SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 3, 1997 (November 25,
1996)
CAI WIRELESS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
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Connecticut 0-22888 06-1324691
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(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
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18 CORPORATE WOODS BLVD., ALBANY, NY 12211
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (518) 462-2632
(Former name or former address, if changed since last report)
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Item 5 - OTHER EVENTS
(A) CAI Wireless Systems, Inc. ("CAI") entered into a Modification Agreement
dated December 12, 1996 (the "Modification Agreement") with affiliates of Bell
Atlantic Corporation and NYNEX Corporation (the "RBOCs"). The Modification
Agreement suspends the Business Relationship Agreement (the "BR Agreement")
among the parties for one year and gives CAI or its designee an option to
purchase the $100 million RBOC investment in CAI.
MODIFICATION AGREEMENT
The BR Agreement originally provided the RBOCs with the ability to elect to
become the marketer and provider of wireless cable services within various
markets located in the RBOCs' operating territory using CAI's wireless delivery
platform. For the one-year suspension period, the Modification Agreement
suspends the right of the RBOCs to option these markets, and, therefore,
relieves CAI of its obligations to reserve its Multichannel Multipoint
Distribution Service (MMDS) spectrum for imminent use by the RBOCs as a video
delivery platform and related construction obligations. All deadlines for
construction and other obligations are tolled for one year and will be
reinstated in the event that the BR Agreement is not terminated in accordance
with its terms or the terms of the Modification Agreement.
The Modification Agreement also enables CAI to use its MMDS spectrum in markets
subject to the BR Agreement during the suspension period for businesses in
addition to video transmission, subject to appropriate regulatory approvals,
and to enter new strategic relationships with third parties through the one-
year suspension of certain covenants contained in the CAI Securities (as
defined below). CAI intends to seek regulatory approval for full flexible use
of the MMDS spectrum, including video, voice and data transmission in several
of these markets.
In addition to suspending CAI's obligations under the BR Agreement for one
year, the Modification Agreement provides CAI or its designee the right to
acquire all, but not less than all, of the $100 million in CAI Securities held
by the RBOCs. If notice to purchase the CAI Securities is received by the
RBOCs within the first 120 days, the purchase price is $121,000,000; if
received in the next 120 days, the purchase price is $100,000,000, together
with accrued interest and dividends, plus $10 million, and if notice is
received in the balance of the year, the purchase price is $100,000,000,
together with accrued interest and dividends, plus $20 million.
The RBOCs' $100 million investment in CAI includes convertible debt and
preferred stock and warrants all of which, if fully converted and exercised,
would result in the right to acquire up to 45% of the equity of CAI warrants
(as more fully described below, the "CAI Securities"). In connection with the
arrangement, the average per share exercise/conversion price of the CAI
Securities is reduced from $8.19 to $5.31, on full conversion and exercise.
The exercise price is subject to readjustment in certain events.
In connection with the closing of any such purchase, the RBOCs have agreed to
return to the Company their shares in CS Wireless Systems, Inc. ("CS
Wireless"), representing almost 10% of the outstanding stock of this CAI
majority-owned joint venture with Heartland Wireless Communications, Inc.
In the event that CAI does not purchase the CAI Securities or cannot locate a
third party purchaser to do so within the first 270 days, the RBOCs have the
right to sell the CAI Securities. If, after one year, the CAI Securities have
not been purchased by CAI or a third party, the BR Agreement is reinstated.
Upon the purchase of the CAI Securities, the BR Agreement terminates.
VERSATILITY OF MMDS SPECTRUM
CAI indicated that in connection with the one-year suspension it will expand
the markets for which it is currently seeking regulatory approval for flexible
use of its MMDS spectrum. To date, CAI has begun exploring mixed use of the
spectrum for video, voice and data, including a commercial trial of a high
speed Internet access service in Rochester, NY, where FCC has granted authority
for a market trial of up to 500 customers and the submission to the FCC of an
application for flexible use of the spectrum in the Hartford, CT market. (See
Item 5(C)(iii) for update on status of Hartford application.) In addition, CAI
has been granted authority to conduct a commercial market trial of up to 1,000
subscribers for high speed Internet access service in its New York City market.
