UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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 JUNE 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
Commission File Number: 33-71662
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
August 13, 1999:
CLASS OUTSTANDING SHARES
Common Stock, $.01 par value 17,241,379
<PAGE>
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
REORGANIZED COMPANY
JUNE 30, 1999 MARCH 31, 1999
------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 34,258 $ 36,838
Restricted cash and cash equivalents 13,047 16,897
Subscriber accounts receivable, net 1,182 1,484
Prepaid expenses 930 1,437
Property and equipment, net 63,707 68,436
Wireless channel rights, net 301,678 307,182
Investments in affiliates 4,164 4,314
Debt financing costs, net 7,723 8,272
Reorganization value in excess of amounts allocable 34,972 35,913
to identifiable assets, net
Other assets 2,703 2,681
--------- ---------
Total Assets $ 464,364 $ 483,454
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
LIABILITIES
Accounts payable $ 12,016 $ 12,064
Accrued expenses 6,306 7,186
Accrued interest, other 87 4,429
Accrued interest, related party 6,897 -
Wireless channel rights obligations 5,835 6,186
Interim debt financing, other - 65,807
Interim debt financing, related party 67,924 -
Senior notes, related party 211,189 -
Senior notes, other 158,050 353,140
--------- ---------
468,304 448,812
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, no shares outstanding - -
Common stock: 172
25,000,000 $.01 par value shares authorized;
17,241,379 shares issued and outstanding 172
Additional paid-in capital 175,978 145,118
Accumulated deficit (180,090) (110,648)
--------- ---------
(3,940) 34,642
--------- ---------
Total Liabilities and Shareholders' Equity (Deficit) $ 464,364 $ 483,454
========= =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended June 30,
------------------------------------------------
1999 | 1998
---- | ----
REORGANIZED COMPANY | Predecessor Entity
<S> <C> | <C>
Revenues $ 9,341 | $ 5,633
Costs and expenses: |
Programming and licensing 5,447 | 3,657
General and administrative 10,396 | 6,327
Compensation expense under stock option plans 30,860 | -
Depreciation and amortization 11,875 | 6,820
-------- | --------
58,578 | 16,804
-------- | --------
Operating loss (49,237) | (11,171)
-------- | --------
Other income (expense): |
Interest expense, related party (13,534) | -
Interest expense, other (7,001) | (12,910)
Equity in losses of affiliates (150) | (10,967)
Interest income and other income 480 | 939
--------- | --------
(20,205) | (22,938)
--------- | --------
Net loss $ (69,442) | $ (34,109)
========== | =========
Loss per common share (a) $ (4.03) |
========== |
Weighted average common shares outstanding 17,241,379 |
========== |
</TABLE>
(a) Share data for the Predecessor Entity is not presented as such amounts are
not meaningful.
See notes to consolidated financial statements.
<PAGE>
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
QUARTER ENDED JUNE 30, 1999
AND THE YEAR ENDED MARCH 31, 1999
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Additional
Paid-in Accumulated
PREDECESSOR ENTITY: SHARES AMOUNT CAPITAL DEFICIT TOTAL
- ------------------ ------ ------ ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1998 40,543,039 $275,771 $ 101,712 $400,885) $ (23,402)
Net loss for the period from April 1, 1998 to
October 14, 1998, including an extraordinary
gain of $85,356 - - - (14,550) (14,550)
Eliminate predecessor equity accounts and
fair value assets and liabilities in
connection with fresh-start accounting:
Cancel common shares (no par value) and
restate the accumulated deficit (40,543,039) (275,771) (101,712) 377,483 -
Issue new common shares, par value $.01 15,000,000 150 119,815 - 119,965
New shares issued with the exit facility 2,241,379 22 17,903 - 17,925
Record excess of reorganization value
over identifiable assets - - - 37,952 37,952
---------- ------- ------- -------- --------
Balance at October 14, 1998 17,241,379 172 137,718 - 137,890
REORGANIZED COMPANY (A):
Compensation expense under stock option plans - - 7,400 - 7,400
Net loss for the period from October 15, 1998
to March 31, 1999 - - - (110,648) (110,648)
---------- ------ -------- -------- --------
Balance at March 31, 1999 17,241,379 172 145,118 (110,648) 34,642
Compensation expense under stock option plans - - 30,860 - 30,860
Net loss for the quarter ended June 30, 1999 - - - (69,442) (69,442)
---------- ------- -------- -------- --------
Balance at June 30, 1999 17,241,379 $ 172 $ 175,978 $(180,090) $ (3,940)
========== ====== ======== ======== ========
</TABLE>
(a) Reorganized as of October 15, 1998. See Note 1 of the notes to
consolidated financial statements.
See notes to consolidated financial statements.
<PAGE>
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended June 30,
------------------------------------------------------------
1999 | 1998
REORGANIZED COMPANY | Predecessor Entity
------------------- | ------------------
<S> <C> | <C>
CASH FLOWS FROM OPERATING ACTIVITIES |
Net loss $ (69,442) | $ (34,109)
Adjustments to reconcile net loss to |
net cash used in operating activities: |
Depreciation and amortization 10,934 | 6,820
Amortization of reorganization value in excess of |
amounts allocable to identifiable assets 941 | -
Equity in losses of affiliates 150 | 10,967
Compensation expense under stock options plans 30,860 | -
Other 135 | (29)
Debt financing costs and discount accretion 18,003 | 1,861
Debt service escrow interest income - | (241)
Changes in assets and liabilities, net of effects from |
acquired companies: |
Subscriber accounts receivable 302 | (168)
Other assets 491 | (601)
Accounts payable and accrued expenses 2,007 | 9,901
-------- | --------
Net cash used in operating activities (5,619) | (5,599)
-------- | --------
CASH FLOWS FROM INVESTING ACTIVITIES |
Purchase of wireless channel rights (394) | -
Purchase of equipment (501) | (418)
Proceeds from sale of assets 36 | 54
Payments received from CS Wireless Systems, Inc. - | 157
Investment in TelQuest Satellite Services LLC - | (412)
Other 44 | 37
-------- | --------
Net cash used in investing activities (815) | (582)
-------- | --------
CASH FLOWS FROM FINANCING ACTIVITIES |
Proceeds from interim debt financing 775 | -
Repayment of debt including wireless channel rights |
obligations (771) | (835)
Debt financing costs paid - | (126)
Funds provided from restricted investment account 3,850 | 6,827
-------- | --------
Net cash provided by financing activities 3,854 | 5,866
-------- | --------
(2,580) |
NET DECREASE IN CASH AND CASH EQUIVALENTS | (315)
Cash and cash equivalents, beginning of year 36,838 | 1,275
-------- | --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 34,258 | $ 960
======== | ========
CASH PAYMENTS DURING THE PERIOD FOR INTEREST $ 141 | $ 11
======== | ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION.
