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) March 5, 1998 (March 3, 1998)
CAI WIRELESS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Connecticut 0-22888 06-1324691
<S> <C> <C> <C> <C>
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
</TABLE>
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)
<PAGE>
Item 5 - OTHER EVENTS
(A) On March 3, 1998, CAI Wireless Systems, Inc. (the "Company" or
"CAI") consummated its previously announced exchange (the "Transaction") with
Merrill Lynch Global Allocation Fund, Inc. (the "Investor") of approximately
$143 million of debt and preferred equity securities (including accrued
interest and dividends) for a new $30 million 12% subordinated note due October
1, 2005 (the "Subordinated Note"). The debt and preferred equity securities
exchanged on March 3, 1998 were recently acquired by the Investor from
affiliates of Bell Atlantic Corporation and were comprised of $30 million of
14% Term Notes due May 9, 2005 and $70 million of Senior Preferred Stock. See
the Company's Quarterly Report on Form 10-Q for the quarter ended December 31,
1997.
The Transaction eliminates approximately $114 million of Senior Preferred
Stock and accrued dividends thereon, and accrued interest on the Term Notes,
from CAI's balance sheet. Pro forma financial statements giving effect to the
Transactions are included herein under Item 7 below.
The Subordinated Note issued to the Investor accrues interest at the rate
of 12% per annum, compounded semi-annually, and is payable at maturity on
October 1, 2005. The Subordinated Note is expressly subordinate to $45 million
aggregate principal amount of CAI's 13% Senior Secured Notes currently held by
the Investor and to its publicly-traded 12 1/4 % Senior Notes due 2002 (the
"High-yield Bonds"). Under its terms, CAI is permitted to prepay the
Subordinated Note at a discount of up to $27 million at any time before June 1,
1998 in the event that certain circumstances occur that result in the
realization of a significant increase in the current market value of the High-
yield Bonds.
The Subordinated Note is a joint and several obligation of CAI and certain
of its wholly-owned subsidiaries. The obligation of the subsidiaries to repay
the Subordinated Note, however, is limited by the terms of the Indenture
governing the terms of the High-yield Bonds.
In conjunction with the Transaction, the Company also exchanged 2,500
shares of CAI common stock for the so-called Stage I and Stage II Warrants and
warrants to purchase CAI common stock that were also recently acquired by the
Investor. The 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 the CAI common stock increases the
number of issued and outstanding shares to 40,543,039 at March 3, 1998.
(B) On March 3, 1998, the Company issued the following news release:
"CAI Wireless Systems, Inc. Swaps $143 Million in Debt and Preferred Equity
Securities for New $30 Million Note."
Item 7 - FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
B. Set forth below are Pro Forma Consolidated Financial Statements
giving effect to the transactions described in Item 5 above:
Introduction to Pro Form Consolidated Financial Statements (Unaudited)
The following unaudited pro forma financial information of CAI Wireless
Systems, Inc. consists of the unaudited Pro Forma Balance Sheet as of December
31, 1997 and the unaudited Pro Forma Consolidated Statement of Operations for
the nine months ended December 31, 1997. The pro forma adjustments
reflect the following transactions, which were completed at various dates
during February and March 1998, as if they had occurred on December 31, 1997:
(1) termination of the Business Relationship Agreement with affiliates of
Bell Atlantic Corporation ("BANX") and the acquisition of BANX's
approximately 9.9% equity interest in CS Wireless Systems, Inc. in exchange
for $7,000,000 of CAI's 13% Senior Secured Notes due June 1, 1998 (the
"Secured Notes"); (2) the purchase from BANX of all CAI securities held by
BANX, including the Secured Notes, by Merrill Lynch Global Allocation Fund,
Inc., and the subsequent exchange between the Company and Merrill Lynch
Global Allocation Fund, Inc. of all such securities, except the Secured
Notes, for a new $30,000,000 12% Subordinated Note due October 1, 2005 and
the issuance of 2,500 shares of CAI common stock, and (3) the issuance by CAI
of $13,000,000 of additional Secured Notes to Merrill Lynch Global
Allocation Fund, Inc., thereby increasing the total aggregate amount of
Secured Notes issued and outstanding to $45,000,000, all of which are held
by Merrill Lynch Global Allocation Fund, Inc.