In addition, CS Wireless has applied to the FCC for authority to conduct a
market trial of a high speed Internet access service, combined with a digital
subscription television service in Dallas, TX with an anticipated roll-out,
subject to regulatory approval, in 1997.
There can be no assurance that the Company will be granted permanent authority
with respect to any of its pending applications or market trials, that any of
the tests currently being conducted by the Company will be successful or that
the commercial deployment of any new products will be commercially successful.
The Company intends to expand its applications for such use of its MMDS
spectrum in other markets and to seek strategic relationships with companies in
aligned industries in these markets, although there can be no assurance that
such applications will be granted or that such relationships will materialize.
The Company's digital video transport systems in Boston and Virginia Beach are
two of the first state-of-the-art digital MMDS systems. CAI believes that 75%
or better line-of-sight (LOS) targets can be obtained with minor modifications
to these systems, including relocation of boosters and adjustments to the
height of certain antennas. CAI does not have a present timetable during which
it may deploy a digital video service in Boston or Virginia Beach and may re-
deploy portions of the equipment in Boston to other markets.
The Company is vacating certain of its booster transmitter locations in Boston.
In connection with such action, the Company is removing certain transmission
and other portable equipment from such locations and abandoning certain
leasehold improvements. Excess equipment will be held for other CAI markets to
be built out where permitted pursuant to duly received regulatory approval or
made available for sale. CAI anticipates that it will incur a loss, not
expected to exceed $1 million, through the abandonment of leasehold
improvements, lease terminations, installation costs and removal costs,
however, there can be no assurance that such loss will not exceed $1 million.
Further, there can be no assurance that the Company will apply for and receive
any and all regulatory approvals necessary for the build out of other CAI
markets.
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BACKGROUND
BUSINESS RELATIONSHIP AGREEMENT. At the inception of the arrangement in the
spring of 1995, the BR Agreement was considered a strategic path to allow the
RBOCs to enter the subscription television market. It provides them the right
to option digital transport systems constructed by CAI and CAI's MMDS spectrum
in their respective operating territories as their delivery platform for
digital video services. In anticipation of an option exercise and pursuant to
the requirements of the BR Agreement, CAI constructed digital transport
systems in Boston and Virginia Beach; however, no markets have been optioned to
date.
SPECTRUM ACQUISITION. In anticipation of the BR Agreement and in furtherance
of CAI's corporate objectives, CAI acquired MMDS spectrum in a number of
principal RBOC markets, including the acquisition of ACS Enterprises, Inc.,
with analog subscription television businesses in Philadelphia, PA, Cleveland,
OH and Bakersfield, CA, and wireless properties in Stockton/Modesto, CA. CAI
also acquired analog wireless subscription television businesses in New York
City and Washington, D.C., and access to MMDS spectrum in Baltimore, MD,
Boston, MA and Pittsburgh, PA. Combined with its analog systems in Virginia
Beach, VA and Albany, NY, and other MMDS spectrum in various Upstate New York
markets, these acquisitions made CAI the largest wireless cable company in
terms of LOS households.
FINANCING. To finance the MMDS spectrum acquisitions and build-out of digital
transport systems, among other things, the RBOCs invested $100 million in CAI
and the Company raised $275 million in an offering of its 12 1/4 % Senior Notes
due 2002 in a public offering in September 1995. The RBOC investment consists
of $30 million in Term Notes, $70 million Senior Preferred Stock and warrants
to purchase convertible preferred stock (collectively, the "CAI Securities"),
which, when combined with the conversion features of the Term Notes and Senior
Preferred Stock, result in the right to acquire up to 45% of the equity of CAI.
To date, none of the conversion features have been exercised by the RBOCs.
(B) CAI has recently announced that it has retained J.P. Morgan Securities
Inc. and Smith Barney Inc. to act as financial advisors to CAI in connection
with exploring strategic alternatives for the Company.
