-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OWgVOPJjV8zGyQqBnZwG+WQXKmOD4I+aAYCGC0lJQPlfuuy3dPqi1Tc0Kx29G8jY 9gsA6HXsu/yLcim+ChjX5A== 0000914749-99-000015.txt : 19990630 0000914749-99-000015.hdr.sgml : 19990630 ACCESSION NUMBER: 0000914749-99-000015 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19990629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAI WIRELESS SYSTEMS INC CENTRAL INDEX KEY: 0000914749 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 061324691 STATE OF INCORPORATION: CT FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 033-71662 FILM NUMBER: 99654605 BUSINESS ADDRESS: STREET 1: 18 CORPORATE WOODS BLVD STREET 2: THIRD FLOOR CITY: ALBANY STATE: NY ZIP: 12211 BUSINESS PHONE: 5184622632 MAIL ADDRESS: STREET 1: 18 CORPORATE WOODS BLVD STREET 2: 3RD FLOOR CITY: ALBANY STATE: NY ZIP: 12211 10-Q/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended SEPTEMBER 30, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission File Number: 0-22888 CAI WIRELESS SYSTEMS, INC. (Exact name of registrant as specified in its charter)
Connecticut 06-1324691 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
18 Corporate Woods Boulevard, Albany, New York 12211 (Address and zip code of principal executive offices) (518) 462-2632 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No _____ Number of shares outstanding of each of registrant's class of common stock at June 22, 1999: CLASS OUTSTANDING SHARES Common Stock, $.01 par value 17,241,379 PART I. FINANCIAL INFORMATION. THIS QUARTERLY REPORT ON FORM 10-Q/A AMENDS CAI WIRELESS SYSTEMS, INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998. THE FINANCIALS AND NOTES THERETO HAVE BEEN ADJUSTED HEREIN FOR (A) THE COMPANY'S REVISION TO THE MARCH 31, 1998 FINANCIAL STATEMENTS TO REFLECT FINANCIAL RESTRUCTURING FEES WHICH RELATE TO A SUBSEQUENT PERIOD BUT WHICH ARE IMMATERIAL AND (B) THE REVERSAL OF CONTRACTURAL INTEREST IN THE AMOUNT OF $4,493,683 FOR THE PERIOD FROM JULY 30, 1998, DATE OF THE COMPANY'S VOLUNTARY FILING OF A CHAPTER 11 BANKRUPTCY PETITION, THROUGH SEPTEMBER 30,1998 IN ACCORDANCE WITH THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS' STATEMENT OF POSITION ("SOP") 90-7, "FINANCIAL REPORTING BY ENTITIES UNDER THE BANKRUPTCY CODE" SINCE CONTRACTUAL INTEREST WAS AN UNSECURED, UNALLOWED CLAIM IN THE BANKRUPTCY PROCEEDING. ITEM 1. FINANCIAL STATEMENTS. CAI WIRELESS SYSTEMS, INC. (DEBTOR-IN-POSSESSION) CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 MARCH 31, 1998 ------------------ -------------- (UNAUDITED) ASSETS Cash and cash equivalents $ 1,339,067 $ 1,275,020 Restricted cash and cash equivalents 11,204,249 9,134,651 Debt service escrow 16,913,922 16,418,922 Subscriber accounts receivable, net 701,635 387,144 Prepaid expenses 549,100 661,669 Property and equipment, net 41,459,062 49,898,337 Wireless channel rights, net 187,730,254 194,050,792 Investment in CS Wireless Systems, Inc. - 43,337,527 Investment in TelQuest Satellite Services LLC 1,220,404 3,174,732 Goodwill, net 22,066,442 22,985,876 Debt financing costs, net 5,838,099 7,079,424 Other assets 3,059,931 3,061,780 ------------ ----------- Total Assets $ 292,082,165 $ 351,465,874 ============= ============= LIABILITIES AND SHAREHOLDERS' DEFICIT LIABILITIES NOT SUBJECT TO COMPROMISE Accounts payable $ 3,125,495 $ 4,852,091 Accrued expenses 22,738,337 8,094,763 Wireless channel rights obligations 2,922,100 4,832,971 Interim debt financing 60,000,000 45,000,000 Long term notes 3,765,053 312,088,506 ------------ ------------ 92,550,985 374,868,331 ------------ ------------ LIABILITIES SUBJECT TO COMPROMISE Long term notes 307,793,000 - ------------ ------------ Commitments and Contingencies SHAREHOLDERS' DEFICIT Preferred Stock, no shares outstanding - - Common stock, 100,000,000 shares authorized, no par value; 40,543,039 shares issued and outstanding 275,770,764 275,770,764 Additional paid-in capital 101,711,759 101,711,759 Accumulated deficit (485,744,343) (400,884,980) ------------- ------------ (108,261,820) (23,402,457) ------------- ------------ Total Liabilities and Shareholders' Deficit $ 292,082,165 $ 351,465,874 ============= =============
See notes to consolidated financial statements. CAI WIRELESS SYSTEMS, INC. (DEBTOR-IN-POSSESSION) CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Six-Months Ended Three-Months Ended SEPTEMBER 30, SEPTEMBER 30, ---------------------------- ----------------------------- 1998 1997 1998 1997 Revenues $ 10,852,156 $ 15,386,043 $ 5,219,189 $ 7,294,791 ------------- ------------- ------------- ------------ Costs and expenses: Programming and licensing 7,606,028 7,271,163 3,949,343 3,568,253 General and administrative 11,018,953 14,771,615 4,691,778 7,299,282 Depreciation and amortization 13,637,310 15,907,088 6,817,688 7,968,256 ------------- ------------- ------------ ------------ 32,262,291 37,949,866 15,458,809 18,835,791 ------------- ------------- ------------ ------------ Operating loss (21,410,135) (22,563,823) (10,239,620) (11,541,000) ------------- ------------- ------------ ------------ Other income (expense) Interest expense (a) (18,058,781) (22,929,735) (5,148,906) (11,956,062) Equity in losses of affiliates (45,291,855) (13,740,000) (34,324,691) (7,124,000) Reorganization expense (3,955,208) - (3,955,208) - Interest and other income 3,856,616 1,623,027 2,917,441 762,390 ------------ ------------ ------------ ------------ (63,449,228) (35,046,708) (40,511,364) (18,317,672) ------------ ------------ ------------ ------------ Net loss (84,859,363) (57,610,531) (50,750,984) (29,858,672) Preferred stock dividends - (7,274,859) - (3,706,901) ------------ ------------ ------------ ------------ Loss applicable to common shareholders $(84,859,363) $(64,885,390) $(50,750,984) $(33,565,573) ============ ============ ============ ============ Basic and diluted loss per common share $ (2.09) $ (1.60) $ (1.25) $ (0.83) ======== ======== ======== ======== Weighted average common shares outstanding 40,543,039 40,540,539 40,543,039 40,540,539 ========== ========== ========== ==========
(a) Contractual interest of $4,493,683 was not recorded for the period July 30, 1998, the date CAI voluntarily filed its Chapter 11 bankruptcy petition, through September 30,1998, in accordance with SOP 90-7 since contractual interest is an unsecured unallowed claim in the bankruptcy proceeding. See notes to consolidated financial statements. CAI WIRELESS SYSTEMS, INC. (DEBTOR-IN-POSSESSION) CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND THE YEAR ENDED MARCH 31, 1998
ADDITIONAL COMMON STOCK PAID-IN ACCUMULATED TOTAL SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT) ------ ------ ------- ------- ---------------- Balance at March 31, 1997 40,540,539 $275,769,414 $ - $(161,079,224) $114,690,190 Common stock issued in exchange for Bell Atlantic warrants 2,500 1,350 - - 1,350 Senior preferred stock and accumulated dividends contributed to capital pursuant to the Bell Atlantic termination agreement on March 3, 1998 - - 101,711,759 - 101,711,759 Preferred stock dividends - - - (13,891,025) (13,891,025) Net loss for the year - - - (225,914,731) (225,914,731) ---------- ------------ ------------ ------------- ------------- BALANCE AT MARCH 31, 1998 40,543,039 275,770,764 101,711,759 (400,884,980) (23,402,457) NET LOSS FOR THE PERIOD - - - (84,859,363) (84,859,363) ---------- ------------ ------------ ------------- ------------- BALANCE AT SEPTEMBER 30, 1998 40,543,039 $275,770,764 $101,711,759 $(485,744,343) $(108,261,820) ========== ============ ============ ============= =============
