AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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COMMNET CELLULAR INC.
(Exact Name of Registrant as Specified in Its Charter)
COLORADO 4812 84-0924904
(Primary Standard Industrial Classification Code Number)
(I.R.S. Employer Identification
(State or Other Number)
Jurisdiction of
Incorporation or
Organization)
8350 EAST CRESCENT PARKWAY
SUITE 400
ENGLEWOOD, COLORADO 80111
(303) 694-3234
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
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Amy M. Shapiro, Esq.
Senior Vice President and General Counsel
Commnet Cellular Inc.
8350 East Crescent Parkway, Suite 400
Englewood, Colorado 80111
(303) 694-3234
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
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WITH COPIES TO:
Mark D. Gerstein, Esq. Philip T. Ruegger III, Esq.
Latham & Watkins Simpson Thacher & Bartlett
233 S. Wacker, Suite 5800 425 Lexington Avenue
Chicago, Illinois 60606 New York, New York 10017
(312) 876-7700 (212) 455-2000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
AMOUNT TO BE OFFERING AGGREGATE REGISTRATION
TITLE OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE OFFERING PRICE(1) FEE(2)
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Common stock, $.001 par
value per share (3).... 588,611 shares $36.00 $21,189,996.00 $4,238.00
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Series A Preferred Stock
Purchase Rights
("Rights") (4)......... * * * *
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(1) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457 under the Securities Act of 1933, based upon the
proposed offering price to existing security holders.
(2) Pursuant to Rule 457(b), the required fee of $4,238.00 is reduced by the
fee of $99,117.65 previously paid at the time of filing of preliminary
proxy materials in connection with this transaction on June 25, 1997,
resulting in a net payment of $0.
(3) This Registration Statement relates to common stock of the registrant to
be retained by holders of the registrant's common stock in the proposed
merger of AV Acquisition Corp. with and into the registrant, with the
registrant continuing as the surviving corporation in the merger.
(4) This Registration Statement also pertains to the associated Rights of the
registrant issued pursuant to a Rights Agreement dated as of December 10,
1990, as amended, between the registrant and State Street Bank and Trust
Company, as successor to the Bank of New York, as rights agent. One Right
is attached to and trades with each share of the registrant's common
stock. Until the occurrence of certain events, the Rights are not
exercisable and will not be evidenced or transferred apart from the
registrant's common stock. Any value attributable to such Rights, if any,
is reflected in the market price of the registrant's common stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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LOGO
August 12, 1997
Dear Shareholder:
You are cordially invited to a Special Meeting (the "Special Meeting") of
the shareholders of CommNet Cellular Inc. ("CommNet"), which will be held at
the Denver Marriott Tech Center, 4900 South Syracuse Street, Denver, Colorado,
on September 25, 1997, at 9:00 a.m. local time.
At the Special Meeting, the shareholders of CommNet will be asked to
consider and vote on a proposal (the "Proposal") to approve and adopt the
Agreement and Plan of Merger, dated as of May 27, 1997 (the "Merger
Agreement"), between CommNet and AV Acquisition Corp., a Delaware corporation
("Newco"), which as of the date hereof is a wholly-owned subsidiary of
Blackstone CCI Capital Partners L.P., a Delaware limited partnership
affiliated with Blackstone Management Associates II L.L.C., a Delaware limited
liability company. On the terms and subject to the conditions of the Merger
Agreement, if the shareholders of CommNet approve the Proposal, Newco will be
merged with and into CommNet (the "Merger"), with approximately 96% of the
presently issued and outstanding shares of CommNet common stock, par value
$.001 per share (including each associated Right described in the accompanying
Proxy Statement, "CommNet Common Stock"), being converted into $36.00 per
share in cash and approximately 4% of the presently issued and outstanding
shares being retained by CommNet's shareholders. Detailed information
concerning the Merger is set forth in the accompanying Proxy Statement, which
you are urged to read carefully. A copy of the Merger Agreement is attached as
Annex I to the Proxy Statement.
Approval of the Proposal requires the affirmative vote of a majority of the
outstanding shares of CommNet Common Stock held by shareholders entitled to
vote on August 11, 1997. Holders of CommNet Common Stock will be entitled to
dissenters' rights under Colorado law in connection with the Merger as
described in the accompanying Proxy Statement.
Your Board of Directors, after careful consideration and based upon the
unanimous determination of a special committee of independent directors of the
Board of Directors (the "Special Committee") that the Merger is fair to and in
the best interests of CommNet and its shareholders, has unanimously adopted
and approved the Merger Agreement and recommends that you vote FOR approval
and adoption of the Merger Agreement and the transactions contemplated
thereby. In reaching its determination, the Special Committee considered,
among other things, the opinion of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), as to the fairness of the consideration to be
received by the holders of CommNet Common Stock in the Merger from a financial
point of view. Merrill Lynch's opinion is included as Annex II to the
accompanying Proxy Statement. You are urged to read the opinion in its
entirety for further information with respect to the assumptions made, matters
considered and limits of the reviews undertaken by Merrill Lynch.
IT IS VERY IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING,
WHETHER OR NOT YOU PLAN TO ATTEND PERSONALLY. THEREFORE, YOU SHOULD COMPLETE
AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT AS SOON AS POSSIBLE IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. THIS WILL ENSURE THAT YOUR SHARES ARE
REPRESENTED AT THE SPECIAL MEETING.
Yours very truly,
/s/ Arnold C. Pohs
_____________________________________
ARNOLD C. POHS
Chairman of the Board
LOGO
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 25, 1997
----------------
To the Shareholders of
COMMNET CELLULAR INC.
NOTICE IS HEREBY GIVEN that a Special Meeting of the shareholders (including
any adjournments or postponements thereof, the "Special Meeting") of CommNet
Cellular Inc., a Colorado corporation ("CommNet"), will be held at the Denver
Marriott Tech Center, 4900 South Syracuse Street, Denver, Colorado, on
September 25, 1997, at 9:00 a.m. local time, for the following purpose, which
is more fully described in the accompanying Proxy Statement, as well as to
transact such other business as may properly come before the Special Meeting:
To consider and vote upon a proposal (the "Proposal") to approve and
adopt the Agreement and Plan of Merger, dated as of May 27, 1997 (the
"Merger Agreement"), between CommNet and AV Acquisition Corp., a
Delaware corporation ("Newco"), which as of the date hereof is a
wholly-owned subsidiary of Blackstone CCI Capital Partners L.P., a
Delaware limited partnership affiliated with Blackstone Management
Associates II L.L.C., a Delaware limited liability company. The Merger
Agreement provides, among other things, for the merger of Newco with
and into CommNet (the "Merger") pursuant to which each share of
CommNet's common stock, par value $.001 per share (including each
associated Right described in the accompanying Proxy Statement,
"CommNet Common Stock"), issued and outstanding immediately prior to
the effective time of the Merger (other than shares of CommNet Common
Stock held by the Partnerships (as defined in the accompanying Proxy
Statement), Newco, any wholly-owned subsidiary of CommNet or any
wholly-owned subsidiary of Newco, which will be cancelled and retired,
fractional shares which will be converted to cash and Dissenting Shares
(as defined in the accompanying Proxy Statement)) will be converted, at
the election of the holder, into either (a) the right to receive $36.00
in cash or (b) the right to retain one share of CommNet Common Stock.
Because 588,611 shares of CommNet Common Stock must be retained by
existing CommNet shareholders either through election or proration, the
right to receive $36.00 in cash for each share of CommNet Common Stock
or to retain that share of CommNet Common Stock is subject to
proration, as set forth in the Merger Agreement and described in the
accompanying Proxy Statement. A conformed copy of the Merger Agreement
is attached as Annex I to the accompanying Proxy Statement.
Approval of the Proposal requires the affirmative vote of a majority of the
outstanding shares of CommNet Common Stock held by shareholders entitled to
vote on August 11, 1997 (the "Record Date").
Only holders of record of shares of CommNet Common Stock at the close of
business on the Record Date are entitled to notice of, and to vote at, the
Special Meeting. A complete list of shareholders entitled to vote at the
Special Meeting will be available for examination, for proper purposes, during
ordinary business hours at CommNet's principal executive offices, 8350 East
Crescent Parkway, Suite 400, Englewood, Colorado 80111 beginning the earlier
of ten days before the Special Meeting or two business days after the date of
this notice and continuing through the Special Meeting.
In connection with the proposed Merger, holders of CommNet Common Stock as
of the Record Date are entitled to dissenters' rights under Sections 7-113-101
through 7-113-302 of the Colorado Business Corporation
Act (the "CBCA"), a copy of which is included as Annex III to the accompanying
Proxy Statement. To exercise such rights, a CommNet shareholder must: (i)
deliver to CommNet before the vote at the Special Meeting a written notice of
such shareholder's intent to demand payment for her or his shares of CommNet
Common Stock; (ii) either vote against the Proposal or abstain from voting
with respect to the Proposal; and (iii) following the Special Meeting, comply
with the provisions set forth in the CBCA. A vote against the Proposal will
not in and of itself constitute a written demand for dissenters' rights
satisfying the requirements of the CBCA. See "DISSENTING SHAREHOLDERS' RIGHTS"
in the accompanying Proxy Statement for a discussion of the procedures to be
followed in asserting dissenters' rights in connection with the proposed
Merger.
YOUR VOTE IS VERY IMPORTANT REGARDLESS OF HOW MANY SHARES OF COMMNET COMMON
STOCK YOU OWN. REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE SPECIAL MEETING,
YOU ARE REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY WITHOUT DELAY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME
PRIOR TO ITS EXERCISE BY (1) ATTENDING AND VOTING IN PERSON AT THE SPECIAL
MEETING, (2) GIVING NOTICE OF REVOCATION OF THE PROXY AT THE SPECIAL MEETING
OR (3) DELIVERING TO THE SECRETARY OF COMMNET: (A) A WRITTEN NOTICE OF
REVOCATION OR (B) A DULY EXECUTED PROXY RELATING TO THE SAME SHARES AND THE
PROPOSAL TO BE CONSIDERED AT THE SPECIAL MEETING, BEARING A DATE LATER THAN
THE PROXY PREVIOUSLY EXECUTED.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Amy M. Shapiro
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Amy M. Shapiro
Secretary
August 12, 1997
PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
A SHAREHOLDER ELECTING TO RETAIN COMMNET COMMON STOCK MUST RETURN THE
ENCLOSED FORM OF NON-CASH ELECTION TOGETHER WITH DULY ENDORSED COMMNET COMMON
STOCK CERTIFICATES AS INSTRUCTED IN THE PROXY STATEMENT BY 5:00 P.M., NEW YORK
CITY TIME, ON SEPTEMBER 24, 1997, REGARDLESS OF HOW SUCH SHAREHOLDER DECIDES
TO VOTE ITS SHARES WITH RESPECT TO THE PROPOSAL. SEE "THE MERGER--MERGER
CONSIDERATION--NON-CASH ELECTION PROCEDURE" FOR INSTRUCTIONS FOR SHAREHOLDERS
ELECTING TO RETAIN SHARES. OTHERWISE, STOCK CERTIFICATES SHOULD BE RETAINED
UNTIL LETTERS OF TRANSMITTAL ARE RECEIVED AFTER THE EFFECTIVE TIME OF THE
MERGER. SHAREHOLDERS WHO FAIL TO MAKE ANY ELECTION WILL, SUBJECT TO PRORATION,
HAVE THEIR SHARES CONVERTED TO CASH. SEE "THE MERGER--CONVERSION/RETENTION OF
SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES."
IF YOU HAVE ANY QUESTIONS OR REQUIRE ADDITIONAL COPIES OF THE PROXY
STATEMENT AND RELATED MATERIALS, PLEASE CONTACT BEACON HILL PARTNERS, INC. AT
1-800-253-3814 (TOLL FREE) OR 1-212-843-8500 (CALL COLLECT).
LOGO
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PROXY STATEMENT/PROSPECTUS
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SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 25, 1997
This Proxy Statement/Prospectus (the "Proxy Statement") is being furnished
to shareholders of CommNet Cellular Inc., a Colorado corporation (together
with its consolidated subsidiaries, except where the context otherwise
requires, "CommNet" or the "Company"), in connection with the solicitation of
proxies by the Board of Directors of the Company (the "Board of Directors" or
the "Board") for use at a special meeting of shareholders, which will be held
at the Denver Marriott Tech Center, 4900 South Syracuse Street, Denver,
Colorado, on September 25, 1997, at 9:00 a.m. local time, and at any
adjournments or postponements thereof (the "Special Meeting"). This Proxy
Statement relates to the proposed merger (the "Merger") of AV Acquisition
Corp., a Delaware corporation ("Newco"), which as of the date hereof is a
wholly-owned subsidiary of Blackstone CCI Capital Partners L.P., a Delaware
limited partnership (the "Partnership") affiliated with Blackstone Management
Associates II L.L.C., a Delaware limited liability company ("Blackstone"),
with and into the Company pursuant to the Agreement and Plan of Merger, dated
as of May 27, 1997 (the "Merger Agreement"), between Newco and the Company,
and the transactions contemplated thereby.
Pursuant to the Merger, each share of CommNet's common stock, par value
$.001 per share (including each associated Right described in "DESCRIPTION OF
COMMNET CAPITAL STOCK--Shareholder Rights Plan," the "CommNet Common Stock"),
issued and outstanding immediately prior to the effective time of the Merger
(the "Effective Time") (other than those shares described below) will be
converted, at the election of the holder thereof and subject to the terms of
the Merger Agreement, into either (a) the right to receive $36.00 in cash or
(b) the right to retain one fully paid and nonassessable share of CommNet
Common Stock. The following shares of CommNet Common Stock are not subject to
conversion pursuant to the Merger: shares held by the Partnerships (as defined
in "SUMMARY--THE MERGER--Newco and the Partnership"), Newco, any wholly-owned
subsidiary of CommNet or any wholly-owned subsidiary of Newco, which will be
cancelled and retired; fractional shares which will be converted to cash; and
Dissenting Shares (as defined in "SUMMARY--THE MERGER--Dissenting
Shareholders' Rights"). Because the number of shares of CommNet Common Stock
to be retained by existing CommNet shareholders must equal 588,611, the right
to receive $36.00 in cash per share or retain shares of CommNet Common Stock
is subject to proration as set forth in the Merger Agreement. For example, and
as further described herein in "THE MERGER--Merger Consideration," (a) a
holder of 1,000 shares who elects to retain all of such shares will receive
from 40 to 1,000 shares, and cash for the balance of such holder's shares, and
(b) a holder of 1,000 shares who elects to receive cash for all of such shares
will receive cash for a minimum of 960 shares, and will receive 0 to 40
shares, in each case depending upon the actions of other shareholders. For a
more detailed description of the proration procedures, see "THE MERGER--Merger
Consideration." A copy of the Merger Agreement is attached as Annex I to this
Proxy Statement and is incorporated herein by reference. This Proxy Statement
describes the material provisions of the Merger Agreement; however, the
description of the Merger Agreement set forth herein is subject to, and is
qualified in its entirety by reference to, the text of the Merger Agreement.
This Proxy Statement also constitutes a prospectus of the Company with
respect to the 588,611 shares of CommNet Common Stock to be retained by
shareholders in the Merger.
Approval of the proposal (the "Proposal") to approve and adopt the Merger
Agreement and the transactions contemplated thereby, including the Merger,
requires the affirmative vote of a majority of the outstanding shares of
CommNet Common Stock held by shareholders entitled to vote on August 11, 1997
(the "Record Date").
The Board of Directors, after careful consideration and based upon the
unanimous determination of a special committee of independent directors of the
Board (the "Special Committee") that the Merger is fair to and in the best
interests of CommNet and its shareholders, unanimously adopted and approved
the Merger Agreement and recommends that you vote FOR approval and adoption of
the Merger Agreement and the transactions contemplated thereby. In reaching
its determination, the Special Committee considered, among other things, the
opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"), as to the fairness of the consideration to be received by the holders
of CommNet Common Stock in the Merger from a financial point of view. Merrill
Lynch's opinion is included as Annex II to this Proxy Statement. You are urged
to read the opinion in its entirety for further information with respect to
the assumptions made, matters considered and limits of the reviews undertaken
by Merrill Lynch.
CommNet Common Stock is listed for trading on the Nasdaq National Market
("Nasdaq") under the symbol "CELS." On August 8, 1997, the closing price of
CommNet Common Stock was $35.00 per share. On May 27, 1997, the last trading
day before public announcement of the execution of the Merger Agreement, the
closing price of CommNet Common Stock on Nasdaq was $29.56 per share. If the
Merger is consummated, the Company intends to delist the CommNet Common Stock
from Nasdaq after the 90th day following the effective time of the Merger, and
consequently the Company may cease to be subject to the reporting requirements
of Section 13 of the Securities Exchange Act of 1934, as amended. See "RISK
FACTORS--Loss of Liquidity."
A SHAREHOLDER ELECTING TO RETAIN COMMNET COMMON STOCK MUST RETURN THE
ENCLOSED FORM OF NON-CASH ELECTION TOGETHER WITH DULY ENDORSED COMMNET COMMON
STOCK CERTIFICATES AS INSTRUCTED IN THIS PROXY STATEMENT BY 5:00 P.M., NEW
YORK CITY TIME, ON SEPTEMBER 24, 1997, REGARDLESS OF HOW SUCH SHAREHOLDER
DECIDES TO VOTE ITS SHARES WITH RESPECT TO THE PROPOSAL. SEE "THE MERGER--
MERGER CONSIDERATION--NON-CASH ELECTION PROCEDURE" FOR INSTRUCTIONS FOR
SHAREHOLDERS ELECTING TO RETAIN SHARES.
This Proxy Statement, the accompanying form of proxy (the "Proxy") and the
other enclosed documents are first being mailed to shareholders of the Company
on or about August 12, 1997.
SEE "RISK FACTORS" BEGINNING ON PAGE 19 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS OF COMMNET COMMON STOCK IN CONNECTION
WITH THEIR CONSIDERATION OF THE MERGER AND THEIR DETERMINATION WHETHER TO
ELECT TO RETAIN COMMNET COMMON STOCK IN CONNECTION WITH THE MERGER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement is August 12, 1997.
TABLE OF CONTENTS
PAGE
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AVAILABLE INFORMATION..................................................... 1
FORWARD LOOKING STATEMENTS................................................ 1
SUMMARY................................................................... 2
The Company............................................................. 2
The Special Meeting..................................................... 2
The Merger.............................................................. 4
Selected Consolidated Financial Data.................................... 10
Selected Pro Forma Consolidated Financial Statements (Unaudited)........ 12
Price of CommNet Common Stock........................................... 18
RISK FACTORS.............................................................. 19
THE COMPANY............................................................... 25
General................................................................. 25
Recent Developments..................................................... 25
THE SPECIAL MEETING....................................................... 26
Matters to be Considered................................................ 26
Required Vote........................................................... 26
Voting and Revocation of Proxies........................................ 26
Record Date; Stock Entitled to Vote; Quorum............................. 27
Dissenters' Rights...................................................... 27
Solicitation of Proxies................................................. 27
THE MERGER................................................................ 28
Background of the Merger................................................ 28
Recommendation of the Special Committee and the Board of Directors;
Reasons for the Merger................................................. 32
Opinion of Merrill Lynch................................................ 34
Merger Consideration.................................................... 37
Effective Time of the Merger............................................ 40
Conversion/Retention of Shares; Procedures for Exchange of Certificates. 41
Fractional Shares....................................................... 42
Conduct of Business Pending the Merger.................................. 42
Conditions to Consummation of the Merger................................ 42
Certain Effects of Recapitalization..................................... 43
Certain Federal Income Tax Consequences................................. 43
Accounting Treatment.................................................... 47
Effect on Options and Employee Benefit Matters.......................... 47
Interests of Certain Persons in the Merger.............................. 47
Resale of CommNet Common Stock Following the Merger..................... 48
Merger Financings....................................................... 48
Conversion of Newco Stock............................................... 50
Pro Forma Consolidated Financial Statements (Unaudited)................. 51
DESCRIPTION OF COMMNET CAPITAL STOCK...................................... 57
Common Stock............................................................ 57
Noncumulative Voting.................................................... 57
Dividend Policy......................................................... 57
Preferred Stock......................................................... 57
Shareholder Rights Plan................................................. 57
Charter Documents of CommNet Following the Merger....................... 59
i
PAGE
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CERTAIN PROVISIONS OF THE MERGER AGREEMENT................................. 60
The Merger............................................................... 60
Representations and Warranties........................................... 60
Certain Pre-Closing Covenants............................................ 61
No Solicitation of Transactions.......................................... 61
Listing and Exchange Act Registration.................................... 62
Board of Directors and Officers of the Company Following the Merger...... 62
Stock and Employee Benefit Plans......................................... 64
Access to Information.................................................... 64
Cooperation and Best Efforts............................................. 64
Indemnification and Insurance............................................ 64
Conditions to the Consummation of the Merger............................. 64
Termination.............................................................. 65
Amendment and Waiver..................................................... 67
Expenses and Certain Required Payments................................... 67
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............. 69
REGULATORY APPROVALS....................................................... 70
NEWCO AND THE PARTNERSHIP.................................................. 70
DISSENTING SHAREHOLDERS' RIGHTS............................................ 70
CERTAIN PENDING LITIGATION................................................. 72
OTHER INFORMATION AND SHAREHOLDER PROPOSALS................................ 73
EXPERTS.................................................................... 73
LEGAL COUNSEL.............................................................. 73
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 73
Annex I Agreement and Plan Merger dated as of May 27, 1997
Annex II Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated dated
May 27, 1997
Annex III Dissenters' Rights Provisions of the Colorado Business Corporation
Act
ii
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN AS CONTAINED IN THIS PROXY STATEMENT, IN
CONNECTION WITH THE MERGER, INCLUDING A SHAREHOLDER'S ELECTION WHETHER TO
RETAIN SHARES OF COMMNET COMMON STOCK IN CONNECTION WITH THE MERGER, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS
HAVING BEEN AUTHORIZED BY COMMNET OR NEWCO. THIS PROXY STATEMENT DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES TO WHICH IT RELATES IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON
TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROXY STATEMENT NOR ANY OFFER OR SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
AVAILABLE INFORMATION
CommNet is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the web site (http://www.sec.gov) maintained by the
Commission, or at its regional offices located at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. CommNet Common Stock is listed on the Nasdaq
National Market. Reports and other information concerning CommNet can also be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006. As described herein, if the
Merger is consummated, the Company intends to delist the CommNet Common Stock
from Nasdaq after the 90th day following the effective time of the Merger, and
consequently the Company may cease to be subject to the reporting requirements
of Section 13 of the Exchange Act. If the Company ceases to be subject to such
reporting requirements, the Company does not intend to provide reports or
information to its public shareholders other than pursuant to the right to
inspect the books and records of the Company as required by Colorado law. See
"RISK FACTORS--Loss of Liquidity."
This Proxy Statement also constitutes a prospectus of the Company filed as
part of a Registration Statement on Form S-4 (the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"). This
Proxy Statement omits certain information contained in the Registration
Statement and the exhibits thereto. Reference is made to the Registration
Statement and related exhibits for further information with respect to the
Company and the retention of CommNet Common Stock. Statements contained herein
concerning the contents of any document referred to herein are qualified by
reference to the copy of such document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission.
FORWARD LOOKING STATEMENTS
This Proxy Statement includes "forward-looking statements" within the
meaning of various provisions of the Securities Act and the Exchange Act,
including, without limitation, statements under "THE COMPANY" and "THE
MERGER--Background of the Merger." All statements included in this Proxy
Statement, other than statements of historical facts, that address activities,
events or developments that the Company expects or anticipates will or may
occur in the future, including such things as future capital expenditures
(including the amount and nature thereof), business strategy and measures to
implement strategy, competitive strengths, goals, expansion and growth of the
Company's business and operations, plans, references to future success and
other such matters are forward-looking statements. Such statements represent
the Company's reasonable judgment on the future and are subject to risks and
uncertainties that could cause the Company's actual results and financial
position to differ materially. Such factors include, but are not limited to: a
change in economic conditions in the Company's markets which adversely affects
the level of demand for wireless services; greater than anticipated
competition resulting in price reductions, new product offerings or higher
customer acquisition costs; better than expected customer growth necessitating
increased investment in network capacity; negative economies that could result
if one or more agreements to manage markets are not renewed; increased
cellular fraud; the impact of new business opportunities requiring significant
initial investments; and the impact of deployment of new technologies on
capital spending.
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement. Reference is made to the more detailed information contained
in this Proxy Statement and the Annexes hereto. Shareholders of the Company are
urged to read this Proxy Statement and the Annexes hereto in their entirety.
FOR A DISCUSSION OF CERTAIN IMPORTANT FACTORS THAT SHOULD BE CONSIDERED BY
HOLDERS OF COMMNET COMMON STOCK IN CONNECTION WITH THEIR CONSIDERATION OF THE
MERGER, INCLUDING CERTAIN RISKS RELATED TO CONTINUING TO HOLD COMMNET COMMON
STOCK, SEE "RISK FACTORS."
THE COMPANY
CommNet was organized under the laws of Colorado in 1983. Cellular, Inc.
Financial Corporation ("CIFC") subsequently was organized to provide financing
to affiliates of the Company. Cellular Inc. Network Corporation ("CINC") also
subsequently was organized to acquire interests in cellular licenses. CIFC and
CINC are wholly-owned subsidiaries of CommNet. Those corporations and
partnerships through which the Company holds ownership interests in cellular
licensees and those cellular licensees in which the Company holds a direct
ownership interest are referred to herein as "affiliates." Any reference herein
to an "affiliate" does not necessarily imply that the Company exercises, or has
the power to exercise, control over the management and policies of such entity.
THE SPECIAL MEETING
TIME AND PLACE; RECORD DATE
The Special Meeting of shareholders of CommNet will be held on September 25,
1997, at 9:00 a.m. local time, at the Denver Marriott Tech Center, 4900 South
Syracuse Street, Denver, Colorado. Shareholders of record at the close of
business on the Record Date will be entitled to notice of, and to vote at, the
Special Meeting. The date of the mailing of this Proxy Statement to
shareholders of the Company will be on or about August 12, 1997. At the close
of business on the Record Date, there were 13,766,340 shares of CommNet Common
Stock outstanding and entitled to vote.
MATTERS TO BE CONSIDERED
At the Special Meeting, the shareholders of CommNet will consider and vote
upon a proposal (the "Proposal") to approve and adopt the Merger Agreement,
including the Merger, pursuant to which Newco will merge with and into the
Company, the shareholders of CommNet will receive the consideration described
below in this Summary under "THE MERGER--Effect of the Merger" and the
shareholders of Newco, which as of the date hereof is only the Partnership,
will receive 3,939,167 shares of CommNet Common Stock.
REQUIRED VOTE
Approval of the Proposal will require the affirmative vote of a majority of
the outstanding shares of CommNet Common Stock held by shareholders entitled to
vote on the Record Date. If such approval is received, the Effective Time of
the Merger is expected to occur five business days after the satisfaction or
waiver of the conditions described below in this Summary under "THE MERGER--
Conditions to the Merger." See "THE SPECIAL MEETING--Required Vote."
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VOTING OF PROXIES
All shares of CommNet Common Stock represented by a properly executed Proxy
received in time for the Special Meeting will be voted in the manner specified
in the Proxy. Proxies that do not contain any instruction to vote for or
against or to abstain from voting on a particular matter will be voted in
accordance with the recommendation of the Board of Directors. See "THE SPECIAL
MEETING--Voting and Revocation of Proxies."
It is not expected that any matter other than as referred to herein will be
brought before the shareholders at the Special Meeting. If, however, other
matters are properly presented, the persons named as proxies will vote in
accordance with their best judgment with respect to such matters, unless
authority to do so is withheld in the Proxy.
ADJOURNMENTS; REVOCABILITY OF PROXIES
If the Special Meeting is adjourned for any reason, approval of the Proposal
shall be considered and voted upon by shareholders at the subsequent,
reconvened meeting, if any.
You may revoke your Proxy at any time prior to its exercise (i) by attending
the Special Meeting and voting in person (although attendance at the Special
Meeting will not in and of itself constitute revocation of a Proxy), (ii) by
giving notice of revocation of your Proxy at the Special Meeting or (iii) by
delivering (a) a written notice of revocation of your Proxy or (b) a duly
executed Proxy relating to the matters to be considered at the Special Meeting,
bearing a date later than the Proxy previously executed, to the Secretary of
CommNet, 8350 East Crescent Parkway, Suite 400, Englewood, Colorado 80111.
Unless revoked in one of the manners set forth above, Proxies in the form
enclosed will be voted at the Special Meeting in accordance with your
instructions or, if no instructions are given, in accordance with the
recommendations of the Board of Directors.
SOLICITATION OF PROXIES
The cost of soliciting Proxies will be borne by the Company. The Company may
solicit Proxies and the Company's directors, officers and employees may also
solicit Proxies by telephone, telegram or personal interview. Such directors,
officers and employees will not be additionally compensated for any such
solicitation but may be reimbursed for reasonable out-of-pocket expenses in
connection therewith. Arrangements will be made to furnish copies of Proxy
materials to fiduciaries, custodians and brokerage houses for forwarding to
beneficial owners of CommNet Common Stock. Such persons will be paid reasonable
out-of-pocket expenses.
Beacon Hill Partners, Inc. ("Beacon Hill") will assist in the solicitation of
Proxies by the Company for an estimated fee of $4,500 plus reasonable out-of-
pocket expenses.
HOLDERS OF COMMNET COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR
PROXY CARDS. SHAREHOLDERS ELECTING TO RETAIN SHARES MUST SEND STOCK
CERTIFICATES WITH THEIR FORM OF ELECTION IN ACCORDANCE WITH THE PROCEDURES SET
FORTH IN "THE MERGER--NON-CASH ELECTION PROCEDURE," REGARDLESS OF HOW SUCH
SHAREHOLDERS DECIDE TO VOTE THEIR SHARES WITH RESPECT TO THE PROPOSAL.
SECURITY OWNERSHIP OF MANAGEMENT
As of the Record Date, directors and executive officers of the Company were
beneficial owners of an aggregate of 835,168 shares (approximately 5.8% of the
outstanding shares) of CommNet Common Stock, 698,938 shares of which were
represented by immediately exercisable options to acquire CommNet Common Stock.
The directors and executive officers of the Company have indicated that they
intend to vote their shares of CommNet Common Stock in favor of the Proposal.
See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
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THE MERGER
EFFECT OF THE MERGER
At the Effective Time, Newco will be merged with and into CommNet and CommNet
will continue as the surviving corporation in the Merger. Subject to the
effects of proration as described herein, (i) each issued and outstanding share
of CommNet Common Stock (other than Excluded Shares (as defined below)) will be
converted into the right to receive in cash from CommNet following the Merger
an amount equal to $36.00 (the "Cash Price") and (ii) each issued and
outstanding share of CommNet Common Stock with respect to which an election to
retain CommNet Common Stock has been made and not revoked or forfeited in
accordance with the Merger Agreement (an "Electing Share") will be converted
into the right to retain one fully paid and nonassessable share of CommNet
Common Stock, including the associated Right (a "Non-Cash Election Share"). The
following shares of CommNet Common Stock are not subject to conversion pursuant
to the Merger: fractional shares which will be converted to cash; Dissenting
Shares; and CommNet Common Stock held by the Partnerships, Newco, any wholly-
owned subsidiary of Newco or any wholly-owned subsidiary of the Company, which
shares will be cancelled and retired (all such shares, together with the
Electing Shares, collectively referred to herein as the "Excluded Shares"). The
Rights associated with the shares of CommNet Common Stock that are converted
into the right to receive the Cash Price will be extinguished in the Merger for
no additional consideration.
Each shareholder of CommNet may elect to receive the Cash Price with respect
to some of the shareholder's shares of CommNet Common Stock and Non-Cash
Election Shares with respect to other shares of CommNet Common Stock, provided
that the aggregate number of shares of CommNet Common Stock to be retained at
the Effective Time must equal 588,611 (the "Non-Cash Election Number").
The Merger contemplates that approximately 96% of the presently issued and
outstanding shares of CommNet Common Stock will be converted into cash, as
described above, and that approximately 4% of the presently issued and
outstanding shares will be retained by shareholders. Because 588,611 shares of
CommNet Common Stock must be retained by existing CommNet shareholders in the
Merger, shareholders who do not elect to retain any shares may, due to
proration, be required to retain some shares of CommNet Common Stock. In
addition, shareholders who elect to retain shares may, due to proration, retain
shares of CommNet Common Stock and receive cash in amounts which vary from the
amounts such holders elected.
For example, and as further described below in "THE MERGER--Merger
Consideration," a shareholder holding 1,000 shares and electing to retain all
of them will receive from 40 to 1,000 shares, depending upon the actions of
other shareholders. A shareholder holding 1,000 shares and electing to convert
all of them into the right to receive the Cash Price with respect thereto will
receive the Cash Price for from 960 to 1,000 of such shares and will receive
from 0 to 40 shares, depending upon the actions of other shareholders. See "THE
MERGER--Merger Consideration" for other examples illustrating the potential
effects of proration. The foregoing examples assume there are no Dissenting
Shares. If there are a substantial number of Dissenting Shares, and the number
of Electing Shares is less than the Non-Cash Election Number, the proration
factor would result in more than 4% of the shares of CommNet Common Stock being
prorated into Non-Cash Election Shares.
At the Effective Time, the total number of outstanding shares of CommNet
Common Stock will decrease from approximately 13.8 million to approximately 4.5
million, 3,939,167 of which will be held by shareholders of Newco upon the
conversion of Newco common stock into CommNet Common Stock in the Merger, and
588,611 of which will be retained by existing shareholders of the Company. The
588,611 shares (representing approximately 4% of the presently issued and
outstanding CommNet Common Stock) to be retained by existing shareholders in
the Merger will represent approximately 13% of the shares of the Company issued
and outstanding immediately after the Merger, and the 3,939,167 shares to be
owned by the shareholders of Newco as a result of the Merger will represent
approximately 87% of the shares of the Company issued and outstanding
immediately after the Merger. Retention by existing shareholders of
approximately 13% of the shares of the CommNet Common Stock issued and
outstanding immediately after the Merger will enable such shareholders to
continue to participate in the equity of the Company and is intended to permit
the treatment of the Merger as a recapitalization for financial reporting
purposes. See "THE MERGER--Accounting Treatment."
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RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS
The Board of Directors, after careful consideration and based upon the
unanimous determination of the Special Committee that the Merger is fair to and
in the best interests of the Company and its shareholders, unanimously adopted
and approved the Merger Agreement and recommends that the Company's
shareholders approve and adopt the Merger Agreement and the transactions
contemplated thereby. The determination of the Special Committee with respect
to the Merger is based on a number of factors. See "THE MERGER--Background of
the Merger" and "--Recommendation of the Special Committee and the Board of
Directors; Reasons for the Merger."
OPINION OF MERRILL LYNCH
On May 27, 1997, Merrill Lynch delivered its written opinion (the "Merrill
Lynch Opinion") to the Special Committee to the effect that, as of such date,
and based upon the assumptions made, matters considered and limits of review
set forth in such opinion, the proposed consideration to be received by the
holders of CommNet Common Stock (other than by the Partnerships, Newco, any
wholly-owned subsidiary of the Company or any wholly-owned subsidiary of Newco
and other than Dissenting Shares) in the Merger is fair from a financial point
of view to such holders. A copy of the Merrill Lynch Opinion, which sets forth
the assumptions made, matters considered and certain limitations on the scope
of review undertaken by Merrill Lynch, is attached as Annex II to this Proxy
Statement. Shareholders are urged to read such opinion in its entirety.
NON-CASH ELECTION
Holders of CommNet Common Stock will be entitled to make an unconditional
election (a "Non-Cash Election"), on or prior to the Election Date (as defined
below), to retain Non-Cash Election Shares. If, however, the number of Electing
Shares exceeds the Non-Cash Election Number, then (i) the number of Electing
Shares to be converted into the right to retain Non-Cash Election Shares will
be determined by multiplying the total number of Electing Shares covered by a
holder's Non-Cash Election by a proration factor determined by dividing the
Non-Cash Election Number by the total number of Electing Shares and (ii) such
number of Electing Shares will be so converted. All Electing Shares, other than
those shares converted into the right to retain Non-Cash Election Shares as
described in the immediately preceding sentence, will be converted into cash
(on a consistent basis among shareholders who made the Non-Cash Election, pro
rata to the number of shares as to which they made such election) as if such
shares were not Electing Shares.
If a shareholder elects to make a Non-Cash Election and receives cash as a
result of the proration procedures described below, such shareholder may
receive dividend treatment (rather than capital gain treatment) for any cash
received in the Merger as a result of such proration procedures. See "RISK
FACTORS--Non-Cash Election and Proration into Cash--Possible Dividend
Treatment" and "THE MERGER--Certain Federal Income Tax Consequences."
If the number of Electing Shares is less than the Non-Cash Election Number,
then (i) all Electing Shares will be converted into the right to retain Non-
Cash Election Shares in accordance with the Merger Agreement, and (ii) (A)
additional shares of CommNet Common Stock, other than Excluded Shares, will be
converted into the right to retain Non-Cash Election Shares, which number of
additional shares shall be determined by multiplying the total number of shares
of CommNet Common Stock outstanding at the Effective Time, other than Electing
Shares and Dissenting Shares, by a proration factor determined by dividing (x)
the difference between the Non-Cash Election Number and the number of Electing
Shares by (y) the total number of shares of CommNet Common Stock outstanding at
the Effective Time, other than Electing Shares and Dissenting Shares and (B)
such additional shares of CommNet Common Stock will be converted into the right
to retain Non-Cash Election Shares on a consistent basis among shareholders who
hold shares of CommNet Common Stock, other than Excluded Shares, as to which
they did not make the Non-Cash Election, pro rata based upon the number of
shares as to which they did not make such election. See "THE MERGER--Merger
Consideration--Non-Cash Election."
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SHAREHOLDERS THAT DO NOT MAKE A NON-CASH ELECTION WILL RECEIVE AN AMOUNT
EQUAL TO $36.00 IN CASH FROM THE COMPANY FOLLOWING THE MERGER FOR EACH SHARE OF
COMMNET COMMON STOCK (OTHER THAN FRACTIONAL SHARES WHICH WILL BE CONVERTED TO
CASH, DISSENTING SHARES AND SHARES HELD BY THE PARTNERSHIPS, NEWCO, ANY WHOLLY-
OWNED SUBSIDIARY OF NEWCO OR ANY WHOLLY-OWNED SUBSIDIARY OF THE COMPANY) HELD
BY SUCH SHAREHOLDER, SUBJECT TO THE PRORATION PROCEDURES DESCRIBED BELOW. SEE
"THE MERGER--MERGER CONSIDERATION" FOR EXAMPLES ILLUSTRATING THE POTENTIAL
EFFECTS OF PRORATION.
NON-CASH ELECTION PROCEDURE
Holders of CommNet Common Stock electing to retain Non-Cash Election Shares
must properly complete and sign the Non-Cash Election Form (the "Form of
Election") accompanying this Proxy Statement, and such Form of Election,
together with all certificates representing shares of CommNet Common Stock as
to which such Non-Cash Election is being made, duly endorsed in blank or
otherwise in form acceptable for transfer on the books of the Company (or by
appropriate guarantee of delivery, as set forth in such Form of Election), must
be received by State Street Bank and Trust Company (the "Exchange Agent") at
one of the addresses listed on the Form of Election by 5:00 p.m., New York City
time, on September 24, 1997, the business day next preceding the date of the
Special Meeting (the "Election Date"), and must not be withdrawn. After the
Election Date, shares for which a Non-Cash Election has been made may not be
withdrawn. Due to the requirement to obtain regulatory approval of the Merger,
a period of time could elapse between the Election Date and the Effective Time.
See "THE MERGER--Merger Consideration--Non-Cash Election Procedure."
FRACTIONAL SHARES
Fractional shares of CommNet Common Stock will not be issued in the Merger.
Holders of CommNet Common Stock otherwise entitled to a fractional share of
CommNet Common Stock following the Merger will be paid cash in lieu of such
fractional share determined and paid as described in "THE MERGER--Fractional
Shares."
CONDITIONS TO THE MERGER
The obligations of CommNet and Newco to consummate the Merger are subject to
various conditions, including, without limitation, obtaining requisite approval
of CommNet's shareholders, obtaining the requisite approval of relevant
government authorities, including the Federal Communications Commission
("FCC"), and the absence of any injunction or other legal restraint or
prohibition preventing the consummation of the Merger.
Newco's obligations to effect the Merger are further subject, among other
things, to (i) the Company amending the terms of its 11 3/4% Senior
Subordinated Discount Notes due 2003 and its 11 1/4% Subordinated Notes due
2005 (collectively, the "Notes"), and purchasing Notes in accordance with the
provisions of the Merger Agreement (the "Debt Tender Offers"), (ii) CIFC
repaying all amounts outstanding under the Consolidated Loan Agreement dated as
of September 6, 1995 (the "CoBank Credit Agreement") among CIFC, CoBank ACB and
the several lenders parties thereto ("CoBank"), (iii) the Company or CIFC
receiving financing proceeds on terms and conditions set forth in the
commitment letter from The Chase Manhattan Bank and Chase Securities Inc. (the
"Commitment Letter") or upon terms and conditions which are substantially
equivalent thereto and, to the extent that any of the terms and conditions are
not contemplated by the Commitment Letter, on terms and conditions reasonably
satisfactory to Newco, (iv) the absence of certain litigation, (v) since May
27, 1997, no material adverse change relating to the Company having occurred
and being continuing, (vi) all regulatory approvals, as described in the Merger
Agreement, having been obtained, having been declared or filed or having
occurred, as the case may be, and all such required regulatory approvals being
in full force and effect and (vii) Newco having been reasonably satisfied that
the Merger will be recorded as a recapitalization for financial reporting
purposes.
As of March 31, 1997, $36,927,000 was outstanding under the CoBank Credit
Agreement, $150,303,000 in accreted carrying value of the 11 3/4% Senior
Subordinated Discount Notes due 2003 was outstanding and $80,000,000 in
aggregate principal amount of the 11 1/4% Subordinated Notes due 2005 was
outstanding. An aggregate of approximately $298,690,000 will be required to
refinance the CoBank Credit Agreement and the
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Notes. It is expected that financing proceeds and equity contributions
aggregating approximately $825 million will be required to refinance the CoBank
Credit Agreement and the Notes, to pay for cash consideration to CommNet
shareholders in connection with the Merger, to settle outstanding Options (as
defined in "THE MERGER--Effect on Options and Employee Benefit Matters") and to
pay for fees and expenses in connection with the Merger. The equity
contribution to be made by the Partnerships is expected to constitute
approximately $142 million of such amount. It is also a condition to the Merger
that Newco is reasonably satisfied that the Merger will be recorded as a
recapitalization for financial reporting purposes. See "CERTAIN PROVISIONS OF
THE MERGER AGREEMENT--Conditions to the Consummation of the Merger" and
"REGULATORY APPROVALS."
REGULATORY APPROVALS
In order to consummate the Merger, the FCC must approve the transfer of
control of the Company to the Partnership. The Company and the Partnership
completed filing joint applications seeking these approvals on June 20, 1997.
The FCC will consider whether the Partnership is qualified to control the
Company's FCC licenses and authorizations and whether the public interest,
convenience and necessity will be served by the transfer of control to the
Partnership. The Company and the Partnership believe that the joint
applications demonstrate compliance with these standards.
CERTAIN EFFECTS OF RECAPITALIZATION
Upon consummation of the Merger, shares of CommNet Common Stock which are
retained by shareholders in the Merger will represent approximately 13% of the
outstanding CommNet Common Stock. Because the Merger will be accounted for as a
recapitalization, it will have no impact on the historical basis of the
Company's assets and liabilities, one result of which will be a reduction in
shareholders' equity of the Company to a deficit of approximately $347 million.
See "RISK FACTORS--Substantial Leverage; Shareholders' Deficit; Liquidity."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is generally anticipated that each shareholder will recognize capital gain
or loss equal, in each case, to the difference between the cash proceeds
received pursuant to the Merger and the shareholder's adjusted tax basis in the
CommNet Common Stock surrendered in exchange therefor. It is possible, however,
that if the Merger does not result in an adequate reduction in the CommNet
Common Stock ownership of a shareholder, by reason of such shareholder's
election to retain CommNet Common Stock or the attribution of CommNet Common
Stock from a related party, then, to the extent the Company has sufficient
earnings and profits, a substantial portion of the cash received by such
shareholder may be treated as a dividend, taxable as ordinary income. A
shareholder will not recognize any gain or loss as a result of the Merger to
the extent such shareholder elects to retain, or is prorated into retaining,
shares of CommNet Common Stock.
For a more detailed summary of the material U.S. federal income tax
consequences of the Merger, including consequences to certain foreign
shareholders, and backup withholding and information reporting requirements,
see "THE MERGER--Certain Federal Income Tax Consequences."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING ON THE
PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER, IT IS RECOMMENDED THAT HOLDERS OF
COMMNET COMMON STOCK CONSULT THEIR TAX ADVISORS CONCERNING THE FEDERAL (AND ANY
STATE, LOCAL AND FOREIGN) TAX CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR
CIRCUMSTANCES.
TREATMENT OF COMPANY STOCK OPTIONS
It is anticipated that, unless exercised or cancelled pursuant to its terms
or in exchange for cash equal to the difference between $36.00 and the exercise
price of each Option (as defined under "THE MERGER--Effect on Stock and
Employee Benefit Matters") prior to the Effective Time, each Option granted
under the Stock Option Plans (as defined under "THE MERGER--Effect on Stock and
Employee Benefit Matters") will remain
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outstanding immediately following the Effective Time and that such Options will
be subject to adjustment pursuant to the terms of the Stock Option Plans. It is
anticipated that the Stock Option Plans will otherwise terminate as of the
Effective Time. See "THE MERGER--Interests of Certain Persons in the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and executive officers of the Company may have interests,
described herein, that present them with potential conflicts of interest in
connection with the Merger. The Special Committee was aware of the potential
conflicts described below and considered them in addition to the other matters
described under "THE MERGER--Recommendation of the Special Committee and the
Board of Directors; Reasons for the Merger."
Shares of CommNet Common Stock held by officers and directors of the Company,
subject to any Non-Cash Election made with respect thereto, will be converted
into the right to receive the same consideration as shares of CommNet Common
Stock held by other shareholders.