The consolidated financial statements include the accounts of CAI
Wireless Systems, Inc. and its wholly-owned subsidiaries ("CAI") and, effective
as of December 2, 1998, its 94% ownership of CS Wireless Systems, Inc. ("CS
Wireless"), its 60% interest in TelQuest Satellite Services LLC ("TelQuest")
and its 50% ownership of each of CAI Data Systems, Inc., CAI Satellite
Communications, Inc. and MMDS Satellite Ventures, Inc. (collectively referred
to as the "Company"). CS and TelQuest have been consolidated as of December 2,
1998. The Consolidated Statement of Operations for the three months ended June
30, 1999 reflects the CS and TelQuest operations with no allowance for minority
interest since the respective holders of such minority interests do not provide
any guarantees for funding the losses sustained by these companies. For the
three months ended June 30, 1998, the results of CS and TelQuest were reported
under the equity method in the Statement of Operations as equity in losses of
affiliates. 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 ended June 30, 1999
are not necessarily indicative of the results that may be expected for the
fiscal year ending March 31, 2000. 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, 1999 which is on file with the Securities and
Exchange Commission.
REORGANIZED COMPANY. On July 30, 1998 CAI Wireless Systems, Inc. and one of
its wholly owned subsidiaries filed voluntary petitions under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware. The CAI reorganization plan, which provided for the
restructuring of certain amounts of CAI's long term indebtedness, was confirmed
on September 30, 1998 and consummated on October 14, 1998. For a detailed
discussion of the reorganization, refer to the Company's Annual Report on Form
10-K for the year ended March 31, 1999. In connection with the reorganization,
CAI has applied fresh-start reporting in accordance with generally accepted
accounting principles resulting in CAI's assets and liabilities being adjusted
to reflect their fair values. Due to the application of fresh-start reporting,
the consolidated financial statements for the periods after October 14, 1998
are not comparable in all respects to the consolidated financial statements of
the Predecessor Entity for the periods prior to the reorganization. For
accounting purposes, the inception date of the Reorganized Company is deemed to
be October 15, 1998. A vertical black line is shown in the consolidated
financial statements, as applicable, to separate the Reorganized Company from
the Predecessor Entity since they are not comparable.
STOCK OPTION COMPENSATION EXPENSE. The Company applies APB Opinion No. 25 in
accounting for its stock option plans. Compensation expense has been
recognized in the financial statements for the period from October 15, 1998 to
March 31, 1999 with respect to certain options granted during this period. For
periods prior to October 15, 1998 the Company did not recognize compensation
expense for stock options. As a result of the increase in the price per share
of the Company's common stock, principally as a result of the pending merger
with MCI WORLDCOM, Inc. ("MCI WorldCom"), the Company recognized additional
compensation expense of $30.9 million for the two and one-half months ended
June 15, 1999 when these options became fully vested.
RELATED PARTY. The financial statements include segregation of amounts
relating to MCI WorldCom due to its significant shareholder status, which
occurred after March 31, 1999. As of June 30, 1999, MCI WorldCom held
$80,000,000 aggregate principal amount of outstanding senior secured notes of
CAI due 2000, $119,412, 609 aggregate principal amount of unsecured 13% senior
notes of CAI due 2004 and $239,200,000 aggregate principal amount of unsecured
Series B 11.375% senior discount notes of CS due 2006.
NOTE 2. PENDING MERGER.
On April 26, 1999, CAI announced that it executed a definitive Agreement
and Plan of Merger with MCI WorldCom providing for the acquisition by MCI
WorldCom of all of the outstanding common shares of CAI. Completion of the
merger requires, among other things, the approval of the merger by CAI
shareholders and the
<PAGE>
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2. PENDING MERGER. (CONTINUED)
expiration of all relevant waiting periods imposed under the antitrust laws.
In addition, all necessary approvals from governmental authorities, including,
without limitation, the Federal Communications Commission ("FCC") must be
obtained. CAI has scheduled a special meeting of its shareholders for August
31, 1999 for the purpose of considering and voting upon the merger agreement.
The affirmative vote of at least two-thirds of the outstanding CAI common
shares is required to approve the merger agreement. MCI WorldCom recently
completed the acquisition of approximately 62% of the outstanding CAI common
shares. MCI WorldCom has agreed to vote its CAI common shares in favor of the
merger. The waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 expired at 11:59 p.m., May 30, 1999. The FCC granted the
application filed by CAI and MCI WorldCom to transfer control of CAI's
multichannel multipoint distribution service channels and multichannel
distribution service channels on June 28, 1999, with one condition. On June
30, 1999, the FCC publicly announced that the condition had been fulfilled.
The FCC has also granted several applications consenting to MCI WorldCom's
acquisition of control of CAI with respect to wireless communications service
and certain auxiliary spectrum.
RIGHTS PLAN. On April 16, 1999, in connection with the transactions
contemplated by the merger agreement, the CAI Board of Directors declared a
dividend of one preferred share purchase right for each outstanding share of
common stock. The dividend was paid on April 27, 1999 to the shareholders of
record on that date. Subject to certain terms and conditions, each right shall
entitle the registered holder to purchase from CAI one one-hundredth of a share
of Series A preferred stock, $.01 par value of CAI at a price of $96.00 per one
one-hundredth of a share of preferred stock, subject to adjustment. The
description and terms of the rights are set forth in a Rights Agreement dated
as of April 16, 1999, as the same may be amended from time to time, between CAI
and ChaseMellon Shareholder Services, L.L.C., as rights agent.
STOCK OPTION AGREEMENT. On April 26, 1999, CAI entered into a stock option
agreement granting MCI WorldCom an option to acquire up to 6,090,481 CAI common
shares at a price of $28.00 per share.
STRATEGIC PARTNER SUCCESS FEE. The Company engaged BT Alex. Brown Incorporated
(now merged with Deutsche Bank Securities Inc. and known as Deutsche Banc Alex.
Brown) as its financial advisor. Pursuant to the terms of BT Alex. Brown's
engagement, CAI has agreed to pay BT Alex. Brown upon completion of the merger
a substantial advisory fee based on a percentage of the aggregate
consideration, including liabilities assumed, payable in connection with the
merger. Such amount is not expected to exceed $10 million. In addition, BT
Alex. Brown will be reimbursed for its expenses incurred in connection
therewith. Further, CAI has agreed to indemnify BT Alex. Brown and its
affiliates, their respective directors, officers, agents, and employees against
certain liabilities and expenses, including liability under federal securities
laws, related to or arising out of BT Alex. Brown's engagement.