(C) The following news releases were issued by the Company:
(i) CAI WIRELESS SYSTEMS, INC. RESPONDS TO CLASS ACTION LAWSUIT, issued
on November 25, 1996 (See Exhibit 99.1).
(ii) CAI WIRELESS SYSTEMS, INC. RESPONDS TO RECENT NEWS, issued on
December 6, 1996 (See Exhibit 99.2).
(iii) CAI WIRELESS SYSTEMS, INC. RECEIVES FIRST FCC MARKET TRIAL APPROVAL
TO USE WIRELESS CABLE SPECTRUM FOR TWO-WAY SERVICES, issued on December 16,
1996 (See Exhibit 99.3)
(D) CAI has been named in a class action lawsuit alleging various violations
of the federal securities laws filed in the United State District Court for the
Northern District of New York. The complaint, served upon the Company on
December 8, 1996, names the Company, CAI's Chairman, Jared E. Abbruzzese and a
director, Alan Sonnenberg, as well as The Corotoman Company, L.L.C., a
significant shareholder in the Company, and its members.
Plaintiffs allege that defendants violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") during the
period from May 23, 1996 to October 29, 1996 (the "Class Period"). Plaintiffs
claims arise out of alleged material misstatements and omissions in the
Company's public disclosures during the Class Period, which produced a scheme
to inflate the price of CAI securities enabling the individual defendants to
sell CAI securities at such inflated prices.
Plaintiffs are seeking to be declared a plaintiff class action, unspecified
damages and fees and expenses.
The Company has denied the allegations in the Complaint, does not believe that
the lawsuit has merit and intends to vigorously defend the action.
Forward Looking Statements
The statements contained in this Form 8-K relating to the Company's operating
results, and plans and objectives of management for future operations,
including plans or objectives relating to the Company's products and services,
constitute forward looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results of the Company may
differ materially from those in the forward looking statements and may be
affected by a number of factors including the receipt of regulatory approvals,
the availability of new strategic partners and their willingness to enter into
arrangements with the Company, the terms of such arrangements, the success of
the Company's trials in Rochester and New York, NY and Hartford, CT, subscriber
equipment availability, tower space availability, absence of interference and
the ability of the Company to redeploy or sell excess equipment, as well as
other factors contained herein and in the Company's securities filings.
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Item 7 - FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
C. Exhibits
EXHIBIT NO. EXHIBIT DESCRIPTION LOCATION
99.1 Media Release - CAI Wireless Page 8
Systems, Inc. Responds To
Class Action Lawsuit.
99.2 Media Release - CAI Wireless Pages 9-10
Systems, Inc. Responds To
Recent News.
99.3 Media Release - CAI Wireless Pages 11-12
Receives First FCC Market Trial
Approval To Use Wireless Cable
Spectrum For Two-Way Services
On December 16, 1996
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
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SIGNATURE TITLE DATE
/S/ JARED E. ABBRUZZESE Chairman, Chief Executive Officer, January 3, 1997
Jared E. Abbruzzese and Director (Principal Executive
Officer)
/S/ JAMES P. ASHMAN Executive Vice President, Chief January 3, 1997
James P. Ashman Financial Officer and Director
(Principal Financial Officer)
/S/ CRAIG J. KESSLER Vice President and Controller January 3, 1997
Craig J. Kessler (Principal Accounting Officer)
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Exhibit 99.1
FOR IMMEDIATE RELEASE
Investor Contact:
Jason Thompson
Lippert/Heilshorn & Associates, Inc.
212-838-3777
Company Contact:
James P. Ashman
CFO, CAI Wireless Systems, Inc.
518-462-2632
CAI WIRELESS SYSTEMS, INC. RESPONDS TO CLASS ACTION LAWSUIT
ALBANY, N.Y., November 25, 1996 - CAI Wireless Systems, Inc. ("CAI")
(NASDAQ NM: CAWS) today announced that it believes that the class action
lawsuit filed in the United States District Court for the Northern District
of New York on November 22, 1996 is totally baseless and without merit.