Pursuant to the Merger Agreement, the Company has agreed for six years after
the Effective Time to indemnify all present directors and officers of the
Company and will, subject to certain limitations, maintain for six years
directors' and officers' liability insurance and fiduciary liability insurance
policies containing terms and conditions which are not less advantageous than
any such policies which may be in effect prior to the Effective Time. See
"CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Indemnification and Insurance."
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time: (i) by either the Company or Newco, if the Merger is not completed by
November 27, 1997, although this deadline will be extended to February 27, 1998
if the completion of the Merger is delayed only because certain governmental
approvals have not been received; (ii) by either the Company or Newco, if the
shareholders of the Company do not approve the Merger Agreement; (iii) by
either the Company or Newco, if a governmental authority, such as a court,
permanently prohibits the Merger; (iv) by Newco, if the Board of Directors: (a)
withdraws or modifies in any detrimental manner its approval or recommendation
of the Merger; (b) fails to mail this Proxy Statement to the Company's
shareholders or to include its recommendation of the Merger in such Proxy
Statement; (c) fails to recommend rejection of any third party's tender or
exchange offer for more than 20% of the CommNet Common Stock; (d) approves or
recommends any acquisition of the Company by a third party; or (e) approves or
recommends a sale of a material portion of the Company's stock or assets; (v)
by the Company, if the Board of Directors accepts a Superior Proposal (as
defined below) from a third party after determining in good faith, after
consultation with legal counsel as to its fiduciary obligations under
applicable law, that the failure to accept such proposal would constitute a
breach of its fiduciary duties; or (vi) by either the Company or Newco, if the
other party breaches or fails to comply with any of its material
representations or warranties or obligations under the Merger Agreement, unless
such breach or failure to comply can be cured within 90 days and the party
continues to use its best efforts to remedy such breach or failure to comply.
If (i) the Board of Directors withdraws its approval of the Merger or its
favorable recommendation of the Merger and at that time there is an offer from
a third party to enter into an acquisition transaction with the Company; (ii)
the Company terminates the Merger Agreement in order to accept a Superior
Proposal from a third party after its Board of Directors determines in good
faith, after consultation with legal counsel as to its fiduciary obligations
under applicable law, that the failure to accept such proposal would constitute
a breach of its fiduciary duties; or (iii) the Company's shareholders fail to
approve the Merger and, at that time, there is an offer from a third party to
enter into an acquisition transaction with the Company and, within 12 months of
the termination, the Company enters into an agreement with any third party with
respect to an acquisition transaction, then, in any such case, the Company will
be required to pay Blackstone Management Partners L.P., an affiliate of
Blackstone ("BMP"), an alternative transaction fee and expenses, the aggregate
amount of which cannot exceed $14 million. See "CERTAIN PROVISIONS OF THE
MERGER AGREEMENT--Termination."
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NEWCO AND THE PARTNERSHIP
Newco, a Delaware corporation and as of the date hereof a wholly-owned
subsidiary of Blackstone CCI Capital Partners L.P., a Delaware limited
partnership (the "Partnership"), was organized in connection with the Merger
and has not carried on any activities to date other than those incident to its
formation and the transactions contemplated by the Merger Agreement. The
general partner of the Partnership is Blackstone Management Associates II
L.L.C., a Delaware limited liability company ("Blackstone"). The principal
assets of the Partnership consist of the shares of Newco. It is expected that
prior to the Effective Time, partnerships affiliated with Blackstone will
acquire interests in Newco (any such partnerships, together with the
Partnership, hereinafter referred to as the "Partnerships"). The principal
offices of Newco and the Partnership are located at 345 Park Avenue, New York,
New York, 10154; telephone number (212) 935-2626. See "NEWCO AND THE
PARTNERSHIP."
CONVERSION OF NEWCO STOCK
As a result of the Merger, in connection with an equity contribution of
approximately $142 million, the Partnerships will receive 3,939,167 shares of
CommNet Common Stock, which will represent approximately 87% of the shares of
CommNet Common Stock expected to be outstanding immediately after the Merger.
DISSENTING SHAREHOLDERS' RIGHTS
Under Colorado law, shareholders of the Company who provide a written notice
of intention to demand payment to the Company prior to the Special Meeting and
do not vote in favor of the Proposal ("Dissenting Shares") are entitled to
receive fair value for their shares of CommNet Common Stock and may be entitled
to an appraisal by the state district court of the fair value of such shares,
provided that they comply with all requirements under Colorado law. TO PERFECT
THEIR DISSENTERS' RIGHTS, COMMNET SHAREHOLDERS MUST COMPLY WITH ALL CONDITIONS
WHICH ARE SUMMARIZED UNDER "DISSENTING SHAREHOLDERS' RIGHTS" AND ARE SET FORTH
IN SECTIONS 7-113-101 THROUGH 7-113-302 OF THE CBCA, WHICH IS REPRODUCED AS
ANNEX III TO THIS PROXY STATEMENT.
RISK FACTORS
Holders of CommNet Common Stock should carefully consider the following
factors related to the retention of CommNet Common Stock in connection with
their consideration of the Merger. As a result of the Merger (i) Blackstone
will have control of the Company, including the ability to elect directors,
(ii) there will be a substantial decrease in the number of shares of CommNet
Common Stock outstanding, which is expected to result in a substantial decrease
in the liquidity of the CommNet Common Stock, (iii) the Company intends to
delist the CommNet Common Stock from Nasdaq after the 90th day following the
effective time of the Merger, and the Company may also cease to be subject to
the reporting requirements of Section 13 of the Exchange Act and (iv) the terms
of the Merger Financings (as defined in "THE MERGER--Merger Financings") are
expected to subject the Company to significant operating and financial
restrictions and to substantially increase the leverage of the Company. The
grant or sale by the Company of shares of CommNet Common Stock or options to
purchase CommNet Common Stock will dilute the holdings of the Company's
shareholders. The risk of proration, as described in greater detail herein, may
subject holders of CommNet Common Stock to dividend treatment for tax purposes
with respect to cash received in the Merger; the effects of proration may also
result in shareholders receiving consideration which is different from the
consideration specified in their respective elections. In addition, the
Company's business entails certain risks relating to (i) historical operating
losses and net losses, (ii) the holding company structure of the Company and
certain credit agreement restrictions, (iii) the nature of the Company's
ownership of licenses, (iv) the Company's dependence on management agreements
in markets which are not controlled by the Company, (v) the increase of
competition and new technologies in the communications industry, (vi) certain
contingencies that may affect the value of the cellular licenses held by the
Company, (vii) regulatory considerations, and (viii) the Company's dependence
on certain key personnel. See "RISK FACTORS" below for a more detailed
discussion of the above mentioned and other risk factors.
9
SELECTED CONSOLIDATED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following selected consolidated financial data as of and for each of the
five years in the period ended September 30, 1996 are derived from consolidated
financial statements of the Company which have been audited by Ernst & Young
LLP, independent auditors. The selected financial data for the six months ended
March 31, 1997 and 1996 are derived from the unaudited financial statements of
the Company, which, in the opinion of the Company, reflect all adjustments
necessary for a fair presentation of the results for the unaudited periods.
Operating results for the six months ended March 31, 1997 are not necessarily
indicative of the results that may be achieved for the fiscal year ending
September 30, 1997. The data should be read in conjunction with the financial
statements and other financial information included or incorporated by
reference in this Proxy Statement. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
SIX MONTHS
YEARS ENDED SEPTEMBER 30, ENDED MARCH 31,
-------------------------------------------------------- ----------------------
1996 1995 1994 1993 1992 1997 1996
---------- ---------- ---------- --------- --------- ---------- ----------
STATEMENT OF OPERATIONS
DATA (1):
Revenues................ $ 115,196 $ 89,844 $ 61,360 $ 33,689 $ 14,906 $ 66,230 $ 48,661
Costs and expenses (net
of amounts allocated to
affiliates):
Cellular operations.... 76,123 68,929 50,856 30,289 18,138 45,489 35,799
Corporate.............. 880 1,327 406 (1,119) 997 150 510
Total depreciation and
amortization.......... 21,840 17,595 12,650 19,950 14,115 10,995 10,857
Write-down of
investment in cellular
system equipment...... -- -- 3,117 -- -- -- --
---------- ---------- ---------- --------- --------- ---------- ----------
Operating income (loss). 16,353 1,993 (5,669) (15,431) (18,344) 9,596 1,495
Equity in net loss of
affiliates............. (1,636) (5,028) (5,092) (6,339) (8,852) (1,932) (1,443)
Minority interest in net
income of consolidated
affiliates............. (1,123) (964) (544) -- -- (861) (369)
Gains (losses) on sales
of affiliates and
other.................. (250) 19,471 3,912 7,821 14,339 -- (250)
Interest expense........ (28,208) (26,044) (21,339) (16,428) (14,801) (14,675) (13,991)
Interest income......... 10,468 13,046 12,081 10,703 10,616 3,583 6,469
---------- ---------- ---------- --------- --------- ---------- ----------
Income (loss) before
income taxes and
extraordinary charge... (4,396) 2,474 (16,651) (19,674) (17,042) (4,289) (8,089)
Income tax expense...... -- 400 100 -- -- -- --
---------- ---------- ---------- --------- --------- ---------- ----------
Income (loss) before
extraordinary charge... (4,396) 2,074 (16,751) (19,674) (17,042) (4,289) (8,089)
Extraordinary charge.... -- (2,012) -- (2,992) -- -- --
---------- ---------- ---------- --------- --------- ---------- ----------
Net income (loss)....... $ (4,396) $ 62 $ (16,751) $ (22,666) $ (17,042) $ (4,289) $ (8,089)
========== ========== ========== ========= ========= ========== ==========
Income (loss) per common
share before
extraordinary charge... $ (.32) $ .17 $ (1.45) $ (2.30) $ (2.44) $ (0.31) $ (0.60)
Extraordinary charge.... -- (.16) -- (.35) -- -- --
---------- ---------- ---------- --------- --------- ---------- ----------
Net income (loss) per
common share........... $ (.32) $ .01 $ (1.45) $ (2.65) $ (2.44) $ (0.31) $ (0.60)
========== ========== ========== ========= ========= ========== ==========
Weighted average shares
outstanding............ 13,727,203 12,153,592 11,577,191 8,551,785 6,984,541 13,769,998 13,589,433
========== ========== ========== ========= ========= ========== ==========
BALANCE SHEET DATA (END
OF PERIOD) (1):
Working capital......... $ 16,246 $ 39,911 $ 25,525 $ 63,561 $ 29,478 $ 26,279 $ 28,364
Investments in and
advances to affiliates. 57,245 56,919 61,909 55,892 52,020 58,667 60,540
Net property and
equipment.............. 118,099 105,289 79,918 53,460 44,210 122,231 109,414
Total assets............ 331,837 325,668 282,638 269,524 208,364 351,755 327,780
Long-term debt.......... 245,845 246,357 243,913 259,676 189,430 269,827 249,780
Total liabilities....... 268,855 267,012 266,731 278,946 204,124 295,840 270,442
Shareholders' equity
(deficit) (2).......... 62,982 58,656 15,906 (9,422) 4,240 55,915 57,338
See Notes to Selected Consolidated Financial Data
10
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) Markets in which the Company holds a greater than 50% net interest are
reflected on a consolidated basis in the Company's consolidated financial
statements. Markets in which the Company holds a net interest which is 50%
or less but 20% or greater are accounted for under the equity method.
Markets in which the Company holds a less than 20% interest are accounted
for under the cost method. The following table sets forth the number of
markets and relevant accounting methods at the end of each of the last five
fiscal years.
SEPTEMBER 30, MARCH 31,
------------------------ ---------
1996 1995 1994 1993 1992 1997 1996
---- ---- ---- ---- ---- ---- ----
Consolidated.............................. 46 45 42 36 28 46 44
Equity.................................... 18 20 35 38 37 18 20
Cost...................................... 18 18 18 6 18 18 18
--- --- --- --- --- --- ---
Total..................................... 82 83 95 80 83 82 82
=== === === === === === ===
(2) No cash dividends were declared or paid during any period presented.
11
SELECTED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following selected pro forma consolidated financial statements have been
derived by the application of pro forma adjustments to the Company's historical
consolidated financial statements incorporated by reference herein. The pro
forma consolidated statements of operations for the fiscal year ended September
30, 1996 and the six months ended March 31, 1997 give effect to the Merger and
related transactions as if such transactions had been consummated as of October
1, 1995. The pro forma consolidated balance sheet gives effect to the Merger
and related transactions as if such transactions had occurred as of March 31,
1997. The adjustments are described in the accompanying notes. The selected pro
forma consolidated financial statements should not be considered indicative of
actual results that would have been achieved had the Merger and related
transactions been consummated on the date or for the periods indicated and do
not purport to indicate balance sheet data or results of operations as of any
future date or for any future period. The selected pro forma consolidated
financial statements should be read in conjunction with the Company's
historical financial statements and the notes thereto incorporated herein by
reference. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE."
At the Effective Time, Newco will be merged with and into CommNet and CommNet
will continue as the surviving corporation in the Merger. Newco, a Delaware
corporation, was organized in connection with the Merger and has not carried on
any activities to date other than those incident to its formation and the
transactions contemplated by the Merger Agreement.
The pro forma adjustments were applied to the respective historical
consolidated financial statements to reflect and account for the Merger as a
recapitalization. Accordingly, the historical basis of the Company's assets and
liabilities has not been impacted by the transaction.
12
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
MARCH 31, 1997
-------------------------------------
PRO FORMA
ASSETS HISTORICAL ADJUSTMENTS (A) PRO FORMA
- ------ ---------- --------------- ---------
(AMOUNTS IN THOUSANDS)
Current assets:
Cash and cash equivalents...... $ 23,281 $ (8,997) $ 14,284
Accounts receivable, net....... 19,281 19,281
Inventory and other............ 4,140 4,140
--------- --------- ---------
Total current assets......... 46,702 (8,997) 37,705
Investment in and advances to
affiliates...................... 58,667 58,667
Investment in cellular system
equipment....................... 18,308 18,308
Property and equipment, net...... 122,231 122,231
FCC licenses and filing rights,
net............................. 100,029 100,029
Deferred loan costs and other,
net............................. 5,818 19,881 25,699
--------- --------- ---------
$ 351,755 $ 10,884 362,639
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
- ------------------------------------
Current liabilities:
Accounts payable............... $ 9,782 $ 9,782
Accrued liabilities............ 7,862 7,862
Accrued interest............... 2,460 $ (2,460) --
Current portion of secured bank
financing..................... 319 (319) --
--------- --------- ---------
Total current liabilities.... 20,423 (2,779) 17,644
Long-term debt:
Secured bank financing......... 36,608 (36,608) --
New bank financing............. -- 683,200 683,200
Note payable and other long-
term debt..................... 2,916 2,916
11 3/4% senior subordinated
discount notes................ 150,303 (150,303) --
11 1/4% subordinated notes..... 80,000 (80,000) --
Minority interests............... 5,590 5,590
Shareholders' equity (deficit):
Preferred Stock................ -- --
Common Stock................... 14 (9) 5
Capital in excess of par value. 165,324 129,421 294,745
Accumulated deficit............ (109,423) (532,038) (641,461)
--------- --------- ---------
Total shareholders' equity
(deficit)................... 55,915 (402,626) (346,711)
--------- --------- ---------
$ 351,755 $ 10,884 $ 362,639
========= ========= =========
See Notes to Pro Forma Consolidated Balance Sheet
13
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
The pro forma financial data have been derived by the application of pro
forma adjustments to the Company's historical financial statements as of the
date noted. The Merger will be accounted for as a recapitalization which will
have no impact on the historical basis of the Company's assets and liabilities.
The pro forma financial data assume that there are no dissenting shareholders
with respect to the Merger.
(a) Pro forma adjustments to the pro forma consolidated balance sheet are
summarized in the following table (amounts in thousands) and are
described in the notes that follow.
ISSUANCE OF PAYMENT OF
SHARES AND CASH MERGER REPAYMENT OF TRANSACTION FEES
INCURRENCE CONSIDERATION SETTLEMENT EXISTING AND NET
OF DEBT (1) (2) OF OPTIONS (3) INDEBTEDNESS (4) EXPENSES (5) ADJUSTMENT
----------- ------------- -------------- ---------------- ---------------- ----------
Cash and cash
equivalents............ $825,010 $(474,385) $(23,432) $(298,690) $(37,500) $ (8,997)
Deferred loan costs..... (5,234) 25,115 19,881
Accrued interest........ (2,460) (2,460)
Current portion of
secured bank financing. (319) (319)
Existing secured bank
financing.............. (36,608) (36,608)
New bank financing...... 683,200 683,200
11 3/4% sr. subordinated
discount notes......... (150,303) (150,303)
11 1/4% subordinated
notes.................. (80,000) (80,000)
Common stock............ 4 (13) (9)
Capital in excess of par
value.................. 141,806 (12,385) 129,421
Accumulated deficit..... (474,372) (23,432) (34,234) (532,038)
--------
(1) The estimated sources and uses of cash are calculated as follows:
(AMOUNTS IN
THOUSANDS)
-----------
Sources of cash:
New bank financing......................................... $683,200
Common equity.............................................. 141,810
--------
Total.................................................... $825,010
========
Uses of cash:
Value of common stock and options.......................... $519,007
Value of retained common stock............................. (21,190)
--------
Payment of cash merger consideration and settlement of
options................................................... 497,817
Estimated transactions fees and expenses................... 37,500
Repayment of existing debt and accrued interest............ 298,690
Use of existing cash and cash equivalents.................. (8,997)
--------
Total.................................................... $825,010
========
(2) The adjustment represents the payment of cash merger consideration to
existing shareholders.
(3) The adjustment represents the repurchase of all of the outstanding stock
options at the difference between $36.00 per share and the exercise price
of the options, assuming the Company and the respective option holders
each agree to such repurchase.
(4) The adjustment represents the repayment of existing indebtedness and
related accrued interest by the Company, including estimated debt
retirement premium, and assumes all of the holders of the Notes tender
their Notes in the Debt Tender Offers. In addition, unamortized deferred
loan costs of $5,234,000 related to existing indebtedness will be written
off as an extraordinary charge upon repayment of the existing
indebtedness.
(5) The adjustment represents the estimated transaction fees and expenses of
$37,500,000. The portion of estimated transaction fees and expenses
attributable to the new bank financing totals $25,115,000 which will be
recorded as deferred loan costs and will be amortized over the term of the
new bank financing. Such estimated deferred loan costs include estimated
fees and expenses payable to banks and related advisors. The remaining
estimated transaction fees and expenses of $12,385,000, comprised
principally of (a) professional and advisory fees and expenses, and (b)
miscellaneous fees and expenses such as printing and filing fees, will be
recorded as a reduction of capital in excess of par value. See "NEWCO AND
THE PARTNERSHIP."
14
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED SEPTEMBER 30, 1996
----------------------------------
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- --------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Revenues:
Cellular service.......................... $ 82,799 $ 82,799
In-roaming................................ 29,588 29,588
Equipment sales........................... 2,809 2,809
-------- --------
115,196 115,196
Costs and expenses:
Cellular operations:
Cost of cellular service................ 21,577 21,577
Cost of equipment sales................. 10,588 10,588
General and administrative.............. 23,038 23,038
Marketing and selling................... 20,920 20,920
Depreciation and amortization........... 18,149 18,149
Corporate:
General and administrative.............. 7,346 $ 500 (a) 7,846
Depreciation and amortization........... 3,691 (1,828)(b) 1,863
Less amounts allocated to
nonconsolidated affiliates............. (6,466) (6,466)
-------- -------- --------
98,843 (1,328) 97,515
-------- -------- --------
Operating income............................ 16,353 1,328 17,681
Equity in net loss of affiliates............ (1,636) (1,636)
Minority interest in net income of
consolidated affiliates.................... (1,123) (1,123)
Loss on sales of affiliates and other....... (250) (250)
Interest expense............................ (28,208) (2,791)(b) (70,106)
(39,107)(c)
Interest income............................. 10,468 (351)(d) 10,117
-------- -------- --------
Net loss.................................... $ (4,396) $(40,921) $(45,317)
======== ======== ========
Net loss per common share................... $ (0.32) $ (10.01)
======== ========
Weighted average shares outstanding......... 13,727 4,528
======== ========
See Notes to Pro Forma Consolidated Statements of Operations
15
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED MARCH 31, 1997
----------------------------------
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- --------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Revenues:
Cellular service ......................... $ 49,838 $ 49,838
In-roaming ............................... 14,844 14,844
Equipment sales........................... 1,548 1,548
-------- --------
66,230 66,230
Costs and expenses:
Cellular operations:
Cost of cellular service ............... 13,262 13,262
Cost of equipment sales ................ 6,244 6,244
General and administrative ............. 14,172 14,172
Marketing and selling .................. 11,811 11,811
Depreciation and amortization........... 9,905 9,905
Corporate:
General and administrative ............. 3,153 $ 250 (a) 3,403
Depreciation and amortization .......... 1,090 (367)(b) 723
Less amounts allocated to
nonconsolidated affiliates............. (3,003) (3,003)
-------- -------- --------
56,634 (117) 56,517
-------- -------- --------
Operating income............................ 9,596 117 9,713
Equity in net loss of affiliates............ (1,932) (1,932)
Minority interest in net income of
consolidated affiliates.................... (861) (861)
Interest expense............................ (14,675) (1,395)(b) (35,102)
(19,032)(c)
Interest income............................. 3,583 (225)(d) 3,358
-------- -------- --------
Net loss.................................... $ (4,289) $(20,535) $(24,824)
======== ======== ========
Net loss per common share................... $ (0.31) $ (5.48)
======== ========
Weighted average shares outstanding......... 13,770 4,528
======== ========
See Notes to Pro Forma Consolidated Statements of Operations
16
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The pro forma financial data have been derived by the application of pro
forma adjustments to the Company's historical financial statements for the
periods noted. The Merger will be accounted for as a recapitalization which
will have no impact on historical basis of the Company's assets and
liabilities. The pro forma financial data assumes that there are no dissenting
shareholders to the Merger.
The consolidated pro forma statements of operations do not include pro forma
adjustments for (a) compensation expense related to stock options which are
assumed to be cancelled in conjunction with the Merger, (b) the write-off of
deferred loan costs associated with the existing indebtedness, and (c) the
estimated debt retirement premium for the early retirement of existing
indebtedness. Such items represent non-recurring expenses which the Company
anticipates will be recorded in the consolidated statement of operations for
the period including the Merger. Tax benefit has not been recognized for any
adjustments to the pro forma statements of operations, consistent with the
historical financial statements for the periods presented.
(a) The adjustment represents an annualized monitoring fee payable to BMP.
(b) The pro forma adjustment to amortization expense reflects the following:
SIX MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
1996 1997
------------- ----------
(AMOUNTS IN THOUSANDS)
Amortization of existing deferred loan costs..... $(1,828) $ (367)
Amortization of estimated deferred loan costs.... 2,791 1,395
------- ------
Total adjustment............................. $ 963 $1,028
======= ======
Amortization expense on deferred loan costs has been reclassified from
corporate depreciation and amortization expense to interest expense for pro
forma presentation.
(c) The pro forma adjustment to interest expense reflects the following:
SIX MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
1996 1997
------------- ----------
(AMOUNTS IN THOUSANDS)
Interest expense on existing indebtedness....... $(27,776) $(14,435)
Interest expense on new bank financing (at an
assumed weighted average rate of 9.70%)........ 66,248 33,124
Fees relating to new bank financing............. 635 343
-------- --------
Total adjustment............................ $ 39,107 $ 19,032
======== ========
A 0.125% increase or decrease in the assumed weighted average interest rate
applicable to the new bank financing would change the pro forma interest
expense and net income by $854,000 for the year ended September 30, 1996
and $427,000 for the six months ended March 31, 1997. Each $1,000,000
increase or decrease in the revolving credit facility under the new bank
financing would change the pro forma interest expense by $85,000 for the
year ended September 30, 1996 and $42,500 for the six months ended March
31, 1997. All of the Notes are assumed to have been repurchased in the Debt
Tender Offers.
(d) The adjustment eliminates interest income on cash and cash equivalents
assumed to be used in the Merger and related transactions.
17
PRICE OF COMMNET COMMON STOCK
The CommNet Common Stock is listed and traded on Nasdaq under the symbol
"CELS." The following table shows, for the fiscal periods indicated, the high
and low sale prices of a share of CommNet Common Stock on Nasdaq. The Company's
first fiscal quarter ends December 31, the second fiscal quarter ends March 31,
the third fiscal quarter ends June 30 and the fourth fiscal quarter ends
September 30.
HIGH LOW
------ ------
FISCAL 1995
First Quarter............................................ $29.25 $22.25
Second Quarter........................................... 28.50 22.75
Third Quarter............................................ 28.75 24.56
Fourth Quarter........................................... 30.50 27.25
FISCAL 1996
First Quarter............................................ $29.25 $24.75
Second Quarter........................................... 29.50 25.50
Third Quarter............................................ 35.38 28.75
Fourth Quarter........................................... 32.00 25.38
FISCAL 1997
First Quarter............................................ $31.13 $27.13
Second Quarter........................................... 29.25 24.63
Third Quarter............................................ 34.75 24.75
Fourth Quarter (to August 8, 1997)....................... 35.25 34.50
On May 27, 1997, the last trading day before public announcement of the
execution of the Merger Agreement, the last sale price of CommNet Common Stock
on Nasdaq was $29.56 per share. On August 8, 1997, the most recent practicable
date prior to the distribution of this Proxy Statement, the last sale price of
CommNet Common Stock on Nasdaq was $35.00 per share. CommNet shareholders
should obtain current market prices for CommNet Common Stock.
The Company has not paid cash dividends on the CommNet Common Stock and does
not anticipate that any cash dividends will be paid on the CommNet Common Stock
in the foreseeable future. Furthermore, certain financing agreements to which
the Company is a party contain, and the agreements related to the Merger
Financings are expected to contain, provisions which restrict the payment by
the Company of dividends or distributions on the CommNet Common Stock (other
than dividends or distributions payable in shares of CommNet Common Stock).
18
RISK FACTORS
Holders of CommNet Common Stock should carefully consider the following
factors in connection with their consideration of the Merger and their
decision whether to retain CommNet Common Stock.
CONTROL BY BLACKSTONE
Upon completion of the Merger, approximately 87% of the outstanding shares
of CommNet Common Stock will be held by the shareholders of Newco. As of the
date hereof, the sole shareholder of Newco is the Partnership, of which
Blackstone is the sole general partner. Blackstone will be a general partner
in the other Partnerships. Accordingly, Blackstone will control the Company
and have the power to elect all of its directors, appoint new management and
approve or reject any action requiring the approval of the holders of CommNet
Common Stock, including adopting amendments to the Company's Articles of
Incorporation and approving mergers or sales of all or substantially all of
the Company's assets. The directors elected by the Partnerships will have the
authority to effect decisions affecting the capital structure of the Company,
including the issuance of additional capital stock, the implementation of
stock repurchase programs and the declaration of dividends. There can be no
assurance that the capital policies of the Company in effect prior to the
Merger will continue after the Merger.
In addition, the existence of a controlling shareholder may have the effect
of making it more difficult for a third party to acquire, or of discouraging a
third party from seeking to acquire, a majority of the outstanding CommNet
Common Stock. A third party would be required to negotiate any such
transaction with the Partnerships and the interests of the Partnerships may be
different from the interests of other CommNet shareholders.
LOSS OF LIQUIDITY
Following the consummation of the Merger, there will be a substantial
decrease in the number of shares of CommNet Common Stock held by holders other
than the Partnerships, which is expected to result in a substantial decrease
in the liquidity of CommNet Common Stock. It is also anticipated that the
volume of shares of CommNet Common Stock trading following the Merger will be
substantially smaller than the trading volume prior to the Merger. Although
the Company has agreed not to take any action for at least 90 days after the
Effective Time to cause the CommNet Common Stock to be delisted from Nasdaq or
to cause the Company to cease to be subject to the reporting requirements of
Section 13 of the Exchange Act, after such 90-day period, the Company intends
to delist the CommNet Common Stock from Nasdaq and there can be no assurance
that after such 90-day period the Company will continue to be subject to such
reporting requirements. See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT--
Listing and Exchange Act Registration." Upon any such delisting, shares of
CommNet Common Stock would trade only in the over-the-counter market. Although
prices in respect of trades would be published by the National Association of
Securities Dealers, Inc. periodically in the "pink sheets," quotes for such
shares would not be readily available. If the Company ceases to be subject to
the reporting requirements of Section 13 of the Exchange Act, the Company does
not intend to provide reports or information to its public shareholders other
than pursuant to the right to inspect the books and records of the Company as
required by Colorado law.
SUBSTANTIAL LEVERAGE; SHAREHOLDERS' DEFICIT; LIQUIDITY
In connection with consummating the transactions contemplated by the Merger
Agreement, the Company will enter into the Merger Financings to, among other
things: (i) fund payment of the cash consideration in the Merger, (ii) repay
or repurchase certain indebtedness of the Company, (iii) pay the fees and
expenses incurred in connection with the Merger and (iv) provide for working
capital requirements and general corporate purposes after the Effective Time.
Although the definitive terms of the Merger Financings have not been finalized
as of the date of this Proxy Statement, the terms of the Merger Financings
will include significant operating and financial restrictions, such as limits
on the Company's ability to incur indebtedness, create liens, sell assets,
engage in mergers or acquisitions, make investments and pay dividends. See
"THE MERGER--Merger Financings."
19
As of March 31, 1997, after giving pro forma effect to the Merger and the
Merger Financings and the application of the net proceeds therefrom, the
Company would have had (i) $686,116,000 of consolidated indebtedness and (ii)
$346,711,000 of shareholders' deficit due to the distribution to shareholders
and all Merger-related expenses being charged to shareholders' equity. The pro
forma level of consolidated indebtedness is substantially greater than the
Company's pre-Merger indebtedness. Such high leverage may have important
consequences for the Company including: (a) the Company's ability to obtain
additional financing for future acquisitions (if any), working capital,
capital expenditures or other purposes may be impaired or any such financing
may not be on terms favorable to the Company; (b) a substantial portion of the
Company's cash flow available from operations after satisfying certain
liabilities arising in the ordinary course of business will be dedicated to
the payment of principal of and interest on its indebtedness, thereby reducing
funds that would otherwise be available to the Company for future business
opportunities and other purposes; (c) a substantial decrease in net operating
cash flows or an increase in expenses of the Company could make it difficult
for the Company to meet its debt service requirements or force it to modify
its operations; and (d) high leverage may place the Company at a competitive
disadvantage and may make it vulnerable to a downturn in its business or the
economy generally. See "THE MERGER--Merger Financings."
In addition, the substantial leverage will have a negative effect on the
Company's net income. Pro forma net loss for the fiscal year ended September
30, 1996 would have been $45,317,000, as compared to $4,396,000 for the same
period on a historical basis, and pro forma interest expense for fiscal 1996
would have been $70,106,000, as compared to $28,208,000 for the same period on
a historical basis.
After the Merger is consummated, the Company's principal sources of
liquidity are expected to be cash flow from operations and borrowings under
the Revolving Facility (as defined under "THE MERGER--Merger Financings"). It
is anticipated that the Company's principal uses of liquidity will be to
provide working capital, to meet debt service requirements and other
liabilities arising in the ordinary course and to finance the Company's
strategic plans. The Revolving Facility will be available for the Company's
working capital needs and a portion thereof will be available for the issuance
of letters of credit. The Term Loan Facilities (as defined under "THE MERGER--
Merger Financings") will be drawn in full upon consummation of the Merger. See
"THE MERGER--Merger Financings."
POTENTIAL DILUTION OF COMMNET SHAREHOLDERS
Following the Merger, the Company may grant or sell, or grant options to
purchase, additional shares of CommNet Common Stock to members of the
Company's management or otherwise permit management to participate in the
equity of the Company. The foregoing could dilute the holdings of CommNet
shareholders and the holdings of the Partnerships. See "THE MERGER--Interests
of Certain Persons in the Merger."
Although the Company anticipates that a substantial number of Options will
be cancelled prior to the Effective Time (in exchange for a cash amount equal
to the difference between $36.00 and the exercise price of the applicable
Option), some existing Options may remain outstanding following the Merger,
which could also dilute the holdings of CommNet shareholders. See "THE
MERGER--Effect on Stock and Employee Benefit Matters."
RISK OF PRORATION
As described herein, the election of holders of CommNet Common Stock to
retain Non-Cash Election Shares or to receive the Cash Price pursuant to the
Merger is subject to the proration procedures of the Merger Agreement.
Accordingly, if the Merger is consummated, shareholders will not necessarily
receive the type of consideration specified in their respective elections. See
"THE MERGER--Merger Consideration--CommNet Common Stock."
NON-CASH ELECTION AND PRORATION INTO CASH--POSSIBLE DIVIDEND TREATMENT
As described herein, a shareholder may make a Non-Cash Election and thereby
elect to retain shares of CommNet Common Stock in the Merger. However, if the
number of Electing Shares exceeds the Non-Cash Election Number, such electing
shareholder may receive cash for a portion of his or her CommNet Common
20
Stock as a result of the proration procedures described herein under "THE
MERGER--Merger Consideration--Non-Cash Election." In such event, a shareholder
may receive dividend treatment (rather than the generally more favorable
capital gain treatment) for any cash received in the Merger as a result of
such proration procedures. See "THE MERGER--Certain Federal Income Tax
Consequences" for a more detailed discussion of the tax consequences of
receiving cash.
OPERATING LOSSES AND NET LOSSES
Until fiscal 1995, the Company had experienced operating and net losses from
inception. Operating income and net loss in fiscal year 1996 were $16,353,000
and $4,396,000, respectively. Operating income and net income in fiscal year
1995 were $1,993,000 and $62,000, respectively. However, net income in fiscal
1995 included gains on sales of affiliates of $19,471,000. Operating losses in
fiscal years 1993 and 1994 were $15,431,000 and $5,669,000, respectively
(including depreciation, amortization and write-downs of switch assets related
to an upgrade program of $19,950,000 and $15,767,000, respectively), and net
losses for the same periods were $22,666,000 and $16,751,000, respectively.
There is no assurance that future operations will be profitable, generate
positive cash flow or provide funds sufficient to meet the debt service
requirements of the Merger Financings.
HOLDING COMPANY STRUCTURE; CREDIT AGREEMENT RESTRICTIONS
A substantial portion of the Company's assets and operations represents
investments in its subsidiaries and affiliates and, to that extent, the
Company is effectively a holding company. The Company must rely on
distributions, dividends, loan repayments and other intercompany cash flows
from its subsidiaries and affiliates to generate the funds necessary to meet
the Company's debt service obligations.
Presently, the CoBank Credit Agreement contains restrictions on the ability
of CIFC and any subsidiary or affiliate of the Company which has borrowed from
CIFC to make distributions to the Company. The Company has guaranteed the
obligations of CIFC to CoBank and has granted a first security interest in all
of the assets of the Company as security for such guaranty. The assets of
affiliates which borrow funds from CIFC are pledged to CIFC, which in turn
assigns such pledges to CoBank.
The New Credit Agreement (as defined under "THE MERGER--Merger Financings")
will include similar limitations on dividends and distributions on capital
stock, and a grant of a first priority security interest in substantially all
the capital stock and equity interests held by the Company and any of its
wholly-owned subsidiaries.
Claims of other creditors of the Company's subsidiaries and affiliates,
including CoBank and lenders for the Merger Financings, tax authorities, trade
creditors and creditors of those affiliates which have financing sources in
addition to the Company, generally will have priority as to the assets of such
subsidiaries and affiliates over the claims of the Company.
NATURE OF COMPANY'S OWNERSHIP OF LICENSES
Many of the Company's interests in cellular systems are owned through
affiliates that are partners in limited partnerships which are the licensees
for their respective systems. In those partnerships in which the Company's
affiliate is a limited partner or is one of several general partners, certain
decisions, such as the timing and amount of cash distributions and sale or
liquidation of the partnership, may not be subject to a vote of the limited
partners or may require a greater percentage vote than that owned by the
Company's affiliate. In those partnerships that are not managed by the
Company, the Company is dependent on the managing partner to meet the
licensee's obligations under the FCC's rules and regulations. There can be no
assurance that any partnership in which the Company holds an interest will
make decisions on such matters which will be in the Company's best interest or
that other partners' conduct and character will not adversely affect the
continuing qualification of licensees in which the Company holds an interest.
DEPENDENCE ON MANAGEMENT AGREEMENTS
The Company manages the operations of 56 cellular telephone systems, 21 of
which are not controlled by the Company. In the markets managed but not
controlled by the Company, there can be no assurance that the
21
management agreements for such markets will not be terminated or that such
agreements will be renewed and, if renewed, that such agreements can be
renewed on terms favorable to the Company. The termination, non-renewal or
unfavorable renewal of any of the Company's management agreements could have
an adverse effect on the Company's cash flows and earnings. A decrease in the
number of pops managed by the Company could require a reduction in overhead or
might affect the ability of the Company to offer services cost effectively in
the remaining managed markets.
COMPETITION; NEW TECHNOLOGIES; OBSOLESCENCE
The FCC licenses two cellular carriers in each market and the Company
expects there will continue to be competition from the other licensee
authorized to serve each cellular market in which the Company operates.
Competition for subscribers between cellular licensees in a given license area
is based principally upon the services and enhancements offered, the technical
quality of the cellular system, customer service, system coverage and capacity
and price. The Company's competitors may have financial resources which are
substantially greater than those of the Company and its partners. In addition,
FCC policy requires cellular licensees to provide, on a nondiscriminatory
basis, cellular service to resellers that purchase blocks of mobile telephone
numbers and then resell them to the public. This may create added competition
at the retail level.
As a result of recent regulatory and legislative initiatives, the Company's
cellular operations are subject to increased competition from entities using
or proposing to use other comparable communications technologies. The
broadband Personal Communications Service ("PCS"), licensed by the FCC to
operate in the 1850 to 1990 MHz band, provides digital wireless two-way
telecommunications services for voice, data and other transmissions. When a
PCS system employs microcell technology, as is common, it uses a network of
small, low-powered transceivers placed throughout a neighborhood, business
complex, community or metropolitan area to provide customers with mobile and
portable voice and data communications. PCS customers have dedicated personal
telephone numbers and communicate using small digital radio handsets that
could be carried in a pocket or purse. Many PCS licensees who will compete
with the Company have access to substantial capital resources. In addition,
many of these companies, or their predecessors and affiliates, already operate
large cellular telephone systems and thus bring significant wireless
experience to this new marketplace.
Enhanced Specialized Mobile Radio ("ESMR") is a two-way wireless
communications service that incorporates characteristics of cellular
technology, including multiple low power transmitters and interconnection with
the landline telephone network. ESMR service may compete with cellular service
by possibly providing currently higher quality digital communication
technology, lower rates, enhanced privacy and additional features such as
electronic mail and built-in paging.
The Company may also face competition from satellite-based services.
Satellite-based services are distance-insensitive and are therefore not
subject to the geographic constraints facing the Company and its
terrestrially-based competitors. Iridium, Inc., an affiliate of Motorola,
Inc., has launched the first satellite in its multi-satellite system of "low-
earth-orbit" satellites, which will also be able to provide voice and data
services to end users in the Company's service areas. In addition, other
companies with financially capable investors have been licensed or are seeking
licenses to provide services by satellite that could also provide competition
to the Company.
The Company is unable to predict whether such competing technologies will be
successful and, if successful, whether any will provide significant
competition for the Company. However, the Company believes the likelihood of
near-term competition from such services is limited because the areas in which
it operates are not densely populated and because satellite services may have
a higher cost structure than the Company's systems. There can be no assurance,
however, that one or more of the technologies currently used by the Company in
its business will not become inferior or obsolete at some time in the future.
VALUE OF CELLULAR LICENSES DEPENDENT UPON SUCCESS OF OPERATIONS AND INDUSTRY;
EXPANSION OF SPECTRUM
A substantial portion of the Company's assets consists of interests in
cellular licenses and in entities holding cellular licenses. The value of
cellular licenses will depend significantly upon the success of the operations
of
22
such licensees and the growth of the industry generally. In addition, with the
emergence of new technologies and the resulting expansion of the spectrum
available for communications services, the FCC has auctioned licenses to an
increasing number of service providers, thereby possibly diminishing the value
of the licenses currently held by the Company. Although a market for interests
in cellular licenses currently exists and the Company believes that such a
market will continue, there can be no assurance that this will be the case.
Even if a market does continue in the future, the values obtainable for
interests in cellular licenses in such a market may be significantly lower
than current values.
REGULATORY CONSIDERATIONS
The licensing, construction, operation, sale and acquisition of cellular
systems are regulated by the FCC. In addition, certain aspects of cellular
operations, including but not limited to rates and resale of cellular
services, may be subject to public utility regulation in the state in which
the service is provided. The ongoing operations of the Company may require
permits, licenses and other authorization from regulatory authorities
(including but not limited to the FCC) not now held by the Company. While the
Company expects that it will receive requisite authorizations and approvals in
the ordinary course of business, no assurance can be given that the applicable
regulatory authority will grant such authorizations and approvals in a timely
manner, if at all. Moreover, changes in regulation, such as increased price
regulation or deregulation of interconnection arrangements, could adversely
affect the Company's financial condition and operating results. Under the FCC
rules, licenses for cellular systems are generally issued for ten-year terms.
Although a licensee may apply for renewal and, under certain circumstances,
may be entitled to a renewal expectancy, renewal is not automatic. The
Company's renewal applications may be subject to petitions to deny or
competing applications. Therefore, no assurance can be given that any license
will be renewed.
Many aspects of the regulations affecting the Company have recently been
impacted by the enactment of the Telecommunications Act of 1996 and are
currently the subject of administrative rulemakings that are significant to
the Company. Neither the outcome of these rulemakings nor their impact upon
the cellular telephone industry or the Company can be predicted at this time.
However, certain provisions of the new statute relating to interconnection,
telephone number portability, equal access and resale could subject the
Company to additional costs and increased competition.
From time to time, legislation that potentially could affect the Company,
either beneficially or adversely, is proposed by federal or state legislators.
There can be no assurance that legislation will not be enacted by the federal
or state governments, or that regulations will not be adopted or actions taken
by the FCC or state regulatory authorities that might adversely affect the
business of the Company. Changes such as the allocation by the FCC of radio
spectrum for services that compete with the Company's business could adversely
affect the Company's operating results.
RISKS OF NEW PAGING VENTURE
The Company entered into an agreement with AirTouch Paging ("Airtouch") on
January 28, 1997 for the provision of paging services throughout CommNet's
nine-state mountain and plains region. Under the terms of this agreement, the
Company will be able to offer local, statewide and nationwide paging services,
along with its existing cellular telephone service. See "THE COMPANY--Recent
Developments." The Company's paging operations may be susceptible to risks
associated with the introduction of new services, such as quality control
problems and the need to gain customer acceptance. In addition, the
introduction of paging services may require the Company to divert resources
and management time of the Company from its existing operations and will
require integration with the Company's existing networks and services.
Further, there can be no assurance that the Company will be able to
successfully bundle paging and cellular services.
RADIOFREQUENCY EMISSION CONCERNS
Media reports have suggested that certain radiofrequency ("RF") emissions
from portable cellular telephones may be linked to cancer and may interfere
with pacemakers and other medical devices. Concerns over
23
RF emissions may have the effect of discouraging the use of cellular
telephones, which could have a material adverse effect on the Company's
business. On August 1, 1996, the FCC released a report and order that updates
the guidelines and methods it uses for evaluating RF emissions from radio
equipment, including cellular telephones. While the FCC's new rules impose
more restrictive standards on RF emissions from low power devices such as
portable cellular telephones, the Company believes that all cellular
telephones currently provided by the Company to its customers comply with the
proposed new standards.
INVESTMENT IN TVX, INC.
The Company owns a substantial interest in and has made loans to TVX, Inc.,
a company that develops and markets products for the management of digital
video and images, including visual observation and verification products for
the security industry. The recent withdrawal of the initial public offering of
the common stock of TVX, Inc. indicates that all or part of the $5,400,000 of
the Company's investment in TVX, Inc. may not be realizable. TVX, Inc.
operations do not currently generate enough cash flow to meet its obligations
as they become due, and although TVX, Inc. and the Company are involved in
discussions to arrange financing for or the sale of TVX, Inc., there can be no
assurance that such a financing or proceeds from a sale will be sufficient to
recover the Company's investment in TVX, Inc. The Company may advance
additional funds to TVX, Inc. while it engages in discussions to arrange
financing for or the sale of TVX, Inc.; however, such advances are not
expected to be material.
DEPENDENCE ON KEY PERSONNEL
The Company's affairs are managed by a small number of key personnel, the
loss of all of which could have a material adverse impact on the Company.
24
THE COMPANY
GENERAL
The Company operates, manages and finances cellular telephone systems,
primarily in rural markets in the mountain and plains regions of the United
States. The Company's cellular interests currently represent approximately
3,570,000 net Company pops in 82 markets located in 14 states. These markets
consist of 72 RSA markets having a total of 5,246,000 pops and 10 MSA markets
having a total of 1,315,000 pops, of which the Company's interests represent
2,885,000 net Company pops and 685,000 net Company pops, respectively. Systems
in which the Company holds an interest constitute one of the largest
geographic collections of contiguous cellular markets in the United States.
As used in this Proxy Statement, "pops" means the estimated total 1995
population of a Metropolitan Statistical Area ("MSA") or Rural Service Area
("RSA") as initially licensed by the Federal Communications Commission
("FCC"), based upon Demographics On-Call's population estimates. "Net Company
pops" means an MSA's or RSA's pops multiplied by the Company's net ownership
interest in the entity licensed by the FCC to operate a cellular telephone
system in that MSA or RSA. An MSA or RSA is referred to herein as a "market,"
and a market served by a cellular telephone system that is managed, directly
or indirectly, by the Company is referred to herein as a "managed market." The
radio signal from the Company's managed systems covers virtually all of the
pops within the managed markets. The number of pops does not represent the
current number of users of cellular services and is not necessarily indicative
of the number of users of cellular services in the future.