NOTE 3. CONTINGENCIES.
There has not been any significant change in the status of the
contingencies reflected in the Notes to Consolidated Financial Statements
included in the Company's Annual Report on Form 10-K for the year ended March
31, 1999, which, among other matters, described various contingencies including
legal actions against CAI, except as discussed in Part I, Financial Information
- - Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations and Part II, Other Information - Item 1. Legal
Proceedings.
NOTE 4. SUBSEQUENT EVENTS.
On July 9, 1999, MCI WorldCom acquired 2,270,715 CAI common shares
pursuant to one of the separate agreements MCI WorldCom entered into with
certain sellers on March 23, 1999. Taking into account certain other
acquisitions of CAI common shares, MCI WorldCom beneficially owned 10,684,140
CAI common shares, constituting approximately 62% of the outstanding CAI common
shares eligible to vote at the special meeting of
<PAGE>
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4. SUBSEQUENT EVENTS. (CONTINUED)
shareholders, on July 28, 1999. MCI WorldCom has indicated that it, directly
or indirectly, may purchase additional CAI common shares, subject to certain
conditions, in open market or privately negotiated transactions, to the extent
permitted by applicable law, including federal securities laws, in order to
facilitate its efforts to consummate the merger described above.
CAI has scheduled the special meeting of shareholders for the purpose of
considering and voting upon the proposed merger with MCI WorldCom for 10:00
a.m., Eastern time, on August 31, 1999 in Hartford, Connecticut. CAI has
prepared and mailed a proxy statement relating to the special meeting to CAI
shareholders of record on July 28, 1999.
The affirmative vote of the holders of 66-2/3% of the outstanding CAI
common shares is required to approve the merger agreement. The CAI board has
previously approved the proposed merger and has recommended that the CAI
shareholders vote their CAI common shares in favor of the merger. MCI WorldCom
holds approximately 62% of the outstanding CAI common shares and has indicated
that it will vote its CAI common shares in favor of the merger. CAI has
engaged The Altman Group to act as its proxy solicitation agent for the
shareholder vote on the merger.
On July 27, 1999, pursuant to a demand made by MCI WorldCom in accordance
with CAI's bylaws and Connecticut law, the CAI board of directors scheduled a
second special meeting of shareholders for 11:00 a.m., Eastern time, also for
August 31, 1999 in Hartford, Connecticut. The purposes of the second meeting
include proposals to remove CAI's existing board of directors, to amend Article
IV, Section 1 of CAI's bylaws to, among other things, provide for a two-member
board, and to elect a new CAI board of directors consisting of two members.
MCI WorldCom has nominated Charles T. Cannada, Senior Vice President-Corporate
Development of MCI WorldCom, and Bernard J. Ebbers, President and Chief
Executive Officer of MCI WorldCom, to serve on the two-member board. The
second meeting will take place without regard to the first special meeting.
The CAI board has fixed the close of business on July 28, 1999 as the record
date for determining the CAI shareholders entitled to receive notice of and
vote at the second special meeting.
Removing the existing CAI board and amending CAI's bylaws requires the
affirmative vote of more than 50% of the CAI common shares cast at a
shareholder meeting at which a quorum is present. CAI directors are elected by
a plurality of votes cast by the CAI common shares entitled to vote at a CAI
shareholder meeting at which a quorum is present. MCI WorldCom has indicated
that it intends to vote its CAI common shares in favor of each of the
proposals. Neither CAI, MCI WorldCom nor any other party is soliciting proxies
in respect of such proposals. A notice of the second special meeting was
mailed to CAI shareholders of record on July 28, 1999.
CAI filed a Current Report on Form 8-K with the SEC on August 3, 1999,
which report contained, as exhibits, the materials relating to each of the
special meetings to be held by CAI on August 31, 1999.
On April 29, 1999, CAI filed a Form 15 with the SEC to deregister its
common stock under Section 12(g) of the Securities Exchange Act of 1934, as
amended. Such deregistration became effective on July 29, 1999. As a result,
among other things, CAI is no longer subject to the rules or regulations under
Section 14 of the Exchange Act governing proxies and information statements.
Moreover, persons subject to the reporting, short-swing profit and other rules
of Section 16 of the Exchange Act or the filing requirements of Section 13(d)
of the Exchange Act are no longer subject to such rules and regulations. After
completion of the merger, CAI intends to file a Form 15 with regard to its
reporting obligations under Section 15(d) of the Exchange Act. Once that Form
15 is effective, CAI will no longer be required to file periodic and other
reports required under the Exchange Act and the rules thereunder.
<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 satisfy the various
conditions contained in the agreement and plan of merger among the Company, MCI
WORLDCOM, Inc. and Cardinal Acquisition Subsidiary Inc., a wholly owned
subsidiary of MCI WorldCom, 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. There can be no
assurance that the transactions contemplated by the agreement and plan of
merger will be consummated on a timely basis, if at all. Additionally, as
previously disclosed in the Company's Annual Report on Form 10-K for the year
ended March 31, 1999, CAI believes, based on its current operating budget, that
it has sufficient cash to fund its anticipated capital requirements through
November 1999, and that such cash is sufficient to fund such capital
requirements until the merger with MCI WorldCom has been consummated. CAI,
however, cannot assure that the merger will be completed prior to November
1999, or that the merger will be completed at all. In the event that the
merger is not completed, the Company will not have sufficient cash to implement
its business plan.
GENERAL. During the quarter ended June 30, 1999, CAI entered into an
agreement and plan of merger dated as of April 26, 1999 with MCI WORLDCOM, Inc.
and Cardinal Acquisition Subsidiary Inc., a wholly-owned subsidiary of MCI
WorldCom. The merger agreement provides, among other things, that: (i)
Cardinal Acquisition Subsidiary will be merged with and into CAI; (ii) CAI will
continue as the surviving corporation and will become a wholly-owned subsidiary
of MCI WorldCom; and (iii) each CAI common share issued and outstanding at the
effective time of the merger (other than shares held by MCI WorldCom, Cardinal
Acquisition Subsidiary, CAI and shareholders, if any, who properly exercise
their dissenters' rights under Connecticut law) will convert into the right to
receive $28.00 per share in cash, without interest. In connection with
entering into the merger agreement, CAI also granted to MCI WorldCom an option
to purchase 6,090,481 CAI common shares at $28.00 per share, which option is
exercisable by MCI WorldCom in certain circumstances. The descriptions of the
merger agreement and the stock option agreement are subject to, and qualified
in their entirety by reference to, the merger agreement and the stock option
agreement which are filed as exhibits 2.1 and 4.1, respectively, to CAI's
Current Report on Form 8-K filed with the Securities and Exchange Commission on
June 16, 1999, and which are incorporated herein by reference.