See notes to consolidated financial statements. CAI WIRELESS SYSTEMS, INC. (DEBTOR-IN-POSSESSION) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended September 30, --------------------------------------- 1998 1997 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (84,859,363) $ (57,610,531) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 13,637,310 15,907,088 Equity in losses of affiliates 45,291,855 13,740,000 (Gain) loss on sale of assets (2,566,716) 36,682 Debt financing costs and discount amortization 864,180 2,434,732 Changes in assets and liabilities: Subscriber accounts receivable and other assets (248,379) 95,181 Accounts payable and accrued expenses 17,728,173 2,470,606 ------------ ------------ Net cash used in operating activities (10,152,940) (22,926,242) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Funds deposited in restricted investment account (2,069,598) - Purchase of wireless channel rights (109,929) (1,761,760) Purchase of equipment (686,760) (5,224,875) Proceeds from sale of equipment 4,810,018 39,145 Proceeds from sale of investments 62,166 66,443 Proceeds from maturity of escrow investments - 15,083,944 Payments received from CS Wireless Systems, Inc. 212,139 2,514,542 Investment in TelQuest Satellite Services LLC (411,567) (1,512,488) Loan to related parties (87,421) (197,758) Cash paid for investment - (356,025) Other (196,017) (153,823) ----------- ----------- Net cash provided by investing activities 1,523,031 8,497,345 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from interim debt financing 10,894,106 9,500,000 Repayment of debt including wireless channel rights obligations (2,073,705) (2,167,578) Debt financing costs paid (126,445) (2,514,372) ----------- ----------- Net cash provided by financing activities 8,693,956 4,818,050 ---------- ----------- Net increase (decrease) in cash and cash equivalents 64,047 (9,610,847) Cash and cash equivalents, beginning of year 1,275,020 10,471,918 ----------- ----------- Cash and cash equivalents, end of period $ 1,339,067 $ 861,071 ============ =========== Cash payments during the period for interest $ 22,823 $ 17,429,098 ======== ============
See notes to consolidated financial statements. CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and notes required by generally accepted accounting principles for complete financial statements. The Company does not have comprehensive income pursuant to SFAS No. 130 for the periods presented and, accordingly, a comprehensive income disclosure has not been included. The consolidated financial statements include the accounts of CAI Wireless Systems, Inc. and its wholly-owned subsidiaries (the "Company" or "CAI"). All intercompany transactions have been eliminated in consolidation. CAI's 60% investment in CS Wireless Systems, Inc. ("CS") and 30% investment in TelQuest Satellite Services LLC ("TelQuest") are accounted for on the equity method since CAI does not control day to day operations of either company. Current summarized financial information regarding CS is presented in Note 5. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of results for interim periods have been included. Certain items in the prior period financial statements have been reclassified to conform with the current period's presentation. Operating results for the quarter and six months ended September 30, 1998 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 1999. The unaudited financial statements presented herein should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended March 31, 1998 which is on file with the Securities and Exchange Commission. RESTRUCTURING COSTS. The Company has revised its March 31, 1998 to eliminate the accrued expenses and reduce the accumulated deficit to reflect $4.1 million in financial restructuring fees which relate to a subsequent period but which are immaterial. NOTE 2. CHAPTER 11 FILING On July 30, 1998 (the "Petition Date"), CAI Wireless Systems, Inc., a Connecticut corporation ("CAI Wireless"), and one of its wholly-owned subsidiaries, Philadelphia Choice Television, Inc., a Delaware corporation ("PCT"; and together with CAI Wireless, the "Debtors"), filed voluntary petitions for relief under Chapter 11, Title 11 of the United States Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"), Wilmington, Delaware. The bankruptcy cases (the "Cases") of CAI Wireless and PCT are being jointly administered, for procedural purposes only, before the Bankruptcy Court under Case No. 98-1765 (JJF). Pursuant to Sections 1107 and 1108 of the Bankruptcy Code, the Debtors, as debtors and debtors-in-possession, managed and operated their assets and businesses pending the September 30, 1998 confirmation of a joint reorganization plan (the "Plan") under the supervision and orders of the Bankruptcy Court. The Plan was filed with the Bankruptcy Court on the Petition Date and filed by the Company with the Securities and Exchange Commission (the "Commission") on a Current Report on Form 8-K on July 1, 1998. Prior to the Petition Date, the Company solicited and received the requisite approvals from those classes of creditors that would be impaired under the Plan. Specifically, the Company solicited and received the requisite approval of classes of creditors consisting of the holders of the Company's 12.25% Senior Notes due 2002 (the "Old Senior Notes") and the holders of certain subordinated indebtedness of the Company. The Company did not solicit the vote of its shareholders, for whom the Plan provided no right to receive or retain any property of the Company post-reorganization. Section 1126(g) of the Bankruptcy Code specifically deems such shareholders not to have accepted the Plan. A confirmation hearing was held in the Bankruptcy Court on September 9, 1998. The Plan was confirmed on September 30, 1998 and consummated on October 14, 1998. Under the confirmed Plan, each holder of the Old Senior Notes received a pro rata portion of $212,909,624 aggregate principal amount at maturity ($100,000,000 aggregate discounted principal amount at issuance) of 13% Senior Notes due 2004 (the "New Senior Notes"), 91% of the equity of reorganized CAI and approximately $16,500,000 in cash. Holders of subordinated indebtedness CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 2. CHAPTER 11 FILING (CONTINUED) claims against CAI received a pro rata portion of the remaining 9% of the equity of reorganized CAI. All equity received by the holders of Old Senior Notes and subordinated indebtedness claims was subsequently diluted by equity reserved for issuance upon the exercise of options granted to members of CAI's senior management and for equity of reorganized CAI issued in connection with the Exit Facility (defined below). Although the Company has emerged from bankruptcy, there continues to be substantial doubt as to the Company's ability to continue as a going concern. Reference is made to Item 7 - "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the Report of Independent Public Accountants included in CAI's Annual Report on Form 10-K for the fiscal year ended March 31, 1998, filed with the Commission on June 30, 1998. The Company's consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities and commitments in the normal course of business. The appropriateness of reporting on a going concern basis is dependent upon, among other things, future operations and the ability to generate sufficient cash from operations and financing sources to meet obligations. The consolidated financial statements contained herein and to which these notes relate do not include any adjustments relating to the confirmation and consummation of the Plan. Reference is made to the pro forma balance sheet included herein as Exhibit 99.5, which gives effect to the October 14, 1998 consummation of