SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 29, 1999 (December 2,
1998)
CAI WIRELESS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Connecticut 0-22888 06-1324691
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
18 CORPORATE WOODS BLVD., ALBANY, NY 12211
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (518) 462-2632
(Former name or former address, if changed since last report)
Item 2 - ACQUISITION OR DISPOSITION OF ASSETS
On December 2, 1998, CAI Wireless Systems, Inc. increased its ownership
interest in CS Wireless Systems, Inc., a Delaware corporation, from
approximately 60% to 94% by acquiring 3,836,035 shares of CS Wireless common
stock from Nucentrix Broadband Networks, Inc. (f/k/a Heartland Wireless
Communications, Inc.) for $1,534,000 in cash. Subsequently, CS Wireless
acquired the 3,836,035 shares of CS Wireless common stock from CAI for
$1,534,000. CS Wireless holds such shares as treasury stock. Concurrently
with the purchase by CAI, CAI, CS Wireless and Nucentrix mutually agreed to
terminate that certain Stockholders' Agreement dated as of February 23, 1996,
among CAI, CS Wireless and Nucentrix. The Stockholders' Agreement (and bylaws
of CS Wireless) required the affirmative vote of a supermajority of members of
the CS Wireless board of directors or CS Wireless stockholders, as the case may
be, for certain actions to be acted upon by the CS Wireless board or
stockholders. Consequently, percentage ownership of CS Wireless common stock
was not indicative of control of CS Wireless in all instances, so long as the
Stockholders' Agreement continued. As a result of the increased ownership in
CS Wireless and the termination of the Stockholders' Agreement, CAI may be
deemed to control CS Wireless from and after December 2, 1998. Accordingly,
the subsequent results of CS Wireless will be consolidated with the results of
CAI.
In prior periods, as a result of the effect that the Stockholders'
Agreement had on the control of CS Wireless, CAI accounted for its investment
in CS Wireless under the equity method of accounting, and the difference
between CAI's cost and the value of its pro rata ownership of the underlying CS
Wireless equity was amortized over 15 years, commensurate with the amortization
periods of goodwill and wireless channel rights, to which CAI's investment in
CS Wireless primarily related.
The purchase of the CS Wireless common stock was governed by the terms of
that certain Master Agreement dated as of December 2, 1998 among CAI, CS
Wireless and Nucentrix, a copy of which is attached hereto as Exhibit 10.1.
The Master Agreement contemplates certain other transactions between CS
Wireless and Nucentrix, including the termination of Nucentrix's rights in, and
claims against, CS Wireless. The Master Agreement is to be performed in two
steps. Stage I, which has been consummated, required the lease by CS Wireless
to Nucentrix of certain assets related to CS Wireless' Story City, Iowa market,
the sale by CS Wireless to Nucentrix of certain consumer premises equipment at
agreed upon prices and the payment by CS Wireless to Nucentrix of $366,000. In
consideration, Nucentrix leased to CS Wireless certain assets related to the
Portsmouth, New Hampshire market, effected a partial satisfaction of the so-
called Heartland Long-Term Note and agreed to various mutual cooperation
obligations relative to developmental applications filed by Nucentrix or CS
Wireless for two-way authority in adjacent and overlapping markets, including
Dallas-Ft. Worth. At the Stage II Closing, which is to occur following receipt
of certain necessary governmental approvals, CS Wireless and Nucentrix will
transfer to one another their respective ownership interests in the Story City,
Iowa and Portsmouth, New Hampshire markets, the Heartland Long-Term Note shall
be canceled and CS Wireless shall pay Nucentrix $100,000; additionally, CS
Wireless agreed to transfer certain inventory to Nucentrix. In connection with
the Master Agreement, the three Nucentrix designees to the CS Wireless board
resigned.