The Company was formed to acquire cellular interests through participation
in the licensing process conducted by the FCC. In order to participate in that
process, the Company formed affiliates which originally were owned at least
51% by one or more independent telephone companies ("telcos") and no more than
49% by the Company. In exchange for the Company's 49% interest, the Company
offered to sell shares of CommNet Common Stock to the telcos and agreed to
provide financing to the affiliates. The Company subsequently purchased
additional interests in many of such affiliates, as well as in additional
cellular properties. The Company currently manages 56 of the 82 markets in
which it holds an interest and owns a greater than 50% interest in 46 of its
56 managed markets. The Company provides capital and financing to entities
holding interests representing approximately 4,250,000 pops, of which
3,570,000 are included in net Company pops and 680,000 are attributable to
parties other than the Company.
Since completion of the licensing process, the Company has concentrated on
creating an integrated network of contiguous cellular systems comprised of
markets which are managed by the Company. The network currently consists of 56
markets (49 RSA and 7 MSA markets) spanning nine states and represents
approximately 4,228,000 pops and 3,246,000 net Company pops. As of September
30, 1996, the RSA and MSA managed markets had 180,999 and 63,454 subscribers,
respectively. The Company significantly expanded radio signal coverage with
construction of 27 new cell sites during the six months ended March 31, 1997.
The Company believes that certain demographic characteristics of the rural
marketplace should further facilitate commercial exploitation of the network.
As compared to urban residents, rural residents travel greater distances by
personal vehicle and have access to fewer public telephones along drive
routes. The Company believes that these factors will sustain demand for mobile
telecommunication service in the rural marketplace. These same factors produce
"roaming" revenues that are higher as a percentage of total revenues than
would likely be the case in more densely populated urban areas. In-roaming
revenues tend to produce higher margins because roaming calls on average are
priced at higher rates than local calls and because there are no associated
sales commission costs.
RECENT DEVELOPMENTS
CommNet entered into an agreement with AirTouch Paging on January 28, 1997
for the provision of paging services throughout CommNet's nine-state mountain
and plains region. CommNet intends to provide services directly in five of
these states and through partnerships to be formed with its affiliated local
independent telephone companies in the other four states.
Utilizing a large part of its existing cellular infrastructure, CommNet is
building a one-way, FLEX paging network. Under the terms of the agreement,
CommNet will be able to sell the paging services provided over its paging
network on AirTouch's nationwide paging frequency. This agreement will also
allow CommNet to bundle local, statewide and nationwide paging services along
with its existing cellular telephone service in its rural marketplace, where
currently only limited wide area paging services are available.
25
THE SPECIAL MEETING
MATTERS TO BE CONSIDERED
At the Special Meeting, the shareholders of CommNet will be asked to
consider and vote upon a proposal to approve and adopt the Merger Agreement
and the transactions contemplated thereby, including the Merger. If the Merger
Agreement is approved by the shareholders of CommNet, Newco will merge with
and into CommNet and approximately 13.2 million shares of CommNet Common Stock
currently held by CommNet shareholders (representing approximately 96% of the
presently issued and outstanding shares of CommNet Common Stock) will be
converted into cash. The remaining 588,611 of presently issued and outstanding
shares of CommNet Common Stock will be retained by existing shareholders of
CommNet. The shares which are to be retained represent approximately 4% of the
CommNet Common Stock issued and outstanding prior to the Merger and will
represent approximately 13% of the CommNet Common Stock to be issued and
outstanding immediately after the Merger. If the Merger is consummated, the
common stock of Newco will be converted into approximately 3.9 million shares
of CommNet Common Stock, which will represent approximately 87% of the CommNet
Common Stock to be issued and outstanding after the Merger. Immediately after
the Effective Time, there will be approximately 4.5 million shares of CommNet
Common Stock issued and outstanding.
The Merger Agreement is attached to this Proxy Statement as Annex I. See
"THE MERGER" and "CERTAIN PROVISIONS OF THE MERGER AGREEMENT." The Board of
Directors, based upon the determination of the Special Committee that the
Merger is fair to and in the best interest of CommNet and its shareholders,
has unanimously adopted and approved the Merger Agreement and recommends a
vote FOR approval and adoption of the Merger Agreement and the Merger.
REQUIRED VOTE
Approval of the Proposal will require the affirmative vote of a majority of
the outstanding shares of CommNet Common Stock held by shareholders entitled
to vote on the Record Date.
As of the Record Date, directors and executive officers of the Company were
beneficial owners of an aggregate of 835,168 shares of CommNet Common Stock
(approximately 5.8% of the outstanding shares), 698,938 shares of which were
represented by immediately exercisable Options which are not entitled to vote.
The directors and executive officers of the Company have indicated that they
intend to vote their shares of CommNet Common Stock in favor of the Proposal.
See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
VOTING AND REVOCATION OF PROXIES
Shares of CommNet Common Stock that are entitled to vote and are represented
by a Proxy properly signed and received at or prior to the Special Meeting,
unless subsequently properly revoked, will be voted in accordance with the
instructions indicated thereon. If a Proxy is signed and returned without
indicating any voting instructions, shares represented by such Proxy will be
voted FOR the Merger Proposal. The Board of Directors is not currently aware
of any business to be acted upon at the Special Meeting other than as
described herein. If other matters are properly brought before the Special
Meeting or any adjournments or postponements thereof, the persons appointed as
proxies will have the discretion to vote or act thereon in accordance with
their best judgment, unless authority to do so is withheld in the Proxy.
Shares held for the account of a participant in CommNet's Employee Stock
Ownership Plan and Trust ("ESOP") will be voted by the trustee of the ESOP
which will solicit voting instructions from participants in the ESOP.
Any Proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the shares represented by such Proxy are voted at
the Special Meeting by (i) attending and voting in person at the Special
Meeting, (ii) giving notice of revocation of the Proxy at the Special Meeting,
or (iii) delivering to the Secretary of CommNet (a) a written notice of
revocation or (b) a duly executed Proxy relating to the same shares and
matters to be considered at the Special Meeting, bearing a date later than the
Proxy previously executed. Attendance at the Special Meeting will not in and
of itself constitute a revocation of a Proxy. All written notices of
revocation and other communications with respect to revocation of Proxies
should be addressed as follows:
26
CommNet Cellular Inc., 8350 East Crescent Parkway, Suite 400, Englewood,
Colorado 80111, Attention: Secretary, and must be received before the taking
of the vote at the Special Meeting.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of CommNet Common Stock at the close of business on August 11,
1997 will be entitled to receive notice of and to vote at the Special Meeting.
At the close of business on August 11, 1997, the Company had outstanding and
entitled to vote 13,766,340 shares of CommNet Common Stock. Shares of CommNet
Common Stock represented by Proxies which are marked "abstain" or which are
not marked as to any particular matter or matters will be counted as shares
present for purposes of determining the presence of a quorum on all matters.
Proxies relating to "street name" shares that are voted by brokers will be
counted as shares present for purposes of determining the presence of a quorum
on all matters, but will not be treated as shares having voted at the Special
Meeting as to any proposal as to which authority to vote is withheld by the
broker.
The presence, in person or by proxy, at the Special Meeting of the holders
of at least a majority of the votes entitled to vote at the Special Meeting is
necessary to constitute a quorum for the transaction of business. Abstentions
will be counted as present for the purposes of determining whether a quorum is
present but will not be counted as votes cast in favor of the Proposal.
Because the vote on the Proposal requires the approval of a majority of the
outstanding shares of CommNet Common Stock, abstentions will have the same
effect as a negative vote on the Proposal.
DISSENTERS' RIGHTS
Each holder of CommNet Common Stock has a right to dissent from the Merger
and, if the Merger is consummated, to receive fair value for his or her shares
in cash by complying with the provisions of Colorado law, including Sections
7-113-101 through 7-113-302 of the CBCA. To exercise such rights, a CommNet
shareholder must: (i) deliver to the Company before the vote at the Special
Meeting a written notice of his or her intent to demand payment for his or her
shares; (ii) either vote against the Proposal or abstain from voting with
respect to the Proposal; and (iii) comply with the provisions set forth in the
CBCA following the Special Meeting. A vote against the Proposal will not in
and of itself constitute a written demand for dissenters' rights satisfying
the requirements of the CBCA. The full text of Sections 7-113-101 through 7-
113-302 of the CBCA is attached as Annex III hereto. See "DISSENTING
SHAREHOLDERS' RIGHTS" for a further discussion of such rights.
SOLICITATION OF PROXIES
The Company will bear the cost of the solicitation of Proxies and the cost
of printing and mailing this Proxy Statement. In addition to solicitation by
mail, the directors, officers and employees of the Company may solicit Proxies
from shareholders of the Company by telephone, telegram or by personal
interview. Such directors, officers and employees will not be additionally
compensated for any such solicitation but may be reimbursed for reasonable
out-of-pocket expenses in connection therewith. Arrangements will also be made
with brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation material to the beneficial owners of shares held of
record by such persons and the Company will reimburse such custodians,
nominees and fiduciaries for their reasonable out-of-pocket expenses in
connection therewith. Beacon Hill will assist in the solicitation of Proxies
by the Company for an estimated fee of $4,500 plus reasonable out-of-pocket
expenses.
If you have any questions or require additional material, please call Beacon
Hill at 1-800-253-3814 (toll free) or (212) 843-8500 (collect).
SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS. SEE
"THE MERGER--NON-CASH ELECTION" AND "--NON-CASH ELECTION PROCEDURE." HOLDERS
OF COMMNET COMMON STOCK WHO WISH TO MAKE A NON-CASH ELECTION ARE REQUIRED TO
SEND STOCK CERTIFICATES WITH THEIR FORM OF ELECTION (AS DEFINED BELOW).
27
THE MERGER
BACKGROUND OF THE MERGER
As a part of its ongoing efforts to maximize shareholder value, the Board of
Directors from time to time evaluates alternative means of increasing the
value of CommNet Common Stock, including strategic acquisitions and alliances
and the undertaking of operating, administrative and financial measures. In
this context, the Board in August 1996 authorized a program to repurchase up
to $20,000,000 of CommNet Common Stock, pursuant to which approximately
150,000 shares of CommNet Common Stock were repurchased prior to December
1996.
In December 1996, members of the Company's management held discussions with
representatives of certain significant shareholders concerning the CommNet
Common Stock and its potential future performance. One of the Company's
largest shareholders expressed concern that, notwithstanding the Company's
solid operating performance in 1996 and positive market conditions prevailing
for equity securities generally, the Company's stock had been trading in a
narrow price range. Accordingly, management was asked to determine if there
were any strategic measures available to increase shareholder value.
In response to these discussions, and as part of its ongoing efforts to
maximize shareholder value, the Company contacted Merrill Lynch, the Company's
investment banker, and asked Merrill Lynch to assist the Company in evaluating
various strategies to enhance shareholder value, including possible business
combinations.
At a special meeting of the Board held via teleconference on January 7,
1997, Merrill Lynch and the Board assessed the Company's current market
valuation and stock price and discussed alternatives for enhancing shareholder
value, including acquisitions and possible business combinations. Merrill
Lynch outlined to the Board possible acquisition strategies and the equity and
debt financing which would be required to effect such transactions. Merrill
Lynch also presented an approach for soliciting offers from potential buyers
designed to elicit the most attractive price in the event the Board elected to
explore a business combination involving the Company. After discussing the
courses of action presented by Merrill Lynch, the Board authorized the formal
retention of Merrill Lynch as financial advisor to the Company and the
solicitation of interest of potential buyers for the Company.
Pursuant to the Board's directives, the Company retained Merrill Lynch on
January 30, 1997. Merrill Lynch and the Company, based upon their collective
experience and knowledge of the telecommunications industry, compiled a list
of prospective strategic and financial purchasers to be contacted directly
regarding their potential interest in a possible transaction. Merrill Lynch
also assisted the Company in preparing a confidential memorandum describing
the Company for use in discussions with prospective buyers (the "Descriptive
Memorandum"). The Board discussed the status of Merrill Lynch's activities and
the process of soliciting interest from potential buyers at a regularly
scheduled meeting held on February 26, 1997.
The Company and Merrill Lynch began to contact the identified potential
buyers in early March 1997. Initial contacts made with potential buyers
consisted of a brief discussion of the Company's possible interest in engaging
in a business combination and an inquiry as to whether the potential buyer
would be interested in receiving further information. Merrill Lynch then sent
a package of publicly available information on the Company to each potential
buyer that indicated an interest in pursuing a possible transaction, and
negotiated confidentiality agreements with each of the 13 potential buyers,
including strategic and financial buyers, that requested the Descriptive
Memorandum.
On March 13, 1997, management of the Company met with representatives of
four potential financial buyers to discuss the Company and the cellular
industry generally.
On March 14, 1997, Merrill Lynch sent letters to 11 of the 13 potential
buyers, including both strategic buyers and financial buyers, seeking
preliminary indications of interest from such buyers by April 9, 1997. Two of
the 13 potential buyers had subsequently declined to further pursue their
interest in the Company.
28
On March 21, 1997, the Board met via teleconference to discuss the status of
the efforts regarding a possible business combination. At the meeting, the
Board authorized the continuation of the process of soliciting indications of
interest from potential buyers.
During the period from March 24 through April 9, 1997, representatives of
Blackstone, one of the potential buyers, conducted a review of various legal,
financial and accounting matters with respect to the Company. In addition, at
various times from March 14 through April 9, 1997, representatives of other
potential purchasers conducted due diligence.
On April 9, 1997, the Company received three written indications of interest
from potential buyers, one of which proposed the contribution of certain of
its cellular operations to the Company in exchange for a substantial equity
interest in the Company. Of the two potential buyers which were interested in
purchasing the entire Company, one indicated a possible purchase price range
of $28-34 per share and the other indicated a possible purchase price of $32
per share.
Subsequent to the receipt of these indications of interest, Merrill Lynch
contacted three additional potential strategic buyers which, consistent with
the prior determination of the Board and Merrill Lynch as to the process to be
followed in soliciting the interest of these potential buyers, had not been
approached previously. Through mid-May, the Company and Merrill Lynch
continued discussions with each of the six potential buyers.
On May 14, 1997, Merrill Lynch sent a letter to each of the four potential
buyers which continued to express an interest in acquiring the Company,
requesting that they submit a "firm and final" offer, including the price per
share and the key terms and conditions of their bid, by May 28, 1997. The
letter also stated that such offers should not be conditioned on financing or
further due diligence. On May 15, 1997, counsel for the Company delivered a
draft form of a merger agreement to the potential buyers which had received
the May 14 Merrill Lynch letter, and the potential buyers were instructed to
submit comments thereon with their final offers.
On May 16, 1997, a conference call was arranged in which all of the
directors of the Company participated. Representatives of Merrill Lynch
briefly summarized the status of contacts with the parties which remained
interested in a possible acquisition of the Company and advised the Board that
representatives of Blackstone had told Merrill Lynch that Blackstone intended
to provide that day a written offer to acquire the CommNet Common Stock, which
offer would anticipate participation by management in the ongoing entity.
Counsel to the Company discussed with the Board the potential conflicts of
interest raised by the possible participation of Mr. Pohs, Chairman, President
and Chief Executive Officer of the Company, and Mr. Dwyer, Executive Vice
President, Treasurer and Chief Financial Officer of the Company, in the equity
and management of the Company if it were to be acquired by Blackstone or any
other financial buyer, and the desirability of the Board deliberating
independent of these two directors as it proceeded to evaluate the proposals
of potential buyers. All of the members of the Board agreed that an
independent process was desirable and Messrs. Hayes, Paden and Simmons--the
three independent directors--agreed to continue the process of evaluating a
possible business combination as an independent committee of the Board.
On the afternoon of May 16, Blackstone provided to Merrill Lynch its formal
written proposal (the "Blackstone Proposal") to enter into a recapitalization
transaction pursuant to which affiliates of Blackstone would acquire
approximately 96% of the outstanding CommNet Common Stock at $35.00 per share
in cash, its comments on the Company's proposed form of merger agreement (the
"Proposed Merger Agreement") and an underwritten commitment from The Chase
Manhattan Corporation to provide and arrange all of the debt financing for the
Merger. The Blackstone Proposal stated that it would expire on May 21, and
that continued negotiations with the Company after May 21 would be conditioned
upon the Company agreeing to proceed with Blackstone on an exclusive basis.
The Blackstone Proposal also reflected Blackstone's intention to provide the
Company's management the opportunity to invest in the transaction and
participate in an incentive equity program. Merrill Lynch and counsel to the
Company reviewed the materials submitted by Blackstone on May
29
17, 18 and 19, and representatives of Merrill Lynch and Blackstone had
additional conversations concerning the terms of the Blackstone Proposal
during that period.
On May 19, 1997, by unanimous written consent, the Board formally
established the Special Committee, comprised of Messrs. Hayes, Paden and
Simmons, for purposes of evaluating the Blackstone Proposal and any other
proposals which might be provided to the Company and to negotiate with the
proponents of such proposals and, if it deemed appropriate, recommend any of
such proposals to the Board of Directors.
On the afternoon of May 19, the Special Committee convened by teleconference
along with representatives of Merrill Lynch and counsel to the Company.
Representatives of Merrill Lynch reviewed the status of each of the parties
which expressed an interest in a possible acquisition of the Company and
advised the Special Committee that a new potential strategic buyer had
proposed contributing all of its cellular assets to the Company in exchange
for an equity interest in the Company. Merrill Lynch noted to the Special
Committee that it had advised the strategic purchaser, based on its prior
discussions with the Board and the terms of the proposal, that the Company did
not believe that such a transaction would be in the best interests of its
shareholders. Merrill Lynch further advised the Special Committee that another
financial buyer (the "Other Financial Buyer") was continuing to conduct due
diligence, and that the Other Financial Buyer had been advised that if it
desired to submit a proposal, it should do so as promptly as possible and that
such a proposal should reflect its best and final offer, which offer would
need to be at or above the top of the price range set forth in its earlier
written indication of interest to be competitive. Counsel to the Company
proceeded to review the responsibilities of the Special Committee in
considering a transaction which would involve a change in control of the
Company. Representatives of Merrill Lynch and counsel to the Company then
provided the Special Committee with a detailed review of the principal
economic and legal terms of the Blackstone Proposal, including the fact that
the Blackstone Proposal assumed that the transaction would be treated as a
recapitalization for accounting purposes. Merrill Lynch also reiterated
Blackstone's desire to negotiate with the Company on an exclusive basis after
May 21. The Special Committee responded that it was not then prepared to
commit to such exclusive negotiations. Members of the Special Committee asked
questions of both Merrill Lynch and counsel, and directed Merrill Lynch and
counsel to speak with Blackstone about resolving the issues and concerns
raised by the members of the Special Committee regarding the Blackstone
Proposal.
On May 20, representatives of Merrill Lynch and Blackstone negotiated as to
the economic and certain principal legal terms of the Blackstone Proposal.
Following those negotiations, Blackstone contacted Merrill Lynch and advised
that it was prepared to increase its offer to $36.00 per share, and suggested
that counsel to Blackstone and the Company discuss the Proposed Merger
Agreement and other legal issues to determine if a resolution of the parties'
interests could be reached. Representatives of Merrill Lynch then advised
counsel to the Company of the desire to establish such a discussion and
contacted each member of the Special Committee to update them as to the status
of the negotiations with Blackstone. From May 20 through May 22, counsel to
Blackstone and the Company negotiated the terms of the Proposed Merger
Agreement.
Throughout the day on May 20, representatives of the Other Financial Buyer
continued their due diligence. On May 22, counsel to the Other Financial Buyer
initiated a teleconference with counsel to the Company to provide the
principal legal terms of the proposal that it intended to make to acquire the
Company. On the morning of May 23, the Other Financial Buyer submitted its
proposal to acquire all of the equity interests in the Company at a price of
$34.25 per share, as well as financing commitments for the proposed
transaction.
At its previously scheduled meeting on the morning of May 23, the Special
Committee met with representatives of Merrill Lynch and counsel to the
Company. Merrill Lynch began the meeting by updating the Special Committee as
to the efforts which had been undertaken since the prior Special Committee
meeting on May 19. Counsel to the Company then briefly reiterated the duties
of the Special Committee in evaluating the proposals it had received. Merrill
Lynch then explained in detail the status of the two remaining parties
interested
30
in acquiring the Company, Blackstone and the Other Financial Buyer, compared
the principal terms of their respective offers and reiterated that the Other
Financial Buyer had been instructed to submit its best and final offer. Based
on this presentation, the Special Committee concluded that the Blackstone
Proposal was superior to that of the Other Financial Buyer. Merrill Lynch then
reviewed in detail the process by which it had sought and contacted potential
buyers for the Company and confirmed its prior advice that no parties other
than the Other Financial Buyer and Blackstone remained interested in a
possible purchase of the Company. Merrill Lynch then proceeded to make a
detailed presentation to the Special Committee regarding the principal
economic terms of the Blackstone Proposal. Members of the Special Committee
asked a number of questions regarding the structure and terms of the proposed
transaction. Following this discussion, representatives of Merrill Lynch made
a presentation to the Board concerning its analysis of the fairness of the
terms of the offer made by Blackstone, and engaged in a lengthy and thorough
discussion with the Board regarding its findings which are summarized below
under "--Opinion of Merrill Lynch." Merrill Lynch concluded its presentation
by advising the Special Committee that it was prepared to deliver its opinion
to the effect that the proposed consideration to be received by the holders of
the CommNet Common Stock (other than by the Partnerships, Newco, any wholly-
owned subsidiary of the Company or any wholly-owned subsidiary of Newco and
other than Dissenting Shares) in the Merger would be fair from a financial
point of view to such holders.
Following the presentation by Merrill Lynch, the Special Committee met
without advisors. Subsequent to those discussions, the Special Committee
reconvened with advisors present and expressed the views of the Special
Committee that in light of, among other things, the lack of interest in the
Company by strategic buyers, it did not appear to be an appropriate time to
sell the Company. The Special Committee then invited Messrs. Pohs and Dwyer to
join the meeting, advised them of the Special Committee's conclusions and
ended the meeting.
On the evening of May 23, Mr. Pohs contacted Mr. Hayes and asked for the
opportunity to present his views to the Special Committee on the concerns the
Special Committee had raised at its May 23 meeting, including the
appropriateness of a sale of the Company at that time. Mr. Hayes, after
consulting with counsel to the Company, spoke with Mr. Pohs regarding these
issues. Mr. Pohs also spoke with Mr. Paden on May 24 and, at Mr. Paden's
request, furnished certain written materials regarding the Company. These
materials were distributed to each of the members of the Special Committee and
to Merrill Lynch.
On May 27, Messrs. Simmons, Hayes and Paden agreed to convene a Special
Committee meeting for the purpose of conducting a further evaluation of the
concerns raised at the May 23 meeting, including the appropriateness of a sale
of the Company at that time. In connection with that meeting, members of the
Special Committee were provided copies of the final draft of the Proposed
Merger Agreement which had been negotiated with counsel to Blackstone, as well
as a summary of the principal terms of the Proposed Merger Agreement.
A meeting of the Special Committee was convened by teleconference on the
afternoon of May 27, which was also attended by representatives of Merrill
Lynch and counsel to the Company. Messrs. Pohs and Dwyer made a brief
presentation to the Special Committee setting forth their views as to the
appropriateness of selling the Company at that point in time, including the
belief of Messrs. Pohs and Dwyer that the Blackstone Proposal represented the
best means of increasing shareholder value for the foreseeable future. Messrs.
Pohs and Dwyer then left the teleconference. Merrill Lynch then expressed its
views as to the written materials which Mr. Pohs had furnished the Special
Committee regarding the Company. Those materials included analyses of the
Blackstone Proposal as a multiple of 1997 cash flows, on a per pop basis and
as a premium to historic trading prices. The Blackstone Proposal was also
evaluated in those materials in light of (i) analysts' expectations for the
CommNet Common Stock, (ii) recent comparable transactions, (iii) a discounted
cash flow analysis, and (iv) the discount which might be applied to the value
of the Company's minority investments in certain cellular markets. Merrill
Lynch confirmed that the management materials and those which had been
provided to the Special Committee by Merrill Lynch in its presentation were
consistent, other than differing discounted cash flow analyses of the Company
(which differences, Merrill Lynch stated, did not impact its views as to the
fairness of the Blackstone Proposal). The Special Committee proceeded to
review its concerns regarding the appropriateness of a sale of the Company at
that point in time from the perspective of, and with emphasis upon, the
alternatives
31
available to the Company for increasing shareholder value to or above the
value of the Blackstone Proposal and the Company's current stock price. The
Special Committee discussed whether the Company could increase shareholder
value above the Blackstone Proposal through alternative means such as
acquisitions, the likelihood of strategic buyers subsequently having a higher
level of interest in the Company, the premium (35.3%, 32.8% and 28.9% on the
three, six and nine month averages of the daily closing prices of the CommNet
Common Stock, respectively) represented by the Blackstone Proposal to the
Company's stock price, and the likelihood that $2-3 per share of "takeover
speculation" was recently reflected in the price of the CommNet Common Stock
(as well as the possible adverse impact upon the Company's stock price were a
business combination not effected), the protections for liquidity in the final
draft of the Merger Agreement which had been negotiated for the public
shareholders of the Company remaining after the Merger and that management's
equity participation and employment terms at the ongoing entity would be on
customary terms.
Counsel to the Company then reviewed the material provisions of the Proposed
Merger Agreement and the process by which the Special Committee could move
forward with the Blackstone Proposal, if it so chose. Merrill Lynch delivered
its opinion to the effect that, as of such date, and based upon the
assumptions made, matters considered and limits of review set forth in such
opinion, the consideration to be received by the holders of CommNet Common
Stock (other than by the Partnerships, Newco, any wholly-owned subsidiary of
the Company or any wholly-owned subsidiary of Newco and other than Dissenting
Shares) in the Merger was fair from a financial point of view to such holders.
See "--Opinion of Merrill Lynch." After further deliberations, resolutions
were adopted by the Special Committee unanimously determining that the Merger
Agreement and the transactions contemplated thereby, including the Merger, are
fair to and in the best interests of the shareholders of the Company and
unanimously recommending that the entire Board (i) approve the execution and
delivery of the Merger Agreement and performance by the Company of its
obligations thereunder and the execution and delivery of all other agreements
ancillary thereto and (ii) recommend to the shareholders of the Company the
approval of the Merger Agreement and the consummation of the transactions
contemplated thereby. The Special Committee then adjourned its meeting.
Immediately thereafter, a meeting of the entire Board was convened by
teleconference, at which the recommendations of the Special Committee were
presented. Based upon the recommendation of the Special Committee, resolutions
were unanimously adopted by the Board (i) accepting and approving the Special
Committee's determination that the Merger Agreement and the transactions
contemplated thereby, including the Merger, are fair to and in the best
interests of the shareholders of the Company, (ii) authorizing the execution
and delivery of the Merger Agreement and performance by the Company of its
obligations thereunder and the execution and delivery of all other agreements
ancillary thereto and (iii) recommending that the shareholders of the Company
approve the Merger Agreement and the consummation of the transactions
contemplated thereby. The meeting was then adjourned.
On the evening of May 27, the Merger Agreement was executed and delivered by
the Company and Newco and on the morning of May 28, the Company and Blackstone
issued a joint press release announcing the proposed Merger.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS; REASONS
FOR THE MERGER
The Special Committee and the Board of Directors have unanimously adopted
and approved the Merger Agreement and have determined that the Merger is fair
to and in the best interests of the Company and its shareholders and recommend
that holders of CommNet Common Stock vote FOR approval and adoption of the
Merger Agreement. In the course of reaching its decision to adopt and approve
the Merger Agreement and the Merger and to recommend approval to the Board of
Directors, the Special Committee consulted with the Company's legal and
financial advisors and considered a number of factors, including, among
others, the following principal factors which were material to the Special
Committee's decision:
(1) The opinion of Merrill Lynch delivered at the May 27, 1997 meeting of
the Special Committee to the effect that, as of such date, and based upon
the assumptions made, matters considered and limits of
32
review set forth in such opinion, the proposed consideration to be received
by the holders of CommNet Common Stock (other than by the Partnerships,
Newco, any wholly-owned subsidiary of the Company or any wholly-owned
subsidiary of Newco and other than Dissenting Shares) in the Merger was
fair from a financial point of view to such holders, and the presentation
of Merrill Lynch at the May 23, 1997 Special Committee meeting in
connection with its opinion. See "THE MERGER--Opinion of Merrill Lynch."
(2) The fact that Merrill Lynch conducted a broad-based search for
potential acquirors at the request of the Board and such process did not
yield any proposals more attractive to the Company's shareholders from a
financial point of view than the Blackstone Proposal.
(3) The sale of the Company was, in the judgment of the Special
Committee, the best available means of maximizing shareholder value in the
foreseeable future.
(4) The premium represented by the $36 per share price to be received by
shareholders of the Company who receive cash for their shares of CommNet
Common Stock.
(5) The experience and high rate of success of Blackstone in structuring
and closing transactions similar to the Merger, and the strength and
favorable terms of the financing commitments for the Merger arranged by
Blackstone, including a fully underwritten commitment from The Chase
Manhattan Corporation to provide up to $760 million of senior secured
credit facilities, both of which should benefit the Company's shareholders
who retain shares of CommNet Common Stock after the Merger.
(6) The fact that the shareholders of the Company will have the right to
elect to receive cash or to retain an aggregate of 588,611 shares of
CommNet Common Stock, which right the Special Committee believed would
provide some flexibility to any of the Company's shareholders who might
desire to retain more CommNet Common Stock after the Merger than would
automatically be retained under a non-election based formula (subject to
proration if the Company's shareholders elected to retain more than 588,611
shares). This election would also provide the possibility that the
Company's shareholders who desire to receive more cash for their shares
than would be provided under a non-election based formula would receive
such additional cash if other shareholders ultimately elect to retain
shares of CommNet Common Stock.
(7) The other terms and conditions of the Merger Agreement, including (i)
those relating to the fee and expense reimbursement by the Company not to
exceed a total of $14 million to Blackstone Management Partners L.P. upon
termination of the Merger Agreement in certain circumstances, the aggregate
amount of which would not, in the judgment of the Special Committee,
preclude a third party from making an offer that was materially more
favorable to the Company's shareholders; (ii) those relating to the ability
of the Board to consider unsolicited offers from third parties prior to the
effectiveness of the Merger; and (iii) those relating to Blackstone's
undertaking not to take any action for at least 90 days after the Effective
Time of the Merger to (a) cause the CommNet Common Stock to be de-listed
from Nasdaq or (b) seek to suspend the obligation of the Company to comply
with the requirements of Section 12 of the Exchange Act, including the
filing of periodic and other reports under Section 13(a) of the Exchange
Act.
In its deliberations regarding the adoption and approval of the Merger
Agreement and the Merger, the Special Committee also considered the possible
consequences of Blackstone's control of the Company upon completion of the
Merger; the expected substantial decrease in the liquidity of CommNet Common
Stock as well
as the effects of delisting the CommNet Common Stock from Nasdaq and the
possible cessation of the Company's reporting requirements under Section 13 of
the Exchange Act; the substantial leverage to be incurred by the Company in
connection with the Merger Financings; the potential post-closing dilution of
the holdings of CommNet shareholders; and the risk that proration might
interfere with the elections made by CommNet shareholders and the tax
consequences of such procedure. See "RISK FACTORS" for a more detailed
discussion of the above-mentioned factors considered by the Special Committee.
The foregoing discussion of the information and factors considered by the
Special Committee is not intended to be exhaustive but is believed to include
all material factors considered by the Special Committee. In view of the
variety of factors considered in connection with its evaluation of the Merger,
the Special Committee
33
did not find it practicable to, and did not, quantify or otherwise attempt to
assign relative weight to the specific factors considered in reaching its
determination. In addition, individual members of the Special Committee may
have given different weights to different factors. In the course of its
deliberations, the Special Committee did not establish a range of values for
the Company; however, based on the factors outlined above and on the
presentation and opinion of Merrill Lynch, the Special Committee determined
that the Merger Agreement and the Merger are fair to, and in the best
interests of, the Company and its shareholders and recommended approval to the
Board of Directors.
OPINION OF MERRILL LYNCH
On May 27, 1997, Merrill Lynch delivered the Merrill Lynch Opinion to the
Special Committee to the effect that, as of such date, and based upon the
assumptions made, matters considered and limits of review set forth in such
opinion, the consideration to be received by the holders of CommNet Common
Stock (other than by the Partnerships, Newco, any wholly-owned subsidiary of
the Company or any wholly-owned subsidiary of Newco and other than Dissenting
Shares) in the Merger was fair from a financial point of view to such holders.
A COPY OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN
BY MERRILL LYNCH, IS ATTACHED AS ANNEX II TO THIS PROXY STATEMENT. COMMNET
SHAREHOLDERS ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY. THE MERRILL LYNCH
OPINION WAS AT THE REQUEST OF AND FOR THE USE AND BENEFIT OF THE SPECIAL
COMMITTEE, WAS DIRECTED ONLY TO THE FAIRNESS OF THE PROPOSED CONSIDERATION TO
BE RECEIVED BY THE HOLDERS OF SHARES OF THE COMPANY (OTHER THAN BY THE
PARTNERSHIPS, NEWCO, ANY WHOLLY-OWNED SUBSIDIARY OF THE COMPANY OR ANY WHOLLY-
OWNED SUBSIDIARY OF NEWCO AND DISSENTING SHARES) FROM A FINANCIAL POINT OF
VIEW, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW
SUCH SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER OR ANY TRANSACTION
RELATED THERETO OR AS TO WHETHER ANY SHAREHOLDER SHOULD ELECT TO RECEIVE CASH
OR TO RETAIN THE NON-CASH ELECTION SHARES. THE SUMMARY OF THE MERRILL LYNCH
OPINION SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at the Merrill Lynch Opinion, Merrill Lynch, among other things,
(i) reviewed certain publicly available business and financial information
relating to the Company; (ii) reviewed certain information, including
financial forecasts, relating to the business, earnings, cash flow, assets,
liabilities and prospects of the Company furnished to Merrill Lynch by the
Company; (iii) conducted discussions with members of senior management of the
Company concerning such matters and the Company's businesses and prospects
before and after giving effect to the Merger; (iv) reviewed the historical
market prices and valuation multiples for CommNet Common Stock and compared
them with that of certain publicly traded companies which Merrill Lynch deemed
to be reasonably similar to the Company; (v) reviewed the results of
operations of the Company; (vi) compared the proposed financial terms of the
transactions contemplated by the Merger Agreement with the financial terms of
certain other mergers and acquisitions which Merrill Lynch deemed to be
relevant; (vii) participated in certain discussions and negotiations among
representatives of the Company and Blackstone and their financial and legal
advisors as well as the other proponents of proposals to acquire equity
interests in the Company; (viii) reviewed the potential pro forma impact of
the Merger; (ix) reviewed the Merger Agreement; and (x) reviewed such other
financial studies and analyses and performed such other investigations and
took into account such other matters as Merrill Lynch deemed necessary,
including Merrill Lynch's assessment of general economic, market and monetary
conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch relied on the accuracy
and completeness of all information supplied or otherwise made available to
Merrill Lynch by the Company, and Merrill Lynch did not
34
independently verify such information or undertake an independent evaluation
or appraisal of any of the assets or liabilities of the Company. With respect
to the financial forecasts furnished by the Company and information regarding
certain pro forma effects on the Company's capital structure after giving
effect to the Merger, Merrill Lynch assumed that they had been reasonably
prepared and reflected the best currently available estimates and judgment of
the Company's management as to the expected future financial performance of
the Company and of Blackstone, and as to such pro forma effects on the
Company's capital structure, respectively. The Merrill Lynch Opinion was
necessarily based upon market, economic and other conditions as they existed
on, and could be evaluated as of, the date of the Merrill Lynch Opinion. The
Merrill Lynch Opinion did not address the merits of the underlying decision by
the Company to engage in the Merger. In addition, Merrill Lynch expressed no
opinion as to what the trading price of the Non-Cash Election Shares would be
upon consummation of the Merger.
The following is a summary of the material financial and comparative
analyses performed by Merrill Lynch in arriving at the Merrill Lynch Opinion
delivered to the Special Committee on May 27, 1997.
Stock Price Study. Merrill Lynch reviewed the per share daily closing market
price movement of CommNet Common Stock for the period beginning January 4,
1993 and ending May 16, 1997. Merrill Lynch compared the daily closing market
price performance of CommNet Common Stock for the period beginning January 4,
1993 and ending May 16, 1997 to an index composed of the following
metropolitan cellular companies: AirTouch Communications, Inc., CoreComm
Incorporated, Palmer Wireless, Inc., 360(degrees) Communications Company and
Vanguard Cellular Systems, Inc. (collectively, the "MSA Index"). This analysis
showed that the CommNet Common Stock outperformed the MSA Index, particularly
in the period after February 1996. Merrill Lynch also compared the daily
closing market price performance of CommNet Common Stock for the period
beginning January 4, 1993 and ending May 16, 1997 to an index composed of the
following rural cellular companies: Centennial Cellular Corp., Western
Wireless Corporation and United States Cellular Corporation (collectively, the
"RSA Index"). This analysis showed that CommNet Common Stock outperformed the
RSA Index, particularly in the period after February 1996. The companies
included in the MSA Index and RSA Index were selected because they are
cellular companies in lines of business similar to those of the Company.
Merrill Lynch noted that the 52 week trading range for the CommNet Common
Stock ranged from approximately $25 to $35 per share. Merrill Lynch discussed
the relationship of the implied offer price to various historical daily and
weekly closing price averages for the CommNet Common Stock, as well as
historical shareholder returns for various time frames.
Comparable Company Trading Multiples Analysis. Using estimates of earnings
before interest, taxes, depreciation and amortization ("EBITDA") for 1997,
Merrill Lynch reviewed the ratios of (i) the quotients obtained by dividing
the estimated firm value of the cellular assets (the "cellular firm value,"
defined as the equity value plus the liquidation value of preferred stock, the
principal amount of debt and minority interest less cash, marketable
securities and the estimated value of non-domestic cellular assets) of each of
the companies contained in the MSA Index, the RSA Index, as well as
PriCellular Corporation (a cellular company serving principally MSAs), by the
1997 EBITDA for such companies estimated by Merrill Lynch research analysts,
to (ii) the four-year EBITDA growth rates for such companies estimated by
Merrill Lynch research analysts, and compared such data to the corresponding
data for the Company. Merrill Lynch also reviewed the ratio of cellular firm
value per net pop to cellular penetration percentages for each such company
and compared such data to data for the Company.
Utilizing this methodology, Merrill Lynch derived an estimated public market
range of $21 to $24 per share of CommNet Common Stock.
Comparable Acquisitions Transactions Analysis. Using publicly available
information, Merrill Lynch reviewed six transactions announced since April 6,
1996 that have closed or are still pending involving the acquisition of
cellular companies (the "Comparable Acquisitions"), in each case to derive
estimates of per share valuations for the CommNet Common Stock. The Comparable
Acquisitions (and announcement date for each
35
such transaction) were AirTouch Communications, Inc./Cellular Communications,
Inc. (April 1996), 360(degrees) Communications Company/Independent Cellular
Network, Inc. (April 1996), Rural Cellular Corporation/ InterCel, Inc.'s Maine
properties (Unicel) (December 1996), Century Telephone Enterprises,
Inc./Pacific Telecom, Inc. (April 1997), AirTouch Communications, Inc./US
WEST, Inc. (April 1997) and Western Wireless Company/Triad Cellular
Corporation (April 1997).
With respect to each of the Comparable Acquisitions, Merrill Lynch compared
the transaction value (defined as the equity value plus the liquidation value
of preferred stock, the principal amount of debt and minority interest less
cash, marketable securities and proceeds from the exercise of options) as a
multiple of the then estimated EBITDA of each acquired company. For the
Comparable Acquisitions, the maximum, mean, and minimum multiple ranges for
the EBITDA multiple were 13.6x, 11.6x and 9.3x.
Merrill Lynch then compared the implied transaction value per pop in the
Merger to the penetration rate for the Company to similar information for each
of the Comparable Acquisitions as well as the Sygnet Wireless, Inc./Horizon
Cellular Telephone Companies (October 1996) and Dobson Communications
Corporation/Horizon Cellular Telephone Companies (February 1997) transactions.
Merrill Lynch noted that the EBITDA multiple and per pop valuations implied by
the recently announced Price Communications Corporation/Palmer Wireless, Inc.
(May 1997) transaction were consistent. Utilizing this methodology, Merrill
Lynch derived estimated per share valuations for the CommNet Common Stock
ranging from approximately $30 to $35 per share based on implied acquisition
multiples relative to penetration, growth characteristics and nature of
markets.
Discounted Cash Flow Analysis. Merrill Lynch performed a discounted cash
flow ("DCF") analysis for the Company using management projections for the
years 1997 through 2005 (the "Management Case"). The DCF was calculated
assuming discount rates ranging from 12% to 13% for the Company's cellular
segment and from 14% to 15% for the Company's paging segment, and was
comprised of the sum of the net present value of (i) the projected unlevered
free cash flow for the years 1997 through 2005 and (ii) the year 2005 terminal
value, based upon a range of multiples of 8x to 10x projected EBITDA for the
Company's cellular segment and 6x to 8x projected EBITDA for the Company's
paging business plan.
Utilizing this methodology, Merrill Lynch derived estimated per share
valuations for the CommNet Common Stock ranging from approximately $31 to $42
per share. Merrill Lynch noted that successful implementation of the Company's
paging business plan might increase such values by $5 per share.
Leveraged Buyout Analysis. Merrill Lynch performed a leveraged buyout
analysis for the Company after giving effect to the Merger, using the
Management Case projections, Blackstone's assumed capitalization structure for
the Company, an assumed blended interest rate of 8.68%, an assumed transaction
consummation date of September 30, 1997, an assumed internal rate of return on
new equity of 30% to 35%, and the assumption that the public shareholders of
the Company would own approximately 13% of CommNet Common Stock immediately
following the Merger. This analysis resulted in an estimated valuation of the
CommNet Common Stock on a leveraged buyout basis of $30 to $36 per share.
The ranges of valuation perspectives implied by trading history, comparable
company trading multiples, analysts, target prices, comparable acquisitions,
discounted cash flow analysis and leveraged buyout analysis were then compared
as multiples of 1997 and 1998 estimated EBITDA for the Company and per net pop
of the Company.
Reviewing selected research analyst reports, Merrill Lynch also noted the
minimum, mean and maximum target prices of CommNet Common Stock for year-end
1997 of $32, $35 and $38, respectively. Merrill Lynch also performed an
analysis of the pro forma capital structure and cash flows of the Company
giving effect to the proposed Merger. Merrill Lynch compared the ratio of net
debt to estimated 1997 EBITDA for the Company (prior to and giving effect to
the Merger) with such ratio for each of Sygnet Wireless, Inc., Centennial
Cellular Corp., Dobson Communications Corporation, Rural Cellular Corporation,
PriCellular Corporation and Vanguard Cellular Systems, Inc. and the ratio of
total debt to net pops for the Company (prior to and giving effect to the
Merger) with such ratio for such selected companies.
36
The summary set forth above does not purport to be a complete description of
the analyses performed by Merrill Lynch, although it is a summary of the
material financial and comparative analyses performed by Merrill Lynch in
arriving at the Merrill Lynch Opinion. Arriving at a fairness opinion is a
complex process not necessarily susceptible to partial analysis or summary
description. Merrill Lynch believes that its analyses must be considered as a
whole and that selecting portions of its analyses and of the factors
considered by it, without considering all such factors and analyses, could
create a misleading view of the processes underlying its opinion. Merrill
Lynch did not assign relative weights to any of its analyses in preparing its
opinion. The matters considered by Merrill Lynch in its analyses were based on
numerous macroeconomic, operating and financial assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the Company's control and involve the
application of complex methodologies and educated judgment. Any estimates
incorporated in the analyses performed by Merrill Lynch are not necessarily
indicative of actual past or future results or values, which may be
significantly more or less favorable than such estimates. Estimated values do
not purport to be appraisals and do not necessarily reflect the prices at
which businesses or companies may be sold in the future, and such estimates
are inherently subject to uncertainty. No public company utilized as a
comparison is identical to the Company, and none of the Comparable
Acquisitions or other business combinations utilized as a comparison is
identical to the proposed Merger. Accordingly, an analysis of publicly traded
comparable companies and comparable business combinations is not mathematical;
rather it involves complex considerations and judgments concerning differences
in financial and operating characteristics of the comparable companies and
other factors that could affect the public trading value of the comparable
companies or company to which they are being compared.
Pursuant to a letter agreement dated January 30, 1997, the Company has
agreed to pay to Merrill Lynch (i) a retainer fee of $100,000, which has been
paid, (ii) an additional fee of $350,000 which was paid following the
execution of the Merger Agreement and (iii) an additional fee of $4.5 million
payable upon the closing of the Merger, against which the fees described in
clauses (i) and (ii) above will be credited. In addition, the Company has
agreed to reimburse Merrill Lynch for its reasonable expenses (including the
reasonable fees and disbursements of its legal counsel) and to indemnify
Merrill Lynch and certain related parties from and against certain
liabilities, including liabilities under the federal securities laws, arising
out of its engagement.
Merrill Lynch has provided financial advisory and financing services to the
Company in the past and has received fees for rendering such services. Merrill
Lynch has also provided financial advisory and financing services to
Blackstone and certain of its affiliates and portfolio companies in the past
and has received fees for rendering such services.
MERGER CONSIDERATION
CommNet Common Stock
Subject to the effects of proration as described herein, (i) each issued and
outstanding share of CommNet Common Stock (other than the Excluded Shares)
will be converted into the right to receive the Cash Price and (ii) each
Electing Share will be converted into the right to retain a Non-Cash Election
Share (including the associated Right); provided, that the aggregate number of
shares of CommNet Common Stock to be converted into the right to retain
CommNet Common Stock at the Effective Time shall be equal to the Non-Cash
Election Number. The Rights associated with the shares of CommNet Common Stock
that are converted into the right to receive the Cash Price will be
extinguished in the Merger for no additional consideration. For a description
of certain risks related to the retention of CommNet Common Stock, see "RISK
FACTORS."
The Merger contemplates that approximately 96% of the presently issued and
outstanding shares of CommNet Common Stock will be converted into cash and
that approximately 4% of such shares will be retained by existing
shareholders. Because 13% (or 588,611) of the shares outstanding after the
Merger must be retained by shareholders, shareholders who do not elect to
retain any shares of CommNet Common Stock may, due to proration, be required
to retain shares of CommNet Common Stock, and shareholders who do elect to
retain such shares may, due to proration, receive some portion of cash, in
each case as set forth in the Merger Agreement and as described herein. See
"RISK FACTORS--Risk of Proration."
