995. Based on CAI's
computation of the effect of the Section 382 Limitation resulting from that
ownership change, $6.3 million of the Consolidated NOLs may not be utilized
prior to the fiscal year ending March 31, 2000. Moreover, as more fully
described above in Section II.E -- "General Information -- History of
CAI," on March 3, 1998, CAI acquired the BANX Securities which were
convertible into or could be exercised to obtain approximately a 45% pro
forma ownership interest in CAI. While the position is not free from
doubt, CAI does not believe that the acquisition of the BANX Securities
should adversely affect its NOLs or the Consolidated NOLs.
(b) The Bankruptcy Exception
Notwithstanding an ownership change under Section 382(g) of the Tax Code,
the Section 382 Limitation does not apply (unless the corporation elects
for it to apply), where (i) immediately before the ownership change the
corporation is under the jurisdiction of a court pursuant to Chapter 11 of
the Bankruptcy Code, (ii) such ownership change results from the
court-approved plan of reorganization and (iii) the post-reorganization
stock ownership of the corporation satisfies certain conditions (the
"Bankruptcy Exception"). The stock ownership condition requires that the
stockholders and certain creditors of the corporation (described below),
determined immediately before the ownership change, own (after such
ownership change and as a result of being stockholders or creditors
immediately before such change) in the aggregate, stock of the corporation
having 50% or more of both the value and voting power of the total
outstanding stock of the reorganized corporation. For purposes of the
Bankruptcy Exception, stock received by creditors in satisfaction of their
debt claims against the corporation will only be counted to the extent such
creditors received such stock in satisfaction of (i) indebtedness held by
such creditors for at least 18 months before the filing of the Chapter 11
petition with respect to the corporation or (ii) indebtedness which arose
in the ordinary course of the trade or business of the corporation and
which at all times has been held by such creditors. For purposes of
determining whether the post-reorganization stock ownership requirements
are met, Reorganized CAI generally must determine whether a creditor who
becomes a 5% shareholder as a result of the reorganization held the debt
for the requisite 18 months prior to the commencement of the Chapter 11
Case, and may rely on a written statement of the creditor, signed under
penalties of perjury, to that effect. In general, absent actual knowledge
to the contrary, Reorganized CAI may presume that a creditor that is not a
5% shareholder immediately after the ownership change held the debt for the
18-month period.
Even where the Bankruptcy Exception applies, Reorganized CAI's ability to
utilize the Consolidated NOLs (including its separate NOLs and other tax
attributes) will be effectively eliminated if Reorganized CAI undergoes
another ownership change within two years of the Consummation Date. In
addition, although the Continuity of Business Requirement discussed above
is not applicable to an ownership change to which the Bankruptcy Exception
applies, Reorganized CAI's ability to utilize the Consolidated NOLs
following consummation of the Plan may be challenged under Section 269 of
the Tax Code, as discussed below, unless Reorganized CAI and its
Subsidiaries conduct more than an insignificant amount of an active trade
or business following the ownership change.
Because (i) CAI will be under the jurisdiction of a court in a case under
Chapter 11 of the Bankruptcy Code, (ii) an ownership change with respect to
CAI is expected to occur as a result of the confirmation of the Plan by the
Bankruptcy Court and (iii) CAI believes that the post-Consummation Date
stock ownership requirements of the Bankruptcy Exception should be met and
confirmed in accordance with the rules discussed above, CAI intends to take
the position that the Bankruptcy Exception will apply to the ownership
change that will occur with respect to itself and, although there is no
direct authority on point, its Subsidiaries on the Consummation Date.
Furthermore, CAI intends to take the position that Section 269 of the Tax
Code and the Treasury regulations thereunder should not apply because,
among other things, CAI expects that it and each of its Subsidiaries will
continue their respective current operations following the Consummation
Date. CAI believes that the application of the Bankruptcy Exception would
be beneficial, and, accordingly, CAI does not expect that Reorganized CAI
will make the election to have the Section 382 Limitation apply in lieu of
the Bankruptcy Exception.
There can be no assurance that the Service will not seek to challenge CAI's
position that the Bankruptcy Exception applies to the ownership change or
that such a challenge, if asserted, would not be sustained by a court of
law. If the Service were successful in challenging CAI's position,
Reorganized CAI's NOLs and the Consolidated NOLs generally would be subject
to the Section 382 Limitation (based on the post-ownership change valuation
of Reorganized CAI) discussed above (increased to reflect the surrender or
cancellation of creditors' Claims for stock). In addition, if the Service
were to assert successfully that Section 269 of the Tax Code applies to
Reorganized CAI, Reorganized CAI's ability to utilize its NOLs and the
Consolidated NOLs following the Consummation Date could be eliminated. As
discussed below, CAI believes that Section 269 should not apply, and would
vigorously contest any attempt by the Service to apply Section 269 of the
Tax Code in this manner.
(c) Reduction in NOLs Required by Bankruptcy Exception
Although Reorganized CAI's NOLs will not be subject to the Section 382
Limitation if the Bankruptcy Exception applies, its NOLs nevertheless will
be reduced by any interest deductions taken by CAI during the taxable year
in which the Consummation Date occurs, on or before such date, and the
three preceding taxable years with respect to indebtedness that was
converted into, or exchanged for, stock pursuant to the Plan.
(d) Risks of a Second Section 382(g) Ownership Change
Reorganized CAI's Consolidated NOLs and other tax attributes would be
eliminated in their entirety if a second ownership change were to occur
during the two-year period following the ownership change that will occur
on the Consummation Date. A second ownership change that occurs after the
two-year period following the Consummation Date would subject Reorganized
CAI's utilization of its and its consolidated group's pre-Consummation Date
NOLs to the general Section 382 Limitation, and could impair or essentially
eliminate the use of NOLs and other tax attributes existing at the time of
such second ownership change. There are no restrictions on the
transferability of New Common Stock to avoid an ownership change within the
two years following the Consummation Date. Accordingly, holders of Claims
should not depend upon the continued existence or utilization of CAI's
Consolidated NOLs following consummation of the Plan.
(e) Section 269 of the Tax Code
Section 269 of the Tax Code grants the Service the power to disallow any
deduction, credit or allowance (including the utilization of NOLs) where a
corporation undertakes certain transactions for the principal purpose of
avoiding or evading Federal income taxes. Specifically, Treasury
Regulation Section 1.269-3(d) provides that unless the corporation carries
on "more than an insignificant amount" of an active trade or business
(which does not have to be the historic trade or business) during and
subsequent to the Title 11 or similar case, an acquisition of control in
connection with an ownership change to which the Bankruptcy Exception
applies is considered to be made for the prohibited purpose, absent strong
evidence to the contrary. The determination of whether more than an
insignificant amount of business is being carried on is based on all the
facts and circumstances, including the amount of business assets that
remain in use and the number of employees who continue employment. As
described in this Disclosure Statement, CAI intends that it and each of its
Subsidiaries will continue operating in substantially the same businesses
in which they now operate. Although there can be no certainty due to the
factual nature of the Section 269 inquiry, CAI believes that the
application of Section 269 of the Tax Code should not adversely affect the
NOLs that it and its Subsidiaries will retain after the Consummation Date
and that, subject to the other risks described herein, those NOLs should be
available to be utilized against future operating income. Moreover,
Reorganized CAI would vigorously contest any challenge brought by the
Service under Section 269 of the Tax Code.
3. Deductions of Accrued Interest and Original Issue Discount by
Reorganized CAI
To the extent a portion of the consideration issued to creditors pursuant
to the Plan is attributable to accrued and unpaid interest on their Claims,
Reorganized CAI would be entitled to interest deductions in the amount of
such accrued interest, to the extent CAI has not already deducted such
amounts. Although the amount of consideration allocable to accrued
interest where creditors are receiving less than the full principal amount
of their claims is unclear under present law, CAI intends to allocate the
full amount of the consideration transferred to creditors pursuant to the
Plan to the principal amount of such creditors' Claims and to take the
position that no amount of the consideration to be received by creditors
pursuant to the Plan is attributable to accrued interest on such creditors'
Claims. The applicable high yield discount obligation ("AHYDO") rules of
sections 163(e)(5) and 163(i) of the Tax Code may affect Reorganized CAI's
ability to deduct interest payments made on the New Senior Notes. Under
those rules, Reorganized CAI would not be entitled to deduct a portion of
the original issue discount accruing on the New Senior Notes and would be
allowed to deduct the remainder of the original issue discount only when
paid. The AHYDO rules apply to debt instruments that have a term of more
than five years, have a yield to maturity that equals or exceeds five
percentage points over the "applicable federal rate" and have "significant
original issue discount." Because the amount of original issue discount,
if any, and the yield to maturity will be determined at the time that a New
Senior Note is issued, it is not possible to determine the precise effect
of the AHYDO rules if they apply. However, CAI does not believe that the
AHYDO rules should materially adversely affect Reorganized CAI. Moreover,
if the AHYDO rules applied to a New Senior Note, a corporate holder may be
treated as receiving dividend income (to the extent of Reorganized CAI's
current and accumulated earnings and profits) solely for purposes of the
dividends received deduction, with respect to that portion of the original
issue discount for which Reorganized CAI is denied a deduction.
4. Tax Classification of the New Senior Notes
CAI intends to take the position that the New Senior Notes are debt for
Federal income tax purposes. Accordingly, CAI intends to (i) measure its
discharge of indebtedness income with respect to the Senior Note Claims by
reference to the issue price of the New Senior Notes and (ii) deduct as
interest and report to holders as interest original issue discount as it
accrues on the New Senior Notes (except to the extent the AHYDO rules, as
discussed above, apply). CAI expects that the New Senior Notes will be
"traded on an established securities market" within the meaning of Section
1273 of the Tax Code and applicable Treasury Regulations, and accordingly,
that their "issue price" will be their fair market value determined as of
the Consummation Date.
Notwithstanding CAI's intended reporting positions set forth above, based
on the terms of the New Senior Notes and the financial condition of
Reorganized CAI, there is a significant risk that the Service could
successfully assert that the New Senior Notes are properly characterized as
equity interests in Reorganized CAI and not as debt for Federal income tax
purposes. In such event, CAI would have a significantly greater amount of
discharge of indebtedness under the Plan and a correspondingly larger
reduction in its NOLs, and would not be permitted to deduct any amounts
payable under the New Senior Notes. CAI believes, however, that it would
qualify for the Bankruptcy Exception even if the New Senior Notes were
treated as equity for tax purposes. Due to the factual nature of the debt
characterization issue, there can be no assurance that CAI's reporting
positions with respect to these issues will be sustained.
5. Alternative Minimum Tax
For purposes of computing Reorganized CAI's regular tax liability, all of
the taxable income recognized in a taxable year generally may be offset by
the carryover of NOLs (to the extent permitted under the Tax Code).
Although all of Reorganized CAI's regular tax liability for a given year
may be reduced to zero by virtue of its NOLs, in any given year,
Reorganized CAI may be subject to the alternative minimum tax ("AMT"). The
AMT imposes a tax equal to the amount by which 20% of a corporation's
alternative minimum taxable income ("AMTI") exceeds the corporation's
regular tax liability. AMTI is calculated pursuant to specific rules in
the Tax Code which eliminate or limit the availability of certain tax
deductions and which include as income certain amounts not generally
included in computing regular tax liability. Of particular importance to
Reorganized CAI is that in calculating AMTI, only 90% of a corporation's
AMTI may be offset by net operating loss carryovers (as computed for these
purposes). Thus, in any year for which Reorganized CAI may be subject to
the AMT, any AMTI recognized would be taxable at an effective rate of 2%
(i.e., 10% of the 20% AMT tax rate).
B. Federal Income Tax Consequences To Holders Of Claims
1. Classes CAI-1, CAI-2, and CAI-3; Classes PCT-1, PCT-2, and PCT-3
On the exchange of its Claim for cash or property, each holder of a Class
CAI-1, CAI-2, CAI-3, PCT-1, PCT-2 or PCT-3 Claim will recognize gain or
loss measured by the difference between the amount realized on the exchange
and its tax basis in such Claim. The amount realized will be equal to the
aggregate fair market value of the cash and/or property received to the
extent not allocable to interest. (See Section XIII.A.3 -- "Federal Income
Tax Consequences to the Companies -- Deductions of Accrued Interest and
Original Issue Discount by Reorganized CAI.") The character and taxation
of any recognized gain or loss will depend on the status of the creditor,
the nature of the Claim in its hands and its holding period. To the extent
a creditor receives property constituting a new obligation which, under
section 1001 of the Tax Code and the Treasury Regulations thereunder, does
not differ materially in kind or extent from such creditor's Claim, such
new obligation should be treated as a continuation of such Claim. As a
result, to the extent such new obligation is treated as a continuation of
such Claim, there should be no federal income tax consequences to such
creditor. Each creditor should consult with its own tax advisors regarding
the consequences to it of receiving cash or property, including a new
obligation, in exchange in whole or in part for its Claim.
2. Class CAI-5 Senior Note Claims; Classes CAI-6 and PCT-5 Subordinated
Note Claims
(a) General
The federal income tax consequences of the implementation of the Plan to
(i) a Class CAI-5 creditor receiving Cash, New Senior Notes and New Common
Stock under the Plan (a "Senior Creditor") and (ii) a Class CAI-6 (and, for
purposes of this discussion, Class PCT-5) creditor receiving New Common
Stock (a "Subordinated Creditor") will depend primarily on a number of
factors, including whether the New Senior Notes are properly classified as
debt or equity for federal income tax purposes, whether the exchanged claim
(a "Senior Claim" or a "Subordinated Claim," respectively) is an obligation
that constitutes a "security" for federal income tax purposes (a "Tax
Security"), and, if a Senior Claim or a Junior Claim, as the case may be,
constitutes a Tax Security, on whether the New Senior Notes constitute Tax
Securities and whether any of the Senior Claims, the Junior Claims, or the
New Senior Notes are considered traded on an established securities market
("publicly traded") for purposes of the original issue discount rules, as
well as marketable securities in the case of the Senior Claims or Junior
Claims or readily tradable in the case of the New Senior Notes, in each
case for purposes of the installment sales rules of the Tax Code. The term
"security" is not defined in the Tax Code or the Treasury Regulations.
Whether a Senior Claim or a Junior Claim constitutes a Tax Security is
based on the facts and circumstances surrounding the origin and nature of
the Senior Claim, the Junior Claim and its respective maturity date.
Generally, stock, and bonds or debentures with an original term of at least
ten years, have been considered to be Tax Securities. In contrast,
instruments with terms of five years or less rarely qualify as Tax
Securities. CAI believes that it is likely, although not entirely free
from doubt, that the Senior Notes and the Subordinated Notes should be
treated as Tax Securities, and intends to take the position that the New
Senior Notes are Tax Securities for federal income tax purposes.
The exchange of Senior Note Claims for Cash, New Senior Notes and New
Common Stock and the exchange of Subordinated Note Claims for New Common
Stock should constitute a recapitalization pursuant to a plan of
reorganization within the meaning of Section 368(a)(1)(E) of the Tax Code.
Accordingly, under current law (i) no gain (except as discussed below in
the case of the exchange of Senior Note Claims) or loss should be
recognized by holders of Class CAI-5 or Class CAI-6 Claims pursuant to the
Plan, (ii) except to the extent, if any, such Cash or securities are
treated as received in satisfaction of interest accrued on such creditor's
Claim after the beginning of such creditor's holding period ("accrued
interest") (see "Accrued Interest on Senior and Subordinated Note Claims,"
below), holders of Class CAI-5 and Class CAI-6 Claims should allocate their
respective basis in such Claims as follows: in the case of Senior Note
Claims, (x) decrease such basis by the amount of Cash received (other than
the amount of Cash attributable to accrued interest), (y) increase such
basis by the amount of gain, if any, to be recognized as described below
and (z) allocate such basis as adjusted among the New Senior Notes and New
Common Stock based on the relative fair market value of such securities
and, in the case of Subordinated Note Claims, allocate such basis to the
New Common Stock, and (iii) holders of Class CAI-5 and Class CAI-6 Claims
should have tax holding periods for the New Senior Notes and New Common
Stock received in exchange for their Claims (except to the extent such
securities are attributable to accrued interest) that include their
respective tax holding periods for such Claims. As discussed in "Tax
Classification of New Senior Notes," above, although the matter is not free
from doubt, CAI intends to treat the New Senior Notes as debt rather than
equity for federal income tax purposes. Accordingly, holders of Senior
Notes Claims generally would recognize gain with respect to the exchange
equal to the lesser of (X) their realized gain on the exchange (i.e., the
sum of the Cash received plus the fair market value of the New Common Stock
received plus the issue price of the New Senior Notes received (except to
the extent such Cash or securities are attributable to accrued interest),
less the holder's tax basis in such Claims) or (Y) the fair market value of
the amount by which the principal amount of the New Senior Notes exceeds
the principal amount of the exchanged Senior Notes plus the Cash received
(except to the extent such Cash or securities are attributable to accrued
interest).
(b) Accrued Interest on Senior and Subordinated Note Claims
As discussed above, the manner in which consideration is to be allocated
between accrued unpaid interest and principal of the Senior Note Claims and
Subordinated Note Claims for federal income tax purposes is unclear under
present law. Although there can be no assurance with respect to the issue,
CAI intends to take the position that no portion of the consideration
distributed to holders of Class CAI-5 Claims or Class CAI-6 Claims pursuant
to the Plan is allocable to accrued and unpaid interest on the Senior Note
Claims or the Subordinated Note Claims. See Section XIII.A.3 -- "Federal
Income Tax Consequences to the Companies -- Deduction of Accrued Interest
and Original Issue Discount by CAI," above.
A holder of a Class CAI-5 or CAI-6 Claim (a "Note Claim") that previously
included in income accrued but unpaid interest attributable to its Note
Claim should recognize an ordinary loss to the extent that such previously
included accrued interest exceeds the amount of consideration received by
the holder that is attributable to accrued interest for federal income tax
purposes. To the extent a holder of a Note Claim did not previously
include in income accrued but unpaid interest attributable to its Note
Claim, any portion of the consideration received that is allocable to
accrued but unpaid interest should be recognized as ordinary income,
regardless of whether the holder realizes an overall gain or loss upon the
surrender of its Claim or whether such gain or loss is recognized. Based
on CAI's position that no portion of the consideration is allocable to
accrued and unpaid interest on the Note Claims, no such income inclusion
should be required.
Notwithstanding the general discussion above, the basis of a holder of a
Note Claim in New Senior Notes or New Common Stock, as the case may be,
treated as received in satisfaction of accrued interest on the Note Claims,
if any, should be equal to the amount of interest income treated as
satisfied by the receipt of such instruments. Additionally, a creditor's
tax holding period in such stock or bonds, as the case may be, should begin
on the day following the date on which it has a right to receive such
securities. To the extent a creditor is treated as receiving stock or new
securities in exchange for accrued interest on its Claim, absent an express
allocation, it is unclear which of the New Common Stock or New Senior
Notes, as the case may be, would be treated as satisfying any such accrued
interest.
(c) Original Issue Discount on the New Senior Notes
The New Senior Notes would be treated as issued with original issue
discount to the extent their "stated redemption price at maturity" exceeds
their "issue price." An instrument's stated redemption price at maturity
includes all payments required to be made over the term of the instrument
other than payments of "qualified stated interest" (defined generally as
interest that is unconditionally payable in cash or property (other than
debt instruments of the issuer) at least annually at a single fixed rate
that appropriately takes into account the length of periods between
payments). No payments on the New Senior Notes will constitute qualified
stated interest. Accordingly, all interest on the New Senior Notes will be
accounted for under the original issue discount rules. The stated
redemption price at maturity of the New Senior Notes should equal their
stated principal amount.
The determination of the "issue price" of the New Senior Notes depends on
whether either the Senior Note Claims or the New Senior Notes are "traded
on an established securities market" for purposes of the original issue
discount rules. Although the matter is not free from doubt, CAI believes
that the issue price of the New Senior Notes would be determined by
reference to the rules applicable to debt that is traded on an established
securities market or is issued in exchange for property traded on an
established securities market. Accordingly, the issue price of the New
Senior Notes generally would be their fair market value immediately
following their issuance.
A holder of New Senior Notes would be required to include such original
issue discount in taxable income as it accrues using a constant yield to
maturity method, by allocating to each day during the taxable year in which
the holder holds the New Senior Discount Note a pro rata portion of the
original issue discount on such debt instrument which is attributable to
the "accrual period" in which such day is included. The amount of the
original issue discount which is attributable to each full accrual period
will be the product of the "adjusted issue price" at the beginning of such
accrual period multiplied by the "yield to maturity" of the debt
instrument. The adjusted issue price is the issue price of a debt
instrument increased by the accrued original issue discount for all prior
accrual periods and decreased by certain payments (other than qualified
stated interest) made by the issuer to the holder. The yield to maturity
is the discount rate, which when applied to all payments (other than
qualified stated interest) under a debt instrument results in a present
value equal to the issue price. As a consequence, a holder of New Senior
Notes generally would be required to include amounts of original issue
discount in its taxable income in advance of the receipt of cash
attributable thereto.
(d) Bond Premium on New Senior Notes
In general, if the tax basis of New Senior Notes in the hands of a holder
of a Senior Note Claim exceeds the stated redemption price at maturity of
such New Senior Notes, the New Senior Notes will be considered to be issued
with "bond premium." To amortize bond premium, the holder must make an
election that applies to all debt instruments it holds or subsequently
acquires. A holder that elects to amortize bond premium must reduce its
tax basis in the New Senior Notes by an amount equal to the amortized
premium. Additionally, a holder that has a tax basis in its New Senior
Notes in excess of the issue price of such Notes should be permitted to
reduce its original issue discount income with respect to such Notes each
accrual period by such excess at the rate at which the original issue
discount would be included in income. Holders of Senior Note claims having
a relatively high basis in their Senior Note Claims should be able to
offset a substantial portion of their original issue discount income with
respect to the New Senior Notes by amortizing this premium.
(e) Market Discount
The Tax Code generally requires holders of debt instruments with "market
discount," (generally, the amount by which the "revised issue price" of a
debt instrument (i.e., the sum of its issue price plus accrued original
issue discount) exceeds the holder's adjusted tax basis in such debt
instrument), to treat as ordinary income any gain realized on the
disposition of such debt instruments to the extent of the market discount
accrued during the holder's period of ownership. An exception is made for
certain tax-free exchanges, such as the consummation of the Plan. In such
cases, however, on a subsequent disposition of the stock or securities
received in such nonrecognition transactions, gain is treated as ordinary
income to the extent of any market discount accrued prior to (with respect
to the old debt instruments) and after (with respect to the new debt
instruments) the nontaxable exchange. Holders should consult their own tax
advisors as to the potential application of the market discount rules to
them in light of their individual circumstances, and the advisability of
making an election to accrue market discount on a current basis.
(f) Treatment of Distributions and Constructive Distributions if New
Senior Notes are Characterized as Equity
If, contrary to CAI's intended reporting position, the New Senior Notes
were treated as equity for tax purposes, distributions, if any, on the New
Senior Notes prior to maturity generally would be treated as dividends to
the extent of Reorganized CAI's current and accumulated earnings and
profits, then as non-taxable returns of capital to the extent of a holder's
tax basis, and then as capital gains to the extent distributions exceed a
holder's basis. In addition, if the New Senior Notes were treated as
equity, it is likely that the constructive dividend rules of Section 305 of
the Tax Code would apply. In general, Section 305 of the Tax Code requires
that a holder of preferred stock accrue the difference between the
redemption price and the issue price of such stock as dividend income to
the extent of the available earnings and profits of the issuer on a
constant yield to maturity basis similar to the original issue discount
methodology discussed above. In general, the issue price of the New Senior
Notes, if they are treated as equity, would be their fair market value on
the date of issuance, and their redemption price would be the principal
amount. The difference between these two amounts would be accrued into a
holder's income (to the extent of Reorganized CAI's current and accumulated
earnings and profits) over the New Senior Notes' six-year term at their
yield to maturity calculated for this purpose. Because CAI presently has
no accumulated earnings and profits for tax purposes, holders would not be
required to include any dividend income except to the extent that
Reorganized CAI has earnings and profits in future taxable years (including
earnings and profits attributable to discharge of indebtedness on the
Consummation Date or the disposition of assets on or prior to the
Consummation Date). To the extent Reorganized CAI does not have earnings
and profits for tax purposes in future taxable years, holders should not
recognize constructive dividend income.
(g) Sale, Exchange or Redemption of New Common Stock and New Senior
Notes
The sale or exchange of New Common Stock generally should result in capital
gain or loss equal to the difference between the amount realized and the
holder's tax basis in such New Common Stock. Depending upon the
circumstances, a redemption by Reorganized CAI of New Common Stock may
result in capital gain or loss to the holder of such stock, or may be
treated as a dividend, generally taxable as ordinary income to the holder
to the extent of Reorganized CAI's earnings and profits at the time of the
redemption.
In general, subject to the market discount rules discussed above, the sale,
exchange or redemption of the New Senior Notes would result in capital gain
or loss equal to the difference between the amount realized and the
holder's tax basis in such New Senior Notes.
If, contrary to CAI's intended reporting position, the New Senior Notes are
classified as equity, the sale or exchange of the New Senior Notes
generally should result in capital gain or loss equal to the difference
between the amount realized and the holder's tax basis in such New Senior
Notes. Depending upon the circumstances, a redemption by Reorganized CAI
of New Senior Notes may result in capital gain or loss to the holder of
such notes, or may be treated as a dividend, generally taxable as ordinary
income to the holder to the extent of Reorganized CAI's earnings and
profits at the time of the redemption.
XIV. FEASIBILITY OF THE PLAN AND THE BEST INTERESTS OF CREDITORS
TEST
A. Feasibility Of The Plan
In connection with confirmation of the Plan, Section 1129(a)(11) requires
that the Bankruptcy Court find that confirmation of the Plan is not likely
to be followed by the liquidation or the need for further financial
reorganization of the Companies. This is the so-called "feasibility" test.
To support their belief in the feasibility of the Plan, the Companies, with
the assistance of their financial advisors, have prepared financial
projections (the "Projections") of the Companies' through the fiscal year
ending March 31, 2008, as set forth in Exhibit E to this Disclosure
Statement.
The Projections indicate that the Reorganized Companies should have
sufficient cash flow to make the payments required under the Plan on the
Consummation Date and to repay and service debt obligations and to maintain
operations on a going-forward basis as CAI seeks to attract a Strategic
Partner. Accordingly, the Companies believe that the Plan complies with
the standard of Section 1129(a)(11) of the Bankruptcy Code. As noted in
the Projections, however, the Companies caution that no representations can
be made as to the accuracy of the Projections or as to the Reorganized
Companies' ability to achieve the projected results. Many of the
assumptions upon which the Projections are based are subject to
uncertainties outside the control of the Companies. Some assumptions
inevitably will not materialize, and events and circumstances occurring
after the date on which the Projections were prepared may be different from
those assumed or may be unanticipated, and may adversely affect the
Companies' financial results. As discussed elsewhere in this Disclosure
Statement, the Companies have experienced difficulty in (a) maintaining
liquidity, (b) raising sufficient funds to maintain the level capital
expenditure necessary to expand their businesses, and (c) attracting a
Strategic Investor or Strategic Partner, in large part due to CAI's current
capital structure, but also due to actual or perceived problems in the
wireless cable industry in general. Therefore, the actual results may vary
from the projected results and the variations may be material and adverse.
See Section X.I -- "Certain Factors To Be Considered" for a discussion of
certain risk factors that could affect financial feasibility of the Plan.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARD COMPLIANCE WITH THE
GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS OR THE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE
COMMISSION REGARDING PROJECTIONS. FURTHERMORE, THE PROJECTIONS HAVE NOT
BEEN AUDITED BY THE COMPANIES' INDEPENDENT CERTIFIED ACCOUNTANTS. ALTHOUGH
PRESENTED WITH NUMERICAL SPECIFICITY, THE PROJECTIONS ARE BASED UPON A
VARIETY OF ASSUMPTIONS, SOME OF WHICH HAVE NOT BEEN ACHIEVED TO DATE AND
MAY NOT BE REALIZED IN THE FUTURE, AND ARE SUBJECT TO SIGNIFICANT BUSINESS,
LITIGATION, ECONOMIC, AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY
OF WHICH ARE BEYOND THE CONTROL OF THE COMPANIES. CONSEQUENTLY, THE
PROJECTIONS SHOULD NOT BE REGARDED AS A REPRESENTATION OR WARRANTY BY THE
COMPANIES, OR ANY OTHER PERSON, THAT THE PROJECTIONS WILL BE REALIZED.
ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE PRESENTED IN THE PROJECTIONS.
B. Best Interests Test
Even if the Plan is accepted by each class of holders of Impaired Claims,
the Bankruptcy Code requires that the Bankruptcy Court find that the Plan
is in the best interests of all holders of Claims that are Impaired by the
Plan and that have not accepted the Plan. The "best interests" test, set
forth in Section 1129(a)(7) of the Bankruptcy Code, requires the Bankruptcy
Court to find either that all members of an impaired class of claims have
accepted the plan or that the plan will provide a member who has not
accepted the plan with a recovery of property of a value, as of the
effective date of the plan, that is not less than the amount that such
holder would receive or retain if the debtor were liquidated under Chapter
7 of the Bankruptcy Code on such date.
To calculate the probable distribution to members of each impaired class of
holders of claims if a debtor were liquidated under Chapter 7, the
Bankruptcy Court must first determine the aggregate dollar amount that
would be generated from the debtor's assets if its Chapter 11 case were
converted to a Chapter 7 case under the Bankruptcy Code. This "liquidation
value" would consist primarily of the proceeds from a forced sale of the
debtor's assets by a Chapter 7 trustee.
The amount of liquidation value available to holders of Unsecured Claims
against the Companies would be reduced by, first, the claims of Secured
Creditors (to the extent of the value of their collateral), and second, by
the costs and expenses of liquidation, as well as by other administrative
expenses and costs of both the Chapter 7 case and the Chapter 11 Case.
Costs of a liquidation of the Companies under Chapter 7 of the Bankruptcy
Code would include the compensation of a Chapter 7 trustee, as well as of
counsel and other professionals retained by the trustee, asset disposition
expenses, all unpaid expenses incurred by the Companies in the Chapter 11
Case (such as compensation of attorneys, financial advisors, and
accountants) that are allowed in the Chapter 7 case, litigation costs, and
claims arising from the operations of the Companies during the pendency of
the Chapter 11 Case. The liquidation itself would trigger certain priority
payments that otherwise would be due in the ordinary course of business.
Those priority claims would be paid in full from the liquidation proceeds
before the balance would be made available to pay Unsecured Claims or to
make any distribution in respect of Equity Interests. The liquidation
would also prompt the rejection of executory contracts and unexpired leases
and thereby create a significantly greater amount of Unsecured Claims.
In a Chapter 7 liquidation, no junior class of claims may be paid unless
all classes of claims senior to such junior class are paid in full.
Section 510(a) of the Bankruptcy Code provides that subordination
agreements are enforceable in a bankruptcy case to the same extent that
such subordination is enforceable under applicable non-bankruptcy law.
Therefore, no class of claims that is contractually subordinated to another
class would receive any payment on account of its claims, unless and until
such senior class were paid in full.
Once the Bankruptcy Court ascertains the recoveries in liquidation of the
Companies' Secured and Priority Creditors, it would then determine the
probable distribution to Unsecured Creditors from the remaining available
proceeds of the liquidation. If this probable distribution has a value
greater than the distributions to be received by the Unsecured Creditors
under the Plan, then the Plan is not in the best interests of creditors and
cannot be confirmed by the Bankruptcy Court. As shown in the Liquidation
Analysis annexed hereto as Exhibit D, the Companies believe that each
member of each Class of Impaired Claims will receive at least as much, if
not more, under the Plan as they would receive if the Companies were
liquidated. With respect to holders of Class CAI-8 Equity Securities
Interests, who will neither receive nor retain any property under the Plan,
CAI believes that each member of the Class similarly would receive nothing
on account of its Interests in a Chapter 7 liquidation. Because
liquidation would not yield more for such Interest holders, the Plan meets
the requirements of Section 1129(a)(7) as to Interest holders as well.
C. Liquidation Analysis
As noted above, the Companies believe that under the Plan all holders of
Impaired Claims and Impaired Interests will receive property with a value
not less than the value such holder would receive in a liquidation of the
Companies under Chapter 7 of the Bankruptcy Code. The Companies' belief is
based primarily on (i) extensive consideration of the effects that a
Chapter 7 liquidation would have on the ultimate proceeds available for
distribution to Creditors, including, but not limited to, (a) the
increased costs and expenses of a liquidation under Chapter 7 arising from
fees payable to a Chapter 7 trustee and professional advisors to the
trustee, (b) the erosion in value of assets in a Chapter 7 case in the
context of the rapid liquidation required under Chapter 7 and the "forced
sale" atmosphere that would prevail, (c) the adverse effects on the
Companies' businesses as a result of the likely departure of key employees
and the probable loss of subscribers, (d) the substantial increases in
claims, such as estimated contingent claims, which would be satisfied on a
priority basis or on parity with the Creditors of the Chapter 11 Case, (e)
the reduction of value associated with a Chapter 7 trustee's operation of
the Companies' businesses, and (f) the substantial delay in distributions
to the Companies' Creditors that would likely ensue in a Chapter 7
liquidation and (ii) the liquidation analysis prepared by the Companies
with the assistance of BT Alex. Brown, their financial advisors, which is
annexed to this Disclosure Statement as Exhibit D (the "Liquidation
Analysis").
The Companies believe that any liquidation analysis is speculative, as such
an analysis necessarily is premised on assumptions and estimates which are
inherently subject to significant uncertainties and contingencies, many of
which would be beyond the control of the Companies. Thus, there can be no
assurance as to values that would actually be realized in a Chapter 7
liquidation, nor can there be any assurance that a Bankruptcy Court would
accept the Companies' conclusions or concur with such assumptions in making
its determinations under Section 1129(a)(7) of the Bankruptcy Code.
For example, the Liquidation Analysis necessarily contains an estimate of
the amount of Claims which will ultimately become Allowed Claims. This
estimate is based solely upon the Companies' review of their books and
records and the Companies' estimates as to additional Claims that may be
filed in the Chapter 11 Case or that would arise in the event of a
conversion of the case from Chapter 11 to Chapter 7. No order or finding
has been entered by the Bankruptcy Court estimating or otherwise fixing the
amount of Claims at the projected amounts of Allowed Claims set forth in
the Liquidation Analysis. In preparing the Liquidation Analysis, the
Companies have projected an amount of Allowed Claims that is at the lower
end of a range of reasonableness such that, for purposes of the Liquidation
Analysis, the largest possible liquidation dividend to holders of Allowed
Claims can be assessed. The estimate of the amount of Allowed Claims set
forth in the Liquidation Analysis should not be relied on for any other
purpose, including, without limitation, any determination of the value of
any distribution to be made on account of Allowed Claims under the Plan.
To the extent that confirmation of the Plan requires the establishment of
amounts for the Chapter 7 liquidation value of the Companies, funds
available to pay Claims, and the reorganization value of the Companies, the
Bankruptcy Court will determine those amounts at the Confirmation Hearing.
Accordingly, the annexed Liquidation Analysis is provided solely to
disclose to holders the effects of a hypothetical Chapter 7 liquidation of
the Companies, subject to the assumptions set forth therein.
D. Valuation Of Reorganized CAI
In conjunction with formulating the Plan, CAI determined that it was
necessary to estimate a post-confirmation going concern enterprise value
for the reorganized Companies. Accordingly, CAI directed BT Alex. Brown to
prepare such a valuation.