On April 16, 1999, in connection with entering into a letter of intent
with MCI WorldCom relating to the transactions ultimately contemplated by the
merger agreement, CAI's board of directors adopted a shareholders' rights plan
and declared a dividend of one preferred share purchase right for each
outstanding CAI common share. The dividend was paid on April 27, 1999 to the
shareholders of record on that date. Subject to certain terms and conditions
contained in the Shareholders Rights Agreement dated as of April 16, 1999
between CAI and ChaseMellon Shareholder Services, L.L.C., as rights agent, each
right entitles the registered holder to purchase from CAI one one-hundredth of
a share of Series A Preferred Stock, $.01 par value, of CAI at a price of
$96.00 per one one-hundredth of a share of Series A Preferred Stock, subject to
adjustment. The description of the shareholders rights agreement is subject to,
and qualified in its entirety by reference to, the shareholders rights
agreement which is filed as exhibit 4.1 to CAI's Current Report on Form 8-K
filed with the SEC on April 28, 1999, and which is incorporated herein by
reference.
CHANGE OF CONTROL OF CAI. On March 23, 1999, MCI WorldCom entered into
separate agreements to acquire, among other things, an aggregate of 10,555,140
issued and outstanding CAI common shares owned by various third parties,
representing 61.2% of the issued and outstanding CAI common shares. According
to MCI WorldCom, the purchase price for such CAI common shares under the
agreements is less than the purchase price of $28 per share to be paid to CAI
shareholders in connection with the merger described above. On June 4, 1999,
following the expiration of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, MCI WorldCom acquired 8,284,425 of the
outstanding CAI common shares, representing approximately 48% of the issued and
outstanding CAI common shares, pursuant to one of the agreements. As a result
of this acquisition, CAI filed a Current Report on Form 8-K with the SEC on
June 16, 1999 reporting that a change of control had occurred at CAI.
The June 4, 1999 change of control caused options to purchase an
aggregate of 770,000 CAI common shares held by certain key employees of CAI and
its subsidiaries and by members of CAI's board of directors to vest in their
entirety. Subsequently, on June 15, 1999, options to purchase an aggregate of
811,500 CAI common shares held by certain other key employees of CAI and its
subsidiaries vested in their entirety in accordance with the terms and
conditions of such options. As a result of all outstanding options to purchase
CAI common shares vesting in their entirety and the increased market price of
CAI common shares principally as a result of the pending merger with MCI
WorldCom, CAI recognized additional compensation expense of $30.9 million in
the quarter ended June 30, 1999.
ADDITIONAL CAI AND CS WIRELESS SECURITIES HELD BY MCI WORLDCOM. In
addition to the 8,284,425 CAI common shares acquired by MCI WorldCom on June 4,
1999, MCI WorldCom acquired an additional 2,270,715 CAI common shares on July
9, 1999 pursuant to one of the separate agreements described above. Taking
into account certain other acquisitions of CAI common shares, MCI WorldCom
beneficially owned 10,684,140 CAI common shares, constituting approximately 62%
of the outstanding CAI common shares eligible to vote at the special meeting of
shareholders, on July 28, 1999. MCI WorldCom has indicated that it, directly
or indirectly, may purchase additional CAI common shares, subject to certain
conditions, in open market or privately negotiated transactions, to the extent
permitted by applicable law, including federal securities laws, in order to
facilitate its efforts to consummate the merger described above.
MCI WorldCom has indicated that it also holds: (i) $119,412,609
aggregate principal amount of CAI's unsecured 13% senior notes due October 14,
2004; (ii) $239,200,000 aggregate principal amount of CS Wireless' unsecured
Series B 11-3/8% senior discount notes due 2006; and (iii) $80,000,000
aggregate principal amount of CAI's senior secured notes due October 14, 2000.
Because of MCI WorldCom's significant equity ownership in CAI, the indebtedness
of CAI and CS Wireless held by MCI WorldCom and the accrued interest relating
thereto is reflected in the Company's consolidated financial statements as
related party indebtedness and related party interest.
IMPACT OF FRESH-START REPORTING ON RESULTS OF OPERATIONS. During the
fiscal year ended March 31, 1999, CAI and Philadelphia Choice Television, Inc.,
a wholly-owned subsidiary of CAI, reorganized under Chapter 11, Title 11 of the
United States Code. CAI and Philadelphia Choice emerged from bankruptcy on
October 14, 1998. In connection with its emergence from Chapter 11, CAI
adopted fresh-start reporting in accordance with Statement of Position 90-7 of
the American Institute of Certified Public Accountants. Under fresh-start
reporting, 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 has been
recorded on the balance sheet as "Reorganization value in excess of amounts
allocable to identifiable assets." Certain fresh-start reporting adjustments,
primarily related to the adjustment of CAI's assets and liabilities to fair
market values as of October 14, 1998, the date CAI consummated its Chapter 11
case, will have a significant effect on future statements of operations. The
more significant adjustments relate to increased amortization expense relative
to reorganization value in excess of amounts allocable to identifiable assets
and wireless channel rights.
LIQUIDITY AND CAPITAL RESOURCES
Although CAI has emerged from bankruptcy, CAI's recurring losses,
restrictions on its ability to obtain additional financing and substantial
commitments raise substantial doubt about its continuation as a going concern.
CAI'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 wireless broadband network business is capital intensive. Since its
inception, CAI has expended funds to purchase, lease or otherwise acquire MMDS
spectrum rights in its intended operating territory, to construct operating
systems and to finance initial operating losses. Since inception CAI has
believed that the MMDS spectrum has greater potential than simply the delivery
of analog subscription video services and has recognized that expanded use of
the MMDS spectrum presents several challenges, including substantial
development costs.