The lawsuit was announced after the close of business on Friday, November
22, 1996. CAI has not yet been served with the complaint, but does not
believe that the allegations summarized in the November 22{nd} press
release can be sustained or will result in any liability to CAI whatsoever.
"CAI has always taken a very conservative approach to its disclosure
obligations, and we are confident that the facts will bear this out," said
Jared E. Abbruzzese, Chairman and Chief Executive Officer of CAI. "As CAI
has repeatedly expressed in its Securities and Exchange Commission filings
and otherwise, this is an emerging technology, subject to various
regulatory and other constraints, all of which CAI has worked within since
its inception. It is unfortunate that corporate resources must be wasted
defending lawsuits such as these, instead of being put to more productive
uses."
CAI expects that it will be served with the lawsuit today, and intends to
vigorously defend the action.
EXHIBIT 99.2
FOR IMMEDIATE RELEASE
Investor Relations Contact: Company Contact:
Jason Thompson James P. Ashman
Lippert/Heilshorn & Associates CFO, CAI Wireless Systems, Inc.
212/838-3777 518/462-2632
CAI WIRELESS SYSTEMS, INC. RESPONDS TO RECENT NEWS
ALBANY, N.Y., DECEMBER 6, 1996 -- CAI WIRELESS SYSTEMS, INC. ("CAI")
(NASDAQ NM: CAWS) has responded to the recent reports that its strategic
partners, Bell Atlantic Corporation and NYNEX Corporation (the "RBOCs"), are
retreating from the use of Multichannel Multipoint Distribution Service
("MMDS") spectrum due to alleged flaws in the technology. Citing preliminary
test results of digital systems built by CAI in Boston and Virginia Beach for
delivery to the RBOCs pursuant to the Business Relationship Agreement among
CAI, Bell Atlantic and NYNEX, the reports indicate that the RBOCs are scaling
back their ambitious video delivery strategies.
CAI has repeatedly dismissed reports that the MMDS spectrum is a flawed
delivery platform for digital subscription television service on the basis that
the tests conducted to date were preliminary tests of a new technology, and
that adjustments would be made in the design demonstrating continued
improvement in the coverage, enabling CAI to reach the required coverage levels
when CAI was required to do so.
The coverage limitations of MMDS technology, as well as other radio
frequency-based technologies such as PCS and cellular telephone, have been well
publicized. CAI has endeavored to design and build a digital system that
minimizes, to the fullest extent possible, such limitations. Initial test
results indicate that the 75% coverage pattern required by the RBOCs is met in
Boston and Virginia Beach in highly-populated areas served from towers of
approximately 400 feet in height, while shorter towers produce less coverage.
Overall, the 75% coverage pattern in these markets can be achieved through
relatively minor modifications to the system, such as relocating some boosters
to such taller towers, which CAI believes are available. The CAI system in
Boston currently is capable of delivering service to approximately 1,000,000
homes, while the system in Virginia Beach is capable of delivering service to
more than approximately 300,000 homes.
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CAI, Page 2
"I find it curious that 1.3 million homes is not viewed as satisfactory
initial coverage for video service organizations that do not yet have any
subscribers," said Jared E. Abbruzzese, Chairman and Chief Executive Officer of
CAI. "The current coverage achieved in Boston is comparable to the homes-
passed coverage of the two largest wireline providers in that market. The same
holds true in Virginia Beach. We believe these systems demonstrate that
digital MMDS technology is a legitimate delivery system for subscription
television services."
"CAI continues to stand behind MMDS technology as a delivery platform for
video," said John J. Prisco, President and Chief Operating Officer of CAI. "It
is extremely unfortunate not only for CAI, but also the entire MMDS industry,
that some have taken preliminary and incomplete data to malign the entire MMDS
delivery platform. CAI hopes that those marketing video subscription services
using CAI's spectrum are as successful in their initial marketing efforts as
CAI has been in its initial efforts to deliver digital signal."