1. Valuation Overview
THE ESTIMATES OF ENTERPRISE VALUE SET FORTH HEREIN REPRESENT HYPOTHETICAL
REORGANIZATION ENTERPRISE VALUES THAT WERE DEVELOPED SOLELY FOR THE PURPOSE
OF THE PLAN. SUCH ESTIMATES REFLECT COMPUTATIONS OF THE ESTIMATED
ENTERPRISE VALUE OF REORGANIZED CAI THROUGH THE APPLICATION OF VARIOUS
GENERALLY ACCEPTED VALUATION TECHNIQUES AND DO NOT REFLECT OR CONSTITUTE
APPRAISALS OF THE ASSETS OF THE COMPANY OR THE ACTUAL MARKET VALUE OF THE
COMPANY. BECAUSE SUCH ESTIMATES ARE INHERENTLY UNCERTAIN, NEITHER THE
COMPANY, NOR BT ALEX. BROWN ASSUMES RESPONSIBILITY FOR THEIR ACCURACY. IN
ADDITION, BT ALEX. BROWN DID NOT INDEPENDENTLY VERIFY THE COMPANY=S
PROJECTIONS IN CONNECTION WITH THE VALUATION, AND NO INDEPENDENT
EVALUATIONS OR APPRAISALS OF THE COMPANY=S ASSETS WERE SOUGHT OR OBTAINED
THEREWITH.
In preparing its analysis, BT Alex. Brown, among other things: (a) reviewed
certain financial statements of CAI for recent years and interim periods;
(b) reviewed certain internal financial and operating data prepared by CAI;
(c) considered the financial projections, and reviewed the assumptions
underlying the financial projections prepared by the management of CAI; (d)
prepared a discounted cash flow analysis for the business of CAI based on
such financial projections; (e) reviewed certain financial and stock market
information of certain publicly traded companies that BT Alex. Brown and
management of CAI believe are in businesses reasonably comparable to the
business of CAI; (f) considered the financial terms, to the extent publicly
available, of certain historical acquisitions of companies and systems
whose businesses are believed to be reasonably comparable to that of CAI;
(g) considered certain economic and industry information relevant to the
business of CAI; (h) discussed the current operations and prospects of the
business with the management of CAI; (i) reviewed various documents
relating to the Plan, including, but not limited to, the Disclosure
Statement; and (j) made such other analyses and examinations as BT Alex.
Brown deemed necessary or appropriate.
2. Methodology
In preparing its valuation, BT Alex. Brown performed a variety of analyses,
and considered a variety of factors. The material analyses and factors are
described below. The following summary of such analyses and factors
considered does not purport to be a complete description of the analyses
and factors considered.
In arriving at its conclusions, BT Alex. Brown placed various weights on
each of the analyses or factors considered by it, and made judgments as to
the significance and relevance of each analysis and factor. BT Alex. Brown
did not consider any one analysis or factor to the exclusion of any other
analysis or factor. Accordingly, BT Alex. Brown believes that its
valuations must be considered as a whole and that selecting portions of its
analyses, without considering all such analyses, could create a misleading
or incomplete view of the processes underlying the preparation of its
findings and conclusions. In its analyses, BT Alex. Brown necessarily made
numerous assumptions with respect to CAI, industry performance, general
business, regulatory, economic, market and financial conditions and other
matters, many of which are beyond CAI'S control. In addition, analyses
relating to the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which such business or securities
will actually trade.
BT Alex. Brown has employed a variety of generally accepted valuation
techniques in estimating CAI'S enterprise value. The total enterprise
value consists of both the debt and equity of CAI. The three primary
methodologies used in calculating the enterprise value are: (1) comparable
public company analysis ("Comparables"); (2) discounted cash flow analysis
("DCF"); and (3) comparable mergers and acquisitions analysis ("M&A").
(a) Comparable Public Company Analysis
In a comparable public company analysis, a company is valued by comparing
it with publicly-held companies in reasonably similar lines of business.
The subject company, together with the comparable companies, may be viewed
as alternative investments available to the prudent investor. The price
that a prudent investor is willing to pay for each company's
publicly-traded securities is related to the perceived future benefits of
ownership and the required rate of return on the investment. The price
also reflects an implied market value of the total company (the enterprise
value).
After analyzing CAI, a universe of comparable companies was compiled from
various sources including conversations with management. In this analysis,
the following five (5) comparable companies were chosen: American
Telecasting, CS Wireless (publicly-held debt only), Heartland Wireless,
People's Choice TV, and Wireless One. It is frequently difficult to
identify companies that are truly comparable to the subject company.
Publicly-held corporations differ in terms of markets, size, financial
structure, organization and corporate strategies. The selected comparable
companies include companies which utilize MMDS spectrum to provide wireless
cable service.
The analytical work performed included, among other things, a detailed
multi-year financial comparison of each company's income statement, balance
sheet and cash flow. Each company's performance, profitability, leverage
and business trends also were examined. Based on certain analyses, a
number of financial multiples and ratios were developed to measure each
company's valuation and relative performance. Specifically, the total
enterprise value (defined as market equity value plus market debt less
excess cash) for each company was compared to its respective gross
line-of-sight households.
(b) Discounted Cash Flow Analysis
Discounted cash flow is another method of valuing a company. The DCF value
represents the present value of unlevered, after-tax cash flows to all
providers of capital using a discount rate. The DCF valuation method
allows an expected operating strategy to be incorporated into a financial
projection model. In essence, the DCF method entails estimating the free
cash flow available to debt and equity investors (i.e., the annual cash
flows generated by the business) and a terminal value of the business at
the end of a time horizon and discounting these flows back to the present
using a discount rate to arrive at the present value of these flows. The
terminal value is determined by assuming the sale of the business at the
end of the time horizon.
CAI's projections, as shown in this Disclosure Statement, reflect
significant assumptions made by CAI's management concerning anticipated
results. The assumptions and judgments used in the projections may or may
not prove to be correct, and there can be no assurance that projected
results are attainable or will be realized. Actual future results may vary
significantly from the forecasts. BT Alex. Brown cannot and does not make
any representations or warranties as to the accuracy or completeness of
CAI's projections.
BT Alex. Brown performed various sensitivity analyses to two principal
variables within the DCF methodology: (i) the discount rate and (ii) the
exit multiple in the terminal year. These sensitivity analyses were
performed, and all the resulting discounted cash flow valuations were
considered, in BT Alex. Brown's final DCF enterprise value conclusion.
(c) Mergers & Acquisitions Analysis
The comparable mergers and acquisitions analysis is another generally
accepted methodology for ascertaining a company's values. When using this
approach, M&A multiples are calculated based upon the purchase price
(including any debt assumed and equity purchased) paid to acquire
businesses comparable to the subject company. These multiples are then
applied to the subject company to determine the implied enterprise value.
Unlike the comparable public company analysis, the valuation in this
methodology includes a "control" premium, and thus, generally produces
higher valuations than the comparables methodology. For purposes of
estimating the enterprise value of CAI, BT Alex. Brown used the transaction
values of a selected group of transactions. As with the comparables
analysis, since no acquisition used in any analysis is identical to a
target transaction, valuation conclusions cannot be based solely on
quantitative results. The reasons for and circumstances surrounding each
acquisition transaction are specific to such transaction and there are
inherent differences between the businesses, operations and prospects of
each. Therefore, qualitative judgments must be made concerning the
differences between the characteristics of these transactions and other
factors and issues which could affect the price an acquiror is willing to
pay in an acquisition.
Utilizing publicly available information, BT Alex. Brown evaluated a series
of transactions involving companies in the wireless cable industry. The
transactions considered included seven (7) transactions between 1996 and
1997: BellSouth's acquisition of systems in New Orleans, Atlanta and other
Georgia markets, Miami and other Florida markets; PCTV's acquisition of
systems in Salt Lake City and other Utah markets; and CS Wireless's
acquisition of a system in Kansas City. As in the Comparables methodology,
total enterprise value to gross line-of-sight households is the preferred
valuation statistic.
3. Valuation of Reorganized CAI
BT Alex. Brown has advised CAI that for purposes of the valuation expressed
below, BT Alex. Brown assumed that, as of the Consummation Date: (i) the
proposed capitalization of CAI will be as set forth in the Plan and
Disclosure Statement; (ii) market, business and general economic conditions
will be similar to conditions observed; (iii) the financial and other
information furnished to BT Alex. Brown by CAI and its professionals and
the publicly available information are accurate and complete; and (iv) the
Plan is confirmed without material changes. Based upon its analyses, the
assumptions made, matters considered and limits of review as set forth
above, BT Alex. Brown has concluded that an appropriate estimate for the
post-confirmation going concern enterprise value of CAI would be
approximately $293 million.
XV. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
The Companies believe that the Plan affords holders of Claims the potential
for the greatest realization on the Companies' assets and, therefore, is in
the best interests of such holders. If, however, the Requisite Acceptances
are not received, or the Requisite Acceptances are received, the Chapter 11
Case is commenced, and the Plan is not subsequently confirmed and
consummated, the theoretical alternatives include: (a) commencement of a
"non-prepackaged" or "traditional" Chapter 11 case, (b) formulation of an
alternative plan or plans of reorganization, or (c) liquidation of the
Companies under Chapter 7 or 11 of the Bankruptcy Code.
A. Commencement Of A "Traditional" Chapter 11 Case
If the Requisite Acceptances are not received, the Companies nevertheless
could commence "traditional" Chapter 11 cases (for themselves and/or some
or all of the Subsidiaries), in which circumstance they could continue to
operate their businesses and manage its properties as a
debtor-in-possession, but would become subject to the numerous restrictions
imposed on debtors-in-possession by the Bankruptcy Code. It is not clear
whether the Companies could survive as going concerns in a protracted
Chapter 11 case. They could have difficulty sustaining operations in the
face of the high costs, erosion of customer confidence, and liquidity
difficulties that could well result if they remained Chapter 11
debtors-in-possession for any length of time. Ultimately, the Companies
(or other parties in interest) could propose another plan or liquidate the
Companies under Chapter 7 or Chapter 11 of the Bankruptcy Code.
B. Alternative Plan(s)
If the Requisite Acceptances are not received or if the Plan is not
confirmed, the Companies (or, if the Companies' exclusive periods in which
to file and solicit acceptances of a reorganization plan have expired, any
other party-in-interest) could attempt to formulate and propose a different
plan or plans of reorganization. Such a plan or plan(s) might involve
either a reorganization and continuation of the Companies' businesses or an
orderly liquidation of assets.
With respect to an alternative plan, the Companies have explored various
other alternatives in connection with the extensive negotiation process
involved in the formulation and development of the Plan. The Companies
believe that the Plan, as described herein, the result of extensive
negotiations between the Companies and various creditor constituencies,
enables Creditors to realize the greatest possible value under the
circumstances, and, that as compared to any alternative plan of
reorganization, the Plan has the greatest chance to be confirmed and
consummated.
C. Liquidation Under Chapter 7 Or Chapter 11
If no plan is confirmed, the Chapter 11 Case may be converted to a case
under Chapter 7 of the Bankruptcy Code, pursuant to which a trustee would
be elected or appointed to liquidate the Companies' assets for distribution
to creditors in accordance with the priorities by the Bankruptcy Code. It
is impossible to predict precisely how the proceeds of the liquidation
would be distributed to the respective holders of Claims against or
Interests in the Companies.
The Companies believe that in liquidation under Chapter 7, before creditors
received any distribution, additional administrative expenses involved in
the appointment of a trustee or trustees and attorneys, accountants and
other professionals to assist such trustees would cause a substantial
diminution in the value of the Companies' Estates. The assets available
for distribution to creditors would be reduced by such additional expenses
and by Claims, some of which would be entitled to priority, which would
arise by reason of the liquidation and from the rejection of leases and
other executory contracts in connection with the cessation of operations
and the failure to realize the greater going concern value of the
Companies' assets.
The Companies could also be liquidated pursuant to the provisions of a
Chapter 11 plan of reorganization. In a liquidation under Chapter 11, the
Companies' assets could be sold in an orderly fashion over a more extended
period of time than in a liquidation under Chapter 7. Thus, a Chapter 11
liquidation might result in larger recoveries than in a Chapter 7
liquidation, but the delay in distributions could result in lower present
values received and higher administrative costs. Because a trustee is not
required in a Chapter 11 case, expenses for professional fees could be
lower than in a Chapter 7 case, in which a trustee must be appointed. Any
distribution to the holders of Claims under a Chapter 11 liquidation plan
probably would be delayed substantially.
Although preferable to a Chapter 7 liquidation, the Companies believe that
any alternative liquidation under Chapter 11 is a much less attractive
alternative to creditors than the Plan because the greater return the
Companies anticipate is provided by the Plan. THE COMPANIES BELIEVE THAT
THE PLAN AFFORDS SUBSTANTIALLY GREATER BENEFITS TO CREDITORS AND EMPLOYEES
THAN WOULD ANY OTHER REASONABLY CONFIRMABLE REORGANIZATION PLAN OR
LIQUIDATION UNDER ANY CHAPTER OF THE BANKRUPTCY CODE.
The Liquidation Analysis, prepared by the Companies with their financial
advisors, is premised upon a liquidation in a Chapter 7 case and is annexed
to this Disclosure Statement as Exhibit D. In the analysis, the Companies
have taken into account the nature, status, and underlying value of their
assets, the ultimate realizable value of such assets, and the extent to
which the assets are subject to liens and security interests.
Based on CAI's experience in the restructuring of business operations in
the several years prior to the Petition Date and its experience in seeking
investors and merger partners, CAI has not found a buyer ready, willing,
and able to purchase CAI as a whole or even to purchase significant
portions of CAI as an ongoing business. Therefore, the likely form of any
liquidation would be the sale of individual assets. Based on this
analysis, it is likely that a liquidation of the Companies' assets would
produce less value for distribution to creditors than that recoverable in
each instance under the Plan. In the opinion of the Companies, the
recoveries projected to be available in liquidation are not likely to
afford holders of Claims as great a realization potential as does the Plan.
XVI. THE SOLICITATION; VOTING PROCEDURES
A. Voting Deadline
The period during which Ballots and Master Ballots with respect to the Plan
will be accepted by the Companies (and may be withdrawn or revoked unless
the Bankruptcy Court issues an order to the contrary) will terminate at
5:00 p.m. (Eastern Time) on July 27, 1998, unless and until the Companies,
in their sole discretion, extend the date until which Ballots and Master
Ballots will be accepted, in which case the Solicitation Period will
terminate at 5:00 p.m. (Eastern Time) on such extended date. Except to the
extent the Companies so determine or as permitted by the Bankruptcy Court,
Ballots or Master Ballots that are received after the Voting Deadline will
not be counted or otherwise used by the Companies in connection with the
Companies' request for confirmation of the Plan (or any permitted
modification thereof).
The Companies reserve the absolute right, at any time or from time to time,
to extend, by oral or written notice to the Voting Agent, the period of
time (on a daily basis, if necessary) during which Ballots will be accepted
for any reason including, but not limited to, determining whether or not
the Requisite Acceptances have been received, by making a public
announcement of such extension no later than 9:00 a.m. (Eastern Time) on
the first Business Day next succeeding the previously announced Voting
Deadline. Without limiting the manner in which the Companies may choose to
make any public announcement, the Companies will not have any obligation to
publish, advertise, or otherwise communicate any such public announcement,
other than by issuing a news release through the Dow Jones News Service.
There can be no assurance that the Companies will exercise their right to
extend the Solicitation Period for the receipt of Ballots and Master
Ballots.
B. Voting Procedures
Under the Bankruptcy Code, for purposes of determining whether the
Requisite Acceptances have been received, only holders of Impaired Claims
who actually vote will be counted. The failure of a holder to deliver a
duly executed Ballot will be deemed to constitute an abstention by such
holder with respect to voting on the Plan and such abstentions will not be
counted as votes for or against the Plan.
The Companies are providing copies of this Disclosure Statement (including
all Exhibits) and related materials and, where appropriate, Ballots or
Master Ballots (in either case, a "Solicitation Package"), to registered
holders of CAI's Senior Notes and holders of the Companies' Subordinated
Notes. Registered holders may include brokerage firms, commercial banks,
trust companies, or other Nominees. If such entities do not hold for their
own account, they should provide copies of the Solicitation Package
(including, in the case of the Senior Notes, the appropriate Ballot) to
their customers and to beneficial owners of Senior Notes. Any beneficial
owner of Senior Notes who has not received a Ballot should contact his/her
or its Nominee, or the Voting Agent.
You should provide all of the information requested by the Ballots you
receive. You should complete and return all Ballots that you receive in
the return envelope provided with each such Ballot.
C. Special Note For Holders of Senior Notes
The Voting Record Date for determining which holders of Senior Notes are
entitled to vote on the Plan is June 27, 1998. The Indenture Trustee for
the Senior Notes will not vote on behalf of the holders of such notes.
Holders must submit their own Ballots.
1. Beneficial Owners
(a) A beneficial owner holding Senior Notes as record holder in its own
name should vote on the Plan by completing and signing the enclosed Ballot
and returning it directly to the Voting Agent on or before the Voting
Deadline using the enclosed self-addressed, postage-paid envelope.
(b) A beneficial owner holding Senior Notes in "street name" through a
Nominee may vote on the Plan by one of the following two methods (as
selected by such beneficial owner's Nominee). See Section XVI.C.2 -- "The
Solicitation; Voting Procedures -- Special Note for Holders of Senior Notes
- -- Nominees."
(i) Complete and sign the enclosed beneficial owner Ballot. Return the
Ballot to your Nominee as promptly as possible and in sufficient time to
allow such Nominee to process the Ballot and return it to the Voting Agent
by the Voting Deadline. If no self-addressed, postage-paid envelope was
enclosed for this purpose, contact the Voting Agent for instructions; or
(ii) Complete and sign the pre-validated Ballot (as described below)
provided to you by your Nominee. Return the pre-validated Ballot to the
Voting Agent by the Voting Deadline using the return envelope provided in
the Solicitation Package.
Any Ballot returned to a Nominee by a beneficial owner will not be counted
for purposes of acceptance or rejection of the Plan until such Nominee
properly completes and delivers to the Voting Agent that Ballot or a Master
Ballot that reflects the vote of such beneficial owner.
If any beneficial owner owns Senior Notes through more than one Nominee,
such beneficial owner may receive multiple mailings containing the Ballots.
The beneficial owner should execute a separate Ballot for each block of
Senior Notes that it holds through any particular Nominee and return each
Ballot to the respective Nominee in the return envelope provided therewith.
Beneficial owners who execute multiple Ballots with respect to Senior Notes
held through more than one Nominee must indicate on each Ballot the names
of ALL such other Nominees and the additional amounts of such Senior Notes
so held and voted. If a beneficial owner holds a portion of the Senior
Notes through a Nominee and another portion as a record holder, the
beneficial owner should follow the procedures described in subparagraph (1)
(a) above to vote the portion held of record and the procedures described
in subparagraph (1) (b) above to vote the portion held through a Nominee or
Nominees.
2. Nominees
A Nominee that on the Voting Record Date is the registered holder of Senior
Notes for a beneficial owner can obtain the votes of the beneficial owners
of such Senior Notes, consistent with customary practices for obtaining the
votes of securities held in "street name," in one of the following two
ways:
(a) Pre-Validated Ballots
The Nominee may "pre-validate" a Ballot by (i) signing the Ballot; (ii)
indicating on the Ballot the name of the registered holder, the amount of
Senior Notes held by the Nominee for the beneficial owner, and the account
numbers for the accounts in which such Senior Notes are held by the
Nominee; and (iii) forwarding such Ballot, together with the Disclosure
Statement, return envelope and other materials requested to be forwarded,
to the beneficial owner for voting. The beneficial owner must then
complete the information requested in the Ballot; review the certifications
contained in the Ballot, and return the Ballot directly to the Voting Agent
in the pre-addressed, postage-paid envelope so that it is RECEIVED by the
Voting Agent before the Voting Deadline. A list of the beneficial owners
to whom "pre-validated" Ballots were delivered should be maintained by
Nominees for inspection for at least one year from the Voting Deadline; or
(b) Master Ballots
If the Nominee elects not to prevalidate Ballots, the Nominee may obtain
the votes of beneficial owners by forwarding to the beneficial owners the
unsigned Ballots, together with the Disclosure Statement, a return envelope
provided by, and addressed to, the Nominee, and other materials requested
to be forwarded. Each such beneficial owner must then indicate his/ her or
its vote on the Ballot, complete the information requested in the Ballot,
review the certifications contained in the Ballot, execute the Ballot, and
return the Ballot to the Nominee. After collecting the Ballots, the
Nominee should, in turn, complete a Master Ballot compiling the votes and
other information from the Ballot, execute the Master Ballot, and deliver
the Master Ballot to the Voting Agent so that it is RECEIVED by the Voting
Agent before the Voting Deadline. All Ballots returned by beneficial
owners should either be forwarded to the Voting Agent (along with the
Master Ballot) or retained by Nominees for inspection for at least one year
from the Voting Deadline. EACH NOMINEE SHOULD ADVISE ITS BENEFICIAL OWNERS
TO RETURN THEIR BALLOTS TO THE NOMINEE BY A DATE CALCULATED BY THE NOMINEE
TO ALLOW IT TO PREPARE AND RETURN THE MASTER BALLOT TO THE VOTING AGENT SO
THAT IT IS RECEIVED BY THE VOTING AGENT BEFORE THE VOTING DEADLINE.
3. Securities Clearing Agencies
The Companies expect that The Depository Trust Company, as a nominee holder
of Senior Notes, will arrange for its participants to vote by executing an
omnibus proxy in favor of such participants. As a result of the omnibus
proxy, such participant will be authorized to vote its Voting Record Date
positions held in the name of such securities clearing agencies.
4. Miscellaneous
For purposes of voting to accept or reject the Plan, the beneficial owners
of Senior Notes will be deemed to be the "holders" of the Claims
represented by such Senior Notes. Unless otherwise ordered by the
Bankruptcy Court, Ballots or Master Ballots that are signed, dated and
timely received, but on which a vote to accept or reject the Plan has not
been indicated, will not be counted. The Companies, in their sole
discretion, may request that the Voting Agent attempt to contact such
voters to cure any such defects in the Ballots or Master Ballots.
Except as provided below, unless the Ballot or Master Ballot is timely
submitted to the Voting Agent before the Voting Deadline together with any
other documents required by such Ballot or Master Ballot, the Companies
may, in their sole discretion, reject such Ballot or Master Ballot as
invalid, and therefore decline to utilize it in connection with seeking
confirmation of the Plan.
In the event of a dispute with respect to any Senior Note Claim, any vote
to accept or reject the Plan cast with respect to such Claim will not be
counted for purposes of determining whether the Plan has been accepted or
rejected, unless the Bankruptcy Court orders otherwise.
5. Delivery of Senior Notes
CAI is not at this time requesting the delivery of, and neither CAI nor the
Voting Agent will accept, certificates representing any Senior Notes or any
Equity Securities. In connection with the Consummation Date, CAI will
furnish all holders of Senior Notes with appropriate letters of transmittal
to be used to remit their Senior Notes in exchange for the distribution
under the Plan. Information regarding such remittance procedure (together
with all appropriate materials) will be distributed by CAI after the
Confirmation Date.
D. Fiduciaries And Other Representatives
If a Ballot is signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation, or another acting in a
fiduciary or representative capacity, such person should indicate such
capacity when signing and, unless otherwise determined by the Companies,
must submit proper evidence satisfactory to the Companies of authority to
so act. Authorized signatories should submit the separate Ballot of each
beneficial owner for whom they are voting.
UNLESS THE BALLOT OR MASTER BALLOT BEING FURNISHED IS TIMELY SUBMITTED TO
THE VOTING AGENT ON OR PRIOR TO THE VOTING DEADLINE, SUCH BALLOT WILL BE
REJECTED AS INVALID AND WILL NOT BE COUNTED AS AN ACCEPTANCE OR REJECTION
OF THE PLAN; PROVIDED, HOWEVER, THE COMPANIES RESERVE THE RIGHT, IN THEIR
SOLE DISCRETION, TO REQUEST OF THE BANKRUPTCY COURT THAT ANY SUCH BALLOT OR
MASTER BALLOT BE COUNTED. IN NO CASE SHOULD A BALLOT OR MASTER BALLOT BE
DELIVERED TO ANY ENTITY OTHER THAN THE VOTING AGENT, AND IN NO CASE SHOULD
ANY SENIOR NOTES BE DELIVERED TO THE COMPANIES OR ANY OF THEIR ADVISORS,
INCLUDING THE VOTING AGENT.
E. Parties In Interest Entitled To Vote
Under Section 1124 of the Bankruptcy Code, a class of claims or interests
is deemed to be "impaired" under a plan unless (i) the plan leaves
unaltered the legal, equitable, and contractual rights to which such claim
or interest entitles the holder thereof or (ii) notwithstanding any legal
right to an accelerated payment of such claim or interest, the plan cures
all existing defaults (other than defaults resulting from the occurrence of
events of bankruptcy) and reinstates the maturity of such claim or interest
as it existed before the default.
In general, a holder of a claim or interest may vote to accept or to reject
a plan if (i) the claim or interest is "allowed," which means generally
that no party in interest has objected to such claim or interest, and (ii)
the claim or interest is impaired by the Plan. If, however, the holder of
an impaired claim or interest will not receive or retain any distribution
under the plan on account of such claim or interest, the Bankruptcy Code
deems such holder to have rejected the plan, and, accordingly, holders of
such claims and interests do not actually vote on the Plan. If a claim or
interest is not impaired by the Plan, the Bankruptcy Code deems the holder
of such claim or interest to have accepted the plan and, accordingly,
holders of such claims and interests are not entitled to vote on the Plan.
A vote may be disregarded if the Bankruptcy Court determines, pursuant to
Section 1126(e) of the Bankruptcy Code, that it was not solicited or
procured in good faith or in accordance with the provisions of the
Bankruptcy Code.
F. Classes Impaired Under The Plan
The following Classes of Claims are Impaired under the Plan and are
entitled to vote on the Plan: Class CAI-5 Senior Note Claims, Class CAI-6
Subordinated Note Claims, and Class PCT-5 Subordinated Note Claims.
Class CAI-7 Securities Claims and Class CAI-8 Equity Securities Interests
will not receive or retain any distribution or property under the Plan on
account of their Claims or Interests. Accordingly, they are presumed,
under Section 1126(g) of the Bankruptcy Code, to have rejected the Plan,
and they are therefore not entitled to vote to accept or reject the Plan.
All other Classes of Claims and Interests are Unimpaired under the Plan,
are deemed, under Section 1126(f) of the Bankruptcy Code, to have accepted
the Plan, and accordingly are not entitled to vote to accept or reject the
Plan. Acceptances of the Plan are being solicited only from those who hold
Claims in an Impaired Class whose members will (or may) receive a
distribution under the Plan.
G. Agreements Upon Furnishing Ballots
The delivery of an accepting Ballot (or Master Ballot) to the Voting Agent
by a holder of Senior Notes or Subordinated Notes pursuant to one of the
procedures set forth above will constitute the agreement of such holder to
accept (i) all of the terms of, and conditions to, this Solicitation; and
(ii) the terms of the Plan; provided, however, all parties in interest
retain their right to object to confirmation of the Plan pursuant to
Section 1128 of the Bankruptcy Code.
H. Waivers Of Defects, Irregularities, Etc.
Unless otherwise directed by the Bankruptcy Court, all questions as to the
validity, form, eligibility (including time of receipt), acceptance, and
revocation or withdrawal of Ballots will be determined by the Voting Agent
and the Companies in their sole discretion, which determination will be
final and binding. As indicated below under "Withdrawal of Ballots;
Revocation," effective withdrawals of Ballots must be delivered to the
Voting Agent prior to the Voting Deadline. The Companies reserve the
absolute right to contest the validity of any such withdrawal. The
Companies also reserve the right to reject any and all Ballots not in
proper form, the acceptance of which would, in the opinion of the Companies
or their counsel, be unlawful. The Companies further reserve the right to
waive any defects or irregularities or conditions of delivery as to any
particular Ballot. The interpretation (including the Ballot and the
respective instructions thereto) by the Companies, unless otherwise
directed by the Bankruptcy Court, will be final and binding on all parties.
Unless waived, any defects or irregularities in connection with deliveries
of Ballots must be cured within such time as the Companies (or the
Bankruptcy Court) determine. Neither the Companies nor any other person
will be under any duty to provide notification of defects or irregularities
with respect to deliveries of Ballots nor will any of them incur any
liabilities for failure to provide such notification. Unless otherwise
directed by the Bankruptcy Court, delivery of such Ballots will not be
deemed to have been made until such irregularities have been cured or
waived. Ballots previously furnished (and as to which any irregularities
have not theretofore been cured or waived) will be invalidated.
I. Withdrawal Of Ballots; Revocation
Any party who has delivered a valid Ballot for the acceptance or rejection
of the Plan may withdraw such acceptance or rejection by delivering a
written notice of withdrawal to the Voting Agent at any time prior to the
Voting Deadline. A notice of withdrawal, to be valid, must (i) contain the
description of the Claim(s) to which it relates and the aggregate principal
amount represented by such Claim(s), (ii) be signed by the withdrawing
party in the same manner as the Ballot being withdrawn, (iii) contain a
certification that the withdrawing party owns the Claim(s) and possesses
the right to withdraw the vote sought to be withdrawn and (iv) be received
by the Voting Agent in a timely manner at the address set forth in Section
XVI.J below. Prior to the filing of the Plan, the Companies intend to
consult with the Voting Agent to determine whether any withdrawals of
Ballots were received and whether the Requisite Acceptances of the Plan
have been received. As stated above, the Companies expressly reserve the
absolute right to contest the validity of any such withdrawals of Ballots.
Unless otherwise directed by the Bankruptcy Court, a purported notice of
withdrawal of Ballots which is not received in a timely manner by the
Voting Agent will not be effective to withdraw a previously cast Ballot.
Any party who has previously submitted to the Voting Agent prior to the
Voting Deadline a properly completed Ballot may revoke such Ballot and
change his or its vote by submitting to the Voting Agent prior to the
Voting Deadline a subsequent properly completed Ballot for acceptance or
rejection of the Plan. In the case where more than one timely, properly
completed Ballot is received, only the Ballot which bears the latest date
will be counted for purposes of determining whether the Requisite
Acceptances have been received.
The Companies will pay all costs, fees and expenses relating to the
Solicitation, including, without limitation, customary mailing and handling
costs of Nominees.
J. Further Information; Additional Copies
If you have any questions or require further information about the voting
procedure for voting your Claim or about the packet of material you
received, or if you wish to obtain an additional copy of the Plan, the
Disclosure Statement, or any exhibits to such documents (at your own
expense, unless otherwise specifically required by Fed. R. Bankr. P.
3017(d)), please contact the Voting Agent:
CAI Wireless Systems, Inc.
c/o The Altman Group, Inc.
60 East 42nd Street
Suite 1241
New York, New York 10165
(212) 681-9600
XVII. FINANCIAL ADVISORS; VOTING AGENT; FEES AND EXPENSES
Pursuant to a letter agreement dated as of December 8, 1997 (as
subsequently amended, the "Engagement Letter"), CAI has engaged BT Alex.
Brown to act as the Companies' financial advisor in connection with the
restructuring of certain of CAI's debt and equity securities, including the
Restructuring, and the Plan. The Engagement Letter provides for the
payment of the following cash fees (the "Fees") to BT Alex. Brown: (i) a
retainer fee of $150,000, which already has been paid; (ii) $75,000 on the
8th of each month, beginning on January 8, 1998 and ending on the earlier
of the completion of the Restructuring (as that term is defined in the
Engagement Letter) or the termination of BT Alex. Brown's engagement
pursuant to Section 11 of the Engagement Letter; and (iii) a fee of
$2,750,000 (less any amounts paid under clauses (i) and (ii)) which will be
deemed to have been earned upon the formal distribution of this Disclosure
Statement to holders of Impaired Claims and will be payable in full on the
Consummation Date with respect to the Plan described in this Disclosure
Statement. In addition to the foregoing cash Fees which, pursuant to the
Engagement Letter, will be classified as and have the status of Class CAI-3
General Unsecured Claims in the Chapter 11 Case, BT Alex. Brown will be
granted options to purchase up to one half of one percent (2%) of the New
Common Stock to be issued under the Plan at a price determined by the
20-day average price of the New Common Stock after the Consummation Date.
The Engagement Letter also provides that BT Alex. Brown will be paid all
reasonable out-of-pocket expenses incurred by it under the Engagement
Letter and BT Alex. Brown's counsel (if any) will be paid all reasonable
fees and expenses relating to the services to BT Alex. Brown under the
Engagement Letter (collectively, the "Expenses"). In consideration of the
foregoing payment of Fees and Expenses, BT Alex. Brown has agreed to
provide financial advice to the Companies at no additional cost to the
Companies for the six (6) month period immediately following the
commencement of the Chapter 11 Case.
The Engagement Letter also provides that if BT Alex. Brown 's engagement is
terminated for any reason, BT Alex. Brown and its counsel (if any) will be
entitled to receive all Fees and Expenses through the date of such
termination. In addition, if BT Alex. Brown's engagement is terminated
and, within six (6) months of the date of such termination, CAI proceeds
with a Business Combination (as that term is defined in the Engagement
Letter) with an acquiring party contacted by BT Alex. Brown and the
transaction is similar to any proposal submitted by BT Alex. Brown, then BT
Alex. Brown will be entitled to receive all the Fees it would have received
as financial advisor under the Engagement Letter. CAI also has agreed to
indemnify BT Alex. Brown with respect to its services under the Engagement
Letter, which indemnification will survive termination of the Engagement
Letter.
CAI has agreed to pay reasonable out-of-pocket expenses of MLGAF and the
Unofficial Noteholders' Committee and the reasonable fees, and expenses of
their financial and legal advisors. MLGAF is represented by Shearman &
Sterling, its legal advisor, which has received a $100,000 retainer from
CAI. The Unofficial Noteholders' Committee is represented by Stroock &
Stroock & Lavan LLP, its legal advisor, to whom CAI has paid a $75,000
retainer, and Dabney Flanigan, LLC, its financial advisor, to whom CAI has
paid $200,000 and will pay a monthly fee of $100,000 commencing in August
1998.
The Companies have retained The Altman Group, Inc. to serve as the Voting
Agent in connection with the Solicitation of votes to accept or reject the
Plan. The Companies will pay the Voting Agent reasonable and customary
compensation for its services in connection with the Solicitation, plus
reimbursement for its reasonable out-of-pocket disbursements. Brokers,
dealers, commercial banks, trust companies and other Nominees will be
reimbursed by CAI for customary mailing and handling expenses incurred by
them in forwarding materials to their customers, but will not otherwise be
compensated for their services. The Companies also will pay any other fees
and expenses attributable to the Solicitation.
XVIII. RECOMMENDATION AND CONCLUSION
For all of the reasons set forth in this Disclosure Statement, the
Companies believe that confirmation and consummation of the Plan is
preferable to all other alternatives. Consequently, the Companies urge all
eligible holders of Impaired Claims to vote to ACCEPT the Plan, and to
complete and return their ballots so that they will be RECEIVED by the
Voting Agent on or before 5:00 p.m. Eastern Time on July 27, 1998.
Dated: Albany, New York
June 30, 1998
CAI WIRELESS SYSTEMS, INC., PHILADELPHIA CHOICE
TELEVISION, INC.,
By: /s/ JARED E. ABBRUZZESE By: /s/ JOHN J. PRISCO
Name: Jared E. Abbruzzese Name: John J. Prisco
Title: Chief Executive Officer Title: President
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Attorneys for CAI Wireless Systems, Inc. and
Philadelphia Choice Television, Inc.
By: /s/ J. GREGORY MILMOE
J. Gregory Milmoe
Carlene J. Gatting
Lawrence V. Gelber
919 Third Avenue
New York, New York 10022-3897
(212) 735-3000
-and-
Gregg M. Galardi (I.D. #2991)
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899-0636
(302) 651-3000
EXHIBIT A
TO
DISCLOSURE STATEMENT WITH RESPECT TO JOINT
REORGANIZATION PLAN OF CAI WIRELESS SYSTEMS, INC.
AND PHILADELPHIA CHOICE TELEVISION, INC.
JOINT REORGANIZATION PLAN OF CAI WIRELESS
SYSTEMS, INC. AND PHILADELPHIA CHOICE TELEVISION, INC.
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - X
IN RE :
: CHAPTER 11
CAI WIRELESS SYSTEMS, INC. AND : CASE NOS. 98-__________
PHILADELPHIA CHOICE TELEVISION, INC., : AND 98-__________
: (JOINTLY ADMINISTERED)
DEBTORS. :
:
18 CORPORATE WOODS BOULEVARD : TAX ID NOS. 06-1324691
ALBANY, NEW YORK 12211 : AND 23-2068653
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - X
JOINT REORGANIZATION PLAN OF CAI WIRELESS
SYSTEMS, INC. AND PHILADELPHIA CHOICE TELEVISION, INC.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
LLP
J. Gregory Milmoe
Carlene J. Gatting
Lawrence V. Gelber
919 Third Avenue
New York, New York 10022-3897
(212) 735-3000
-and-
Gregg M. Galardi (I.D.#2991)
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899-0636
Attorneys for CAI Wireless
Systems, Inc. and Philadelphia
Choice Television, Inc.