To address this and other issues surrounding expanded use of its MMDS
spectrum, CAI devised a business plan that required one or more strategic
partners to purchase MMDS spectrum capacity from CAI. CAI believed that such
commitments to purchase MMDS capacity would enable CAI to raise the capital
necessary to construct a wireless broadband network within its operating
territories. CAI implemented this business plan through the 1995 joint venture
with affiliates of Bell Atlantic Corporation, which joint venture was
terminated without the launch of a commercial digital MMDS system in any of
CAI's markets. In connection with the failed joint venture, CAI expended
significant amounts of capital to construct digital MMDS systems in Boston, MA
and Norfolk/Virginia Beach, VA. CAI has continued to pursue one or more
strategic partners following the departure of Bell Atlantic, and has committed
significant resources to its effort to enter into a business relationship with
a strategic partner, including resources used to design, test and demonstrate
two-way MMDS capabilities, which CAI did for several potential strategic
investors prior to April 1999, when it entered into an agreement and plan of
merger with MCI WorldCom.
The Company's primary sources of capital have been a combination of
proceeds from the issuance of debt and equity securities, secured financings
and assumption of debt and other liabilities in connection with acquisitions.
The Company has approximately $47.3 million in cash and cash equivalents at
June 30, 1999, of which $13.6 million is available to CAI and $33.5 million is
available to CS. During the quarter ended June 30, 1999, the Company expended
approximately $5.6 million of cash to fund its operating activities,
approximately $.4 million for wireless channel rights, $.5 million for
equipment, and $.8 million in debt payments. The Company is committed through
additional open purchase orders as of June 30, 1999 to spend approximately $2.3
million, primarily for capital expenditures associated with additional
development of its digital transmission facilities.
The Company and the Predecessor Entity have incurred net losses since
inception in 1991 through June 30, 1999, inclusive of an $85.4 million gain
from the early extinguishment of debt. The Company expects to continue to
realize additional net losses on a consolidated basis while it pursues its
business plan. For the nine months ending March 31, 2000, the Company is
obligated to pay approximately $9.5 million in minimum license fees and
operating lease payments and approximately $5.8 million in MMDS license
obligations, including approximately $4.7 million in wireless channel license
payments due to the Federal Communications Commission, in addition to funding
operating losses. The Company projects that operating cash requirements will
be approximately $40.6 million for the year ending March 31, 2000.
Additionally, as of June 30, 1999, the Company had outstanding consolidated
debt of approximately $437.2 million, net of a $265.0 million discount and
trade payables of approximately $12.0 million. Beginning in fiscal year 2001,
the Company will have significant debt service requirements. On a short term
basis, the Company has $6.5 million in debt service maturing within twelve
months of the date of its balance sheet.
The Company's existing debt instruments limit or restrict completely its
ability to raise capital from the sale of equity, incur additional indebtedness
(other than indebtedness incurred in connection with the purchase of goods and
services in the ordinary course of business and certain other permitted
indebtedness), grant liens to secure repayment of indebtedness, make
investments (other than investments specifically permitted), pay dividends,
dispose of assets, enter into any merger, consolidation, reorganization, or
recapitalization plan, retire long-term debt or make any acquisitions without
the prior written consent of the lenders.
During the quarter ended June 30, 1999, the Company expended
approximately $5.6 million to fund operating activities, $.5 million for
equipment purchases, $.4 million for wireless channel rights, and $.8 million
to pay wireless channel rights obligations and other debt. The Company funded
its cash requirements primarily out of existing cash balances except for
TelQuest which funded its cash requirements from a $.75 million loan received
during the quarter. At June 30, 1999, the Company had available funds of
approximately $34.3 million as well as restricted cash balances totaling
approximately $13.0 million, which will be used to fund the operations of the
Company.
Based on current operating budgets, CAI believes that it has sufficient
cash to fund its anticipated capital requirements through November 1999, and CS
believes that it has adequate funding through March 2000. Overall, the Company
believes that it has sufficient cash to fund capital requirements until the
merger with MCI WorldCom has been consummated. Although the Company believes
that the merger should be consummated during the third quarter of calendar year
1999, there can be no assurance that the merger will be completed within such
quarter, or that the merger will be completed at all. In the event that the
merger is not completed, the Company will not have sufficient cash to implement
its business plan.
RESULTS OF OPERATIONS
JUNE 30, 1999 (REORGANIZED COMPANY) COMPARED TO JUNE 30, 1998 (PREDECESSOR
ENTITY)
The following discussion provides an analysis of the Company's results of
operations and reasons for material changes therein. While we have presented
below a comparison of the results of operations for the quarter ended June 30,
1999 versus the quarter ended June 30, 1998, you should be aware that the
results of operations for the quarter ended June 30, 1999 are affected by (i)
the application of fresh-start reporting in connection with CAI's emergence
from bankruptcy, and (ii) the consolidation of CAI's accounts with the accounts
of CS Wireless Systems, Inc. and TelQuest Satellite Services LLC. These bases
of accounting are not reflected in the results of operations for the quarter
ended June 30, 1998, since the bankruptcy was not in effect then and the equity
method was used by CAI to account for its investments in CS and TelQuest during
such period. Application of fresh-start reporting and consolidation of CS and
TelQuest has primarily affected amortization and interest expense for the
quarter ended June 30, 1999. We have indicated in the discussion below where
June 30, 1999 results of operations have been impacted by fresh-start reporting
and consolidation.
The Company's strategy is not to pursue analog-based television
subscriber growth while it evaluates its business opportunities in addition to
subscription television, including high-speed Internet and Intranet access as
well as digital video and telephony services. This policy has had and
continues to have a negative impact on the Company's subscription revenues. As
of June 30, 1999, the Company's subscriber base had decreased by approximately
4,800 subscribers to 83,400 subscribers from approximately 88,200 subscribers
at March 31, 1999. CAI's subscriber base decreased by 18,500 subscribers when
comparing June 30, 1999 with June 30, 1998 of which 10,400 subscribers were
sold in connection with the Philadelphia MDU sale in September 1998.
Subscriber revenues increased $3.7 million for the quarter ended June 30, 1999
compared to the corresponding period last year, due to the inclusion of CS in
the current quarter results.
Operating expenses were $58.6 million and $16.8 for the quarters ended
June 30, 1999 and 1998, respectively. Programming costs, which increased by
$3.2 million, did not increase in proportion to the revenue increase due to
minimum provisions provided by certain of the programming agreements. The
$41.8 million increase in operating expenses for the first quarter versus last
year's first quarter primarily reflects the compensation expense related to
stock options of $30.9 million. Technical, customer service and marketing
costs and general expenses also increased by $2.7 million due to the inclusion
of CS's operations in the current quarter partially offset by a decline in
CAI's expenses which were in line with the decline in subscribers. The
remaining increase of approximately $5.1 million reflects higher depreciation
and amortization from the inclusion of CS ($3.8 million) and CAI's higher
amortization due to the increase in the value of its wireless channel rights
and the amortization of capitalized reorganization value created by CAI's
bankruptcy.