the Plan as if such consummation had occurred on September 30, 1998. NOTE 3. INTERIM FINANCING DIP FINANCING. In connection with the Cases, CAI consummated a $60,000,000 Debtor-in-Possession financing arrangement (the "DIP Facility") provided by Merrill Lynch Global Allocation Fund, Inc. ("MLGAF"). The DIP financing was governed by an Amended and Restated Note Purchase Agreement dated as of July 30, 1998 (the "DIP Agreement") between CAI and MLGAF, a copy of which was filed as an exhibit to CAI's Current Report on Form 8-K dated August 3, 1998. Indebtedness under the DIP Facility was evidenced by certain promissory notes, accrued interest at 13% per annum and had a maturity date of January 29, 1999. Of the $60,000,000 provided to CAI under the DIP Facility, $49,105,894 represented the outstanding principal, interest and fees due to the MLGAF pursuant to that certain Note Purchase Agreement dated as of November 24, 1997 (the "Existing Note Purchase Agreement") among CAI, certain of its subsidiaries and MLGAF. All such amounts outstanding under the Existing Note Purchase Agreement were converted into DIP Notes as if there had been a purchase thereof under the DIP Agreement in the amount of $49,105,894. The remaining $10,894,106 was made available to CAI for its use during the Chapter 11 case, in accordance with the terms of an approved budget. On October 14, 1998, in connection with consummating the Plan, all outstanding amounts under the DIP Facility, including the $60,000,000 aggregate principal amount, accrued and unpaid interest in the amount of $1,646,667 and a $600,000 commitment fee were repaid out of the proceeds of the Exit Facility (defined below). EXIT FACILITY. On October 14, 1998, in connection with consummating the Plan, the Company obtained an $80,000,000 credit facility (the "Exit Facility"), also from MLGAF. The Company received net proceeds from the Exit Facility of $15,953,000, after repaying all outstanding amounts under the DIP Facility and certain commitment fees associated with the Exit Facility. The Exit Facility is governed by the terms of a Note Purchase Agreement dated October 14, 1998 (the "NPA"), a copy of which was filed by the Company with the Commission as an exhibit to the Company's Current Report on Form 8-K dated October 15, 1998. The Exit Facility consists of two tranches: Tranche A and Tranche B. Tranche A is a $30,000,000 senior secured loan bearing interest at 10.5% compounded CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 3. INTERIM FINANCING (continued) semi-annually and evidenced by a Senior Secured A Note. The Company has granted a first priority lien on and security interest in all of its assets to secure performance of the Company's obligations with respect to Tranche A. Tranche B is a $50,000,000 senior secured loan bearing interest at 13% per annum and evidenced by a Senior Secured B Note. The Company has granted a second priority lien on and security interest in and to all of its assets to secure performance of its obligations with respect to Tranche B. In addition to the liens granted by the Company, substantially all of the Company's wholly-owned subsidiaries have guaranteed the obligations of the Company with respect to the Exit Facility. The subsidiaries have granted a lien on and security interest in all of their respective assets to secure their performance under such subsidiary guaranties. The Exit Facility is a two-year credit facility, maturing on October 14, 2000. The Company paid a 1% facility fee equal to $300,000 on the Tranche A amount at the closing of the Exit Facility. In addition, the Company is required to pay an 8% facility fee equal to $4,000,000 on the Tranche B amount, of which the Company paid $1,500,000 at the closing of the Exit Facility. The remaining $2,500,000 balance of the Tranche B facility fee is payable at maturity of the Exit Facility (by its term, acceleration or otherwise). The Company issued 2,241,379 shares of its Common Stock, par value $.01 per share (the "New Common Stock") to MLGAF as additional consideration to MLGAF for providing the Exit Facility. The shares of New Common Stock issued to MLGAF represent 13% of the total New Common Stock issued and outstanding on October 14, 1998. The foregoing is a summary of certain terms of the Exit Facility and is qualified in its entirety by reference to the NPA. NOTE 4. LITIGATION IN RE CAI WIRELESS SYSTEMS, INC. SECURITIES LITIGATION. CAI has been named in six class action lawsuits alleging various violations of the federal securities laws filed in the United States District Court for the Northern District of New York. The actions were consolidated into one lawsuit entitled IN RE CAI WIRELESS SYSTEMS, INC. SECURITIES LITIGATION (96-CV-1857) (the "Securities Lawsuit"), which is currently pending in the Northern District of New York. The amended, consolidated complaint, which names the Company, Jared E. Abbruzzese, chairman and chief executive officer of the Company, John J. Prisco, president, chief operating officer and a director of the Company, and Alan Sonnenberg, the former president of the Company, as defendants, alleges a variety of violations of the anti-fraud provisions of the Federal securities laws by CAI arising out of its alleged disclosure (or alleged omission from disclosure) regarding its Internet and other flexible use of MMDS spectrum, as well as its business relationship with Bell Atlantic and NYNEX. Specifically, the complaint alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 10b-5 promulgated under the Exchange Act during the specified Class Period (May 23, 1996 through December 6, 1996). The Company has notified the carrier of its Directors' and Officers' liability insurance policy, which is intended to cover not only the Company's officers and directors, but also the Company, itself, against claims such as those made in the Securities Lawsuit. The policy covers up to $5,000,000 of any covered liability, subject to a retention amount of $500,000. The Securities Lawsuit is in its preliminary stages. A scheduling conference was held on June 3, 1997, at which the briefing schedule for defendants' motion to dismiss was agreed upon among the parties. The defendants' motion to dismiss was heard by the Northern District of New York on October 17, 1997 and is still pending. While the motion is pending, all other deadlines affecting motions and discovery have been postponed. CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 4. LITIGATION (continued) The Plan provided no recovery to any holder of the Company's equity or to any holder of an equity-based claim, such as the claims made against the Company in the Securities Lawsuit. Upon the confirmation of the Plan on September 30, 1998 and the October 14, 1998 consummation of the Plan, plaintiffs' claims against the Company in the Securities Lawsuit were discharged and released by order of the Bankruptcy Court. Furthermore, the Securities Lawsuit plaintiffs were enjoined from continuing their action against the Company. The Company is currently preparing a stipulation of dismissal to be filed with the Court in this action. The individual defendants are continuing to contest the Securities Lawsuit vigorously and believe it is entirely without merit at this time. Accordingly, management believes the Securities Lawsuit will not have a material adverse effect on the Company's earnings, financial condition or liquidity. OTHER LITIGATION. The Company is also named as a defendant in JOE HAND PROMOTIONS, INC. V. CAI WIRELESS SYSTEMS, INC. D/B/A POPVISION WIRELESS CABLE and as a third party defendant by one or more defendants in JOE HAND PROMOTIONS, INC. V. 601 L & P BAR, INC. AND JOE HAND