37
As set forth in greater detail below, shareholders who elect to retain
shares of CommNet Common Stock or to convert such shares into the right to
receive the Cash Price may experience a range of actual outcomes based upon
the actions taken by other shareholders. For example, a shareholder holding
1,000 shares and electing to retain all of them will receive, in most
circumstances, from 40 to 1,000 shares, depending upon the actions of other
shareholders. A shareholder holding 1,000 shares and electing to convert all
of them into the right to receive the Cash Price with respect thereto will
receive the Cash Price for from 960 to 1,000 of such shares and will receive
from 0 to 40 shares, depending on the actions of other shareholders. The
following examples, which assume there are no Dissenting Shares, further
illustrate the potential effects of proration. All fractional shares will be
paid in cash, net of applicable transaction costs, in lieu of the issuance of
fractional shares, and the impact of fractional shares has been excluded to
simplify the examples set forth below. If there are a substantial number of
Dissenting Shares, and the number of Electing Shares is less than the Non-Cash
Election Number, the proration factor would result in more than 4% of each
holders' shares of CommNet Common Stock being prorated into Non-Cash Election
Shares.
A. HOLDER A OWNS 1,000 SHARES AND DOES NOT ELECT TO RETAIN ANY SHARES.
1. If other shareholders elect to retain 588,611 or more shares in the
aggregate, then Holder A will receive $36,000 in cash (1,000 shares at
$36.00 per share), as other shareholders have satisfied the Non-Cash
Election Requirement.
2. If shareholders elect to retain fewer than 588,611 shares in the
aggregate, then Holder A will not receive all cash for its 1,000 shares and
will be required to retain some shares, as the Non-Cash Election
Requirement has not been met. Each shareholder will retain a small number
of shares in order to increase the number of retained shares to 588,611 and
meet the Non-Cash Election Requirement. However, even in the case of
maximum proration (i.e., no shareholder elects to retain shares), Holder A
will be assured of receiving at least $34,560 in cash (960 shares at $36.00
per share) and will retain 40 shares of CommNet Common Stock.
B. HOLDER B OWNS 1,000 SHARES AND ELECTS TO RETAIN ALL ITS SHARES.
1. If shareholders (including Holder B) elect to retain more than 588,611
shares, then Holder B will not retain all its shares and will be required
to receive some cash, as the number of Electing Shares has exceeded 588,611
and the number of shares which may be retained must be reduced in order to
meet the Non-Cash Election Requirement. For example, if shareholders
elected to retain 700,000 shares in the aggregate, then each electing
holder, including Holder B, would be able to retain only 84% of its shares
in order to reduce the number of retained shares to 588,611 and meet the
Non-Cash Election Requirement. Therefore, Holder B would be able to retain
only 840 shares (or 84% of its 1,000 shares) and would receive $5,760 in
cash (160 shares at $36.00 per share). In the case of maximum proration
(i.e., all shareholders elect to retain their shares), Holder B would be
able to retain only 40 shares (or 4%) and would receive $34,560 in cash (or
96%).
2. If shareholders (including Holder B) elect to retain 588,611 or fewer
shares in the aggregate, then Holder B will retain all of its 1,000 shares.
In this situation all shares elected to be retained will be retained in
order to meet the Non-Cash Election Requirement. As described in example
A.2. above, if fewer than 588,611 shares are elected to be retained, non-
electing shareholders will be prorated into shares in order to meet the
Non-Cash Election Requirement.
C. HOLDER C OWNS 1,000 SHARES AND ELECTS TO RETAIN SOME BUT NOT ALL OF ITS
SHARES. (THIS EXAMPLE ASSUMES AN ELECTION TO RETAIN 500 SHARES AND CONVERT 500
SHARES TO CASH.)
1. If shareholders (including Holder C) elect to retain exactly 588,611
shares in the aggregate, then Holder C will retain its 500 Electing Shares
and will receive $18,000 in cash (500 shares at $36.00 per share), as the
Non-Cash Election Requirement will have been met exactly.
38
2. If shareholders (including Holder C) elect to retain more than 588,611
shares in the aggregate, then Holder C will not retain all of its 500
Electing Shares, as the number of shares which may be retained must be
reduced in order to meet the Non-Cash Election Requirement. For example, if
shareholders elected to retain 700,000 shares in the aggregate, then each
holder, including Holder C, would be able to retain only 84% of its
Electing Shares in order to reduce the number of retained shares to 588,611
and meet the Non-Cash Election Requirement. Therefore, Holder C would be
able to retain only 420 shares (or 84% of its 500 Electing Shares) and
would receive $20,880 in cash (580 shares at $36.00 per share). If
shareholders elected to retain more than 700,000 shares in the aggregate,
Holder C would retain fewer shares than in the example above, but would
receive a commensurately greater amount of cash.
3. If shareholders (including Holder C) elect to retain fewer than
588,611 shares in the aggregate, then Holder C would be required to retain
more than 500 shares, as the Non-Cash Election Requirement will not have
been met and each shareholder will retain a small number of shares (in the
case of Holder C, a small number of additional shares) in order to increase
the aggregate number of retained shares to 588,611. For example, if
shareholders elected to retain 500,000 shares in the aggregate, then all
shareholders must collectively retain an additional 88,611 shares in order
to meet the Non-Cash Election Requirement. In this example, Holder C would
be required to retain an additional three shares (for a total of 503
shares) and would receive $17,892 in cash (497 shares at $36.00 per share).
The additional three shares is calculated by multiplying the 500 shares
Holder C wants to convert to cash by a fraction the numerator of which is
88,611 and the denominator of which is 13,266,340, the total number of
outstanding shares less the 500,000 Electing Shares. If shareholders
elected to retain fewer than 500,000 shares in the aggregate, Holder C
would receive more shares than in the example above, but would receive
commensurately less cash.
Fractional shares of CommNet Common Stock will not be issued in the Merger.
Holders of CommNet Common Stock otherwise entitled to a fractional share of
CommNet Common Stock following the Merger will be paid cash in lieu of such
fractional share as described under "--Fractional Shares."
Any shares of CommNet Common Stock owned by the Partnerships, Newco, any
wholly-owned subsidiary of CommNet or any wholly-owned subsidiary of Newco
will automatically be cancelled at the Effective Time. As of the date of this
Proxy Statement, none of the Company, the Partnerships, Newco, or any wholly-
owned subsidiary of Newco own any shares of CommNet Common Stock.
Newco Common Stock
In the Merger, each share of stock of Newco issued and outstanding
immediately prior to the Effective Time will be converted into a number of
shares of CommNet Common Stock equal to the quotient of (A) 3,939,167 divided
by (B) the number of shares of common stock of Newco outstanding immediately
prior to the Effective Time. As a result of the Merger, the shareholders of
Newco will hold 3,939,167 shares, or approximately 87% of the shares, of
CommNet Common Stock to be outstanding immediately after the Effective Time.
Non-Cash Election
Holders of CommNet Common Stock will be entitled to make an unconditional
election (a "Non-Cash Election") on or prior to the Election Date (as defined
below) to retain Non-Cash Election Shares. If the number of Electing Shares
exceeds the Non-Cash Election Number, then (i) the number of Electing Shares
covered by a holder's Non-Cash Election to be converted into Non-Cash Election
Shares will be determined by multiplying the total number of Electing Shares
covered by such Non-Cash Election by a proration factor determined by dividing
the Non-Cash Election Number by the total number of Electing Shares and (ii)
such number of Electing Shares will be so converted. All Electing Shares,
other than those shares converted into the right to retain Non-Cash Election
Shares as described in the immediately preceding sentence, will be converted
into cash (on a consistent basis among shareholders who made a Non-Cash
Election, pro rata to the number of shares as to which they made such
election) as if such shares were not Electing Shares.
If a shareholder makes a Non-Cash Election and receives cash as a result of
the proration procedures described above, such shareholder may receive
dividend treatment (rather than capital gain treatment) for any
39
4 cash received in the Merger as a result of such proration procedures. See
"RISK FACTORS--Non-Cash Election and Proration into Cash--Possible Dividend
Treatment" and "THE MERGER--Certain Federal Income Tax Consequences."
If the number of Electing Shares is less than the Non-Cash Election Number,
then (i) all Electing Shares will be converted into the right to retain Non-
Cash Election Shares, (ii) (A) additional shares of CommNet Common Stock,
other than Excluded Shares, will be converted into the right to retain Non-
Cash Election Shares, which number of additional shares shall be determined by
multiplying the total number of shares of CommNet Common Stock outstanding at
the Effective Time, other than Electing Shares and Dissenting Shares, by a
proration factor determined by dividing (x) the difference between the Non-
Cash Election Number and the number of Electing Shares by (y) the total number
of shares of CommNet Common Stock outstanding at the Effective Time, other
than Electing Shares and Dissenting Shares and (B) such additional shares of
CommNet Common Stock, other than Excluded Shares, will be converted into the
right to retain Non-Cash Election Shares on a consistent basis among
shareholders who held shares of CommNet Common Stock as to which they did not
make the Non-Cash Election, pro rata to the number of shares as to which they
did not make such election.
With respect to certain risks related to the retention of CommNet Common
Stock, see "RISK FACTORS."
Non-Cash Election Procedure
The Form of Election is being mailed to holders of record of CommNet Common
Stock together with this Proxy Statement. FOR A FORM OF ELECTION TO BE
EFFECTIVE, A HOLDER OF COMMNET COMMON STOCK MUST PROPERLY COMPLETE SUCH FORM
OF ELECTION, AND SUCH FORM OF ELECTION, TOGETHER WITH ALL CERTIFICATES FOR
SHARES OF COMMNET COMMON STOCK HELD BY SUCH HOLDER, DULY ENDORSED IN BLANK OR
OTHERWISE IN FORM ACCEPTABLE FOR TRANSFER ON THE BOOKS OF THE COMPANY (OR BY
APPROPRIATE GUARANTEE OF DELIVERY AS SET FORTH IN SUCH FORM OF ELECTION), MUST
BE RECEIVED BY STATE STREET BANK AND TRUST COMPANY (THE "EXCHANGE AGENT") AT
ONE OF THE ADDRESSES LISTED ON THE FORM OF ELECTION AND NOT WITHDRAWN, BY 5:00
P.M., NEW YORK CITY TIME, ON SEPTEMBER 24, 1997, THE BUSINESS DAY NEXT
PRECEDING THE DATE OF THE SPECIAL MEETING (THE "ELECTION DATE").
A NON-CASH ELECTION MAY BE REVOKED AND CERTIFICATES FOR NON-CASH ELECTION
SHARES WITHDRAWN BY WRITTEN NOTICE DULY EXECUTED AND RECEIVED BY THE EXCHANGE
AGENT PRIOR TO THE ELECTION DATE. IF AN ELECTION IS REVOKED, AND THE
CERTIFICATES FOR SHARES WITHDRAWN, THE COMMNET COMMON STOCK CERTIFICATES
SUBMITTED THEREWITH WILL BE PROMPTLY RETURNED BY THE EXCHANGE AGENT TO THE
PERSON WHO SUBMITTED SUCH CERTIFICATES. AFTER THE ELECTION DATE, SHARES FOR
WHICH A NON-CASH ELECTION HAS BEEN MADE MAY NOT BE WITHDRAWN. DUE TO THE
REQUIREMENT TO OBTAIN REGULATORY APPROVAL OF THE MERGER, A PERIOD OF TIME
COULD ELAPSE BETWEEN THE ELECTION DATE AND THE EFFECTIVE TIME.
Holders of CommNet Common Stock who make a Non-Cash Election for less than
all of their shares will receive a new share certificate from the Exchange
Agent for the remainder of the shares represented by the old certificate.
The determinations of the Exchange Agent as to whether or not Non-Cash
Elections have been properly made or revoked, and when such election or
revocations were received, will be binding.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective at the latest of (i) such time as articles
of merger (the "Colorado Articles of Merger") are duly filed with the Colorado
Secretary of State, (ii) such time as a certificate of merger (the "Newco
Certificate of Merger") is duly filed with the Delaware Secretary of State, or
(iii) such later time as Newco and the Company specify in the Colorado
Articles of Merger and the Newco Certificate of Merger (the
40
date and time the Merger becomes effective being the "Effective Time"). Such
filings will be made as soon as practicable after the closing under the Merger
Agreement, which, unless the parties to the Merger Agreement otherwise agree,
is to occur on the fifth business day after satisfaction or waiver of the
conditions set forth in the Merger Agreement. Subject to certain limitations,
the Merger Agreement may be terminated by either Newco or the Company if, among
other reasons, the Merger has not been consummated on or before November 27,
1997; provided, however, that such date will be extended to February 27, 1998
if the completion of the Merger is delayed only because certain governmental
approvals have not been received. See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT--Conditions to the Consummation of the Merger" and "--Termination."
CONVERSION/RETENTION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
CommNet Common Stock
The conversion of shares of CommNet Common Stock (other than shares of
CommNet Common Stock held by the Partnerships, Newco, any wholly-owned
subsidiary of CommNet or any wholly-owned subsidiary of Newco, fractional
shares and Dissenting Shares) into the right to receive cash or the right to
retain shares of CommNet Common Stock following the Merger will occur at the
Effective Time.
As soon as practicable as of or after the Effective Time, the Exchange Agent
will send a letter of transmittal to each holder of CommNet Common Stock (other
than holders of CommNet Common Stock making a Non-Cash Election with respect to
all of such holders' shares who have properly submitted Forms of Election and
share certificates to the Exchange Agent). The letter of transmittal will
contain instructions with respect to the surrender of certificates representing
shares of CommNet Common Stock in exchange for cash and, under certain
circumstances, certificates representing shares of CommNet Common Stock to be
retained in the Merger, or the amount of cash in lieu of any fractional
interest in a share of CommNet Common Stock for which the shares represented by
the certificates so surrendered are exchangeable pursuant to the Merger
Agreement.
EXCEPT FOR COMMNET COMMON STOCK CERTIFICATES SURRENDERED WITH A FORM OF
ELECTION AS DESCRIBED ABOVE UNDER "--NON-CASH ELECTION PROCEDURE," SHAREHOLDERS
OF THE COMPANY SHOULD NOT FORWARD STOCK CERTIFICATES TO THE EXCHANGE AGENT
UNTIL THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL.
As soon as practicable after the Effective Time, each holder of an
outstanding certificate or certificates which prior thereto represented shares
of CommNet Common Stock shall, upon surrender to the Exchange Agent of such
certificate or certificates and acceptance thereof by the Exchange Agent, be
entitled to the amount of cash, if any, into which the number of shares of
CommNet Common Stock previously represented by such surrendered certificate or
certificates shall have been converted pursuant to the Merger Agreement and a
certificate or certificates representing the number of full shares of CommNet
Common Stock, if any, to be retained by the holder thereof pursuant to the
Merger Agreement. The Exchange Agent will accept such certificates upon
compliance with such reasonable terms and conditions as the Exchange Agent may
impose to effect an orderly exchange thereof in accordance with normal exchange
practices. After the Effective Time, there will be no further transfer on the
records of the Company or its transfer agent of certificates representing
shares of CommNet Common Stock which have been converted, in whole or in part,
pursuant to the Merger Agreement into the right to receive cash, and if such
certificates are presented to the Company for transfer, they will be cancelled
against delivery of cash and, if appropriate, certificates for retained CommNet
Common Stock. Until surrendered as contemplated by the Merger Agreement, each
certificate for shares of CommNet Common Stock will be deemed at any time after
the Effective Time to represent only the right to receive upon such surrender
the consideration contemplated by the Merger Agreement. No interest will be
paid or will accrue on any cash payable as consideration in the Merger or in
lieu of any fractional shares of CommNet Common Stock.
After the Effective Time, no dividends or other distributions will be paid to
the holder of any unsurrendered certificate for shares of CommNet Common Stock
with respect to the shares of retained CommNet Common Stock represented thereby
and no cash payment in lieu of fractional shares shall be paid to any such
holder pursuant to the Merger Agreement until the surrender of such certificate
in accordance with the Merger Agreement. Subject to the effect of applicable
laws, there shall be paid to the holder of a certificate representing
41
whole shares of retained CommNet Common Stock issued in connection therewith,
without interest, (i) at the time of such surrender or as promptly after the
sale of the Excess Shares (as defined below) as practicable, the amount of any
cash payable in lieu of a fractional share of retained CommNet Common Stock to
which such holder is entitled pursuant to the Merger Agreement and the
proportionate amount of dividends or other distributions, if any, with a record
date after the Effective Time theretofore paid with respect to such whole
shares of retained CommNet Common Stock, and (ii) following surrender, the
proportionate amount of dividends or other distributions, if any, with a record
date after the Effective Time but prior to such surrender and a payment date
subsequent to such surrender payable with respect to such whole shares of
retained CommNet Common Stock.
FRACTIONAL SHARES
No certificates or scrip representing fractional shares of CommNet Common
Stock will be issued in connection with the Merger, and such fractional share
interests will not entitle the owner thereof to vote or to any rights of a
shareholder of the Company after the Merger. Each holder of shares of CommNet
Common Stock exchanged pursuant to the Merger who would otherwise have been
entitled to receive a fraction of a share of retained CommNet Common Stock
(after taking into account all shares of CommNet Common Stock delivered by such
holder) will receive, in lieu thereof, a cash payment (without interest)
representing such holder's proportionate interest in the net proceeds from the
sale by the Exchange Agent (following the deduction of applicable transaction
costs), on behalf of all such holders, of the shares (the "Excess Shares") of
retained CommNet Common Stock representing such fractions. Such sale shall be
made as soon as practicable after the Effective Time.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, the Company has agreed that prior to the
Effective Time its business and that of its consolidated subsidiaries and
certain affiliates will be conducted only in the ordinary course of business.
See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Certain Pre-Closing
Covenants."
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of CommNet and Newco to consummate the Merger are subject to
various conditions, including, without limitation, obtaining the requisite
approval of CommNet's shareholders, obtaining the requisite approval of
relevant government authorities, including the FCC and the absence of any
injunction or other legal restraint or prohibition preventing the consummation
of the Merger. See "REGULATORY APPROVALS."
Newco's obligations to effect the Merger are further subject, among other
things, to (i) the Company amending the terms of the Notes and consummating the
Debt Tender Offers, (ii) CIFC repaying all amounts outstanding under the CoBank
Credit Agreement, (iii) the Company or CIFC receiving financing proceeds on
terms and conditions set forth in the Commitment Letter or upon terms and
conditions which are substantially equivalent thereto and, to the extent that
any of the terms and conditions are not contemplated by the Commitment Letter,
on terms and conditions reasonably satisfactory to Newco, (iv) the absence of
certain litigation, (v) since May 27, 1997, no material adverse change relating
to the Company having occurred and being continuing, (vi) all regulatory
approvals, as described in the Merger Agreement, having been obtained, having
been declared or filed or having occurred, as the case may be, and all such
required regulatory approvals being in full force and effect and (vii) Newco
having been reasonably satisfied that the Merger will be recorded as a
recapitalization for financial reporting purposes.
As of March 31, 1997, $36,927,000 was outstanding under the CoBank Credit
Agreement, $150,303,000 in accreted carrying value of the 11 3/4% Senior
Subordinated Discount Notes due 2003 was outstanding and $80,000,000 in
aggregate principal amount of the 11 1/4% Subordinated Notes due 2005 was
outstanding. An aggregate of approximately $298,690,000 will be required to
refinance the CoBank Credit Agreement and the
42
Notes. It is expected that financing proceeds and equity contributions
aggregating approximately $825 million will be required to refinance the CoBank
Credit Agreement and the Notes, to pay for cash consideration to CommNet
shareholders in connection with the Merger, to settle outstanding Options and
to pay for fees and expenses in connection with the Merger. The equity
contribution to be made by the Partnerships is expected to constitute
approximately $142 million of such amount. It is also a condition to the Merger
that Newco is reasonably satisfied that the Merger will be recorded as a
recapitalization for financial reporting purposes. See "CERTAIN PROVISIONS OF
THE MERGER AGREEMENT--Conditions to the Consummation of the Merger."
CERTAIN EFFECTS OF RECAPITALIZATION
Upon consummation of the Merger, shares of CommNet Common Stock which are
retained by shareholders in the Merger will represent approximately 13% of the
outstanding CommNet Common Stock. Because the Merger will be accounted for as a
recapitalization, it will have no impact on the historical basis of the
Company's assets and liabilities, one result of which will be a reduction in
shareholders' equity of the Company to a deficit of approximately $347 million.
See "RISK FACTORS--Substantial Leverage; Shareholders' Deficit; Liquidity."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary sets forth the opinion of Latham & Watkins with respect
to certain of the expected United States federal income tax consequences
generally applicable to shareholders of the Company who retain CommNet Common
Stock and/or receive cash in the Merger. The summary is based upon current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
currently applicable Treasury regulations, and judicial and administrative
decisions and rulings. There can be no assurance that the Internal Revenue
Service ("IRS") will not take a contrary view, and no ruling from the IRS has
been or will be sought. Legislative, judicial or administrative changes or
interpretations may be forthcoming that could alter or modify the statements
and conclusions set forth herein. Any such changes or interpretations could be
retroactive and could affect the tax consequences to the shareholders.
EACH SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF SUCH PENDING LEGISLATION.
The summary does not purport to deal with all aspects of United States
federal income taxation that may affect particular shareholders in light of
their individual circumstances, and is not intended for shareholders subject to
special treatment under the United States federal income tax law (e.g.,
insurance companies, tax-exempt organizations, financial institutions, broker-
dealers, shareholders who hold their CommNet Common Stock as part of a hedge,
straddle or conversion transaction, shareholders who do not hold their CommNet
Common Stock as capital assets and shareholders who have acquired their CommNet
Common Stock upon the exercise of options or otherwise as compensation). In
addition, this discussion does not consider the effect of any applicable
foreign, state, local or other tax laws. Foreign Shareholders (as defined
below) may be subject to special rules not discussed herein.
SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF
ANY FOREIGN, STATE, LOCAL OR OTHER TAX LAWS.
Characterization of the Merger for United States Federal Income Tax Purposes.
For United States federal income tax purposes, both Newco and the Merger will
be disregarded as a transitory, with the result that tendering shareholders
will be treated as transferring a portion of their CommNet Common Stock to
Blackstone (in a sale transaction) and a portion of their stock to the Company
(in a redemption transaction). The Company intends to take the position that,
for each tendering shareholder, the portion of the CommNet Common Stock
disposed of in the Merger that is allocable to the sale to Blackstone is the
percentage equivalent of a fraction the numerator of which is (i) the amount of
equity contributed to Newco by Blackstone in exchange for Newco stock, and the
denominator of which is (ii) the aggregate amount of cash paid to shareholders
pursuant to the Merger. The remainder of the shareholder's CommNet Common Stock
disposed of in the Merger will be treated as
43
redeemed by the Company. The IRS could, however, adopt a different allocation
approach. See "--Shareholders Receiving Cash" below for a discussion of the
consequences of cash being deemed paid in redemption of CommNet Common Stock.
Tax Consequences to Shareholders on Receipt of Consideration. The following
discussion assumes that CommNet Common Stock held by a tendering shareholder is
held as a capital asset. A holding period of more than one year is required for
long-term capital gain or loss treatment. Pursuant to the recently enacted
Taxpayer Relief Act of 1997, the long-term capital gains rate applicable to
shareholders meeting certain holding period requirements may be reduced.
As described more fully below, the United States federal income tax
consequences of the Merger with respect to a particular shareholder will depend
upon, among other things, (i) whether the shareholder received any cash
proceeds pursuant to the Merger, (ii) the extent to which a shareholder will be
treated as transferring CommNet Common Stock to Blackstone (in a sale
transaction) and to the Company (in a redemption transaction) and (iii) whether
the redemption of a holder's CommNet Common Stock by the Company will qualify
as a sale or exchange under Section 302 of the Code.
Shareholders Receiving Cash. To the extent that a shareholder is considered
to have transferred Stock to Blackstone, such shareholder will recognize
capital gain or loss equal to the difference between the amount realized on
such deemed sale (i.e., the cash proceeds properly allocated thereto) and the
shareholder's adjusted tax basis in such CommNet Common Stock.
To the extent that a shareholder is considered to have transferred CommNet
Common Stock to the Company in a redemption transaction, such shareholder also
will recognize capital gain or loss equal to the difference between the cash
proceeds allocable to such deemed redemption and the shareholder's adjusted tax
basis in such CommNet Common Stock, provided that such redemption is treated as
a sale or exchange under Section 302 of the Code with respect to such
shareholder.
Under Section 302 of the Code, a redemption of CommNet Common Stock pursuant
to the Merger will generally be treated as a sale or exchange if such
redemption (a) is "substantially disproportionate" with respect to the
shareholder, (b) results in a "complete redemption" of the shareholder's
interest in the Company or (c) is "not essentially equivalent to a dividend"
with respect to the shareholder. In determining whether any of these Section
302 tests is satisfied, shareholders must take into account both CommNet Common
Stock that they actually own and CommNet Common Stock that they are deemed to
own under the constructive ownership rules set forth in Section 318 of the
Code. Under such rules, a shareholder is treated as owning CommNet Common Stock
that is owned by certain related individuals or entities and CommNet Common
Stock that the shareholder has the right to acquire by exercise of an option or
by conversion or exchange of a security.
The deemed redemption of a shareholder's CommNet Common Stock in the Merger
will be "substantially disproportionate" with respect to such shareholder if,
among other things, the percentage of CommNet Common Stock actually and
constructively owned by such shareholder immediately following the Merger is
less than 80% of the percentage of CommNet Common Stock actually and
constructively owned by such shareholder immediately prior to the Merger.
Additionally, the redemption of a shareholder's Stock will not be
"substantially disproportionate" with respect to such shareholder unless, after
the Merger, such stockholder owns less than 50% of the total combined voting
power of all classes of stock entitled to vote in the Company. Shareholders
should consult their own tax advisors with respect to the application of the
"substantially disproportionate" test to their particular facts and
circumstances.
The redemption of a shareholder's CommNet Common Stock will result in a
"complete redemption" of a shareholder's interest in the Company if either (a)
all the CommNet Common Stock actually and constructively owned by the
shareholder is redeemed (or deemed sold) pursuant to the Merger or (b) all the
CommNet Common Stock actually owned by the shareholder is redeemed (or deemed
sold) pursuant to the Merger and the shareholder is eligible to waive, and does
effectively waive in accordance with Section 302(c) of the Code, attribution of
all CommNet Common Stock which otherwise would be considered to be
constructively owned by such shareholder.
44
Even if the redemption of a shareholder's CommNet Common Stock fails to
satisfy the "substantially disproportionate" test and the "complete redemption"
test described above, the redemption of a shareholder's CommNet Common Stock
may nevertheless satisfy the "not essentially equivalent to a dividend" test if
the Merger results in a "meaningful reduction" in such shareholder's
proportionate equity interest in the Company. Whether the receipt of cash by a
shareholder will be considered "not essentially equivalent to a dividend" will
depend upon such shareholder's facts and circumstances. In certain
circumstances, even a small reduction in a shareholder's proportionate equity
interest may satisfy this test. For example, the IRS has indicated in a
published ruling that a 3.3% reduction in the proportionate equity interest of
a small (substantially less than 1%) shareholder in a publicly held corporation
who exercises no control over corporate affairs constitutes such a "meaningful
reduction." Shareholders should consult with their own tax advisors as to the
application of this test.
A tendering shareholder may not be able to satisfy one of the above tests
because of the retention (by election or proration) or the contemporaneous
acquisition of CommNet Common Stock by such shareholder or a related party
whose CommNet Common Stock would be attributed to such shareholder under
Section 318 of the Code. Shareholders should consult their own tax advisors
regarding the tax consequences of such retention or acquisitions in their
particular circumstances.
If a shareholder cannot satisfy any of the three tests described above, then
to the extent the Company has sufficient current and/or accumulated earnings
and profits, such shareholder will be treated as having received a dividend
which will be includible in gross income (and treated as ordinary income) in an
amount equal to the cash received (without regard to gain or loss, if any). In
such case, in general, the basis of the CommNet Common Stock tendered by such
shareholder will be allocated to the adjusted basis of the CommNet Common Stock
retained by such shareholder.
In the case of a corporate shareholder, if the cash paid is treated as a
dividend, such dividend income may be eligible for the 70% dividends-received
deduction. The dividends-received deduction is subject to certain limitations,
and may not be available if the corporate shareholder does not satisfy certain
holding period requirements with respect to the CommNet Common Stock or if the
CommNet Common Stock is treated as "debt financed portfolio stock" within the
meaning of Section 246A(c) of the Code. Additionally, if a dividends-received
deduction is available, the dividend may be treated as an "extraordinary
dividend" under Section 1059(a) of the Code, in which case a corporate
shareholder's adjusted tax basis in CommNet Common Stock retained by such
shareholder would be reduced, but not below zero, by the amount of the nontaxed
portion of such dividend. Under the recently enacted Taxpayer Relief Act of
1997, if the nontaxed portion of such dividend exceeds such basis, such excess
will be treated as gain from the sale or exchange of the CommNet Common Stock
for the taxable year in which the extraordinary dividend is received. Corporate
shareholders are urged to consult their own tax advisors as to the effect of
Section 1059 of the Code on the adjusted tax basis of their CommNet Common
Stock.
CommNet Common Shareholders Retaining CommNet Common Stock and Receiving No
Cash. The Merger will have no United States federal income tax consequences for
shareholders who retain their CommNet Common Stock and receive no cash.
Accordingly, a shareholder will not recognize any gain or loss on CommNet
Common Stock retained by such shareholder.
CommNet Common Shareholders Retaining a Portion of Their CommNet Common Stock
and Receiving Cash. To the extent that a shareholder chooses to exchange a
portion of its CommNet Common Stock for cash, or to the extent a shareholder is
prorated into receiving cash in exchange for a portion of its CommNet Common
Stock, the tax treatment of such shareholder's receipt of cash will be the same
as set forth above under "--Shareholders Receiving Cash."
As described above under "--CommNet Common Shareholders Retaining CommNet
Common Stock and Receiving No Cash," the Merger will have no tax consequences
to a shareholder (and, thus, a shareholder will not recognize any gain or loss
as a result of the Merger), to the extent such shareholder elects to retain, or
is prorated into retaining, CommNet Common Stock. However, as described more
fully above under "--Shareholders Receiving Cash," a shareholder's retention of
CommNet Common Stock may, under certain
45
circumstances, cause the redemption portion of the cash received by such
shareholder to be treated as a dividend for United States federal income tax
purposes.
Foreign CommNet Common Shareholders--Withholding. The following is a general
discussion of certain United States federal income tax consequences of the
Merger to Foreign Shareholders. For this purpose, a Foreign Shareholder is any
shareholder who is, for United States federal income tax purposes, a foreign
corporation, a non-resident alien individual, a foreign partnership, a foreign
estate or a foreign trust, as such terms are defined in the Code (a "Foreign
Person").
In the case of any Foreign Shareholder, the Exchange Agent will withhold 30%
of the amount paid to redeem the CommNet Common Stock of such shareholder in
order to satisfy certain United States withholding requirements, unless such
foreign shareholder proves in a manner satisfactory to the Company and the
Exchange Agent that either (i) the redemption of its CommNet Common Stock
pursuant to the Merger will qualify as a sale or exchange under Section 302 of
the Code, rather than as a dividend for United States federal income tax
purposes, in which case no withholding will be required, (ii) the Foreign
Shareholder is eligible for a reduced tax treaty rate with respect to dividend
income, in which case the Exchange Agent will withhold at the reduced treaty
rate or (iii) no United States withholding is otherwise required.
FOREIGN SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE
APPLICATION TO THEM OF THESE WITHHOLDING RULES. FURTHER, SINCE THE FOREGOING
DISCUSSION DOES NOT ADDRESS ANY OF THE OTHER POTENTIAL UNITED STATES FEDERAL
INCOME AND ESTATE TAX CONSEQUENCES OF THE MERGER TO FOREIGN SHAREHOLDERS, SUCH
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO SUCH
POTENTIAL TAX CONSEQUENCES.
Information Reporting and Backup Withholding. The Company must report
annually to the IRS and to each shareholder the amount of dividends paid to
such shareholder and any amount withheld under the backup withholding rules
with respect to such dividends. Copies of these reports also may be made
available to the tax authorities in the country in which a Foreign Shareholder
resides under applicable income tax treaties.
Backup withholding (which generally is imposed at the rate of 31% on certain
payments to persons who fail to furnish certain information under the United
States information reporting requirements) generally will not apply to
dividends paid to a Foreign Shareholder at an address outside the United States
unless the payor has knowledge that the payee is not a Foreign Person (i.e., is
a "United States Person").
Payment of the proceeds of a sale of CommNet Common Stock by or through a
United States office of a broker is subject to both backup withholding and
information reporting unless the beneficial owner certifies under penalties of
perjury, among other things, that it is a Foreign Shareholder and the payor
does not have actual knowledge that such owner is a United States Person, or
otherwise establishes an exemption. Payments of sale proceeds from CommNet
Common Stock to or through a foreign office of a broker that is, for United
States federal income tax purposes, a United States Person, a controlled
foreign corporation, or a Foreign Person that derives 50% or more of its gross
income for certain periods from the conduct of a trade or business in the
United States will not be subject to backup withholding, but will be subject to
information reporting unless (1) such broker has documentary evidence in its
records that the beneficial owner is a Foreign Shareholder and certain other
conditions are met, or (2) the beneficial owner otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against the shareholder's United States federal income tax
liability provided the required information is furnished to the IRS.
The backup withholding and information reporting rules are currently under
review by the Treasury Department and their application to the CommNet Common
Stock could be changed by future regulations.
THE FOREGOING DESCRIPTION OF POTENTIAL UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS GENERALLY APPLICABLE TO SHAREHOLDERS IN THE MERGER DOES NOT
ADDRESS EVERY FEDERAL INCOME TAX CONCERN WHICH MAY BE APPLICABLE TO A
46
PARTICULAR SHAREHOLDER. EACH SHAREHOLDER IS URGED TO CONSULT SUCH SHAREHOLDER'S
OWN TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES TO SUCH SHAREHOLDER, IN THE
LIGHT OF SUCH SHAREHOLDER'S PARTICULAR CIRCUMSTANCES, OF THE DISPOSITION OF
COMMNET COMMON STOCK PURSUANT TO THE MERGER.
ACCOUNTING TREATMENT
The Merger will be accounted for as a recapitalization. Accordingly, the
historical basis of the Company's assets and liabilities will not be impacted
by the transaction.
EFFECT ON OPTIONS AND EMPLOYEE BENEFIT MATTERS
It is anticipated that, unless exercised or cancelled (pursuant to its terms
or in exchange for a cash amount equal to the difference between $36.00 and the
exercise price of the Option) prior to the Effective Time, each option to
purchase shares of CommNet Common Stock (an "Option") granted under the CommNet
Omnibus Stock and Incentive Plan, the CommNet Key Agent Stock Option Plan and
the Stock Option Agreement dated September 19, 1995 between CommNet and Doron
Lurie (the "Stock Option Plans") will remain outstanding immediately following
the Effective Time and that such Options will be subject to adjustment pursuant
to the terms of the Stock Option Plans. The Company anticipates that a
substantial number of Options will be so cancelled prior to the Effective Time
(in exchange for a cash amount equal to the difference between $36.00 and the
exercise price of the applicable Option); however, some existing Options may
remain outstanding following the Merger. It is anticipated that the Stock
Option Plans will otherwise terminate as of the Effective Time. In addition,
following the Merger, the Company may grant or sell, or grant options to
purchase, additional shares of CommNet Common Stock to members of the Company's
management or otherwise permit management to participate in the equity of the
Company. The foregoing could dilute the holdings of CommNet shareholders and
the holdings of the Partnerships. See "RISK FACTORS--Potential Dilution of
CommNet Shareholders."
Newco has agreed in the Merger Agreement that the Company will keep in full
force and effect, until the first anniversary of the Effective Time, certain
employee welfare and retirement plans.
It is anticipated that the ESOP will be amended to provide that a fiduciary
independent of the Company will decide whether to make a Non-Cash Election with
respect to the shares of CommNet Common Stock held by the ESOP or to receive
cash with respect to the shares of CommNet Common Stock held by the ESOP. It is
also anticipated that the ESOP will terminate as soon as practicable following
the Effective Time and that upon termination the ESOP's assets will either be
transferred to another qualified plan in which the ESOP's participants are
eligible for participation or completely distributed to the ESOP's
participants.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and executive officers of the Company may have interests,
described herein, that present them with potential conflicts of interest in
connection with the Merger. The Special Committee is aware of the potential
conflicts described below and considered them in addition to the other matters
described under "THE MERGER--Recommendation of the Special Committee and the
Board of Directors; Reasons for the Merger."
Shares of CommNet Common Stock held by officers and directors of CommNet will
be converted into the right to receive the same consideration as shares of
CommNet Common Stock held by other shareholders.
Pursuant to the Merger Agreement, the Company has agreed for six years after
the Effective Time to indemnify all present directors and officers of the
Company and will, subject to certain limitations, maintain for six years
directors' and officers' liability insurance and fiduciary liability insurance
policies containing terms and conditions which are not less advantageous than
any such policies which may be in effect prior to the Effective Time. See
"CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Indemnification and Insurance."
In July 1993, the Board of Directors approved change in control agreements
with Messrs, Pohs and Dwyer. In October 1994, the Board authorized a comparable
agreement with Mr. Hoe, the Company's Chief Information Officer. In November
1995, the Board authorized comparable agreements with Messrs. Gardner, Lynn and
Morrisey, the Company's Senior Vice President and Controller, Senior Vice
President--Network Operations, and Executive Vice President--Sales Operations,
respectively, and Ms. Shapiro, the Company's Senior Vice President and General
Counsel. The purpose of these agreements is to reinforce and encourage the
officers to maintain objectivity and a high level of attention to their duties
without distraction from the possibility of a change in control of the Company.
These agreements provide that in the event of a change in control of the
Company, as that term is defined in these agreements, each officer is entitled
to receive certain severance benefits
47
upon the subsequent termination or constructive termination of employment,
unless such termination is due to death, disability or voluntary retirement;
unless the termination is by the Company for cause (as defined in these
agreements) or is by the officer for other than good reason (as defined in
these agreements).
The severance benefits include the payment of the officer's full base salary
through the date of termination. The severance benefits also include a lump sum
payment equal to 2.99 times the sum of (a) the officer's annual base salary in
effect immediately prior to the circumstances giving rise to termination, and
(b) the actual bonus earned by the officer in the year prior to the year in
which termination occurs. In addition, each officer will be provided with life
and health benefits and a continuation of all other employee benefits for 12
months following the date of termination. In addition, the officers will be
fully vested in all benefit plans to the extent not otherwise entitled to 100%
of all contributions made by the Company on their behalf.
On March 30, 1997, CommNet and Mr. Pohs entered into a Retirement and
Consulting Agreement (the "Consulting Agreement") pursuant to which Mr. Pohs
will receive the following upon his retirement from the Company: (i) a payment
equal in amount to the additional employment contributions and matching
contributions under the CommNet Cellular Inc. Retirement Savings Plan and the
ESOP to which Mr. Pohs would have been entitled had such contributions been
determined without regard to the statutory limits applicable to such
contributions under the Code for the five year period ending on Mr. Pohs'
retirement date; (ii) a payment equal to the present value of five times the
annual premium cost with respect to Mr. Pohs' coverage level and plan option of
the Company's health plan and the Exec-U-Care Medical Reimbursement Insurance;
and (iii) a grant of 50,000 shares of restricted stock under the CommNet
Cellular Inc. Omnibus Stock and Incentive Plan (which shares will vest upon
death, disability, the end of the consulting period described below or a change
of control). The Consulting Agreement also provides that the Company will
retain Mr. Pohs as a consultant for a period of six years following his
retirement in exchange for a consulting fee equal to 50% of Mr. Pohs' final
annualized base salary plus his final year's annualized bonus per year. In the
event of a change in control of the Company, as defined in the Consulting
Agreement, (i) if Mr. Pohs has not yet retired, he may elect to receive the
benefits set forth in his change of control agreement, as described in the two
preceding paragraphs, or to receive the benefits provided for in the Consulting
Agreement, and (ii) if Mr. Pohs has retired, he will be entitled to receive a
lump-sum payment of all consulting fees due for the remaining portion of the
consulting arrangement, and all restrictions on the shares granted pursuant to
the Consulting Agreement will lapse.
The occurrence of the Merger will constitute a change in control of the
Company under these agreements. In the event any payment or benefit to be
received by an officer pursuant to these agreements would be subject to the
federal excise tax, the amount of the benefits payable under these agreements
will be increased such that the net amount retained by the officer after
deduction of any excise tax on such payment and any federal, state and local
tax and excise tax upon such additional payment shall be equal to the full
severance benefits contemplated by the agreement.
RESALE OF COMMNET COMMON STOCK FOLLOWING THE MERGER
The CommNet Common Stock to be retained in connection with the Merger will be
freely transferable, except that shares retained by any shareholder who may be
deemed to be an "affiliate" (as defined under the Securities Act and generally
including, without limitation, directors, certain executive officers and
beneficial owners of 10% or more of a class of capital stock) of the Company
for purposes of Rule 145 under the Securities Act will not be transferable
except in compliance with the Securities Act. This Proxy Statement does not
cover sales of CommNet Common Stock retained by any person who may be deemed to
be an affiliate of the Company. It is the Company's intention that CommNet
Common Stock to be retained in connection with the Merger will remain listed on
Nasdaq for at least 90 days after the Effective Time. After such 90-day period,
the Company intends to delist the CommNet Common Stock from Nasdaq. See
"CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Listing and Exchange Act
Registration."
MERGER FINANCINGS
General; Commitments
The Company expects to incur approximately $683.2 million of funded long-term
debt and the Partnerships expect to make an equity contribution to Newco of
approximately $141.8 million, which amounts will be used to (i) fund payment of
the cash consideration in the Merger, (ii) repay or repurchase certain
indebtedness of the
48
Company and (iii) pay the fees and expenses incurred in connection with the
Merger and any other transactions contemplated by the Merger Agreement. The
Chase Manhattan Bank ("Chase") has delivered a commitment letter providing for
the establishment of new senior secured credit facilities to be provided to
CIFC by a syndicate of financial institutions (the "Lenders") pursuant to the
terms of a new credit agreement to be entered into prior to the consummation
of the Merger (the "New Credit Agreement"). Chase Securities Inc. will act as
arranging agent and syndication agent and Chase will act as administrative,
collateral and documentation agent (in such capacity, the "Agent"). It is
currently contemplated that the New Credit Agreement will include the
following facilities: (i) senior secured term loan facilities in an aggregate
principal amount of $680 million divided into a $200 million tranche ("Tranche
A"), a $100 million tranche ("Tranche B"), a $100 million tranche ("Tranche
C"), and a $280 million tranche ("Tranche D" and, together with Tranche A,
Tranche B and Tranche C, the "Term Loan Facilities") and (ii) a senior secured
revolving credit facility (the "Revolving Facility" and, together with the
Term Loan Facilities, the "Merger Financings") in an aggregate principal
amount of $80 million.
Maturities; Amortization
Tranche A will mature approximately eight years after the Effective Time;
Tranche B will mature approximately nine years after the Effective Time;
Tranche C will mature approximately nine and one-half years after the
Effective Time; Tranche D will mature approximately ten years after the
Effective Time; and the Revolving Facility will mature approximately eight
years after the Effective Time. Tranche A, Tranche B and Tranche C will be
subject to amortization in quarterly installments. Tranche D and the Revolving
Facility will be payable in full at maturity, with no prior amortization.
Interest
Borrowings (i) under Tranche A and the Revolving Facility will bear interest
at a rate per annum equal to, at the option of CIFC (subject to certain
conditions), either (A) the higher of (x) the Agent's customary prime rate or
(y) the Federal Funds Effective Rate plus 0.5% (the "Base Rate") plus 1.25% or
(B) a reserve-adjusted eurocurrency rate (the "Adjusted Eurocurrency Rate")
plus 2.25%, (ii) under Tranche B will bear interest at a rate per annum equal
to, at the option of CIFC (subject to certain conditions), either (A) the Base
Rate plus 1.75% or (B) the Adjusted Eurocurrency Rate plus 2.75%, (iii) under
Tranche C will bear interest at a rate per annum equal to, at the option of
CIFC (subject to certain conditions) either (A) the Base Rate plus 2.00% or
(B) the Adjusted Eurocurrency Rate plus 3.00% and (iv) under Tranche D will
bear interest at a rate per annum equal to, at the option of CIFC (subject to
certain conditions) either (A) the Base Rate plus 2.50% and (B) the Adjusted
Eurocurrency Rate plus 3.50%; provided, with respect to Tranche A and the
Revolving Facility, that the applicable margin over the Base Rate or Adjusted
Eurocurrency Rate, as the case may be, will be subject to a decrease based on
certain performance criteria. Overdue principal and interest will bear
interest at the applicable interest rate (or, in the case of overdue interest,
the Base Rate) plus the applicable margin plus 2.00% per annum.
Fees
The Lenders will be paid commitment fees at a rate of 0.25% per annum on the
Merger Financings until the Effective Time. Following the Effective Time, the
Lenders will be paid (i) commitment fees at a rate of 0.50% per annum on
unused Revolving Facility commitments and (ii) letter of credit commissions on
outstanding letters of credit at a rate per annum of 2.25%, in each case,
subject to reduction based on certain performance criteria. In addition, the
Agent and the Lenders will receive such other fees as shall be agreed upon
separately.
Mandatory Prepayments
CIFC will be required to prepay the loans under the Term Loan Facilities and
the Revolving Facility, as set forth in the New Credit Agreement, (i) in
respect of 100% of the net proceeds of certain non-ordinary course asset sales
(except, it is anticipated, in the case of such asset sales for which the
proceeds are reinvested in the Company's business within 12 months) and
certain issuances of indebtedness and (ii) in an amount equal to 75%, subject
to reduction to 50% based on certain performance criteria, of the generation
of excess cash flow (to be defined in the New Credit Agreement).
49
Guarantees
All obligations under the New Credit Agreement and any interest rate hedging
agreements entered into with the Lenders or their affiliates in connection
therewith will be unconditionally and irrevocably guaranteed (the
"Guarantees") by the Company and each of the Company's wholly-owned domestic
subsidiaries (the "Guarantors").