Interest expense was $20.5 million and $12.9 million for the quarters
ended June 30, 1999 and 1998, respectively. This increase is primarily due to
the inclusion of CS for the current quarter plus $2.6 million expense relating
to the accretion of the fair market value discount on the CS debt.
The decrease in equity in losses of affiliates of $10.8 million reflects
the current period consolidation of CS and TelQuest operations while the equity
method was used in last year's first quarter.
THE YEAR 2000 COMPLIANCE PLAN (UNAUDITED).
OVERVIEW. The Company is continuing to evaluate and address the impact
of the Year 2000 date transition on its operations. The Company is in the
process of taking steps to (a) inventory and assess for Year 2000 compliance
its equipment, software and systems, (b) determine which items will be
remediated, replaced or retired, and establish a plan to accomplish these
steps, (c) remediate, replace and retire the items, (d) test the items, where
required, and (e) provide senior management with a reporting system to support
a seamless transition to the Year 2000.
STATE OF READINESS. The Company's Year 2000 compliance program focuses
on the Company's analog video operations, limited Internet operations, and
internal business processes, such as accounting. As of June 30, 1999, the
inventory, assessment and compliance planning phases for these areas had been
materially completed, and remediation, replacement or retirement and testing
activities were in process. The inventory items that were not assessed as Year
2000 compliant and that require action to avoid service impact are to be fixed,
replaced or retired, which process continued through the quarter ended June 30,
1999. CAI's accounting software and any other mission critical systems
relating directly to the accounting function have been upgraded to be Year 2000
compliant. For all other areas, CAI's goal is to have all mission critical
systems Year 2000 compliant by September 1, 1999. As of June 30, 1999, CAI's
headend equipment, phone system and subscriber billing through an outside
source were all substantially year 2000 compliant. Although significant
progress has been made, CS's goal for compliance of its accounting software and
other mission critical systems relating directly to the accounting function
Year 2000 has been revised to September 30, 1999. Additionally, CS's goal to
have all other mission critical systems Year 2000 compliant by September 30,
1999 is on schedule for completion.
VENDOR AND SERVICE PROVIDER ISSUES. The Company has requested that its
vendors and service providers provide CAI with information as to the compliance
status of products and/or services used by CAI and its operating subsidiaries,
which information is subject to Company testing and verification. Although the
Company has received information from some of its vendors and service providers
as of March 31, 1999, it had not yet received information from all of the
vendors and service providers contacted. The Company plans to continue to
pursue its vendors and service providers in order to request information
regarding Year 2000 compliance of such vendors and service providers.
COSTS. The Company originally estimated that it will cost approximately
$875,000 to effect its Year 2000 compliance program, based on information it
has received as of March 31, 1999 from vendors and service providers. The
Company anticipates that most of the costs associated with its Year 2000
compliance program will be the result of remediation or replacement of non-
compliant equipment necessary for the Company's analog video operations and
internal business processes. As of June 30, 1999, the Company had incurred
costs of approximately $140,000 in connection with its efforts to become Year
2000 Compliant.
RISKS. The failure to correct a material Year 2000 problem could cause
an interruption or failure of certain of the Company's normal business
functions or operations, which could have a material adverse effect on its
results of operations, liquidity or financial condition. Due to the
uncertainty inherent in other Year 2000 issues that are ultimately beyond the
Company's control, including, for example, the final Year 2000 readiness of its
mission critical vendors and service providers, the Company is unable to
determine at this time the likelihood of a material impact on its results of
operations, liquidity or financial condition, due to such Year 2000 issues.
The costs of the Company's Year 2000 program and the timetable for
completing its Year 2000 preparations are based on current estimates, which
reflect numerous assumptions about future events, including the continued
availability of certain resources, the timing and effectiveness of third-party
remediation plans and other factors. The Company can give no assurance that
these estimates will be achieved, and actual results could differ materially
from those currently anticipated. In addition, there can be no assurance that
the Company's Year 2000 program will be effective or that its contingency plans
will be sufficient. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct relevant
computer software codes and embedded technology, the results of internal and
external testing and the timeliness and effectiveness of remediation efforts of
third parties.
The Company believes that the worst case scenario would be the failure of
the Company's subscriber management system addressing the headend equipment,
which sends the signal to the addressable controller units, as well as the
addressable controller units themselves. The controller units communicate to
the customer's set-top box. The loss of the ability to transmit such data
would result in the loss of customers and related revenues, among other things.
CONTINGENCY PLAN. At June 30, 1999, the Company was not aware of any
mission critical aspect of its operations or internal business processes that
cannot be made Year 2000 compliant; however, in light of its inventory and
assessment of Year 2000 problems, and the possibility that, despite its
efforts, the Company is unsuccessful in preparing its internal systems and
equipment for the Year 2000, the Company expects to develop contingency plans
for dealing with the most reasonably likely worst-case scenario. The Company's
assessment of its most reasonably likely worst-case scenario and the exact
nature and scope of its contingency plans will be affected by the Company's
continued Year 2000 assessments and its goal to have all contingency
systems in place and fully tested by the fourth quarter of 1999.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Company is assessing the reporting and disclosure requirements of
Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS No. 133"). This statement
establishes accounting and reporting standards for derivative instruments and
hedging activities. The statement is effective for financial statements for
fiscal years beginning after June 15, 2000. The Company believes SFAS No. 133
will not have a material impact on its financial statements or accounting
policies. The Company will adopt the provisions of SFAS No. 133 in the second
calendar quarter of 2001.
<PAGE>
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS
IN RE CAI WIRELESS SYSTEMS, INC. SECURITIES LITIGATION. CAI and certain
individuals were 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), which is currently pending in the Northern District of New York against
Jared E. Abbruzzese, chairman and chief executive officer of CAI, John J.
Prisco, a former president, chief operating officer and director of CAI, and
Alan Sonnenberg, a former president and director of CAI. The amended,
consolidated complaint 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, and Rule 10b-5 promulgated under the Securities Exchange Act, during
the specified class period, May 23, 1996 through December 6, 1996. CAI
notified the carrier of its Directors' and Officers' Liability insurance
policy, which is intended to cover not only CAI's officers and directors, but
also CAI, itself, against claims such as those made in the securities lawsuit.