PROMOTIONS V. CAROL VALICEE D/B/A MARV'S BAR & RESTAURANT V. CAI WIRELESS SYSTEMS, INC. D/B/A POPVISION WIRELESS CABLE TV in the U.S. District Court for the Eastern District of Pennsylvania. These actions arise out of the alleged improper broadcasts of certain sporting events in commercial establishments in violation of the alleged distributor's exclusive broadcast rights. The Complaints seek actual compensatory damages in unspecified amounts, together with statutory penalties claimed for alleged violations of federal statutes. The Plaintiff, Joe Hand Promotions, has alleged itself to be the exclusive distributor of certain televised sporting events in the greater Philadelphia area for commercial establishments, and has alleged the improper broadcast of such events in approximately five instances. The lawsuits were in the preliminary stages when the Company commenced its Chapter 11 case. Action against CAI in these lawsuits has been suspended by the Court. The Company believes that in the event of outcomes adverse to it, the amounts would not be material given the nature of the claims. NOTE 5. EQUITY INVESTMENTS CS WIRELESS SYSTEMS, INC. The Company's 60% investment in CS reflects an equity loss of $43,338,000 (based on CAI's pro-rata share of CS' net loss of $83,300,000 for the six-month period ended June 30, 1998), of which $33,336,000 occurred in CAI's second quarter based on the June 1998 write-down of goodwill by CS in the amount of $46,378,000. There is no current year amortization of goodwill associated with this investment since CAI's goodwill relating to CS was written off as of March 31, 1998. CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 5. EQUITY INVESTMENTS (continued) The following is an unaudited condensed consolidated balance sheet of CS derived from its Form 10-Q as of June 30, 1998:
ASSETS Cash and cash equivalents $ 54,144,000 Restricted cash 5,030,000 Other current assets 1,967,000 Systems and equipment, net 52,939,000 Wireless channel rights, net 170,051,000 Investment in and loans to equity affiliates 7,022,000 Debt issuance costs and other assets, net 8,859,000 ------------ Total Assets $300,012,000 ============ LIABILITIES AND EQUITY Accounts payable and accrued expenses $ 6,174,000 FCC Auction payable 4,164,000 Other liabilities 778,000 Debt 299,967,000 Equity (11,071,000) ------------ Total Liabilities and Equity $300,012,000 ============
The following is an unaudited condensed consolidated statement of operations of CS derived from its June 30, 1998 Form 10-Q for the periods presented:
Quarter Ended Six Months Ended JUNE 30, 1998 JUNE 30, 1998 ------------- ---------------- Revenues $ 6,805,000 $ 13,628,000 ----------- ------------ Operating expenses: Systems operations 4,017,000 7,925,000 General and administrative 4,983,000 9,102,000 Impairment of goodwill 46,378,000 46,378,000 Depreciation and amortization 7,717,000 14,941,000 ----------- ----------- Total operating expenses 63,095,000 78,346,000 Operating loss (56,290,000) (64,718,000) Interest income 926,000 1,943,000 Interest expense (8,621,000) (16,892,000) Equity in losses of affiliates (779,000) (1,765,000) Cumulative effect of change in accounting principle for organizational costs - (1,868,000) ------------ ------------ Net loss $(64,764,000) $(83,300,000) ============ ============
TELQUEST SATELLITE SERVICES LLC. The Company's investment in TelQuest reflects an equity loss of $760,000 based on CAI's pro-rata share of TelQuest net losses approximating $1,158,000 for the three months ended September 30, 1998 plus a true-up for CAI's ownership which increased as of December 8, 1997 to 30% based on a non-exclusivity agreement signed as of that date. Additionally, the investment has been reduced by $416,600 in depreciation on the equipment leased to TelQuest. As of September 30, 1998, TelQuest has negative net worth of $5,764,000. CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 6. RESIGNATION OF AUDITORS On July 30, 1998, the Company was informed by PricewaterhouseCoopers LLP ("PWC") that PWC had resigned from its engagement as the Company's independent accountant. The Company was informed by PWC that it had resigned from the engagement due to a conflict of interest arising as the result of the July 1, 1998 merger of Price Waterhouse, LLP and Coopers & Lybrand L.L.P. Prior to the merger, Coopers & Lybrand L.L.P. acted as the Company's independent accountant. Price Waterhouse, LLP, acted as collateral agent and administrative agent for MLGAF under a Note Purchase Agreement dated as of November 24, 1997, as amended from time to time. PWC currently acts as collateral agent and administrative agent for MLGAF under the Note Purchase Agreement dated as of October 14, 1998 between the Company and MLGAF. The Company is currently seeking independent accountants to replace PWC. Except as discussed below, the reports of Coopers & Lybrand L.L.P. on the Company's financial statements for the past two fiscal years contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. The report of Coopers & Lybrand L.L.P. delivered in connection with the Company's audited financial statements for the years ended March 31, 1998 and 1997 contained an explanatory paragraph which indicated that there was substantial doubt regarding the Company's ability to continue as a going concern. In connection with its audits for the two most recent fiscal years and through July 30, 1998, there have been no disagreements with Coopers & Lybrand L.L.P. or PWC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Coopers & Lybrand L.L.P. would have caused them to have made reference thereto in their report on the financial statements for such years. During the two most recent fiscal years and through July 30, 1998, there have been no reportable events (as defined in Regulation S-K item 304(a)(1)(v)) involving the Company. The Company requested that PWC furnish it with a letter addressed to the SEC stating whether or not PWC agrees with the above statements. A copy of such letter, dated August 6, 1998, was filed as Exhibit 16 to the Company's Current Report on Form 8-K dated August 6, 1998. NOTE 7. SUBSEQUENT EVENTS Reference is made to Notes 2 and 3 above for a description of the October 14, 1998 consumation of CAI's Chapter 11 case and the Exit Facility that CAI entered into on October 14,1998 in connection therewith. Also, reference is made to Exhibit 99.5 for the pro forma effects on the balance sheet. PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The statements contained in this Quarterly Report on Form 10-Q, including the exhibits hereto, relating to the Company's future operations may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Actual results of the Company may differ materially from those in the forward-looking statements and may be affected by a number of factors including the Company's ability to design and implement competitive, cost effective two-way operating plans, the Company's ability to attract one or more strategic partners and such strategic partner's willingness to enter into arrangements with CAI on a timely basis, the terms of such arrangements, the receipt of regulatory approvals for alternative uses of its MMDS spectrum, the success of CAI's trials in various of its markets, the commercial viability of any alternative use of MMDS spectrum, consumer acceptance of any new products offered or to be offered by CAI, the Company's ability to fund its business plans, subscriber equipment availability, practical success of CAI's engineered technology, tower space availability, absence of interference and the ability of the Company to redeploy or sell excess equipment, the assumptions, risks and uncertainties