Dated: Albany, New York
June 30, 1998
TABLE OF CONTENTS
PAGE
TABLE OF EXHIBITS
EXHIBIT NAME
Amended CAI Certificate of Incorporation and By-laws
Amended PCT Certificate of Incorporation and By-laws
Subsidiaries of CAI Wireless Systems, Inc.
New Senior Notes Indenture
Description of New Common Stock
Description of Management Options
Key Employees of CAI
Management Option Plan Participants
INTRODUCTION
CAI Wireless Systems, Inc. ("CAI") and Philadelphia Choice Television,
Inc. ("PCT" and, together with CAI, the "Debtors") hereby propose the following
joint reorganization plan (the "Plan") for the resolution of their outstanding
creditor Claims and equity Interests. Reference is made to the Disclosure
Statement (as that term is defined herein), distributed contemporaneously
herewith, for a discussion of the Debtors' history, businesses, properties,
results of operations, projections for future operations, risk factors, a
summary and analysis of the Plan, and certain related matters, including the
New Securities to be issued under the Plan and the distribution of the proceeds
of the sale to Mid-Atlantic Telcom Plus, d/b/a OnePoint Communications, of
certain of PCT's MDU Assets, each of which is a central feature of the Plan.
The Debtors are the proponents of this Plan within the meaning of Section 1129
of the Bankruptcy Code (as that term is defined herein).
All holders of Claims and all holders of Interests are encouraged to read
this Plan and the Disclosure Statement in their entirety before voting to
accept or reject this Plan. Subject to certain restrictions and requirements
set forth in Section 1127 of the Bankruptcy Code and Fed. R. Bankr. P. 3019 and
those restrictions on modifications set forth in the DIP Facility Agreement and
Article XI of this Plan, the Debtors reserve the right to alter, amend, modify,
revoke or withdraw this Plan prior to its substantial consummation.
ARTICLE .
DEFINITIONS, RULES OF INTERPRETATION,
AND COMPUTATION OF TIME
A. SCOPE OF DEFINITIONS; RULES OF CONSTRUCTION
For purposes of this Plan, except as expressly provided or unless the
context otherwise requires, all capitalized terms not otherwise defined shall
have the meanings ascribed to them in Article I of this Plan. Any term used in
this Plan that is not defined herein, but is defined in the Bankruptcy Code or
the Bankruptcy Rules, shall have the meaning ascribed to that term in the
Bankruptcy Code or the Bankruptcy Rules. Whenever the context requires, such
terms shall include the plural as well as the singular number, the masculine
gender shall include the feminine, and the feminine gender shall include the
masculine.
B. DEFINITIONS
. "Administrative Claim" means a Claim for payment of an
administrative expense of a kind specified in Section 503(b) or 1114(e)(2) of
the Bankruptcy Code and entitled to priority pursuant to Section 507(a)(1) of
the Bankruptcy Code, including, but not limited to, (a) the actual, necessary
costs and expenses, incurred after the Petition Date, of preserving the Estates
and operating the businesses of the Debtors, including wages, salaries, or
commissions for services rendered after the commencement of the Chapter 11
Case, (b) Professional Fees, (c) all fees and charges assessed against the
Estates under chapter 123 of title 28, United States Code, and (d) all Allowed
Claims that are entitled to be treated as Administrative Claims pursuant to a
Final Order of the Bankruptcy Court under Section 546(c)(2)(A)of the Bankruptcy
Code.
. "Affiliate" means CAI or any corporation, limited liability
company, joint venture, or partnership in which CAI directly or indirectly owns
20% or more of the equity interest of such entity.
. "Allowed Claim" means a Claim or any portion thereof (a) as to which no
objection to allowance or request for estimation has been interposed on or
before the Consummation Date or the expiration of such other applicable period
of limitation fixed by the Bankruptcy Code, Bankruptcy Rules, or the Bankruptcy
Court, (b) as to which any objection to its allowance has been settled, waived
through payment, or withdrawn, or has been denied by a Final Order, (c) that
has been allowed by a Final Order, (d) as to which the liability of the
Debtors, or either of them, and the amount thereof are determined by final
order of a court of competent jurisdiction other than the Bankruptcy Court, or
(e) that is expressly allowed in a liquidated amount in the Plan; PROVIDED,
HOWEVER, that with respect to an Administrative Claim, "Allowed Claim" means an
Administrative Claim as to which a timely request for payment has been made in
accordance with Article XIV.A.1 of this Plan (if such written request is
required) or other Administrative Claim, in each case as to which the Debtors
(1) have not interposed a timely objection or (2) have interposed a timely
objection and such objection has been settled, waived through payment, or
withdrawn, or has been denied by a Final Order; PROVIDED FURTHER, HOWEVER, that
all Class CAI-1, CAI-2, CAI-3, CAI-4, PCT-1, PCT-2, PCT-3, and PCT-4 Claims, if
any, shall be treated for all purposes as if the Chapter 11 Case was not filed,
and the determination of whether any such Claims shall be allowed and/or the
amount of any such Claims (as to which no proof of Claim need be filed) shall
be determined, resolved, or adjudicated, as the case may be, in the manner in
which such Claim would have been determined, resolved, or adjudicated if the
Chapter 11 Case had not been commenced.
. "Allowed" means, when used in reference to a Claim or Interest
within a particular Class, an Allowed Claim or Allowed Interest of the type
described in such Class.
. "Allowed Class . . . Claim" means an Allowed Claim in the
particular Class described.
. "Allowed Class . . . Interest" means an Interest in the particular
Class described (a) that has been allowed by a Final Order, (b) for which
(i) no objection to its allowance has been filed within the periods of
limitation fixed by the Bankruptcy Code or by any Final Order of the Bankruptcy
Court or (ii) any objection to its allowance has been settled or withdrawn, or
(c) that is expressly allowed in the Plan.
. "Amended CAI Certificate of Incorporation and By-laws" means
Reorganized CAI's certificate of incorporation and by-laws in effect under the
laws of the State of Connecticut, as amended by the Plan.
. "Amended PCT Certificate of Incorporation and By-laws" means
Reorganized PCT's certificate of incorporation and by-laws in effect under the
laws of the State of Delaware, as amended by the Plan.
. "Ballots" means each of the ballot forms distributed with the
Disclosure Statement to holders of Impaired Claims entitled to vote under
Article II hereof in connection with the solicitation of acceptances of the
Plan.
. "Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as
codified in title 11 of the United States Code, 11 U.S.C. '' 101-1330, as now
in effect or hereafter amended.
. "Bankruptcy Court" means the United States Bankruptcy Court for the
District of Delaware or such other court as may have jurisdiction over the
Chapter 11 Case.
. "Bankruptcy Rules" means, collectively, the Federal Rules of
Bankruptcy Procedure and the Official Bankruptcy Forms, as amended, the Federal
Rules of Civil Procedure, as amended, as applicable to the Chapter 11 Case or
proceedings therein, and the Local Rules of the Bankruptcy Court, as applicable
to the Chapter 11 Case or proceedings therein, as the case may be.
. "Bar Date(s)" means the date(s), if any, designated by the
Bankruptcy Court as the last dates for filing proofs of Claim against the
Debtors or either of them.
. "Bott" means George W. Bott.
. "Bott Affiliates" means, collectively, Bott and the Bott Trust.
. "Bott Collateral" means, collectively (a) the stock of Housatonic
Wireless, Inc. and Onteo Associates, Inc., each a Subsidiary, which CAI pledged
to Bott, and the channel leases described in the Guarantee and Security
Agreement, dated as of March 30, 1994, between Housatonic Wireless, Inc., Onteo
Associates, Inc. and Bott, in which CAI granted Bott security interests or
liens, all to secure CAI's obligations under the Bott Note; (b) the stock of
Niskayuna Associates, Inc., a Subsidiary, which CAI pledged to the Bott Trust,
and the channel leases described in the Guarantee and Security Agreement, dated
as of March 30, 1994, between Niskayuna Associates, Inc. and the Bott Trust, in
which CAI granted the Bott Trust security interests or liens, all to secure
CAI's obligations under the 1994 Bott Trust Note; and (c) the stock of Chenango
Associates, Inc., a Subsidiary, which CAI pledged to the Bott Affiliates, and
the channel leases described in the Guarantee and Security Agreement, dated as
of March 30, 1994, between Niskayuna Associates, Inc. and the Bott Trust, in
which CAI granted the Bott Trust security interests or liens, all to secure
CAI's obligations under the 1996 Bott Trust Note, to the extent that, as of the
Consummation Date, such stock remains pledged to the respective Bott Affiliate
and such channel leases remain encumbered by valid, enforceable and perfected
security interests or liens of the respective Bott Affiliate in CAI's Estate's
interest in such channel leases that are not avoidable under the Bankruptcy
Code or applicable nonbankruptcy law.
. "Bott Notes" means, collectively the (a) promissory note, dated
March 30, 1994 (the "Bott Note"), between CAI, as maker, and Bott, as holder,
(b) promissory note, dated March 30, 1994 (the "1994 Bott Trust Note"), between
CAI, as maker, and the Bott Trust, as holder, and (c) promissory note, dated
January 12, 1996 (the "1996 Bott Trust Note"), between CAI, as maker, and the
Bott Trust, as holder, and all agreements and other documents relating to the
foregoing.
. "Bott Trust" means The Bott Family Trust, a charitable remainder
trust.
. "BT Alex. Brown Option(s)" means the option(s) to be issued by
Reorganized CAI to BT Alex. Brown Incorporated to purchase up to 1/2% of the
New Common Stock, on a fully diluted basis, pursuant to the provisions of
Article IV.C.1.a of the Plan.
. "Business Day" means any day, excluding Saturdays, Sundays or
"legal holidays" (as defined in Fed. R. Bankr. P. 9006(a)), on which commercial
banks are open for business in New York, New York.
. "CAI" means CAI Wireless Systems, Inc., a Connecticut corporation.
. "Cash" means legal tender of the United States or equivalents
thereof.
. "Chapter 11 Case" means the jointly administered Chapter 11 cases
of CAI and PCT.
. "Claim" means a claim against the Debtors, or either of them,
whether or not asserted, as defined in Section 101(5) of the Bankruptcy Code.
. "Class" means a category of holders of Claims or Interests, as
described in Article II below.
. "Collateral" means any property or interest in property of a
Debtor's Estate subject to a Lien to secure the payment or performance of a
Claim, which Lien is not subject to avoidance under the Bankruptcy Code or
otherwise invalid under the Bankruptcy Code or applicable state law.
. "Collateral Agent" means Price Waterhouse LLP in its capacity as
administrative agent and collateral agent for the holders of the Secured Notes.
. "Confirmation" means entry by the Bankruptcy Court of the
Confirmation Order.
. "Confirmation Date" means the date of entry by the clerk of the
Bankruptcy Court of the Confirmation Order.
. "Confirmation Hearing" means the hearing to consider confirmation
of the Plan under Section 1128 of the Bankruptcy Code.
. "Confirmation Order" means the order entered by the Bankruptcy
Court confirming the Plan.
. "Consummation Date" means the Business Day on which all conditions
to the consummation of the Plan as set forth in Article X.B hereof have been
satisfied or waived as provided in Article X.C hereof and is the effective date
of the Plan.
. "Creditor" means any Person who holds a Claim against the Debtors
or either of them.
. "Creditors' Committee" means the committee of unsecured creditors,
if any, appointed pursuant to Section 1102(a) of the Bankruptcy Code in the
Chapter 11 Case.
. "CS Wireless" means CS Wireless Systems, Inc., a Delaware
corporation.
. "CS Wireless Stockholders' Agreement" means the stockholders'
agreement, dated as of February 23, 1996, as may have been amended from time to
time, between and among CAI, Heartland, and CS Wireless.
. "CS Wireless Participation Agreement" means the participation
agreement, dated as of December 12, 1995, as may have been amended from time to
time, between and among CAI, Heartland, and CS Wireless.
. "Cure" means the distribution of Cash, or such other property as
may be agreed upon by the parties or ordered by the Bankruptcy Court, with
respect to the assumption of an executory contract or unexpired lease, pursuant
to Section 365(b) of the Bankruptcy Code, in an amount equal to all unpaid
monetary obligations, without interest, or such other amount as may be agreed
upon by the parties, under such executory contract or unexpired lease, to the
extent such obligations are enforceable under the Bankruptcy Code and
applicable bankruptcy law.
. "Debtor(s)" means, individually, CAI or PCT, and collectively, CAI
and PCT, including in their capacity as debtors-in-possession pursuant to
Sections 1107 and 1108 of the Bankruptcy Code, and as reorganized hereunder.
. "Debt Securities" means, collectively, the Secured Notes, Senior
Notes and Subordinated Notes.
. "Debt Securities Claim" means a Securities Claim arising from a
Debt Security.
. "DIP Facility" means the debtor-in-possession credit facility to be
provided to the Debtors during the Chapter 11 Case in the principal amount of
$60,000,000, pursuant to the DIP Facility Agreement.
. "DIP Facility Agreement" means the amended and restated note
purchase agreement, to be dated as of, or prior to, the Petition Date, between
the Debtors and MLGAF, and the other signatories thereto.
. "DIP Facility Claim" means a Claim arising under or as a result of
the DIP Facility.
. "Disbursing Agent" means Reorganized CAI or any party designated by
Reorganized CAI, in its sole discretion, to serve as a disbursing agent under
the Plan.
. "Disclosure Statement" means the written disclosure statement that
relates to the Plan, dated June 30, 1998, as amended, supplemented, or modified
from time to time, and that is prepared and distributed in accordance with
Sections 1125 and 1126(b) of the Bankruptcy Code and Fed. R. Bankr. P. 3018.
. "Disputed Claim" means any Claim not otherwise Allowed or paid
pursuant to the Plan or an order of the Bankruptcy Court (a) which has been or
hereafter is listed on the Schedules as unliquidated, contingent, or disputed,
and which has not been resolved by written agreement of the parties or an order
of the Bankruptcy Court, (b) proof of which was required to be filed by order
of the Bankruptcy Court but as to which a proof of Claim was not timely or
properly filed, (c) proof of which was timely and properly filed and which has
been or hereafter is listed on the Schedules as unliquidated, disputed or
contingent, (d) that is disputed in accordance with the provisions of this
Plan, or (e) as to which a Debtor has interposed a timely objection or request
for estimation in accordance with the Bankruptcy Code, the Bankruptcy Rules,
and any orders of the Bankruptcy Court, or is otherwise disputed by a Debtor in
accordance with applicable law, which objection, request for estimation, or
dispute has not been withdrawn or determined by a Final Order; PROVIDED,
HOWEVER, that for purposes of determining whether a particular Claim is a
Disputed Claim prior to the expiration of any period of limitation fixed for
the interposition by the Debtors of objections to the allowance of Claims, any
Claim that is not identified by the applicable Debtor as an Allowed Claim shall
be deemed a Disputed Claim.
. "Distribution Date" means the date, occurring as soon as
practicable after the Consummation Date, upon which distributions are made by
Reorganized CAI or Reorganized PCT, as the case may be, to holders of Allowed
DIP Facility, Administrative, Priority Tax, and Class CAI-1, CAI-5, CAI-6, PCT-
1, and PCT-5 Claims; PROVIDED, HOWEVER, that in no event shall the Distribution
Date occur later than twenty (20) Business Days after the Consummation Date.
. "Distribution Record Date" means the record date for purposes of
making distributions under the Plan on account of Allowed Claims, which date
shall be the seventh (7th) Business Day following the Confirmation Date.
. "Distribution Reserve" means the reserve, if any, established and
maintained by the Reorganized Debtors, into which the Reorganized Debtors shall
deposit the amount of Cash, New Senior Notes, New Common Stock, or other
property that would have been distributed by the Reorganized Debtors on the
Distribution Date to holders of (a) Disputed Claims, (b) contingent liquidated
Claims, if such Claims had been undisputed or noncontingent Claims on the
Distribution Date, pending (i) the allowance of such Claims, (ii) the
estimation of such Claims for purposes of allowance or (iii) the realization of
the contingencies, and (c) unliquidated Claims, if such Claims had been
liquidated on the Distribution Date, such amount to be estimated by the
Bankruptcy Court or agreed upon by CAI and the holders thereof as sufficient to
satisfy such unliquidated Claim upon such Claim's (x) allowance, (y) estimation
for purposes of allowance, or (z) liquidation, pending the occurrence of such
estimation or liquidation.
. "ECN Notes" means, collectively, the thirteen (13) subordinated
promissory notes due September 29, 2000, in the aggregate principal amount of
$2,793,000 given by CAI to the ECN Participants.
. "ECN Participants" means, collectively, Gerard Klauer Mattison &
Co., LLC; Quota Corporation; NOSROB, L.L.C.; Mellon Bank, N.A., Trustee for
Dextor Corporation, Grantor Trust; Montgomery Small Cap Partners II,
L.P.;Roanoke Partners, L.P.; John Flavin; Flavin, Blake Investors, L.P.;
Montgomery Growth Partners I, L.P.; Richard McKenzie; Haussman, L.L.C.; Les
Alexander; and Eastern Cable Networks Corp.
. "Employment Agreements" means the employment agreements to be
entered into between Reorganized CAI and the Key Employees, which agreements
shall be in substantially the form of the agreements to be included in the Plan
Supplement.
. "Equity Securities" means, collectively, the Old Common Stock, Old
Stock Options, and Old Warrants, together with any options, warrants, or
rights, contractual or otherwise, to acquire or receive any such stock or
ownership interests, including, but not limited to, the Old Options, the Old
Warrants and any contracts or agreements pursuant to which the non-debtor party
was or could have been entitled to receive shares of stock or other ownership
interests in CAI.
. "Equity Securities Claim" means a Securities Claim arising from any
Equity Security.
. "Estate(s)" means, individually, the estate of CAI or PCT in the
Chapter 11 Case, and, collectively, the estates of CAI and PCT in the Chapter
11 Case, created pursuant to Section 541 of the Bankruptcy Code.
. "Existing Securities" means, collectively the Equity Securities and
the Debt Securities.
. "Exit Lender(s)" means the lender(s) under the New Senior Secured
Facility.
. "Face Amount" means (a) when used in reference to a Disputed Claim,
the full stated amount claimed by the holder of such Claim in any proof of
Claim timely filed with the Bankruptcy Court or otherwise deemed timely filed
by any Final Order of the Bankruptcy Court or other applicable bankruptcy law,
and (b) when used in reference to an Allowed Claim, the allowed amount of such
Claim.
. "FCC" means the Federal Communications Commission, as constituted
from time to time, or any successor governmental agency performing functions
similar to those performed by the Federal Communications Commission on the date
hereof.
. "Final Order" means an order or judgment of the Bankruptcy Court,
or other court of competent jurisdiction, as entered on the docket in the
Chapter 11 Case, the operation or effect of which has not been stayed,
reversed, or amended and as to which order or judgment (or any revision,
modification, or amendment thereof) the time to appeal or seek review or
rehearing has expired and as to which no appeal or petition for review or
rehearing was filed or, if filed, remains pending.
. " General Unsecured Claim" means a Claim against the Debtors, or
either of them, that is not a DIP Facility Claim, Administrative Claim,
Priority Tax Claim, Other Priority Claim, Secured Claim, Senior Note Claim,
Subordinated Note Claim, Intercompany Claim, or Securities Claim.
. "Heartland" means Heartland Wireless Communications, Inc., a
Delaware corporation.
. "Impaired" means, when used with reference to a Claim or Interest,
a Claim or Interest that is impaired within the meaning of Section 1124 of the
Bankruptcy Code.
. "Indenture Trustee" means The Chase Manhattan Bank or its
successor, in either case in its capacity as indenture trustee for the Senior
Notes Indenture.
. "Intercompany Claim" means, as the case may be, any Claim of (a)
any Subsidiary against a Debtor, (b) any Subsidiary against any other
Subsidiary, or (c) CAI against any Subsidiary.
. "Interest" means (a) the legal, equitable, contractual and other
rights of any Person with respect to Old Common Stock, Old Stock Options, Old
Warrants, or any other Equity Securities of CAI or PCT and (b) the legal,
equitable, contractual or other rights of any Person to acquire or receive any
of the foregoing.
. "Key Employees" means, collectively, the employees of CAI listed on
Exhibit G to the Plan.
. "Lien" means a charge against or interest in property to secure
payment of a debt or performance of an obligation.
. "Litigation Claims" means the claims, rights of action, suits, or
proceedings, whether in law or in equity, whether known or unknown, that the
Debtors or their Estates may hold against any Person, which are to be retained
by the Reorganized Debtors pursuant to Article IV.G of this Plan.
. "Management Option Agreement(s)" means the stock option
agreement(s), substantially in the form of the agreements to be included in the
Plan Supplement, to be entered into by Reorganized CAI and the Management
Option Plan Participants, pursuant to which the Management Options will be
granted.
. "Management Option Plan" means the stock option plan pursuant to
which the Management Options will be issued, substantially in the form of the
plan to be included in the Plan Supplement, to be adopted by CAI or Reorganized
CAI pursuant to Article IV.C.1.a of this Plan.
. "Management Option Plan Participants" means the employees of
Reorganized CAI, listed on Exhibit H to this Plan, entitled to participate in
the Management Option Plan.
. "Management Options" means the options to be issued by Reorganized
CAI to the Management Option Plan Participants to purchase up to 10% of the New
Common Stock, on a fully diluted basis, pursuant to the provisions of the
Management Option Agreement to be entered into under the Management Option
Plan.
. "MDU Assets" means the assets currently used by PCT in the
provision of analog subscription video services to 64 multi-dwelling units
located in and around the greater Philadelphia area, which are to be sold to
OnePoint pursuant to Section 363(b) of the Bankruptcy Code.
. "Mester" means John Mester d/b/a Connecticut Home Theater.
. "Mester Collateral" means, collectively, (a) the stock of
Springfield License, Inc., a Subsidiary, (b) the equipment described in
Schedule A to the Pledge and Security Agreement, dated August 21, 1997, between
CAI, Mester, and Brown Neitert & Kaufman, Chartered, as pledge agent for
Mester, and (c) all proceeds, profits and products of any sale or other
disposition of the foregoing, which CAI pledged to Mester or in which CAI
granted Mester security interests or liens to secure CAI's obligations under
the Mester Notes, to the extent that, as of the Consummation Date, such stock
remains pledged to Mester and such equipment and proceeds remain encumbered by
valid, enforceable and perfected security interests or liens of Mester in CAI's
Estate's interest in such equipment and proceeds that are not avoidable under
the Bankruptcy Code or applicable nonbankruptcy law.
. "Mester Notes" means the two (2) promissory notes, each dated
August 21, 1997, between CAI, as maker, and Mester, as holder, and all
agreements and other documents relating thereto.
. "MLGAF" means Merrill Lynch Global Allocation Fund, Inc., a
Maryland corporation.
. "New Common Stock" means the 25 million shares of common stock of
Reorganized CAI, $.01 par value per share, authorized under Article IV.C.1.a of
the Plan and the Amended CAI Certificate of Incorporation and By-laws.
. "New Options" means, collectively, the Management Options and the
BT Alex. Brown Option.
. "New Securities" means, collectively, the New Common Stock, New
Senior Notes, and New Options.
. "New Senior Notes" means the 12% Senior Notes due 2004 of
Reorganized CAI, in the aggregate principal amount of $100 million, to be
issued and distributed pursuant to the Plan on the Distribution Date and
governed by the terms of the New Senior Notes Indenture, as more fully
described in Article VI.A hereof.
. "New Senior Notes Indenture" means the indenture to be entered into
between Reorganized CAI and an entity to be selected prior to the Consummation
Date, as indenture trustee, under which the New Senior Notes shall be issued,
which indenture shall be substantially in the form of the indenture to be
included in the Plan Supplement as Exhibit D to this Plan.
. "New Senior Secured Facility" means the new senior secured credit
facilit(ies) in an aggregate principal amount of not more than $80 million,
which Reorganized CAI anticipates entering into as a condition to the
consummation of the Plan.
. "Note Purchase Agreement" means the note purchase agreement, dated
as of November 24, 1997, as amended from time to time, by and among CAI, the
Subsidiaries named therein, and MLGAF, pursuant to which the Secured Notes were
issued and sold.
. "Obligor Subsidiaries" means, collectively, those Subsidiaries of
CAI that are signatories to, and obligors under, the Note Purchase Agreement.
. "Old Common Stock" means CAI's common stock, no par value, together
with any options, warrants, or rights, contractual or otherwise, to acquire or
receive any such stock, including, but not limited to, the Old Stock Options
and Old Warrants.
. "Old Junior Preferred Stock" means the shares of CAI's non-voting
convertible junior preferred stock, having a liquidation preference of $30
million, and options, warrants, or rights, contractual or otherwise, if any, to
acquire any such non-voting convertible junior preferred stock.
. "Old Stock Options" means the outstanding options to purchase Old
Common Stock, as of the Petition Date.
. "Old Senior Preferred Stock" means the shares of CAI's 14% Senior
Convertible Preferred Stock, par value $10,000 per share, and options,
warrants, or rights, contractual or otherwise, if any, to acquire any such 14%
Senior Convertible Preferred Stock.
. "Old Voting Preferred Stock" means the shares of CAI's Series C
Convertible Preferred Stock, no par value per share, and options, warrants, or
rights, contractual or otherwise, if any, to acquire any such Series C
Convertible Preferred Stock.
. "Old Warrants" means the outstanding warrants to purchase Old
Common Stock, as of the Petition Date.
. "OnePoint" means Mid-Atlantic Telcom Plus, d/b/a OnePoint
Communications.
. "Operating Subsidiaries" means, collectively, Commonwealth Choice
Television, Inc.; Connecticut Choice Television, Inc.; Eastern New England TV,
Inc.; Greater Albany Wireless Systems, Inc.; Hampton Roads Wireless, Inc.; New
York Choice Television, Inc.; Philadelphia Choice Television, Inc.; Rochester
Choice Television, Inc.; and Washington Choice Television, Inc.
. "Ordinary Course Professionals' Order" means an order entered by
the Bankruptcy Court authorizing the Debtors, or either of them, to retain,
employ and pay certain professionals, as specified in the order, which are not
involved in the administration of the Chapter 11 Case, in the ordinary course
of business, without further order of the Bankruptcy Court.
. "Other Priority Claim" means a Claim entitled to priority pursuant
to Section 507(a) of the Bankruptcy Code other than a DIP Facility Claim,
Priority Tax Claim or an Administrative Claim.
. "Other Secured Claims" means, collectively, all Secured Claims
against CAI or PCT, as the case may be, other than the Secured Claims included
in Classes CAI-2.01 through CAI-2.02.
. "Petition Date" means the date on which CAI and PCT file their
petitions for relief commencing the Chapter 11 Case.
. "Plan" means this Chapter 11 reorganization plan for CAI and PCT
and all exhibits annexed hereto or referenced herein, as the same may be
amended, modified or supplemented from time to time.
. "Plan Supplement" means the compilation of documents and forms of
documents specified in the Plan which will be filed with the Bankruptcy Court
not later than five (5) Business Days prior to date of the commencement of the
Confirmation Hearing.
. "Priority Tax Claim" means a Claim that is entitled to priority
pursuant to Section 507(a)(8) of the Bankruptcy Code.
. "Professional" means any professional employed in the Chapter 11
Case pursuant to Sections 327 or 1103 of the Bankruptcy Code or otherwise and
the professionals seeking compensation or reimbursement of expenses in
connection with the Chapter 11 Case pursuant to Section 503(b)(4) of the
Bankruptcy Code.
. "Professional Fee Claim" means a Claim of a Professional for
compensation or reimbursement of costs and expenses relating to services
incurred after the Petition Date and prior to and including the Consummation
Date.
. "Pro Rata" means, at any time, the proportion that the Face Amount
of a Claim in a particular Class bears to the aggregate Face Amount of all
Claims (including Disputed Claims) in such Class, unless the Plan provides
otherwise.
. "Registrable Securities" means securities acquired, by Persons who
may be deemed to be "affiliates" or "underwriters" of Reorganized CAI for
purposes of the Securities Act, pursuant to or in connection with the Plan,
including New Common Stock, New Senior Notes, and securities issuable in
connection with the New Senior Secured Facility, or acquired by their
successors and permitted assigns in accordance with the Registration Rights
Agreement (and any securities issued or issuable with respect thereto).
. "Registration Rights Agreement" means the agreement, between
Reorganized CAI and certain Persons who may be deemed to be "affiliates" or
"underwriters" of Reorganized CAI for purposes of the Securities Act, governing
the registration of (a) New Senior Notes, (b) New Common Stock, including, but
not limited to, the additional shares of New Common Stock issuable upon
exercise of the New Options, and (c) securities issuable in connection with the
New Senior Secured Facility, in substantially the form of the registration
rights agreement to be included in the Plan Supplement.
. "Reinstated" or "Reinstatement" means (i) leaving unaltered the
legal, equitable, and contractual rights to which a Claim entitles the holder
of such Claim so as to leave such Claim unimpaired in accordance with Section
1124 of the Bankruptcy Code or (ii) notwithstanding any contractual provision
or applicable law that entitles the holder of such Claim to demand or receive
accelerated payment of such Claim after the occurrence of a default (a) curing
any such default that occurred before or after the Petition Date, other than a
default of a kind specified in Section 365(b)(2) of the Bankruptcy Code; (b)
reinstating the maturity of such Claim as such maturity existed before such
default; (c) compensating the holder of such Claim for any damages incurred as
a result of any reasonable reliance by such holder on such contractual
provision or such applicable law; and (d) not otherwise altering the legal,
equitable, or contractual rights to which such Claim entitles the holder of
such Claim; PROVIDED, HOWEVER, that any contractual right that does not pertain
to the payment when due of principal and interest on the obligation on which
such Claim is based, including, but not limited to, financial covenant ratios,
negative pledge covenants, covenants or restrictions on merger or
consolidation, and affirmative covenants regarding corporate existence
prohibiting certain transactions or actions contemplated by the Plan, or
conditioning such transactions or actions on certain factors, shall not be
required to be reinstated in order to accomplish Reinstatement.
. "Reorganized CAI" means reorganized CAI, on and after the
Consummation Date.
. "Reorganized Debtor(s)" means, individually, Reorganized CAI or
Reorganized PCT and, collectively, Reorganized CAI and Reorganized PCT.
. "Reorganized PCT" means reorganized PCT, on and after the
Consummation Date.
. "Restructuring" means, collectively, the transactions and transfers
described in Article IV of this Plan.
. "Satellite Subsidiaries" means, collectively, MMDS Satellite
Ventures, Inc., CAI Data Systems, Inc., and CAI Satellite Communications, Inc.
. "Schedules" means the schedules of assets and liabilities and the
statements of financial affairs, if any, filed in the Bankruptcy Court by CAI
or PCT, as the case may be, as such schedules or statements or may be amended
or supplemented from time to time in accordance with Fed. R. Bankr. P. 1009 or
orders of the Bankruptcy Court.
. "Secured Claim" means a Claim, other than a Setoff Claim, that is
secured by a security interest in or lien upon property, or the proceeds of the
sale of such property, in which a Debtor has an interest, to the extent of the
value, as of the Consummation Date or such later date as is established by the
Bankruptcy Court, of such interest or lien as determined by a Final Order of
the Bankruptcy Court pursuant to Section 506 of the Bankruptcy Code or as
otherwise agreed upon in writing by such Debtor or Reorganized Debtor and the
holder of such Claim.
. "Secured Notes" means the 13% Senior Secured Notes of CAI and
certain Subsidiaries, issued and outstanding under the Note Purchase Agreement.
. "Secured Note Collateral" means the Collateral referred to in the
Secured Note 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 Collateral Agent for the benefit of the holders of the
Secured Notes.
. "Secured Note Collateral Documents" means, collectively, (a) the
Security Agreement and Pledge Agreement (as those terms are defined in the Note
Purchase Agreement), (b) each other security agreement or pledge agreement
entered into pursuant to Section 8.11 of the Note Purchase Agreement, and (c)
each other agreement that creates or purports to create or perfect a Lien in
favor of the Collateral Agent for the benefit of the holders of the Secured
Notes.
. "Securities Act" means the Securities Act of 1933, 15 U.S.C. ''
77a-77aa, as now in effect or hereafter amended.
. "Securities Action" means the consolidated class action captioned
IN RE CAI WIRELESS SYSTEMS, INC. SECURITIES LITIGATION, Master File No. 96-CV-
1857 (LEK/DRH), pending in the United States District Court for the Northern
District of New York.
. "Securities Claim" means a Claim arising from the rescission of a
purchase or sale of a security of CAI, including, but not limited to, Old
Senior Preferred Stock, Old Junior Preferred Stock, Old Voting Preferred Stock,
Old Common Stock, Old Stock Options, Old Warrants, Senior Notes, Secured Notes,
Subordinated Notes, all other debt instruments and any and all other rights to
acquire Equity Securities of CAI, for damages arising from the purchase or sale
of such a security, or for reimbursement, contribution or indemnification
allowed under Section 502 of the Bankruptcy Code on account of such Claim,
including, without limitation, a Claim with respect to any action pending
against CAI and/or its current or former officers and directors in which
Securities Claims are asserted, including the Securities Action.
. "Senior Note Claim" means a Claim of a Senior Note Holder arising
under or as a result of the Senior Notes.
. "Senior Note Escrow" means the escrow account established pursuant
to the terms of Section 2 of the Senior Note Escrow Agreement.
. "Senior Note Escrow Agreement" means the escrow agreement, dated as
of September 15, 1995, by and among CAI, Chemical Bank, as escrow agent, and
the Indenture Trustee, pursuant to which the Senior Note Escrow was
established.
. "Senior Note Holder" means a holder of Senior Notes.
. "Senior Notes Indenture" means the indenture, dated September 15,
1995, as modified by the First Supplemental Indenture, dated as of January 31,
1996, between CAI and Chemical Bank, as trustee, pursuant to which the Senior
Notes were issued.
. "Senior Notes" means the 12 1/4% Senior Notes Due September 15,
2002 of CAI, issued and outstanding under the Senior Notes Indenture.
. "Setoff Claim" means a Claim, against a Debtor, of a holder that
has a valid right of setoff with respect to such Claim, which right is
enforceable under Section 553 of the Bankruptcy Code as determined by a Final
Order or as otherwise agreed in writing by a Debtor, to the extent of the
amount subject to such right of setoff.
. "Severance Plan" means the Executive Severance Pay Plan currently
maintained by CAI, pursuant to which executive employees of CAI identified and
designated by the compensation committee of the board of directors of CAI as
eligible participants are entitled to certain severance benefits upon certain
types of terminations of employment in the event of a change in control of
CAI.
. "Solicitation" means the solicitation by CAI from holders of Senior
Notes and Subordinated Notes of acceptances of the Plan pursuant to Section
1126(b) of the Bankruptcy Code.
. "Subordinated Notes" means, collectively, the ECN Notes and the 12%
Subordinated Note.
. "Subsidiaries" means, collectively, the direct and indirect
subsidiaries of CAI listed on the annexed Exhibit C.
. "Subsidiary Interests" means, collectively, the issued and
outstanding shares of stock of the Subsidiaries directly or indirectly owned by
CAI, as of the Petition Date.
. "Substantial Contribution Claim" means a claim for compensation or
reimbursement of expenses incurred in making a substantial contribution in the
Chapter 11 Case pursuant to Section 503(b)(3),(4), or (5) of the Bankruptcy
Code.
. "Trade Claim" means any Unsecured Claim against a Debtor, arising
from or with respect to the sale of goods or services to such Debtor, prior to
the Petition Date, in the ordinary course of such Debtor's business, including
any Claim of an employee that is not an Other Priority Claim, but only to the
extent that the holder of such Claim continues to provide goods and/or services
to the Debtor pursuant to customary or ordinary trade terms.
