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)
<TABLE>
<CAPTION>
Connecticut 06-1324691
<S> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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
<PAGE>
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
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAI WIRELESS SYSTEMS, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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<CAPTION>
Six-Months Ended Three-Months Ended
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- -----------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
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
========== ========== ========== ==========
</TABLE>
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<S> <C>
(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.
<PAGE>
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
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED TOTAL
SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
------ ------ ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
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)
========== ============ ============ ============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAI WIRELESS SYSTEMS, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
Six Months Ended September 30,
---------------------------------------
1998 1997
------------- -------------
<S> <C> <C>
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
======== ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
ASSETS
<S> <C>
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
============
</TABLE>
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:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
JUNE 30, 1998 JUNE 30, 1998
------------- ----------------
<S> <C> <C>
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)
============ ============
</TABLE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
Incorporation
by Reference Page REFERENCE
EXHIBIT NO. DESCRIPTION (SEE LEGEND)
<S> <C> <C> <C>
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
<dagger>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
<dagger> 99.6 Revised Pro Forma Balance Sheet Giving Effect to the
Company's Reorganization Plan as if it had Occurred
on September 30, 1998
</TABLE>
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.
<dagger> 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/ Vice President and Controller June 29, 1999
ARTHUR J. MILLER (Principal Accounting Officer)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
CAI Wireless Systems, Inc. and Subsidiaries Financial Data Schedule As Of And
For the Six Months Ended September 30, 1998
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 12,543,316
<SECURITIES> 0
<RECEIVABLES> 954,010
<ALLOWANCES> 252,375
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 85,743,853
<DEPRECIATION> 44,284,791
<TOTAL-ASSETS> 292,082,165
<CURRENT-LIABILITIES> 0
<BONDS> 311,558,053
0
0
<COMMON> 275,770,764
<OTHER-SE> (385,735,899)
<TOTAL-LIABILITY-AND-EQUITY> 292,082,165
<SALES> 0
<TOTAL-REVENUES> 10,852,156
<CGS> 0
<TOTAL-COSTS> 32,262,291
<OTHER-EXPENSES> 45,291,855
<LOSS-PROVISION> 82,000
<INTEREST-EXPENSE> 18,058,781
<INCOME-PRETAX> (82,404,155)
<INCOME-TAX> 0
<INCOME-CONTINUING> (82,404,155)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (82,404,155)
<EPS-BASIC> (2.03)
<EPS-DILUTED> (2.03)
</TABLE>
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.
<PAGE>
CAI WIRELESS SYSTEMS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Predecessor Exit Debt Fresh-Start Reorganized
ENTITY REFINANCING [i] DISCHARGE [ii] ADJUSTMENTS COMPANY
----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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
======== ========= ======== ======== ========
</TABLE>
See Notes to Pro Forma Consolidated Balance Sheet.
<PAGE>
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.