set forth below in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere herein, as well as other factors contained herein and in the Company's other securities filings. Furthermore, there can be no assurance that the financing obtained by the Company to date will enable it to meet its future cash needs. CHAPTER 11 FILING. On July 30, 1998 (the "Petition Date"), CAI Wireless Systems, Inc., a Connecticut corporation ("CAI Wireless"), and one of its wholly-owned subsidiaries, Philadelphia Choice Television, Inc., a Delaware corporation ("PCT"; and together with CAI Wireless, the "Debtors"), filed voluntary petitions for relief under Chapter 11, Title 11 of the United States Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"), Wilmington, Delaware. The bankruptcy cases (the "Cases") of CAI Wireless and PCT are being jointly administered, for procedural purposes only, before the Bankruptcy Court under Case No. 98-1765 (JJF). Pursuant to Section 1107 and 1108 of the Bankruptcy Code, the Debtors, as debtors and debtors-in-possession, managed and operated their assets and businesses pending the September 30, 1998 confirmation of a joint reorganization plan (the "Plan") under the supervision and orders of the Bankruptcy Court. The Plan was filed with the Bankruptcy Court on the Petition Date and filed by the Company with the Securities and Exchange Commission (the "Commission") on a Current Report on Form 8-K on July 1, 1998. Prior to the Petition Date, the Company solicited and received the requisite approvals from those classes of creditors that would be impaired under the Plan. Specifically, the Company solicited and received the requisite approval of classes of creditors consisting of the holders of the Company's 12.25% Senior Notes due 2002 (the "Old Senior Notes") and the holders of certain subordinated indebtedness of the Company. The Company did not solicit the vote of its shareholders, for whom the Plan provided no right to receive or retain any property of the Company post-reorganization. Section 1126(g) of the Bankruptcy Code specifically deems such shareholders not to have accepted the Plan. A confirmation hearing was held in the Bankruptcy Court on September 9, 1998. The Plan was confirmed on September 30, 1998 and consummated on October 14, 1998. Under the confirmed Plan, each holder of the Old Senior Notes received a pro rata portion of $212,909,624 aggregate principal amount at maturity ($100,000,000 aggregate principal amount at issuance) of 13% Senior Notes due 2004 (the "New Senior Notes"), 91% of the equity of reorganized CAI and approximately $16,500,000 in cash. Holders of subordinated indebtedness claims against CAI received a pro rata portion of 9% of the equity of reorganized CAI. All equity received by the holders of Old Senior Notes and subordinated indebtedness claims was subsequently diluted by equity reserved for issuance upon the exercise of options granted to members of CAI's senior management and for equity of reorganized CAI issued in connection with the Exit Facility (defined below). Although the Company has emerged from bankruptcy, there continues to be substantial doubt as to the Company's ability to continue as a going concern. Reference is made to Item 7 - "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the Report of Independent Public Accountants included in CAI's Annual Report on Form 10-K for the fiscal year ended March 31, 1998, filed with the Commission on June 30, 1998. The Company's consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities and commitments in the normal course of business. The appropriateness of reporting on a going concern basis is dependent upon, among other things, future operations and the ability to generate sufficient cash from operations and financing sources to meet obligations. The consolidated financial statements contained herein and to which these notes relate do not include any adjustments relating to the confirmation and consummation of the Plan. Reference is made to the pro forma balance sheet included herein as Exhibit 99.5, which pro forma balance sheet gives effect to the October 14, 1998 consummation of the Plan as if such consummation had occurred on September 30, 1998. DIP FINANCING. In connection with the Cases, CAI consummated a $60,000,000 Debtor-in-Possession financing arrangement (the "DIP Facility") provided by Merrill Lynch Global Allocation Fund, Inc. ("MLGAF"). The DIP financing was governed by an Amended and Restated Note Purchase Agreement dated as of July 30, 1998 (the "DIP Agreement") between CAI and MLGAF, a copy of which was filed as an exhibit to CAI's Current Report on Form 8-K dated August 3, 1998. Indebtedness under the DIP Facility was evidenced by certain promissory notes, accrued interest at 13% per annum and had a maturity date of January 29, 1999. Of the $60,000,000 provided to CAI under the DIP Facility, $49,105,894 represented the outstanding principal, interest and fees due to the MLGAF pursuant to that certain Note Purchase Agreement dated as of November 24, 1997 (the "Existing Note Purchase Agreement") among CAI, certain of its subsidiaries and MLGAF. All such amounts outstanding under the Existing Note Purchase Agreement were converted into DIP Notes as if there had been a purchase thereof under the DIP Agreement in the amount of $49,105,894. The remaining $10,894,106 was made available to CAI for its use during the Chapter 11 case, in accordance with the terms of an approved budget. On October 14, 1998, in connection with consummating the Plan, all outstanding amounts under the DIP Facility, including the $60,000,000 aggregate principal amount, accrued and unpaid interest in the amount of $1,646,667 and a $600,000 commitment fee, were repaid out of the proceeds of the Exit Facility (defined below). EXIT FACILITY. On October 14, 1998, in connection with consummating the Plan, the Company obtained an $80,000,000 credit facility (the "Exit Facility"), also from MLGAF. The Company realized net proceeds from the Exit Facility of $15,953,000, after repaying all outstanding amounts under the DIP Facility and certain commitment fees associated with the Exit Facility. The Exit Facility is governed by the terms of a Note Purchase Agreement dated October 14, 1998 (the "NPA"), a copy of which was filed by the Company with the Commission as an exhibit to the Company's Current Report on Form 8-K dated October 15, 1998. The Exit Facility consists of two tranches: Tranche A and Tranche B. Tranche A is a $30,000,000 senior secured loan bearing interest at 10.5% compounded semi-annually and evidenced by a Senior Secured A Note. The Company has granted a first priority lien on and security interest in and to all of its assets to secure performance of the Company's obligations with respect to Tranche A. Tranche B is a $50,000,000 senior secured loan bearing interest at 13% per annum and evidenced by a Senior Secured B Note. The Company has granted a second priority lien on and security interest in and to all of its assets to secure performance of its obligations with respect to Tranche B. In addition to the liens granted by the Company, substantially all of the Company's wholly-owned subsidiaries have guaranteed the obligations of the Company with respect to the Exit Facility. The subsidiaries have granted a lien on and security interest in and to all of their respective assets to secure their performance under such subsidiary guaranties. The Exit Facility is a two-year credit facility, maturing on October 14, 2000. The Company was required to pay a 1% facility fee equal to $300,000 on the Tranche A amount at the closing of the Exit Facility. In addition, the Company is required to pay an 