Item 7 - FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
a. FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
The financial statements of CS Wireless Systems, Inc. set forth on pages
F-1 through F-27 of CS Wireless Systems, Inc.'s Annual Report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), on Form 10-K for the fiscal year ended December 31, 1998 filed
with the Securities and Exchange Commission on April 15, 1999 are filed as
Exhibit 99.1 hereto pursuant to Rule 12b-23(a)(3) of the Exchange Act.
The financial statements of CS Wireless Systems, Inc. set forth on pages
3 through 7 of CS Wireless Systems, Inc.'s Quarterly Report pursuant to Section
13 or 15(d) of the Exchange Act on Form 10-Q for the fiscal quarter ended March
31, 1999 filed with the Securities and Exchange Commission on May 13, 1999 are
filed as Exhibit 99.2 hereto pursuant to Rule 12b-23(a)(3) of the Exchange Act.
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 are included herein beginning on page F-1.
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
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
<
SIGNATURE TITLE DATE
/S/ Vice President and Controller June 28, 1999
Arthur J. Miller
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
INTRODUCTION TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
We have provided unaudited combined financial statements of CAI after
giving effect to CAI's bankruptcy case and the December 2, 1998 increase in
percentage ownership by CAI in CS, which are collectively referred to as the
"pro forma" information. In presenting the unaudited pro forma combined
balance sheet, we treated CAI, CS and TelQuest Satellite Services LLC, a
subsidiary of each of CAI and CS, (i) as if these entities had been consolidated
for accounting and financial reporting purposes and (ii) as if CAI had emerged
from bankruptcy on September 30, 1998. We have presented the unaudited pro
forma combined statements of operations for three periods: the fiscal years
ended March 31, 1999 and 1998 and the six-month period ended September 30, 1998.
In presenting the unaudited pro forma combined statements of operations, we
treated CAI, CS and TelQuest (i) as if these entities had been consolidated for
accounting and financial reporting purposes, (ii) as if CAI had emerged from
bankruptcy at the beginning of each of the periods presented, and (iii) as if
CAI's percentage ownership in CS had increased at the beginning of each of the
periods presented.
The presentation of the unaudited pro forma combined financial statements
is in conformity with the so-called fresh-start accounting and financial
reporting requirements set forth in the American Institute of Certified Public
Accountants' Statement of Position 90-7 with respect to adjustments made as a
result of CAI's bankruptcy case, and the use of purchase method of accounting
and financial reporting for the increase in percentage ownership by CAI of CS
as a result of the December 2, 1998 step acquisition. You should be aware that
these unaudited pro forma combined financial statements are presented for
illustrative purposes only and may not be indicative of the operating results
or financial position that would have occurred if the bankruptcy and acquisition
had occurred as of the dates and for the periods indicated or that will occur in
the future.
THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS FOR ALL PERIODS PRESENTED
EXCLUDE ANY POSITIVE EFFECTS OF POTENTIAL COST SAVINGS THAT THE COMPANIES MAY
ACHIEVE AS A RESULT OF THE INCREASED PERCENTAGE OWNERSHIP. THE PRO FORMA
ADJUSTMENTS ARE BASED ON INFORMATION CURRENTLY AVAILABLE AND UPON CERTAIN
ASSUMPTIONS THAT THE MANAGEMENT OF CAI BELIEVES ARE REASONABLE UNDER THE
CIRCUMSTANCES. WE STRONGLY URGE YOU TO READ THE NOTES ACCOMPANYING THE
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS FOR A DESCRIPTION OF THE
ASSUMPTIONS MADE BY CAI MANAGEMENT. THERE CAN BE NO ASSURANCE THAT THE ACTUAL
ADJUSTMENTS WILL NOT DIFFER SIGNIFICANTLY FROM THE ADJUSTMENTS REFLECTED IN THE
PRO FORMA STATEMENTS. FURTHER, THE UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS PRESENTED SHOULD BE READ IN CONJUNCTION WITH THE HISTORICAL
FINANCIAL STATEMENTS OF CAI AND CS.