The policy covers up to $5,000,000 of any covered liability, subject to a
retention amount of $500,000. The securities lawsuit is in its preliminary
stages. A scheduling conference was held on June 3, 1997, at which the
briefing schedule for defendants' motion to dismiss was agreed upon among the
parties. The defendants' motion to dismiss was heard by the Northern District
of New York on October 17, 1997 and is still pending. While the motion is
pending, all other deadlines affecting motions and discovery have been
postponed. CAI's plan of reorganization provided no recovery to any holder of
CAI's equity or to any holder of an equity-based claim, such as the claims made
against CAI in the securities lawsuit. Upon the confirmation of CAI's plan of
reorganization on September 30, 1998 and the October 14, 1998 consummation of
the plan of reorganization, plaintiffs' claims against CAI 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 CAI. A Memorandum of Understanding outlining a settlement
in the amount of $3,000,000 (all of which will be covered by the proceeds from
the above-referenced liability insurance policy) has been executed by counsel
to all parties. The parties have executed a settlement agreement and
anticipate submitting such agreement to the court for final disposition of this
action shortly. Accordingly, CAI's management believes the securities lawsuit
will not have a material adverse effect on CAI's earnings, financial condition
or liquidity.
OTHER LITIGATION. On or about June 18, 1999, an action was filed in the
New York Supreme Court for the County of Albany captioned BOGDAN AND FAIST,
P.C. V. CAI WIRELESS SYSTEMS, INC., Index No. 3463-99. The complaint asserts
that CAI has failed to transfer to the plaintiff unspecified property and
property rights in breach of an alleged contract between the plaintiff and CAI.
The complaint seeks to require CAI to specifically perform under the alleged
contract. CAI removed this action to the United States District Court for the
Northern District of New York and is seeking to transfer such action to the
United States Bankruptcy Court for the District of Delaware. Management
believes that this action is without merit and intends to vigorously defend
this lawsuit.
ITEM 5. OTHER INFORMATION.
On July 9, 1999, MCI WorldCom acquired 2,270,715 CAI common shares
pursuant to an agreement MCI WorldCom entered into with certain sellers on
March 23, 1999. Taking into account certain other acquisitions of CAI common
shares, including the June 4, 1999 acquisition of 8,284,425 CAI common shares
reported by CAI on a Current Report on Form 8-K filed on June 16, 1999, MCI
WorldCom beneficially owned as of July 28, 1999, 10,684,140 CAI common shares,
constituting approximately 62% of the outstanding CAI common shares eligible to
vote at the special meeting of shareholders. MCI WorldCom has indicated that
it, directly or indirectly, may purchase additional CAI common shares, subject
to certain conditions, in open market or privately negotiated transactions, to
the extent permitted by applicable law, including federal securities laws, in
order to facilitate its efforts to consummate the merger described above.
CAI has scheduled the special meeting of shareholders for the purpose of
considering and voting upon the proposed merger with MCI WorldCom for 10:00
a.m., Eastern time, on August 31, 1999 in Hartford, Connecticut. The CAI board
has fixed the close of business on July 28, 1999 as the record date for
determining CAI shareholders entitled to receive notice of and vote at such
special meeting. CAI has prepared and mailed a proxy statement relating to the
special meeting to CAI shareholders of record on July 28, 1999.
The affirmative vote of the holders of 66-2/3% of the outstanding CAI
common shares is required to approve the merger agreement. The CAI board has
previously approved the proposed merger and has recommended that the CAI
shareholders vote their CAI common shares in favor of the merger. MCI WorldCom
holds approximately 62% of the outstanding CAI common shares and has indicated
that it will vote its CAI common shares in favor of the merger. CAI has
engaged The Altman Group to act as its proxy solicitation agent for the
shareholder vote on the merger.
On July 27, 1999, pursuant to a demand made by MCI WorldCom in accordance
with CAI's bylaws and Connecticut law, the CAI board of directors scheduled a
second special meeting of shareholders for 11:00 a.m., Eastern time, also for
August 31, 1999 in Hartford, Connecticut. The purposes of the second meeting
include proposals to remove CAI's existing board of directors, to amend Article
IV, Section 1 of CAI's bylaws to, among other things, provide for a two-member
board, and to elect a new CAI board of directors consisting of two members.
MCI WorldCom has nominated Charles T. Cannada, Senior Vice President-Corporate
Development of MCI WorldCom, and Bernard J. Ebbers, President and Chief
Executive Officer of MCI WorldCom, to serve on the two member board. The
second meeting will take place without regard to the first special meeting.
The CAI board has fixed the close of business on July 28, 1999 as the record
date for determining the CAI shareholders entitled to receive notice of and
vote at the second special meeting.
Removing the existing CAI board and amending CAI's bylaws requires the
affirmative vote of more than 50% of the CAI common shares cast at a
shareholder meeting at which a quorum is present. CAI directors are elected by
a plurality of votes cast by the CAI common shares entitled to vote at a CAI
shareholder meeting at which a quorum is present. MCI WorldCom has indicated
that it intends to vote its CAI common shares in favor of each of the
proposals. Neither CAI, MCI WorldCom nor any other party is soliciting proxies
in respect of such proposals. A notice of the second special meeting was
mailed to CAI shareholders of record on July 28, 1999.
CAI filed a Current Report on Form 8-K with the SEC on August 3, 1999,
which report contained, as exhibits, the materials relating to each of the
special meetings to be held by CAI on August 31, 1999.
On April 29, 1999, CAI filed a Form 15 with the SEC to deregister its
common stock under Section 12(g) of the Securities Exchange Act of 1934, as
amended. Such deregistration became effective on July 29, 1999. As a result,
among other things, CAI is no longer subject to the rules or regulations under
Section 14 of the Exchange Act governing proxies and information statements.
Moreover, persons subject to the reporting, short-swing profit and other rules
of Section 16 of the Exchange Act or the filing requirements of Section 13(d)
of the Exchange Act are no longer subject to such rules and regulations. After
completion of the merger, CAI intends to file a Form 15 with regard to its
reporting obligations under Section 15(d) of the Exchange Act. Once that Form
15 is effective, CAI will no longer be required to file periodic and other
reports required under the Exchange Act and the rules thereunder.
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
EXHIBIT NO. DESCRIPTION (SEE LEGEND)
<S> <C> <C>
2.1* Agreement and Plan of Merger dated as of April 26, 1999 by [1] Exhibit 2.1
and among CAI Wireless Systems, Inc., MCI WORLDCOM, Inc.
and Cardinal Acquisition Subsidiary Inc.
3.1 Amended and Restated Certificate of Incorporation of CAI [2] Exhibit 3.1
3.2 Amended and Restated Bylaws of CAI [2] Exhibit 3.2
3.3 Certificate Amending the Amended and Restated Certificate [3] Exhibit 3.1
of Incorporation of CAI Wireless Systems, Inc.