. "Trigger Event" means, with respect to the Management Option Plan,
a material third party acquisition or merger, material equity investment in
CAI, or material joint venture, and/or a material take-or-pay arrangement or
other third party transaction with respect to the use of CAI's spectrum, and/or
any other material third party transaction having a substantially similar
economic effect as the foregoing.
. "12% Subordinated Note" means the 12% subordinated note due October
1, 2005, in the principal amount of $30,000,000, given by CAI and the Obligor
Subsidiaries to MLGAF.
. "Unimpaired Claim" means a Claim that is not an Impaired Claim.
. "Unofficial Noteholders' Committee" means the unofficial committee
of certain holders of Senior Note Claims formed prior to the Petition Date, the
members of which include MLGAF, Conseco Capital Management, Inc., Romulus
Holdings, Prospect Street Investment Management Co., Inc., Dabney Flanigan,
LLC, and The Chase Manhattan Bank, as Indenture Trustee (EX-OFFICIO), as the
same may be reconstituted from time to time, provided that such committee at
all times represents at least 50% in principal amount of the holders of the
Senior Notes.
. "Unsecured Claim" means any Claim against a Debtor, other than a
DIP Facility Claim, Administrative Claim, or a Secured Claim.
. "Voting Deadline" means July 27, 1998.
. "Voting Record Date" means, with respect to identification of the
holders of Impaired Claims entitled to vote on the Plan, June 23, 1998.
C. RULES OF INTERPRETATION
For purposes of the Plan (a) any reference in the Plan to a contract,
instrument, release, indenture, or other agreement or document's being in a
particular form or on particular terms and conditions means that such document
shall be substantially in such form or substantially on such terms and
conditions, (b) any reference in the Plan to an existing document or exhibit
filed or to be filed means such document or exhibit as it may have been or may
be amended, modified, or supplemented, (c) unless otherwise specified, all
references in the Plan to Sections, Articles, Schedules, and Exhibits are
references to Sections, Articles, Schedules, and Exhibits of or to the Plan,
(d) the words "herein" and "hereto" refer to the Plan in its entirety rather
than to a particular portion of the Plan, (e) captions and headings to Articles
and Sections are inserted for convenience of reference only and are not
intended to be a part of or to affect the interpretation of the Plan, and (f)
the rules of construction set forth in Section 102 of the Bankruptcy Code and
in the Bankruptcy Rules shall apply.
D. COMPUTATION OF TIME
In computing any period of time prescribed or allowed by the Plan, the
provisions of Fed. R. Bankr. P. 9006(a) shall apply.
ARTICLE .
CLASSIFICATION OF CLAIMS AND INTERESTS
. INTRODUCTION
All Claims and Interests, except DIP Facility Claims, Administrative
Claims and Priority Tax Claims, are placed in the Classes set forth below. In
accordance with Section 1123(a)(1) of the Bankruptcy Code, DIP Facility Claims,
Administrative Claims and Priority Tax Claims, as described below, have not
been classified.
A Claim or Interest is placed in a particular Class only to the extent
that the Claim or Interest falls within the description of that Class, and is
classified in other Classes to the extent that any portion of the Claim or
Interest falls within the description of such other Classes. A Claim is also
placed in a particular Class for the purpose of receiving distributions
pursuant to the Plan only to the extent that such Claim is an Allowed Claim in
that Class and such Claim has not been paid, released, or otherwise settled
prior to the Consummation Date.
. UNCLASSIFIED CLAIMS (NOT ENTITLED TO VOTE ON THE PLAN)
. DIP FACILITY CLAIMS
. ADMINISTRATIVE CLAIMS
. PRIORITY TAX CLAIMS
. UNIMPAIRED CLASSES OF CLAIMS AGAINST CAI (DEEMED TO HAVE ACCEPTED THE PLAN
AND, THEREFORE, NOT ENTITLED TO VOTE)
. CLASS CAI-1: OTHER PRIORITY CLAIMS
Class CAI-1 consists of all Other Priority Claims against CAI.
. CLASS CAI-2: SECURED CLAIMS
Class CAI-2 consists of separate subclasses for each Secured Claim
secured by a security interest in or lien upon property in which CAI's Estate
has an interest. Each subclass is deemed to be a separate Class for all
purposes under the Bankruptcy Code.
. Class CAI-2.01: Bott Secured Claims
Class CAI-2.01 consists of all Claims against CAI, secured by and to the
extent of the value (as of the Petition Date), if any, of the Bott Collateral,
directly or indirectly arising from or under, or relating in any way to, the
Bott Notes.
. Class CAI-2.02: Mester Secured Claims
Class CAI-2.02 consists of all Claims against CAI, directly or indirectly
arising from or under, or relating in any way to, the Mester Notes and secured
by the Mester Collateral, but only to the extent of the value (if any) of
Mester's interest in CAI's interest in the Mester Collateral.
. Class CAI-2.03: Other Secured Claims
Class CAI-2.03 consists of all Other Secured Claims against CAI.
. CLASS CAI-3: GENERAL UNSECURED CLAIMS
Class CAI-3 consists of all General Unsecured Claims against CAI.
. CLASS CAI-4: INTERCOMPANY CLAIMS
Class CAI-4 consists of all Intercompany Claims against CAI.
. IMPAIRED CLASSES OF CLAIMS AGAINST AND INTERESTS IN CAI (CLASSES 5 AND 6 ARE
ENTITLED TO VOTE ON THE PLAN; CLASSES 7 AND 8 ARE DEEMED TO HAVE REJECTED THE
PLAN AND, THEREFORE, ARE NOT ENTITLED TO VOTE)
. CLASS CAI-5: SENIOR NOTE CLAIMS
Class CAI-5 consists of all Senior Note Claims against CAI.
Notwithstanding anything contained in this Plan to the contrary, the Senior
Note Claims shall be deemed Allowed Class CAI-5 Claims in the aggregate amount
of $275,000,000 plus accrued interest through the Petition Date.
. CLASS CAI-6: SUBORDINATED NOTE CLAIMS
Class CAI-6 consists of all Subordinated Note Claims against CAI.
Notwithstanding anything contained in this Plan to the contrary, the
Subordinated Note Claims shall be deemed Allowed Class CAI-6 Claims in the
aggregate amount of $32,793,000 plus accrued interest through the Petition
Date.
. CLASS CAI-7: SECURITIES CLAIMS
. Class CAI-7.01: Debt Securities Claims
Class CAI-7.01 consists of all Debt Securities Claims against CAI.
. Class CAI-7.02: Equity Securities Claims
Class CAI-7.02 consists of all Equity Securities Claims against CAI.
. CLASS CAI-8: EQUITY SECURITIES INTERESTS
Class CAI-8 consists of all Interests in CAI directly or indirectly
arising from or under, or relating in any to, any of the Equity Securities of
CAI.
. UNIMPAIRED CLASSES OF CLAIMS AGAINST PCT (DEEMED TO HAVE ACCEPTED THE PLAN
AND, THEREFORE, NOT ENTITLED TO VOTE)
. CLASS PCT-1: OTHER PRIORITY CLAIMS
Class PCT-1 consists of all Other Priority Claims against PCT.
. CLASS PCT-2: SECURED CLAIMS
Class PCT-2 consists of all Secured Claims against PCT. Each holder of a
Secured Claim against PCT shall be treated as a separate subclass for all
purposes under Plan and the Bankruptcy Code.
. CLASS PCT-3: GENERAL UNSECURED CLAIMS
Class PCT-3 consists of all General Unsecured Claims against PCT.
. CLASS PCT-4: INTERCOMPANY CLAIMS
Class PCT-4 consists of all Intercompany Claims against PCT.
. IMPAIRED CLASS OF CLAIMS AGAINST PCT (ENTITLED TO VOTE ON THE PLAN)
CLASS PCT-5: SUBORDINATED NOTE CLAIMS
Class PCT-5 consists of all Claims against PCT arising under or as a
result of any Subordinated Note. Notwithstanding anything contained in this
Plan to the contrary, the Subordinated Note Claims shall be deemed Allowed
Class PCT-5 Claims in the aggregate amount of $30,000,000 plus accrued interest
through the Petition Date.
. UNIMPAIRED CLASS OF INTERESTS IN PCT (DEEMED TO HAVE ACCEPTED THE PLAN AND,
THEREFORE, NOT ENTITLED TO VOTE)
CLASS PCT-6: EQUITY SECURITIES INTERESTS
Class PCT-6 consists of all Interests in PCT directly or indirectly
arising from or under, or relating in any way to, any of the Equity Securities
of PCT.
ARTICLE .
TREATMENT OF CLAIMS AND INTERESTS
. UNCLASSIFIED CLAIMS
. DIP FACILITY CLAIMS
On, or one Business Day after, the Consummation Date or the date such DIP
Facility Claim becomes payable pursuant to any agreement between CAI and the
holder of such DIP Facility Claim, each holder of an Allowed DIP Facility Claim
shall receive in full satisfaction, settlement, release, and discharge of and
in exchange for such Allowed DIP Facility Claim (a) cash equal to the unpaid
portion of such Allowed DIP Facility Claim or (b) such other treatment as to
which CAI and such holder shall have agreed upon in writing.
. ADMINISTRATIVE CLAIMS
Except as otherwise provided for herein, and subject to the requirements
of Article XIV.A.2 hereof, on, or as soon as reasonably practicable after, the
latest of (i) the Distribution Date, (ii) the date such Administrative Claim
becomes an Allowed Administrative Claim, or (iii) the date such Administrative
Claim becomes payable pursuant to any agreement between a Debtor and the holder
of such Administrative Claim, each holder of an Allowed Administrative Claim
shall receive in full satisfaction, settlement, release, and discharge of and
in exchange for such Allowed Administrative Claim (a) Cash equal to the unpaid
portion of such Allowed Administrative Claim or (b) such other treatment as to
which the applicable Debtor and such holder shall have agreed upon in writing;
PROVIDED, HOWEVER, that Allowed Administrative Claims with respect to
liabilities incurred by a Debtor in the ordinary course of business during the
Chapter 11 Case shall be paid in the ordinary course of business in accordance
with the terms and conditions of any agreements relating thereto.
. PRIORITY TAX CLAIMS
On, or as soon as reasonably practicable after, the later of (i) the
Distribution Date or (ii) the date such Priority Tax Claim becomes an Allowed
Priority Tax Claim, each holder of an Allowed Priority Tax Claim shall receive
in full satisfaction, settlement, release, and discharge of and in exchange for
such Allowed Priority Tax Claim (a) Cash equal to the unpaid portion of such
Allowed Priority Tax Claim, (b) Cash payments over time in an aggregate
principal amount equal to the amount of such Allowed Priority Tax Claim plus
interest on the unpaid portion thereof at the rate of seven percent (7%) per
annum from the Consummation Date through the date of payment thereof, or (c)
such other treatment as to which CAI or PCT, as the case may be, and such
holder shall have agreed upon in writing. Cash payments of principal shall be
made in annual installments, each such installment amount being equal to ten
percent (10%) of such Allowed Priority Tax Claim plus accrued and unpaid
interest, with the first payment to be due on or before the first anniversary
of the Consummation Date, or as soon thereafter as is practicable, and
subsequent payments to be due on the anniversary of the first payment date or
as soon thereafter as is practicable; PROVIDED, HOWEVER, that any installments
remaining unpaid on the date that is six years after the date of assessment of
the tax that is the basis for the Allowed Priority Tax Claim shall be paid on
the first Business Day following such date, or as soon thereafter as is
practicable together with any accrued and unpaid interest to the date of
payment; and PROVIDED FURTHER, that the Debtors reserve the right to pay any
Allowed Priority Tax Claim, or any remaining balance of any Allowed Priority
Tax Claim, in full at any time on or after the Distribution Date without
premium or penalty; and PROVIDED FURTHER, that no holder of an Allowed Priority
Tax Claim shall be entitled to any payments on account of any pre-Consummation
Date interest accrued on or penalty arising after the Petition Date with
respect to or in connection with such Allowed Priority Tax Claim.
. UNIMPAIRED CLASSES OF CLAIMS AGAINST CAI
. CLASS CAI-1: OTHER PRIORITY CLAIMS
On, or as soon as reasonably practicable after, the latest of (i) the
Distribution Date, (ii) the date such Class CAI-1 Other Priority Claim becomes
an Allowed Class CAI-1 Other Priority Claim, or (iii) the date such Class CAI-1
Other Priority Claim becomes payable pursuant to any agreement between CAI and
the holder of such Class CAI-1 Other Priority Claim, each holder of an Allowed
Class CAI-1 Other Priority Claim shall receive in full satisfaction,
settlement, release, and discharge of and in exchange for such Allowed Class
CAI-1 Other Priority Claim (a) Cash equal to the unpaid portion of such Allowed
Class CAI-1 Other Priority Claim or (b) such other treatment as to which CAI
and such holder shall have agreed upon in writing.
. CLASS CAI-2: SECURED CLAIMS
Each holder of a Class 2 Secured Claim shall be treated as a separate
class for all purposes under this Plan, and each holder of an Allowed Class 2
Secured Claim shall receive the treatment set forth below. To the extent, if
any, that the value of the collateral securing a Class 2 Secured Claim is less
than the total amount of such Claim, the difference shall be treated as a Class
3 General Unsecured Claim. CAI specifically reserves all rights to challenge
the validity, nature and perfection of, and to avoid pursuant to the provisions
of the Bankruptcy Code and other applicable law, any purported liens and
security interests.
. Class CAI-2.01: Bott Secured Claims
On, or as soon as reasonably practicable after, the latest of (i) the
Distribution Date, (ii) the date such Class CAI-2.01 Bott Secured Claim becomes
an Allowed Class CAI-2.01 Bott Secured Claim, or (iii) the date such Class CAI-
2.01 Bott Secured Claim becomes payable pursuant to any agreement between CAI
and the holder of such Class CAI-2.01 Bott Secured Claim, each holder of an
Allowed Class CAI-2.01 Bott Secured Claim, in full satisfaction, settlement,
release, and discharge of and in exchange for such Allowed Class CAI-2.01 Bott
Secured Claim, shall, in the sole discretion of CAI, (a) receive deferred cash
payments totaling at least the allowed amount of such Allowed Class CAI-2.01
Bott Secured Claim, of a value, as of the Consummation Date, of at least the
value of such holder's interest in CAI's Estate's interest in the Bott
Collateral, (b) upon abandonment by CAI receive the Bott Collateral,
(c) receive payments or liens amounting to the indubitable equivalent of the
value of such holder's interest in CAI's Estate's interest in the Bott
Collateral, (d) be Reinstated, or (e) receive such other treatment as CAI and
such holder shall have agreed upon in writing.
. Class CAI-2.02: Mester Secured Claims
On, or as soon as reasonably practicable after, the latest of (i) the
Distribution Date, (ii) the date such Class CAI-2.02 Mester Secured Claim
becomes an Allowed Class CAI-2.02 Mester Secured Claim, or (iii) the date such
Class CAI-2.02 Mester Secured Claim becomes payable pursuant to any agreement
between CAI and the holder of such Class CAI-2.02 Mester Secured Claim, each
holder of an Allowed Class CAI-2.02 Mester Secured Claim, in full satisfaction,
settlement, release and discharge of and in exchange for such Allowed Class
CAI-2.02 Mester Secured Claim, shall, in the sole discretion of CAI,
(a) receive deferred cash payments totaling at least the allowed amount of such
Allowed Class CAI-2.02 Mester Secured Claim, of a value, as of the Consummation
Date, of at least the value of such holder's interest in CAI's Estate's
interest in the Mester Collateral, (b) upon abandonment by CAI receive the
Mester Collateral, (c) receive payments or liens amounting to the indubitable
equivalent of the value of such holder's interest in CAI's Estate's interest in
the Mester Collateral, (d) be Reinstated, or (e) receive such other treatment
as CAI and such holder shall have agreed upon in writing.
. Class CAI-2.03: Other Secured Claims
On, or as soon as reasonably practicable after, the latest of (i) the
Distribution Date, (ii) the date such Class CAI-2.03 Other Secured Claim
becomes an Allowed Class CAI-2.03 Other Secured Claim, or (iii) the date such
Class CAI-2.03 Other Secured Claim becomes payable pursuant to any agreement
between CAI and the holder of such Class CAI-2.03 Other Secured Claim, each
holder of an Allowed Class CAI-2.03 Other Secured Claim, in full satisfaction,
settlement, release, and discharge of and in exchange for such Allowed
Class CAI-2.03 Other Secured Claim, shall, in the sole discretion of CAI,
(a) receive deferred cash payments totaling at least the allowed amount of such
Allowed Class CAI-2.03 Other Secured Claim, of a value, as of the Consummation
Date, of at least the value of such holder's interest in CAI's Estate's
interest in the Collateral securing the Allowed Class CAI-2.03 Other Secured
Claim, (b) upon abandonment by CAI receive the Collateral securing such
holder's Allowed Class CAI-2.03 Other Secured Claim, (c) receive payments or
liens amounting to the indubitable equivalent of the value of such holder's
interest in CAI's Estate's interest in the Collateral securing the Allowed
Class CAI-2.03 Other Secured Claim, (d) be Reinstated, or (e) receive such
other treatment as CAI and such holder shall have agreed upon in writing.
. CLASS CAI-3: GENERAL UNSECURED CLAIMS
Each holder of an Allowed Class CAI-3 General Unsecured Claim shall
receive in full satisfaction, settlement, release and discharge of and in
exchange for such Allowed Class CAI-3 General Unsecured Claim, in the sole
discretion of CAI, (a) treatment that leaves unaltered the legal, equitable,
and contractual rights to which such Allowed Class CAI-3 General Unsecured
Claim entitles the holder of such Claim; (b) notwithstanding any contractual
provision or applicable law that entitles the holder of such Allowed Class CAI-
3 General Unsecured Claim to demand or receive accelerated payment of such
Claim after the occurrence of a default, treatment that (i) cures any such
default that occurred before or after the Petition Date, other than a default
of a kind specified in Section 365(b)(2) of the Bankruptcy Code, (ii)
reinstates the maturity of such Allowed Class CAI-3 General Unsecured Claim as
such maturity existed before such default, (iii) compensates the holder of such
Allowed Class CAI-3 General Unsecured Claim for any damages incurred as a
result of any reasonable reliance by such holder on such contractual provision
or such applicable law, and (iv) does not otherwise alter the legal, equitable,
or contractual rights to which such Allowed Class CAI-3 General Unsecured Claim
entitles the holder of such Claim; or (c) such other treatment as to which CAI
and such holder shall have agreed upon in writing.
. CLASS CAI-4: INTERCOMPANY CLAIMS
Each holder of an Allowed Class CAI-4 Intercompany Claim, in full
satisfaction, settlement, release and discharge of and in exchange for such
Allowed Class CAI-4 Intercompany Claim, shall, in the sole discretion of CAI,
(a) receive treatment that leaves unaltered the legal, equitable, and
contractual rights to which such Allowed Class CAI-4 Intercompany Claim
entitles the holder of such Claim, (b) be Reinstated, or (c) receive such other
treatment as CAI and such holder have agreed upon in writing.
. IMPAIRED CLASSES OF CLAIMS AGAINST CAI
. CLASS CAI-5: SENIOR NOTE CLAIMS
On, or as soon as reasonably practicable after, the latest of (i) the
Distribution Date, (ii) the date such Class CAI-5 Senior Note Claim becomes an
Allowed Class CAI-5 Senior Note Claim or (iii) the date such Class CAI-5 Senior
Note Claim becomes payable pursuant to any agreement between CAI and the holder
of such Class CAI-5 Senior Note Claim, each holder of an Allowed Class CAI-5
Senior Note Claim shall receive, in full satisfaction, settlement, release, and
discharge of and in exchange for such Allowed Class CAI-5 Senior Note Claim,
its Pro Rata share of (a) the New Senior Notes and (b) ninety-one percent (91%)
of the New Common Stock, subject to dilution, to be issued pursuant to Article
IV.C of the Plan. In addition, on the Distribution Date or as soon thereafter
as practicable, each holder of an Allowed Class CAI-5 Senior Note Claim shall
receive its Pro Rata share of the balance of the Senior Note Escrow which
otherwise would have been payable to such holder on September 1, 1998 in
accordance with the terms of the Senior Notes Indenture.
. CLASS CAI-6: SUBORDINATED NOTE CLAIMS
On, or as soon as reasonably practicable after, the later of (i) the
Distribution Date or (ii) the date such Class CAI-6 Subordinated Note Claim
becomes an Allowed Class CAI-6 Subordinated Note Claim, each holder of an
Allowed Class CAI-6 Subordinated Note Claim shall receive, in full
satisfaction, settlement, release, and discharge of and in exchange for such
Allowed Class CAI-6 Subordinated Note Claim, its Pro Rata share of nine percent
(9%) of the New Common Stock to be issued pursuant to Article IV.C of the Plan.
In consideration of the treatment afforded its Class CAI-6 Subordinated Note
Claim, the holder of the 12% Subordinated Note shall be deemed to release each
Obligor Subsidiary of all obligations under the 12% Subordinated Note.
. CLASS CAI-7: SECURITIES CLAIMS
. Class CAI-7.01: Debt Securities Claims
The holders of Class CAI-7.01 Debt Securities Claims shall not be
entitled to, and shall not, receive or retain any property or interest in
property on account of such Claims.
. Class CAI-7.02: Equity Securities Claims
The holders of Class CAI-7.02 Equity Securities Claims shall not be
entitled to, and shall not, receive or retain any property or interest in
property on account of such Claims.
. IMPAIRED CLASS OF INTERESTS IN CAI
CLASS CAI-8: EQUITY SECURITIES INTERESTS
The holders of Class CAI-8 Equity Securities Interests shall not be
entitled to, and shall not, receive or retain any property or interest in
property on account of such Interests.
. UNIMPAIRED CLASSES OF CLAIMS AGAINST PCT
. CLASS PCT-1: OTHER PRIORITY CLAIMS
On, or as soon as reasonably practicable after, the latest of (i) the
Distribution Date, (ii) the date such Class PCT-1 Other Priority Claim becomes
an Allowed Class PCT-1 Other Priority Claim, or (iii) the date such Class PCT-1
Other Priority Claim becomes payable pursuant to any agreement between PCT and
the holder of such Class PCT-1 Other Priority Claim, each holder of an Allowed
Class PCT-1 Other Priority Claim shall receive in full satisfaction,
settlement, release, and discharge of and in exchange for such Allowed Class
PCT-1 Other Priority Claim (a) Cash equal to the unpaid portion of such Allowed
Class PCT-1 Other Priority Claim or (b) such other treatment as to which PCT
and such holder shall have agreed upon in writing.
. CLASS PCT-2: SECURED CLAIMS
Class PCT-2 consists of separate subclasses for each holder of a Secured
Claim secured by a security interest in or lien upon property in which PCT's
Estate has an interest. Each subclass is deemed to be a separate Class for all
purposes under the Plan and the Bankruptcy Code.
On, or as soon as reasonably practicable after, the latest of (i) the
Distribution Date, (ii) the date such Class PCT-2 Secured Claim becomes an
Allowed Class PCT-2 Secured Claim, or (iii) the date such Class PCT-2 Secured
Claim becomes payable pursuant to any agreement between PCT and the holder of
such Class PCT-2 Secured Claim, each holder of an Allowed Class PCT-2 Secured
Claim will, in the sole discretion of PCT, (a) receive Cash in an amount equal
to such Allowed Class PCT-2 Secured Claim, (b) receive deferred cash payments
totaling at least the allowed amount of such Allowed Class PCT-2 Secured Claim,
of a value, as of the Consummation Date, of at least the value of such holder's
interest in PCT's Estate's interest in the collateral securing the Allowed
Class PCT-2 Secured Claim, (c) upon abandonment by PCT, receive the collateral
securing such holder's Allowed Class PCT-2 Secured Claim, (d) receive payments
or liens amounting to the indubitable equivalent of the value of such holder's
interest in PCT's Estate's interest in the collateral securing the Allowed
Class PCT-2 Secured Claim, (e) have its Allowed Class PCT-2 Secured Claim
Reinstated, or (f) receive such other treatment as PCT and such holder have
agreed upon in writing.
. CLASS PCT-3: GENERAL UNSECURED CLAIMS
Each holder of an Allowed Class PCT-3 General Unsecured Claim shall
receive in full satisfaction, settlement, release and discharge of and in
exchange for such Allowed Class PCT-3 General Unsecured Claim, in the sole
discretion of PCT, (a) treatment that leaves unaltered the legal, equitable,
and contractual rights to which such Allowed Class PCT-3 General Unsecured
Claim entitles the holder of such Claim; (b) notwithstanding any contractual
provision or applicable law that entitles the holder of such Allowed Class PCT-
3 General Unsecured Claim to demand or receive accelerated payment of such
Claim after the occurrence of a default, treatment that (i) cures any such
default that occurred before or after the Petition Date, other than a default
of a kind specified in Section 365(b)(2) of the Bankruptcy Code, (ii)
reinstates the maturity of such Allowed Class PCT-3 General Unsecured Claim as
such maturity existed before such default, (iii) compensates the holder of such
Allowed Class PCT-3 General Unsecured Claim for any damages incurred as a
result of any reasonable reliance by such holder on such contractual provision
or such applicable law, and (iv) does not otherwise alter the legal, equitable,
or contractual rights to which such Allowed Class PCT-3 General Unsecured Claim
entitles the holder of such Claim; or (c) such other treatment as to which PCT
and such holder shall have agreed upon in writing.
. CLASS PCT-4: INTERCOMPANY CLAIMS
Each holder of an Allowed Class PCT-4 Intercompany Claim, in full
satisfaction, settlement, release and discharge of and in exchange for such
Allowed Class PCT-4 Intercompany Claim, shall, in the sole discretion of PCT,
(a) receive treatment that leaves unaltered the legal, equitable, and
contractual rights to which such Allowed Class PCT-4 Intercompany Claim
entitles the holder of such Claim, (b) be Reinstated, or (c) receive such other
treatment as PCT and such holder have agreed upon in writing.
. IMPAIRED CLASS OF CLAIMS AGAINST PCT (ENTITLED TO VOTE ON THE PLAN)
CLASS PCT-5: SUBORDINATED NOTE CLAIMS
On the Distribution Date, or as soon thereafter as practicable, each
Allowed Class PCT-5 Subordinated Note Claim shall be fully and finally
satisfied by the satisfaction of the applicable Class CAI-6 Subordinated Note
Claim in accordance with Article III.C.2 of the Plan.
. UNIMPAIRED CLASS OF INTERESTS IN PCT (DEEMED TO HAVE ACCEPTED THE PLAN AND,
THEREFORE, NOT ENTITLED TO VOTE)
CLASS PCT-6: EQUITY SECURITIES INTERESTS
On the Distribution Date, each Allowed Class PCT-6 Equity Securities
Interest shall be Reinstated.
. SPECIAL PROVISION REGARDING UNIMPAIRED CLAIMS
Except as otherwise provided in the Plan, nothing shall affect the
Debtors' or Reorganized Debtors' rights and defenses, both legal and equitable,
with respect to any Unimpaired Claims, including, but not limited to, all
rights with respect to legal and equitable defenses to Setoffs or recoupments
against Unimpaired Claims.
. ACCRUAL OF POST-PETITION INTEREST
Interest on and fees and expenses, if any, with respect to Allowed Class
CAI-2 and Class PCT-2 Secured Claims, including, but limited to, unpaid
professional fees due the holders of such Claims, shall be paid when due under
the contract, agreement, or other instrument governing the terms and conditions
of the obligation comprising such Allowed Claim, together with any additional
amounts required to be paid with respect to Unimpaired Claims pursuant to
Section 1124 of the Bankruptcy Code. Except as otherwise provided above,
elsewhere in this Plan, or in an order of the Bankruptcy Court, no holder of an
Allowed Unsecured Claim shall be entitled to the accrual of post-petition
interest or the payment by the Debtors or Reorganized Debtors of post-petition
interest on account of such Claim for any purpose.
ARTICLE .
MEANS FOR IMPLEMENTATION OF THE PLAN
. CONTINUED CORPORATE EXISTENCE
CAI, PCT, and the Subsidiaries shall continue to exist after the
Consummation Date as separate corporate entities, in accordance with the
applicable law in the respective jurisdictions in which they are incorporated
and pursuant to their respective certificates of incorporation and by-laws in
effect prior to the Consummation Date, except to the extent such certificates
of incorporation and by-laws are amended by this Plan.
. CORPORATE ACTION
. CANCELLATION OF EXISTING SECURITIES AND AGREEMENTS
On the Consummation Date, except as otherwise provided for herein, (i)
the Existing Securities and any other note, bond, indenture, or other
instrument or document evidencing or creating any indebtedness or obligation of
a Debtor, except such notes or other instruments evidencing indebtedness or
obligations of a Debtor that are Reinstated under the Plan, shall be canceled,
and (ii) the obligations of the Debtors under any agreements, indentures or
certificates of designations governing the Existing Securities and any other
note, bond, indenture or other instrument or document evidencing or creating
any indebtedness or obligation of a Debtor, except such notes or other
instruments evidencing indebtedness or obligations of a Debtor that are
Reinstated under the Plan, as the case may be, shall be discharged; PROVIDED,
HOWEVER, that each indenture or other agreement that governs the rights of the
holder of a Claim and that is administered by an indenture trustee, an agent,
or a servicer shall continue in effect solely for the purposes of (i) allowing
such indenture trustee, agent, or servicer to make the distributions to be made
on account of such Claims under the Plan as provided in Article III hereof and
(ii) permitting such indenture trustee, agent, or servicer to maintain any
rights or liens it may have for fees, costs and expenses under such indenture
or other agreement; PROVIDED, FURTHER, that the provisions of clause (ii) of
this paragraph shall not affect the discharge of the Debtors' liabilities under
the Bankruptcy Code and the Confirmation Order or result in any expense or
liability to any Reorganized Debtor. No Reorganized Debtor shall have any
obligations to any indenture trustee, agent or servicer (or to any Disbursing
Agent replacing such indenture trustee, agent or servicer) for any fees, costs
or expenses, except as expressly provided in this Article IV.B.1; PROVIDED,
HOWEVER, that nothing herein shall preclude such indenture trustee, agent or
servicer (or any Disbursing Agent replacing such indenture trustee, agent or
servicer) from being paid or reimbursed for pre-petition and post-petition
fees, costs and expenses from the distributions until payment in full of such
fees, costs or expenses that are governed by the respective indenture or other
agreement in accordance with the provisions set forth therein.
Any actions taken by an indenture trustee, an agent, or a servicer that
are not for the purposes authorized in this Article IV.B.1 of the Plan shall
not be binding upon the Debtors. Notwithstanding the foregoing, any Debtor may
terminate any indenture or other governing agreement and the authority of any
indenture trustee, agent, or servicer to act thereunder at any time, with or
without cause, by giving five (5) days written notice of termination to the
indenture trustee, agent, or servicer. If distributions under the Plan have not
been completed at the time of termination of the indenture or other governing
agreement, the applicable Debtor shall designate a Disbursing Agent to act in
place of the indenture trustee, agent, or servicer, and the provisions of this
Article IV.B.1 shall be deemed to apply to the new distribution agent.
. CERTIFICATE OF INCORPORATION AND BY-LAWS
The certificate of incorporation and by-laws of each Debtor shall be
amended as necessary to satisfy the provisions of the Plan and the Bankruptcy
Code and shall include, among other things, pursuant to Section 1123(a)(6) of
the Bankruptcy Code, (x) a provision prohibiting the issuance of non-voting
equity securities, and if applicable (y) a provision as to the classes of
securities issued pursuant to the Plan or thereafter possessing voting power,
for an appropriate distribution of such power among such classes, including, in
the case of any class of equity securities having a preference over another
class of equity securities with respect to dividends, adequate provisions for
the election of directors representing such preferred class in the event of
default in the payment of such dividends. The Amended CAI Certificate of
Incorporation shall also include, among other things, a provision authorizing a
capital stock of 25 million shares of New Common Stock, $.01 par value per
share.
. CAI'S RESTRUCTURING TRANSACTIONS
. NEW SECURITIES
. Authorization
As of the Consummation Date, the issuance by Reorganized CAI of (i) $100
million in principal amount of New Senior Notes, (ii) up to 25 million shares
of New Common Stock, and (iii) New Options to purchase up to 10.5% of the New
Common Stock, on a fully diluted basis, is hereby authorized without further
act or action under applicable law, regulation, order or rule.
. Issuance
The New Securities authorized pursuant to Article IV.C.1 hereof shall be
issued by Reorganized CAI pursuant to the Plan without further act or action
under applicable law, regulation, order or rule, as follows: (i) $100 million
in principal amount of New Senior Notes shall be issued to the holders of the
Senior Notes; (ii) ninety-one percent (91%) of the New Common Stock shall be
issued to the holders of the Senior Notes; (iii) nine percent (9%) of the New
Common Stock shall be issued to the holders of the Subordinated Notes; (iv) the
Management Options shall be issued to the Management Option Plan Participants,
and (v) the BT Alex. Brown Option shall be issued to BT Alex. Brown.
. Reserve
Reorganized CAI shall reserve 1.5 million shares of the New Common Stock
for issuance pursuant to the Management Option Plan and 75,000 shares of the
New Common Stock for issuance pursuant to the BT Alex. Brown Option, in each
case without further act or action under applicable law, regulation, order or
rule.
. REGISTRATION RIGHTS
Reorganized CAI and certain holders of shares of New Common Stock who may
be deemed to be "underwriters" or "affiliates" for purposes of the Securities
Act shall enter into the Registration Rights Agreement on or prior to the
Consummation Date. Pursuant to the Registration Rights Agreement, Reorganized
CAI shall agree to file with the SEC, as soon as practicable after receiving a
request from the holders of not less than 10% of the shares of New Common Stock
(subject to adjustments for stock splits), a registration statement on Form S-1
or Form S-3, if use of such a form is then available, to cover resales of
Registrable Securities by the holders thereof who satisfy certain conditions
relating to the provision of information in connection with such registration
statement.
. NEW SENIOR SECURED FACILITY
The Debtors, together with the non-Debtor Subsidiaries, expect to enter
into one or more post-confirmation loan facilities, which may be the New Senior
Secured Facility, in order to (a) refinance amounts outstanding on the
Consummation Date under the DIP Facility, (b) make other payments required to
be made on the Consummation Date or the Distribution Date, and (c) provide the
additional borrowing capacity required by the Reorganized Debtors and the
Subsidiaries following the Consummation Date to maintain their operations. The
Debtors further expect that (x) the New Senior Secured Facility or other post-
confirmation loan facilit(ies), may consist of two tranches of secured debt,
the first tranche secured by a first priority lien on and security interest in
substantially all of Reorganized CAI's assets and the second tranche secured by
a second priority lien on and security interest in the same assets and (y) the
lender(s) under the New Senior Secured Facility may require a market interest
rate and an equity stake in Reorganized CAI.
. SALE OF MDU ASSETS BY PCT
. SALE OF THE MDU ASSETS
The Debtors have entered into a binding letter of intent (the ALOI@) with
OnePoint providing for the sale by the Debtors to OnePoint of PCT's and CAI's
MDU Assets. The proposed purchase price for the MDU Assets is $6 million, 92%
of which will be delivered to the Debtors at closing and 8% of which will be
held in escrow for a period up to 6 months, pending the technical conversion
required to convert the multi-dwelling units to OnePoint's distribution system.
Consummation of the transactions contemplated by the LOI is subject to the
satisfaction of a variety of conditions, including Bankruptcy Court approval.
. USE OF PROCEEDS OF SALE
The Reorganized Debtors shall use a portion of the proceeds of the sale
of the MDU Assets to establish and fund a Distribution Reserve for and on
account of certain Disputed Claims against PCT. All sale proceeds remaining
after the establishment and funding of the Distribution Reserve shall be used
by the Reorganized Debtors, first to fund distributions required to be made
under the Plan, and second, for general working capital purposes.