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
Pro Forma Combined Balance Sheet
September 30, 1998
(UNAUDITED)
(amounts in thousands)
PROFORMA ADJUSTMENTS
-----------------------------------------------------------------------
CAI CS
Historical ELIMINATIONS REORGANIZATION FAIR VALUE Pro Forma
CAI CS TELQUEST [A] [B] [C] COMBINED CAI
---------- ------- -------- ------------ -------------- ---------- ------------
ASSETS
Cash and cash equivalents $ 1,339 $ 45,394 $ 3 $ - $ - $ - $ 46,736
Restricted cash and cash
equivalents 11,204 4,222 - - 15,953 - 31,379
Debt service escrow 16,914 - - - (16,914) - -
Subscriber accounts
receivables, net 702 1,295 - - - - 1,997
Prepaid expenses 549 929 - - - - 1,478
Property and equipment,
net 41,459 54,905 87 - 264 (818) 95,897
Wireless channel rights,
net 187,730 168,247 - - 17,113 (25,639) 347,451
Investment in TelQuest
Satellite Services LLC 1,220 2,250 - (1,220) - - 2,250
Goodwill, net 22,067 - - - - (22,067) -
Debt financing costs, net 5,838 7,656 - - (5,781) (2,555) 5,158
Reorganization value in
excess of amounts
allocable to identifiable
assets - - - - 18,298 - 18,298
Other assets 3,060 5,686 91 - (394) - 8,443
-------- -------- ------ -------- ------- ------- -------
Total Assets $ 292,082 $ 290,584 $ 181 $ (1,220) $ 28,539 $ (51,079) $ 559,087
======== ======== ===== ======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES NOT SUBJECT
TO COMPROMISE
Accounts payable $ 3,125 $ 515 $ 2,409 $ - $ (600) $ - $ 5,449
Accrued expenses 22,738 6,441 318 - (12,999) - 16,498
Wireless channel rights
obligations 2,922 - - - - - 2,922
Interim debt financing 60,000 - - - 2,074 - 62,074
Long-term notes 3,765 312,161 3,175 - 100,000 (87,904) 331,197
------- -------- ------ ----- ------- ------- -------
92,550 319,117 5,902 - 88,475 (87,904) 418,140
------- -------- ------ ----- ------- ------- -------
LIABILITIES SUBJECT
TO COMPROMISE 307,793 - - - (307,793) - -
STOCKHOLDERS' EQUITY
(DEFICIT)
Preferred stock - - - - - - -
Common stock 275,771 11 - (11) (275,599) - 172
Additional paid-in
capital 101,712 154,517 5,796 (160,313) 2,238 36,825 140,775
Accumulated deficit (485,744) (183,061) (11,517) 159,104 521,218 - -
-------- -------- ------- -------- -------- ------- -------
Total Equity (108,261) (28,533) (5,721) (1,220) 247,857 36,825 140,947
-------- -------- ------- -------- -------- ------- -------
Total Liabilities and
Shareholders' Equity $ 292,082 $ 290,584 $ 181 $ (1,220) $ 28,539 $ (51,079) $ 559,087
======== ======== ====== ======== ======== ======== ========
See notes to Pro Forma Combined Balance Sheet.
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
Notes to Pro Forma Combined Balance Sheet
September 30, 1998
(unaudited)
A. ELIMINATIONS
Eliminate the investments in CS and TelQuest. Any losses attributable to
those subsidiaries in excess of the associated investments are reflected
as goodwill.
B. CAI REORGANIZATION
The reorganization pro forma entries include a) the application of fresh-
start accounting to CAI for the emergence from bankruptcy by adjusting
the assets and liabilities to their respective estimated fair values; b)
the issuance of $100 million of aggregate original principal amount of
13% senior notes and the extinguishment of long-term notes totaling
approximately $308 million, including the interest accrued thereon and
associated issuance costs; c) recording the cancellation of 40.5 million
shares of CAI common stock, no par value and the issuance of 15 million
shares of new CAI common stock, $.01 par value per share, and d)
recording the $80 million exit facility, generating net proceeds of
approximately $15.9 million after repaying all amounts outstanding under
the $60 million DIP facility and the payment of certain commitment fees
associated therewith. CAI issued 2.2 million shares of its common stock
to MLGAF as additional consideration to MLGAF for providing the exit
facility. The value of this stock is reflected as a discount to the exit
facility to be amortized over the term of the exit facility.