Security
All obligations of CIFC and the Guarantors under the New Credit Agreement
and the Guarantees will be secured by first priority security interests in
substantially all tangible and intangible assets, real property, trademarks,
tradenames and equipment of CIFC and the Guarantors. In addition, the New
Credit Agreement will be secured by a first priority security interest in
substantially all the capital stock and equity interests held by the Company
and any of its wholly-owned subsidiaries.
Covenants
The New Credit Agreement will contain a number of affirmative covenants and
negative covenants that, among other things, will restrict the ability of CIFC
and the Company to dispose of assets, incur additional indebtedness, prepay
other indebtedness, pay dividends and distributions on capital stock, redeem
or repurchase capital stock or debt, create liens, make investments, engage in
mergers or acquisitions, enter into leases or transactions with affiliates,
and otherwise will restrict corporate activities. In addition, the Company
will be required to maintain (i) a minimum EBITDA to interest ratio, which
minimum is anticipated to initially equal 1.0 to 1.0 and to increase over time
to 3.0 to 1.0, (ii) a minimum fixed charges ratio, which is anticipated to
equal 1.0 to 1.0, and (iii) a maximum debt to EBITDA ratio, which maximum is
anticipated to initially equal 10.9 to 1.0 and to decrease over time to 4.0 to
1.0.
Events of Default
Events of default under the New Credit Agreement will include, among other
things: (i) failure to make payments when due; (ii) inaccuracy of
representations and warranties; (iii) default in the performance of covenants;
(iv) default under certain other agreements governing indebtedness of the
Company or any consolidated subsidiary; (v) certain events of bankruptcy; (vi)
certain judgment defaults; (vii) failure to satisfy certain material ERISA
requirements; (viii) certain actual or asserted invalidities of loan documents
or of security interests in collateral or of material agreements; (ix) the
occurrence of a Change in Control (as defined therein) of the Company; and (x)
payment defaults on advances owing to CIFC under certain circumstances and in
certain specified amounts.
CONVERSION OF NEWCO STOCK
In the Merger, each share of stock of Newco issued and outstanding
immediately prior to the Effective Time will be converted into a number of
shares of CommNet Common Stock equal to the quotient of (A) 3,939,167 divided
by (B) the number of shares of common stock of Newco outstanding immediately
prior to the Effective Time. As a result of the Merger, the shareholders of
Newco will hold 3,939,167 shares, or approximately 87% of the shares, of
CommNet Common Stock to be outstanding immediately after the Merger.
50
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following pro forma consolidated financial statements have been derived
by the application of pro forma adjustments to the Company's historical
consolidated financial statements incorporated by reference herein. The pro
forma consolidated statements of operations for the fiscal year ended
September 30, 1996 and the six months ended March 31, 1997 give effect to the
Merger and related transactions as if such transactions had been consummated
as of October 1, 1995. The pro forma consolidated balance sheet gives effect
to the Merger and related transactions as if such transactions had occurred as
of March 31, 1997. The adjustments are described in the accompanying notes.
The pro forma consolidated financial statements should not be considered
indicative of actual results that would have been achieved had the Merger and
related transactions been consummated on the date or for the periods indicated
and do not purport to indicate balance sheet data or results of operations as
of any future date or for any future period. The pro forma consolidated
financial statements should be read in conjunction with the Company's
historical financial statements and the notes thereto incorporated herein by
reference. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE."
At the Effective Time, Newco will be merged with and into CommNet and
CommNet will continue as the surviving corporation in the Merger. Newco, a
Delaware corporation, was organized in connection with the Merger and has not
carried on any activities to date other than those incident to its formation
and the transactions contemplated by the Merger Agreement.
The pro forma adjustments were applied to the respective historical
consolidated financial statements to reflect and account for the Merger as a
recapitalization. Accordingly, the historical basis of the Company's assets
and liabilities has not been impacted by the transaction.
51
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
MARCH 31, 1997
-------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS (A) PRO FORMA
---------- -------------- ---------
(AMOUNTS IN THOUSANDS)
ASSETS
- ------
Current assets:
Cash and cash equivalents.............. $ 23,281 $ (8,997) $ 14,284
Accounts receivable, net............... 19,281 19,281
Inventory and other.................... 4,140 4,140
--------- --------- ---------
Total current assets................. 46,702 (8,997) 37,705
Investment in and advances to affiliates. 58,667 58,667
Investment in cellular system equipment.. 18,308 18,308
Property and equipment, net.............. 122,231 122,231
FCC licenses and filing rights, net...... 100,029 100,029
Deferred loan costs and other, net....... 5,818 19,881 25,699
--------- --------- ---------
$ 351,755 $ 10,884 $ 362,639
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
- ------------------------------------
Current liabilities:
Accounts payable....................... $ 9,782 $ 9,782
Accrued liabilities.................... 7,862 7,862
Accrued interest....................... 2,460 $ (2,460) --
Current portion of secured bank
financing............................. 319 (319) --
--------- --------- ---------
Total current liabilities.............. 20,423 (2,779) 17,644
Long-term debt:
Secured bank financing................. 36,608 (36,608) --
New bank financing..................... -- 683,200 683,200
Note payable and other long-term debt.. 2,916 2,916
11 3/4% senior subordinated discount
notes ................................ 150,303 (150,303) --
11 1/4% subordinated notes............. 80,000 (80,000) --
Minority interests....................... 5,590 5,590
Shareholders' equity (deficit):
Preferred Stock ....................... -- --
Common Stock .......................... 14 (9) 5
Capital in excess of par value ........ 165,324 129,421 294,745
Accumulated deficit.................... (109,423) (532,038) (641,461)
--------- --------- ---------
Total shareholders' equity (deficit). $ 55,915 (402,626) (346,711)
--------- --------- ---------
$ 351,755 $ 10,884 $ 362,639
========= ========= =========
See Notes to Pro Forma Consolidated Balance Sheet
52
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
The pro forma financial data have been derived by the application of pro forma
adjustments to the Company's historical financial statements as of the date
noted. The Merger will be accounted for as a recapitalization which will have
no impact on the historical basis of the Company's assets and liabilities. The
pro forma financial data assume that there are no dissenting shareholders with
respect to the Merger.
(a) Pro forma adjustments to the pro forma consolidated balance sheet are
summarized in the following table (amounts in thousands) and are described
in the notes that follow.
ISSUANCE OF
SHARES AND PAYMENT OF REPAYMENT OF TRANSACTION
INCURRENCE CASH MERGER SETTLEMENT EXISTING FEES AND NET
OF DEBT (1) CONSIDERATION (2) OF OPTIONS (3) INDEBTEDNESS (4) EXPENSES (5) ADJUSTMENT
----------- ----------------- -------------- ---------------- ------------ ----------
Cash and cash
equivalents............ $825,010 $(474,385) $(23,432) $(298,690) $(37,500) $ (8,997)
Deferred loan costs..... (5,234) 25,115 19,881
Accrued interest........ (2,460) (2,460)
Current portion of
secured bank
financing.............. (319) (319)
Existing secured bank
financing.............. (36,608) (36,608)
New bank financing...... 683,200 683,200
11 3/4% sr. subordinated
discount notes......... (150,303) (150,303)
11 1/4% subordinated
notes.................. (80,000) (80,000)
Common stock............ 4 (13) (9)
Capital in excess of par
value.................. 141,806 (12,385) 129,421
Accumulated deficit..... (474,372) (23,432) (34,234) (532,038)
- --------
(1) The estimated sources and uses of cash are calculated as follows:
(AMOUNTS IN
THOUSANDS)
-----------
Sources of cash:
New bank financing......................................... $683,200
Common equity.............................................. 141,810
--------
Total.................................................... $825,010
========
Uses of cash:
Value of common stock and options.......................... $519,007
Value of retained common stock............................. (21,190)
--------
Payment of cash merger consideration and settlement of
options................................................... 497,817
Estimated transactions fees and expenses................... 37,500
Repayment of existing debt and accrued interest............ 298,690
Use of existing cash and cash equivalents.................. (8,997)
--------
Total.................................................... $825,010
========
(2) The adjustment represents the payment of cash merger consideration to
existing shareholders.
(3) The adjustment represents the repurchase of all of the outstanding
stock options at the difference between $36.00 per share and the
exercise price of the options, assuming the Company and the respective
option holders each agree to such repurchase.
(4) The adjustment represents the repayment of existing indebtedness and
related accrued interest by the Company, including estimated debt
retirement premium, and assumes all of the holders of the Notes tender
their Notes in the Debt Tender Offers. In addition, unamortized
deferred loan costs of $5,234,000 related to existing indebtedness will
be written off as an extraordinary charge upon repayment of the
existing indebtedness.
(5) The adjustment represents the estimated transaction fees and expenses
of $37,500,000. The portion of estimated transaction fees and expenses
attributable to the new bank financing totals $25,115,000 which will be
recorded as deferred loan costs and will be amortized over the term of
the new bank financing. Such estimated deferred loan costs include
estimated fees and expenses payable to banks and related advisors. The
remaining estimated transaction fees and expenses of $12,385,000,
comprised principally of (a) professional and advisory fees and
expenses, and (b) miscellaneous fees and expenses such as printing and
filing fees, will be recorded as a reduction of capital in excess of
par value. See "NEWCO AND THE PARTNERSHIP."
53
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED SEPTEMBER 30, 1996
----------------------------------
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- --------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Revenues:
Cellular service.......................... $ 82,799 $ 82,799
In-roaming................................ 29,588 29,588
Equipment sales........................... 2,809 2,809
-------- --------
115,196 115,196
Costs and expenses:
Cellular operations:
Cost of cellular service................ 21,577 21,577
Cost of equipment sales................. 10,588 10,588
General and administrative.............. 23,038 23,038
Marketing and selling................... 20,920 20,920
Depreciation and amortization........... 18,149 18,149
Corporate:
General and administrative.............. 7,346 $ 500 (a) 7,846
Depreciation and amortization........... 3,691 (1,828)(b) 1,863
Less amounts allocated to
nonconsolidated affiliates............. (6,466) (6,466)
-------- -------- --------
98,843 (1,328) 97,515
-------- -------- --------
Operating income............................ 16,353 1,328 17,681
Equity in net loss of affiliates............ (1,636) (1,636)
Minority interest in net income of
consolidated affiliates.................... (1,123) (1,123)
Loss on sales of affiliates and other....... (250) (250)
Interest expense............................ (28,208) (2,791)(b) (70,106)
(39,107)(c)
Interest income............................. 10,468 (351)(d) 10,117
-------- -------- --------
Net loss.................................... $ (4,396) $(40,921) $(45,317)
======== ======== ========
Net loss per common share................... $ (0.32) $ (10.01)
======== ========
Weighted average shares outstanding......... 13,727 4,528
======== ========
See Notes to Pro Forma Consolidated Statements of Operations
54
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED MARCH 31, 1997
----------------------------------
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- --------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Revenues:
Cellular service.......................... $49,838 $ 49,838
In-roaming................................ 14,844 14,844
Equipment sales........................... 1,548 1,548
------- --------
66,230 66,230
Costs and expenses:
Cellular operations:
Cost of cellular service................ 13,262 13,262
Cost of equipment sales................. 6,244 6,244
General and administrative.............. 14,172 14,172
Marketing and selling................... 11,811 11,811
Depreciation and amortization........... 9,905 9,905
Corporate:
General and administrative.............. 3,153 $ 250 (a) 3,403
Depreciation and amortization........... 1,090 (367)(b) 723
Less amounts allocated to
nonconsolidated affiliates............. (3,003) (3,003)
------- -------- --------
56,634 (117) 56,517
------- -------- --------
Operating income............................ 9,596 117 9,713
Equity in net loss of affiliates............ (1,932) (1,932)
Minority interest in net income of
consolidated affiliates.................... (861) (861)
Interest expense............................ (14,675) (1,395)(b) (35,102)
(19,032)(c)
Interest income............................. 3,583 (225)(d) 3,358
------- -------- --------
Net loss.................................... $(4,289) $(20,535) $(24,824)
======= ======== ========
Net loss per common share................... $ (0.31) $ (5.48)
======= ========
Weighted average shares outstanding......... 13,770 4,528
======= ========
See Notes to Pro Forma Consolidated Statements of Operations
55
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The pro forma financial data have been derived by the application of pro
forma adjustments to the Company's historical financial statements for the
periods noted. The Merger will be accounted for as a recapitalization which
will have no impact on historical basis of the Company's assets and
liabilities. The pro forma financial data assumes that there are no dissenting
shareholders to the Merger.
The consolidated pro forma statements of operations do not include pro forma
adjustments for (a) compensation expense related to stock options which are
assumed to be cancelled in conjunction with the Merger, (b) the write-off of
deferred loan costs associated with the existing indebtedness, and (c) the
estimated debt retirement premium for the early retirement of existing
indebtedness. Such items represent non-recurring expenses which the Company
anticipates will be recorded in the consolidated statement of operations for
the period including the Merger. Tax benefit has not been recognized for any
adjustments to the pro forma statements of operations, consistent with the
historical financial statements for the periods presented.
(a) The adjustment represents an annualized monitoring fee payable to BMP.
(b) The pro forma adjustment to amortization expense reflects the following:
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, 1996 MARCH 31, 1997
------------------ ----------------
(AMOUNTS IN THOUSANDS)
Amortization of existing deferred
loan costs.......................... $(1,828) $ (367)
Amortization of estimated deferred
loan costs.......................... 2,791 1,395
------- ------
Total adjustment................. $ 963 $1,028
======= ======
Amortization expense on deferred loan costs has been reclassified from
corporate depreciation and amortization expense to interest expense for pro
forma presentation.
(c) The pro forma adjustment to interest expense reflects the following:
SIX
MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, MARCH
1996 31, 1997
------------- --------
(AMOUNTS IN THOUSANDS)
Interest expense on existing indebtedness........ $(27,776) $(14,435)
Interest expense on new bank financing (at an
assumed weighted average rate of 9.70%)......... 66,248 33,124
Fees relating to new bank financings............. 635 343
-------- --------
Total adjustment............................. $ 39,107 $ 19,032
======== ========
A 0.125% increase or decrease in the assumed weighted average interest rate
applicable to the new bank financing would change the pro forma interest
expense and net income by $854,000 for the year ended September 30, 1996
and $427,000 for the six months ended March 31, 1997. Each $1,000,000
increase or decrease in the revolving credit facility under the new bank
financing would change the pro forma interest expense by $85,000 for the
year ended September 30, 1996 and $42,500 for the six months ended March
31, 1997. All of the Notes are assumed to have been repurchased in the Debt
Tender Offers.
(d) The adjustment eliminates interest income on cash and cash equivalents
assumed to be used in the Merger and related transactions.
56
DESCRIPTION OF COMMNET CAPITAL STOCK
COMMON STOCK
The Company has 40,000,000 shares of CommNet Common Stock, par value $.001
per share, authorized for issuance. Each share of CommNet Common Stock is
entitled to share pro rata in dividends and distributions with respect to the
CommNet Common Stock when, as and if declared by the Board from funds legally
available therefor. No holder of CommNet Common Stock has any preemptive right
to subscribe for any of the Company's securities. Subject to the rights of
creditors and holders of any Preferred Stock (as defined below) which may be
issued in the future, upon dissolution, liquidation or winding up of the
Company, the assets will be divided on a share-for-share basis among holders
of the shares of CommNet Common Stock. All shares of CommNet Common Stock
outstanding are fully paid and nonassessable.
NONCUMULATIVE VOTING
Each holder of CommNet Common Stock is entitled to one vote per share with
respect to all matters that are required by law to be submitted to
shareholders. The shareholders are not entitled to cumulative voting in the
election of directors. Accordingly, the holders of more than 50% of the shares
voting for the election of directors can elect 100% of the directors if they
choose to do so, subject to the rights, if any, of the holders of Preferred
Stock, if any, to elect directors. Accordingly, the holders of the remaining
less than 50% of the shares voting for the election of the directors could be
unable to elect any person or persons to the Board of Directors.
DIVIDEND POLICY
The Company has not paid dividends on the CommNet Common Stock, does not
anticipate the payment of any cash dividends in the foreseeable future and
intends to retain earnings to finance the expansion of its operations.
PREFERRED STOCK
The Company has 1,000,000 shares of Preferred Stock, par value $.01 per
share (the "Preferred Stock"), authorized for issuance. There is no Preferred
Stock outstanding. The Board may provide for the issuance from time to time of
authorized and unissued shares of Preferred Stock in series and will establish
as to each series the designation and number of shares to be issued and the
relative rights and preferences of each series, including provisions regarding
voting powers, redemption, dividend rights, rights upon liquidation and
conversion rights. Pursuant to a Certificate of Designation of Series and
Determination of Rights and Preferences of Series A Preferred Stock, filed on
December 12, 1990, the Company designated 150,000 shares of Preferred Stock as
Series A Preferred Stock. See "--Shareholder Rights Plan" below. The Company
has no present plan to issue any shares of Preferred Stock.
SHAREHOLDER RIGHTS PLAN
On December 10, 1990, the Board of Directors of the Company declared a
dividend distribution of one Right for each outstanding share of CommNet
Common Stock (each, a "Right") to shareholders of record at the close of
business on December 24, 1990. Each Right entitles the registered holder to
purchase from the Company one one-hundredth of a share of Series A Preferred
Stock, at a price of $45 per one one-hundredth of a share (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights are
set forth in the Rights Agreement dated as of December 10, 1990, as amended
(the "Rights Agreement") between the Company and State Street Bank and Trust
Company, as successor to Bank of New York, as rights agent.
The Rights are attached to all CommNet Common Stock certificates and no
separate rights certificates evidencing such Rights (the "Rights
Certificates") have been distributed. The Rights are evidenced by the CommNet
Common Stock certificates and may be transferred with and only with such
CommNet Common Stock certificates. CommNet Common Stock certificates issued
after December 24, 1990 contain a notation incorporating the Rights Agreement
by reference, and the surrender for transfer of any certificate for CommNet
57
Common Stock outstanding will also constitute the transfer of the Rights
associated with the CommNet Common Stock represented by such certificate.
The Rights will separate from the CommNet Common Stock and a Distribution
Date (as defined in the Rights Agreement) will occur upon the earliest of (i)
ten days following a public announcement that a person or group of affiliated
or associated persons (an "Acquiring Person") has acquired, or obtained the
right to acquire, beneficial ownership of 25% or more of the outstanding
shares of CommNet Common Stock (the "Stock Acquisition Date"), (ii) ten
business days (or such later date as may be determined by action of a majority
of the Board of Directors) following the commencement of a tender offer or
exchange offer that would result in a person or group beneficially owning 30%
or more of such outstanding shares of CommNet Common Stock, or (iii) ten
business days after the Board of Directors of the Company declares any person
to be an Adverse Person (as defined in the Rights Agreement).
The Board of Directors may declare a person to be an Adverse Person upon a
determination that such person, alone or together with its affiliates and
associates, has become the beneficial owner of an amount of CommNet Common
Stock which the Board of Directors determines, by at least a majority of the
Board of Directors who are not officers of the Company, to be substantial
(which amount shall in no event be less than 15% of the shares of CommNet
Common Stock then outstanding) and after reasonable inquiry and investigation,
including consultation with such persons as such directors shall deem
appropriate, that (a) such beneficial ownership by such person is intended to
cause the Company to repurchase the CommNet Common Stock beneficially owned by
such person or to cause pressure on the Company to take action or enter into
transactions intended to provide such person with short-term financial gain
under circumstances where the Board of Directors determines the best long-term
interests of the Company and its shareholders would not be served by taking
such action or entering into such transactions at that time or (b) such
beneficial ownership is causing or reasonably likely to cause a material
adverse impact (including, but not limited to, impairment of relationships
with customers or impairment of the Company's ability to maintain its
licenses) on the business or prospects of the Company.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on December 24, 2000, unless earlier redeemed by the
Company as described below. As soon as practicable after the Distribution
Date, Rights Certificates will be mailed to holders of record of the CommNet
Common Stock and, thereafter, the separate Rights Certificates will represent
the Rights.
In the event (a "Section 11(a)(ii) Event") that (i) the Board of Directors
declares a person to be an Adverse Person or, (ii) at any time following the
Distribution Date, a person becomes the beneficial owner of more than 20% of
the then outstanding shares of CommNet Common Stock (except pursuant to an
offer for all outstanding shares of CommNet Common Stock which the independent
directors determine to be fair to and otherwise in the best interests of the
Company and its shareholders), proper provision shall be made so that each
holder of a Right will thereafter have the right to receive, upon exercise,
CommNet Common Stock (or, in certain circumstances, cash, property, or other
securities of the Company) having a value equal to two times the Purchase
Price.
In the event (a "Section 13 Event") that, at any time following the Stock
Acquisition Date (as defined in the Rights Agreement), (i) the Company is
acquired in a merger or other business combination transaction in which the
Company is not the surviving corporation (other than a merger which follows an
offer described in the preceding paragraph), or (ii) 50% or more of the
Company's assets, cash flow or earning power is sold or transferred, proper
provision shall be made so that each holder of a Right shall thereafter have
the right to receive, upon exercise, common stock of the acquiring company
having a value equal to two times the Purchase Price.
Notwithstanding the foregoing, following the occurrence of a Section
11(a)(ii) Event or a Section 13 Event, any Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by
any Acquiring Person or Adverse Person will be null and void.
The Purchase Price payable, and the number of shares of Series A Preferred
Stock or other securities or property issuable, upon exercise of the Rights
are subject to adjustment from time to time to prevent dilution.
58
With certain exceptions, no adjustment of the Purchase Price will be required
until cumulative adjustments require an adjustment of at least 1% of the
Purchase Price. No fractional shares of Series A Preferred Stock (other than
fractions in multiples of one one-hundredth of a share) will be issued and, in
lieu thereof, an adjustment in cash will be made based on the market price of
the Series A Preferred Stock on the last trading date prior to the date of
exercise.
In general, the Company may redeem the Rights in whole, but not in part, at
a price of $.01 per Right, at any time until ten days following the Stock
Acquisition Date. The Company may not redeem the Rights if the Board of
Directors has previously declared a person to be an Adverse Person. After the
redemption period has expired, the Company's right of redemption may be
reinstated if an Acquiring Person reduces his or her beneficial ownership to
10% or less of the outstanding shares of CommNet Common Stock in a transaction
not involving the Company. Immediately upon the action of the Board of
Directors ordering redemption of the Rights, the Rights will terminate and the
only right of the holders of Rights will be to receive the $.01 redemption
price per Right.
Until the Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including the right to vote or to
receive dividends. While the distribution of the Rights will not be taxable to
shareholders or to the Company, shareholders may, depending upon the
circumstances, recognize taxable income in the event that the Rights become
exercisable for CommNet Common Stock (or other consideration) of the Company
or for common stock of the acquiring company as set forth above.
Other than those provisions relating to the principal economic terms of the
Rights, any of the provisions of the Rights Agreement may be amended by the
Board of Directors of the Company prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by
the Board in order to cure any ambiguity, to make changes which do not
adversely affect the interests of holders of Rights (excluding the interests
of any Acquiring Person, Adverse Person, or an affiliate or associate of any
such person), or to shorten or lengthen any time period under the Rights
Agreement; provided, however, that no amendment to adjust the time period
governing redemption shall be made at such time as the Rights are not
redeemable.
The Rights Agreement was amended as of May 27, 1997, in accordance with the
terms of the Merger Agreement, to provide that (i) neither Blackstone nor its
affiliates will be deemed an Acquiring Person by virtue of the transactions
contemplating by the Merger Agreement, (ii) the transactions contemplated by
the Merger Agreement will not trigger a Distribution Date and (iii) the
transactions contemplated by the Merger Agreement will not give rise to a
Section 11(a)(ii) Event or a Section 13 Event. The Rights Agreement was
amended to insure that none of the approval, execution or delivery or the
Merger Agreement or the consummation of the Merger or the other transactions
contemplated by the Merger Agreement would cause the Rights to separate from
the CommNet Common Stock or become exercisable.
Pursuant to the provisions of the Merger Agreement, the Rights associated
with shares of CommNet Common Stock that are converted into the right to
receive cash will be extinguished along with the associated shares. Shares of
CommNet Common Stock that remain outstanding after the Effective Time will
continue to represent the Rights associated therewith.
CHARTER DOCUMENTS OF COMMNET FOLLOWING THE MERGER
The By-Laws of Newco in effect at the Effective Time will be the By-Laws of
the Company following the Merger until thereafter changed or amended as
provided therein or by applicable law. The Articles of Incorporation of the
Company, as in effect immediately prior to the Effective Time, will be the
Articles of Incorporation of the Company following the Merger, until
thereafter changed or amended as provided therein or by applicable law. It is
not anticipated that there will be any change in the equity capitalization of
the Company in connection with the Merger, except as described herein.
59
CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The following summarizes the material provisions of the Merger Agreement,
which appears as Annex I to this Proxy Statement and is incorporated herein by
reference. Such summary is qualified in its entirety by reference to the
Merger Agreement.
THE MERGER
The Merger Agreement provides that, following the approval of the Proposal
by a vote of a majority of the outstanding shares of CommNet Common Stock
entitled to vote thereon and the satisfaction or waiver of the other
conditions to the Merger, Newco will be merged with and into the Company, and
the Company will continue as the surviving corporation in the Merger.
The Merger will become effective at the latest of (i) such time as the
Colorado Articles of Merger are duly filed with the Colorado Secretary of
State, (ii) such time as the Newco Certificate of Merger is duly filed with
the Delaware Secretary of State, or (iii) such later time as Newco and the
Company specify in the Colorado Articles of Merger and the Newco Certificate
of Merger. Such filings will be made as soon as practicable after the closing
under the Merger Agreement (the "Closing"), which, unless the parties to the
Merger Agreement otherwise agree, is to occur on the fifth business day (the
"Closing Date") after satisfaction or waiver of the conditions (excluding
conditions that by their terms cannot be satisfied until the Closing Date) set
forth in the Merger Agreement.
Subject to the effects of proration, (i) each issued and outstanding share
of CommNet Common Stock (other than Excluded Shares) will be converted into
the right to receive the Cash Price and (ii) each Electing Share will be
converted into the right to retain one Non-Cash Election Share, as more fully
described under "THE MERGER--Effect of the Merger" and "--Non-Cash Election."
With regard to the treatment of fractional share interests, see "--Fractional
Shares."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties of
the Company with respect to the Company and its consolidated subsidiaries as
to, among other things, (a) organization, standing and similar corporate
matters; (b) the Company's capital structure; (c) the authorization,
execution, delivery, performance and enforceability of the Merger Agreement;
(d) documents filed by the Company with the Commission, the accuracy of
information contained therein and the absence of undisclosed liabilities; (e)
the accuracy of information supplied by the Company in connection with this
Proxy Statement and the documents to be executed in connection with the Debt
Tender Offers; (f) the absence of certain changes or events since March 31,
1997, including material adverse changes with respect to the Company; (g)
pending or threatened material litigation, compliance with applicable laws,
and regulatory matters; (h) benefit plans and other matters relating to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
labor matters; (i) filing of tax returns and payment of taxes; (j)
subsidiaries and affiliates; (k) the vote required to approve the Merger and
related transactions under the Merger Agreement; (l) the absence of defaults
under material contracts; (m) brokers' and finders' fees and expenses; (n)
receipt of an opinion of the Company's financial advisor; (o) recommendation
of the Board of Directors of the Company with respect to the Merger Agreement
and the Merger, and transactions contemplated thereby; (p) the inapplicability
of the rights issued to holders of CommNet Common Stock under the Rights
Agreement to the Merger Agreement, the Merger, or transactions contemplated
thereby; and (q) the inapplicability of any Colorado state takeover statute or
similar Colorado statute or regulation to the Merger Agreement, the Merger, or
transactions contemplated thereby.
The Merger Agreement also contains customary representations and warranties
of Newco relating to, among other things, (a) organization, standing and
similar corporate matters; (b) the authorization, execution, delivery,
performance and enforceability of the Merger Agreement; (c) brokers' fees and
expenses; (d) the accuracy of information supplied by Newco in connection with
this Proxy Statement and the documents to be executed in connection with the
Debt Tender Offers; (e) the approval by Newco shareholders or holders of
interests in
60
Blackstone relating to the Merger Agreement and the transactions contemplated
thereby; (f) the absence of ownership of CommNet Common Stock by Newco or the
Partnerships or the Partnerships' affiliates; (g) FCC qualification of Newco
and Blackstone; (h) the Merger Financings and (i) the absence of business
activities and subsidiaries.
CERTAIN PRE-CLOSING COVENANTS
During the period from the date of the Merger Agreement until the Effective
Time (except as expressly contemplated or permitted by the Merger Agreement or
to the extent that Newco shall otherwise consent in writing), the Company has
agreed that the Company and its consolidated subsidiaries and certain
affiliates will carry on their respective businesses in the usual, regular and
ordinary course in all material respects, in substantially the same manner as
previously conducted, and will use all reasonable efforts to preserve intact
their present lines of business, maintain their rights and franchises and
preserve their relationships with customers, suppliers and others having
business dealings with them to the end that their ongoing businesses will not
be impaired in any material respect at the Effective Time.
The Merger Agreement contains certain other covenants of the Company
relating to the declaration and payment of dividends and changes in share
capital, the issuance of securities, the amendment of corporate governance
documents, the incurrence and satisfaction of indebtedness, executive
compensation and employee benefit plans, the taking of actions affecting the
representations and warranties of the Company in the Merger Agreement or the
conditions to the Merger, accounting methods, income tax elections, and
certain agreements that limit or restrict competition.
The Merger Agreement also contains certain covenants of Newco relating to
the amendment of corporate governance documents and the taking of actions
affecting the representations and warranties of the Company in the Merger
Agreement or the conditions to the Merger.
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that neither the Company nor any of its
officers or directors will, and that the Company will direct and use its best
efforts to cause its employees, agents and representatives (including any
investment banker, attorney or accountant retained by the Company) not to,
directly or indirectly, (i) initiate, solicit, encourage or otherwise
facilitate any inquiries, or the making of any Acquisition Proposal (as
defined below), or (ii) provide any confidential information or data to any
person relating to an Acquisition Proposal or engage in any negotiations
concerning an Acquisition Proposal. The Company and Newco have agreed in the
Merger Agreement that nothing contained in the Merger Agreement will prevent
the Company or its Board of Directors from (A) complying with Rule 14e-2 and
Rule 14d-9 promulgated under the Exchange Act with regard to an Acquisition
Proposal; (B) engaging in any discussions or negotiations with, or providing
any information to, any person in response to a bona fide written Acquisition
Proposal by any such person; or (C) recommending such bona fide written
Acquisition Proposal to the shareholders of the Company, if and only to the
extent that, in any such case as is referred to in clause (B) or (C) of this
sentence, (i) the Board of Directors of the Company concludes in good faith
(after consultation with its financial advisors) that such Acquisition
Proposal is reasonably capable of being completed, taking into account all
legal, financial, regulatory and other aspects of the proposal and the person
making the proposal, and would, if consummated, result in a transaction more
favorable to Company shareholders from a financial point of view than the
transaction contemplated by the Merger Agreement (any such more favorable
Acquisition Proposal being referred to as a "Superior Proposal") and (ii) the
Board of Directors of the Company determines in good faith after consultation
with outside legal counsel that such action is necessary for it not to breach
its fiduciary obligations to shareholders under applicable law. The Company
has agreed that upon the taking of any action described in clauses (A) through
(C) above, the Company will contemporaneously notify Newco that the Company
has initiated such actions. The Company also agreed to immediately cease and
cause to be terminated any existing activities, discussions or negotiations
with any parties conducted prior to entering into the Merger Agreement with
respect to any Acquisition Proposal. For a description of the effects that an
Acquisition Proposal prior to the Effective Time of the Merger could have
under the Merger Agreement, see "--Termination" below.
61
As used in this Proxy Statement, the term "Acquisition Proposal" means any
proposal, or offer with respect to a merger, reorganization, share exchange,
consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving, or any purchase of all or any
significant portion of the assets or 10% or more of the equity securities of,
the Company.
Under the Merger Agreement, the Company has agreed that neither it nor any
of its subsidiaries will waive or fail to enforce any provision of any
confidentiality or standstill or similar agreement to which it is a party
entered into in connection with a possible sale of the Company, without the
prior written consent of Newco (which shall not be unreasonably withheld or
delayed).
LISTING AND EXCHANGE ACT REGISTRATION
The Merger Agreement provides that the Company will not take any action, for
at least 90 days after the Effective Time, to cause the CommNet Common Stock
to be delisted from Nasdaq, and during such 90-day period will undertake all
reasonable efforts to maintain such listing; provided, however, that the
foregoing will not require the Company to take any affirmative action to
prevent the CommNet Common Stock from being delisted by Nasdaq if the CommNet
Common Stock ceases to meet the applicable listing standards. The Merger
Agreement also provides that the Company will not take any action, for at
least 90 days after the Effective Time, which would cause the CommNet Common
Stock to cease being subject to Section 12 of the Exchange Act or, in the
event the Company is no longer subject to Section 12 of the Exchange Act, the
Company will not file during such 90-day period a Form 15 (or successor or
similar form) to cause the Company to no longer be subject to the reporting
requirements of Section 12 of the Exchange Act.
However, following such 90-day period, the Company intends to delist the
CommNet Common Stock from Nasdaq and there can be no assurance that the
Company will continue to be subject to such reporting requirements. Any such
delisting of CommNet Common Stock, together with the substantial decrease in
the number of shares of CommNet Common Stock to be held by holders other than
the Partnerships, would result in a substantial decrease in the liquidity of
CommNet Common Stock, even if the Company continues to be a reporting company
under the Exchange Act and continues to file the periodic reports required to
be filed thereunder. If the Company ceases to be subject to the obligations
under Section 12 of the Exchange Act, including the obligation to file
periodic and other reports under Section 13(a) of the Exchange Act, the
Company would, among other things, no longer be legally required to make
annual or quarterly financial reports available to shareholders or provide an
annual proxy statement to shareholders, and the executive officers and
directors of the Company and beneficial owners of more than 10% of the shares
of CommNet Common Stock would no longer be subject to the "short swing"
insider trading reporting requirements and profit recovery provisions of the
Exchange Act. If the Company ceases to be subject to such reporting
requirements, the Company does not intend to provide reports or information to
its public shareholders other than pursuant to the right to inspect the books
and records of the Company as required by Colorado law. See "RISK FACTORS--
Loss of Liquidity."
The Company cannot predict what the impact will be of any such delisting or
deregistration, and attendant consequences noted above, upon the trading
prices for the CommNet Common Stock.
BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY FOLLOWING THE MERGER
The Merger Agreement provides that the directors of Newco at the Effective
Time will be the directors of the Company following the Merger and that the
officers of the Company following the Merger will be those persons designated
by Newco prior to the Effective Time, until the earlier of their resignation
or removal or otherwise ceasing to be an officer or director or until their
respective successors are duly elected and qualified, as the case may be. The
present directors of Newco are Mark T. Gallogly, Lawrence H. Guffey and Simon
P. Lonergan. See "NEWCO AND THE PARTNERSHIP." It is expected that Messrs. Pohs
and Dwyer and two additional individuals will also be directors of the Company
at the Effective Time. After the Effective Time, the Board of Directors will
be subject to change from time to time.
62
The following table sets forth the name, age and position with the Company
of each person who is expected to serve as a director or executive officer of
CommNet after the Effective Time. After the Effective Time, the Board of
Directors will be subject to change from time to time.
NAME AGE POSITION
- ---- --- --------
Arnold C. Pohs.......... 69 Chairman of the Board, President and Chief Executive Officer; Director
Daniel P. Dwyer......... 38 Executive Vice President, Treasurer and Chief Financial Officer; Director
Homer Hoe............... 48 Executive Vice President and Chief Information Officer
Timothy C. Morrisey..... 44 Executive Vice President--Sales Operations
Andrew J. Gardner....... 42 Senior Vice President and Controller
David S. Lynn........... 40 Senior Vice President--Network Operations
Amy M. Shapiro.......... 44 Senior Vice President, Secretary and General Counsel
Mark T. Gallogly........ 40 Director
Lawrence H. Guffey...... 29 Director
Simon P. Lonergan....... 29 Director
Arnold C. Pohs has been Chairman of the Board of the Company since February
1991, President and Chief Executive Officer since August 1989 and a director
since September 1985. Mr. Pohs served as Executive Vice President of the
Company from January 1986 through August 1989. Mr. Pohs was designated Chief
Operating Officer of the Company in August 1987, prior to which time he was
the Chief Financial Officer of the Company.
Mr. Pohs currently serves as Chairman and a member of the Executive Committee
of the Board of Directors of the Cellular Telecommunications Industry
Association. He is a director, and former Chairman, of the CTIA Foundation for
Wireless Telecommunications and is also a member of the CEO Council. He also
serves as Chairman of the Board of TVX, Inc.
Daniel P. Dwyer has been Executive Vice President of the Company since
November 1992, a director of the Company since March 1990, and Chief Financial
Officer since August 1988 and Treasurer since August 1987. He was Vice
President--Finance of the Company from November 1989 until November 1992,
Secretary from August 1987 until March 1990, Assistant Secretary from January
1987 until August 1987, Controller from May 1986 until November 1988 and
accounting manager for the Company from March 1986 until May 1986. He is a
Certified Public Accountant and a member of the American Institute of
Certified Public Accountants and the Colorado Society of Certified Public
Accountants. Mr. Dwyer currently serves as a director of TVX, Inc.
Homer Hoe was elected Executive Vice President and Chief Information Officer
of the Company in October 1994. From August 1992 until joining the Company in
October 1994, he was a self-employed consultant to the Information Services
industry, and was contracted by the Company as interim CIO from April to
October 1994. From August 1991 to August 1992, Mr. Hoe was Director of
Information Services for Tenneco Minerals, a subsidiary of Tenneco, Inc. From
May 1986 to August 1991, he was employed by Digital Equipment Corporation,
most recently as Senior Consultant, specializing in multi-vendor computer
system integration.
Timothy C. Morrisey was named Executive Vice President--Sales Operations of
the Company in November 1996. He was Senior Vice President-Sales Operations
from February 1995 until November 1996 and General Sales Manager of the
Company's Midwest Region from July 1993 until February 1995. From February
1990 until joining the Company in July 1993, Mr. Morrisey was President and
General Manager of the Washington D.C. and Baltimore cellular operations for
Southwestern Bell Mobile Systems.
Andrew J. Gardner was named Senior Vice President of the Company in July
1994. He was Vice President and Controller from November 1992 to July 1994 and
Assistant Vice President--Accounting and Tax from July 1990 to October 1992.
David S. Lynn was named Senior Vice President-Network Operations of the
Company in July 1994. He was Vice President-Network Operations from March 1993
until July 1994, Vice President-Network Development from February 1992 until
March 1993, Assistant Vice President-Finance from June 1990 until February
1992, Controller from November 1988 until June 1990 and Manager, Financial
Reporting from August 1988 until November 1988.
63
Amy M. Shapiro was named Senior Vice President of the Company in November
1995. She was Vice President of the Company from November 1992 to November
1995 and has been Secretary of the Company since March 1990 and General
Counsel since October 1989.
Mark T. Gallogly is a Senior Managing Director of The Blackstone Group L.P.,
with which he has been associated since 1989. Mr. Gallogly is a member of the
board of directors of TW Fanch-One Co. and Great Lakes Dredge & Dock
Corporation.
Lawrence H. Guffey is a Vice President of The Blackstone Group L.P., with
which he has been associated since 1991. Mr. Guffey is a member of the board
of directors of TW Fanch-One Co.
Simon P. Lonergan is an Associate of The Blackstone Group L.P., with which
he has been associated since 1996. Prior thereto, Mr. Lonergan was an
Associate at Bain Capital, Inc. and a Consultant at Bain and Co.
STOCK AND EMPLOYEE BENEFIT PLANS
The treatment in the Merger of outstanding Options and of the Company's
employee benefit plans is described in "THE MERGER--Effect on Stock and
Employee Benefit Matters."
ACCESS TO INFORMATION
Subject to applicable provisions regarding confidentiality and certain other
qualifications, the Company has agreed in the Merger Agreement to, and to
cause its consolidated subsidiaries and certain affiliates to, afford the
Partnerships and their representatives reasonable access during normal
business hours, during the period prior to the Effective Time, to all its
properties, books, contracts, commitments and records, and to furnish the
Partnerships with information concerning the Company's business, properties
and personnel as the Partnerships may reasonably request.
COOPERATION AND BEST EFFORTS
Pursuant to the Merger Agreement and subject to certain conditions and
limitations described therein, the parties have agreed to cooperate with each
other and to use their respective best efforts to take certain specified and
other actions so that the transactions contemplated by the Merger Agreement
may be consummated as soon as practicable. The Company has agreed to provide,
and will cause its consolidated subsidiaries and its and their respective
officers, employees and advisors to provide, all necessary and appropriate
cooperation in connection with the arrangement of any financing to be
consummated contemporaneously with or at or after the Closing in respect of
the transactions contemplated by the Merger Agreement.
INDEMNIFICATION AND INSURANCE
In the Merger Agreement, the Company and Newco have agreed that the
surviving corporation in the Merger will cause to be maintained in effect for
a period of six years after the Effective Time (i) the current provisions
regarding indemnification of officers and directors contained in the Articles
Incorporation and By-Laws of the Company and (ii) the current policies of
directors' and officers' liability insurance and fiduciary liability insurance
maintained by the Company (provided that the surviving corporation in the
Merger may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions which are, in the aggregate, no less
advantageous to the insured) with respect to claims arising from facts or
events that occurred on or before the Effective Time.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The obligations of the Company and Newco to effect the Merger are subject to
the satisfaction or waiver on or prior to the Closing Date of various
conditions which include, in addition to certain other customary closing
conditions: (a) the Company having obtained all approvals of holders of shares
of capital stock of the Company necessary to approve the Merger Agreement and
the transactions contemplated thereby, including the Merger;
64
(b) the FCC having granted its consent to the consummation of the transactions
contemplated by the Merger Agreement ("FCC Consents"), and no timely request
for stay, motion or petition for reconsideration or rehearing, application or
request for review, or notice of appeal or other judicial petition for review
of the FCC Consents shall be pending, and the time for filing any such
request, motion, petition, application, appeal, or notice, and for the entry
of an order staying, reconsidering, or reviewing on the FCC's own motion,
shall have expired; (c) no temporary restraining order, preliminary or
permanent injunction or other order issued by a court or other governmental
entity being in effect and having the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger; provided, however, that the
conditions in this clause (c) will not be available to any party whose failure
to fulfill certain obligations under the Merger Agreement was the cause of, or
resulted in, such order or injunction; and (d) the Form S-4 having become
effective under the Securities Act and not having been the subject of any stop
order or proceedings seeking a stop order, and any material "blue sky" and
other state securities laws applicable to the registration and qualification
of the CommNet Common Stock following the Merger having been complied with in
all material respects.
Newco's obligations to effect the Merger are further subject, in addition to
certain other customary conditions, to the satisfaction, or waiver by Newco,
on or prior to the Closing Date, of the following additional conditions: (a)
all required regulatory approvals, as described in the Merger Agreement,
having been obtained, having been declared or filed or having occurred, as the
case may be, and all such required regulatory approvals being in full force
and effect; (b) the Company or CIFC having received the proceeds of financing
on terms and conditions set forth in the Commitment Letter or upon terms and
conditions which are, in the reasonable judgment of Newco, substantially
equivalent thereto, and to the extent that any of the terms and conditions are
not set forth in such Commitment Letter, on terms and conditions reasonably
satisfactory to Newco; (c) at or before the Effective Time and subject to the
Funding (as defined below), (i) Newco having received evidence that the terms
of the Notes shall have been amended, to the reasonable satisfaction of Newco,
as to certain matters, and (ii) the Company having purchased Notes as
contemplated by the Merger Agreement; (d) at or before the Effective Time and
subject to the Funding, CIFC having repaid in full all amounts outstanding
under the CoBank Credit Agreement, and in connection therewith, CoBank ACB
having provided CIFC with a repayment letter acknowledging that (i) the CoBank
Credit Agreement has been terminated, (ii) any and all liens held by CoBank
related thereto have been released and (iii) CIFC and the Company have been
released from any and all liabilities under the CoBank Credit Agreement and
the related guaranty; (e) there not being any pending any suit, action,
investigation or proceeding by any governmental entity seeking to (i) restrain
or prohibit the consummation of the Merger or any of the other transactions
contemplated by the Merger Agreement or seeking to obtain damages from the
Company or the Partnerships or any of their respective subsidiaries or certain
affiliates of the Company, which if determined adversely to the Company, would
be reasonably likely to have a material adverse effect on the Company, or (ii)
prohibit or limit certain other actions or events described in the Merger
Agreement; and (f) Newco having been reasonably satisfied that the Merger will
be recorded as a recapitalization for financial reporting purposes; and (g)
since May 27, 1997, no material adverse change relating to the Company having
occurred and been continuing.
The obligations of the Company to effect the Merger are further subject, in
addition to certain other customary conditions, to the satisfaction, or waiver
by the Company, on or prior to the Closing Date, of the following additional
conditions: (a) all required regulatory approvals, as described in the Merger
Agreement, having been obtained, having been declared or filed or having
occurred and all such required regulatory approvals being in full force and
effect and (b) Newco having caused, at or immediately prior to the Effective
Time, the Company or CIFC to have received the proceeds of not less than
$650,000,000 of indebtedness under the Merger Financings and the Company
having received not less than $129,000,000 of common equity investment
(collectively, the "Funding"). See "REGULATORY APPROVALS."
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, by action taken or authorized by the board of directors of the
terminating party or parties, whether before or after approval of the matters
presented in connection with the Merger by the shareholders of the Company:
65
(a) By mutual written consent of Newco and the Company, by action of
their respective boards of directors;
(b) By either the Company or Newco if the Effective Time has not occurred
on or before the Termination Date; provided, however, that the right to
terminate the Merger Agreement under this clause (b) will not be available
to any party whose failure to fulfill any obligation under the Merger
Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before the Termination Date; and provided,
further, that if on the Termination Date any conditions to the closing
relating to the FCC consents or required regulatory approvals have not been
fulfilled, but all other conditions to the closing have been fulfilled or
are capable of being fulfilled, then the Termination Date will be extended
to February 27, 1998.