. DIRECTORS AND OFFICERS
The existing officers of the Debtors shall serve initially in their
current capacities after the Consummation Date. On the Consummation Date, the
term of the current board of directors of each Debtor shall expire. The
Debtors anticipate that the boards of directors of the Reorganized Debtors will
include two (2) members of current management of CAI. The composition of the
remainder of the boards of the Reorganized Debtors will be determined by the
Debtors and the Unofficial Noteholders' Committee, subject to the requirements
of Section 1129(a)(5) of the Bankruptcy Code. The Debtors and the Unofficial
Noteholders' Committee intend to announce prior to the Confirmation Date the
identities of any individuals proposed to serve as directors or officers of the
Reorganized Debtors. If and to the extent possible, the identities of such
individuals will be announced by inclusion of a list of proposed directors
and/or officers in the Plan Supplement, which will be filed with the Bankruptcy
Court at least five (5) Business Days prior to the commencement of the
Confirmation Hearing. The boards of directors of the Reorganized Debtors shall
have the responsibility for the management, control, and operation of the
Reorganized Debtors on and after the Consummation Date.
. REVESTING OF ASSETS
The property of each Debtor's Estate, together with any property of each
Debtor that is not property of its Estate and that is not specifically disposed
of pursuant to the Plan, shall revest in the applicable Debtor on the
Confirmation Date. Thereafter, each Debtor may operate its business and may
use, acquire, and dispose of property free of any restrictions of the
Bankruptcy Code, the Bankruptcy Rules, and the Bankruptcy Court. As of the
Confirmation Date, all property of each Debtor shall be free and clear of all
Claims and Interests, except as specifically provided in the Plan or the
Confirmation Order. Without limiting the generality of the foregoing, each
Debtor may, without application to or approval by the Bankruptcy Court, pay
fees that it incurs after the Confirmation Date for professional fees and
expenses.
. PRESERVATION OF RIGHTS OF ACTION; SETTLEMENT OF LITIGATION CLAIMS
Except as otherwise provided in this Plan or the Confirmation Order, or
in any contract, instrument, release, indenture or other agreement entered into
in connection with the Plan, in accordance with Section 1123(b) of the
Bankruptcy Code, the Reorganized Debtors shall retain and may enforce, sue on,
settle, or compromise (or decline to do any of the foregoing) all claims,
rights or causes of action, suits, and proceedings, whether in law or in
equity, whether known or unknown, that the Debtors or the Estates may hold
against any Person or entity. Each Debtor or its successor(s) may pursue such
retained claims, rights or causes of action, suits, or proceedings as
appropriate, in accordance with the best interests of the Reorganized Debtor or
its successor(s) who hold such rights.
. EXCLUSIVITY PERIOD
The Debtors shall retain the exclusive right to amend or modify the Plan,
and to solicit acceptances of any amendments to or modifications of the Plan,
through and until the Consummation Date.
. EFFECTUATING DOCUMENTS; FURTHER TRANSACTIONS
The chairman of the board of directors, president, chief financial
officer, or any other appropriate officer of CAI or PCT, as the case may be,
shall be authorized to execute, deliver, file, or record such contracts,
instruments, releases, indentures, and other agreements or documents, and take
such actions as may be necessary or appropriate to effectuate and further
evidence the terms and conditions of the Plan. The secretary or assistant
secretary of CAI or PCT, as the case may be, shall be authorized to certify or
attest to any of the foregoing actions.
. TERMINATION OF DIP FACILITY
To the extent not amended and restated with the express consent of MLGAF
as a part of any post-confirmation financing procured by CAI, the DIP Facility
shall be terminated and of no further force and effect upon payment in full on
or one Business Day after the Consummation Date, except as necessary to
evidence and maintain the liens and security interests granted pursuant to (i)
any Final Order authorizing CAI's entry into the DIP Facility and (ii) the
various agreements approved thereby; PROVIDED, HOWEVER, that the liens and
security interests securing the DIP Facility shall remain in full force and
effect until the DIP Facility is repaid in full in cash.
. EXEMPTION FROM CERTAIN TRANSFER TAXES
Pursuant to Section 1146(c) of the Bankruptcy Code, any transfers from a
Debtor to a Reorganized Debtor or any other Person or entity pursuant to the
Plan shall not be subject to any document recording tax, stamp tax, conveyance
fee, intangibles or similar tax, mortgage tax, stamp act, real estate transfer
tax, mortgage recording tax or other similar tax or governmental assessment,
and the Confirmation Order shall direct the appropriate state or local
governmental officials or agents to forego the collection of any such tax or
governmental assessment and to accept for filing and recordation any of the
foregoing instruments or other documents without the payment of any such tax or
governmental assessment.
ARTICLE .
ACCEPTANCE OR REJECTION OF THE PLAN
. CLASSES ENTITLED TO VOTE
Each Impaired Class of Claims that will (or may) receive or retain
property or any interest in property under the Plan, I.E., Classes CAI-5, CAI-
6, and PCT-5, shall be entitled to vote to accept or reject the Plan. By
operation of law, each Unimpaired Class of Claims is deemed to have accepted
the Plan and, therefore, is not entitled to vote to accept or reject the Plan.
Because holders of Class CAI-7 Securities Claims and Class CAI-8 Equity
Securities Interests are not entitled to receive or retain any property under
the Plan, Classes CAI-7 and CAI-8 are presumed to have rejected the Plan and,
therefore, shall not be entitled to vote on the Plan.
. ACCEPTANCE BY IMPAIRED CLASSES
An Impaired Class of Claims shall have accepted the Plan if (i) the
holders (other than any holder designated under Section 1126(e) of the
Bankruptcy Code) of at least two-thirds in amount of the Allowed Claims
actually voting in such Class have voted to accept the Plan and (ii) the
holders (other than any holder designated under Section 1126(e) of the
Bankruptcy Code) of more than one-half in number of the Allowed Claims actually
voting in such Class have voted to accept the Plan.
. CRAMDOWN
CAI shall request Confirmation of the Plan, as it may be modified from
time to time, under Section 1129(b) of the Bankruptcy Code. CAI reserves the
right to modify the Plan to the extent, if any, that Confirmation pursuant to
Section 1129(b) of the Bankruptcy Code requires modification.
ARTICLE .
SECURITIES TO BE ISSUED
IN CONNECTION WITH THE PLAN
On or before the Distribution Date, Reorganized CAI shall issue for
distribution in accordance with the provisions of the Plan all of the New
Senior Notes, the New Common Stock, and New Options required for distribution
or sale pursuant to the provisions of the Plan. All securities to be issued
will be deemed issued as of the Distribution Date regardless of the date on
which they are actually distributed. The form of indenture governing the New
Senior Notes shall be included in the Plan Supplement as Exhibit D to this
Plan. A description of the terms of the New Common Stock and Management
Options are included in Exhibits E and F, annexed to and incorporated in the
Plan, respectively.
ARTICLE .
PROVISIONS GOVERNING DISTRIBUTIONS
. DISTRIBUTIONS FOR CLAIMS ALLOWED AS OF THE CONSUMMATION DATE
Except as otherwise provided herein or as ordered by the Bankruptcy
Court, distributions to be made on account of Claims that are Allowed Claims as
of the Consummation Date shall be made on the Distribution Date, or as soon
thereafter as practicable. The New Securities to be issued under this Plan
shall be deemed issued as of the Distribution Date regardless of the date on
which they are actually distributed. Distributions on account of Claims that
first become Allowed Claims after the Consummation Date shall be made pursuant
to Articles III, VII, and IX of this Plan.
. INTEREST ON CLAIMS
Unless otherwise specifically provided for in this Plan or the
Confirmation Order, or required by applicable bankruptcy law, post-petition
interest shall not accrue or be paid on Claims, and no holder of a Claim shall
be entitled to interest accruing on or after the Petition Date on any Claim.
Interest shall not accrue or be paid upon any Disputed Claim in respect of the
period from the Petition Date to the date a final distribution is made thereon
if and after such Disputed Claim becomes an Allowed Claim.
. DISBURSING AGENT
The Disbursing Agent shall make all distributions required under this
Plan (subject to the provisions of Articles III, VII, and IX hereof) except
with respect to a holder of a Claim whose distribution is governed by an
indenture or other agreement and is administered by an indenture trustee,
agent, or servicer, which distributions shall be deposited with the appropriate
indenture trustee, agent, or servicer, who shall deliver such distributions to
the holders of Claims in accordance with the provisions of this Plan and the
terms of the relevant indenture or other governing agreement.
If the Disbursing Agent is an independent third party designated by the
Reorganized Debtors to serve in such capacity, such Disbursing Agent shall
receive, without further Bankruptcy Court approval, reasonable compensation for
distribution services rendered pursuant to the Plan and reimbursement of
reasonable out-of-pocket expenses incurred in connection with such services
from the Reorganized Debtors on terms acceptable to the Reorganized Debtors.
No Disbursing Agent shall be required to give any bond or surety or other
security for the performance of its duties unless otherwise ordered by the
Bankruptcy Court. If otherwise so ordered, all costs and expenses of procuring
any such bond shall be paid by the Reorganized Debtors.
. SURRENDER OF SECURITIES OR INSTRUMENTS
On or before the Distribution Date, or as soon as practicable thereafter,
each holder of an instrument evidencing a Claim on account of Debt Securities
which are not being Reinstated (a "Certificate") shall surrender such
Certificate to the Disbursing Agent, or, with respect to indebtedness that is
governed by an indenture or other agreement, the respective indenture trustee,
agent, or servicer, as the case may be, and such Certificate shall be
cancelled. No distribution of property hereunder shall be made to or on behalf
of any such holder unless and until such Certificate is received by the
Disbursing Agent or the respective indenture trustee, agent, or servicer, as
the case may be, or the unavailability of such Certificate is reasonably
established to the satisfaction of the Disbursing Agent or the respective
indenture trustee, agent, or servicer, as the case may be. Any such holder who
fails to surrender or cause to be surrendered such Certificate or fails to
execute and deliver an affidavit of loss and indemnity reasonably satisfactory
to the Disbursing Agent or the respective indenture trustee, agent, or
servicer, as the case may be, prior to the second (2{nd}) anniversary of the
Consummation Date, shall be deemed to have forfeited all rights and Claims in
respect of such Certificate and shall not participate in any distribution
hereunder, and all property in respect of such forfeited distribution,
including interest accrued thereon, shall revert to Reorganized CAI
notwithstanding any federal or state escheat laws to the contrary.
. INSTRUCTIONS TO DISBURSING AGENT
Prior to any distribution on account of a Class CAI-5 Senior Note Claim,
the Indenture Trustee, agent, or servicer of the Senior Notes shall (i) inform
the Disbursing Agent as to the amount of properly surrendered Senior Notes and
(ii) instruct the Disbursing Agent, in a form and manner that the Disbursing
Agent reasonably determines to be acceptable, of the names of the holders of
Allowed Class CAI-5 Senior Note Claims, and the face amount of New Senior Notes
and/or number of shares of New Common Stock, , as the case may be, to be issued
and distributed to or on behalf of such holders of Allowed Class CAI-5 Senior
Note Claims in exchange for properly surrendered Senior Notes.
. SERVICES OF INDENTURE TRUSTEES, AGENTS, AND SERVICERS
The services, with respect to consummation of the Plan, of indenture
trustees, agents, and servicers under indentures and other agreements that
govern the rights of holders of Claims, shall be as set forth in Article IV.B.1
and elsewhere in the Plan.
. RECORD DATE FOR DISTRIBUTIONS TO HOLDERS OF DEBT SECURITIES
At the close of business on the Distribution Record Date, the transfer
ledgers for the Debt Securities shall be closed, and there shall be no further
changes in the record holders of the Debt Securities. Reorganized CAI and the
Disbursing Agent, if any, shall have no obligation to recognize any transfer of
such Debt Securities occurring after the Distribution Record Date and shall be
entitled instead to recognize and deal for all purposes hereunder with only
those record holders stated on the transfer ledgers as of the close of business
on the Distribution Record Date.
. MEANS OF CASH PAYMENT
Cash payments made pursuant to this Plan shall be in U.S. funds, by the
means agreed to by the payor and the payee, including by check or wire
transfer, or, in the absence of an agreement, such commercially reasonable
manner as the payor shall determine in its sole discretion; PROVIDED, HOWEVER,
that any cash payment in excess of $1,000,000 shall, notwithstanding the
foregoing, be effected by wire transfer.
. CALCULATION OF DISTRIBUTION AMOUNTS OF NEW COMMON STOCK
No fractional shares of New Common Stock shall be issued or distributed
under the Plan or by Reorganized CAI or any Disbursing Agent, indenture
trustee, agent, or servicer. Each Person entitled to receive New Common Stock
will receive the total number of whole shares of New Common Stock to which such
Person is entitled. Whenever any distribution to a particular Person would
otherwise call for distribution of a fraction of a share of New Common Stock,
the Disbursing Agent shall allocate separately one whole share to such Persons
in order of the fractional portion of their entitlements, starting with the
largest such fractional portion, until all remaining whole shares have been
allocated. Upon the allocation of a whole share to a Person in respect of the
fractional portion of its entitlement, such fractional portion shall be
cancelled. If two or more Persons are entitled to equal fractional
entitlements and the number of Persons so entitled exceeds the number of whole
shares which remain to be allocated, the Disbursing Agent shall allocate the
remaining whole shares to such holders by random lot or such other impartial
method as the Disbursing Agent deems fair. Upon the allocation of all of the
whole shares authorized under the Plan, all remaining fractional portions of
the entitlements shall be cancelled and shall be of no further force and
effect.
. DELIVERY OF DISTRIBUTIONS
Distributions to holders of Allowed Claims shall be made by the
Disbursing Agent or the appropriate indenture trustee, agent, or servicer, as
the case may be, (a) at the addresses set forth on the proofs of Claim filed by
such holders (or at the last known addresses of such holders if no proof of
Claim is filed or if the Debtors have been notified of a change of address),
(b) at the addresses set forth in any written notices of address changes
delivered to the Disbursing Agent after the date of any related proof of Claim,
(c) at the addresses reflected in the Schedules if no proof of Claim has been
filed and the Disbursing Agent has not received a written notice of a change of
address, or (d) in the case of the holder of a Claim that is governed by an
indenture or other agreement and is administered by an indenture trustee,
agent, or servicer, at the addresses contained in the official records of such
indenture trustee, agent, or servicer, or (e) at the addresses set forth in a
properly completed letter of transmittal accompanying securities properly
remitted to the Debtors. If any holder's distribution is returned as
undeliverable, no further distributions to such holder shall be made unless and
until the Disbursing Agent or the appropriate indenture trustee, agent, or
servicer is notified of such holder's then current address, at which time all
missed distributions shall be made to such holder without interest. Amounts in
respect of undeliverable distributions made through the Disbursing Agent or the
indenture trustee, agent, or servicer, shall be returned to the Reorganized
Debtors until such distributions are claimed. All claims for undeliverable
distributions must be made on or before the second (2{nd}) anniversary of the
Consummation Date, after which date all unclaimed property shall revert to the
Reorganized Debtors free of any restrictions thereon and the claim of any
holder or successor to such holder with respect to such property shall be
discharged and forever barred, notwithstanding any federal or state escheat
laws to the contrary.
. FRACTIONAL DOLLARS; DE MINIMIS DISTRIBUTIONS
Any other provision of the Plan notwithstanding, payments of fractions of
dollars shall not be made. Whenever any payment of a fraction of a dollar under
the Plan would otherwise be called for, the actual payment made shall reflect a
rounding of such fraction to the nearest whole dollar (up or down), with half
dollars being rounded down. The Disbursing Agent, or any indenture trustee,
agent, or servicer, as the case may be, shall not make any payment of less than
twenty-five dollars ($25.00) with respect to any Claim unless a request
therefor is made in writing to such Disbursing Agent, indenture trustee, agent,
or servicer, as the case may be.
. WITHHOLDING AND REPORTING REQUIREMENTS
In connection with this Plan and all distributions hereunder, the
Disbursing Agent shall, to the extent applicable, comply with all tax
withholding and reporting requirements imposed by any federal, state, local, or
foreign taxing authority, and all distributions hereunder shall be subject to
any such withholding and reporting requirements. The Disbursing Agent shall be
authorized to take any and all actions that may be necessary or appropriate to
comply with such withholding and reporting requirements.
. SETOFFS
The Reorganized Debtors may, but shall not be required to, set off
against any Claim, and the payments or other distributions to be made pursuant
to the Plan in respect of such Claim, claims of any nature whatsoever that the
Debtors or Reorganized Debtors may have against the holder of such Claim;
PROVIDED, HOWEVER, that neither the failure to do so nor the allowance of any
Claim hereunder shall constitute a waiver or release by the Reorganized Debtors
of any such claim that the Debtors or Reorganized Debtors may have against such
holder.
ARTICLE .
TREATMENT OF EXECUTORY CONTRACTS
AND UNEXPIRED LEASES
. ASSUMED CONTRACTS AND LEASES
Except as otherwise provided in the Plan, or in any contract, instrument,
release, indenture or other agreement or document entered into in connection
with the Plan, as of the Consummation Date each Debtor shall be deemed to have
assumed each executory contract and unexpired lease to which it is a party,
unless such contract or lease (i) was previously assumed or rejected by such
Debtor, (ii) previously expired or terminated pursuant to its own terms, or
(iii) is the subject of a motion to reject filed on or before the Confirmation
Date. The Confirmation Order shall constitute an order of the Bankruptcy Court
under Section 365 of the Bankruptcy Code approving the contract and lease
assumptions described above, as of the Consummation Date.
Each executory contract and unexpired lease that is assumed and relates
to the use, ability to acquire, or occupancy of real property shall include (a)
all modifications, amendments, supplements, restatements, or other agreements
made directly or indirectly by any agreement, instrument, or other document
that in any manner affect such executory contract or unexpired lease and (b)
all executory contracts or unexpired leases appurtenant to the premises,
including all easements, licenses, permits, rights, privileges, immunities,
options, rights of first refusal, powers, uses, usufructs, reciprocal easement
agreements, vaults, tunnel or bridge agreements or franchises, and any other
interests in real estate or rights IN REM related to such premises, unless any
of the foregoing agreements has been rejected pursuant to an order of the
Bankruptcy Court.
. PAYMENTS RELATED TO ASSUMPTION OF CONTRACTS AND LEASES
Any monetary amounts by which each executory contract and unexpired lease
to be assumed pursuant to the Plan is in default shall be satisfied, under
Section 365(b)(1) of the Bankruptcy Code, at the option of the Debtor party to
the contract or lease or the assignee of such Debtor party assuming such
contract or lease, by Cure. If there is a dispute regarding (i) the nature or
amount of any Cure, (ii) the ability of any Reorganized Debtor or any assignee
to provide "adequate assurance of future performance" (within the meaning of
Section 365 of the Bankruptcy Code) under the contract or lease to be assumed,
or (iii) any other matter pertaining to assumption, Cure shall occur following
the entry of a Final Order resolving the dispute and approving the assumption
or assumption and assignment, as the case may be.
. REJECTED CONTRACTS AND LEASES
Except as otherwise provided in the Plan or in any contract, instrument,
release, indenture or other agreement or document entered into in connection
with the Plan, none of the executory contracts and unexpired leases to which
the Debtors, or either of them, are a party shall be rejected under the Plan;
PROVIDED, HOWEVER, that the Debtors reserve the right, at any time prior to the
Confirmation Date, to seek to reject any executory contract or unexpired lease
to which they, or either of them, are a party.
. BAR TO REJECTION DAMAGES
If the rejection by a Debtor, pursuant to the Plan or otherwise, of an
executory contract or unexpired lease results in a Claim that is not
theretofore evidenced by a timely filed proof of Claim or a proof of Claim that
is deemed to be timely filed under applicable law, then such Claim shall be
forever barred and shall not be enforceable against any Debtor or Reorganized
Debtor, or the properties of any of them, unless a proof of Claim is filed with
the clerk of the Bankruptcy Court and served on counsel for the Debtors within
thirty (30) days after service of the earlier of (i) notice of entry of the
Confirmation Order or (ii) other notice that the executory contract or
unexpired lease has been rejected.
. COMPENSATION AND BENEFIT PROGRAMS
. Except and to the extent previously assumed by an order of the
Bankruptcy Court on or before the Confirmation Date, and except as set forth in
(2) below, all employee compensation and benefit programs of the Debtors,
including programs subject to Sections 1114 and 1129(a)(13) of the Bankruptcy
Code, entered into before or after the Petition Date and not since terminated,
shall be deemed to be, and shall be treated as though they are, executory
contracts that are assumed under Article VIII.A of the Plan, but only to the
extent that rights under such programs are held by a Debtor or Persons who are
employees of a Debtor as of the Confirmation Date, and the Debtors' obligations
under such programs to persons who are employees of a Debtor on the
Confirmation Date shall survive confirmation of this Plan, except for (i)
executory contracts or plans specifically rejected pursuant to the Plan (to the
extent such rejection does not violate Sections 1114 and 1129(a)(13) of the
Bankruptcy Code) and (ii) executory contracts or plans as have previously been
rejected, are the subject of a motion to reject, or have been specifically
waived by the beneficiaries of any plans or contracts; PROVIDED, HOWEVER, that
the Debtors' obligations, if any, to pay all "retiree benefits" as defined in
Section 1114(a) of the Bankruptcy Code shall continue.
. Notwithstanding the foregoing, the Employment Agreements to be entered
into with the Key Employees on the Consummation Date shall amend and supersede
any other employment agreements and severance plans with or for the benefit of
the Key Employees, and, as amended, shall be assumed pursuant to the Plan. On
the Consummation Date, the Severance Plan shall be terminated.
ARTICLE .
PROCEDURES FOR RESOLVING DISPUTED,
CONTINGENT, AND UNLIQUIDATED CLAIMS
. OBJECTION DEADLINE; PROSECUTION OF OBJECTIONS
As soon as practicable, but in no event later than 120 days after the
Consummation Date (unless extended by an order of the Bankruptcy Court), the
Debtors or Reorganized Debtors, as the case may be, shall file objections to
Claims with the Bankruptcy Court and serve such objections upon the holders of
each of the Claims to which objections are made. Nothing contained herein,
however, shall limit the Reorganized Debtors' right to object to Claims, if
any, filed or amended more than 120 days after the Consummation Date.
. NO DISTRIBUTIONS PENDING ALLOWANCE
Notwithstanding any other provision of the Plan, no payments or
distributions shall be made with respect to all or any portion of a Disputed
Claim unless and until all objections to such Disputed Claim have been settled
or withdrawn or have been determined by Final Order, and the Disputed Claim, or
some portion thereof, has become an Allowed Claim.
. DISTRIBUTION RESERVE
. The Disbursing Agent shall withhold the Distribution Reserve from the
Cash, New Senior Notes, New Common Stock, or other property to be distributed
under the Plan. As to any Disputed Claim, upon a request for estimation by a
Debtor, the Bankruptcy Court shall determine what amount is sufficient to
withhold as the Distribution Reserve. The Debtors may request estimation for
every Disputed Claim that is unliquidated and the Disbursing Agent shall
withhold the Distribution Reserve based upon the estimated amount of such Claim
as set forth in a Final Order. If the Debtors elect not to request such an
estimation from the Bankruptcy Court with respect to a Disputed Claim that is
liquidated, the Disbursing Agent shall withhold the Distribution Reserve based
upon the Face Amount of such Claim. Nothing in the Plan or herein shall be
deemed to entitle the holder of a Disputed Claim to post-petition interest on
such Claim, and such holder shall not be entitled to any such interest.
. Neither the Disbursing Agent, nor any other party, shall be entitled
to vote any shares of the New Common Stock held in the Distribution Reserve.
In the event that any matter requires approval by the shareholders of
Reorganized CAI prior to the distribution or cancellation of all shares of New
Common Stock from the Distribution Reserve, the shares of New Common Stock held
by the Disbursing Agent shall be deemed not to have been issued, for voting
purposes only.
. If practicable, the Disbursing Agent shall invest any Cash that is
withheld as the Distribution Reserve in a manner that shall yield a reasonable
net return, taking into account the safety of the investment.
. DISTRIBUTIONS AFTER ALLOWANCE
The Reorganized Debtors or the Disbursing Agent, as the case may be,
shall make payments and distributions from the Distribution Reserve to each
holder of a Disputed Claim that has become an Allowed Claim in accordance with
the provisions of the Plan governing the class of Claims to which such holder
belongs. On the next succeeding interim distribution date after the date that
the order or judgment of the Bankruptcy Court allowing all or part of such
Claim becomes a Final Order, the Disbursing Agent shall distribute to the
holder of such Claim any Cash, New Senior Notes, New Common Stock, or other
property in the Distribution Reserve that would have been distributed on the
Distribution Date had such Allowed Claim been allowed on the Distribution Date.
After a Final Order has been entered, or other final resolution has been
reached, with respect to each Disputed Claim (i) any New Senior Notes or New
Common Stock held in the Distribution Reserve shall be distributed Pro Rata to
holders of Allowed Claims entitled thereto under the terms of this Plan and
(ii) any Cash or other property remaining in the Distribution Reserve shall
become property of the Reorganized Debtors. All distributions made under this
Article IX.D of the Plan on account of an Allowed Claim shall be made together
with any dividends, payments, or other distributions made on account of, as
well as any obligations arising from, the distributed property, as if such
Allowed Claim had been an Allowed Claim on the Distribution Date.
Notwithstanding the foregoing, the Disbursing Agent shall not be required to
make distributions under Article IX.D more frequently than once every 180 days
or to make any individual payments in an amount less than $25.00
.
ARTICLE .
CONDITIONS PRECEDENT TO CONFIRMATION AND
CONSUMMATION OF THE PLAN
. CONDITIONS TO CONFIRMATION
The following are conditions precedent to confirmation of the Plan that
must be (i) satisfied or (ii) waived in accordance with Article X.C below:
. The proposed Confirmation Order shall be in form and substance
reasonably acceptable to the Debtors, the Unofficial Noteholders' Committee,
and the Exit Lenders.
. The Debtors shall have arranged for credit availability under the New
Senior Secured Facility, in amount, form and substance acceptable to CAI, to
provide the Reorganized Debtors with working capital to meet ordinary and peak
requirements and additional borrowings to support future projects.
. CONDITIONS TO CONSUMMATION
The following are conditions precedent to the occurrence of the
Consummation Date, each of which must be (i) satisfied or (ii) waived in
accordance with Article X.C below:
. The Confirmation Order, in form and substance reasonably acceptable to
the Debtors, the Unofficial Noteholders' Committee, and the Exit Lenders,
confirming the Plan, as the same may have been modified, must have become a
Final Order and must, among other things, provide that:
. the Debtors and Reorganized Debtors are authorized and directed
to take all actions necessary or appropriate to enter into, implement and
consummate the contracts, instruments, releases, leases, indentures and other
agreements or documents created in connection with the Plan or the
Restructuring;
. the provisions of the Confirmation Order are nonseverable and
mutually dependent;
. all executory contracts or unexpired leases assumed or assumed
and assigned by the Debtors during the Chapter 11 Case or under the Plan shall
remain in full force and effect for the benefit of the Reorganized Debtors or
their assignees notwithstanding any provision in such contract or lease
(including those described in Sections 365(b)(2) and (f) of the Bankruptcy
Code) that prohibits such assignment or transfer or that enables, permits or
requires termination of such contract or lease;
. the transfers of property by the Debtors (a) to the Reorganized
Debtors (i) are or will be legal, valid, and effective transfers of property,
(ii) vest or will vest the Reorganized Debtors with good title to such property
free and clear of all liens, charges, Claims, encumbrances, or interests,
except as expressly provided in the Plan or Confirmation Order, (iii) do not
and will not constitute avoidable transfers under the Bankruptcy Code or under
applicable bankruptcy or nonbankruptcy law, and (iv) do not and will not
subject any Reorganized Debtor to any liability by reason of such transfer
under the Bankruptcy Code or under applicable nonbankruptcy law, including,
without limitation, any laws affecting successor or transferee liability, and
(b) to holders of Claims under the Plan are for good consideration and value
and are in the ordinary course of the Debtors' business;
. except as expressly provided in the Plan, the Debtors are
discharged effective upon the Confirmation Date from any "debt" (as that term
is defined in Section 101(12) of the Bankruptcy Code), and the Debtors'
liability in respect thereof is extinguished completely, whether reduced to
judgment or not, liquidated or unliquidated, contingent or noncontingent,
asserted or unasserted, fixed or unfixed, matured or unmatured, disputed or
undisputed, legal or equitable, or known or unknown, or that arose from any
agreement of a Debtor that has either been assumed or rejected in the Chapter
11 Case or pursuant to the Plan, or obligation of a Debtor incurred before the
Confirmation Date, or from any conduct of a Debtor prior to the Confirmation
Date, or that otherwise arose before the Confirmation Date, including, without
limitation, all interest, if any, on any such debts, whether such interest
accrued before or after the Petition Date;
. the Plan does not provide for the liquidation of all or
substantially all of the property of the Debtors' and its confirmation is not
likely to be followed by the liquidation of the Reorganized Debtors or the need
for further financial reorganization;
. all Interests in CAI shall be terminated effective upon the
Consummation Date; and
. the New Senior Notes and New Common Stock issued under the Plan
in exchange for Claims against CAI are exempt from registration under the
Securities Act of 1933 pursuant to Section 1145 of the Bankruptcy Code, except
to the extent that holders of New Senior Notes and New Common Stock are
"underwriters," as that term is defined in Section 1145 of the Bankruptcy Code.
. The Reorganized Debtors shall have credit availability under the New
Senior Secured Facility, in amount, form and substance acceptable to CAI, to
provide the Reorganized Debtors with working capital to meet ordinary and peak
requirements and additional borrowings to support future projects.
. The FCC shall have granted CAI's and CS Wireless' transfer of control
applications concerning the ownership changes contemplated by the Plan on terms
and conditions reasonable satisfactory to CAI.
. The FCC's grant of CAI's and CS Wireless' transfer of control
applications shall have become final on terms and conditions reasonable
satisfactory to CAI.
. The following agreements, in form satisfactory to the Debtors, shall
have been executed and delivered, and all conditions precedent thereto shall
have been satisfied:
. Amended Certificate of Incorporation and By-laws of CAI;
. Amended Certificate of Incorporation and By-laws of PCT;
. New Senior Notes Indenture;
. Management Option Plan and Management Option Agreements;
. Employment Agreements;
. Registration Rights Agreement; and
. New Senior Secured Facility.
. All actions, documents and agreements necessary to implement the Plan
shall have been effected or executed.
. WAIVER OF CONDITIONS
Each of the conditions set forth in Articles X.A and X.B above, other
than those set forth in Article X.A.1 and X.B.1, may be waived in whole or in
part by the Debtors or Reorganized Debtors in their sole and absolute
discretion without any notice to parties in interest or the Bankruptcy Court
and without a hearing. The failure to satisfy or waive any condition to the
Consummation Date may be asserted by the Debtors or Reorganized Debtors
regardless of the circumstances giving rise to the failure of such condition to
be satisfied (including any action or inaction by a Debtor or Reorganized
Debtor). The failure of a Debtor or Reorganized Debtor to exercise any of the
foregoing rights shall not be deemed a waiver of any other rights, and each
such right shall be deemed an ongoing right that may be asserted at any time.
ARTICLE .
MODIFICATIONS AND AMENDMENTS
The Debtors may alter, amend, or modify the Plan or any Exhibits thereto
under Section 1127(a) of the Bankruptcy Code at any time prior to the
Confirmation Date. After the Confirmation Date and prior to substantial
consummation of the Plan, as defined in Section 1101(2) of the Bankruptcy Code,
the Debtors may, under Section 1127(b) of the Bankruptcy Code, institute
proceedings in the Bankruptcy Court to remedy any defect or omission or
reconcile any inconsistencies in the Plan, the Disclosure Statement, or the
Confirmation Order, and such matters as may be necessary to carry out the
purposes and effects of the Plan so long as such proceedings do not materially
adversely affect the treatment of holders of Claims or Interests under the
Plan; PROVIDED, HOWEVER, that prior notice of such proceedings shall be served
in accordance with the Bankruptcy Rules or order of the Bankruptcy Court.
ARTICLE .
RETENTION OF JURISDICTION
Under Sections 105(a) and 1142 of the Bankruptcy Code, and
notwithstanding entry of the Confirmation Order and occurrence of the
Consummation Date, the Bankruptcy Court shall retain exclusive jurisdiction
over all matters arising out of, and related to, the Chapter 11 Case and the
Plan to the fullest extent permitted by law, including, among other things,
jurisdiction to:
. Allow, disallow, determine, liquidate, classify, estimate or establish
the priority or secured or unsecured status of any Claim or Interest, including
the resolution of any request for payment of any Administrative Claim and the
resolution of any objections to the allowance or priority of Claims or
Interests;
. Hear and determine all applications for compensation and reimbursement
of expenses of Professionals under the Plan or under Sections 330, 331, 503(b),
1103 and 1129(a)(4) of the Bankruptcy Code; PROVIDED, HOWEVER, that from and
after the Consummation Date, the payment of the fees and expenses of the
retained professionals of the Reorganized Debtors shall be made in the ordinary
course of business and shall not be subject to the approval of the Bankruptcy
Court;
. Hear and determine all matters with respect to the assumption or
rejection of any executory contract or unexpired lease to which a Debtor is a
party or with respect to which a Debtor may be liable, including, if necessary,
the nature or amount of any required Cure or the liquidation or allowance of
any Claims arising therefrom;
. Effectuate performance of and payments under the provisions of the
Plan;
. Hear and determine any and all adversary proceedings, motions,
applications, and contested or litigated matters arising out of, under, or
related to, the Chapter 11 Case;
. Enter such orders as may be necessary or appropriate to execute,
implement, or consummate the provisions of the Plan and all contracts,
instruments, releases, and other agreements or documents created in connection
with the Plan, the Disclosure Statement or the Confirmation Order;
. Hear and determine disputes arising in connection with the
interpretation, implementation, consummation, or enforcement of the Plan,
including disputes arising under agreements, documents or instruments executed
in connection with the Plan;
. Consider any modifications of the Plan, cure any defect or omission,
or reconcile any inconsistency in any order of the Bankruptcy Court, including,
without limitation, the Confirmation Order;
. Issue injunctions, enter and implement other orders, or take such
other actions as may be necessary or appropriate to restrain interference by
any entity with implementation, consummation, or enforcement of the Plan or the
Confirmation Order;
. Enter and implement such orders as may be necessary or appropriate if
the Confirmation Order is for any reason reversed, stayed, revoked, modified,
or vacated;
. Hear and determine any matters arising in connection with or relating
to the Plan, the Disclosure Statement, the Confirmation Order, or any contract,
instrument, release, or other agreement or document created in connection with
the Plan, the Disclosure Statement or the Confirmation Order;
. Enforce all orders, judgments, injunctions, releases, exculpations,
indemnifications and rulings entered in connection with the Chapter 11 Case;
. Recover all assets of the Debtors and property of the Debtors'
Estates, wherever located;
. Hear and determine matters concerning state, local, and federal taxes
in accordance with Sections 346, 505, and 1146 of the Bankruptcy Code;
. Hear and determine all disputes involving the existence, nature, or
scope of the Debtors' discharge;
. Hear and determine such other matters as may be provided in the
Confirmation Order or as may be authorized under, or not inconsistent with,
provisions of the Bankruptcy Code;
. Enter a final decree closing the Chapter 11 Case.
ARTICLE .
COMPROMISES AND SETTLEMENTS
Pursuant to Fed. R. Bankr. P. 9019(a), the Debtors may compromise and
settle various Claims against them and/or claims that they may have against
other Persons. The Debtors expressly reserve the right (with Bankruptcy Court
approval, following appropriate notice and opportunity for a hearing) to
compromise and settle Claims against them and claims that they may have against
other Persons up to and including the Consummation Date. After the
Consummation Date, such right shall pass to the Reorganized Debtors pursuant to
Articles IV.F and IV.G of the Plan.
ARTICLE .
MISCELLANEOUS PROVISIONS
. BAR DATES FOR CERTAIN CLAIMS
. ADMINISTRATIVE CLAIMS; SUBSTANTIAL CONTRIBUTION CLAIMS
The Confirmation Order will establish an Administrative Claims Bar Date
for filing of all Administrative Claims, including Substantial Contribution
Claims (but not including claims for Professional Fees or the expenses of the
members of the Creditors' Committee (if one has been appointed)), which date
will be 45 days after the Confirmation Date. Holders of asserted
Administrative Claims, other than claims for Professional Fees or the expenses
of the members of the Creditors' Committee (if one has been appointed), not
paid prior to the Confirmation Date must submit proofs of Administrative Claim
on or before such Administrative Claims Bar Date or forever be barred from
doing so. The notice of Confirmation to be delivered pursuant to Fed. R.