C. CS FAIR VALUE
Adjust the value of the CS assets and liabilities to their respective
estimated fair values pursuant to the purchase method of accounting on a
step acquisition basis.
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
Pro Forma Combined Statement of Operations
For the Fiscal Year Ended March 31, 1999
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
PROFORMA ADJUSTMENTS
-------------------------------------------------------------------
CAI CS
Historical ELIMINATIONS REORGANIZATION FAIR VALUE Pro Forma
CAI CS TELQUEST [D] [E] [F] COMBINED CAI
---------- ------- -------- ------------ -------------- ---------- ------------
Revenues $ 18,909 $ 25,376 $ 2 $ - $ - $ - $ 44,287
-------- -------- ------- ---------- ----------- -------- --------
Costs and expenses:
Programming and
license fees 14,658 16,682 - - - - 31,340
General and
administrative 27,522 20,249 9,131 - - - 56,902
Goodwill writedown - 63,907 - - - - 63,907
Depreciation and
amortization 30,611 27,503 - 375 2,425 (1,824) 59,090
-------- -------- ------ ---------- ---------- -------- --------
72,791 128,341 9,131 375 2,425 (1,824) 211,239
-------- -------- ------ ---------- ---------- -------- --------
Operating loss (53,882) (102,965) (9,129) (375) (2,425) 1,824 (166,952)
-------- -------- ------ ---------- ---------- -------- --------
Other Income (Expense)
Interest expense (33,484) (35,547) (252) - (595) (6,695) (76,573)
Equity in losses of
affiliates (83,857) (1,717) - 84,700 - - (874)
Reorganization expense (17,101) - - - - - (17,101)
Interest and other
income 4,760 1,379 5 - - - 6,144
------- ------- ------ ---------- ---------- -------- --------
(129,682) (35,885) (247) 84,700 (595) (6,695) (88,404)
------- ------- ------ ---------- ---------- -------- --------
Net loss $(183,564) $(138,850) $ (9,376) $ 84,325 $ (3,020) $ (4,871) $ (255,356)
======== ======== ======= ========== ========== ======== =========
Basic and diluted loss
per new common share $ (10.65) $ (14.81)
======== =========
Weighted new common
shares outstanding 17,241,379 17,241,379
========== ==========
SEE NOTES TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS.
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
Pro Forma Combined Statement of Operations
For the Fiscal Year Ended March 31, 1998
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
PROFORMA ADJUSTMENTS
-------------------------------------------------------------------
CAI CS
Historical ELIMINATIONS REORGANIZATION FAIR VALUE Pro Forma
CAI CS TELQUEST [D] [E] [F] COMBINED CAI
---------- ------- -------- ------------ -------------- ---------- ------------
Revenues $ 28,622 $ 27,065 $ - $ - $ - $ - $ 55,687
--------- -------- ------- ---------- ----------- -------- ---------
Costs and expenses:
Programming and
license fees 15,460 15,189 - - - - 30,649
General and
administrative 38,123 16,153 7,025 - - - 61,301
Goodwill writedown 73,500 - - - - - 73,500
Depreciation and
amortization 34,714 27,497 - - 4,476 (2,736) 63,951
--------- ------- ------ ---------- --------- --------- ---------
161,797 58,839 7,025 - 4,476 (2,736) 229,401
--------- ------- ------ ---------- --------- --------- ---------
Operating loss (133,175) (31,774) (7,025) - (4,476) 2,736 (173,714)
--------- ------- ------ ---------- --------- --------- ---------
Other Income (Expense)
Interest expense (47,227) (32,270) (45) - 11,717 (10,141) (77,966)
Equity in losses
of affiliates (31,747) (2,335) - 33,781 - - (301)
Write down of equity
investment (23,570) - - 23,570 - - -
Interest and other
income 4,459 5,680 6 (117) - - 10,028
--------- ------- ------ ---------- --------- --------- ---------
(98,085) (28,925) (39) 57,234 11,717 (10,141) (68,239)
--------- ------- ------ ---------- --------- --------- ---------
Net loss $(231,260) $(60,699) $(7,064) $ 57,234 $ 7,241 $ (7,405) $ (241,953)
========= ======= ====== ========== ========= ========= =========
Basic and diluted loss
per common share $ (5.70) $ (14.03)
========= =========
Weighted average common
shares outstanding 40,543,039 17,241,379
========== ==========
SEE NOTES TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS.