(c) By either the Company or Newco if any governmental entity has issued
an order, decree or ruling or taken any other action (which order, decree,
ruling or other action each of the Company and Newco shall have used their
best efforts to resist, resolve or lift, as required pursuant to the Merger
Agreement) permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by the Merger Agreement, and such order, decree,
ruling or other action has become final and nonappealable;
(d) By either Newco or the Company if the approval by the shareholders of
the Company required for the consummation of the Merger or the other
transactions contemplated by the Merger Agreement has not been obtained by
reason of the failure to obtain the required vote at a duly held meeting of
shareholders or at any adjournment thereof;
(e) By Newco if the Board of Directors (i) has withdrawn or modified in
any manner adverse to Newco its approval or recommendation of the Merger
Agreement or the Merger, (ii) failed as promptly as practicable after the
Form S-4 is declared effective to mail the Proxy Statement to its
shareholders or failed to include in such statement such recommendation,
(iii) in response to the commencement of any tender offer or exchange offer
for more than 20% of the outstanding shares of CommNet Common Stock, does
not recommend rejection of such tender offer or exchange offer by the date
required for such recommendation under Rule 14e-2 of the Exchange Act, (iv)
has approved or recommended any acquisition of the Company or a material
portion of its assets or any tender offer for shares of its capital stock,
in each case, other than by Newco or an affiliate thereof, or (v) has
resolved to take any of the actions specified in clauses (i) or (iv) of
this paragraph (e);
(f) By the Company, if the Board of Directors accepts a Superior Proposal
after determining in good faith after consultation with legal counsel as to
its fiduciary obligations under applicable law, that the failure to accept
such Superior Proposal would constitute a breach of its fiduciary duties;
(g) By Newco, upon a material breach of any covenant or agreement on the
part of the Company set forth in the Merger Agreement, or if (i) any
representation or warranty of the Company that is qualified as to
materiality has become untrue or (ii) any representation or warranty of the
Company that is not so qualified has become untrue in any material respect,
in each case such that the conditions set forth in the Merger Agreement
relating to the representations and warranties of the Company and the
performance by the Company of its obligations under the Merger Agreement
would not be satisfied; provided, however, that, if such breach is capable
of being cured by the Company through the exercise of its best efforts
prior to the 90th day following the Company's obtaining notice of such
breach and for so long as the Company continues to exercise such best
efforts, Newco may not terminate the Merger Agreement under this paragraph
(g); or
(h) By the Company, upon a material breach of any covenant or agreement
on the part of Newco set forth in the Merger Agreement, or if (i) any
representation or warranty of Newco that is qualified as to materiality has
become untrue or (ii) any representation or warranty of Newco that is not
so qualified has become untrue in any material respect, in each case such
that the conditions set forth in the Merger Agreement relating to the
representations and warranties of Newco and the performance by Newco of its
obligations under the Merger Agreement would not be satisfied; provided,
however, that, if such breach is capable of being cured by Newco through
the exercise of its best efforts prior to the 90th day following Newco's
obtaining notice of such breach and for so long as Newco continues to
exercise such best efforts, the Company may not terminate the Merger
Agreement under this paragraph (h).
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AMENDMENT AND WAIVER
The Merger Agreement (including the annexes and schedules thereto) may be
amended by the parties thereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after approval of the
matters presented in connection with the Merger by the shareholders of the
Company, but, after any such approval, no amendment may be made which by law
or in accordance with the rules of Nasdaq requires further approval by such
shareholders without such further approval. The Merger Agreement (including
the annexes and schedules thereto) may not be amended except by an instrument
in writing signed on behalf of each of the parties thereto.
At any time prior to the Effective Time, the parties to the Merger
Agreement, by action taken or authorized by their respective boards of
directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties to
the Merger Agreement, (ii) waive any inaccuracies in the representations and
warranties contained in the Merger Agreement or in any document delivered
pursuant to the Merger Agreement and (iii) waive compliance with any of the
agreements or conditions contained in the Merger Agreement. Any agreement on
the part of a party to the Merger Agreement to any such extension or waiver
will be valid only if set forth in a written instrument signed on behalf of
such party. The failure of any party to the Merger Agreement to assert any of
its rights under the Merger Agreement or otherwise will not constitute a
waiver of those rights.
EXPENSES AND CERTAIN REQUIRED PAYMENTS
Whether or not the Merger is consummated, all Expenses (as defined below)
incurred in connection with the Merger Agreement and the transactions
contemplated thereby will be paid by the party incurring such Expenses, except
(a) if the Merger is consummated, the Company will pay, or cause to be paid,
any and all property or transfer taxes imposed on the Company or certain of
its subsidiaries or affiliates and any real property transfer tax imposed on
any holder of shares of capital stock of the Company resulting from the
Merger, and (b) as provided in the following paragraph. "Expenses" of a party
includes all out-of-pocket expenses (including, without limitation, all fees
and expenses of all banks, investment banking firms and other financial
institutions, and their respective agents and counsel, accountants, experts
and consultants to a party to the Merger Agreement and its affiliates)
incurred by a party or on its behalf, whether incurred prior to, on or after
the date of the Merger Agreement, in connection with or related to the
authorization, preparation, negotiation, execution and performance of the
Merger Agreement and the transactions contemplated thereby and the financing
thereof, including the preparation, printing, filing and mailing of this Proxy
Statement, the Form S-4 and offers to purchase Notes, forms of the related
letters of transmittal, summary advertisement, and all other information and
exhibits related thereto (the "Offer Documents"), and the solicitation of
shareholder approvals and all other matters related to the transactions
contemplated by the Merger Agreement.
In addition to any other amounts which may be payable or become payable
pursuant to the Merger Agreement, the Company will reimburse Blackstone
Management Partners L.P. for all Expenses of Newco; provided that in no event
will the Company be required to pay in excess of an aggregate of $4,000,000
pursuant to this provision. Payment of such Expenses will be made not later
than two business days after delivery to the Company of notice of demand for
payment and a documented itemization setting forth in reasonable detail all
Expenses of Newco (which itemization may be supplemented and updated from time
to time by such party until the 60th day after such party delivers such notice
of demand for payment).
Under the Merger Agreement, (i) if the Merger Agreement has been terminated
pursuant to the provisions described in clauses (b), (d) or (g) under "--
Termination" above, and either of the following has occurred prior to such
termination: (A) any person (including the Company or certain of its
subsidiaries or affiliates, but excluding Newco or any of its affiliates) has
become the beneficial owner of more than 25% of the outstanding shares of
CommNet Common Stock, or (B)(x) on or after the date of the Merger Agreement
any person (other than Newco or any of its affiliates) has made, or proposed,
communicated or disclosed in a manner which is or otherwise becomes public a
bona fide intention to make an Acquisition Proposal which seeks to acquire a
67
controlling interest in the Company (a "Control Proposal") (including by
making such Control Proposal), and (y) on or prior to May 27, 1998, the
Company either consummates with any person a transaction the proposal of which
would otherwise qualify as a Control Proposal or enters into a definitive
agreement with any person with respect to a transaction the proposal of which
would otherwise qualify as a Control Proposal (whether or not such person is
the person referred to in clause (x) above); or (ii) if the Merger Agreement
is terminated pursuant to the provisions described in clauses (e) or (f) under
"--Termination" above; then the Company will (1) in the case of clauses (i)(A)
and (ii) above, promptly, but in no event later than one business day after
the termination of the Merger Agreement and (2) in the case of clause (i)(B)
above, promptly, but in no event later than one business day after an event
specified in subclause (y) thereof shall have occurred, pay Blackstone
Management Partners L.P. a fee equal to $14 million less amounts paid pursuant
to the immediately preceding paragraph, in cash, which amount shall be payable
in same day funds. No termination of the Merger Agreement at a time when a fee
is payable pursuant to this paragraph following termination of the Merger
Agreement will be effective until such fee is paid. Only one fee will be
payable pursuant to this paragraph.
Notwithstanding the foregoing, no amount will be payable pursuant to the
provisions of the two immediately preceding paragraphs if (i) at the time of
the termination of the Merger Agreement, Newco is then in material breach of
its obligations or representations and warranties under the Merger Agreement,
(ii)(x) the Merger Agreement has been terminated pursuant to the provisions
described in clause (b) under "--Termination" above, (y) at the time of such
termination the Company is not then in material breach of its obligations or
representations and warranties under the Merger Agreement and (z) at the time
of such termination any of the conditions relating to the FCC Consents,
required regulatory approvals, financing, debt offers, absence of litigation,
and recapitalization described under "--Conditions to the Consummation of the
Merger" have not been satisfied or waived; provided, however, with respect to
unsatisfied or unwaived conditions relating to debt offers, amounts shall be
payable pursuant to the provisions of the second immediately preceding
paragraph, but not the immediately preceding paragraph, or (iii) the Merger
Agreement has been terminated pursuant to (x) the provisions described in
clause (c) under "--Termination" above, and at the time of such termination
the Company is not then in material breach of its obligations or
representations and warranties under the Merger Agreement, or (y) the
provisions described in clause (a) under "--Termination" above.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 8, 1997, certain information
concerning ownership of shares of CommNet Common Stock with respect to (i)
each director and each executive officer of the Company named below; (ii) all
current directors and executive officers of the Company as a group; and (iii)
each current beneficial owner of five percent or more of CommNet Common Stock.
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------------------------ -------------------- ----------------
Arnold C. Pohs........................... 430,551(1) 3.05%
8350 East Crescent Parkway
Englewood, Colorado 80111
Daniel P. Dwyer.......................... 218,627(2) 1.56%
8350 East Crescent Parkway
Englewood, Colorado 80111
John E. Hayes, Jr. ...................... 7,500 .05%
818 Kansas Avenue
Topeka, Kansas 66612
Main Street Partners, L.P. .............. 2,075,800(3) 15.08%
3637 Fall Creek Highway
Granbury, Texas 76049
The Equitable Companies Inc. ............ 1,128,200(4) 8.20%
787 Seventh Avenue
New York, New York 10019
All executive officers and directors (10 835,168(5) 5.77%
persons)................................
- --------
(1) Includes options to purchase 340,000 shares of CommNet Common Stock.
(2) Includes options to purchase 197,500 shares of CommNet Common Stock.
(3) A Schedule 13D, dated April 4, 1995, was filed on behalf of Main Street
Partners, L.P., MS Advisory Partners, L.P., MS Advisory Partners
(Overseas), L.P., San Francisco Partners II, L.P., SF Advisory Partners,
L.P., SF Advisory Corp., SF Advisory Corp. II, The Phoebe Snow Foundation,
John H. Scully, William E. Oberndorf, William J. Patterson and Glenn B.
Solomon.
(4) A Schedule 13G, dated as of December 31, 1996, filed on behalf of The
Equitable Companies Incorporated; five French mutual insurance companies,
AXA Assurance I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, Alpha
Assurances I.A.R.D. Mutuelle, Alpha Assurances Vie Mutuelle and AXA
Courtege Assurance Mutuelle, as a group; AXA; and their subsidiaries,
reflects that such group has sole voting power over 1,108,300 shares of
CommNet Common Stock. No information is given in respect of voting power
over the remaining shares.
(5) Includes options to purchase 698,938 shares of CommNet Common Stock held
by directors and executive officers of the Company.
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REGULATORY APPROVALS
Prior to the Effective Time, the FCC must approve the transfer of control of
CommNet to the Partnership. CommNet and the Partnership completed filing joint
applications seeking such approval on June 20, 1997. The transfer of control
from CommNet to the Partnership of CommNet's cellular licenses must be
approved by the FCC based on its evaluation of whether the transfer will serve
the public interest, convenience and necessity. The Merger is not subject to
the filing requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
The obligations of Newco and the Company under the Merger Agreement are also
subject to certain required regulatory approvals, as described in the Merger
Agreement, having been obtained, having been declared or filed or having
occurred and all such required regulatory approvals being in full force and
effect. See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Conditions to
Consummation of the Merger."
NEWCO AND THE PARTNERSHIP
Newco, a Delaware corporation and as of the date hereof a wholly-owned
subsidiary of the Partnership, was organized in connection with the Merger and
has not carried on any activities to date other than those incident to its
formation and the transactions contemplated by the Merger Agreement. The
Partnership, whose principal assets consist of the shares of Newco, is a
Delaware limited partnership, the general partner of which is Blackstone. Mark
T. Gallogly, Lawrence H. Guffey and Simon P. Lonergan are the current
directors of Newco. The current officers of Newco are: Mr. Gallogly, as
President, Mr. Guffey, as Vice President, Treasurer and Assistant Secretary,
and Mr. Lonergan, as Vice President, Secretary and Assistant Treasurer. It is
expected that prior to the Effective Time, the other Partnerships will acquire
interests in Newco.
BMP, an affiliate of Blackstone, will receive a fee of $7.8 million in cash
from the Company upon consummation of the Merger and, from time to time in the
future, BMP may receive customary fees for advisory services rendered to
CommNet. Such fees will be negotiated from time to time with the independent
members of the Board of Directors on an arms-length basis and will be based on
the services performed and the prevalent fees then charged by third parties
for comparable services. In addition, BMP will receive an annual monitoring
fee of $500,000.
DISSENTING SHAREHOLDERS' RIGHTS
The following discussion of the provisions of Sections 7-113-101 through 7-
113-302, inclusive, of the Colorado Business Corporation Act ("CBCA") is not
intended to be a complete statement of such provisions and is qualified in its
entirety by reference to the full text of those Sections, a copy of which is
attached as Annex III hereto.
Under Section 7-113-102 of the CBCA, a CommNet shareholder is entitled to
dissent from the Merger and obtain payment of the fair value of his or her
shares in the event the Merger is consummated. A shareholder who is entitled
to dissent and obtain payment for his or her shares under these Sections may
not challenge the corporate action creating such entitlement unless the action
is unlawful or fraudulent with respect to the shareholder or the corporation.
Each CommNet shareholder who asserts dissenters' rights and follows the
procedures specified in Sections 7-113-202 and 7-113-204 will be entitled to
have the CommNet Common Stock held of record by such shareholder exchanged for
cash or, if a demand for payment remains unresolved, appraised by a district
court in Colorado in a proceeding conducted in accordance with Sections 7-113-
301 and 7-113-302 of the CBCA and receive a judgment for (i) the amount, if
any, by which the court finds the fair value of the dissenter's shares, plus
interest, exceeds the amount paid by the Company in the Merger, or (ii) for
the fair value, plus interest, of the dissenter's shares for which the Company
elected to withhold payment under Section 7-113-208 of the CBCA, as determined
by such court. THE PROCEDURES SET FORTH IN SECTIONS 7-113-202 AND 7-113-204 OF
THE CBCA SHOULD BE COMPLIED WITH STRICTLY. FAILURE TO FOLLOW ANY OF SUCH
70
PROCEDURES MAY RESULT IN THE TERMINATION OR WAIVER OF DISSENTERS' RIGHTS.
CommNet shareholders should note that failure to execute and return a proxy or
transmittal letter does not perfect dissenters' rights. In addition, neither
voting against the Proposal nor abstaining from voting will constitute a
demand for payment. HOWEVER, VOTING IN FAVOR OF THE PROPOSAL WILL WAIVE A
SHAREHOLDER'S DISSENTERS' RIGHTS. IF A SHAREHOLDER RETURNS A SIGNED PROXY CARD
THAT DOES NOT SPECIFY A VOTE, THE PROXY WILL BE VOTED IN FAVOR OF THE PROPOSAL
WHICH WILL HAVE THE EFFECT OF WAIVING THE SHAREHOLDER'S DISSENTERS' RIGHTS.
Under Sections 7-113-202 and 7-113-204 of the CBCA, a CommNet shareholder
who desires to exercise dissenters' rights and who does not vote in favor of
the Proposal may perfect such rights by delivering to CommNet, for receipt
before the taking of the vote on the Proposal, written notice of the
shareholder's intention to demand payment for the shareholder's shares if the
proposed Merger is consummated. The written demand is separate from and in
addition to any proxy or vote against the Proposal. Such written demand for
payment should be delivered either in person to the corporate secretary of
CommNet before the Special Meeting or at the Special Meeting before the vote
on the Proposal, or by mail (certified mail, return receipt requested, being
the recommended form of transmittal), for receipt prior to the vote on the
Proposal at the Special Meeting, delivered to CommNet at the following
address: CommNet Cellular Inc., 8350 East Crescent Parkway, Suite 400,
Englewood, Colorado 80111, Attention: Secretary.
Only a CommNet shareholder of record, or a person duly authorized and
explicitly purporting to act on her or his behalf, is entitled to exercise
dissenters' rights for CommNet Common Stock.
A beneficial shareholder of CommNet Common Stock may assert dissenters'
rights as to the shares held on his or her behalf only if she or he submits to
CommNet the written consent of the shareholder of record to the dissent not
later than the time the beneficial shareholder asserts dissenters' rights and
he or she does so with respect to all shares beneficially owned by him or her.
A person who owns CommNet Common Stock beneficially, but not of record, and
who desires to exercise his or her dissenters' rights is, therefore, advised
to consult promptly with the person or entity that is the record holder of his
or her dissenters' Common Stock in order to receive and submit his or her
written consent to the exercise of such rights and to ensure the timely
exercise of such rights.
If the Merger is authorized, CommNet will give a written dissenters' notice
to all shareholders who are entitled to demand payment for their shares. The
notice will be sent no later than ten days after the Effective Time and will
provide information regarding where and when the shareholder must deliver a
demand for payment. The notice will also supply a form for demanding payment.
CommNet will set a date by which it must receive such demand for payment and
that date will not be less than 30 days after the date CommNet sends the
written dissenters' notice.
A CommNet shareholder who receives a dissenters' notice and who wishes to
assert dissenters' rights must demand payment in writing for his or her shares
of CommNet Common Stock. The CommNet shareholder who demands payment will be
required to deposit his or her stock certificates in accordance with the
CommNet dissenters' notice. A CommNet shareholder who demands payment and
deposits his or her certificates retains all other rights of a shareholder
until those rights are canceled or modified by the Merger. The demand for
payment and deposit of certificates is irrevocable. A COMMNET SHAREHOLDER WHO
DOES NOT DEMAND PAYMENT AND DEPOSIT HIS OR HER CERTIFICATES AS REQUIRED BY THE
DATE SPECIFIED IN THE DISSENTERS' NOTICE, IS NOT ENTITLED TO PAYMENT FOR HIS
OR HER SHARES OF COMMNET COMMON STOCK.
Upon the Effective Time or upon receipt of a payment demand, whichever is
later, CommNet shall pay each dissenter who complied with Section 7-113-204,
at the address stated in the payment demand, or if no such address is stated
in the payment demand, at the address shown on CommNet's current record of
shareholders for the record shareholder holding the dissenter's shares, the
amount the Company estimates to be the fair value of the dissenter's shares,
plus accrued interest. The payment will be accompanied by certain financial
information,
71
CommNet's estimate of the fair value of the shares, an explanation of how the
interest was calculated, a statement of the dissenter's right to demand
payment under Section 7-113-209, and a copy of the CBCA sections governing
dissenters' rights.
A dissenter may notify CommNet in writing of his or her own estimate of the
fair value of his or her shares of CommNet Common Stock and the amount of
interest due, and demand payment of his or her own estimate, less any payment
made under Section 7-113-206 of the CBCA. The dissenter may also elect to
reject CommNet's offer and demand payment of the fair value of the shares and
interest due, if he or she believes that the amount paid under Section 7-113-
206 or offered under Section 7-113-208 is less than the fair value of the
shares or that the interest due was incorrectly calculated. If a demand for
payment remains unresolved, CommNet may, within 60 days after receiving the
payment demand, commence a proceeding and petition the court to determine the
fair value of the shares and accrued interest. If CommNet does not commence
the proceeding within the sixty-day period, it shall pay to each dissenter
whose demand remains unresolved the amount demanded. The proceeding will be
commenced in a district court in Colorado, and the court will determine the
fair value of the shares of CommNet Common Stock and accrued interest.
In determining the fair value of the CommNet Common Stock, the court may
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value.
No representation can be made as to the outcome of an appraisal proceeding.
Shareholders also should be aware that the appraisal rights process is subject
to uncertainties and to the possibility of lengthy and expensive litigation
that could extend for a substantial period of time (without the shareholders
having received any money for the CommNet Common Stock during such period).
Shareholders also should recognize that an appraisal proceeding could result
in a determination of a fair value higher or lower than or equal to the per
share consideration which would otherwise be received in the Merger.
The costs of an appraisal proceeding will be determined by the court and
assessed against the Company, except that the court may assess costs against
some or all of the dissenters, in amounts the court finds equitable, to the
extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under Section 7-113-209. The court may also
assess the fees and expenses of counsel and experts for the respective parties
in amounts the court finds equitable against the Company or one or more
dissenters.
CERTAIN PENDING LITIGATION
On May 29, 1997 (the day after the proposed Merger was publicly announced),
the Company and each of its five directors (two of whom are executive officers
of the Company) were named as defendants in a complaint filed in the Colorado
District Court, County of Arapahoe, by Brickell Partners, an entity claiming
to be a shareholder of the Company, individually and purportedly as a class
action on behalf of shareholders of the Company. In general, the complaint
alleges that the Company's directors have breached their fiduciary duties by,
among other things, resolving to approve the Merger at an allegedly inadequate
price and by allegedly failing to take all reasonable steps to insure
maximization of shareholder value. The complaint seeks injunctive relief
prohibiting the Company from, among other things, consummating the Merger. The
complaint also seeks unspecified damages, attorneys' fees and other relief.
The Company believes that the allegations contained in the complaint are
without merit and intends to contest the action vigorously, on behalf of
itself and its directors, if the plaintiff elects to proceed with its action.
On July 8, 1997, Dakota Systems, Inc., the minority general partner in the
Sioux Falls Cellular Limited Partnership ("Sioux Falls"), and Splitrock
Telecom Cooperative, Inc., Union Telephone Company, Sioux Valley Telephone
Company and Baltic Cooperative Telephone Company, the limited partners in
Sioux Falls (collectively, the minority general partner and the limited
partners are referred to herein as "plaintiffs"), filed a lawsuit in the
Circuit Court, County of Minnehaha, State of South Dakota, against CINC, the
Company, and
72
Sioux Falls. CINC is the general partner of Sioux Falls and a wholly-owned
subsidiary of the Company. The lawsuit alleges, among other things, that the
Merger triggers plaintiffs' alleged right of first refusal to purchase CINC's
interest in Sioux Falls under the Certificate and Agreement Establishing Sioux
Falls Limited Partnership. The lawsuit seeks, among other things, a
declaratory judgment concerning the terms of plaintiffs' alleged right of
first refusal to purchase CINC's interest in Sioux Falls, a temporary and
permanent injunction prohibiting the Merger until plaintiffs' rights are
clarified and damages. The lawsuit also seeks to enjoin a proposed sale of a
telecommunications switch by Sioux Falls to the Company and to void certain
amendments to the switch user agreements. The Company intends to defend the
lawsuit vigorously.
OTHER INFORMATION AND SHAREHOLDER PROPOSALS
Management of the Company knows of no other matters that may properly be, or
which are likely to be, brought before the Special Meeting. However, if any
other matters are properly brought before such Special Meeting, the persons
named in the enclosed Proxy or their substitutes intend to vote the Proxies in
accordance with their judgment with respect to such matters, unless authority
to do so is withheld in the Proxy.
EXPERTS
The consolidated financial statements of CommNet Cellular Inc. appearing in
the Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1996, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing. Representatives of Ernst & Young LLP
are expected to be present at the Special Meeting, where they will have the
opportunity to make a statement if they desire to do so and will be available
to respond to appropriate questions.
LEGAL COUNSEL
The legality of the shares of CommNet Common Stock being retained in the
Merger will be passed upon by Amy M. Shapiro, General Counsel for the Company.
An opinion with respect to certain tax consequences of the Merger will be
rendered to the Company by Latham & Watkins, Chicago, Illinois.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement incorporates by reference documents which are not
presented herein or delivered herewith. Copies of any such documents relating
to the Company, other than exhibits to such documents (unless such exhibits
specifically are incorporated by reference in such documents), are available
without charge, upon written or oral request, from CommNet Cellular Inc., 8350
East Crescent Parkway, Suite 400, Englewood, Colorado 80111, Attention:
Secretary, telephone: (303) 694-3234. In order to ensure timely delivery of
the documents requested, any such request should be made by September 18,
1997.
The following documents previously filed by the Company with the Commission
(File Number 000-15056) are incorporated in this Proxy Statement by reference:
(1) the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996 filed with the Commission on December 30, 1996;
(2) the Company's Quarterly Report on Form 10-Q for the period ended
December 31, 1996 filed with the Commission on February 14, 1997;
73
(3) the Company's Quarterly Report on Form 10-Q for the period ended March
31, 1997 filed with the Commission on May 15, 1997; and
(4) the Company's Current Report on Form 8-K filed with the Commission on
May 29, 1997.
All reports and other documents subsequently filed by the Company with the
Commission pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act
prior to the date of the Special Meeting shall be deemed to be incorporated by
reference herein and to be part hereof from the date of the filing of such
reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein, or in any other subsequently filed document that also is or is deemed
to be incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute part of this Proxy Statement.
74
ANNEX I
AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 27, 1997
BETWEEN
COMMNET CELLULAR INC.
AND
AV ACQUISITION CORP.
TABLE OF CONTENTS
ARTICLE I. THE MERGER...................................................... 1
1.1. The Merger.......................................................... 1
1.2. Closing............................................................. 1
1.3. Effective Time...................................................... 1
1.4. Effects of the Merger............................................... 2
1.5. Articles of Incorporation........................................... 2
1.6. By-Laws............................................................. 2
1.7. Officers and Directors of Surviving Corporation..................... 2
1.8. Effect on Capital Stock............................................. 2
1.9. CCI Common Stock Elections.......................................... 3
1.10. Proration.......................................................... 4
ARTICLE II. EXCHANGE OF CERTIFICATES....................................... 5
2.1. Exchange Fund....................................................... 5
2.2. Exchange Procedures................................................. 5
2.3. No Further Ownership Rights in CCI Common Stock Exchanged for Cash;
No Fractional Shares.................................................... 6
2.4. Termination of Exchange Fund........................................ 6
2.5. No Liability........................................................ 6
2.6. Investment of Exchange Fund......................................... 6
2.7. Lost Certificates................................................... 6
2.8. Withholding Rights.................................................. 7
2.9. Further Assurances.................................................. 7
2.10. [Intentionally Omitted]............................................ 7
2.11. Shares of Dissenting Shareholders.................................. 7
2.12. The Debt Offers.................................................... 7
ARTICLE III. REPRESENTATIONS AND WARRANTIES................................ 8
3.1. Representations and Warranties of CCI............................... 8
3.2. Representations and Warranties of Merger Sub........................ 16
ARTICLE IV. COVENANTS RELATING TO CONDUCT OF BUSINESS...................... 18
4.1. Covenants of CCI.................................................... 18
4.2. Covenants of Merger Sub............................................. 19
4.3. Regulatory Compliance; Advice of Changes; Government Filings........ 20
4.4. Transition Planning................................................. 20
4.5. Control of Other Party's Business................................... 20
ARTICLE V. ADDITIONAL AGREEMENTS........................................... 21
5.1. Preparation of Form S-4; Proxy Statement; CCI Shareholder Meeting... 21
5.2. Access to Information............................................... 21
5.3. Approvals and Consents; Cooperation................................. 22
5.4. Acquisition Proposals............................................... 22
5.5. Stock Options and Other Stock Plans................................. 24
5.6. Fees and Expenses................................................... 24
5.7. Indemnification; Directors' and Officers' Insurance................. 24
5.8. Rights Agreement.................................................... 25
5.9. Public Announcements................................................ 25
5.10. Affiliates......................................................... 25
5.11. Certain Agreements................................................. 25
5.12. Nasdaq Listing and Exchange Act Registration....................... 25
I-i
ARTICLE VI. CONDITIONS PRECEDENT............................................ 25
6.1. Conditions to Each Party's Obligation to Effect the Merger........... 25
6.2. Additional Conditions to Obligations of Merger Sub................... 26
6.3. Additional Conditions to Obligations of CCI.......................... 27
ARTICLE VII. TERMINATION AND AMENDMENT...................................... 28
7.1. Termination.......................................................... 28
7.2. Effect of Termination................................................ 29
7.3. Amendment............................................................ 30
7.4. Extension; Waiver.................................................... 30
ARTICLE VIII. GENERAL PROVISIONS............................................ 30
8.1. Non-Survival of Representations, Warranties and Agreements........... 30
8.2. Notices.............................................................. 30
8.3. Interpretation....................................................... 31
8.4. Counterparts......................................................... 31
8.5. Entire Agreement; No Third Party Beneficiaries....................... 31
8.6. Governing Law........................................................ 31
8.7. Severability......................................................... 31
8.8. Assignment........................................................... 31
8.9. Enforcement.......................................................... 31
8.10. Definitions......................................................... 32
8.11. WAIVER OF JURY TRIAL................................................ 32
ANNEXES AND CCI DISCLOSURE SCHEDULE
ANNEXES
A. Employee Benefits Matters
B. Form of CCI Affiliate Letter
CCI DISCLOSURE SCHEDULE
I-ii
GLOSSARY OF DEFINED TERMS
LOCATION OF
DEFINITION DEFINED TERM
- ---------- ----------------------
Acquiring Person........................................ Section 3.1(q)
Acquisition Proposal.................................... Section 5.4(a)
Action.................................................. Section 6.2(g)
Affiliate............................................... Section 8.10
Agreement............................................... Preamble
Blackstone.............................................. Recitals
Board of Directors...................................... Section 8.10
Business Day............................................ Section 8.10
Cash Election Price..................................... Section 1.8(b)
Cash Proration Factor................................... Section 1.10(c)(ii)(1)
CBCA.................................................... Recitals
CCI..................................................... Preamble
CCI Affiliates.......................................... Section 8.10
CCI Benefit Plans....................................... Section 3.1(m)(i)
CCI Common Stock........................................ Recitals
CCI Disclosure Schedule................................. Section 3.1
CCI Material Contracts.................................. Section 3.1(l)(i)
CCI Permits............................................. Section 3.1(f)
CCI SEC Reports......................................... Section 3.1(d)(i)
CCI Stock Option Plans.................................. Section 3.1(b)(i)
CCI Shareholders Meeting................................ Section 5.1(c)
CCI Voting Debt......................................... Section 3.1(b)(iv)
CIFC.................................................... Section 3.1(b)(vi)
CIFC Facilities......................................... Section 3.1(b)(vi)
Closing................................................. Section 1.2
Closing Date............................................ Section 1.2
CoBank.................................................. Section 3.1(b)(vi)
CoBank Credit Agreement................................. Section 3.1(b)(vi)
Code.................................................... Section 2.8
Colorado Articles of Merger............................. Section 1.3
Commitment Letter....................................... Section 3.2(h)
Communications Act...................................... Section 3.1(c)(iii)
Consolidated Subsidiaries............................... Section 3.1(a)(i)
Control Proposal........................................ Section 8.10
Core States Facility.................................... Section 3.1(b)(vi)
Debt Offers............................................. Section 2.12(a)
DGCL.................................................... Recitals
Dissenting Shares....................................... Section 2.11
Distribution Date....................................... Section 3.1(q)
Effective Time.......................................... Section 1.3
Electing Shares......................................... Section 1.8(b)
Election Date........................................... Section 1.9(c)
Eligible Institution.................................... Section 1.9(c)
ERISA................................................... Section 3.1(m)(i)
Excess Shares........................................... Section 2.3(b)
Exchange Act............................................ Section 3.1(c)(iii)
Exchange Agent.......................................... Section 1.9(b)
Exchange Fund........................................... Section 2.1
I-iii
LOCATION OF
DEFINITION DEFINED TERM
- ---------- -------------------
Expenses.................................................... Section 5.6
Facility.................................................... Section 3.2(h)
FCC......................................................... Section 3.1(c)(iii)
FCC Consents................................................ Section 6.1(c)
FCC Licenses................................................ Section 3.1(f)
Form of Election............................................ Section 1.9(c)
Form S-4.................................................... Section 3.1(c)(iii)
Funding..................................................... Section 6.3(d)
GAAP........................................................ Section 3.1(a)(i)
General Partner Licensees................................... Section 3.1(f)
Governmental Entity......................................... Section 3.1(c)(iii)
Guaranty.................................................... Section 3.1(b)(vi)
HSR Act..................................................... Section 3.1(c)(iii)
IRS......................................................... Section 3.1(m)(i)
Letters of Transmittal...................................... Section 2.12(b)
Liens....................................................... Section 3.1(b)(ii)
Limited Partner Licensees................................... Section 3.1(f)
Managed Affiliates.......................................... Section 3.1(f)
Material Adverse Change..................................... Section 8.10
Material Adverse Effect..................................... Section 8.10
Merger...................................................... Recitals
Merger Consideration........................................ Section 1.8(b)
Merger Sub.................................................. Preamble
MS Certificate of Merger.................................... Section 1.3
Nasdaq...................................................... Section 3.1(c)(iii)
Non-Cash Election........................................... Section 1.9(a)
Non-Cash Election Number.................................... Section 1.10(a)
Non-Cash Election Share..................................... Section 1.8(b)
Non-Cash Proration Factor................................... Section 1.10(b)(i)
Nonmanaged Affiliates....................................... Section 3.1(f)
Notes....................................................... Section 3.1(b)(vi)
Offer Documents............................................. Section 2.12(b)
Offers to Purchase.......................................... Section 2.12(b)
Option Value................................................ Section 5.5(a)
Options..................................................... 5.5(a)
Organizational Documents.................................... Section 8.10
Parent...................................................... Recitals
Person...................................................... Section 8.10
Proxy Statement............................................. Section 3.1(c)(iii)
Required CCI Votes.......................................... Section 3.1(k)
Required Consents........................................... Section 3.1(c)(iii)
Required Regulatory Approvals............................... Section 6.2(c)
Rights...................................................... Section 3.1(b)(i)
Rights Agreement............................................ Section 3.1(b)(i)
SEC......................................................... Section 3.1(d)(i)
Securities Act.............................................. Section 3.1(b)(vii)
Senior Subordinated Notes................................... Section 3.1(b)(vi)
Senior Subordinated Notes Indenture......................... Section 3.1(b)(vi)
Share Reference Date........................................ Section 3.1(b)(i)
Special Committee........................................... 3.1(p)
I-iv
LOCATION OF
DEFINITION DEFINED TERM
- ---------- ------------------
Stock Acquisition Date....................................... Section 3.1(q)
Subordinated Notes........................................... Section 3.1(b)(vi)
Subordinated Notes Indenture................................. Section 3.1(b)(vi)
Subsidiary................................................... Section 8.10
Superior Proposal............................................ Section 5.4(a)
Surviving Corporation........................................ Section 1.1
Tax.......................................................... Section 8.10
Taxes........................................................ Section 8.10
Taxable...................................................... Section 8.10
Tax Return................................................... Section 8.10
Terminating CCI Breach....................................... Section 7.1(g)
Terminating Merger Sub Breach................................ Section 7.1(h)
Termination Date............................................. Section 7.1(b)
the other party.............................................. Section 8.10
Violation.................................................... Section 3.1(c)(ii)
WARN......................................................... Section 4.1(f)
I-v
AGREEMENT AND PLAN OF MERGER, dated as of May 27, 1997 (this "Agreement"),
between COMMNET CELLULAR INC., a Colorado corporation ("CCI"), and AV
ACQUISITION CORP., a Delaware corporation ("Merger Sub").
W I T N E S S E T H :
WHEREAS, the respective Boards of Directors of CCI and Merger Sub have each
determined that the Merger is in the best interests of their respective
shareholders and have approved the Merger upon the terms and subject to the
conditions set forth in this Agreement, whereby each issued and outstanding
share of common stock, par value $.001 per share, of CCI ("CCI Common Stock")
and the Rights (as defined in Section 3.1(b)(i)) associated therewith, other
than shares owned by Parent or Merger Sub or any wholly owned Subsidiary of
Merger Sub or by any wholly owned Subsidiary of CCI, and Dissenting Shares (as
defined in Section 2.11) will be converted into either (A) the right to retain
at the election of the holder thereof and subject to the terms hereof, CCI
Common Stock or (B) the right to receive cash;
WHEREAS, in order to effectuate the foregoing, Merger Sub, upon the terms
and subject to the conditions of this Agreement and in accordance with the
Colorado Business Corporation Act (the "CBCA") and the Delaware General
Corporation Law (the "DGCL"), will merge with and into CCI (the "Merger");
WHEREAS, Merger Sub is owned solely by one or more Persons (collectively,
"Parent"), all of which are Affiliates of Blackstone Management Associates II
L.L.C. ("Blackstone");
WHEREAS, it is intended that the Merger be recorded as a recapitalization
for financial reporting purposes; and
WHEREAS, CCI and Merger Sub desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I.
THE MERGER
1.1. THE MERGER. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the CBCA and the DGCL, Merger Sub shall
be merged with and into CCI at the Effective Time. At the Effective Time, the
separate corporate existence of Merger Sub shall cease and CCI shall continue
as the surviving corporation (the "Surviving Corporation").
1.2. CLOSING. The closing of the Merger (the "Closing") will take place on
the fifth Business Day after satisfaction or waiver (as permitted by this
Agreement and applicable law) of the conditions (excluding conditions that, by
their terms, cannot be satisfied until the Closing Date) set forth in Article
VI (the "Closing Date"), unless another time or date is agreed to in writing
by the parties hereto. The Closing shall be held at the offices of Latham &
Watkins, 233 South Wacker Drive, Suite 5800, Chicago, Illinois 60606, unless
another place is agreed to in writing by the parties hereto.
1.3. EFFECTIVE TIME. As soon as practicable following the Closing, the
parties shall (i) file articles of merger (the "Colorado Articles of Merger")
in such form as is required by and executed in accordance with the CBCA, (ii)
file a certificate of merger (the "MS Certificate of Merger") in such form as
is required by and executed in accordance with the DGCL and (iii) make all
other filings or recordings required under the CBCA and the DGCL. The Merger
shall become effective at the latest of (i) such time as the Colorado Articles
of Merger are
I-1
duly filed with the Colorado Secretary of State, (ii) such time as the MS
Certificate of Merger is duly filed with the Delaware Secretary of State, or
(iii) such other time as Merger Sub and CCI shall agree in writing should be
specified in the Colorado Articles of Merger and the MS Certificate of Merger
(the date and time the Merger becomes effective being the "Effective Time").
1.4. EFFECTS OF THE MERGER. At and after the Effective Time, the Merger will
have the effects set forth in the CBCA and the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all
the property, rights, privileges, powers and franchises of CCI and Merger Sub
shall be vested in the Surviving Corporation, and all debts, liabilities and
duties of CCI and Merger Sub shall become the debts, liabilities and duties of
the Surviving Corporation.
1.5. ARTICLES OF INCORPORATION. The articles of incorporation of CCI, as in
effect immediately prior to the Effective Time, shall be the articles of
incorporation of the Surviving Corporation, until thereafter changed or
amended as provided therein or by applicable law.
1.6. BY-LAWS. The by-laws of Merger Sub as in effect at the Effective Time
shall be the by-laws of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
1.7. OFFICERS AND DIRECTORS OF SURVIVING CORPORATION. The directors of
Merger Sub shall be the directors of the Surviving Corporation and the
officers of the Surviving Corporation shall be those designated by Merger Sub
prior to the Effective Time, until the earlier of their resignation or removal
or otherwise ceasing to be an officer or director or until their respective
successors are duly elected and qualified, as the case may be.
1.8. EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue of the
Merger and without any action on the part of CCI, Merger Sub or the holders of
any shares of CCI Common Stock or any shares of capital stock of Merger Sub:
(a) Cancellation of Certain Stock. Each share of CCI Common Stock that is
owned by Parent or Merger Sub or any wholly owned Subsidiary of Merger Sub
and each share of CCI Common Stock that is owned by any wholly owned
Subsidiary of CCI (together, in each case, with the associated Right) shall
automatically be cancelled and retired and shall cease to exist and no
consideration shall be delivered in exchange therefor.
(b) Conversion or Retention of CCI Common Stock. Except as otherwise
provided herein and subject to Section 1.10, each issued and outstanding
share of CCI Common Stock (other than shares to be cancelled in accordance
with Section 1.8(a) and Dissenting Shares) together with the associated
Right shall be converted into the following (the "Merger Consideration"):
(i) for each such share of CCI Common Stock with respect to which an
election to retain CCI Common Stock has been effectively made and not
revoked or forfeited pursuant to Sections 1.9(c), (d) and (e)
("Electing Shares"), the right to retain one fully paid and
nonassessable share of CCI Common Stock and the associated Right (a
"Non-Cash Election Share"); and
(ii) for each such share of CCI Common Stock (other than Electing
Shares), the right to receive in cash from CCI following the Merger an
amount equal to $36.00 (the "Cash Election Price").
(c) Cancellation and Retirement of CCI Common Stock. As of the Effective
Time, all shares of CCI Common Stock (and the associated Rights) (other
than shares referred to in Section 1.8(b)(i)) issued and outstanding
immediately prior to the Effective Time shall no longer be outstanding and
shall automatically be cancelled and retired and shall cease to exist, and
each holder of a certificate representing any such shares of CCI Common
Stock (and the associated Rights) shall cease to have any rights with
respect thereto, except (i) the right to receive cash, including cash in
lieu of fractional shares of CCI Common Stock (and the associated Rights),
to be issued or paid in consideration therefor upon surrender of such
certificate in accordance with Article 2, or (ii) in the case of Dissenting
Shares, any rights under Article 113 of the CBCA.
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(d) Merger Sub Capital Stock. Each share of capital stock of Merger Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into a number of shares of the CCI Common Stock following the
Merger equal to the quotient of (i) 3,939,167 divided by (ii) the number of
shares of common stock of Merger Sub outstanding immediately prior to the
Effective Time.
1.9. CCI COMMON STOCK ELECTIONS.
(a) Each Person who, on or prior to the Election Date (as defined in
Section 1.9(c)), is a record holder of shares of CCI Common Stock (and the
associated Rights) will be entitled, with respect to all or any portion of
his shares, to make an unconditional election (a "Non-Cash Election") on or
prior to such Election Date to retain Non-Cash Election Shares, on the
basis hereinafter set forth.
(b) Prior to the mailing of the Proxy Statement (as defined in Section
3.1(c)(iii), Merger Sub shall appoint a bank or trust company which is
reasonably satisfactory to CCI to act as exchange agent (the "Exchange
Agent") for the payment of the Merger Consideration.
(c) CCI shall prepare a form of election, which form shall be subject to
the reasonable approval of Merger Sub (the "Form of Election"), to be
mailed by CCI with the Proxy Statement to the record holders of CCI Common
Stock as of the record date for the CCI Shareholders Meeting and otherwise
distributed in accordance with the requirements of the SEC, which Form of
Election shall be used by each record holder of shares of CCI Common Stock
(and the associated Rights) who wishes to elect, subject to the provisions
of Section 1.10, to retain Non-Cash Election Shares for any or all shares
of CCI Common Stock (and the associated Rights) as to which it is the
record holder. CCI will use its reasonable efforts to make the Form of
Election and the Proxy Statement available to all Persons who become
holders of CCI Common Stock during the period between such record date and
the Election Date referred to below. Any such holder's election to retain
Non-Cash Election Shares shall have been properly made only if the Exchange
Agent shall have received at its designated office, by 5:00 p.m., local
time for the Exchange Agent, on the Business Day next preceding the date of
the CCI Shareholders Meeting (the "Election Date"), pursuant to (i) a Form
of Election properly completed and signed and accompanied by certificates
representing the shares of CCI Common Stock (and the associated Rights) to
which such Form of Election relates, duly endorsed in blank or otherwise in
form acceptable for transfer on the books of CCI (or by an appropriate
guarantee of delivery of such certificates as set forth in such Form of
Election from a firm which is an "eligible guarantor institution" (as
defined in Rule 17Ad-15 under the Exchange Act) (an "Eligible
Institution"), provided such certificates are in fact delivered to the
Exchange Agent within three Nasdaq trading days after the date of execution
of such guarantee of delivery) or (ii) such other procedures as may be set
forth in the Proxy Statement.
(d) Any Form of Election may be revoked by the holder submitting it to
the Exchange Agent only by notice received by the Exchange Agent prior to
5:00 p.m., local time for the Exchange Agent, on the Election Date in
accordance with the procedures set forth in the Proxy Statement (unless
Merger Sub and CCI determine not less than two Business Days prior to the
Election Date that the Closing Date is not likely to occur within five
Business Days following the date of the CCI Shareholders Meeting, in which
case any Form of Election will remain revocable until a subsequent date
which shall be a date prior to the Closing Date determined by Merger Sub
and CCI). In addition, all Forms of Election shall automatically be revoked
if the Exchange Agent is notified in writing by Merger Sub and CCI that
this Agreement has been terminated. If a Form of Election is properly
revoked, the certificate or certificates (or guarantees of delivery, as
appropriate) for the shares of CCI Common Stock (and the associated Rights)
to which such Form of Election relates shall be promptly returned by the
Exchange Agent to the shareholder submitting the same, or pursuant to such
other procedures as are set forth in the Proxy Statement.
(e) The determination of the Exchange Agent (or CCI in the event the
Exchange Agent declines to make such determination) shall be binding as to
whether elections to retain Non-Cash Election Shares have been properly
made or revoked pursuant to this Section 1.9 with respect to shares of CCI
Common Stock (and the associated Rights) and as to when elections and
revocations were received by it. If the Exchange Agent reasonably
determines in good faith that any election to retain Non-Cash Election
Shares was not
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properly made with respect to shares of CCI Common Stock (and the
associated Rights), such shares shall be treated by the Exchange Agent as
shares which were not Electing Shares at the Effective Time, and such
shares shall be exchanged in the Merger for cash pursuant to Section
1.8(b)(ii), subject to proration as provided in Section 1.10. The Exchange
Agent (or CCI in the event Exchange Agent declines to make such
determination) shall also make all computations as to the allocation and
the proration contemplated by Section 1.10, and any such computation shall
be conclusive and binding on the holders of shares of CCI Common Stock. The
Exchange Agent may, with the mutual written agreement of Merger Sub and
CCI, establish procedures as are consistent with this Section 1.9 for the
implementation of the elections provided for herein as shall be necessary
or desirable fully to effect such elections.