As CAI has previously announced, it is engaged in wide-ranging
discussions with Bell Atlantic and NYNEX relating to its entire relationship
with the RBOCs, and hopes to reach agreement with the RBOCs in the near future.
CAI has also previously announced that it is exploring mixed use of the
spectrum for video, voice and data in markets not governed by its current
relationship with the RBOCs, including a commercial trial of a high speed
Internet access service in Rochester, NY, where FCC has granted permission for
service of up to 500 customers. In addition, CAI has applied for flexible use
of the spectrum in the Hartford, CT market. Also, through CS Wireless Systems,
Inc., CAI's majority-owned joint venture with Heartland Wireless
Communications, Inc., a high speed Internet access service is to be combined
with a digital subscription television service in Dallas, Texas, with an
anticipated roll-out in 1997. In addition, CAI has been granted authority to
enroll up to 1,000 subscribers for one-way Internet service in its New York
market.
"We believe that the regulatory approvals CAI has been granted to date
will give CAI the ability to demonstrate the flexible use of MMDS spectrum and,
if permanent authority by the FCC is given, could afford CAI the opportunity to
generate additional revenue streams," continued Mr. Prisco.
# # #
Exhibit 99.3
FOR IMMEDIATE RELEASE
Investor Relations Contact: Company Contact:
Jason Thompson James P. Ashman
Lippert/Heilshorn & Associates CFO, CAI Wireless Systems,
Inc.
212/838-3777 518/462-2632
CAI WIRELESS SYSTEMS, INC. RECEIVES FIRST FCC MARKET TRIAL
APPROVAL TO USE WIRELESS CABLE SPECTRUM FOR TWO-WAY SERVICES
ALBANY, N.Y., December 16, 1996 -- CAI Wireless Systems, Inc.
("CAI") (NASDAQ NM: CAWS) announced today that it has received authority
from the Federal Communications Commission ( FCC ) to conduct a market trial
of one and two-way fixed voice, video and data services over its
Multichannel Multipoint Distribution Service (MMDS) spectrum in Hartford,
Connecticut. The FCC also invited CAI to apply for permanent authorization
for two-way fixed flexible use of MMDS spectrum following the conclusion of
a successful market trial. Never before has the FCC granted the authority to
a wireless cable operator to charge customers for two-way services, and CAI
believes that the FCC s invitation to follow up with a request for permanent
authorization is a very positive signal from the agency.
The FCC s approval contemplates an initial phase during which CAI would
conduct technical and commercial market trials of two-way services. Upon the
submission by CAI of test results that demonstrate an absence of harmful
interference to neighboring stations, the FCC may grant CAI permanent
authorization for these services. Based on its analysis, CAI anticipates
that it will be able to demonstrate to the FCC that it can implement two-way
services consistent with all applicable technical rules and policies.
John Prisco, CAI s President and Chief Operating Officer, stated , We at
CAI are quite pleased with the FCC s decision, and applaud the agency for
its responsiveness and pro-competitive attitude. By this action, CAI
believes that the FCC has recognized that the wireless cable industry must
have the ability to respond to market forces. If and when permanent
authority is granted, CAI expects to take full advantage of this opportunity
by developing innovative, varied and, above all else, responsive
consumer-based services.
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CAI has previously received FCC authority to conduct market trials for its
one-way wireless Internet access service in Rochester and New York, N.Y. In
addition to the Hartford market, CAI is preparing applications for two-way
market trial authority for several of its primary markets.
Based in Albany, N.Y., CAI operates analog-based wireless systems in New
York City, Rochester, and Albany, N.Y., Philadelphia, PA, Washington, D.C.
and Norfolk/Virginia Beach, VA, and has a portfolio of wireless cable
channel rights in eight additional markets, including Long Island, Buffalo
and Syracuse, N.Y., Providence, RI, Hartford, CT, Boston, MA, Baltimore, MD,
and Pittsburgh, PA.