<PAGE>
CAI WIRELESS SYSTEMS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Consolidated Entries As Adjusted
------------ ---------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 2,170,436 $ 13,000,000 a $ 15,170,436
Subscriber receivables 578,588 - 578,588
Prepaid expenses 511,679 - 511,679
Property and equipment, net 61,593,527 - 61,593,527
Wireless channel rights-net 197,042,749 - 197,042,749
Investment in CS Wireless 72,443,527 2,440,000 b 74,883,527
Investment in TelQuest 3,097,203 - 3,097,203
Goodwill 98,043,766 - 98,043,766
Debt service escrow 32,862,035 - 32,862,035
Debt financing costs 8,820,690 - 8,820,690
Other assets 3,508,716 - 3,508,716
------------ ----------- -----------
Total Assets $480,672,916 $ 15,440,000 $496,112,916
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 5,801,849 - $ 5,801,849
Accrued expenses 29,357,122 ($15,157,730) c 14,199,392
Wireless channel rights obligations 4,045,767 - 4,045,767
Obligations payable to TelQuest
Satellite Services LLC 894,128 - 894,128
Interim debt financing 25,000,000 20,000,000 d 45,000,000
Term notes 36,599,695 141,450 e 36,741,145
Senior notes 275,000,000 - 275,000,000
------------ ------------ ------------
TOTAL LIABILITIES 376,698,561 4,983,720 381,682,281
============ ============ ============
Mandatorily redeemable preferred stock
14% Senior convertible preferred stock 69,265,000 (69,265,000) f -
Accrued preferred stock dividends 29,681,187 (29,681,187) f -
------------ ------------ -----------
98,946,187 (98,946,187) -
============ ============ ===========
Stockholders' Equity
Common stock 275,769,414 - 275,769,414
Additional paid-in capital - 98,946,187 f 98,946,187
Accumulated deficit (270,741,246) 10,456,280 g (260,284,966)
------------- ----------- -------------
TOTAL EQUITY 5,028,168 109,402,467 114,430,635
------------- ----------- -------------
TOTAL LIABILITIES AND EQUITY $ 480,672,916 $ 15,440,000 $ 496,112,916
============= ============ =============
</TABLE>
<PAGE>
CAI WIRELESS SYSTEMS, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED)
(a)Adjustment to reflect the issuance by CAI of $13,000,000 of additional
Secured Notes to Merrill Lynch Global Allocation Fund, Inc. to fund general
operating requirements.
(b)Adjustment to reflect the 1,000,000 shares of CS Wireless Systems, Inc.
acquired from affiliates of Bell Atlantic Corporation ("BANX").
(c)Adjustment to reflect the forgiveness of the accumulated unpaid interest
accrued on the Company's 14% Term Notes.
(d)Adjustment to reflect the total additional Secured Notes issued to Merrill
Lynch Global Allocation Fund, Inc. (see adjustment (a)).
(e)Adjustment to reflect the exchange of the $30,000,000 14% Term Notes (net
of an issuance discount of $141,450) to the Investor (together with
$70,000,000 of Senior Preferred Stock) for a $30,000,000 12% subordinated
note due October 1, 2005.
(f)Adjustment to reflect the elimination of the Senior Preferred Stock and the
forgiveness of the accumulated preferred stock dividends accrued on such
shares (see adjustment (e) above).
(g)Reflects the net extraordinary gain as a result of the elimination of the
interest and dividends on the exchanged securities (see adjustments (c) and
(f)). No tax expense was recorded on this gain due to the Company's current
year operating losses and significant net operating loss carryforwards.
<PAGE>
CAI WIRELESS SYSTEMS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Consolidated Entries As Adjusted
------------ --------- -----------
<S> <C> <C> <C>
REVENUES $21,977,384 $ - $21,977,384
------------ --------- -----------
EXPENSES
Programming and licensing 10,973,934 10,973,934
Marketing 1,206,615 1,206,615
General and administrative 21,908,478 21,908,478
Depreciation and amortization 26,152,839 26,152,839
------------ --------- -----------
OPERATING LOSS (38,264,482) - (38,264,482)
============ ========= ===========
OTHER INCOME (EXPENSE)
Interest expense (40,128,505) (40,128,505)
Equity in losses of affiliates (23,118,008) (23,118,008)
Interest and other income 2,974,426 2,974,426
------------ --------- -----------
Loss before income taxes,
preferred stock dividends and
extraordinary gain (98,536,569) - (98,536,569)
------------ --------- ------------
Income tax benefit - - -
Net loss before preferred stock
dividends and extraordinary gain (98,536,569) - (98,536,569)
------------ --------- ------------
Preferred stock dividends (11,125,453) (11,125,453)
Extraordinary gain (10,456,280) (10,456,280)
------------ ----------- ------------
Loss applicable to common
stockholders $(109,662,022) $10,456,280 (a) $(99,205,742)
============== =========== =============
Loss per common share $(2.70) $0.26 $(2.45)
============== =========== =============
Average common and equivalent
shares outstanding 40,540,539 40,540,539
============== =============
</TABLE>
<PAGE>
CAI WIRELESS SYSTEMS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
(a)Adjustment to reflect the net extraordinary gain as a result of the
elimination of the interest and dividends on the 14% Term Notes and
the Senior Preferred Stock. No tax expense was recorded on this gain
due to the Company's current year operating losses and significant net
operating loss carryforwards.
<PAGE>
Forward Looking Statements
The statements contained in this Current Report on Form 8-K relating
to the Company's future operations may constitute forward-looking
statements within the meaning of Section 21E of the Securities Exchange
Act of 1934, as amended. Actual results of the Company may differ
materially from those in the forward-looking statements and may be
affected by a number of factors including the Company's ability to
attract one or more new strategic partners and their willingness to enter
into arrangements with CAI on a timely basis, the terms of such
arrangements, the receipt of regulatory approvals for alternative uses of
its MMDS spectrum, the success of CAI's trials in various of its markets,
the commercial viability of any alternative use of MMDS spectrum,
consumer acceptance of any new products offered or to be offered by CAI,
subscriber equipment availability, practical success of CAI's engineered
technology, tower space availability, absence of interference and the
ability of the Company to redeploy or sell excess equipment, the
assumptions, risks and uncertainties set forth 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.
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/ Executive Vice President, Chief March 5, 1998
James P. Ashman Financial Officer and Director
(Principal Financial Officer)
</TABLE>