1.10. PRORATION.
(a) Notwithstanding anything in this Agreement to the contrary, the
aggregate number of shares of CCI Common Stock (and the associated Rights)
to be converted into the right to retain CCI Common Stock (and the
associated Rights) at the Effective Time (the "Non-Cash Election Number")
shall be equal to 588,611 (excluding for this purpose any shares of CCI
Common Stock (and the associated Rights) to be cancelled pursuant to
Section 1.8(a)).
(b) If the number of Electing Shares exceeds the Non-Cash Election
Number, then each Electing Share shall be converted into the right to
retain Non-Cash Election Shares or receive cash in accordance with the
terms of Section 1.8(b) in the following manner:
(i) A proration factor (the "Non-Cash Proration Factor") shall be
determined by dividing the Non-Cash Election Number by the total number
of Electing Shares.
(ii) The number of Electing Shares covered by each Non-Cash Election
to be converted into the right to retain Non-Cash Election Shares shall
be determined by multiplying the Non-Cash Proration Factor by the total
number of Electing Shares covered by such Non-Cash Election.
(iii) All Electing Shares, other than those shares converted into the
right to receive Non-Cash Election Shares in accordance with Section
1.10(b)(ii), shall be converted into cash (on a consistent basis among
shareholders who made the election referred to in Section 1.8(b)(i),
pro rata to the number of shares as to which they made such election)
as if such shares were not Electing Shares in accordance with the terms
of Section 1.8(b)(ii).
(c) If the number of Electing Shares is less than the Non-Cash Election
Number, then:
(i) all Electing Shares shall be converted into the right to retain
CCI Common Stock (and the associated Rights) in accordance with the
terms of Section 1.8(b)(i);
(ii) additional shares of CCI Common Stock (other than Electing
Shares and Dissenting Shares) shall be converted into the right to
retain Non-Cash Election Shares in accordance with the terms of Section
1.8(b) in the following manner:
(1) a proration factor (the "Cash Proration Factor") shall be
determined by dividing (x) the difference between the Non-Cash
Election Number and the number of Electing Shares, by (y) the total
number of shares of CCI Common Stock outstanding at the Effective
Time (other than Electing Shares and Dissenting Shares); and
(2) the number of shares of CCI Common Stock in addition to
Electing Shares to be converted into the right to retain Non-Cash
Election Shares shall be determined by multiplying the Cash
Proration Factor by the total number of shares of CCI Common Stock
outstanding at the Effective Time (other than Electing Shares and
Dissenting Shares); and
(iii) Subject to Section 2.11, shares of CCI Common Stock subject to
clause (ii) of this Section 1.10(c) shall be converted into the right
to retain Non-Cash Election Shares in accordance with Section 1.8(b)(i)
as if such shares had been the subject of a Non-Cash Election (on a
consistent basis among shareholders who held shares of CCI Common Stock
as to which they did not make the election referred to in Section
1.8(b)(i), pro rata based upon the number of shares as to which they
did not make such election).
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ARTICLE II.
EXCHANGE OF CERTIFICATES
2.1. EXCHANGE FUND.
At or as soon as reasonably practicable after the Effective Time, CCI shall
deposit with the Exchange Agent for the benefit of the holders of the shares
of CCI Common Stock (and the associated Rights), the cash portion of the
Merger Consideration for exchange pursuant to this Article II. The Exchange
Agent shall deliver cash contemplated to be paid pursuant to Section 1.8 (such
cash being hereinafter referred to as the "Exchange Fund") in exchange for
outstanding shares of CCI Common Stock (and the associated Rights).
2.2. EXCHANGE PROCEDURES.
(a) Exchange. As soon as reasonably practicable after the Effective Time,
each holder of an outstanding certificate or certificates which prior
thereto represented shares of CCI Common Stock (and the associated Rights)
shall, upon surrender to the Exchange Agent of such certificate or
certificates and acceptance thereof by the Exchange Agent, be entitled to a
certificate or certificates representing the number of full Non-Cash
Election Shares, if any, to be retained by the holder thereof pursuant to
this Agreement and the amount of cash, if any, into which the number of
shares of CCI Common Stock (and the associated Rights) previously
represented by such certificate or certificates surrendered shall have been
converted pursuant to this Agreement. The Exchange Agent shall accept such
certificates upon compliance with such reasonable terms and conditions as
the Exchange Agent may impose to effect an orderly exchange thereof in
accordance with normal exchange practices. After the Effective Time there
shall be no further transfer on the records of CCI or its transfer agent of
certificates representing shares of CCI Common Stock (and the associated
Rights) which have been converted, in whole or in part, pursuant to this
Agreement into the right to receive cash, and if such certificates are
presented to CCI for transfer, they shall be cancelled against delivery of
cash and, if appropriate, certificates for Non-Cash Election Shares. If any
certificate for such Non-Cash Election Shares is to be issued in, or if the
Cash Election Price is to be remitted to, a name other than that in which
the certificate for CCI Common Stock surrendered for exchange is
registered, it shall be a condition of such exchange that the certificate
so surrendered shall be properly endorsed, with signature guaranteed by an
Eligible Institution, or otherwise in proper form for transfer and that the
Person requesting such exchange shall pay to CCI, the Exchange Agent or
CCI's transfer agent any transfer or other taxes required by reason of the
issuance of certificates for such Non-Cash Election Shares in a name other
than that of the registered holder of the certificate surrendered, or
establish to the satisfaction of CCI, the Exchange Agent or its transfer
agent that such tax has been paid or is not applicable. Until surrendered
as contemplated by this Section 2.2, each certificate for shares of CCI
Common Stock shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the Merger
Consideration as contemplated by Section 1.8. No interest will be paid or
will accrue on any cash payable as Merger Consideration or in lieu of any
fractional shares of Non-Cash Election Shares.
(b) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to Non-Cash Election Shares with a record
date after the Effective Time shall be paid to the holder of any
unsurrendered certificate for shares of CCI Common Stock with respect to
the Non-Cash Election Shares represented thereby and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to
Section 2.3(b) until the surrender of such certificate in accordance with
this Article II. Subject to the effect of applicable laws, following
surrender of any such certificate, there shall be paid to the holder of the
certificate representing whole Non-Cash Election Shares issued in
connection therewith, without interest, (i) at the time of such surrender
or as promptly after the sale of the Excess Shares as practicable, the
amount of any cash payable in lieu of a fractional share of Non-Cash
Election Shares to which such holder is entitled pursuant to Section 2.3(b)
and the proportionate amount of any dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such
whole Non-Cash Election Shares, and (ii) at the appropriate payment date,
the proportionate amount of any dividends or other distributions with a
record date after the Effective Time but prior to such surrender and a
payment date subsequent to such surrender payable with respect to such
whole Non-Cash Election Shares.
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2.3. NO FURTHER OWNERSHIP RIGHTS IN CCI COMMON STOCK EXCHANGED FOR CASH; NO
FRACTIONAL SHARES.
(a) All cash paid upon the surrender for conversion of certificates
representing shares of CCI Common Stock (and the associated Rights) in
accordance with the terms of Article I and this Article II shall be deemed
to have been issued (and paid) in full satisfaction of all rights
pertaining to the shares of CCI Common Stock (and the associated Rights)
surrendered for conversion for cash theretofore represented by such
certificates.
(b) Notwithstanding any other term of this Agreement, (i) no certificates
or scrip representing fractional shares of Non-Cash Election Shares shall
be issued in connection with the Merger, and such fractional share
interests will not entitle the owner thereof to vote or to any rights of a
shareholder of CCI after the Merger; and (ii) each holder of shares of CCI
Common Stock (and the associated Rights) exchanged pursuant to the Merger
who would otherwise have been entitled to receive a fraction of a Non-Cash
Election Share (after taking into account all shares of CCI Common Stock
delivered by such holder) shall receive, in lieu thereof, a cash payment
(without interest) representing such holder's proportionate interest in the
net proceeds from the sale by the Exchange Agent (following the deduction
of applicable transaction costs) on behalf of all such holders of the Non-
Cash Election Shares (the "Excess Shares") representing such fractions.
Such sale shall be made as soon as practicable after the Effective Date.
2.4. TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund which
remains undistributed to the holders of certificates representing shares of
CCI Common Stock (and the associated Rights) for eighteen months after the
Effective Time shall be delivered to the Surviving Corporation or otherwise on
the instruction of the Surviving Corporation, and any holders of such
certificates who have not theretofore complied with this Article II shall
thereafter look only to the Surviving Corporation for the Merger Consideration
with respect to the shares of CCI Common Stock (and the associated Rights)
formerly represented thereby to which such holders are entitled pursuant to
Section 2.2 and only as general creditors thereof for payment of their claim
for the Cash Election Price, if any, Non-Cash Election Shares, if any, any
cash in lieu of fractional shares of Non-Cash Election Shares and any
dividends or distributions with respect to Non-Cash Election Shares which such
holders may be entitled.
2.5. NO LIABILITY. None of Merger Sub, CCI, the Surviving Corporation or the
Exchange Agent shall be liable to any Person in respect of Non-Cash Election
Shares (or dividends or distributions with respect thereto) or any cash from
the Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any certificates representing
shares of CCI Common Stock (and the associated Rights) shall not have been
surrendered prior to eighteen months after the Effective Time (or immediately
prior to such earlier date on which any cash, if any, any cash in lieu of
fractional shares of Non-Cash Election Shares or any dividends or
distributions with respect to Non-Cash Election Shares in respect of such
certificate would otherwise escheat to or become the property of any
Governmental Entity (as defined in Section 3.1(c)(iii)), any such cash,
dividends or distributions in respect of such certificate shall, to the extent
permitted by applicable law, become the property of the Surviving Corporation,
free and clear of all claims or interest of any Person previously entitled
thereto.
2.6. INVESTMENT OF EXCHANGE FUND. The Exchange Agent shall invest any cash
included in the Exchange Fund as directed by the Surviving Corporation on a
daily basis. Any interest and other income resulting from such investments
shall promptly be paid to the Surviving Corporation.
2.7. LOST CERTIFICATES. If any certificate of CCI Common Stock (and the
associated Rights) shall have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the Person claiming such certificate to be
lost, stolen or destroyed and, if required by CCI, the posting by such Person
of a bond in such reasonable amount as CCI may direct as indemnity against any
claim that may be made against it with respect to such certificate, the
Exchange Agent will deliver in exchange for such lost, stolen or destroyed
certificate the applicable Merger Consideration with respect to the shares of
CCI Common Stock (and the associated Rights) formerly represented thereby,
pursuant to this Agreement.
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2.8. WITHHOLDING RIGHTS. CCI and the Exchange Agent shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of shares of CCI Common Stock (and the associated
Rights) such amounts as CCI or the Exchange Agent, as applicable, is required
to deduct and withhold with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended (the "Code"), or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld by
CCI or the Exchange Agent, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the shares of
CCI Common Stock (and the associated Rights) in respect of which such
deduction and withholding was made by such party.
2.9. FURTHER ASSURANCES. At and after the Effective Time, the officers and
directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of CCI or Merger Sub, any deeds, bills of
sale, assignments or assurances and to take and do, in the name and on behalf
of CCI or Merger Sub, any other actions and things to vest, perfect or confirm
of record or otherwise in the Surviving Corporation any and all right, title
and interest in, to and under any of the rights, properties or assets acquired
or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger.
2.10. [INTENTIONALLY OMITTED].
2.11. SHARES OF DISSENTING SHAREHOLDERS. Notwithstanding anything in this
Agreement to the contrary, any shares of CCI Common Stock (and the associated
Rights) that are issued and outstanding immediately prior to the Effective
Time and that are held by shareholders who shall not have voted in favor of
the Merger and who shall have demanded properly in writing payment for such
shares in accordance with Article 113 of the CBCA (collectively, the
"Dissenting Shares") shall not be converted into or represent the right to
receive the Merger Consideration or any cash in lieu of fractional shares of
CCI Common Stock (and the associated Rights). Such shareholders shall be
entitled to receive payment of the fair value (as defined in Article 113) of
such shares of CCI Common Stock (and the associated Rights) held by them in
accordance with the provisions of Article 113 of the CBCA, except that all
Dissenting Shares held by shareholders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to payment for such
shares of CCI Common Stock (and the associated Rights) under such Article 113
shall thereupon be treated as shares that are not Electing Shares and had been
converted into and had become exchangeable, as of the Effective Time, for the
right to receive, without any interest thereon, the Merger Consideration. CCI
shall give Merger Sub prompt notice of any notice or demands for payment in
accordance with Article 113 of the CBCA for shares of CCI Common Stock
received by CCI and Merger Sub shall have the right to participate in and
approve all negotiations and proceedings with respect to such demands. CCI
shall not, except with the prior written consent of Merger Sub, make any
payment with respect to, or settle or offer to settle, any such demands.
2.12. THE DEBT OFFERS.
(a) Provided that this Agreement shall not have been terminated in
accordance with Section 7.1, CCI shall, within 10 days of receiving any
request by Merger Sub to do so (but in no event earlier than twenty
calendar days after the date hereof), commence offers to purchase all of
the outstanding aggregate principal amount of Senior Subordinated Notes and
all of the outstanding aggregate principal amount of Subordinated Notes on
the terms set forth in Section 2.12 of the CCI Disclosure Schedule and such
other customary terms and conditions as are reasonably acceptable to Merger
Sub (the "Debt Offers"). CCI shall waive any of the conditions to the Debt
Offers and make any other changes in the terms and conditions of the Debt
Offers as may be reasonably requested by Merger Sub, and CCI shall not,
without Merger Sub's prior consent, waive any material condition to the
Debt Offers, make any changes to the terms and conditions of the Debt
Offers set forth in Section 2.12 of the CCI Disclosure Schedule or make any
other material changes in the terms and conditions of the Debt Offers.
Notwithstanding the immediately preceding sentence, Merger Sub shall not
request that CCI make any change to the terms and conditions of the Debt
Offers which decreases the price per Senior Subordinated Note or
Subordinated Note payable in the Debt Offers (other than by adding
consideration) or imposes conditions to the Debt Offers in addition to
those set forth in Section 2.12 of the CCI Disclosure Schedule which are
materially adverse to holders of Senior Subordinated Notes or
I-7
Subordinated Notes (it being agreed that a request by Merger Sub that CCI
waive any condition in whole or in part at any time and from time to time
in its sole discretion shall not be deemed to be materially adverse to any
holder of Senior Subordinated Notes or Subordinated Notes), unless such
change was previously approved by CCI in writing. CCI covenants and agrees
that, subject to the terms and conditions of this Agreement, including but
not limited to the conditions in the Debt Offers, it will accept for
payment and pay for the Senior Subordinated Notes or Subordinated Notes as
soon as such conditions to the Debt Offers and Section 6.2(d) hereof are
satisfied and it is permitted to do so under applicable law, provided that
CCI shall coordinate the timing of any such purchase with Merger Sub in
order to obtain the greatest participation in the Debt Offers.
(b) Promptly following the date of this Agreement, CCI shall prepare,
subject to advice and comments of Merger Sub, an offer to purchase for each
of the Senior Subordinated Notes and the Subordinated Notes (or portions
thereof) and forms of the related letters of transmittal (the "Letters of
Transmittal") (collectively, the "Offers to Purchase") and summary
advertisement, as well as all other information and exhibits (collectively,
the "Offer Documents"). All mailings to the holders of Senior Subordinated
Notes and Subordinated Notes in connection with the Debt Offers shall be
subject to the prior review, comment and approval of Merger Sub (which
approval shall not be unreasonably withheld or delayed). CCI will use its
reasonable best efforts to cause the Offer Documents to be mailed to the
holders of the Senior Subordinated Notes and the Subordinated Notes as
promptly as practicable following receipt of the request from Merger Sub
under Section 2.12(a) to do so. CCI agrees promptly to correct any
information in the Offer Documents that shall be or have become false or
misleading in any material respect.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1. REPRESENTATIONS AND WARRANTIES OF CCI. Except as set forth in the CCI
Disclosure Schedule delivered by CCI to Merger Sub at or prior to the
execution of this Agreement (the "CCI Disclosure Schedule") (each section of
which qualifies the correspondingly numbered representation and warranty or
covenant to the extent specified therein), CCI represents and warrants to
Merger Sub as follows:
(a) Organization, Standing and Power.
(i) Each of CCI and each of the Consolidated Subsidiaries that is a
corporation has been duly organized and is validly existing and in good
standing under the laws of its jurisdiction of incorporation. Each of
the Consolidated Subsidiaries that is a partnership has been duly
formed and is validly existing under the laws of the jurisdiction of
its formation. Each of CCI and each of the Consolidated Subsidiaries is
duly qualified and in good standing to do business in each jurisdiction
in which the nature of its business or the ownership or leasing of its
properties makes such qualification necessary, other than in such
jurisdictions where the failure so to qualify could not reasonably be
expected, either individually or in the aggregate, to have a Material
Adverse Effect on CCI. The copies of the Organizational Documents of
CCI which were previously furnished to Merger Sub are true, complete
and correct copies of such documents as in effect on the date of this
Agreement. As used herein, "Consolidated Subsidiaries" means the
corporations (other than TVX, Inc.) and partnerships which are, or
which in accordance with generally accepted accounting principles
("GAAP") should be, consolidated for purposes of CCI's financial
reporting, exclusive of partnerships unless CCI or an entity which it
controls is the controlling general partner of such partnership.
(ii) Each of the Managed Affiliates that is a corporation has been
duly organized and is validly existing and in good standing under the
laws of its jurisdiction of incorporation or organization. Each of the
Managed Affiliates that is a partnership has been duly formed and is
validly existing under the laws of the jurisdiction of its formation.
Each of the Managed Affiliates is duly qualified and in good standing
to do business in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes such qualification
necessary, other than in such jurisdictions where the
I-8
failure so to qualify could not reasonably be expected, either
individually or in the aggregate, to have a Material Adverse Effect on
CCI.
(b) Capital Structure.
As of May 12, 1997 (the "Share Reference Date"), the authorized
capital stock of CCI consisted of (A) 40,000,000 shares of CCI Common
Stock, of which 13,765,965 shares were outstanding and (B) 1,000,000
shares of preferred stock, of which 150,000 shares of Series A
Preferred Stock have been designated (none of which have been issued)
and were reserved for issuance upon exercise of the rights (the
"Rights") distributed to the holders of CCI Common Stock pursuant to
the Rights Agreement dated as of December 10, 1990, as amended, between
CCI and State Street Bank and Trust Company, as successor to The Bank
of New York, as rights agent (the "Rights Agreement"). Since the Share
Reference Date, to the date of this Agreement, there have been no
issuances of shares of the capital stock of CCI or any other securities
of CCI other than issuances of shares pursuant to options or rights
outstanding as of the Share Reference Date under the CCI Benefit Plans.
All issued and outstanding shares of the capital stock of CCI are duly
authorized, validly issued, fully paid and non-assessable, and no class
of capital stock is entitled to preemptive rights. There were
outstanding as of the Share Reference Date no options, warrants or
other rights to acquire capital stock from CCI other than options
representing in the aggregate the right to purchase 1,910,025 shares of
CCI Common Stock under the CCI Omnibus Stock and Incentive Plan, the
CCI Key Agent Stock Option Plan and the Stock Option Agreement dated
September 19, 1995 between CCI and Doron Lurie (collectively, the "CCI
Stock Option Plans"). No options or warrants or other rights to acquire
capital stock from CCI have been issued or granted since the Share
Reference Date to the date of this Agreement.
(ii) Except as set forth in Section 3.1(b) of the CCI Disclosure
Schedule, all of the issued and outstanding shares of capital stock of
each Consolidated Subsidiary that is a corporation are duly authorized,
validly issued, fully paid and non-assessable and are owned, directly
or indirectly, by CCI and, where owned by CCI or a Consolidated
Subsidiary, are owned free and clear of any liens, claims,
encumbrances, restrictions, preemptive rights or any other claims of
any third party ("Liens"). Except as set forth in Section 3.1(b) of the
CCI Disclosure Schedule, all of the partnership interests of each
Consolidated Subsidiary that is a partnership have been validly created
pursuant to its partnership agreement and all of the partnership
interests of each partnership Consolidated Subsidiary are owned,
directly or indirectly, by CCI and, where owned by CCI or a
Consolidated Subsidiary, are owned free and clear of any Liens.
(iii) Except as set forth in Section 3.1(b) of the CCI Disclosure
Schedule, all of the issued and outstanding shares of capital stock
owned by CCI or a Consolidated Subsidiary in each Managed Affiliate or
CCI Affiliate which is a corporation are duly authorized, validly
issued, fully paid and non-assessable and, where owned directly by CCI
or a Consolidated Subsidiary, as applicable, are owned free and clear
of any Liens. Except as set forth in Section 3.1(b) of the CCI
Disclosure Schedule, all of the partnership interests of each Managed
Affiliate or CCI Affiliate which is a partnership in which CCI or a
Consolidated Subsidiary has a direct partnership interest have been
validly created pursuant to such partnership's partnership agreement
and all of the partnership interests of each partnership Managed
Affiliate or CCI Affiliate directly owned by CCI or a Consolidated
Subsidiary, as applicable, are free and clear of any Liens.
(vi) As of the date of this Agreement, no bonds, debentures, notes or
other indebtedness of CCI having the right to vote on any matters on
which shareholders may vote ("CCI Voting Debt") are issued or
outstanding.
(v) Except as otherwise set forth in this Section 3.1(b), as of the
date of this Agreement, there are no securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of
any kind to which CCI or any of the Consolidated Subsidiaries is a
party or by which any of them is bound obligating CCI or any of the
Consolidated Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other
voting securities of CCI or any of
I-9
the Consolidated Subsidiaries or obligating CCI or any of the
Consolidated Subsidiaries to issue, grant, extend or enter into any
such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. As of the date of this Agreement, there are
no outstanding obligations of CCI or any of the Consolidated
Subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of CCI or any of the Consolidated Subsidiaries.
(vi) As of May 27, 1997, the only outstanding indebtedness for
borrowed money of CCI, the Consolidated Subsidiaries and the Managed
Affiliates is (a) $176,651,000 in aggregate principal amount of 11 3/4%
Senior Subordinated Discount Notes Due 2003 (the "Senior Subordinated
Notes") issued pursuant to the Indenture dated as of September 1, 1993
between CCI and State Street Bank and Trust Company, as trustee (the
"Senior Subordinated Notes Indenture"), (b) $80,000,000 in aggregate
principal amount of 11 1/4% Subordinated Notes Due 2005 (the
"Subordinated Notes," and together with the Senior Subordinated Notes,
the "Notes") issued pursuant to the Indenture dated as of July 6, 1995
between CCI and American Bank National Association, as trustee (the
"Subordinated Notes Indenture"), (c) debt under the Consolidated Loan
Agreement dated as of September 6, 1995 among Cellular, Inc. Financial
Corporation, a direct wholly owned subsidiary of CCI ("CIFC"), CoBank
ACB, as agent ("CoBank") and the several lenders parties thereto (the
"CoBank Credit Agreement") not exceeding $24,040,000, (d) indebtedness
owed to CIFC by Consolidated Subsidiaries or Managed Affiliates under
the credit facilities set forth on Section 3.1(i) of the CCI Disclosure
Schedule (the "CIFC Facilities"), (e) indebtedness to CoreStates Bank
under the Credit Agreement dated as of September 4, 1996 between Sioux
Falls Cellular Limited Partnership and CoreStates Bank, N.A. (the
"CoreStates Facility") not exceeding $3,500,000, and (f) other
indebtedness for borrowed money not exceeding $3,000,000. Other than
the guarantee of the CoBank Credit Agreement, pursuant to the Third
Amended and Restated Guaranty of CommNet Cellular Inc. to CoBank ACB,
dated as of September 6, 1995, as amended (the "Guaranty"), any loans
and other extensions of credit under the CoBank Credit Agreement, the
CIFC Facilities and the CoreStates Facility which are prepayable in
full in accordance with their terms, and other than the Notes, no
indebtedness for borrowed money of CCI or the Consolidated Subsidiaries
contains any restriction upon the incurrence of indebtedness for
borrowed money by CCI or any Consolidated Subsidiary or any Managed
Affiliate or restricts the ability of any of the foregoing to grant any
Liens on its properties or assets.
(vii) There are no agreements or arrangements pursuant to which (i)
CCI is or could be required to register shares of CCI Common Stock or
other securities under the Securities Act of 1933, as amended (the
"Securities Act"), or (ii) CCI is a party and which restricts the
voting or disposition of any CCI Common Stock.
(c) Authority; No Conflicts.
(i) CCI has all requisite corporate power and authority to enter into
this Agreement and, subject to the adoption of this Agreement by the
requisite vote of the holders of CCI Common Stock, to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part
of CCI, subject in the case of the consummation of the Merger to the
adoption of this Agreement by the shareholders of CCI. This Agreement
has been duly executed and delivered by CCI and constitutes a valid and
binding agreement of CCI, enforceable against it in accordance with its
terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and similar laws relating to or
affecting creditors generally, by general equity principles (regardless
of whether such enforceability is considered in a proceeding in equity
or at law) or by an implied covenant of good faith and fair dealing.
(ii) Except as set forth in Section 3.1(c)(ii) of the CCI Disclosure
Schedule, the execution and delivery of this Agreement does not or will
not, as the case may be, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation
of, or constitute a default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination,
I-10
amendment, cancellation or acceleration of any obligation or the loss
of a material benefit under, or the creation of a lien, pledge,
security interest, charge or other encumbrance on any assets (any such
conflict, violation, default, right of termination, amendment,
cancellation or acceleration, loss or creation, a "Violation") pursuant
to: (A) any provision of the Organizational Documents of CCI, any
Consolidated Subsidiary or Managed Affiliate that is a corporation or
(B) except as could not reasonably be expected to have a Material
Adverse Effect on CCI and, subject to obtaining or making the consents,
approvals, orders, authorizations, registrations, declarations and
filings referred to in paragraph (iii) below, any loan or credit
agreement, note, mortgage, bond, indenture, lease, benefit plan or
other agreement, obligation, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to CCI or any of the Consolidated Subsidiaries or
their properties or assets.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any supranational, national,
state, municipal or local government, any instrumentality, subdivision,
court, administrative agency or commission or other authority thereof,
or any quasi-governmental or private body exercising any regulatory,
taxing, importing or other governmental or quasi-governmental authority
(a "Governmental Entity"), is required by or with respect to CCI, any
Consolidated Subsidiary or, to the knowledge of CCI, any Managed
Affiliate, in connection with the execution and delivery of this
Agreement by CCI or the consummation by CCI of the transactions
contemplated hereby, except for (x) the filing with the SEC of (i) a
proxy statement relating to the Required CCI Votes at the CCI
Shareholders Meeting (such proxy statement as amended or supplemented
from time to time, the "Proxy Statement"), (ii) the registration
statement on Form S-4 to be filed with the SEC pursuant to the
Securities Act by CCI in connection with the registration of the Non-
Cash Election Shares pursuant to the Merger (the "Form S-4") and (iii)
such reports under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as may be required in connection with this Agreement
and the transactions contemplated by this Agreement, including the Debt
Offers, (y) those required under or in relation to (A) the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
(B) the Communications Act of 1934, as amended (the "Communications
Act"), and any rules and regulations promulgated by the Federal
Communications Commission ("FCC"), (C) state securities or "blue sky"
laws, (D) the CBCA and the DGCL with respect to the filing and
recordation of appropriate merger or other documents, (E) rules and
regulations of any state public service or utility commissions or
similar state regulatory bodies, (F) rules and regulations of the
Nasdaq National Market ("Nasdaq"), and (G) antitrust or other
competition laws of other jurisdictions, and (z) such consents,
approvals, orders, authorizations, registrations, declarations and
filings the failure of which to make or obtain could not reasonably be
expected to have a Material Adverse Effect on CCI. Consents, approvals,
orders, authorizations, registrations, declarations and filings
required under or in relation to clause (x) or (y) are hereinafter
referred to as "Required Consents."
(d) Reports and Financial Statements.
(i) CCI has filed all required reports, schedules, forms, statements
and other documents required to be filed by it with the Securities and
Exchange Commission (the "SEC") since September 30, 1994 (collectively,
including all exhibits thereto, the "CCI SEC Reports"). No Consolidated
Subsidiary of CCI is required to file any form, report or other
document with the SEC. None of the CCI SEC Reports, as of their
respective dates (and, if amended or superseded by a filing prior to
the date of this Agreement or of the Closing Date, then on the date of
such filing), contained or will contain any untrue statement of a
material fact or omitted or will omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Each of the financial statements (including the related notes) included
in the CCI SEC Reports presents fairly, in all material respects, the
consolidated financial position and consolidated results of operations
and cash flows of CCI as of the respective dates or for the respective
periods set forth therein, all in conformity with GAAP consistently
applied during the periods involved except as otherwise noted therein,
and subject, in the case of the unaudited interim financial statements,
to normal and recurring year-end adjustments that have not been and are
not expected to be material in amount.
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All of such CCI SEC Reports, as of their respective dates (and as of
the date of any amendment to the respective CCI SEC Report), complied
as to form in all material respects with the applicable requirements of
the Securities Act and the Exchange Act and the rules and regulations
promulgated thereunder.
(ii) Except as set forth in the CCI SEC Reports filed prior to the
date of this Agreement, and except for liabilities and obligations
incurred in the ordinary course of business consistent with past
practice since March 31, 1997, as of the date of this Agreement neither
CCI nor any of the Consolidated Subsidiaries has any liabilities or
obligations (other than arising under this Agreement) of any nature
which, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect on CCI or could reasonably be
expected to prevent or materially delay the performance of this
Agreement by CCI.
(e) Offer Documents; Proxy Statement. None of the information supplied or
to be supplied by CCI for inclusion or incorporation by reference in (i)
the Form S-4 will, at the time the Form S-4 is filed with the SEC, and at
any time it is amended or supplemented or at the time it becomes effective
under the Securities Act, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they are made, not misleading, (ii) the Proxy Statement will,
at the date it is first mailed to CCI's shareholders or at the time of the
CCI Shareholders Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading, or (iii) the Offer
Documents will, at the time the Offer Documents or any amendments or
supplements thereto are first published, sent or given to holders of the
Notes, or at the time the applicable Debt Offer is consummated, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except that in each case no representation is made by CCI with
respect to statements made or incorporated by reference therein based on
information supplied in writing by Merger Sub specifically for inclusion
therein. The Form S-4 will, as of its effective date, and the prospectus
contained therein will, as of its date, comply as to form in all material
respects with the requirements of the Securities Act and the rules and
regulations promulgated thereunder, and the Proxy Statement will comply as
to form in all material respects with the requirements of the Exchange Act
and the rules and regulations promulgated thereunder, except that in each
case no representation is made by CCI with respect to statements made or
incorporated by reference therein based on information supplied in writing
by Merger Sub specifically for inclusion therein.
(f) Compliance with Applicable Laws; Regulatory Matters. CCI, the
Consolidated Subsidiaries, the CCI Affiliates which hold FCC Licenses for
which CCI serves (pursuant to contract) as managing agent (the "Managed
Affiliates"), the partnerships which hold FCC licenses to operate cellular
telephone systems ("FCC Licenses") for which a Consolidated Subsidiary is
the managing general partner (the "General Partner Licensees") and, to the
knowledge of CCI, the CCI Affiliates for which CCI does not serve as
managing agent (the "Nonmanaged Affiliates") and the partnerships which
hold FCC Licenses for which Consolidated Subsidiaries are non-managing
general partners or are limited partners (the "Limited Partner Licensees")
hold all permits, licenses, certificates, franchises, registrations,
variances, exemptions, orders and approvals of all Governmental Entities
which are material to the operation of the businesses of CCI, taken as a
whole (the "CCI Permits"). CCI, the Consolidated Subsidiaries, the Managed
Affiliates, the General Partner Licensees and, to the knowledge of CCI, the
Nonmanaged Affiliates and the Limited Partner Licensees are in compliance
with the terms of the CCI Permits, except where the failure so to comply,
individually or in the aggregate, could not reasonably be expected to have
a Material Adverse Effect on CCI. Except as disclosed in the CCI SEC
Reports, the businesses of CCI, the Consolidated Subsidiaries, the Managed
Affiliates, the General Partner Licensees and, to the knowledge of CCI, the
Nonmanaged Affiliates and the Limited Partner Licensees are not being and
have not been conducted in violation of any law, ordinance, regulation,
judgment, decree, injunction, rule or order of any Governmental Entity,
except for violations which, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on CCI. As of the
date of this Agreement, no investigation (other than with respect to Taxes)
I-12
by any Governmental Entity with respect to CCI or any of the Consolidated
Subsidiaries, the Managed Affiliates, the General Partner Licensees and, to
the knowledge of CCI, the Nonmanaged Affiliates and the Limited Partner
Licensees is pending or, to the knowledge of CCI, threatened, other than
investigations which, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on CCI. Since
March 31, 1997, CCI and each of the Consolidated Subsidiaries, the Managed
Affiliates, the General Partner Licensees and, to the knowledge of CCI, the
Nonmanaged Affiliates and the Limited Partner Licensees required to make
filings under all applicable laws regulating the cellular telephone
business have filed with all applicable Governmental Entities all material
forms, statements, reports and documents (including exhibits, annexes and
any amendments thereto) required to be filed by them, and each such filing
complied with all applicable laws, rules and regulations, except for such
nonfiling or noncompliance which could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on CCI
or prevent or materially delay the performance of this Agreement by CCI.
Set forth in Section 3.1(f) of the CCI Disclosure Schedule is a true and
complete list of all cellular FCC Licenses held by CCI, any Consolidated
Subsidiary, or any Managed Affiliate.
(g) Litigation. Other than rulemaking or other proceedings of general
applicability affecting the cellular telephone industry and except as
disclosed in the CCI SEC Reports, there is no litigation, arbitration,
claim, suit, action, investigation or proceeding pending or, to the
knowledge of CCI, threatened, against or affecting CCI or any Consolidated
Subsidiary or, to CCI's knowledge, Managed Affiliate which, individually or
in the aggregate, has had or could reasonably be expected to have a
Material Adverse Effect on CCI, nor is there any judgment, award, decree,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against CCI or any Consolidated Subsidiary or, to CCI's
knowledge, Managed Affiliate which, individually or in the aggregate, has
had or could reasonably be expected to have a Material Adverse Effect on
CCI.
(h) Taxes. (i) CCI and each of the Consolidated Subsidiaries and Managed
Affiliates have duly and timely filed (taking into account any extension of
time within which to file) all material Tax Returns required to be filed by
any of them and all such filed Tax Returns are complete and accurate in all
material respects; (ii) CCI and each of the Consolidated Subsidiaries and
Managed Affiliates have paid all Taxes that are shown as due on such filed
Tax Returns or that CCI or any of the Consolidated Subsidiaries or Managed
Affiliates is obligated to withhold from amounts owing to any employee,
creditor or third party, except with respect to matters contested in good
faith or for such amounts that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on CCI; (iii) as
of the date of this Agreement, there are no pending or, to the knowledge of
CCI, threatened in writing audits, examinations, investigations or other
proceedings in respect of Taxes or Tax matters relating to CCI or any of
the Consolidated Subsidiaries or Managed Affiliates which, if determined
adversely to CCI or such Consolidated Subsidiary or Managed Affiliate,
could reasonably be expected to have a Material Adverse Effect on CCI; (iv)
there are no deficiencies or claims for any Taxes that have been proposed,
asserted or assessed against CCI or any of the Consolidated Subsidiaries or
Managed Affiliates which, if such deficiencies or claims were finally
resolved against CCI or any of the Consolidated Subsidiaries or Managed
Affiliates, could reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect on CCI; (v) there are no material Liens
for Taxes upon the assets of CCI or any of the Consolidated Subsidiaries or
Managed Affiliates, other than Liens for current Taxes not yet due and
payable and Liens for Taxes that are being contested in good faith by
appropriate proceedings; (vi) none of CCI or any of the Consolidated
Subsidiaries or Managed Affiliates has made an election under Section
341(f) of the Code; (vii) except as set forth in Section 3.1(h) of the CCI
Disclosure Schedule, no extension of the statute of limitations on the
assessment of any Taxes has been granted by CCI or any of its Consolidated
Subsidiaries or Managed Affiliates and is currently in effect; (viii)
except as set forth in Section 3.1(h) of the CCI Disclosure Schedule, none
of CCI, its Consolidated Subsidiaries or Managed Affiliates is a party to
any agreement or arrangement that could reasonably be expected to result,
separately or in the aggregate, in the actual or deemed payment by CCI or a
subsidiary of any "excess parachute payments" within the meaning of Section
280G or 162(m) of the Code; (ix) none of CCI, its Consolidated Subsidiaries
and Managed Affiliates has been a United States real property holding
corporation within the meaning of Section
I-13
897(c)(2) of the Code during the applicable period specified in Section
897(c)(l)(A)(ii) of the Code; (x) all Taxes required to be withheld,
collected or deposited by or with respect to CCI, its Consolidated
Subsidiaries and Managed Affiliates have been timely withheld, collected or
deposited, as the case may be, and, to the extent required, have been paid
to the relevant taxing authority; (xi) none of CCI, its Consolidated
Subsidiaries and Managed Affiliates has issued or assumed (A) any
obligations described in Section 279(A) of the Code, (B) except as set
forth in Section 3.1(h) of the CCI Disclosure Schedule, any applicable high
yield discount obligations, as defined in Section 163(i) of the Code, or
(C) any registration-required obligations, within the meaning of Section
163(f)(2) of the Code, that is not in registered form; (xii) there are no
requests for information currently outstanding that could affect the Taxes
of CCI, its Consolidated Subsidiaries and Managed Affiliates; and (xiii)
there are no proposed reassessments of any property owned by CCI, its
Consolidated Subsidiaries and Managed Affiliates or other proposals that
could increase the amount of any Tax to which CCI or any such Person would
be subject.
(i) Subsidiaries and Affiliates. Section 3.1(b) of the CCI Disclosure
Schedule lists CCI's ownership interests in all the Consolidated
Subsidiaries, the Managed Affiliates, the General Partner Licensees, the
Nonmanaged Affiliates and the Limited Partner Licensees as of the date of
this Agreement. Section 3.1(i) of the CCI Disclosure Schedule lists all
material outstanding contractual agreements of CCI or any of the
Consolidated Subsidiaries to provide funds to, or make any investment (in
the form of a loan, capital contribution or otherwise) in, any Consolidated
Subsidiary, Managed Affiliate, General Partner Licensee, Nonmanaged
Affiliate and Limited Partner Licensee, except such agreements as would not
require any investment or provision of funds or assets in an amount or
having a fair market value in excess of $1,000,000 for any such investment
or $2,500,000 in the aggregate for all such investments.
(j) Absence of Certain Changes or Events. Except as disclosed in the CCI
SEC Reports: (A) since March 31, 1997, CCI and the Consolidated
Subsidiaries and Managed Affiliates have conducted their respective
businesses in the ordinary course consistent with their past practices and
have not incurred any material liability, except in the ordinary course of
their respective businesses consistent with their past practices; and (B)
since March 31, 1997 to the date of this Agreement, there has not been any
Material Adverse Change.
(k) Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of CCI Common Stock (the "Required CCI Votes") is
the only vote of the holders of any class or series of CCI capital stock
necessary to approve this Agreement and the transactions contemplated
hereby (assuming for purposes of this representation the accuracy of the
representations contained in Section 3.2(f), without giving effect to the
knowledge qualification thereto).
(l) Certain Agreements.
(i) All contracts listed or which would be required to be listed as
an exhibit to CCI's Annual Report on Form 10-K under the rules and
regulations of the SEC relating to the business of CCI and the
Consolidated Subsidiaries and any contracts that would be required to
be so listed but for the exception with respect to listing contracts
made in the ordinary course of business (the "CCI Material Contracts")
are valid and in full force and effect except to the extent they have
previously expired in accordance with their terms, and neither CCI nor
any of the Consolidated Subsidiaries has violated any provision of, or
committed or failed to perform any act which, with or without notice,
lapse of time, or both, could reasonably be expected to constitute a
default under the provisions of, any such CCI Material Contract, except
for defaults which, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on CCI. To the
knowledge of CCI, no counterparty to any such CCI Material Contract has
violated any provision of, or committed or failed to perform any act
which, with or without notice, lapse of time, or both, could reasonably
be expected to constitute a default or other breach under the
provisions of, such CCI Material Contract, except for defaults or
breaches which, individually or in the aggregate, could not reasonably
be expected to have a Material Adverse Effect on CCI.
(ii) Except as set forth in Section 3.1(l)(ii) of the CCI Disclosure
Schedule, as of the date of this Agreement none of CCI or any of the
Consolidated Subsidiaries or, to the knowledge of CCI, any of
I-14
the Managed Affiliates has entered into any agreement or arrangement
limiting or otherwise restricting CCI or any of the Consolidated
Subsidiaries or any of the Managed Affiliates from engaging or
competing in any line of business or in any geographic area.
(m) Employee Benefit Plans; Labor Matters.
(i) With respect to each employee benefit plan, program, arrangement
and contract (including, without limitation, any "employee benefit
plan," as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and any bonus, deferred
compensation, stock bonus, stock purchase, restricted stock, stock
option, employment, termination, change in control and severance plan,
program, arrangement and contract), whether or not subject to ERISA, to
which CCI or any of the Consolidated Subsidiaries is a party or has any
liability in respect of or which is maintained or contributed to by CCI
or any of the Consolidated Subsidiaries (the "CCI Benefit Plans"), CCI
has made available to Parent a true and complete copy of (A) such CCI
Benefit Plan, (B) the two most recent annual reports (Form 5500) filed
with the Internal Revenue Service (the "IRS"), (C) each trust or other
funding arrangement relating to such CCI Benefit Plan, (D) the most
recent summary plan description related to each CCI Benefit Plan for
which a summary plan description is required, (E) the most recent
actuarial report (if applicable) relating to an CCI Benefit Plan and
(F) the most recent determination letter, if any, issued by the IRS
with respect to any CCI Benefit Plan qualified under Section 401(a) of
the Code.
(ii) Each of the CCI Benefit Plans that is an "employee pension
benefit plan" within the meaning of Section 3(2) of ERISA and that is
intended to be qualified under Section 401(a) of the Code has received
a favorable determination letter from the IRS, and CCI is not aware,
after reasonable inquiry, of any circumstances likely to result in the
revocation of any such favorable determination letter that could
reasonably be expected to have a Material Adverse Effect on CCI.
(iii) No event has occurred and, to the knowledge of CCI, after
reasonable inquiry, there exists no condition or set of circumstances,
in connection with which CCI or any of the Consolidated Subsidiaries
could be subject, either directly or by reason of its affiliation with
any member of its Controlled Group (defined as any entity which is a
member of a controlled group of organizations within the meaning of
Section 414(b), (c), (m), or (o) of the Code) to any liability under
the terms of any CCI Benefit Plans, ERISA, the Code or any other
applicable law which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on CCI.
(iv) None of CCI, any of the Consolidated Subsidiaries or any of the
Managed Affiliates is a party to any collective bargaining or other
labor union contracts and no collective bargaining agreement is being
negotiated by CCI or any of the Consolidated Subsidiaries or Managed
Affiliates. There is no pending labor dispute, strike or work stoppage
against CCI or any of the Consolidated Subsidiaries or Managed
Affiliates which may interfere with the respective business activities
of CCI or any of the Consolidated Subsidiaries or Managed Affiliates,
except where such dispute, strike or work stoppage could not reasonably
be expected to have a Material Adverse Effect on CCI. There is no
pending charge or complaint against CCI or any of the Consolidated
Subsidiaries or Managed Affiliates by the National Labor Relations
Board or any comparable state agency, except where such unfair labor
practice, charge or complaint could not reasonably be expected to have
a Material Adverse Effect on CCI. Neither CCI nor any of the
Consolidated Subsidiaries has any present or future obligation to
contribute to, or any liability in respect of, any "multiemployer plan"
as described in Section 3(37) of ERISA.
(v) No CCI Benefit Plan exists which could result in the payment to
any employee of CCI or any of the Consolidated Subsidiaries of any
money or other property or rights or accelerate or provide any other
rights or benefits to any such employee as a result of the transactions
contemplated by this Agreement, whether or not such payment would
constitute a parachute payment within the meaning of Code Section 280G.
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(n) Brokers or Finders. No agent, broker, investment banker, financial
advisor or other firm or Person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any
of the transactions contemplated by this Agreement, based on arrangements
made by or on behalf of CCI, except Merrill Lynch & Co., whose fees and
expenses will be paid by CCI in accordance with CCI's agreement with such
firm.
(o) Opinion of Financial Advisor. CCI has received the opinion of Merrill
Lynch & Co. dated the date of this Agreement, to the effect that, as of
such date, the Merger Consideration is fair to the holders of CCI Common
Stock (other than Parent).
(p) Board Recommendation. As of the date hereof, the Board of Directors
of CCI, at a meeting duly called and held, has, based upon the
recommendation of the Special Committee of independent directors formed
pursuant to a unanimous written consent dated May 19, 1997 (the "Special
Committee"), by unanimous vote of those directors present (who constituted
100% of the directors then in office) (i) determined that this Agreement
and the transactions contemplated hereby, including the Merger, taken
together are fair to and in the best interests of the shareholders of CCI
and (ii) resolved to recommend that the holders of the shares of CCI Common
Stock approve this Agreement and the transactions contemplated herein,
including the Merger.
(q) Rights Agreement. Under the Rights Agreement, (i) none of the
approval, execution or delivery of this Agreement or the consummation of
the Merger or the other transactions contemplated hereby will cause (1) the
Rights to become exercisable, (2) Merger Sub, Parent or Blackstone to be
deemed an "Acquiring Person" (as defined in the Rights Agreement), or (3)
the "Stock Acquisition Date" (as defined in the Rights Agreement) to occur
upon any such event. The "Distribution Date" (as defined in the Rights
Agreement) has not occurred.
(r) Takeover Statutes. No Colorado state takeover statute or similar
statute or regulation of the State of Colorado applies or purports to apply
to the Agreement or any of the transactions contemplated herein, including
the Merger. Subject to receipt of the FCC consents, no provision of the
Organizational Documents of CCI or Consolidated Subsidiaries or Managed
Affiliates would, as a result of the consummation of the transactions
contemplated hereby, directly or indirectly restrict or impair the ability
of Merger Sub or Parent to vote, or otherwise to exercise the rights of a
shareholder with respect to securities of CCI or of any Consolidated
Subsidiary (to the extent securities of any Consolidated Subsidiary are
owned directly or indirectly by CCI) or permit any shareholder or general
partner to acquire securities of CCI on a basis not available to Merger Sub
or Parent.