4.1 Stock Option Agreement dated as of April 26, 1999 by and [1] Exhibit 4.1
between MCI WORLDCOM, Inc. and CAI Wireless Systems, Inc.
4.2 Rights Agreement dated as of April 16, 1999 between CAI
Wireless Systems, Inc. and ChaseMellon Shareholder [4] Exhibit 4.1
Services, L.L.C.
<dagger>27. Financial Data Schedule
99.1 Press release issued by CAI on April 26, 1999. [4] Exhibit 99.1
99.2 Press release issued by CAI on April 16, 1999. [4] Exhibit 99.2
</TABLE>
LEGEND
* Shareholders may obtain a copy of the Agreement and Plan of Merger by
requesting it in writing from CAI Wireless Systems, Inc., 18 Corporate
Woods Boulevard, Third Floor, Albany, New York 12211, Attention:
Corporate Secretary.
[1] Incorporated by reference to the exhibits to CAI's Current Report on Form
8-K filed June 16, 1999.
[2] Incorporated by reference to the exhibits to CAI's Quarterly Report on Form
10-Q for September 30, 1995.
[3] Incorporated by reference to the exhibits to CAI's Quarterly Report on Form
10-Q for September 30, 1998.
[4] Incorporated by reference to the exhibits to CAI's Current Report on Form
8-K filed April 28, 1999.
<dagger> Filed herewith.
<PAGE>
b) REPORTS ON FORM 8-K.
(1) Form 8-K filed April 28, 1999, regarding the following:
Item 5. Other Events.
On April 26, 1999, CAI Wireless Systems, Inc. entered into an
agreement and plan of merger dated as of April 12, 1999 with
MCI WORLDCOM, Inc. and its subsidiary, Cardinal Acquisition
Subsidiary Inc.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
C. Exhibits
4.1 Rights Agreement dated as of April 16, 1999 between
CAI Wireless Systems, Inc. and ChaseMellon Shareholder
Services, L.L.C.
99.1 Press release issued by the Company on April 26, 1999.
99.2 Press release issued by the Company on April 16, 1999.
(2) Form 8-K filed June 16, 1999, regarding the following:
Item 1. Changes in Control of the Registrant.
MCI WORLDCOM, Inc. acquired approximately 48% of the issued
and outstanding shares of CAI on June 4, 1999 pursuant to a
certain purchase and sale agreement with certain sellers and
had another such agreement with other sellers to acquire
another approximately 13% of the issued and outstanding
shares of CAI subject to certain material conditions.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
C. Exhibits
2.1 Agreement and Plan of Merger dated as of April 26,
1999 by and among CAI Wireless Systems, Inc.,
MCI WORLDCOM, Inc. and Cardinal Acquisition
Subsidiary Inc.
4.1 Stock Option Agreement dated as of April 26, 1999 by
and between MCI WORLDCOM, Inc. and CAI Wireless
Systems, Inc.
(3) Form 8-K filed June 29, 1999, regarding the following:
Item 2. Acquisition or Disposition of Assets.
On December 2, 1998, CAI Wireless Systems, Inc. increased its
ownership interest in CS Wireless Systems, Inc. from
approximately 60% to 94% by acquiring the shares of CS
Wireless held by Nucentrix Broadband Networks, Inc. CS
Wireless then acquired those shares from CAI and placed them
in the treasury. The parties also mutually agreed to
terminate their stockholders' agreement dated as of February
23, 1996.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits
A. Financial Statements of Businesses Acquired.
Reference was made to the financial statements of CS
Wireless Systems, Inc. in its Form 10-K for the year ended
December 31, 1998 filed with the Securities and Exchange
Commission on April 15, 1999 and filed as Exhibit 99.1
thereto.
Reference was made to the financial statements of CS
Wireless Systems, Inc. in its Form 10-Q for the quarter
ended March 31, 1999 filed with the Securities and
Exchange Commission on May 13, 1999 and filed as Exhibit
99.2 thereto.
B. Pro Forma Financial Information.
The Unaudited Pro Forma Condensed Combined Financial
Statements of CAI and CS Wireless for the year ended March
31, 1999 and the six months ended September 30, 1998 were
included therein as follows:
Pro Forma Combined Balance Sheet-September 30, 1998
(unaudited)
Pro Forma Combined Statement of Operations for the year
ended March 31, 1999 (unaudited)
Pro Forma Combined Statement of Operations for the year
ended March 31, 1998 (unaudited)
Pro Forma Combined Statement of Operations for the six
months ended September 30, 1998 (unaudited)
C. Exhibits
10.1 Master Agreement dated as of December 2, 1998
among CAI, CS Wireless and Nucentrix (f/k/a
Heartland Wireless Communications, Inc.)
99.1 Audited Financial Statements of CS Wireless for
the year ended December 31, 1998.
99.2 Unaudited Financial Statements of CS Wireless for
the quarter ended March 31, 1999.
99.3 Press Release dated December 3, 1998.
<PAGE>
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/ Jared E. Abbruzzese Chairman, Chief Executive Officer August 16, 1999
JARED E. ABBRUZZESE and Director (Principal Executive
Officer)
/s/ James P. Ashman Executive Vice President and Chief August 16, 1999
JAMES P. ASHMAN Financial Officer
(Principal Financial Officer)
/s/ Arthur J. Miller Vice President and Controller August 16, 1999
ARTHUR J. MILLER (Principal Accounting Officer)
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
CAI WIRLESS SYSTEMS, INC. AND SUBSIDIARIES
FINANCIAL DATA SCHEDULE
AS OF AND FOR THE THREE MONTHS ENDED JUNE 30, 1999
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 47,305
<SECURITIES> 0
<RECEIVABLES> 1,742
<ALLOWANCES> 560
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 78,718
<DEPRECIATION> 15,011
<TOTAL-ASSETS> 464,364
<CURRENT-LIABILITIES> 0
<BONDS> 369,239
0
0
<COMMON> 172
<OTHER-SE> (4,112)
<TOTAL-LIABILITY-AND-EQUITY> 464,364
<SALES> 0
<TOTAL-REVENUES> 9,341
<CGS> 0
<TOTAL-COSTS> 58,578
<OTHER-EXPENSES> 150
<LOSS-PROVISION> 179
<INTEREST-EXPENSE> 20,535
<INCOME-PRETAX> (69,442)
<INCOME-TAX> 0
<INCOME-CONTINUING> (69,442)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (69,442)
<EPS-BASIC> (4.03)
<EPS-DILUTED> (4.03)
</TABLE>