Bankr. P. 3020(c) and 2002(f) will set forth such date and constitute notice of
this Administrative Claims Bar Date. The Debtors or Reorganized Debtors, as
the case may be, shall have 45 days (or such longer period as may be allowed by
order of the Bankruptcy Court) following the Administrative Claims Bar Date to
review and object to such Administrative Claims before a hearing for
determination of allowance of such Administrative Claims.
. PROFESSIONAL FEE CLAIMS
All final requests for compensation or reimbursement of Professional Fees
pursuant to Sections 327, 328, 330, 331, 503(b) or 1103 of the Bankruptcy Code
for services rendered to the Debtors or the Creditors' Committee (if one has
been appointed) prior to the Consummation Date (other than Substantial
Contribution Claims under Section 503(b)(4) of the Bankruptcy Code) must be
filed and served on the Reorganized Debtors and their counsel no later than 45
days after the Consummation Date, unless otherwise ordered by the Bankruptcy
Court. Objections to applications of such Professionals or other entities for
compensation or reimbursement of expenses must be filed and served on the
Reorganized Debtors and their counsel and the requesting Professional or other
entity no later than 45 days (or such longer period as may be allowed by order
of the Bankruptcy Court) after the date on which the applicable application for
compensation or reimbursement was served.
. PAYMENT OF STATUTORY FEES
All fees payable pursuant to Section 1930 of title 28 of the United
States Code, as determined by the Bankruptcy Court at the Confirmation shall be
paid on or before the Consummation Date.
. SEVERABILITY OF PLAN PROVISIONS
If, prior to Confirmation, any term or provision of the Plan is held by
the Bankruptcy Court to be invalid, void or unenforceable, the Bankruptcy
Court, at the request of any Debtor, shall have the power to alter and
interpret such term or provision to make it valid or enforceable to the maximum
extent practicable, consistent with the original purpose of the term or
provision held to be invalid, void or unenforceable, and such term or provision
shall then be applicable as altered or interpreted. Notwithstanding any such
holding, alteration or interpretation, the remainder of the terms and
provisions of the Plan shall remain in full force and effect and shall in no
way be affected, impaired or invalidated by such holding, alteration or
interpretation. The Confirmation Order shall constitute a judicial
determination and shall provide that each term and provision of the Plan, as it
may have been altered or interpreted in accordance with the foregoing, is valid
and enforceable pursuant to its terms.
. SUCCESSORS AND ASSIGNS
The rights, benefits and obligations of any entity named or referred to
in the Plan shall be binding on, and shall inure to the benefit of, any heir,
executor, administrator, successor or assign of such entity.
. RELEASES AND SATISFACTION OF SUBORDINATION RIGHTS
All Claims of the holders of the Secured Notes, Senior Notes and the
Subordinated Notes against the Debtors and all rights and claims between or
among such holders relating in any manner whatsoever to any claimed
subordination rights (if any), shall be deemed satisfied by the distributions
under, described in, contemplated by, and/or implemented by this Plan to
holders of Claims having such subordination rights, and such subordination
rights shall be deemed waived, released, discharged, and terminated as of the
Consummation Date, and all actions related to the enforcement of such
subordination rights shall be permanently enjoined. Distributions under,
described in, contemplated by, and/or implemented by this Plan to the various
Classes of Claims hereunder shall not be subject to levy, garnishment,
attachment, or like legal process by any holder of a Claim, including, but not
limited to, holders of Secured Note Claims, Senior Note Claims and Subordinated
Note Claims, by reason of any claimed subordination rights or otherwise, so
that each holder of a Claim shall have and receive the benefit of the
distributions in the manner set forth in the Plan.
. DISCHARGE OF THE DEBTORS
All consideration distributed under the Plan shall be in exchange for,
and in complete satisfaction, settlement, discharge, and release of, all Claims
of any nature whatsoever against the Debtors or any of their assets or
properties, and, except as otherwise provided herein or in the Confirmation
Order, and regardless of whether any property shall have been distributed or
retained pursuant to the Plan on account of such Claims, upon the Consummation
Date, the Debtors, and each of them, shall be deemed discharged and released
under Section 1141(d)(1)(A) of the Bankruptcy Code from any and all Claims,
including, but not limited to, demands and liabilities that arose before the
Confirmation Date, any liability (including withdrawal liability) to the extent
such Claims relate to services performed by employees of a Debtor prior to the
Petition Date and that arises from a termination of employment or a termination
of any employee or retiree benefit program regardless of whether such
termination occurred prior to or after the Confirmation Date, and all debts of
the kind specified in Sections 502(g), 502(h) or 502(i) of the Bankruptcy Code,
whether or not (a) a proof of Claim based upon such debt is filed or deemed
filed under Section 501 of the Bankruptcy Code, (b) a Claim based upon such
debt is Allowed under Section 502 of the Bankruptcy Code, or (c) the holder of
a Claim based upon such debt accepted the Plan. The Confirmation Order shall
be a judicial determination of discharge of all liabilities of the Debtors,
subject to the Consummation Date occurring.
. EMPLOYMENT AGREEMENTS
On the Consummation Date, Reorganized CAI shall enter into Employment
Agreements with the Key Employees listed on Exhibit G to this Plan.
. COMMITTEES
Effective on the Consummation Date, the duties of the Creditors'
Committee (if one has been appointed) shall terminate, except with respect to
any appeal of an order in the Chapter 11 Case and applications for Professional
Fees.
. EXCULPATION AND LIMITATION OF LIABILITY
Neither the Reorganized Debtors, nor any statutory committee, MLGAF, or
the Unofficial Noteholders' Committee, or any of their respective present or
former members, officers, directors, employees, advisors, attorneys, or agents,
shall have or incur any liability to any holder of a Claim or an Interest, or
any other party in interest, or any of their respective agents, employees,
representatives, financial advisors, attorneys, or affiliates, or any of their
successors or assigns, for any act or omission in connection with, relating to,
or arising out of, the Chapter 11 Case, the solicitation of acceptances of the
Plan, the pursuit of confirmation of the Plan, the consummation of the Plan, or
the administration of the Plan or the property to be distributed under the
Plan, except for their willful misconduct, and in all respects shall be
entitled to reasonably rely upon the advice of counsel with respect to their
duties and responsibilities under the Plan.
Notwithstanding any other provision of this Plan, no holder of a Claim or
Interest, no other party in interest, none of their respective agents,
employees, representatives, financial advisors, attorneys, or affiliates, and
no successors or assigns of the foregoing, shall have any right of action
against any Reorganized Debtor, or any statutory committee, MLGAF, or the
Unofficial Noteholders' Committee, or any of their respective present or former
members, officers, directors, employees, advisors, attorneys, or agents, for
any act or omission in connection with, relating to, or arising out of, the
Chapter 11 Case, the solicitation of acceptances of the Plan, the pursuit of
confirmation of the Plan, the consummation of the Plan, or the administration
of the Plan or the property to be distributed under the Plan, except for their
willful misconduct.
The foregoing exculpation and limitation on liability shall not, however,
limit, abridge, or otherwise affect the rights, if any, of the Reorganized
Debtors to enforce, sue on, settle, or compromise the Litigation Claims
retained pursuant to Article IV.G hereof.
. BINDING EFFECT
The Plan shall be binding upon and inure to the benefit of the Debtors,
all present and former holders of Claims against and Interests in the Debtors,
their respective successors and assigns, including, but not limited to, the
Reorganized Debtors, and all other parties-in-interest in this Chapter 11 Case.
. REVOCATION, WITHDRAWAL, OR NON-CONSUMMATION
The Debtors reserve the right to revoke or withdraw the Plan at any time
prior to the Confirmation Date and to file subsequent plans of reorganization.
If the Debtors revoke or withdraw the Plan, or if Confirmation or Consummation
does not occur, then (i) the Plan shall be null and void in all respects, (ii)
any settlement or compromise embodied in the Plan (including the fixing or
limiting to an amount certain any Claim or Class of Claims), assumption or
rejection of executory contracts or leases effected by the Plan, and any
document or agreement executed pursuant to the Plan shall be deemed null and
void, and (iii) nothing contained in the Plan, and no acts taken in preparation
for consummation of the Plan, shall (a) constitute or be deemed to constitute a
waiver or release of any Claims by or against, or any Interests in, any Debtor
or any other Person, (b) prejudice in any manner the rights of any Debtor or
any Person in any further proceedings involving a Debtor, or (iii) constitute
an admission of any sort by any Debtor or any other Person.
. PLAN SUPPLEMENT
Any and all exhibits, lists, or schedules not filed with the Plan shall
be contained in the Plan Supplement and filed with the Clerk of the Bankruptcy
Court at least five (5) Business Days prior to date of the commencement of the
Confirmation Hearing. Upon its filing with the Bankruptcy Court, the Plan
Supplement may be inspected in the office of the Clerk of the Bankruptcy Court
during normal court hours. Holders of Claims or Interests may obtain a copy of
the Plan Supplement upon written request to the Debtors in accordance with
Article XIV.L of the Plan.
. NOTICES
Any notice, request, or demand required or permitted to be made or
provided to or upon a Debtor or Reorganized Debtor under the Plan shall be (i)
in writing, (ii) served by (a) certified mail, return receipt requested, (b)
hand delivery, (c) overnight delivery service, (d) first class mail, or (e)
facsimile transmission, and (iii) deemed to have been duly given or made when
actually delivered or, in the case of notice by facsimile transmission, when
received and telephonically confirmed, addressed as follows:
CAI WIRELESS SYSTEMS, INC.
18 Corporate Woods Boulevard
Third Floor
Albany, New York 12211
Att'n: Wayne R. Barr, Jr., Esq.
Telephone: (518) 462-2632
Facsimile: (518) 462-3045
with a copy to:
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 Third Avenue
New York, New York 10022-3897
Att'n: J. Gregory Milmoe, Esq.
Telephone: (212) 735-3000
Facsimile: (212) 735-2000
. INDEMNIFICATION OBLIGATIONS
Except as otherwise specifically limited in this Plan, any obligations or
rights of any Debtor to indemnify its present and former directors, officers,
or employees pursuant to such Debtors' certificate of incorporation, by-laws,
policy of providing employee indemnification, applicable state law, or
specific agreement in respect of any claims, demands, suits, causes of
action, or proceedings against such directors, officers, or employees based
upon any act or omission related to such present and former director
. PREPAYMENT
Except as otherwise provided in this Plan or the Confirmation Order, the
Debtors shall have the right to prepay, without penalty, all or any portion
of an Allowed Claim at any time; PROVIDED, HOWEVER, that any such prepayment
shall not be violative of, or otherwise prejudice, the relative priorities
and parities among the classes of Claims.
. TERM OF INJUNCTIONS OR STAYS
d Claim at any time; PROVIDED, HOWEVER, that any such prepayment shall not be
violative of, or otherwise prejudice, the relative priorities and parities
among the classes of Claims.
. TERM OF INJUNCTIONS OR STAYS
EXHIBIT B
TO
DISCLOSURE STATEMENT WITH RESPECT TO JOINT
REORGANIZATION PLAN OF CAI WIRELESS SYSTEMS, INC.
AND PHILADELPHIA CHOICE TELEVISION, INC.
FORM 10-K FOR CAI FOR FISCAL YEAR ENDED MARCH 31, 1998
INCORPORATED HEREIN BY REFERENCE TO THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FILED WITH THE COMMISSION ON 6-29-98.
EXHIBIT C
TO
DISCLOSURE STATEMENT WITH RESPECT TO JOINT
REORGANIZATION PLAN OF CAI WIRELESS SYSTEMS, INC.
AND PHILADELPHIA CHOICE TELEVISION, INC.
DESCRIPTION OF NEW SENIOR NOTES
DESCRIPTION OF THE
NEW SENIOR NOTES
The New Senior Notes will be issued under an indenture to be dated on or
prior to the Consummation Date (the "New Indenture") between CAI and
[_____________], as Trustee (the "Trustee"). The following summary of the
material provisions of the New Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, and
may be modified by, the provisions of the New Indenture, the form of which
will be included in the Plan Supplement to be filed with the Bankruptcy
Court at least five (5) Business Days prior to the commencement of the
Confirmation Hearing. The definitions of certain terms used in the
following summary are set forth below under "-- Certain Definitions." As
used below in this "Description of the New Senior Notes" section, the
"Company" means Reorganized CAI, but not any of its Subsidiaries, unless
the context otherwise requires.
General
The New Senior Notes will be unsecured senior obligations of the Company.
The New Senior Notes will rank pari passu with all unsecured Indebtedness
of the Company which is not by its terms expressly subordinated to the New
Senior Notes. The New Senior Notes are effectively subordinated to all
indebtedness and other liabilities (including trade payables) of the
Subsidiaries of the Company, and will be effectively subordinated to all
secured Indebtedness of the Company to the extent of the value of the
assets securing such Indebtedness. As of the Consummation Date, the
Company is expected to have $[ ] million of indebtedness outstanding of
which $[ ] million would be subordinated to the New
Senior Notes.
The New Senior Notes will be issued only in registered form, without
coupons, in principal denominations of $1,000 and integral multiples
thereof. Principal of, premium, if any, and interest on the New Senior
Notes will be payable, and the New Senior Notes will be transferable, at
the office of the Company's agent in the City of New York located at the
corporate trust office of the Trustee. In addition, interest may be paid
at the option of the Company, by check mailed to the person entitled
thereto as shown on the security register. No service charge will be made
for any transfer, exchange or redemption of New Senior Notes, except in
certain circumstances for any tax or other governmental charge that may be
imposed in connection therewith. Initially, the Trustee will act as paying
agent and registrar for the New Senior Notes. The Company may change any
paying agent and registrar without notice to the holders.
Maturity, Interest and Principal
The New Senior Notes are limited to an aggregate principal amount at
maturity of $201,219,647 and will mature on [ ], 2004.
The New Senior Notes will accrete in value from the Issue Date to [
], 2004, at a rate of 12% per annum, compounded semi-annually. Cash
interest on the New Senior Notes will neither accrue nor be payable prior
to maturity. The Company will pay interest on overdue principal from time
to time on demand at the rate of 14% per annum. The Company shall, to the
extent lawful, pay interest on overdue installments of interest (without
regard to any applicable grace periods) from time to time on demand at the
rate of 14% per annum. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months, and, in the case of a partial
month, the actual number of days elapsed.
The New Senior Notes are not entitled to the benefit of any mandatory
sinking fund.
Optional Redemption
The New Senior Notes will be redeemable, at the option of the Company, in
whole or in part, at any time on not less than 30 nor more than 60 days'
prior notice, at a redemption price equal to the Accreted Value of the New
Senior Notes.
Selection and Notice
The New Indenture is expected to provide that in the event that less than
all of the New Senior Notes are to be redeemed at any time, selection of
such New Senior Notes for redemption will be made by the Trustee pro rata,
by lot or by such method as the Trustee shall deem fair and appropriate.
In any proration, the Trustee shall make such adjustments, reallocations
and eliminations as it shall deem proper to the end that the principal
amount of New Senior Notes so prorated shall be $1,000 or a multiple
thereof, by increasing or decreasing or eliminating the amount which would
be allocable to any holder on the basis of exact proportion by an amount
not exceeding $1,000. The Trustee in its discretion may determine the
particular New Senior Notes (if there are more than one) registered in the
name of any holder which are to be redeemed, in whole or in part. No New
Senior Notes of a principal amount of $1,000 or less shall be redeemed in
part. Notice of redemption shall be mailed by first-class mail at least 30
but not more than 60 days before the redemption date to each holder of New
Senior Notes to be redeemed at its registered address. If any Note is to
be redeemed in part only, the notice of redemption that relates to such
Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon surrender for
cancellation of the original Note. On and after the redemption date, New
Senior Notes or portions thereof called for redemption will cease to
accrete in value, unless the Company defaults in the payment of the
redemption price therefor.
Certain Covenants
The New Indenture is expected to contain, among others, the following
covenants.
Limitation on Incurrence of Additional Indebtedness. The New Indenture is
expected to provide that neither the Company nor any Restricted Subsidiary
will, directly or indirectly, create, incur, assume, guarantee, acquire or
become liable, contingently or otherwise, for (collectively "incur") any
Indebtedness other than Permitted Indebtedness or issue any Disqualified
Capital Stock. Notwithstanding the foregoing limitations, the Company may
incur additional Indebtedness (including, without limitation, any Acquired
Indebtedness) or issue Disqualified Capital Stock from and after the date
as of which the aggregate amount of cash raised by the Company in one or
more Qualified Transactions is equal to or exceeds $40 million if after
giving pro forma effect to the incurrence of such Indebtedness or the
issuance of such Disqualified Capital Stock the Additional Debt Ratio would
not exceed 2.00 to 1; provided that in no event may the aggregate principal
amount of such additional Indebtedness exceed $150,000,000.
The New Indenture is expected to provide that any Indebtedness of an entity
existing at the time it becomes a Restricted Subsidiary (whether by merger,
consolidation, acquisition of Capital Stock or otherwise) or is merged with
or into the Company or any Restricted Subsidiary shall be deemed to be
incurred as of the date such entity becomes a Restricted Subsidiary or the
date of such merger.
The New Indenture is expected to provide that the Company will not,
directly or indirectly, incur any Indebtedness that is subordinate to any
other Indebtedness of the Company unless such Indebtedness is also
expressly subordinated to the New Senior Notes; provided, however, that no
Indebtedness of the Company shall be deemed to be subordinate to any other
Indebtedness of the Company solely because such other Indebtedness is
secured.
Limitation on Restricted Payments. The New Indenture is expected to
provide that neither the Company nor any Restricted Subsidiary will,
directly or indirectly:
(i)declare or pay any dividend or make any distribution (other than
dividends or distributions payable in Qualified Capital Stock of the
Company or payable by any Restricted Subsidiary to the Company or any
Wholly Owned Restricted Subsidiary of the Company) on shares of the Capital
Stock of the Company or any Restricted Subsidiary;
(ii)purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company or of any Restricted Subsidiary or any warrants,
rights or options to acquire shares of any class of such Capital Stock,
other than (x) the exchange of such Capital Stock or any warrants, rights
or options to acquire shares of any class of such Capital Stock for
Qualified Capital Stock of the Company or warrants, rights or options to
acquire Qualified Capital Stock of the Company or (y) to the extent that
such Capital Stock or warrants, rights or options are owned by the Company
or any Wholly Owned Restricted Subsidiary of the Company.
(iii)make any principal payment on, purchase, defease, redeem, prepay,
decrease or otherwise acquire or retire for value, prior to any scheduled
final maturity, scheduled repayment or scheduled sinking fund payment, any
Indebtedness that is subordinate or junior in right of payment to the New
Senior Notes (other than any such Indebtedness owing to the Company or any
Wholly Owned Restricted Subsidiary of the Company); or
(iv)make any Investment (other than Permitted Investments) after the Issue
Date.
(each of the foregoing prohibited actions set forth in clauses (i), (ii),
(iii) and (iv) being referred to as a "Restricted Payment"), if at the time
of such Restricted Payment or immediately after giving effect thereto, (a)
a Default or an Event of Default under the New Indenture shall have
occurred and be continuing or would result therefrom, (b) the Company is
not able to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in compliance with the Additional Debt Ratio test
described under the covenant "--Limitation on Incurrence of Additional
Indebtedness" above, or (c) the aggregate amount of Restricted Payments
made subsequent to the Issue Date (the amount expended for such purposes,
if other than in cash, being the fair market value of such property as
determined by the Board of Directors of the Company in good faith) exceeds
or would exceed the sum of:
(A) 100% of the aggregate net cash proceeds received by the Company from
any Person (other than a Restricted Subsidiary) from the issuance and sale
subsequent to the Issue Date of Qualified Capital Stock of the Company
(excluding any net proceeds from any public offering of any Qualified
Capital Stock and excluding (A) any Qualified Capital Stock of the Company
paid as a dividend on any Capital Stock of the Company or of any Restricted
Subsidiary and (B) any Qualified Capital Stock of the Company with respect
to which the purchase price thereof has been financed directly or
indirectly using funds (x) borrowed from the Company or from any Restricted
Subsidiary, unless and until and to the extent such borrowing is repaid or
(y) contributed, extended, guaranteed or advanced by the Company or by any
Restricted Subsidiary (including, without limitation, in respect of any
employee stock ownership or benefit plan)), plus
(B) without duplication of any amounts included in the immediately
preceding subclause (B), 100% of the aggregate net proceeds (determined
pursuant to the penultimate paragraph of this covenant) received by the
Company from the issuance and sale (other than to any Restricted
Subsidiary) of any Qualified Capital Stock of the Company upon the
conversion of, or in exchange for, any Indebtedness of the Company or any
Restricted Subsidiary (other than any Indebtedness outstanding immediately
after the Issue Date), plus
(C) an amount equal to the net reduction in Investments in Unrestricted
Subsidiaries resulting from cash dividends, repayments of loans or advances
in cash, or other transfers of cash, in each case to the Company or to any
Wholly Owned Restricted Subsidiary of the Company from Unrestricted
Subsidiaries, or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (in each case valued as provided in the covenant
described under "--Limitation on Restricted and Unrestricted Subsidiaries"
below), not to exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary and which was treated as a
Restricted Payment under the New Indenture, plus
(D) without duplication of the immediately preceding subclause (C), an
amount equal to the lesser of the cost or net cash proceeds received upon
the sale or other disposition of any Investment made after the Issue Date
which had been treated as a Restricted Payment.
Notwithstanding the foregoing, these provisions do not prohibit:
(1) the payment of any dividend or the making of any distribution within 60
days after the date of its declaration if the dividend or distribution
would have been permitted on the date of declaration; or
(2) the acquisition of Capital Stock of the Company or any Restricted
Subsidiary or warrants, options or other rights to acquire such Capital
Stock through the application of the net proceeds of any capital
contribution (other than from a Restricted Subsidiary) or a substantially
concurrent sale for cash (other than to a Restricted Subsidiary) of
Qualified Capital Stock of the Company or warrants, options or other rights
to acquire Qualified Capital Stock of the Company; or
(3) the acquisition of Indebtedness of the Company that is subordinate or
junior in right of payment to the New Senior Notes, either (i) solely in
exchange for shares of Qualified Capital Stock of the Company (or warrants,
options or other rights to acquire Qualified Capital Stock of the Company)
or for Indebtedness of the Company which is subordinate or junior in right
of payment to the New Senior Notes, at least to the extent that the
Indebtedness being acquired is subordinated to the New Senior Notes, is not
in an aggregate principal amount in excess of (or if such Indebtedness is
issued with original issue discount, at an original issue price not in
excess of) the aggregate principal amount of the Indebtedness being
acquired (or if such acquired Indebtedness was issued with original issue
discount, in excess of the accreted amount of such Indebtedness (as
determined in accordance with GAAP)) and has a Weighted Average Life to
Maturity and final maturity no less than that of the Indebtedness being
exchanged or (ii) through the application of the net proceeds of any
capital contribution or a substantially concurrent sale for cash (other
than to or from a Restricted Subsidiary) of Qualified Capital Stock of the
Company (or warrants, options or other rights to acquire Qualified Capital
Stock of the Company) or Indebtedness of the Company which is subordinate
or junior in right of payment to the New Senior Notes, at least to the
extent and in the manner that the Indebtedness being acquired is
subordinated to the New Senior Notes, is not in an aggregate principal
amount in excess of (or if such Indebtedness is issued with original issue
discount, at an original issue price not in excess of) the aggregate
principal amount of the Indebtedness being acquired (or if such acquired
Indebtedness was issued with original issue discount, in excess of the
accreted amount of such Indebtedness (as determined in accordance with
GAAP)) and has a Weighted Average Life to Maturity and final maturity no
less than that of the Indebtedness being refinanced; or
(4) the repurchase of Capital Stock of the Company (including options,
warrants or other rights to acquire such Capital Stock) from employees or
former employees of the Company or any Restricted Subsidiary for
consideration which, when added to all loans made pursuant to clause (5)
below of this paragraph during the same fiscal year and then outstanding
(determined as provided in clause (5) below) does not exceed $250,000 in
the aggregate in any fiscal year; or
(5) the making of loans and advances to employees of the Company or any
Restricted Subsidiary in an aggregate amount at any time outstanding
(including as outstanding any such loan or advance written off or forgiven)
which, when added to the aggregate consideration paid pursuant to clause
(4) of this paragraph during the same fiscal year, does not exceed $250,000
in any fiscal year;
(6) the making of any payment in the nature of a purchase price or other
adjustment for which the Company is obligated pursuant to the terms of the
Participation Agreement.
provided, however, that in the case of the immediately preceding clauses
(2), (3), (4) and (5) and in the case of clause (vi) of the definition of
"Permitted Investment," no Default or Event of Default shall have occurred
or be continuing at the time of such Restricted Payment or Permitted
Investment, as the case may be, or would occur as a result thereof.
The New Indenture is expected to provide that in determining the aggregate
amount of Restricted Payments made subsequent to the Issue Date, amounts
expended pursuant to clauses (1), (2), (3) (but only to the extent that
Indebtedness is acquired in exchange for, or with the net proceeds from,
the issuance of Qualified Capital Stock of the Company or warrants, options
or other rights to acquire Qualified Capital Stock of the Company), (4) and
(5) of the immediately preceding paragraph shall be included in such
calculation.
The New Indenture is expected to provide that for purposes of calculating
the net proceeds received by the Company from the issuance or sale of its
Capital Stock either upon the conversion of, or exchange for, Indebtedness
of the Company or any Restricted Subsidiary, such amount will be deemed to
be an amount equal to the difference of (a) the sum of (i) the principal
amount or accreted value (whichever is less) of such Indebtedness on the
date of such conversion or exchange and (ii) the additional cash
consideration, if any, received by the Company upon such conversion or
exchange, less any payment on account of fractional shares, minus (b) all
expenses incurred in connection with such issuance or sale. In addition,
for purposes of calculating the net proceeds received by the Company from
the issuance or sale of its Capital Stock upon the exercise of any options
or warrants of the Company, such amount will be deemed to be an amount
equal to the difference of (a) the additional cash consideration, if any,
received by the Company upon such exercise, minus (b) all expenses incurred
in connection with such issuance or sale.
The New Indenture is expected to provide that not later than the date of
making any Restricted Payment, the Company shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by this
covenant were computed, which calculation may be based on the Company's
latest financial statements.
Limitation on Asset Sales. The New Indenture is expected to provide that
neither the Company nor any Restricted Subsidiary will, directly or
indirectly, consummate any Asset Sale unless:
(i)the Company or the applicable Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the
fair market value of the assets sold or otherwise disposed of;
(ii)at least 80% of the consideration received by the Company or the
Restricted Subsidiary, as the case may be, from such Asset Sale is cash or
Cash Equivalents (other than in the case where the Company is exchanging
all or substantially all the assets of one or more geographic service areas
operated by the Company or any Restricted Subsidiary (including by way of
the transfer of Capital Stock) for all or substantially all the assets
(including by way of the transfer of Capital Stock) constituting one or
more geographic service areas operated by another Person (each, a
"Permitted Exchange"), in which event the foregoing requirement with
respect to the receipt of cash or Cash Equivalents shall not apply) and is
received at the time of such disposition; and
(iii)upon the consummation of an Asset Sale (other than any Permitted
Exchange), the Company applies, or causes such Restricted Subsidiary to
apply, or enters into, or causes such Restricted Subsidiary to enter into,
a binding commitment to apply, any Net Cash Proceeds within 180 days of
receipt thereof (it being understood that any binding commitment to so
apply must be consummated within 240 days of such receipt) either (A) to
reinvest in Productive Assets, or (B) to repay or prepay permanently
Indebtedness (other than non-recourse Indebtedness) of any Restricted
Subsidiary (which repayment or prepayment shall be accompanied by a
permanent reduction of the commitment to lend the amount so repaid or
prepaid in the case of any revolving credit facility), or (C) to repay or
prepay permanently any Indebtedness of the Company that is secured by a
Lien permitted to be incurred pursuant to "--Limitation on Liens" below
(which repayment or prepayment shall be accompanied by a permanent
reduction of the commitment to lend the amount so repaid or prepaid in the
case of any revolving credit facility), or (D) to the extent not applied
pursuant to the immediately preceding clauses (A), (B) or (C), pro rata
(based on the aggregate principal amount at maturity of the New Senior
Notes and, if required by the terms thereof, such other Indebtedness then
outstanding) to (I) the repayment or prepayment of any Indebtedness of the
Company (other than the New Senior Notes, and any Indebtedness subordinated
to the New Senior Notes) that is at the time redeemable or prepayable (and
is so redeemed or prepaid) and (II) purchase New Senior Notes tendered to
the Company for purchase at a price equal to 100% of the Accreted Value
thereof on the date of repurchase, plus accrued and unpaid interest, if
any, to the date of purchase pursuant to an offer to purchase made by the
Company as set forth below (an "Asset Sale Offer"); provided, however, that
if at any time any non-cash consideration received by the Company or any
Restricted Subsidiary, as the case may be, in connection with any Asset
Sale is converted into or sold or otherwise disposed of for cash, then such
conversion or disposition shall be deemed to constitute an Asset Sale
hereunder and the Net Cash Proceeds thereof shall be applied in accordance
with this clause (iii); provided, further, however, that the Company may
defer making an Asset Sale Offer until the aggregate Net Cash Proceeds from
Asset Sales to be applied equal or exceed $5,000,000; and provided,
further, however that the Net Cash Proceeds received by the Company or a
Restricted Subsidiary in connection with the sale of the Philadelphia MDU
Operation shall not be required to be applied in accordance with this
clause (iii).
The New Indenture is expected to provide that each notice of an Asset Sale
Offer will be mailed, by first class mail, to holders of New Senior Notes
as shown on the applicable register of holders of New Senior Notes. Such
notice will specify, among other things, the purchase date (which will be
not less than 30 days nor more than 45 days from the date such notice is
mailed, except as otherwise required by law) and the amount of Net Cash
Proceeds available to repurchase New Senior Notes and will otherwise comply
with the procedures set forth in the New Indenture. Upon receiving notice
of the Asset Sale Offer, holders of New Senior Notes may elect to tender
their New Senior Notes in whole or in part in integral multiples of $1,000
in principal amount at maturity. To the extent holders properly tender New
Senior Notes with an aggregate principal amount exceeding the Net Cash
Proceeds available to repurchase New Senior Notes in the Asset Sale Offer,
New Senior Notes of tendering holders will be repurchased on a pro rata
basis (based upon the aggregate principal amount at maturity tendered). To
the extent that the Accreted Value tendered pursuant to an Asset Sale Offer
is less than the amount of Net Cash Proceeds available therefor, the
Company may use any remaining portion of such available Net Cash Proceeds
not required to fund the repurchase of tendered New Senior Notes for any
purposes otherwise permitted by the New Indenture. Upon the consummation
of any Asset Sale Offer, the amount of Net Cash Proceeds from the Asset
Sale in question to be the subject of future Asset Sale Offers shall be
deemed to be zero.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and the Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "--Merger,
Consolidation and Sale of Assets" below, the successor Person shall be
deemed to have sold the properties and assets of the Company and the
Restricted Subsidiaries not so transferred for purposes of this covenant
and shall comply with the provisions of this covenant with respect to such
deemed sale as if it were an Asset Sale. In addition, the fair market
value of such properties and assets of the Company or the Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this covenant.
The New Indenture is expected to provide that the Company will comply with
the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of New Senior
Notes pursuant to an Asset Sale Offer.
Limitations on Transactions with Affiliates. The New Indenture is expected
to provide that neither the Company nor any Restricted Subsidiary will,
directly or indirectly, enter into, amend or permit or suffer to exist any
transaction (including, without limitation, the purchase, sale, lease or
exchange of any property, the guaranteeing of any Indebtedness or the
rendering of any service) with or for the benefit of any of its Affiliates
(an "Affiliate Transaction"), other than any Affiliate Transaction or
Affiliate Transactions that are on terms that are fair and reasonable to
the Company and no less favorable to the Company than those that might
reasonably have been obtained at such time in a comparable transaction by
the Company on an arm's-length basis from a Person that is not an
Affiliate; provided, however, that such determination will be made in good
faith by a majority of the members of the Board of Directors of the Company
and by a majority of the disinterested members of the Board of Directors of
the Company if any; provided, further, however, that for a transaction or
series of related transactions involving value of $5,000,000 or more, the
Board of Directors of the Company shall have received, prior to the
consummation thereof, an opinion from a nationally recognized investment
banking firm that such Affiliate Transaction is fair, from a financial
point of view, to the Company or such Restricted Subsidiary.
The foregoing provisions shall not prohibit or restrict (a) transactions
between the Company and a Wholly Owned Restricted Subsidiary of the Company
or among Wholly Owned Restricted Subsidiaries of the Company, (b)
Restricted Payments and Permitted Investments made in accordance with the
covenant described under "--Limitation on Restricted Payments" above, (c)
the payment of reasonable and customary fees to directors of the Company
who are not employees of the Company and the payment of reasonable and
customary compensation for director and Board of Director observer fees,
meeting expenses, insurance premiums and indemnities, to the extent
permitted by law, (d) making loans or advances to officers, employees or
consultants of the Company and the Restricted Subsidiaries (including
travel and moving expenses) in the ordinary course of business for bona
fide business purposes of the Company or such Restricted Subsidiary not in
excess of $250,000 in the aggregate at any one time outstanding, (e) any
employment or option agreement entered into by the Company or any
Restricted Subsidiary in the ordinary course of business that is approved
by the Compensation Committee of the Board of Directors of the Company, (f)
Affiliate Transactions in existence, or for which rights or agreements are
in existence, on the Issue Date, in each case as in effect on the Issue
Date; provided, however, that no additional payments shall be made with
respect thereto without the approval of a majority of the members of the
Board of Directors of the Company and a majority of the disinterested
members of the Board of Directors of the Company, (g) channel leases and
options with Affiliates entered into after the Issue Date provided such
leases are no less beneficial to the Company or the applicable Subsidiary
than any such leases in effect on the Issue Date, and are approved by a
majority of the Board of Directors of the Company, (h) amendments to, or
renewals of, the agreements and leases referred to in clause (g) of this
sentence; provided, however, that any such amendments or renewals are no
less beneficial to the Company or applicable Restricted Subsidiary than the
agreement or lease being amended or renewed and are approved by a majority
of the Board of Directors of the Company and (i) the issuance of stock
options (and shares of stock upon the exercise thereof) pursuant to any
stock option plan approved by the Board of Directors and shareholders of
the Company.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The New Indenture is expected to provide that neither the
Company nor any Restricted Subsidiary will, directly or indirectly, create
or otherwise cause or permit to exist or become effective any encumbrance
or restriction on the ability of any Restricted Subsidiary to: (a) pay
dividends or make any other distributions on its Capital Stock; (b) make
loans or advances or to pay any Indebtedness or other obligation owed to
the Company or any Restricted Subsidiary; (c) guarantee any Indebtedness or
any other obligation of the Company or any Restricted Subsidiary; or (d)
transfer any of its property or assets to the Company or any Restricted
Subsidiary (each of the foregoing restrictions, a "Payment Restriction"),
except for such encumbrances or restrictions existing under or by reason
of: (1) applicable law; (2) the New Indenture; (3) customary non-assignment
provisions of any lease governing a leasehold interest of the Company or
any Restricted Subsidiary; (4) any instrument governing Acquired
Indebtedness, which encumbrance or restriction was not incurred in
connection with, as a result of, or in anticipation of the incurrence of
such Indebtedness and is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of
the Person, so acquired; (5) agreements existing on the Issue Date as such
agreements are from time to time in effect; provided, however, that any
amendments or modifications of such agreements which affect the
encumbrances or restrictions of the types subject to this covenant shall
not result in such encumbrances or restrictions being less favorable to the
Company in any material respect, as determined in good faith by the Board
of Directors of the Company, than the provisions as in effect before giving
effect to the respective amendment or modification; (6) an agreement
effecting a refinancing, replacement or substitution of Indebtedness
issued, assumed or incurred pursuant to an agreement described in clause
(4) or (5) of this covenant; provided, however, that the provisions
relating to such encumbrance or restriction contained in any such
refinancing, replacement or substitution agreement are not less favorable
to the Company in any material respect as determined in good faith by the
Board of Directors of the Company than the provisions relating to such
encumbrance or restriction contained in agreements referred to in such
clause (4) or (5) of this covenant; (7) Liens permitted under the New
Indenture to the extent that such Liens restrict the transfer of the asset
or assets subject thereto; and (8) with respect to clause (d) above,
purchase money obligations for property acquired in the ordinary course of
business pursuant to ordinary business terms.