8% facility fee equal to $4,000,000 on the Tranche B Amount of which the Company paid $1,500,000 at the closing of the Exit Facility. The remaining $2,500,000 balance of the Tranche B facility fee is payable at maturity of the Exit Facility (by its term, acceleration or otherwise). The Company issued 2,241,379 shares of its Common Stock, par value $.01 per share (the "New Common Stock") to MLGAF as additional consideration to MLGAF for providing the Exit Facility. The shares of New Common Stock issued to MLGAF represent 13% of the total New Common Stock issued and outstanding on October 14, 1998. The foregoing is a summary of certain terms of the Exit Facility and is qualified in its entirety by reference to the NPA. LIQUIDITY AND CAPITAL RESOURCES CAI's primary sources of liquidity are cash flows from operations, trade credit and borrowings under the Existing Credit Facility for the period prior to July 30, 1998 and subsequently under the DIP Facility. During the six months ended September 30, 1998, CAI expended approximately $10,153,000 of cash to fund operating activities. CAI also expended $2,074,000 in debt payments, $687,000 for equipment, and paid $412,000 to TelQuest in fulfillment of its investment obligation. The cash requirements were primarily funded by existing cash balances maintained in the restricted cash account. At September 30, 1998, CAI had available funds of approximately $12,543,000, of which $11,204,000 was restricted and all of which will be used to fund the operations of the Company. CAI is committed through additional open purchase orders as of September 30, 1998 to spend approximately $1,700,000, primarily for capital expenditures associated with additional development of its digital transmission facilities. The Company's operating plans, including digital video, voice and two-way data, Internet and intranet access services and testing, will require additional funding. The Company's ability to raise additional funds through borrowings or the issuance of certain equity is currently limited by the terms of the Indenture governing the Company's 13% Senior Notes due 2004, and/or the terms of the Exit Facility. There can be no assurance that the funds obtained by the Company in connection with the Exit Facility will enable CAI to meet its future cash needs. RESULTS OF OPERATIONS SEPTEMBER 30, 1998 COMPARED TO SEPTEMBER 30, 1997 The Company currently operates six analog subscription video systems. During the last several quarters, the Company has operated these systems within the confines of a cash conservation strategy, while pursuing a strategic alliance with one or more strategic partners interested in using the Company's spectrum for fixed, one- and two-way transmission services. The Company's cash conservation strategy requires the Company to limit or curtail entirely analog video subscriber growth, which has had an adverse effect on the Company's operating results. See Note 6 to the Consolidated Financial Statements included in this Form 10-Q. The cash conservation strategy also includes the continued implementation of cost-cutting measures and the periodic sales of non-core assets in an effort to maximize the value of assets that are no longer used or useful to the Company's long-term operating strategy, which is to be a wholesale provider of two-way transmission services to one or more strategic partners. In addition to limiting the analog subscription video business growth, the Company has sold assets relating to the provision of analog subscription video services to multiple dwelling units ("MDUs"), such as apartment and condominium complexes, in certain of its markets. Assets typically involved in providing analog subscription video services to residents of MDUs include the tangible assets necessary to transmit and receive the video programming signal, customer premises equipment and a right of entry agreement with the property owner or manager, pursuant to which the Company's operating subsidiary is granted the right to provide subscription video services to residents of the MDU. In March 1998, the Company sold assets relating to MDUs located in its Washington, DC operating market. Most recently, in September 1998, the Company completed the sale of assets relating to approximately 60 MDUs located in CAI's Philadelphia system (the "Philadelphia MDU Sale") to Mid-Atlantic Telcom Plus, LLC d/b/a OnePoint Communications, a leading operator of Satellite Master Antenna Television (SMATV) systems. Consummated under the auspices of the Bankruptcy Court, the Philadelphia MDU Sale generated net proceeds to the Company of approximately $5,000,000, of which $785,000 is being held in escrow pending certain post-closing adjustments. The Company expects to use the proceeds from the Philadelphia MDU Sale, as well as proceeds from subsequent sales of non-core assets, for working capital purposes. The limitation on analog video subscriber growth, coupled with the sale of MDU assets, has had an adverse impact on the Company's analog video subscriber base. As of September 30, 1998, the Company's subscriber base had decreased by approximately 27,400 subscribers to 35,100 analog video subscribers, compared to 62,500 analog video subscribers at September 30, 1997. The 27,400-subscriber decrease includes the loss of approximately 12,400 subscribers as a result of the Philadelphia MDU Sale. The decrease in analog video subscribers has resulted in subscriber revenue decreases of $2,492,000 and $4,534,000 for the quarter and six months ended September 30, 1998 compared to the corresponding periods last year. Operating expenses were $32,262,000 and $37,950,000 for the six months ended September 30, 1998 and 1997, respectively. The $5,688,000 reduction in operating expenses for the six months versus last year's six months reflects lower technical, customer service and marketing costs approximating $3,117,000 (which were in-line with the decline in subscribers). Programming costs increased by $335,000, primarily in the quarter ended September 30, 1998 despite the revenue decline, as a result of additional channels being added as well as minimum provisions provided by certain of the programming agreements. The remaining decrease of $2,271,000 reflects lower depreciation and amortization, primarily related to the goodwill write-down at March 31, 1998, offset in part by greater depreciation recorded on the Boston digital project. Interest expense decreased $4,872,000 to $18,058,000 compared to and $22,930,000 for the six months ended September 30, 1998 and 1997, respectively. In accordance with the bankruptcy plan, interest expense on the $275,000,000 of 12.25% senior notes, the $30,000,000 13% subordinated note and the $2,793,000 subordinated notes, in the aggregate amount of $4,494,000, was not recorded for the post-petition period from July 30, 1998 through September 30, 1998. The remaining decrease was due to higher interim debt financing fees for the same period last year. Interest and other income increased by $2,234,000 for the six months ended September 30, 1998 compared to the same period last year. The increase resulted primarily from the Philadephia MDU Sale which generated a net gain of $2,642,000. The complete writedown of CAI's investment in CS reflects the Company's 60% pro rata share of the $83,300,000 net loss reported by CS for the six months ended June 30, 1998 to the extent of its $43,338,000 investment. The remaining pro rata share of net loss was not recorded since CAI does not guarantee any CS debt. The net loss reported by CS includes a $46,378,000 write-down of its goodwill. The aggregate decrease in this investment was $13,013,000 for the same period last year reflecting