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
PROFORMA ADJUSTMENTS
-------------------------------------------------------------------
CAI CS
Historical ELIMINATIONS REORGANIZATION FAIR VALUE Pro Forma
CAI CS TELQUEST [D] [E] [F] COMBINED CAI
---------- ------- -------- ------------ -------------- ---------- ------------
Revenues $ 10,852 $ 13,253 $ - $ - $ - $ - $ 24,105
--------- ------- ------- ---------- ----------- ------- ---------
Expenses
Programming and
licensing 7,606 8,111 - - - - 15,717
General and
administrative 11,019 9,483 6,104 - - - 26,606
Goodwill writedown - 46,378 - - - - 46,378
Depreciation and
amortization 13,637 14,779 - - 2,238 (1,368) 29,286
--------- ------- ------- ---------- ----------- ------- ---------
32,262 78,751 6,104 - 2,238 (1,368) 117,987
--------- ------- ------- ---------- ----------- ------- ---------
Operating loss (21,410) (65,498) (6,104) - (2,238) 1,368 (93,882)
--------- ------- ------- ---------- ----------- ------- ---------
Other Income (Expense)
Interest expense (18,059) (17,386) (113) - 8,131 (4,994) (32,421)
Equity in losses
affiliates of (45,292) (1,071) - 46,008 - - (355)
Reorganization expense (3,955) - - - - - (3,955)
Interest and
other income 3,857 1,729 5 - - - 5,591
--------- ------- ------- ---------- ----------- ------- ---------
(63,449) (16,728) (108) 46,008 8,131 (4,994) (31,140)
--------- ------- ------- ---------- ----------- ------- ---------
Net loss $ (84,859) $(82,226) $(6,212) $ 46,008 $ 5,893 $ (3,626) $ (125,022)
========= ======== ======= ========== =========== ======== =========
Basic and diluted loss
per common share $ (2.09) $ (7.25)
========= =========
Weighted average common
shares outstanding 40,543,039 17,241,379
========== ==========
SEE NOTES TO PRO FORMA COMBINED STATEMENTS OF
OPERATIONS.
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS
Six Months Ended September 30, 1998 and the Years Ended
March 31, 1999 and 1998
(unaudited)
D. ELIMINATIONS
Eliminate the a) equity in losses of CS and TelQuest
and b) intercompany income and/or expenses that do not
offset in the consolidated statements of operations.
E. CAI REORGANIZATION
The CAI reorganization pro forma adjustments reflect a)
the increased depreciation and amortization relative to
the fresh-start adjustments made to the CAI assets upon
the emergence from bankruptcy; b) the increase in
interest expense on the $100 million of CAI senior
discounted notes and the $80 million exit facility,
offset in part by the interest eliminated on the $304
million of debt subject to compromise and the interim
debt and by the elimination of amortization of debt
financing costs that were written off.
F. CS FAIR VALUE
The adjustments reflect the decreased depreciation and
amortization and the increased interest expense
relative to the fair value adjustments made to the
assets and liabilities pursuant to valuations made
under the purchase method of accounting.