Limitation on Restricted and Unrestricted Subsidiaries. The New Indenture
is expected to provide that the Board of Directors of the Company may
(subject to the penultimate paragraph of this covenant), if no Default or
Event of Default shall have occurred and be continuing or would arise
therefrom, designate an Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, however, that (i) any such redesignation shall be
deemed to be an incurrence as of the date of such redesignation by the
Company and the Restricted Subsidiaries of the Indebtedness (if any) of
such redesignated Subsidiary for purposes of the covenant described under
"--Limitation on Incurrence of Additional Indebtedness " above; and (ii)
unless such redesignated Subsidiary shall not have any Indebtedness
outstanding, other than Indebtedness which would be Permitted Indebtedness,
no such designation shall be permitted if immediately after giving effect
to such redesignation and the incurrence of any such additional
Indebtedness the Company could not incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the Additional Debt Ratio
test contained in the covenant described under "--Limitation on Incurrence
of Additional Indebtedness" above. The Board of Directors of the Company
also may, if no Default or Event of Default shall have occurred and be
continuing or would arise therefrom, designate any Restricted Subsidiary to
be an Unrestricted Subsidiary if (i) such designation is at that time
permitted under the covenant described under "--Limitation on Restricted
Payments" above and (ii) immediately after giving effect to such
designation, the Company could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the Additional Debt Ratio
test contained in the covenant described under "--Limitation on Incurrence
of Additional Indebtedness" above. Any such designation by the Board of
Directors of the Company shall be evidenced to the Trustee by the filing
with the Trustee of a certified copy of the resolution of the Company's
Board of Directors giving effect to such designation or redesignation and
an Officers' Certificate certifying that such designation or redesignation
complied with the foregoing conditions and setting forth in reasonable
detail the underlying calculations.
The New Indenture is expected to provide that for purposes of the covenant
described under "--Limitation on Restricted Payments" above, (i) an
"Investment" shall be deemed to have been made at the time any Restricted
Subsidiary is designated as an Unrestricted Subsidiary in an amount
(proportionate to the Company's equity interest in such Subsidiary) equal
to the net worth of such Restricted Subsidiary at the time that such
Restricted Subsidiary is designated as an Unrestricted Subsidiary; (ii) at
any date the aggregate of all Restricted Payments made as Investments since
the Issue Date shall exclude and be reduced by an amount (proportionate to
the Company's equity interest in such Subsidiary) equal to (A) the amount
of Investments in any Unrestricted Subsidiary that becomes a Wholly Owned
Restricted Subsidiary after the date of such Investment or (B) the net
worth of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary, not to exceed, in the
case of any such redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the amount of Investments previously made by the
Company and the Restricted Subsidiaries in such Unrestricted Subsidiary
that were treated as Restricted Payments under the New Indenture (in each
case (i) and (ii) "net worth" to be calculated based upon the fair market
value of the assets of such Subsidiary as of any such date of designation);
and (iii) any property transferred to or from an Unrestricted Subsidiary
shall be valued at its fair market value at the time of such transfer.
The New Indenture is expected to provide that notwithstanding the
foregoing, the Board of Directors of the Company may not designate any
Subsidiary of the Company to be an Unrestricted Subsidiary if, after such
designation, (a) the Company or any other Restricted Subsidiary (i)
provides credit support for, or a guarantee of, any Indebtedness of such
Subsidiary (including any undertaking, agreement or instrument evidencing
such Indebtedness) or (ii) is directly or indirectly liable for any
Indebtedness of such Subsidiary, (b) a default with respect to any
Indebtedness of such Subsidiary (including any right which the holders
thereof may have to take enforcement action against such Subsidiary) would
permit (upon notice, lapse of time or both) any holder of any other
Indebtedness of the Company or any Restricted Subsidiary to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity or (c) such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, any Restricted Subsidiary which is not a Subsidiary of the
Subsidiary to be so designated.
The New Indenture is expected to provide that Subsidiaries of the Company
that are not designated by the Board of Directors as Restricted or
Unrestricted Subsidiaries will be deemed to be Restricted Subsidiaries.
Notwithstanding any provisions of this covenant, all Subsidiaries of a
Restricted Subsidiary will be Restricted Subsidiaries and all Subsidiaries
of an Unrestricted Subsidiary will be Unrestricted Subsidiaries. The Board
of Directors of the Company may not change the designation of a Subsidiary
of the Company more than twice in any period of five years.
Limitation on Issuance and Sale of Capital Stock of Restricted
Subsidiaries. The New Indenture is expected to provide that the Company
(a) will not permit any Restricted Subsidiary to issue any Capital Stock
(other than to the Company or a Wholly Owned Restricted Subsidiary) and (b)
will not, and will not permit any Restricted Subsidiary to, transfer,
convey, sell, lease or otherwise dispose of any Capital Stock of any
Restricted Subsidiary to any Person (other than the Company or a Wholly
Owned Restricted Subsidiary); provided, however, that this covenant will
not prohibit (i) the sale or other disposition of all, but not less than
all, of the issued and outstanding Capital Stock of a Restricted Subsidiary
owned by the Company and its Restricted Subsidiaries in compliance with the
other provisions of the Indenture, (ii) the sale or other disposition of a
portion of the issued and outstanding Capital Stock of an existing Wholly
Owned Restricted Subsidiary if at the time of such sale or disposition, the
Company could make an Investment in the remaining Capital Stock held by it
or one of its Restricted Subsidiaries in an amount equal to the amount of
its remaining Investment in such existing Restricted Subsidiary pursuant to
the covenant entitled "Restricted Payments," or (iii) the ownership by
directors of director's qualifying shares or the ownership by foreign
nationals of Capital Stock of any Restricted Subsidiary, to the extent
mandated by applicable law.
The Company will not permit any Restricted Subsidiary to issue any
Preferred Stock.
Limitation on Liens. The New Indenture is expected to provide that neither
the Company nor any Restricted Subsidiary will, directly or indirectly,
create, incur, assume or suffer to exist any Liens upon any of their
respective property or assets or on any income or profits therefrom, or
assign or otherwise convey any right to receive income or profits thereon,
whether owned on the date of the New Indenture or thereafter acquired,
unless (x) in the case of Liens securing Indebtedness subordinate to the
New Senior Notes, the New Senior Notes are secured by a valid, perfected
Lien on such property, assets or proceeds that is senior in priority to
such Liens and (y) in all other cases, the New Senior Notes are equally and
ratably secured; provided, however, that the foregoing shall not prohibit
or restrict, and the Company need not equally and ratably secure the New
Senior Notes as a result of, Permitted Liens.
Limitation on Sale and Leaseback Transactions. The New Indenture is
expected to provide that neither the Company nor any Restricted Subsidiary
will, directly or indirectly, enter into any Sale and Leaseback
Transaction, except that the Company or any Restricted Subsidiary may enter
into a Sale and Leaseback Transaction if (i) immediately prior thereto, and
after giving effect to such Sale and Leaseback Transaction (the
Indebtedness thereunder being equivalent to the Attributable Value thereof)
the Company could incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in compliance with the Additional Debt Ratio
test contained in the covenant described under "--Limitation on Incurrence
of Additional Indebtedness" above and (ii) the Sale and Leaseback
Transaction constitutes an Asset Sale effected in accordance with the
requirements of the covenant described under "--Limitation on Asset Sales"
above.
Limitation on Line of Business. The New Indenture is expected to provide
that for so long as any New Senior Notes are outstanding, the Company and
the Restricted Subsidiaries will engage solely in the business of (i)
transmitting and receiving video, voice or data primarily through wireless
broadband transmission facilities, (ii) utilizing wireless channels for any
commercial purpose permitted by the FCC, and (iii) evaluating,
participating or pursuing any other activity or opportunity that is related
to those identified in (i) or (ii) above (including pursuant to
acquisitions of entities or divisions or lines of business of entities in
the foregoing business).
Merger, Consolidation and Sale of Assets. The New Indenture is expected to
provide that the Company will not, in any transaction or series of
transactions, merge or consolidate with or into, or sell, assign, convey,
transfer, lease or otherwise dispose of all or substantially all of its
properties and assets as an entirety to, any Person or Persons, and the
Company will not permit any Restricted Subsidiary to enter into any such
transaction or series of transactions if such transaction or series of
transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially
all of the properties and assets of the Company or the Company and the
Restricted Subsidiaries, taken as a whole, to any other Person or Persons,
unless at the time of and after giving effect thereto (a) either (i) if the
transaction or series of transactions is a merger or consolidation
involving the Company, the Company shall be the surviving Person of such
merger or consolidation, or (ii) the Person formed by such consolidation or
into which the Company is merged or to which the properties and assets of
the Company or such Restricted Subsidiary, as the case may be, are sold,
assigned, conveyed, transferred, leased or otherwise disposed of
(including, with respect to the Restricted Subsidiaries, by merger or
consolidation) (any such surviving Person or Persons of such merger or
consolidation or to whom such sale, assignment, conveyance, lease or other
disposition has been made being the "Surviving Entity") shall be a
corporation organized and existing under the laws of the United States of
America, any state thereof or the District of Columbia and shall expressly
assume by a supplemental New Indenture executed and delivered to the
Trustee, in form reasonably satisfactory to the Trustee, all the
obligations of the Company under the New Senior Notes and the New Indenture
and in each case, the New Indenture shall remain in full force and effect;
(b) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (including,
without limitation, any Indebtedness incurred or anticipated to be incurred
in connection with or in respect of such transaction or series of
transactions), no Default or Event of Default shall have occurred and be
continuing and the Company or the Surviving Entity, as the case may be,
after giving effect to such transaction or series of transactions on a pro
forma basis (including, without limitation, any Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such
transaction or series of transactions), could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the Additional
Debt Leverage Ratio in the covenant described under "--Limitation on
Incurrence of Additional Indebtedness" above; and (c) immediately after
giving effect to such transaction or series of transactions on a pro forma
basis (including, without limitation, any Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such
transaction or series of transactions), the Consolidated Net Worth of the
Company or the Surviving Entity, as the case may be, is at least equal to
the Consolidated Net Worth of the Company immediately before such
transaction or series of transactions; provided, however, that any
Restricted Subsidiary may merge or consolidate with the Company if (i) the
Company is the surviving Person of such merger or consolidation and (ii)
immediately before and immediately after giving effect to such transaction
or series of transactions on a pro forma basis (including, without
limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of
transactions), no Default or Event of Default shall have occurred and be
continuing.
The New Indenture is expected to provide that for purposes of the
foregoing, the transfer (by lease, assignment, sale or otherwise, in a
single transaction or series of related transactions) of all or
substantially all of the properties and assets of one or more Restricted
Subsidiaries, the Capital Stock of which constitutes all or substantially
all of the properties and assets of the Company, will be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
The New Indenture is expected to provide that in connection with any
consolidation, merger, sale, assignment, conveyance, transfer, lease or
other disposition contemplated hereby, the Company shall deliver, or cause
to be delivered, to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an officer's certificate and an opinion of
counsel, each stating that such consolidation, merger, transfer, lease,
assignment or other disposition and the supplemental New Indenture in
respect thereof complies with the requirements under the New Indenture.
The New Indenture is expected to provide that upon any consolidation or
merger or any sale, assignment, conveyance, transfer, lease or other
disposition of all or substantially all of the assets of the Company in
accordance with the foregoing, in which the Company is not the continuing
corporation, the successor corporation formed by such a consolidation or
into which the Company is merged or to which such transfer is made shall
succeed to, and be substituted for, and may exercise every right and power
of, the Company under the New Indenture with the same effect as if such
successor corporation had been named as the Company therein, and
thereafter, except in the case of a lease, the predecessor corporation
shall be relieved of all obligations and covenants under the New Indenture
and the New Senior Notes.
The New Indenture is expected to provide that for all purposes of the New
Indenture and the New Senior Notes (including the provisions of this
covenant and the covenants described under "--Limitation on Incurrence of
Additional Indebtedness," "--Limitation on Restricted and Unrestricted
Subsidiaries" and "--Limitation on Liens"), Subsidiaries of any Surviving
Entity will, upon such transaction or series of transactions, become
Restricted Subsidiaries or Unrestricted Subsidiaries as provided pursuant
to the covenant described under "--Limitation on Restricted and
Unrestricted Subsidiaries" and all Indebtedness, and all Liens on property
or assets, of the Company and the Restricted Subsidiaries immediately prior
to such transaction or series of transactions will be deemed to have been
incurred upon such transaction or series of transactions.
CS Wireless Interest. The New Indenture is expected to provide that
notwithstanding anything to the contrary contained in the New Indenture,
for all purposes of the New Indenture, CS Wireless, to the extent that it
is a Subsidiary, shall be deemed to be an Unrestricted Subsidiary.
Events of Default
The New Indenture is expected to provide that the following events will be
defined in the New Indenture as "Events of Default":
(i)the failure to pay the principal or Accreted Value of any Note when such
principal or Accreted Value becomes due and payable, at maturity, upon
acceleration, redemption, pursuant to a required offer to purchase or
otherwise;
(ii)a default in the observance or performance of any other covenant or
agreement contained in the New Senior Notes or the New Indenture which
default continues for a period of 60 days after the Company receives
written notice thereof from the Trustee specifying the default and stating
that such notice is a "Notice of Default" under the New Indenture or the
Company and the Trustee receive such notice from holders of at least 25% in
aggregate principal amount of the outstanding New Senior Notes;
(iii)default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any Restricted Subsidiary
(or the payment of which is guaranteed by the Company or any Restricted
Subsidiary), whether such Indebtedness or guarantee now exists, or is
created after the Issue Date, which default (a) is caused by a failure to
pay when due principal on such Indebtedness within the grace period
provided in such Indebtedness (which failure continues beyond any
applicable grace period) (a "Payment Default") or (b) results in the
acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been
a Payment Default or the maturity of which has been so accelerated,
aggregates $5,000,000 or more;
(iv)one or more judgments in an aggregate amount in excess of $5,000,000
(unless covered by insurance by a reputable insurer as to which the insurer
has acknowledged coverage) being rendered against the Company or any of its
Material Subsidiaries and such judgments remain undischarged or unstayed
for a period of 60 days after such judgment or judgments become final and
non-appealable;
(v)certain events of bankruptcy, insolvency or reorganization affecting the
Company or any of its Subsidiaries; or
(vi)any holder of at least $5,000,000 in aggregate principal amount of
Indebtedness of the Company or any Restricted Subsidiary shall foreclose
upon assets of the Company or any Restricted Subsidiary having an aggregate
fair market value, individually or in the aggregate, of at least $5,000,000
or shall have exercised any right under applicable law or applicable
security documents to take ownership of any such assets in lieu of
foreclosure.
The New Indenture is expected to provide that upon the happening of any
Event of Default specified in the New Indenture, the Trustee may, or the
holders of at least 25% in principal amount of outstanding New Senior Notes
may, declare the Accreted Value of all the New Senior Notes to be due and
payable by notice in writing to the Company and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration" (the
"Acceleration Notice") and upon such declaration the same shall become
immediately due and payable, notwithstanding anything contained in the New
Senior Notes or the New Indenture to the contrary. If an Event of Default
with respect to bankruptcy proceedings relating to the Company occurs and
is continuing, then such amount will ipso facto become and be immediately
due and payable without any declaration or other act on the part of the
Trustee or any holder of the New Senior Notes. Holders of the New Senior
Notes may not enforce the New Indenture or the New Senior Notes except as
provided in the New Indenture. Subject to certain limitation, holders of
not less than a majority in aggregate principal amount of the then
outstanding New Senior Notes may direct the Trustee in its exercise of any
trust or power. If a Default or an Event of Default occurs and is
continuing and is known to the Trustee, the Trustee shall mail to each
holder of the New Senior Notes notice of the Default or Event of Default
within 10 days after obtaining knowledge thereof. The Trustee may withhold
from holders of the New Senior Notes notice of any continuing Default or
Event of Default (except a Default or Event of Default relating to the
payment of principal or interest or a failure to comply with the covenants
and provisions described under "--Certain Covenants--Limitation on Asset
Sales"; and "--Merger, Consolidation and Sale of Assets" above) if it
determines that withholding notice is in their interest.
The New Indenture is expected to provide that, at any time after a
declaration of acceleration with respect to the New Senior Notes as
described in the preceding paragraph but before a judgment or decree of
money due in respect of the New Senior Notes has been obtained, the holders
of not less than a majority in principal amount of the New Senior Notes
then outstanding by written notice to the Company and the Trustee may
rescind such declaration and its consequences if (a) the Company has paid
or deposited with the Trustee a sum sufficient to pay (i) all sums paid or
advanced by the Trustee under the New Indenture and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel, (ii) all overdue interest on all New Senior Notes,
(iii) the principal of and premium, if any, on any New Senior Notes which
have become due otherwise than by such declaration of acceleration and
interest thereon at the rate borne by the New Senior Notes, and (iv) to the
extent that payment of such interest is lawful, interest upon overdue
interest and overdue principal at the rate provided for in the New Senior
Notes which has become due otherwise than by such declaration of
acceleration; (b) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction; and (c) all Events of Default,
other than the non-payment of principal of, premium, if any, and interest
on the New Senior Notes that have become due solely by such declaration of
acceleration, have been cured or waived. Prior to the declaration of
acceleration of the New Senior Notes, the holders of not less than a
majority in principal amount of the New Senior Notes may waive any existing
Default or Event of Default under the New Indenture, and its consequences,
except a default in the payment of the principal of or interest on any New
Senior Notes or any default in respect of any covenant which cannot be
amended without the consent of each holder affected.
The New Indenture is expected to provide that no holder of any of the New
Senior Notes has any right to institute any proceeding with respect to the
New Indenture or the New Senior Notes or any remedy thereunder, unless the
holders of at least 25% in aggregate principal amount of the outstanding
New Senior Notes have made written request, and offered reasonable
indemnity, to the Trustee to institute such proceeding as Trustee under the
New Senior Notes and the New Indenture, the Trustee has failed to institute
such proceeding within 30 days after receipt of such notice, request and
offer of indemnity and the Trustee, within such 30-day period, has not
received directions inconsistent with such written request by holders of
not less than a majority in aggregate principal amount of the outstanding
New Senior Notes. Such limitations do not apply, however, to a suit
instituted by a holder of a Note for the enforcement of the payment of the
principal of, premium, if any, or interest on such Note on or after the
respective due dates expressed or provided for in such Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the New Indenture and
use the same degree of care and skill in its exercise thereof as a prudent
man would exercise or use under the circumstances in the conduct of his own
affairs. Subject to the provisions of the New Indenture relating to the
duties of the Trustee, whether or not an Event of Default shall occur and
be continuing, the Trustee under the New Indenture is not under any
obligation to exercise any of its rights or powers under the New Indenture
at the request or direction of any of the holders unless such holders shall
have offered to the Trustee reasonable security or indemnity. Subject to
certain provisions concerning the rights of the Trustee, the holders of not
less than a majority in aggregate principal amount of the outstanding New
Senior Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee under the New
Indenture.
The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company of its obligations under
the New Indenture and as to any default in such performance. The Company
is also required to notify the Trustee within ten days of any event which
is, or after notice or lapse of time or both would become, an Event of
Default.
Defeasance or Covenant Defeasance of New Indenture
The New Indenture is expected to provide that the Company may, at its
option and at any time, terminate the obligations of the Company with
respect to the outstanding New Senior Notes ("defeasance"). Such
defeasance means that the Company shall be deemed to have paid and
discharged the entire Indebtedness represented by the outstanding New
Senior Notes, except for (i) the rights of holders of outstanding New
Senior Notes to receive payment in respect of the principal of, premium, if
any, and interest on such New Senior Notes when such payments are due, (ii)
the Company's obligations to issue temporary New Senior Notes, register the
transfer or exchange of any New Senior Notes, replace mutilated, destroyed,
lost or stolen New Senior Notes and maintain an office or agency for
payments in respect of the New Senior Notes, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and (iv) the defeasance
provisions of the New Indenture. In addition, the Company may, at its
option and at any time, elect to terminate the obligations of the Company
with respect to certain covenants that are set forth in the New Indenture,
some of which are described under "--Certain Covenants" above and any
subsequent failure to comply with such obligations shall not constitute a
Default or Event of Default with respect to the New Senior Notes ("covenant
defeasance").
The New Indenture is expected to provide that in order to exercise either
defeasance or covenant defeasance, (i) the Company must irrevocably deposit
with the Trustee, in trust, for the benefit of the holders of the New
Senior Notes, cash in United States dollars, U.S. Government Obligations
(as defined in the New Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium,
if any, and interest on the outstanding New Senior Notes to redemption or
maturity (except lost, stolen or destroyed New Senior Notes which have been
replaced or paid); (ii) the Company shall have delivered to the Trustee an
opinion of counsel to the effect that the holders of the outstanding New
Senior Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such defeasance or covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance or
covenant defeasance had not occurred (in the case of defeasance, such
opinion must refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable federal income tax laws); (iii) no
Default or Event of Default shall have occurred and be continuing on the
date of such deposit; (iv) such defeasance or covenant defeasance shall not
cause the Trustee to have a conflicting interest with respect to any
securities of the Company; (v) such defeasance or covenant defeasance shall
not result in a breach or violation of, or constitute a default under, any
material agreement or instrument to which the Company is a party or by
which it is bound; (vi) the Company shall have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; and (vii) the Company shall have delivered to
the Trustee an officers' certificate and an opinion of counsel, each
stating that all conditions precedent under the New Indenture to either
defeasance or covenant defeasance, as the case may be, have been complied
with.
Satisfaction and Discharge
The New Indenture is expected to provide that the New Indenture will be
discharged and will cease to be of further effect (except as to surviving
rights or registration of transfer or exchange of the New Senior Notes, as
expressly provided for in the New Indenture) as to all outstanding New
Senior Notes when (i) either (a) all the New Senior Notes theretofore
authenticated and delivered (except lost, stolen or destroyed New Senior
Notes which have been replaced or repaid, and New Senior Notes for whose
payment money has theretofore been deposited in trust or segregated and
held in trust by the Company and thereafter repaid to the Company or
discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all New Senior Notes not theretofore delivered to the
Trustee for cancellation (except lost, stolen or destroyed New Senior Notes
which have been replaced or paid) have been called for redemption pursuant
to the terms of the New Senior Notes or have otherwise become due and
payable and the Company has irrevocably deposited or caused to be deposited
with the Trustee funds in an amount sufficient to pay and discharge the
entire indebtedness on the New Senior Notes not theretofore delivered to
the Trustee for cancellation, for principal of, premium, if any, and
interest on the New Senior Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply
such funds to the payment thereof at maturity or redemption, as the case
may be; (ii) the Company has paid all other sums payable under the New
Indenture by the Company; (iii) there exists no Default or Event of Default
under the New Indenture; and (iv) the Company has delivered to the Trustee
an officers' certificate and an opinion of counsel stating that all
conditions precedent under the New Indenture relating to the satisfaction
and discharge of the New Indenture have been complied with.
Reports to Holders
The New Indenture is expected to provide that the Company shall deliver to
the Trustee, within 15 days after it files them with the Commission, copies
of its annual report and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the Commission may
by rules and regulations prescribe) which the Company is required to file
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act
within the time periods prescribed under such rules and regulations.
Notwithstanding that the Company may not be required to remain subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act or
otherwise report on an annual and quarterly basis on forms provided for
such annual and quarterly reporting pursuant to rules and regulations
promulgated by the Commission, the New Indenture shall require the Company
to continue to file with the Commission and provide to the Trustee such
annual and interim reports on Forms 10-K and 10-Q, respectively, as the
Company would be required to file were it subject to such reporting
requirements within the time periods prescribed under such rules and
regulations. Upon qualification of the New Indenture under the TIA, the
Company shall also comply with the provisions of TIA Section 314(a). The
Company shall not be obligated to file any such reports with the Commission
if the Commission does not permit such filings but shall remain obligated
to provide such reports to the Trustee and the holders within the periods
of time referred to in the preceding sentence. The Company shall provide
to any holder of New Senior Notes any information reasonably requested by
such holder concerning the Company (including financial statements)
necessary in order to permit such holder to sell or transfer New Senior
Notes in accordance with Rule 144A promulgated under the Securities Act.
Modification of the New Indenture
The New Indenture is expected to provide that the Company, when authorized
by a Board Resolution, and the Trustee may amend, waive or supplement the
New Indenture or the New Senior Notes without notice to or consent of any
Holder: (a) to cure any ambiguity, defect or inconsistency; (b) to comply
with "--Certain Covenants--Merger, Consolidation, and Sale of Assets"
above; (c) to provide for uncertificated New Senior Notes in addition to
certificated New Senior Notes; (d) to comply with any requirements of the
Commission in order to effect or maintain the qualification of the New
Indenture under the TIA; or (e) to make any change that would provide any
additional benefit or rights to the Holders or that does not adversely
affect the rights of any Holder. Notwithstanding the foregoing, the
Trustee and the Company may not make any change that adversely affects the
rights of any Holder under the New Indenture. Other modifications and
amendments of the New Indenture or the New Senior Notes may be made with
the consent of the holders of not less than a majority in aggregate
principal amount of the then outstanding New Senior Notes, except that,
without the consent of each holder of the New Senior Notes affected
thereby, no amendment may, directly or indirectly: (i) reduce the amount of
New Senior Notes whose holders must consent to any amendment; (ii) reduce
the rate of or change the time for payment of interest, including defaulted
interest or additional interest, on any New Senior Notes; (iii) reduce the
principal amount or Accreted Value (or rate of accretion) of or change the
fixed maturity of any New Senior Notes, or change the date on which any New
Senior Notes may be subject to redemption or repurchase, or reduce the
redemption or repurchase price therefor; (iv) make any New Senior Notes
payable in money other than that stated in the New Senior Notes; (v) make
any change in provisions of the New Indenture protecting the right of each
holder of a Note to receive payment of principal of and interest on such
Note on or after the date thereof or to bring suit to enforce such payment
or permitting holders of a majority in principal amount of the New Senior
Notes to waive Defaults or Events of Default; (vi) subordinate in right of
payment, or otherwise subordinate, the New Senior Notes to any other
Indebtedness or obligation of the Company; or (vii) amend, alter, change or
modify the obligation of the Company to make and consummate an Asset Sale
Offer or waive any Default in the performance of any such offer or modify
any of the provisions or definitions with respect to any such offers.
Transfer and Exchange
A holder may transfer or exchange New Senior Notes in accordance with the
New Indenture. The Registrar and the Trustee may require a holder, among
other things, to furnish appropriate endorsements and transfer documents
and the Company may require a holder to pay any taxes and fees required by
law or permitted by the New Indenture. The Company is not required to
transfer or exchange any Note selected for redemption. Also, the Company
is not required to transfer or exchange any Note for a period of 15 days
before a selection of New Senior Notes to be redeemed.
The Trustee
The New Indenture is expected to provide that, except during the
continuance of an Event of Default, the Trustee thereunder will perform
only such duties as are specifically set forth in the New Indenture. If an
Event of Default has occurred and is continuing, the Trustee will exercise
such rights and powers vested in it under the New Indenture and use the
same degree of care and skill in its exercise as a prudent person would
exercise under the circumstances in the conduct of such person's own
affairs.
The New Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the
rights of the Trustee thereunder, should it become a creditor of the
Company, to obtain payment of claims in certain cases or to realize on
certain property received by it in respect of any such claims, as security
or otherwise. The Trustee is permitted to engage in other transactions;
provided, however, that if it acquires any conflicting interest (as defined
in such Act) it must eliminate such conflict or resign.
Governing Law
The New Indenture is expected to provide that the New Indenture and the New
Senior Notes will be governed by the laws of the State of New York, without
regard to the principles of conflicts of law.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
New Indenture. Reference is made to the New Indenture for the full
definition of all such terms, as well as any other terms used herein for
which no definition is provided.
"Accreted Value" means with respect to any Note, as of any date of the
determination prior to the sum of (a) $496.97 per $1,000 principal amount
and (b) the portion of the excess of the principal amount of such Note over
the amount which shall have been accreted thereon through such date, such
amount to be so accreted on a daily basis at the rate of 12% per annum,
compounded semi-annually on each [March 1] and [September 1] from the Issue
Date through the date of determination.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted
Subsidiary or at the time it merges or consolidates with the Company or any
Restricted Subsidiary or assumed in connection with the acquisition of
assets from such Person, including any such Indebtedness incurred by such
Person in connection with, or in anticipation or contemplation of, such
Person's becoming a Restricted Subsidiary or such acquisition, merger or
consolidation.
"Additional Debt Ratio" means, at any date of determination, the ratio of
(i) the aggregate principal amount Indebtedness that shall have been
incurred by the Company pursuant to the covenant "uLimitation on Incurrence
of Additional Indebtedness" above and is outstanding on such date, to (ii)
the aggregate amount of cash that shall have been raised by the Company as
of such date in one or more Qualified Transactions.
"Affiliate" means a Person who, directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control
with, the Company or any Restricted Subsidiary. The term "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise. Notwithstanding
the foregoing, the term "Affiliate" shall not, with respect to the Company,
include any Wholly Owned Restricted Subsidiary of the Company.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person
shall become a Subsidiary of the Company, or shall be merged with or into
the Company or any Restricted Subsidiary, (b) the acquisition by the
Company or any Restricted Subsidiary of the assets of any Person which
constitute all or substantially all of the assets of such Person or (c) the
acquisition by the Company or any Restricted Subsidiary of any division or
line of business of any Person.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business pursuant to ordinary business terms), assignment or
other transfer or disposition for value (for purposes of this definition,
each, a "disposition") by the Company or any Restricted Subsidiary
(including, without limitation, pursuant to any Sale and Leaseback
Transaction or any merger or consolidation of any Subsidiary of the Company
with or into another Person (other than the Company or any Wholly Owned
Restricted Subsidiary of the Company) whereby such Subsidiary shall cease
to be a Restricted Subsidiary) to any Person of (i) any Capital Stock of
any Restricted Subsidiary (other than in respect of director's qualifying
shares or investments by foreign nationals mandated by applicable law);
(ii) all or substantially all of the properties and assets of any division
or line of business of the Company or any Restricted Subsidiary; or (iii)
any other properties or assets of the Company or any Restricted Subsidiary,
other than in the ordinary course of business pursuant to ordinary business
terms; provided, however, that for purposes of the covenant described under
"--Certain Covenants--Limitation on Asset Sales" above, Asset Sales shall
not include: (a) a transaction or series of related transactions for which
the Company or the applicable Restricted Subsidiary receives aggregate
consideration of less than $500,000 in any fiscal year; (b) transactions
complying with the covenant described under "--Certain Covenants--Merger,
Consolidation and Sale of Assets" above; (c) any disposition to the
Company; (d) any disposition to a Wholly Owned Restricted Subsidiary of the
Company that is not subject to any Payment Restriction; (e) any Lien
securing Indebtedness to the extent that such Lien is granted in compliance
with the covenant described under "--Certain Covenants--Limitation on
Liens" above; (f) any Restricted Payment (or Permitted Investment)
permitted by the covenant described under "--Certain Covenants--Limitation
on Restricted Payments" above; (g) any disposition of assets or property in
the ordinary course of business and on ordinary business terms to the
extent such property or assets are obsolete, worn out or no longer useful
in the Company's or any Restricted Subsidiary's business, and (h) the
disposition or other transfer of shares of common stock of CS Wireless held
by the Company the nature of a purchase price or other adjustment for which
the Company is obligated pursuant to the terms of the Participation
Agreement.
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable other than a Capitalized Lease Obligation, and
at any date as of which the amount thereof is to be determined, the total
net amount of rent required to be paid by such Person under such lease
during the initial term thereof as determined in accordance with GAAP,
discounted from the last date of such initial term to the date of
determination at a rate per annum equal to the discount rate which would be
applicable to a Capitalized Lease Obligation with a like term in accordance
with GAAP. The net amount of rent required to be paid under any such lease
for any such period shall be the aggregate amount of rent payable by the
lessee with respect to such period after excluding amounts required to be
paid on account of insurance, taxes, assessments, utility, operating and
labor costs and similar charges. In the case of any lease which is
terminable by the lessee upon the payment of a penalty, such net amount
shall also include the amount of such penalty, but no rent shall be
considered as required to be paid under such lease subsequent to the first
date upon which it may be so terminated. "Attributable Value" means, as to
a Capitalized Lease Obligation under which any Person is at the time liable
and at any date as of which the amount thereof is to be determined, the
capitalized amount thereof that would appear on the face of a balance sheet
of such Person in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated) of capital stock, including each class of common stock and
Preferred Stock of such Person and (ii) with respect to any Person that is
not a corporation, any and all partnership or other equity interests of
such Person.
"Capitalized Lease Obligation" means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real,
personal or mixed) that is required to be classified and accounted for as a
capital lease obligation under GAAP, and, for purposes of the New
Indenture, the amount of any such obligation at any date shall be the
capitalized amount thereof at such date, determined 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 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;
and (iv) repurchase agreements and reverse repurchase agreements with a
term of not more than 7 days 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.
"Closing Price" means on any Trading Day with respect to the per share
price of any shares of Capital Stock the last reported sale price regular
way or, in case no such reported sale takes place on such day, the average
of the reported closing bid and asked prices regular way, in either case on
the New York Stock Exchange or, if such shares of Capital Stock are not
listed or admitted to trading on such exchange, on the principal national
securities exchange on which such shares are listed or admitted to trading
or, if not listed or admitted to trading on any national securities
exchange, on Nasdaq or, if such shares are not listed or admitted to
trading on any national securities exchange or quoted on such automated
quotation system but the issuer is a Foreign Issuer (as defined in Rule
3b-4(b) under the Exchange Act) and the principal securities exchange on
which such shares are listed or admitted to trading is a Designated
Offshore Securities Market (as defined in Rule 902(a) under the Securities
Act), the average of the reported closing bid and asked prices regular way
on such principal exchange or, if such shares are not listed or admitted to
trading on any national securities exchange or quoted on such automated
quotation system and the issuer and principal securities exchange do not
meet such requirements, the average of the closing bid and asked prices in
the over-the-counter market as furnished by any New York Stock Exchange
member firm that is selected from time to time by the Company for that
purpose.
"Consolidated Net Worth" means, with respect to any Person, at any date,
the consolidated stockholders' equity of such Person and its Restricted
Subsidiaries, as determined on a consolidated basis in accordance with
GAAP, less any amounts attributable to Disqualified Capital Stock of such
Person and any Preferred Stock of any of its Restricted Subsidiaries (other
than to the extent held by such Person or any of its Wholly Owned
Restricted Subsidiaries).
"CS Wireless Investment" means that certain Investment of the Company in CS
Wireless consisting of, collectively, all of the equity interest in CS
Wireless received by the Company as of the Issue Date.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of
Default.
"Disqualified Capital Stock" means any Capital Stock which, by its terms
(or by the terms of any security into which it is convertible or for which
it is exchangeable), or upon the happening of any event, matures (excluding
any maturity as the result of an optional redemption by the issuer thereof)
or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the sole option of the holder thereof
(except, in each case, upon the occurrence of a Change of Control), in
whole or in part, on or prior to the final maturity date of the New Senior
Notes.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its
equivalent in foreign currency, whose debt is rated "A" (or higher)
according to S&P or Moody's at the time as of which any investment or
rollover therein is made.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for
cash, between an informed and willing seller and an informed and willing
and able buyer, neither of whom is under undue pressure or compulsion to
complete the transaction. Except as provided in the Trust Indenture Act of
1939, as amended, fair market value shall be determined (I) with respect to
any Asset Sale involving consideration of less than $5,000,000, by
management of the Company and (II) in all other cases (whether or not
involving an Asset Sale), by the Board of Directors of the Company acting
in good faith and shall be evidenced by a board resolution (certified by
the Secretary or Assistant Secretary of the Company) delivered to the
Trustee; provided, however, that if (A) the aggregate non-cash
consideration to be received by the Company or any Restricted Subsidiary
from any Asset Sale shall reasonably be expected to exceed $5,000,000 or
(B) if the net worth of any Restricted Subsidiary to be designated as an
Unrestricted Subsidiary shall reasonably be expected to exceed $10,000,000,
then fair market value shall be determined by a nationally recognized
investment banking firm.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment
of the accounting profession of the United States of America, which are
applicable from time to time and are consistently applied.
"guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i)
to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation of such other Person (whether
arising by virtue of partnership arrangements, or by agreement to
keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or
(ii) entered into for purposes of assuring in any other manner the obligee
of such Indebtedness or other obligation of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part)
(but if in part, only to the extent thereof); provided, however, that the
term "guarantee" shall not include (A) endorsements for collection or
deposit in the ordinary course of business and (B) guarantees (other than
guarantees of Indebtedness) by the Company in respect of assisting one or
more Subsidiaries in the ordinary course of their respective businesses,
including without limitation guarantees of trade obligations and operating
leases, on ordinary business terms. The term "guarantee" used as a verb
has a corresponding meaning.
"incur" shall have the meaning set forth in "--Certain
Covenants--Limitation on Incurrence of Additional Indebtedness" above; and
"incurrence" and "incurred" shall have meanings correlative to the
foregoing.
"Indebtedness" means with respect to any Person, without duplication, any
liability of such Person or such Person's Restricted Subsidiaries (i) for
borrowed money, (ii) evidenced by bonds, debentures, notes or other similar
instruments, (iii) constituting Capitalized Lease Obligations, (iv)
incurred or assumed as the deferred purchase price of property (including,
without limitation, obligations which constitute wireless channel rights
obligations as they have been calculated in the financial statements
included in this Prospectus), or pursuant to conditional sale obligations
and title retention agreements (but excluding trade accounts payable
arising in the ordinary course of business), (v) for the reimbursement of
any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (vi) for Indebtedness of others guaranteed by such Person,
(vii) for Interest Swap Obligations, (viii) for the higher of the voluntary
liquidation preference, involuntary liquidation preference, fixed
redemption price or repurchase price of all Disqualified Capital Stock (ix)
the Attributable Value of any lease permitted by the covenant described
under "-- Limitation on Sale and Leaseback Transactions" above, and (x) for
Indebtedness of any other Person of the type referred to in clauses (i)
through (ix) which is secured by any Lien on any property or asset of such
first referred to Person, whether or not such Indebtedness is assumed by
such Person or is not otherwise such Person's legal liability; provided,
however, that if the obligations so secured have not been assumed by such
Person or are otherwise not such Person's legal liability, the amount of
such Indebtedness for the purposes of this definition shall be limited to
the lesser of the amount of such Indebtedness secured by such Lien or the
fair market value of the assets or property securing such Lien. The amount
of Indebtedness of any Person at any date shall be the outstanding
principal amount of all unconditional obligations described above, as such
amount would be reflected on a balance sheet prepared in accordance with
GAAP, and the maximum liability at such date of such Person for any
contingent obligations described above.
"Interest Swap Obligations" means the obligations of any Person under any
interest rate protection agreement, interest rate future, interest rate
option, interest rate swap, interest rate cap or other interest rate hedge
or arrangement.
"Investment" by any Person means any direct or indirect (i) loan, advance
or other extension of credit or capital contribution (by means of transfers
of cash or other property (valued at the fair market value thereof as of
the date of transfer) to others or payments for property or services for
the account or use of others, or otherwise), (ii) purchase or acquisition
of Capital Stock, bonds, notes, debentures or other securities or evidences
of Indebtedness issued by any other Person (whether by merger,
consolidation, amalgamation or otherwise and whether or not purchased
directly from the issuer of such securities or evidences of Indebtedness)
and (iii) guarantee or assumption of the Indebtedness of any other Person
(except for an assumption of Indebtedness for which the assuming Person
receives consideration with a fair market value at least equal to the
principal amount of the Indebtedness assumed). Investments shall exclude
extensions of trade credit and advances to customers and suppliers to the
extent made in the ordinary course of business on ordinary business terms.
The amount of any non-cash Investment shall be the fair market value of
such Investment, as determined conclusively in good faith by management of
the Company unless the fair market value of such Investment exceeds
$10,000,000, in which case the fair market value shall be determined
conclusively in good faith by the Board of Directors of the Company at the
time such Investment is made. Notwithstanding the foregoing, the purchase
or acquisition of any securities of any other Person to the extent effected
with Qualified Capital Stock of the Company shall not be deemed to be an
Investment. The amount of any Investment shall not be adjusted for
increases or decreases in value, or write-ups, write-downs or write-offs
with respect to such Investment.
"Issue Date" means the actual date of original issuance of the New Senior
Notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof and any option
or other agreement to sell, and any filing of or any agreement to give, any
security interest).
"Material Subsidiary" means, at any date of determination, any Restricted
Subsidiary that, together with its Subsidiaries and each Defaulting
Subsidiary (as defined below), (i) for the most recent fiscal year of the
Company accounted for more than 10% of the consolidated revenues of the
Company (exclusive of all Unrestricted Subsidiaries) or (ii) as of the end
of such fiscal year, was the owner of more than 10% of the consolidated
assets of the Company (exclusive of all Unrestricted Subsidiaries), all as
set forth on the most recently available consolidated financial statements
of the Company and its consolidated Restricted Subsidiaries for such fiscal
year prepared in conformity with GAAP. "Defaulting Subsidiary" means any
Restricted Subsidiary with respect to which an event described under clause
(iv) of the first paragraph of "--Events of Default" above has occurred and
is continuing, determined as if the words "Material Subsidiary" in such
clause were the words "Restricted Subsidiary" therein.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents (including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents) received by the Company or any Restricted Subsidiary from such
Asset Sale net of (i) reasonable out-of-pocket expenses and fees relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees and sales commissions, recording fees, title
insurance premiums, appraisers' fees and costs reasonably incurred in
preparation of any asset or property for sale), (ii) taxes paid or
reasonably estimated to be payable (calculated based on the combined state,
federal and foreign statutory tax rates applicable to the Company or the
Restricted Subsidiary consummating such Asset Sale) and (iii) repayment of
Indebtedness secured by assets subject to such Asset Sale, (iv) appropriate
amounts to be provided by the Company or any Restricted Subsidiary as a
reserve, in accordance with GAAP against any liabilities associated with
such assets and retained by the Company or any Restricted Subsidiary after
such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities and liabilities related to
environmental matters and the after-tax cost of any indemnification
payments (fixed or contingent) attributable to the seller's indemnities to
the purchaser undertaken by the Company or any Restricted Subsidiary in
connection with any such Asset Sale (but excluding any payments which, by
the terms of the indemnities will not, under any circumstances, be made
during the term of the New Senior Notes) and (v) all distributions and
other payments required to be made to minority interests holders in
Restricted Subsidiaries or joint ventures as a result of such Asset Sale;
provided, however, that if the instrument or agreement governing such Asset
Sale requires the transferor to maintain a portion of the purchase price in
escrow (whether as a reserve for adjustment of the purchase price or
otherwise) or to provide for indemnification of the transferee for
specified liabilities in a maximum specified amount, the portion of the
cash or Cash Equivalents that is actually placed in escrow or segregated
and set aside by the transferor for such indemnification obligations shall
not be deemed to be Net Cash Proceeds until the escrow terminates or the
transferor ceases to segregate and set aside such funds, in whole or in
part, and then only to the extent of the proceeds released from escrow to
the transferor or that are no longer segregated and set aside by the
transferor.
"Participation Agreement" means that certain agreement dated as of December
15, 1995 by and among the Company, CS Wireless Systems, Inc. and Heartland
Wireless Communications, Inc., as amended by Amendment No. 1 to
Participation Agreement dated as of February 22, 1996.
"Payment Restriction" shall have the meaning set forth in "--Certain
Covenants--Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries" above.
"Permitted Exchange" shall have the meaning set forth in "--Certain
Covenants--Limitation on Asset Sales" above.
"Permitted Indebtedness" means, without duplication, each of the following:
(a) the New Senior Notes;
(b) the Indebtedness of the Company under the Senior Secured Facility
(and the incurrence by any Restricted Subsidiary of guarantees thereof) in
an aggregate principal amount at any one time outstanding not to exceed
$[80] million, less any amounts applied to the permanent reduction of such
credit facility pursuant to the provisions of the covenant described under
the caption "Limitation on Asset Sales";
(c) Indebtedness outstanding on the Issue Date less any prepayments or
repayments in respect thereof, together with Indebtedness incurred by the
Company in satisfaction of any purchase price or other adjustments arising
out of the transactions contemplated by the Participation Agreement;
(d) Interest Swap Obligations: provided, however, that such Interest
Swap Obligations are entered into to protect the Company from fluctuations
in interest rates of its Indebtedness, to the extent the notional principal
amount of such Interest Swap Obligation does not exceed the principal
amount of the Indebtedness to which such Interest Swap Obligations relate;
(e) Refinancing Indebtedness;
(f) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except
in the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; provided, however, that such Indebtedness is
extinguished within two business days of incurrence;
(g) Indebtedness of a Wholly Owned Restricted Subsidiary of the Company
owed to and held by the Company or another Wholly Owned Restricted
Subsidiary of the Company, in each case which is not subordinated in right
of payment to any Indebtedness of such Restricted Subsidiary, except that
(i) any transfer of such Indebtedness by the Company or a Wholly Owned
Restricted Subsidiary of the Company (other than to the Company or to a
Wholly Owned Restricted Subsidiary of the Company) and (ii) the sale,
transfer or other disposition by the Company or any Restricted Subsidiary
of Capital Stock of a Wholly Owned Restricted Subsidiary of the Company
which is owed Indebtedness of another Wholly Owned Restricted Subsidiary of
the Company such that it ceases to be a Wholly Owned Restricted Subsidiary
of the Company shall, in each case, be an incurrence of Indebtedness by
such Restricted Subsidiary subject to the other provisions of the covenant
described under "uCertain Covenants--Limitation on Incurrence of Additional
Indebtedness" above;
(h) Indebtedness of the Company owed to and held by a Wholly Owned
Restricted Subsidiary of the Company which is unsecured and subordinated in
right of payment to the payment and performance of the Company's
obligations under the New Indenture and the New Senior Notes, except that
(i) any transfer of such Indebtedness by a Wholly Owned Restricted
Subsidiary of the Company (other than to another Wholly Owned Restricted
Subsidiary of the Company) and (ii) the sale, transfer or other disposition
by the Company or any Restricted Subsidiary of Capital Stock of a Wholly
Owned Restricted Subsidiary of the Company which holds Indebtedness of the
Company such that it ceases to be a Wholly Owned Restricted Subsidiary of
the Company shall, in each case, be an incurrence of Indebtedness by the
Company, subject to the other provisions of the covenant described under
"uCertain Covenants--Limitation on Incurrence of Additional Indebtedness"
above;
(i) Indebtedness of the Company or any Restricted Subsidiary
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business
pursuant to ordinary business terms;
(j) Indebtedness incurred by the Company the proceeds of which are to
be used to fund the operation of the Wireless Broadband Business of the
Company and its Restricted Subsidiaries; provided, however, that the
aggregate principal amount of Indebtedness incurred and outstanding
pursuant to this clause (j) shall not exceed $5 million in the aggregate at
any time outstanding.
"Permitted Investment" means, without duplication, each of the following:
(i)Investments by the Company or any wholly-owned Restricted Subsidiary to
acquire the stock of or assets of a Person (or Indebtedness of such Person
acquired in connection with a transaction in which such person becomes a
Restricted Subsidiary) engaged in the wireless cable transmission business,
including related activities and services, provided, however, that the
aggregate amount of Investments made and outstanding pursuant to this
clause (i) which at the time of determination has been made in an entity
which is not a Wholly Owned Restricted Subsidiary of the Company shall not
at any time exceed $15,000,000;
(ii)Investments arising as a result of the receipt by the Company or any
Restricted Subsidiary of non-cash consideration for an Asset Sale effected
in compliance with "--Certain Covenants-- Limitation on Asset Sales" above
(other than pursuant to a Permitted Exchange);
(iii)Investments by the Company or any Wholly Owned Restricted Subsidiary
of the Company in any Wholly Owned Restricted Subsidiary of the Company
(whether existing on the Issue Date or created thereafter) or any Person
that after such Investment and, as a result thereof, becomes a Wholly Owned
Restricted Subsidiary of the Company and Investments in the Company by any
Subsidiary of the Company;
(iv)Cash and Cash Equivalents;
(v)Investments in securities of trade creditors, wholesalers or customers
received pursuant to any plan of reorganization or similar arrangement; and
(vi)Investments, including the CS Wireless Investment, existing on the
Issue Date to the extent and in the manner so existing on the Issue Date;
"Permitted Liens" means, without duplication, each of the following:
(i)Liens in favor of the Trustee in its capacity as trustee for the
Holders;
(ii)Liens existing on the Issue Date as in effect on such date;
(iii)Liens on property of the Company securing up to $25,000,000 aggregate
principal amount of Additional Indebtedness incurred pursuant to "--Certain
Covenants -- Limitation on Incurrence of Indebtedness" other than Permitted
Indebtedness;
(iv)Liens on property existing on the date of acquisition thereof;
provided, however, that such Liens are not incurred as a result of, or in
connection with or in anticipation of, such transaction and such Liens
relate solely to the property so acquired;
(v)Liens to secure the payment of all or a part of the Purchase price for
Productive Asset or construction costs of acquired or constructed property
which is to be used by the Company exclusively in the Wireless Broadband
Business, including related activities and services, after the Issue Date;
provided, however, that the Indebtedness secured by such Liens shall not
exceed $75,000,000 less the Indebtedness secured by Liens contemplated by
clause (iii) above and such Liens shall not extend to any other property or
assets of the Company other than the property or assets so acquired;
(vi)Liens for taxes, assessments and governmental charges to the extent not
required to be paid under the New Indenture;
(vii)statutory Liens of landlords and carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen or other like Liens to the extent not
required to be paid under the New Indenture;
(viii)pledges or deposits to secure lease obligations or nondelinquent
obligations under workers' compensation, unemployment insurance or similar
legislation (other than the Employee Retirement Income Security Act of
1974, as amended from time to time ("ERISA"));
(ix)Liens to secure the performance of public statutory obligations that
are not delinquent, performance bonds or other obligations of a like nature
(other than for borrowed money), in each case incurred in the ordinary
course of business pursuant to ordinary business terms;
(x)easements, rights-of-way, restrictions, minor defects or irregularities
in title and other similar charges or encumbrances incurred in the ordinary
course of business pursuant to ordinary business terms not interfering in
any material respect with the business of the Company or any Restricted
Subsidiary;
(xi)Liens upon specific items of inventory or other goods and proceeds of
any Person securing such Person's obligations in respect of letters of
credit or bankers' acceptances issued or created for the account of such
Person to facilitate the purchase, shipment or storage of such inventory or
other goods in the ordinary course of business pursuant to ordinary
business terms;
(xii)judgment and attachment Liens not giving rise to an Event of Default;
(xiii)leases or subleases granted to others in the ordinary course of
business pursuant to ordinary business terms and consistent with past
practice not interfering in any material respect with the business of the
Company or any Restricted Subsidiary;
(xiv)any interest or title of a lessor in the property subject to any
lease, whether characterized as capitalized or operating other than any
such interest or title resulting from or arising out of a default by the
Company or any Restricted Subsidiary of its obligations under such lease;
(xv)Liens arising from filing UCC financing statements for precautionary
purposes in connection with true leases of personal property that are
otherwise permitted under the New Indenture and under which the Company or
any Restricted Subsidiary is a lessee;
(xvi)Liens with respect to Acquired Indebtedness incurred in accordance
with the covenant described under "--Certain Covenants--Limitation of
Incurrence of Additional Indebtedness" above; provided, however, that (A)
such Liens secured such Acquired Indebtedness at the time of and prior to
the incurrence of such Acquired Indebtedness by the Company and were not
granted as a result of, in connection with, or in anticipation of, the
incurrence of such Acquired Indebtedness by the Company and (B) such Liens
do not extend to or cover any property or assets of the Company or of any
Restricted Subsidiary other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of the Company and are no more favorable to the lienholders
than those securing the Acquired Indebtedness prior to the incurrence of
such Acquired Indebtedness by the Company;
(xvii)Liens to secure Capitalized Lease Obligations to the extent arising
from transactions consummated in compliance with "--Certain
Covenants--Limitation on Incurrence of Additional Indebtedness" and
"--Limitation on Sale and Leaseback Transactions" above; provided, however,
that such Liens do not extend to or cover any property or assets of the
Company or of any Restricted Subsidiary, other than the property or assets
subject to such Capitalized Lease Obligation; and
(xviii)any Lien to secure the refinancing of any Indebtedness described in
the foregoing clauses; provided, however, that to the extent any such
clause limits the amount secured or the asset subject to such Liens, no
refinancing shall increase the assets subject to such Liens or the amount
secured thereby beyond the assets or amounts set forth in such clauses.
"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a
governmental agency or political subdivision thereof.
"Philadelphia MDU Operation" means the assets relating to the provision of
video programming to certain multi-dwelling units located in and around the
Philadelphia, PA market.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"Productive Assets" means assets of a kind used or usable by the Company
and the Restricted Subsidiaries in wireless broadband businesses or
businesses reasonably related thereto.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Qualified Transaction" means the sale of Qualified Capital Stock of the
Company by the Company to any Person for cash.
"refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire,
or to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part; "refinanced" and
"refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means any refinancing by the Company of
Indebtedness of the Company or of any Restricted Subsidiaries incurred in
accordance with "--Certain Covenants--Limitation on Incurrence of
Additional Indebtedness" above (other than pursuant to clauses (e), (f),
(g), (h) and (i) of the definition of Permitted Indebtedness); provided,
however, that such Indebtedness so incurred to refinance such other
Indebtedness (the "Existing Indebtedness") (1) is not in an aggregate
principal amount as of the date of the consummation of such proposed
refinancing in excess of (or if such Indebtedness being incurred to
refinance the Existing Indebtedness is issued with original issue discount,
at an original issue price not in excess of) the sum of (i) the aggregate
principal amount outstanding of the Existing Indebtedness (provided that
(a) if such Existing Indebtedness was issued with original issue discount,
in excess of the accreted amount of such Existing Indebtedness (as
determined in accordance with GAAP) as of the date of such proposed
refinancing, (b) if such Existing Indebtedness was incurred pursuant to a
revolving credit facility or any other agreement providing a commitment for
subsequent borrowings, with a maximum commitment under the agreement
governing the Indebtedness proposed to be incurred not in excess of the
maximum commitment amount under such Existing Indebtedness and (c) any
amount of such Existing Indebtedness owned or held by the Company or any of
its Subsidiaries shall not be deemed to be outstanding for the purposes
hereof) as of the date of such proposed refinancing, plus (ii) the amount
of any premium required to be paid under the terms of the instrument
governing such Existing Indebtedness and plus (iii) the amount of
reasonable expenses incurred by the Company in connection with such
refinancing and (2) does not have (I) a Weighted Average Life to Maturity
that is less than the Weighted Average Life to Maturity of the Existing
Indebtedness or (II) a final maturity earlier than the final maturity of
the Existing Indebtedness; provided, further, however, that (x) if such
Existing Indebtedness is subordinate or junior to the New Senior Notes,
then such Indebtedness proposed to be incurred to refinance the Existing
Indebtedness shall be subordinate to the New Senior Notes at least to the
same extent and in the same manner as the Existing Indebtedness and (y)
such Indebtedness proposed to be incurred to refinance the Existing
Indebtedness is not incurred more than three months prior to the complete
retirement or defeasance of the Existing Indebtedness with the proceeds
thereof.
"Restricted Payment" shall have the meaning set forth in the covenant
described under "--Certain Covenants--Limitation on Restricted Payments"
above.
"Restricted Subsidiary" means any Subsidiary of the Company which, as of
the determination date, is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether
owned by the Company or any Restricted Subsidiary at the Issue Date or
later acquired, which has been or is to be sold or transferred by the
Company or such Restricted Subsidiary to such Person or to any other Person
from whom funds have been or are to be advanced by such Person on the
security of such property.
"Senior Secured Facility" means the financing agreement to be entered into
on or prior to the Confirmation Date by the Company, the lenders named
therein, and the agent named therein, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, as such facility may be amended, restated,
supplemented, refinanced, extended or otherwise modified from time to time.
"Stated Maturity," when used with respect to a Note or any installment of
interest thereon, means the date specified in such Note as the fixed date
on which the principal of such Note or such installment of interest is due
and payable.
"Subsidiary," with respect to any Person, means (i) any corporation of
which at least a majority of the outstanding Voting Stock shall at the time
be owned, directly or indirectly, by such Person or (ii) any other Person
of which at least a majority of the outstanding Voting Stock is at the
time, directly or indirectly, owned by such Person.
"Surviving Entity" shall have the meaning set forth in the covenant
described under "--Certain Covenants--Merger, Consolidation and Sale of
Assets" above.
"Total Market Capitalization" of any Person means, as of any day of
determination, the sum of (1) the consolidated Indebtedness of such Person
and its Subsidiaries on such day, plus (2) the product of (i) the aggregate
number of outstanding primary shares of Common Stock of such Person on such
day (which shall not include any options or warrants on, or securities
convertible or exchangeable into, shares of Common Stock of such Person)
and (ii) the average Closing Price of such Common Stock over the 20
consecutive Trading Days immediately preceding such day, plus (3) the
liquidation value of any outstanding shares of Preferred Stock of such
Person on such day. If no such Closing Price exists with respect to shares
of any such class, the value of such shares for purposes of clause (2) of
the preceding sentence shall be determined by the Company's Board of
Directors in good faith and evidenced by a resolution of such Board of
Directors delivered to the Trustee.
"Trading Day" means with respect to a securities exchange or automated
quotation system, a day on which such exchange or system is open for a full
day of trading.
"Unrestricted Subsidiary" means a Subsidiary of the Company created after
the Issue Date and so designated by a resolution adopted by the Board of
Directors of the Company in accordance with the covenant described under
"--Certain Covenants--Limitation on Restricted and Unrestricted
Subsidiaries" above.
"Voting Stock" means, with respect to any Person, securities of any class
or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or only so long as no senior class of stock has
voting power by reason of any contingency) to vote in the election of
members of the Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or Preferred Stock at any date, the number of years obtained by dividing
(a) the then outstanding aggregate principal amount or liquidation
preference of such Indebtedness or Preferred Stock into (b) the total of
the product obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal or liquidation preference, including payment at final maturity,
in respect thereof, by (ii) the number of years (calculated to the nearest
one-twelfth) which will elapse between such date and the making of such
payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Subsidiary of
such Person of which all the outstanding Capital Stock (other than
directors' qualifying shares) are owned by such Person or any Wholly Owned
Restricted Subsidiary of such Person.
"Wireless Broadband Business" means transmitting and receiving video, voice
or data primarily through wireless broadband transmission facilities, alone
or in conjunction with satellite transmission services, utilizing wireless
channels for any commercial purpose permitted by the FCC and other
activities directly
EXHIBIT D
TO
DISCLOSURE STATEMENT WITH RESPECT TO JOINT
REORGANIZATION PLAN OF CAI WIRELESS SYSTEMS, INC.
AND PHILADELPHIA CHOICE TELEVISION, INC.
LIQUIDATION ANALYSIS
CAI Wireless Systems, Inc.
Chapter 7 Liquidation Analysis
As of March 31, 1998
Introduction
The Company believes that the value of the property to be received under
the Plan by each holder of an Impaired Claim is more than the value such
holder would receive in a liquidation of the Company under Chapter 7 of the
Bankruptcy Code. To arrive at that conclusion, the Company estimated and
compared the likely returns to each holder of an Impaired Claim in a
liquidation under Chapter 7 of the Bankruptcy Code and the Plan. The
results of such analyses are set forth below.
The Liquidation Analysis was prepared using CAI's assets as of March 31,
1998, and is based on a number of estimates and assumptions which are
inherently subject to significant economic and competitive uncertainties
and contingencies beyond the control of CAI and/or any Chapter 7 trustee.
ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE VALUES REFLECTED IN THE
LIQUIDATION ANALYSIS WOULD BE REALIZED IF CAI WERE, IN FACT, TO UNDERGO
SUCH A CHAPTER 7 LIQUIDATION, AND ACTUAL RESULTS COULD VARY MATERIALLY FROM
THOSE SHOWN HERE.
Major Assumptions
CAI' operating systems are assumed to be sold in whole or in part
(potentially market by market) to maximize value in the liquidation
process. CAI is required to make certain payments, including payments to
maintain certain lease obligations for equipment and spectrum, until each
system is sold. The net cash expense required for the continuation of
operations is assumed to total $9.2 million. Operations during the
liquidation period would not generate sufficient cash to support such
operations. Funding is assumed to come from a combination of restricted
cash on hand (from funds advanced to CAI by its senior secured lender) and
the extension of additional credit by CAI's current lender. If such credit
was not available, however, CAI would be unable to continue operations, and
the estimated liquidation value of CAI's wireless channel rights would be
approximately $25 million, rather than $91 million (as set forth below).
All assets are assumed to be sold within an average of six months.
All liquidation proceeds are stated in actual dollar terms and have not
been discounted to present values.
Significant reductions in personnel occur at the outset of the
Chapter 7 liquidation. Operating expenses continue to be incurred through
the liquidation period, however, primarily as a result of the continued
employment of individuals necessary to maintain the operating systems and
perform administrative functions required by the Chapter 7 trustee.
During the Chapter 7 liquidation, CAI, through the Subsidiaries,
continues to operate its business and, accordingly, events may occur that
could impact recovery proceeds and Claims to be satisfied. Such events
could include changes in legislation related to the liquidation process and
changes in the market.
If the implementation of the liquidation process is delayed,
significant operating losses and/or changes in assets and liabilities may
be incurred during the interim period until the liquidation is completed,
and the net liquidation value could be significantly below that estimated
herein.
Upon liquidation, actual liabilities may vary significantly from
those reflected on the Company's March 31, 1998 consolidated balance sheet
and in this Liquidation Analysis, because Claims presently unknown to the
Company may be asserted. It is not possible to predict with any certainty
the inevitable increase in liabilities resulting from contingent and/or
unliquidated Claims. Actual amounts may vary materially from these
estimates.
Liquidation values are predicated upon the March 31, 1998
consolidated financial statements provided by the Company. The analysis
does not take into account the effect of operating results or adjustments
to the unaudited financial statements subsequent to March 31, 1998, or
changes in assets and liabilities after that date, except for specific
adjustments described in the assumptions or notes to the Liquidation
Analysis.
This analysis assumes no new litigation and only assumes amounts
already accrued on the consolidated balance sheet to cover known litigation
exposures.
Note A - Actual Book Values as of March 31, 1998
The book values used in this Liquidation Analysis are the book values as of
March 31, 1998 (unless otherwise noted).
Note B - Cash and Cash Equivalents
The Liquidation Analysis assumes that operations prior to and during the
liquidation period will leave the Company with no cash or cash equivalents.
The costs of operating the Company through the six month liquidation period
are projected to be approximately $9.2 million. $2.0 million -of these
costs is expected to be funded from restricted cash proceeds previously
received by the Company under the Note Purchase Agreement.
Note C B Subscriber and Other Receivables
Subscriber and other receivables are due from CAI's analog video customers.
Accounts receivable are assumed to be 47.0%, collectible.
Note D - Prepaid Expenses
Prepaid expenses and other current assets are composed of prepaid
programming, insurance, postage and service contracts. Prepaid expenses
and other current assets are estimated to have no liquidation value.
Note E - Property, Plant & Equipment
The estimated liquidation values of equipment, real estate and other
components of property, plant and equipment are based on discussions
between management, in-house engineers, outside contractors, and vendors.
Equipment includes transmission equipment, subscriber equipment, office
furniture and equipment, leasehold improvements, vehicles, and projects in
progress. Projects in progress is primarily comprised of equipment
purchased for the roll-out of service in Hampton Roads. Based on a
line-by-line analysis, the fixed assets and projects in progress were
estimated to generate $19.8 million in a liquidation, or 39.7% of book
value.
Note F B Wireless Channel Rights, Net
The value of the wireless channel rights was determined based on the
results of the FCC's LMDS auction which occurred in March of 1998. LMDS
spectrum can be used for telephony, high speed data and subscription
television services, and consists of two blocks, a 1,100 MHz block at a 28
GHz frequency and another 150 MHz block. While CAI only has a portion of
198 MHz of bandwidth at the 2.5 GHz frequency, this bandwidth is much more
efficient than bandwidth at the 28 GHz frequency. This enhanced efficiency
should allow MMDS companies to offer the same capacity of services as
entities utilizing LMDS spectrum. Furthermore, the LMDS auction may
provide a proxy for a liquidation value because any liquidation of the
Company would result in an auction of its spectrum on a market-by-market
basis.
An analysis of the net price paid "per POP" (an industry term for "per
person") for the top 20 markets determined that the average price per POP
was $3.17. This figure was multiplied by CAI's 44.8 million POPS (in major
markets) and then discounted by the weighted average percent of channels
that CAI does not control in each market. In CAI's top twelve markets, the
Company controls a weighted average (using the population of each market as
the weighting factor ) of 29.6 of the total 33 channels (6 MHz) within the
MMDS spectrum. The resulting value was further reduced by the present value
of ten years of estimated future lease payments on leased channels.
Note G B Investment in CS Wireless
In a liquidation scenario, the value of the CS Wireless equity stake was
assumed to be nominal.
Note H B Investment in TelQuest
CAI's investment in TelQuest is assumed to be sold for $1.4 million.
Note I B Senior Note Escrow
The holders of the Senior Notes have a first priority security interest in
the Senior Note Escrow. The remaining cash balance of the Senior Note
Escrow therefore will be distributed to the holders of the Senior Notes in
any liquidation scenario.
Note J - Goodwill and Loan Acquisition Costs, Net
If CAI ceases to exist on a going concern basis, the value of these assets
will be zero.
Note K - Other Assets
Other assets include notes receivable, intangible assets and deposits and
are assumed to bring $1.1 million in a liquidation.
Note L - Administrative and Priority Claims
See notes T through W.
Note M - Secured Notes
The Secured Notes are secured by a lien on substantially all assets of the
Company. The total amount includes accrued interest of $3.03 million as of
June 30, 1998 and fees of $730,000. An additional $7.2 million will be
required to reflect the additional funding required (primarily to pay
leases) to maintain the value of the Company's assets through the
liquidation process.
Note N - Wireless Channel Right Obligations
Wireless channel right obligations are comprised of both secured and
unsecured obligations. $400,000 of the obligation is secured by channel
rights and is due to Mester. The remaining $4.4 million represents the
exercise price of rights to lease or purchase MMDS channels in the future
and is an unsecured claim.
Note O B Bott Notes
The Bott Notes due to Bott and the Bott Family Trust are collateralized by
the common stock of the Subsidiaries that own certain wireless channel
rights in Buffalo, Syracuse and Albany. The Bott Notes are discount notes.
Note P B Subsidiary Notes Payable
The debt of CAI'S Subsidiaries will be assumed by the acquiror of the
channel rights and Subsidiary stock.
Note Q - General Unsecured Claims
General unsecured claims include accounts payable and accrued liabilities,
less priority claims for, among other things, wages and taxes, Secured
Notes fees, accrued restructuring costs, and accrued interest. (See Notes
M and T through W.) Allocation of the net estimated liquidation proceeds
to general unsecured claims has been made in accordance with priorities set
forth in the Bankruptcy Code, and is pari passu with the Senior Notes.
Note R - Senior Notes
Senior notes are general unsecured obligations of CAI except for the first
priority security interest in the Senior Note Escrow. The total dollar
amount includes accrued interest of $9.9 million as of June 30, 1998.
Percentage recovery includes cash from the Senior Note Escrow. Recovery
would be 16.1% or $45.9 million excluding cash from the Senior Note Escrow.
Note S - Notes Payable and Subordinated Debt
The ECN Notes are subordinated to all senior indebtedness and obligations
collateralized by liens or a security interest in CAI property; they
include accrued interest of $57,533 as of June 30, 1998. The 12%
Subordinated Note is due to Merrill Lynch Global Allocation Fund and
includes accrued interest of $1.2 million as of June 30, 1998.
Note T - Administrative, Consulting and Financial Fees and Attorneys' Fees
Attorneys' fees are assumed to average $75,000 per month for six months.
The administrative, consulting, financial and accounting fees are assumed
to be $1.0 million and include transaction fees for the sale of certain
assets.
Note U - Trustee's Fees
Trustee's fees assumes the receipt of 3% of sale proceeds of property,
plant and equipment and wireless channel rights.
Note V - Accrued Wages, Compensation, Pension and Profit Sharing
Estimated claim represents the balance of accrued payroll at March 31, 1998
and includes payroll, vacation pay, holiday pay, bonus pay, royalties and
commissions, professional fees and accrued promotions entitled to priority
under the Bankruptcy Code. The Company assumes that the number of
employees, if any, with accrued payroll greater than the $4,300 priority
claim limit is insignificant, and hence no amount has been attributed to
such claims.
Note W - Accrued Taxes
Accrued taxes include payroll, property, sales, income and general taxes.
CAI Wireless Systems, Inc
Statement of Assets
For Balances as of March 31, 1998
($000)
Estimated Estimated
Book Value Recovery Liquidation
31-Mar-98 A Rate (%) Value Notes
<S.
ASSETS
Cash and Cash Equivalents $10,410 0.0% $ 0 B
Subscriber & Other Receivables 387 47.0% 182 C
Prepaid Expenses 662 0.0% - D
Current Assets 11,458 182
PP&E, Net and Projects in Progress 49,898 39.7% 19,800 E
Wireless Channel 194,051 47.1% 91,384 F
Investment in CS Wireless 43,338 0.0% - G
Investment in TelQuest 3,175 44.1% 1,400 H
Senior Note Escrow 16,419 100.0% 16,419 I
Goodwill (Non-deduct) 22,986 0.0% - J
Loan Acquisition Costs, Net 7,079 0.0% - J
Other Assets 3,062 35.9% 1,100 K
TOTAL ASSETS 351,466 37.1% $130,285
CAI Wireless Systems, Inc.
Distribution of Estimated Proceeds of Asset Liquidation
For Balances as of March 31, 1998 *
Allowable Recovery Percent
($000) Claims Amount Recovery Notes
Estimated Proceeds Available
for Distribution $130,285
Less Escrow Cash for Senior
Noteholders $16,419 I
Net Proceeds Available for
Distribution $113,866
Administrative & Priority Claims:
Administrative Claims $4,786 $4,786 100.0% L
Priority Claims $1,911 $1,911 100.0% L
Total $6,696 $6,696 100.0%
Estimated Proceeds After
Administrative and Priority Claims $107,170
Secured Creditor Claims:
Secured Notes* $55,951 $55,951 100.0% M
Wireless Channel Right
Obligations $400 $400 100.0% N
Bott Notes $3,841 $3,841 100.0% O
Total $60,193 $60,193 100.0%
Subsidiary Debt:
Subsidiary Notes $43 $43 100.0% P (Assumed)
Estimated Proceeds After Secured Claims $46,977
Senior Unsecured Claims:
General Unsecured Claims $6,911 $1,113 16.1% Q
$275 mm Senior Notes* $284,919 $62,283 21.9% R
Total $291,830 $63,396 21.7%
Estimated Proceeds After Senior
Unsecured Claims $0
Unsecured Claims:
12% Subordinated Note* $31,208 $0 0.0% S
Wireless Channel Right
Obligations $4,433 $0 0.0% N
ECN Notes* $2,851 $0 0.0% S
Total $38,491 $0 0.0% S
Estimated Deficiency ($266,926)
* Includes accrued interest through June 30, 1998.
CAI Wireless Systems, Inc.
Administrative and Priority Claims
($ 000)
Estimated
Claims Notes
Administrative Expenses:
Administrative, Consulting and Financial Fees $1,000 T
Attorneys' Fees 450 T
Trustee's Fees 3,336 U
Estimated Administrative Expenses $4,786
Priority Claims:
Accrued Wages, Workers' Compensation,
Pension & Profit Sharing 365 V
General, Payroll and Sales Taxes 1,545 W
Estimated Priority Claims $1,911
Estimated Total Administrative and Priority Claims $6,696