CAI's 50.7% ownership at that time. The decrease in CAI's investment in TelQuest of $1,496,000 reflects the Company's pro-rata share of the estimated $6,900,000 loss of TelQuest from April 1, 1998 to September 30, 1998, plus another $416,600 reflecting CAI's depreciation on the equipment leased to TelQuest. THE YEAR 2000 ISSUE The Company is continuing to assess issues relating to what is generally referred to as the Year 2000 Issue. Based on preliminary information, as of the date of this report, the Company believes that it will be able to implement successfully the systems and programming changes necessary to address the Year 2000 Issue internally. The Company is reviewing the Year 2000 Issue with various third party vendors and other entities on whom the Company relies for the provision of certain services, such as billing, to assess such vendors' readiness with respect to addressing Year 2000 Issues. The Company believes that the cost of changes to be made, if any, to the Company's internal systems and programming in light of Year 2000 Issues will not have a material impact on the Company's financial position, results of operations or cash flows in future periods. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a) EXHIBITS. The following exhibits are filed herewith or incorporated by reference as indicated:
Incorporation by Reference Page REFERENCE EXHIBIT NO. DESCRIPTION (SEE LEGEND) 2.1 Joint Reorganization Plan of CAI Wireless Systems, Inc. [3] Exhibit 2.1 and Philadelphia Choice Television, Inc. 3.1 Amended and Restated Certificate of Incorporation of [1] Exhibit 3.1 CAI 3.2 Amended and Restated Bylaws of CAI [1] Exhibit 3.2 3.3 Certificate Amending the Amended and Restated [7] Exhibit 3.3 Certificate of Incorporation of CAI 4.1 Amended and Restated Note Purchase Agreement dated as [2] Exhibit 4.1 of July 30, 1998 between Registrant and Merrill Lynch Global Allocation Fund, Inc. 4.2 Indenture dated as of October 14, 1998 between CAI [3] Exhibit 4.1 and State Street Bank and Trust Company governing CAI's 13% Senior Notes due 2004 4.3 Note Purchase Agreement dated as of October 14, 1998 [3] Exhibit 4.2 by and between CAI and Merrill Lynch Global Allocation Fund, Inc. 4.4 Senior Secured A Note in the principal amount of $30 [3] Exhibit 4.3 million due October 14, 2000 4.5 Senior Secured B Note in the principal amount of $50 [3] Exhibit 4.4 million due October 14 2000 4.6 Registration Rights Agreement dated as of October 14, [7] Exhibit 4.6 1998 by and among CAI, Merrill Lynch Global Allocation Fund, Inc. and Merrill Lynch Equity/Convertible Series Fund (Global Allocation Portfolio) 16. Letter by PricewaterhouseCoopers to Securities and [4] Exhibit 16. Exchange Commission dated August 6, 1998 27. Financial Data Schedule 99.1 Disclosure Statement dated as of June 30, 1998 [5] Exhibit 99.1 99.2 Disclosure Statement Supplement dated as of July 15, [6] Exhibit 99.1 1998 99.3 Interim Order Authorizing Postpetition Financing [2] Exhibit 99.1 99.4 Press Release dated July 30, 1998 [2] Exhibit 99.2 99.5 Pro Forma Balance Sheet Giving Effect to the Company's Reorganization Plan as if it had Occurred on September 30, 1998 [7] Exhibit 99.1 99.6 Revised Pro Forma Balance Sheet Giving Effect to the Company's Reorganization Plan as if it had Occurred on September 30, 1998
LEGEND [1] Incorporated by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for September 30, 1995. [2] Incorporated by reference to the exhibit to the Company's Current Report on Form 8-K dated August 3, 1998. [3] Incorporated by reference to the exhibit to the Company's Current Report on Form 8-K dated October 15, 1998. [4] Incorporated by reference to the exhibit to the Company's Current Report on Form 8-K dated August 6, 1998. [5] Incorporated by reference to the exhibit to the Company's Current Report on Form 8-K dated July 1, 1998. [6] Incorporated by reference to the exhibit to the Company's Current Report on Form 8-K dated July 16, 1998. [7] Incorporated by reference to the exhibit to the Company's Quarterly Report on Form 10-Q for September 30, 1998. Filed herewith. b) REPORTS ON FORM 8-K. (1) Form 8-K filed July 1, 1998, reporting the following: Item 5. Other Events: The Company commenced a solicitation of votes on June 30, 1998 with respect to a pre-packaged reorganization plan and upon acceptance, intends to file a voluntary petition under Chapter 11 of the Bankruptcy Code. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits C. Exhibits 99.1 Disclosure Statement dated as of June 30, 1998 (2) Form 8-K filed July 16, 1998, reporting the following: Item 5. Other Events The Company disseminated a Disclosure Statement Supplement to certain impaired creditors, which sets forth additions and/or amendments to the Disclosure Statement originally sent to certain impaired creditors. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits C. Exhibits 99.1 Disclosure Statement Supplement dated as of July 15, 1998 (3) Form 8-K filed August 3, 1998, reporting the following: Item 3. Bankruptcy or Receivership The Company filed voluntary petitions for relief under Chapter 11, Title 11 of the United States Code with the United States Bankruptcy Court for the District of Delaware, Wilmington, Delaware. CAI, as Debtor-in-Possession, will continue to manage and operate its assets and business with its existing directors and officers, subject to the supervision and orders of the Court. Concurrent with filing the voluntary petitions, CAI sold 13% senior secured notes due January 29, 1999 to Merrill Lynch Global Allocation Fund, Inc. which provided for the rollover of the existing bridge financing with the remaining $10,894,000 available for use during the Chapter 11 proceedings, in accordance with the terms of an approved budget. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits C. Exhibits 4.1 Amended and Restated Note Purchase Agreement dated as of July 30, 1998 between Registrant and Merrill Lynch Global Allocation Fund, Inc. 99.1 Interim Order Authorizing Postpetition Financing. 99.2 Press Release dated July 30, 1998. (4) Form 8-K filed August 6, 1998, reporting the following: Item 4. Changes in Registrant's Certifying Accountant PricewaterhouseCoopers LLP resigned from its engagement as the Company's independent accountant due to a conflict of interest arising as a result of the merger of the two accounting firms. (5) Form 8-K filed October 15, 1998, reporting the following: Item 3. Bankruptcy or Receivership. CAI and one of its subsidiaries filed each filed a petition for reorganization relief under Chapter 11 of the United States Bankruptcy Code on July 30, 1998. The Plan was confirmed on September 30, 1998 and consummated on October 14, 1998. Item 5. Other Events. Simultaneously with the consummation of the Plan, CAI consummates an $80 million senior secured credit facility (Exit Facility) of which $64 million was used to repay principal, interest and fees on the $60 million interim debtor-in-possession financing. Item 7. Financial Statements and Exhibits. (c) Exhibits 2.1 Joint Reorganization Plan of CAI Wireless Systems, Inc. and Philadelphia Choice Television, Inc. dated June 30, 1998. 4.1 Indenture dated as of October 14, 1998 governing the terms of registrant's 13% Senior Notes due 2004. 4.2 Note Purchase Agreement dated as of October 14, 1998 by and between registrant and Merrill Lynch Global Allocation Fund, Inc. 4.3 Senior Secured A Note in the principal amount of $30 million due October 14, 2000. 4.4 Senior Secured B Note in the principal amount of $50 million due October 14, 2000. (6) Form 8-K filed October 30, 1998, reporting the following: Item 1. Changes in Control of Registrant. In connection with the consummation of its previously- announced reorganization under Chapter 11 of the U.S. Bankruptcy Code, the Company issued its voting common stock to holders of its 12.25% Senior Notes due 2002 (the "Old Senior Notes"). As a result of this issuance, certain holders of Old Senior Notes acquired more than 10% of the voting securities of CAI. In response to Item 1, CAI disclosed the identity and certain other information regarding these 10% holders. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SIGNATURE TITLE DATE /S/ Vice President and Controller June 29, 1999 ARTHUR J. MILLER (Principal Accounting Officer)
EX-27 2
5 CAI Wireless Systems, Inc. and Subsidiaries Financial Data Schedule As Of And For the Six Months Ended September 30, 1998 6-MOS MAR-31-1999 APR-01-1998 SEP-30-1998 12,543,316 0 954,010 252,375 0 0 85,743,853 44,284,791 292,082,165 0 311,558,053 0 0 275,770,764 (385,735,899) 292,082,165 0 10,852,156 0 32,262,291 45,291,855 82,000 18,058,781 (82,404,155) 0 (82,404,155) 0 0 0 (82,404,155) (2.03) (2.03)
EX-99 3 Exhibit 99.6 CAI WIRELESS SYSTEMS, INC. INTRODUCTION TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The following unaudited pro forma financial information of CAI Wireless Systems, Inc. ("CAI" or the "Company") consists of the unaudited Pro Forma Balance Sheet as of September 30, 1998. The pro forma adjustments reflect the financial restructuring transactions under Chapter 11 of the U.S. Bankruptcy Code which were consummated on October 14, 1998 as if they had occurred on September 30, 1998. Such transactions include: 1) the issuance by CAI of $100,000,000 (aggregate principal discounted amount at issuance) of 13% Senior Notes due 2004 to holders of CAI's previously issued 12.25% Senior Notes due 2002 in the aggregate principal amount of $275,000,000, 2) the cancellation of 40,543,039 previously issued and outstanding shares of CAI common stock, without par value, and the issuance of 17,241,379 shares of CAI common stock, par value $.01 per share, 3) the consummation of an $80,000,000 financing facility (the "Exit Facility") and 4) the application of fresh-start reporting in accordance with Statement of Position 90-7 of the American Institute of Certified Public Accountants. Under fresh-start accounting, the reorganization value of CAI has been allocated to its assets and liabilities on a basis substantially consistent with purchase accounting. The portion of reorganization value not attributable to specific assets is recorded on the balance sheet as "Reorganization Value in Excess of Amounts Allocable to Identifiable Assets." At the Exit Facility closing, the Company paid $1,800,000 in commitment fees to Merrill Lynch Global Allocation Fund, Inc., the Exit Facility lender ("MLGAF") and paid $61,900,000 to MLGAF in repayment of the outstanding principal, interest and commitment fees on the DIP Facility made available to CAI during its Chapter 11 case. CAI has accrued an additional $2,500,000 in commitment fees payable to MLGAF at the maturity of the Exit Facility. The balance of the net proceeds provided to CAI under the Exit Facility will be classified as Restricted Cash and used to fund CAI's general operating requirements in accordance with a budget approved by MLGAF. CAI WIRELESS SYSTEMS, INC. PRO FORMA CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1998 (UNAUDITED) (AMOUNTS IN THOUSANDS)
Predecessor Exit Debt Fresh-Start Reorganized ENTITY REFINANCING [i] DISCHARGE [ii] ADJUSTMENTS COMPANY ----------- ----------- --------- ----------- ----------- ASSETS Cash and cash equivalents $ 1,339 $ - $ - $ - $ 1,339 Restricted cash and cash equivalents 11,204 15,953 a,b - - 27,157 Debt service escrow 16,914 - (16,914) - c - Subscriber receivables, net 702 - - - 702 Prepaid expenses 549 - - - 549 Property and equipment, net 41,460 - - 264 41,724 Wireless channel rights, net 187,730 - - 17,113 204,843 Investment in TelQuest Satellite Services LLC 1,220 - - - 1,220 Goodwill, net 22,066 - - (22,066) - Reorganization value in excess of amounts allocable to identifiable assets - - - 38,077 38,077 Debt financing costs, net 5,838 4,300 b,h - (5,838) d 4,300 Other assets 3,060 - - (393) 2,667 ------- ------- ------- ------- ------- TOTAL ASSETS $292,082 $ 20,253 $(16,914) $ 27,157 $322,578 ======== ========= ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Liabilities Not Subject to Compromise Accounts payable $ 3,125 $ (600) b $ - $ - $ 2,525 Accrued expenses 22,739 853 b (14,499) 647 b 9,740 Wireless channel rights obligations 2,922 - - - 2,922 Interim debt financing 60,000 2,074 a,b - - 62,074 Long-term notes 3,765 - 100,000 - c,f 103,765 ------- ------ ------- ------ ------- TOTAL LIABILITIES 92,551 2,327 85,501 647 181,026 ------- ------ ------- ------ ------- Liabilities Subject to Compromise Long-term notes 307,793 - (307,793) - - Stockholders' Equity (Deficit) Preferred stock - - - - - Common stock 275,771 22 h 150 (275,771) e 172 Additional paid-in capital 101,712 17,904 h 119,872 (98,108) g 141,380 Accumulated deficit (485,745) - 85,356 400,389 g - ------- ------ ------- ------ ------- TOTAL EQUITY (108,262) 17,926 205,378 26,510 141,552 ------- ------ ------- ------ ------- TOTAL LIABILITIES AND EQUITY $292,082 $ 20,253 $(16,914) $ 27,157 $322,578 ======== ========= ======== ======== ========
See Notes to Pro Forma Consolidated Balance Sheet. CAI WIRELESS SYSTEMS, INC. NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1998 (UNAUDITED) [i] Adjustments to reflect the Company's refinancing transactions, including: a. Consummation of an $80,000,000 Exit Facility with MLGAF. b. Reflects the use of the proceeds from the Exit Facility to (i) repay the outstanding $60,000,000 DIP Facility provided by MLGAF, including a $60,000,000 principal payment, $1,300,000 interest payment and a $600,000 commitment fee, and (ii) pay a $1,800,000 commitment fee to MLGAF for the Exit Facility. The balance of the proceeds (approximately $16,000,000) will be used by the Company to fund its general operating requirements in accordance with the approved budget. An additional $2,500,000 commitment fee is payable to MLGAF at the maturity of the Exit Facility. [ii] Adjustments to reflect the restructuring transactions as the Company emerges from Chapter 11, including: c. The cancellation of $275,000,000 of indebtedness of CAI previously evidenced by CAI's 12.25% Senior Notes due 2002 (the "Old Senior Notes") in exchange for $100,000,000 aggregate principal discounted amount at issuance of 13% Senior Notes due 2004 of CAI, the payment of the semiannual interest on the Old Senior Notes from the debt service escrow account, plus additional interest accrued on that semiannual payment from September 16, 1998 to September 30, 1998 and the issuance of New Common Stock (described in (f) below). d. Reflects the write-off of capitalized costs associated with the original issuance of the Old Senior Notes. e. Reflects the cancellation of 40,543,039 shares of CAI Common Stock, without par value (the "Old Common Stock"). f. Reflects the issuance by CAI of 15,000,000 shares of common stock, $.01 par value (the "New Common Stock"), of which 13,650,000 shares were issued on a pro rata basis to the holders of Old Senior Notes and 1,350,000 shares were issued on a pro rata basis to holders of certain subordinated indebtedness of CAI. The subordinated indebtedness and any interest accrued thereon was canceled in this transaction. g. Indicates the recapitalization of the Company resulting from the restructuring transactions described above. h. Reflects the issuance by CAI of 2,241,379 shares of New Common Stock to MLGAF as a fee for providing the Exit Facility. -----END PRIVACY-ENHANCED MESSAGE-----