3.2. REPRESENTATIONS AND WARRANTIES OF MERGER SUB. Merger Sub represents and
warrants to CCI as follows:
(a) Organization, Standing and Power. Merger Sub is a corporation duly
organized and validly existing under the laws of its jurisdiction of
incorporation and Merger Sub is in good standing under the laws of its
jurisdiction of incorporation has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted and is duly qualified and in good standing to do business in each
jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary other than in
such jurisdictions where the failure so to qualify could not reasonably be
expected, either individually or in the aggregate, to have a Material
Adverse Effect on Merger Sub.
(b) Authority; No Conflicts.
(i) Merger Sub has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Merger Sub.
This Agreement has been duly executed and delivered by Merger Sub and
constitutes a valid and binding agreement of Merger Sub, enforceable
against it in accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency,
I-16
reorganization, moratorium and other similar laws relating to or
affecting creditors generally, or by general equity principles
(regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(ii) The execution and delivery of this Agreement does not or will
not, as the case may be, and the consummation of the transactions
contemplated hereby will not, result in any Violation of: (A) any
provision of the Organizational Documents of Merger Sub or (B) except
as could not reasonably be expected to have a Material Adverse Effect
on Merger Sub and subject to obtaining or making the consents,
approvals, orders, authorizations, registrations, declarations and
filings referred to in paragraph (iii) below, any loan or credit
agreement, note, mortgage, bond, indenture, lease, benefit plan or
other agreement, obligation, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Merger Sub or its properties or assets.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required by or with respect to Merger Sub in connection with the
execution and delivery of this Agreement by Merger Sub or the
consummation by Merger Sub of the transactions contemplated hereby,
except for (A) the Required Consents set forth in Section 3.1(c)(iii)
and (B) such consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to make or
obtain could not reasonably be expected to have a Material Adverse
Effect on Merger Sub.
(c) Information Supplied.
(i) None of the information supplied or to be supplied in writing by
Merger Sub specifically for inclusion in (i) the Offer Documents shall,
at the time the Offer Documents or any amendments or supplements
thereto are first published, sent or given to noteholders, as the case
may be, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading, (ii) the Form S-4 will, at
the time the Form S-4 is filed with the SEC, and at any time it is
amended or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, and (iii) the Proxy
Statement will, at the date it is first mailed to the shareholders of
CCI or at the time of the CCI Shareholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading. Notwithstanding the foregoing, Merger Sub makes
no representation or warranty with respect to any information supplied
by CCI or any of its representatives which is contained in or
incorporated by reference in any of the foregoing documents.
(d) No Vote Required. No vote or approval of (i) any holder of any
interest in Parent or (ii) the holders of any class of Merger Sub shares is
necessary to approve this Agreement and the transactions contemplated
hereby other than those already obtained by Parent and Merger Sub on or
before the date hereof.
(e) Brokers or Finders. Except for Morgan Stanley & Co. Incorporated, no
agent, broker, investment banker, financial advisor or other firm or Person
is or will be entitled to any broker's or finder's fee or any other similar
commission or fee in connection with any of the transactions contemplated
by this Agreement based on arrangements made by or on behalf of Merger Sub
or Parent.
(f) Ownership of CCI Common Stock. As of the date of this Agreement,
neither Parent or Merger Sub nor, to the best of its knowledge, any of
Parent's affiliates or associates (as such terms are defined under the
Exchange Act) (i) beneficially owns, directly or indirectly or (ii) is
party to any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of, in case of either clause (i) or
(ii), shares of capital stock of CCI.
(g) FCC Qualification. Blackstone and Parent are each fully qualified
under the Communications Act, and any applicable state regulations, to
control all CCI Permits (including, without limitation, all FCC Licenses),
without the requirement of divestiture of any CCI Permits or FCC Licenses
or of any interests held by Blackstone or any of its Affiliates.
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(h) Financing. Merger Sub has delivered to CCI a true and complete copy
of a commitment letter (the "Commitment Letter") providing financing from
The Chase Manhattan Bank and Chase Securities, Inc. dated May 23, 1997 for
the transactions contemplated hereby (the "Facility"). The Commitment
Letter is in effect on the date hereof, has not been amended or modified,
and there is no breach or default existing, or with notice or the passage
of time may exist, thereunder.
(i) No Business Activities. Merger Sub is not a party to any material
agreements and has not conducted any activities other than in connection
with the organization of Merger Sub, the negotiation and execution of this
Agreement and the consummation of the transactions contemplated hereby.
Merger Sub has no Subsidiaries.
ARTICLE IV.
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1. COVENANTS OF CCI. During the period from the date of this Agreement and
continuing until the Effective Time (except as expressly contemplated or
permitted by this Agreement or to the extent that Merger Sub shall otherwise
consent in writing):
(a) Ordinary Course. Except as set forth in Section 4.1(a) of the CCI
Disclosure Schedule, CCI and the Consolidated Subsidiaries and Managed
Affiliates shall carry on their respective businesses in the usual, regular
and ordinary course in all material respects, in substantially the same
manner as heretofore conducted, and shall use all reasonable efforts to
preserve intact their present lines of business, maintain their rights and
franchises and preserve their relationships with customers, suppliers and
others having business dealings with them to the end that their ongoing
businesses shall not be impaired in any material respect at the Effective
Time; provided, however, that no action by CCI or the Consolidated
Subsidiaries or Managed Affiliates with respect to matters specifically
addressed by any other provision of this Section 4.1 shall be deemed a
breach of this Section 4.1(a) unless such action would constitute a breach
of one or more of such other provisions.
(b) Dividends; Changes in Share Capital. CCI shall not, and shall not
permit any of the Consolidated Subsidiaries to, and shall not propose to,
(i) declare or pay any dividends on or make other distributions in respect
of any of its capital stock, except dividends by the Consolidated
Subsidiaries in the ordinary course of business consistent with past
practice, (ii) split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for, shares of its capital stock,
except for any such transaction by a wholly owned Subsidiary of CCI which
remains a wholly owned Subsidiary after consummation of such transaction,
or (iii) repurchase, redeem or otherwise acquire any shares of its capital
stock or any securities convertible into or exercisable for any shares of
its capital stock except for the purchase from time to time by CCI of CCI
Common Stock in the ordinary course of business consistent with past
practice in connection with the CCI Benefit Plans.
(c) Issuance of Securities. Except as set forth in Section 5.5, CCI shall
not issue, deliver or sell, or authorize or propose the issuance, delivery
or sale of, any shares of its capital stock of any class, any CCI Voting
Debt or any securities convertible into or exercisable for, or any rights,
warrants or options to acquire, any such shares or CCI Voting Debt, or
enter into any agreement with respect to any of the foregoing and shall not
amend any equity-related awards issued pursuant to the CCI Benefit Plans,
other than (i) the issuance of CCI Common Stock (and the associated Rights)
upon the exercise of stock options issued in the ordinary course of
business and consistent with past practice in accordance with the terms of
the CCI Stock Option Plans as in effect on the date of this Agreement, and
(ii) issuances of options, rights or other awards, and amendments to
equity-related awards, in the ordinary course of business and consistent
with past practice pursuant to the CCI Stock Option Plans as in effect on
the date of this Agreement.
(d) Organizational Documents. Except to the extent required to comply
with their respective obligations hereunder, required by law or required by
the rules and regulations of Nasdaq, CCI and the Consolidated Subsidiaries
shall not amend or propose to amend their respective Organizational
Documents.
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(e) Indebtedness. CCI shall not, and shall not permit any of the
Consolidated Subsidiaries to, (i) incur or suffer to exist any indebtedness
for borrowed money or guarantee any such indebtedness or issue or sell any
debt securities or warrants or rights to acquire any debt securities of CCI
or any of the Consolidated Subsidiaries or guarantee any debt securities of
other Persons other than indebtedness of CCI or any Consolidated Subsidiary
to CCI or any wholly owned Subsidiary of CCI and other than in the ordinary
course of business or as permitted pursuant to Section 4.1(e) of the CCI
Disclosure Schedule, (ii) make any loans, advances or capital contributions
to, or investments in, any other Person, other than by CCI or a
Consolidated Subsidiary to or in CCI, any Consolidated Subsidiary or CCI
Affiliate or as permitted pursuant to Section 4.1(e) of the CCI Disclosure
Schedule or (iii) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than in the case of clauses (ii) and (iii), loans,
advances, capital contributions, investments, payments, discharges or
satisfactions incurred or committed to in the ordinary course of business
consistent with past practice.
(f) Benefit Plans; WARN. CCI shall not, and shall not permit any of the
Consolidated Subsidiaries to (i) increase the compensation payable or to
become payable to any of its executive officers or employees, (ii) adopt or
amend (except as may be required or prudent under law) any bonus, profit
sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan, agreement, trust,
fund or other arrangement (including any CCI Benefit Plan) for the benefit
or welfare of any employee, director or former director or employee, (iii)
grant any new or modified severance or termination arrangement or increase
or accelerate any benefits payable under its severance or termination pay
policies in effect on the date hereof, (iv) effectuate a "plant closing" or
"mass layoff," as those terms are defined in the Worker Adjustment and
Retraining Notification Act of 1988 ("WARN"), affecting in whole or in part
any site of employment, facility, operating unit or employee of CCI or any
of the Consolidated Subsidiaries, without notifying Merger Sub in advance
and without complying with the notice requirements and other provisions of
WARN, or (v) take any action with respect to the grant of any severance or
termination pay, or stay, bonus or other incentive arrangement (other than
pursuant to benefit plans and policies in effect on the date of this
Agreement), except in each case of clauses (i)--(v) (A) any such increases
or grants, or amendments or modifications, made in the ordinary course of
business and in accordance with past practice, or (B) as provided in
Section 5.5.
(g) Other Actions. CCI shall not, and shall not permit any of the
Consolidated Subsidiaries to, take any action that could reasonably be
expected to result in (i) any of the representations or warranties of CCI
set forth in this Agreement that are qualified as to materiality becoming
untrue, (ii) any of such representations or warranties that are not so
qualified becoming untrue in any material respect or (iii) except as
otherwise permitted by Section 5.4, any of the conditions to the Merger set
forth in Article VI not being satisfied.
(h) Accounting Methods; Income Tax Elections. Except as disclosed in CCI
SEC Reports filed prior to the date of this Agreement, or as required by a
Governmental Entity, CCI shall not change its methods of accounting in
effect at March 31, 1997, except as required by changes in GAAP as
concurred in by CCI's independent auditors. CCI shall not (i) change its
fiscal year or (ii) make any material Tax election or settle or compromise
any federal, state, local or foreign Tax liability, other than in the
ordinary course of business consistent with past practice, without
consultation with Merger Sub.
(i) Certain Agreements. CCI shall not, and shall not permit any of the
Consolidated Subsidiaries to, enter into any agreement or arrangement that
limits or otherwise restricts CCI or any of the Consolidated Subsidiaries
or any of their respective affiliates or any successor thereto or that
could, after the Closing, limit or restrict Surviving Corporation or any of
its affiliates or any successor thereto from engaging or competing in any
line of business or in any geographic area.
4.2. COVENANTS OF MERGER SUB. During the period from the date of this
Agreement and continuing until the Effective Time (except as expressly
contemplated or permitted by this Agreement or to the extent that CCI shall
otherwise consent in writing):
(a) Governing Documents. Except to the extent required to comply with its
obligations hereunder or required by law, Merger Sub shall not amend or
propose to amend its Organizational Documents in any manner.
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(b) Other Actions. Merger Sub shall not take any action that could
reasonably be expected to result in (i) any of the representations or
warranties of Merger Sub set forth in this Agreement that are qualified as
to materiality becoming untrue, (ii) any of such representations or
warranties that are not so qualified becoming untrue in any material
respect or (iii) any of the conditions to the Merger set forth in Article
VI not being satisfied.
4.3. REGULATORY COMPLIANCE; ADVICE OF CHANGES; GOVERNMENT FILINGS. Merger
Sub agrees to take all actions necessary to comply with the Communications Act
and the HSR Act so as to consummate the Merger as promptly as is practicable,
provided, however, that in no event shall Merger Sub, Parent or any of its
Affiliates be required to divest any material business interest in order to
obtain approvals under the HSR Act. Each party shall (a) confer on a regular
and frequent basis with the other, (b) report (to the extent permitted by law,
regulation and any applicable confidentiality agreement) on operational
matters and (c) promptly advise the other orally and in writing of (i) any
representation or warranty made by it contained in this Agreement that is
qualified as to materiality becoming untrue or inaccurate in any respect or
any such representation or warranty that is not so qualified becoming untrue
or inaccurate in any material respect, (ii) the failure by it (A) to comply
with or satisfy in any respect any covenant, condition or agreement required
to be complied with or satisfied by it under this Agreement that is qualified
as to materiality or (B) to comply with or satisfy in any material respect any
covenant, condition or agreement required to be complied with or satisfied by
it under this Agreement that is not so qualified as to materiality or (iii)
any change, event or circumstance that has had or could reasonably be expected
to have a Material Adverse Effect on such party; provided, however, that no
such notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement. CCI and Merger Sub shall file all reports required to be
filed by each of them with the SEC (and all other Governmental Entities)
between the date of this Agreement and the Effective Time and shall (to the
extent permitted by law or regulation or any applicable confidentiality
agreement) deliver to the other party copies of all such reports promptly
after the same are filed. Subject to applicable laws relating to the exchange
of information, each of CCI and Merger Sub shall have the right to review in
advance, and to the extent practicable each will consult with the other, with
respect to all the information relating to the other party and each of their
respective Subsidiaries, which appears in any filings, announcements or
publications made with, or written materials submitted to, any third party or
any Governmental Entity in connection with the transactions contemplated by
this Agreement. In exercising the foregoing right, each of the parties hereto
agrees to act reasonably and as promptly as practicable. Each party agrees
that, to the extent practicable, it will consult with the other party with
respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and Governmental Entities necessary or
advisable to consummate the transactions contemplated by this Agreement and
each party will keep the other party apprised of the status of matters
relating to completion of the transactions contemplated hereby.
4.4. TRANSITION PLANNING. Mark T. Gallogly, as President of Merger Sub, and
Arnold C. Pohs, as Chief Executive Officer of CCI, jointly shall be
responsible for coordinating all aspects of transition planning and
implementation relating to the Merger and the other transactions contemplated
hereby. If either such person ceases to be President or Chief Executive
Officer, respectively, of his company for any reason, such person's successor
shall assume his predecessor's responsibilities under this Section 4.4. During
the period between the date of this Agreement and the Effective Time, Messrs.
Gallogly and Pohs jointly shall coordinate policies and strategies with
respect to regulatory authorities and bodies, in all cases subject to
applicable law.
4.5. CONTROL OF OTHER PARTY'S BUSINESS. Nothing contained in this Agreement
shall give CCI, directly or indirectly, the right to control or direct
Parent's operations prior to the Effective Time. Nothing contained in this
Agreement shall give Parent directly or indirectly, the right to control or
direct CCI's operations prior to the Effective Time. Prior to the Effective
Time, each of CCI and Parent shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision over its
respective operations.
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ARTICLE V.
ADDITIONAL AGREEMENTS
5.1. PREPARATION OF FORM S-4; PROXY STATEMENT; CCI SHAREHOLDER MEETING.
(a) As soon as practicable following the date of this Agreement, CCI
shall prepare the Proxy Statement, and CCI shall prepare and file with the
SEC the Form S-4, in which the Proxy Statement will be included. Merger Sub
will cooperate with CCI in connection with the preparation of the Proxy
Statement including, but not limited to, furnishing to CCI any and all
information regarding Parent and its affiliates as may be required to be
disclosed therein. CCI shall use its reasonable best efforts to have the
Form S-4 declared effective under the Securities Act as promptly as
practicable after such filing. CCI will use all reasonable efforts to cause
the Proxy Statement to be mailed to its shareholders as promptly as
practicable after the Form S-4 is declared effective under the Securities
Act. CCI shall also take any action required to be taken under any
applicable state securities laws in connection with the registration and
qualification of CCI Common Stock following the Merger. CCI and Merger Sub
each agree to correct any information provided by it for use in the Form S-
4 which shall have become false or misleading.
(b) CCI will as promptly as practicable notify Merger Sub of (i) the
effectiveness of the Form S-4, (ii) the receipt of any comments from the
SEC and (iii) any request by the SEC for any amendment to the Form S-4 or
for additional information. All filings by CCI with the SEC, including the
Form S-4 and any amendment thereto, and all mailings to CCI's shareholders
in connection with the Merger, including the Proxy Statement, shall be
subject to the prior review, comment and approval of Merger Sub (such
approval not to be unreasonably withheld or delayed).
(c) Unless the Board of Directors of CCI determines in good faith after
consultation with outside legal counsel that such action is necessary for
it not to breach its fiduciary obligations to shareholders under applicable
law, (i) CCI shall, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
shareholders (the "CCI Shareholders Meeting") for the purpose of obtaining
the Required CCI Votes with respect to this Agreement, (ii) the Board of
Directors of CCI shall recommend adoption of this Agreement by the
shareholders of CCI as set forth in Section 3.1(p), and (iii) CCI shall
take all lawful action to solicit such adoption. Any such recommendation,
together with a copy of the opinion referred to in Section 3.1(o) shall be
included in the Proxy Statement. CCI will use its best efforts to hold such
meeting as soon as practicable after the date hereof.
5.2. ACCESS TO INFORMATION. Upon reasonable notice, CCI shall (and shall
cause each of the Consolidated Subsidiaries and Managed Affiliates, to the
extent affording such access is permitted by the Organizational Documents or
other pertinent agreements of such entity, to) afford to the officers,
employees, accountants, counsel, financial advisors and other representatives
of Parent reasonable access during normal business hours, during the period
prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, CCI shall (and shall cause
each of the Consolidated Subsidiaries and Managed Affiliates, to the extent
causing such furnishing is permitted by the Organizational Documents or other
pertinent agreements of such entity, to) furnish promptly to Parent (a) access
to each report, schedule, registration statement and other document filed,
published, announced or received by it during such period pursuant to the
requirements of Federal or state securities laws, as applicable (other than
reports or documents which such party is not permitted to disclose under
applicable law) and (b) consistent with its legal obligations, all other
information concerning its business, properties and personnel as Parent may
reasonably request; provided, however, CCI may restrict the foregoing access
to the extent that (i) a Governmental Entity requires CCI or any of the
Consolidated Subsidiaries or Managed Affiliates to restrict access to any
properties or information reasonably related to any such contract on the basis
of applicable laws and regulations with respect to national security matters
or (ii) any law, treaty, rule or regulation of any Governmental Entity
applicable to CCI or the Consolidated Subsidiaries or Managed Affiliates
requires CCI or the Consolidated Subsidiaries or Managed Affiliates to
restrict access to any properties or information.
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5.3. APPROVALS AND CONSENTS; COOPERATION. Each of CCI and Merger Sub shall
cooperate with each other and use (and shall cause their respective
Subsidiaries to use) its best efforts to take or cause to be taken all
actions, and do or cause to be done all things, necessary, proper or advisable
on their part under this Agreement and applicable laws to consummate and make
effective the Merger and the other transactions contemplated by this Agreement
as soon as practicable, including (i) preparing and filing as promptly as
practicable all documentation to effect all necessary applications, notices,
petitions, filings, tax ruling requests and other documents and to obtain as
promptly as practicable all consents, waivers, licenses, orders,
registrations, approvals, permits, tax rulings and authorizations necessary or
advisable to be obtained from any third party and/or any Governmental Entity
in order to consummate the Merger or any of the other transactions
contemplated by this Agreement and (ii) taking all reasonable steps as may be
necessary to obtain all such consents, waivers, licenses, registrations,
permits, authorizations, tax rulings, orders and approvals. Without limiting
the generality of the foregoing, each of CCI and Merger Sub agrees to make all
necessary filings in connection with the Required Regulatory Approvals as
promptly as practicable after the date of this Agreement, and to use its best
efforts to furnish or cause to be furnished, as promptly as practicable, all
information and documents requested with respect to such Required Regulatory
Approvals and shall otherwise cooperate with the applicable Governmental
Entity in order to obtain any Required Regulatory Approvals in as expeditious
a manner as possible. Each of CCI and Merger Sub shall use its best efforts to
resolve such objections, if any, as any Governmental Entity may assert with
respect to this Agreement and the transactions contemplated hereby in
connection with the Required Regulatory Approvals. In the event that a suit is
instituted by a Person or Governmental Entity challenging this Agreement and
the transactions contemplated hereby as violative of applicable antitrust or
competition laws or the Communications Act, each of CCI and Merger Sub shall
use its best efforts to resist or resolve such suit. CCI and Merger Sub each
shall, upon request by the other, furnish the other with all information
concerning itself, its Subsidiaries, directors, officers and shareholders and
such other matters as may reasonably be necessary or advisable in connection
with the Proxy Statement or any other statement, filing, tax ruling request,
notice or application made by or on behalf of CCI, Merger Sub or any of their
respective Subsidiaries to any third party and/or any Governmental Entity in
connection with the Merger or the other transactions contemplated by this
Agreement.
5.4. ACQUISITION PROPOSALS.
(a) CCI agrees that neither it nor any of its officers and directors
shall, and that it shall direct and use its best efforts to cause its
employees, agents and representatives (including any investment banker,
attorney or accountant retained by it) not to, directly or indirectly,
initiate, solicit, encourage or otherwise facilitate any inquiries or the
making of any proposal, or offer with respect to a merger, reorganization,
share exchange, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving, or any purchase
of all or any significant portion of the assets or 10% or more of the
equity securities of, CCI (any such proposal or offer being hereinafter
referred to as an "Acquisition Proposal"). CCI further agrees that neither
it nor any of its officers and directors shall, and that it shall direct
and use its best efforts to cause its employees, agents and representatives
(including any investment banker, attorney or accountant retained by it)
not to, directly or indirectly, provide any confidential information or
data to any Person relating to an Acquisition Proposal or engage in any
negotiations concerning an Acquisition Proposal; provided, however, that
nothing contained in this Agreement shall prevent CCI or its Board of
Directors from (A) complying with Rule 14e-2 and Rule 14d-9 promulgated
under the Exchange Act with regard to an Acquisition Proposal; (B) engaging
in any discussions or negotiations with, or providing any information to,
any Person in response to a bona fide written Acquisition Proposal by any
such Person; or (C) recommending such bona fide written Acquisition
Proposal to the shareholders of CCI, if and only to the extent that, in any
such case as is referred to in clause (B) or (C), (i) the Board of
Directors of CCI concludes in good faith (after consultation with its
financial advisors) that such Acquisition Proposal is reasonably capable of
being completed, taking into account all legal, financial, regulatory and
other aspects of the proposal and the Person making the proposal, and
would, if consummated, result in a transaction more favorable to CCI
shareholders from a financial point of view than the transaction
contemplated by this Agreement (any such more favorable Acquisition
Proposal being
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referred to in this Agreement as a "Superior Proposal") and (ii) the Board
of Directors of CCI determines in good faith after consultation with
outside legal counsel that such action is necessary for it not to breach
its fiduciary obligations to shareholders under applicable law, provided
further that upon taking an action described in clauses (A ) through (C)
above, it shall contemporaneously notify Merger Sub it has initiated such
actions. CCI agrees that it will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any Acquisition Proposal.
(b) CCI shall make, subject to the condition that the transactions
contemplated herein actually occur, any undertakings (including
undertakings to make divestitures, provided that such divestitures need not
themselves be made until after the transactions contemplated hereby
actually occur) required in order to comply with the antitrust requirements
or laws of any governmental entity, including the HSR Act, in connection
with the transactions contemplated by this Agreement; provided that no such
divestiture or undertaking shall be made (i) without the consent of CCI, if
it is reasonably likely to have a Material Adverse Effect upon CCI, and
(ii) unless approved by Merger Sub (which approval shall not be
unreasonably withheld or delayed) and if such approval is granted, such
undertakings (or the fulfillment thereof) shall not constitute a breach of
a representation or warranty or covenant hereunder.
(c) CCI shall cooperate with any reasonable requests of Merger Sub or the
SEC related to the recording of the Merger as a recapitalization for
financial reporting purposes, including, without limitation, to assist
Merger Sub and its affiliates with any presentation to the SEC with regard
to such recording and to include appropriate disclosure with regard to such
recording in all filings with the SEC and all mailings to shareholders made
in connection with the Merger. In furtherance of the foregoing, CCI shall
provide to Merger Sub for the prior review of Merger Sub's advisors any
description of the transactions contemplated by this Agreement which is
meant to be disseminated.
(d) CCI agrees to provide, and will cause its Consolidated Subsidiaries
and its and their respective officers, employees and advisors to provide,
all necessary and appropriate cooperation in connection with the
arrangement of any financing to be consummated contemporaneously with or at
or after the Closing in respect of the transactions contemplated by this
Agreement. In conjunction with the obtaining of any such financing, CCI
agrees, at the request of Merger Sub, to call for prepayment or redemption,
or to prepay or redeem any then existing indebtedness of CCI, including
indebtedness under the CoBank Credit Agreement and the Notes; provided that
no such prepayment or redemption or in the case of the Notes, call for
prepayment or redemption, shall themselves actually be made (nor shall CCI
be required to incur any liability in respect of such prepayment or
redemption) until contemporaneously with or after, or, in the case of the
call for prepayment of the Notes, immediately prior to or contemporaneously
with, the Effective Time of the Merger and satisfaction of the conditions
set forth in Section 6.2(d).
(e) Merger Sub hereby agrees to use all reasonable efforts to assist CCI
in arranging the financing in respect of the transactions contemplated by
this Agreement described in the Commitment Letter, including using all
reasonable efforts (A) to assist CCI in the negotiation of definitive
agreements with respect thereto and (B) to the extent consistent with the
operation of the business of CCI and its Subsidiaries in the ordinary
course and the fiduciary and other obligations of CCI and its Subsidiaries
and their respective directors and general partners, satisfy all conditions
applicable to Merger Sub in such definitive agreements. Merger Sub will
keep CCI informed of the status of its efforts to assist CCI in arranging
such financing.
(f) Neither Merger Sub nor its affiliates will take any initiatives
involving CCI that would otherwise require CCI to make a public
announcement, make any public comment or proposal with respect to any
Acquisition Proposal, become a member of a "group" within the meaning of
Section 13(d) of the Exchange Act, enter into any discussions,
negotiations, arrangements or understanding with any third party with
respect to any of the foregoing or otherwise seek to control or influence
CCI, in all cases except as expressly contemplated by this Agreement.
(g) Merger Sub agrees that, while this Agreement remains in effect, at
any meeting of the holders of shares of CCI Common Stock at which Merger
Sub or any Affiliate of Merger Sub shall have the right to vote its shares
of CCI Common Stock or at any meeting of the holders of shares of CCI
Common Stock,
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however called, or in connection with any written consent of the holders of
shares of CCI Common Stock, each of Merger Sub and any such Affiliate shall
vote (or cause to be voted) the shares of CCI Common Stock held by it, to
the extent voting rights exist with respect to the proposals to be acted
upon, in favor of adoption of this Agreement and approval of the other
transactions contemplated by this Agreement.
5.5. STOCK OPTIONS AND OTHER STOCK PLANS.
(a) Unless exercised or cancelled prior to the Effective Time,
outstanding options to purchase shares of CCI Common Stock (the "Options")
issued and outstanding under the CCI Stock Option Plans shall remain
outstanding immediately following the Effective Time and such Options shall
be subject to adjustment pursuant to the terms of the CCI Stock Option
Plans. Anything to the contrary set forth herein notwithstanding, prior to
the Effective Time, CCI may enter into agreements in respect of Options
pursuant to the CCI Stock Option Plans, providing for the payment upon
surrender of the Option at the Effective Time of an amount of cash per
share subject to each such Option equal to the difference between the
exercise price of such Option and the Cash Election Price, less an amount
equal to all taxes required to be withheld from such payment (the "Option
Value"). CCI may accelerate the vesting of any outstanding Options in
accordance with the terms thereof.
(b) Anything to the contrary set forth herein notwithstanding, during the
period from the date of this Agreement to the Effective Time, CCI shall not
grant any Options or issue any stock to any director, officer or employee,
except that it may (i) issue stock pursuant to the exercise of Options
granted under CCI Stock Option Plans, (ii) grant restricted stock to Arnold
C. Pohs pursuant to the terms of the Retirement and Consulting Agreement,
dated March 30, 1997, between CCI and Mr. Pohs, and (iii) on or after
November 1, 1997, grant Options consistent with past practice to certain of
its employees pursuant to CCI Stock Option Plans.
(c) Except as provided herein, the CCI Disclosure Schedule or as
otherwise agreed by the parties, the CCI Stock Option Plans shall be
terminated as of the Effective Time pursuant to their terms.
(d) Prior to the Effective Time, Merger Sub and CCI shall cooperate to
take all such other action as may be necessary to carry out the terms of
this Section 5.5.
(e) Annex A hereto sets forth certain additional agreements among the
parties hereto with respect to employee benefits matters and is hereby
incorporated herein by reference.
5.6. FEES AND EXPENSES. Whether or not the Merger is consummated, all
Expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such Expenses, except
(a) if the Merger is consummated, the Surviving Corporation shall pay, or
cause to be paid, any and all property or transfer taxes imposed on CCI, the
Consolidated Subsidiaries or the CCI Affiliates and any real property transfer
tax imposed on any holder of shares of capital stock of CCI resulting from the
Merger, and (b) as provided in Section 7.2. As used in this Agreement,
"Expenses" of a party includes all out-of-pocket expenses (including, without
limitation, all fees and expenses of all banks, investment banking firms and
other financial institutions, and their respective agents and counsel,
accountants, experts and consultants to a party hereto and its Affiliates)
incurred by a party or on its behalf, whether incurred prior to, on or after
the date of this Agreement, in connection with or related to the
authorization, preparation, negotiation, execution and performance of this
Agreement and the transactions contemplated hereby and the financing thereof,
including the preparation, printing, filing and mailing of the Proxy
Statement, the Form S-4 and the Offer Documents and the solicitation of
shareholder approvals and all other matters related to the transactions
contemplated hereby.
5.7. INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. The Surviving
Corporation shall cause to be maintained in effect (i) for a period of six
years after the Effective Time, the current provisions regarding
indemnification of officers and directors contained in the Organizational
Documents of CCI and (ii) for a period of six years after the Effective Time,
the current policies of directors' and officers' liability insurance and
fiduciary liability insurance maintained by CCI (provided that the Surviving
Corporation may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions which are, in the aggregate, no less
advantageous to the insured) with respect to claims arising from facts or
events that occurred on or before the Effective Time.
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5.8. RIGHTS AGREEMENT. The Board of Directors of CCI shall take all action
necessary (including redeeming the Rights immediately prior to the Effective
Time or amending the Rights Agreement) in order to render the Rights
inapplicable to the Merger and the other transactions contemplated by this
Agreement.
5.9. PUBLIC ANNOUNCEMENTS. CCI and Merger Sub shall use all reasonable
efforts to develop a joint communications plan and each party shall use all
reasonable efforts (i) to ensure that all press releases and other public
statements with respect to the transactions contemplated hereby shall be
consistent with such joint communications plan, and (ii) unless otherwise
required by applicable law or by obligations pursuant to any listing agreement
with or rules of any securities exchange, to consult with each other before
issuing any press release or otherwise making any public statement with
respect to this Agreement or the transactions contemplated hereby.
5.10. AFFILIATES. Prior to the Closing Date, CCI shall deliver to Merger Sub
a letter identifying all Persons who are, at the time this Agreement is
submitted for approval to the shareholders of CCI, "affiliates" of CCI for
purposes of Rule 145 under the Securities Act. CCI shall use its reasonable
efforts to cause each such Person to deliver to Merger Sub on or prior to the
Closing Date a written agreement substantially in the form attached as Annex B
hereto.
5.11. CERTAIN AGREEMENTS. Neither CCI nor any subsidiary of CCI will waive
or fail to enforce any provision of any confidentiality or standstill or
similar agreement to which it is a party entered into in connection with a
possible sale of CCI, without the prior written consent of Merger Sub (which
shall not be unreasonably withheld or delayed).
5.12. NASDAQ LISTING AND EXCHANGE ACT REGISTRATION.
(a) The Surviving Corporation will not take any action, for at least 90
days after the Effective Time, to cause the CCI Common Stock to be de-
listed from Nasdaq, and during such 90 day period shall undertake all
reasonable efforts to maintain such listing; provided, however, that
nothing in this Section 5.12 shall require the Surviving Corporation to
take any affirmative action to prevent the CCI Common Stock from being de-
listed by Nasdaq if the CCI Common Stock ceases to meet the applicable
listing standards.
(b) The Surviving Corporation shall not take any action, for at least 90
days after the Effective Time, which would cause the CCI Common Stock to
cease being subject to Section 12 of the Exchange Act or, in the event the
Surviving Corporation is no longer subject to Section 12 of the Exchange
Act, shall not file during such 90 day period a Form 15 (or successor or
similar form) to cause the Surviving Corporation to no longer be subject to
reporting requirements of Section 12 of the Exchange Act.
ARTICLE VI.
CONDITIONS PRECEDENT
6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
obligations of CCI and Merger Sub to effect the Merger are subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Shareholder Approval. CCI shall have obtained all approvals of
holders of shares of capital stock of CCI necessary to approve this
Agreement and all the transactions contemplated hereby (including the
Merger).
(b) HSR Act. The waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have
expired.
(c) FCC Consents. The FCC shall have granted its consent to the
consummation of the transactions contemplated hereby ("FCC Consents"). No
timely request for stay, motion or petition for reconsideration or
rehearing, application or request for review, or notice of appeal or other
judicial petition for review of the FCC Consents shall be pending, and the
time for filing any such request, motion, petition, application, appeal, or
notice, and for the entry of an order staying, reconsidering, or reviewing
on the FCC's own motion, shall have expired.
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(d) No Injunctions or Restraints, Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by a court
or other Governmental Entity of competent jurisdiction shall be in effect
and have the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger; provided, however, that the provisions of this
Section 6.1(d) shall not be available to any party whose failure to fulfill
its obligations pursuant to Section 5.3 shall have been the cause of, or
shall have resulted in, such order or injunction.
(f) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order, and any material "blue sky" and other
state securities laws applicable to the registration and qualification of
the CCI Common Stock following the Merger shall have been complied with in
all material respects.
6.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF MERGER SUB. The obligations of
Merger Sub to effect the Merger are subject to the satisfaction, or waiver by
Merger Sub, on or prior to the Closing Date, of the following additional
conditions:
(b) Representations and Warranties. Each of the representations and
warranties of CCI set forth in this Agreement that is qualified as to
materiality shall have been true and correct when made and shall be true
and correct on and as of the Closing Date as if made on and as of such date
(other than representations and warranties which address matters only as of
a certain date which shall be true and correct as of such certain date),
and each of the representations and warranties of CCI that is not so
qualified shall have been true and correct in all material respects when
made and shall be true and correct in all material respects on and as of
the Closing Date as if made on and as of such date (other than
representations and warranties which address matters only as of a certain
date which shall be true and correct in all material respects as of such
certain date), and Merger Sub shall have received a certificate of the
chief executive officer and the chief financial officer of CCI to such
effect.
(b) Performance of Obligations of CCI. CCI shall have performed or
complied with all agreements and covenants required to be performed by it
under this Agreement at or prior to the Closing Date that are qualified as
to materiality and shall have performed or complied in all material
respects with all other agreements and covenants required to be performed
by it under this Agreement at or prior to the Closing Date that are not so
qualified as to materiality, and Merger Sub shall have received a
certificate of the chief executive officer and the chief financial officer
of CCI to such effect.
(c) Required Regulatory Approvals. All Required Consents and all other
authorizations, consents, orders and approvals of, and declarations and
filings with, and all expirations of waiting periods imposed by, any
Governmental Entity which, if not obtained in connection with the
consummation of the transactions contemplated hereby, could reasonably be
expected to have a Material Adverse Effect on CCI (collectively, "Required
Regulatory Approvals") shall have been obtained, have been declared or
filed or have occurred, as the case may be, and all such Required
Regulatory Approvals shall be in full force and effect.
(d) Financing. CCI or CIFC shall have received the proceeds of financing
on terms and conditions set forth in the Commitment Letter or upon terms
and conditions which are, in the reasonable judgment of Merger Sub,
substantially equivalent thereto, and to the extent that any of the terms
and conditions are not set forth in such Commitment Letter, on terms and
conditions reasonably satisfactory to Merger Sub.
(e) Debt Offers. At or before the Effective Time and subject to the
Funding, Merger Sub shall have received evidence that the terms of the
Senior Subordinated Notes and the Subordinated Notes shall have been
amended, to the reasonable satisfaction of Merger Sub, as to the matters
provided in Section 2.12 of the CCI Disclosure Schedule. At or before the
Effective Time and subject to the Funding, CCI shall have purchased the
Senior Subordinated Notes and the Subordinated Notes as contemplated by
Section 2.12.
(f) CoBank Credit Agreement. At or before the Effective Time and subject
to the Funding, CIFC shall have repaid in full all amounts outstanding
under the CoBank Credit Agreement. In connection therewith, CoBank shall
have provided CIFC with a repayment letter acknowledging that (i) the
CoBank Credit Agreement shall be terminated, (ii) any and all Liens held by
CoBank related thereto shall have been
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released and (iii) CIFC and CCI shall have been released from any and all
liabilities under the CoBank Credit Agreement and the related Guaranty.
(g) No Litigation. There shall not be pending any suit, action,
investigation or proceeding by any Governmental Entity (an "Action") (i)
seeking to restrain or prohibit the consummation of the Merger or any of
the other transactions contemplated by this Agreement or seeking to obtain
damages from CCI or Parent or any of their respective Subsidiaries or the
Managed Affiliates, which if determined adversely to CCI, would be
reasonably likely to have a Material Adverse Effect on CCI, (ii) seeking to
prohibit or limit the ownership or operation by CCI or any of the
Consolidated Subsidiaries or Managed Affiliates or Parent of any material
portion of the business or assets of CCI, the Consolidated Subsidiaries and
the Managed Affiliates (taking CCI, the Consolidated Subsidiaries and the
Managed Affiliates as a whole), or seeking to require CCI or any of the
Consolidated Subsidiaries or Managed Affiliates or Parent to dispose of or
hold separate any material portion of the business or assets of CCI, the
Consolidated Subsidiaries and the Managed Affiliates (taking CCI, the
Consolidated Subsidiaries and the Managed Affiliates as a whole) as a
result of the Merger or any of the other transactions contemplated by this
Agreement, (iii) seeking to prohibit Parent from effectively controlling in
any material respect the business or operations of CCI, the Consolidated
Subsidiaries and the Managed Affiliates, taken as a whole, or (iv) seeking
to impose limitations on the ability of Parent or Merger Sub to acquire or
hold, or exercise full rights of ownership of, any shares of CCI Common
Stock, including, without limitation, the right to vote CCI Common Stock on
all matters properly presented to the shareholders of CCI or which
otherwise would have a Material Adverse Effect on CCI; provided, however,
that the provisions of this Section 6.2(g) shall not be available to Merger
Sub if it has failed to fulfill its obligations pursuant to Section 5.3 (or
other breach of a representation, warranty or covenant hereof) shall have
been the cause of, or shall have resulted in, such suit, action,
investigation or proceeding.
(h) Recapitalization. Merger Sub shall be reasonably satisfied that the
Merger shall be recorded as a recapitalization for financial reporting
purposes.
(i) Material Adverse Change. Since the date of this Agreement, no
Material Adverse Change shall have occurred and be continuing.
6.3. ADDITIONAL CONDITIONS TO OBLIGATIONS OF CCI. The obligations of CCI to
effect the Merger are subject to the satisfaction, or waiver by CCI on or
prior to the Closing Date, of the following additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Merger Sub set forth in this Agreement that is qualified as
to materiality shall have been true and correct when made and shall be true
and correct on and as of the Closing Date as if made on and as of such date
(other than representations and warranties which address matters only as of
a certain date which shall be true and correct as of such certain date),
and each of the representations and warranties of Merger Sub that is not so
qualified shall have been true and correct in all material respects when
made and shall be true and correct in all material respects on and as of
the Closing Date as if made on and as of such date (other than
representations and warranties which address matters only as of a certain
date which shall be true and correct in all material respects as of such
certain date), and CCI shall have received a certificate of the chief
executive officer and the chief financial officer of Merger Sub to such
effect.
(b) Performance of Obligations of Merger Sub. Merger Sub shall have
performed or complied with all agreements and covenants required to be
performed by it under this Agreement at or prior to the Closing Date that
are qualified as to materiality and shall have performed or complied in all
material respects with all agreements and covenants required to be
performed by it under this Agreement at or prior to the Closing Date that
are not so qualified as to materiality, and CCI shall have received a
certificate of the chief executive officer and the chief financial officer
of Merger Sub to such effect.
(c) Required Regulatory Approvals. All Required Regulatory Approvals
shall have been obtained, have been declared or filed or have occurred, as
the case may be, and shall be in full force and effect.
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(d) Funding of Facility and Equity. At or immediately prior to the
Effective Time, Merger Sub shall cause CCI or CIFC to have received the
proceeds of not less than $650,000,000 of indebtedness under the Facility
and CCI to have received not less than $129,000,000 of common equity
investment (the "Funding").
ARTICLE VII.
TERMINATION AND AMENDMENT
7.1. TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, by action taken or authorized by the Board of Directors of the
terminating party or parties, whether before or after approval of the matters
presented in connection with the Merger by the shareholders of CCI:
(a) By mutual written consent of Merger Sub and CCI, by action of their
respective Boards of Directors;
(b) By either CCI or Merger Sub if the Effective Time shall not have
occurred on or before the six-month anniversary of the date of this
Agreement (the "Termination Date"); provided, however, that the right to
terminate this Agreement under this Section 7.1(b) shall not be available
to any party whose failure to fulfill any obligation under this Agreement
has been the cause of, or resulted in, the failure of the Effective Time to
occur on or before the Termination Date; and provided, further, that if on
the Termination Date any conditions to the Closing set forth in Section
6.1(b) or (c), Section 6.2(c) or Section 6.3(c) shall not have been
fulfilled, but all other conditions to the Closing shall be fulfilled or
shall be capable of being fulfilled, then the Termination Date shall be
extended to the nine-month anniversary of the date of this Agreement.
(c) By either CCI or Merger Sub if any Governmental Entity shall have
issued an order, decree or ruling or taken any other action (which order,
decree, ruling or other action the parties shall have used their best
efforts to resist, resolve or lift, as applicable, subject to the
provisions of Section 5.3) permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement, and such
order, decree, ruling or other action shall have become final and
nonappealable;
(d) By either Merger Sub or CCI if the approval by the shareholders of
CCI required for the consummation of the Merger or the other transactions
contemplated hereby shall not have been obtained by reason of the failure
to obtain the required vote at a duly held meeting of shareholders or at
any adjournment thereof;
(e) By Merger Sub if the Board of Directors of CCI (i) shall withdraw or
modify in any manner adverse to Merger Sub its approval or recommendation
of this Agreement or the Merger, (ii) failed as promptly as practicable
after the Form S-4 is declared effective to mail the Proxy Statement to its
shareholders or failed to include in such statement such recommendation,
(iii) in response to the commencement of any tender offer or exchange offer
for more than 20% of the outstanding shares of CCI Common Stock, shall have
not recommended rejection of such tender offer or exchange offer by the
date required for such recommendation under Rule 14e-2 of the Exchange Act,
(iv) shall approve or recommend any acquisition of CCI or a material
portion of its assets or any tender offer for shares of its capital stock,
in each case, other than by Merger Sub or an Affiliate thereof, or (v)
shall resolve to take any of the actions specified in clauses (i) or (iv)
above;
(f) By CCI, if the Board of Directors of CCI accepts a Superior Proposal
after determining in good faith after consultation with legal counsel as to
its fiduciary obligations under applicable law, that the failure to accept
such Superior Proposal would constitute a breach of its fiduciary duties;
(g) By Merger Sub, upon a material breach of any covenant or agreement on
the part of CCI set forth in this Agreement, or if (i) any representation
or warranty of CCI that is qualified as to materiality shall have become
untrue or (ii) any representation or warranty of CCI that is not so
qualified shall have become untrue in any material respect, in each case
such that the conditions set forth in Section 6.2(a) or Section
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6.2(b) would not be satisfied (a "Terminating CCI Breach"); provided,
however, that, if such Terminating CCI Breach is capable of being cured by
CCI through the exercise of its best efforts prior to the 90th day
following CCI's obtaining notice of such breach and for so long as CCI
continues to exercise such best efforts, Merger Sub may not terminate this
Agreement under this Section 7.1(g); or
(h) By CCI, upon a material breach of any covenant or agreement on the
part of Merger Sub set forth in this Agreement, or if (i) any
representation or warranty of Merger Sub that is qualified as to
materiality shall have become untrue or (ii) any representation or warranty
of Merger Sub that is not so qualified shall have become untrue in any
material respect, in each case such that the conditions set forth in
Section 6.3(a) or Section 6.3(b) would not be satisfied (a "Terminating
Merger Sub Breach"); provided, however, that, if such Terminating Merger
Sub Breach is capable of being cured by Merger Sub through the exercise of
its best efforts prior to the 90th day following Merger Sub's obtaining
notice of such breach and for so long as Merger Sub continues to exercise
such best efforts, CCI may not terminate this Agreement under this Section
7.1(h).
7.2. EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement by either CCI or Merger
Sub as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Merger Sub or
CCI or their respective officers or directors except (i) with respect to
Sections 3.1(n), 3.2(e), Section 5.6, this Section 7.2 and Article VIII and
(ii) with respect to any liabilities or damages incurred or suffered by a
party as a result of the willful breach by the other party of any of its
representations, warranties, covenants or other agreements set forth in
this Agreement.
(b) In addition to any other amounts which may be payable or become
payable pursuant to any other paragraph of this Section 7.2, CCI shall
reimburse Blackstone Management Partners L.P. for all Expenses of Merger
Sub; provided that in no event shall CCI be required to pay in excess of an
aggregate of $4,000,000 pursuant to this Section 7.2(b). Payment of
Expenses pursuant to this Section 7.2(b) shall be made not later than two
Business Days after delivery to CCI of notice of demand for payment and a
documented itemization setting forth in reasonable detail all Expenses of
Merger Sub (which itemization may be supplemented and updated from time to
time by such party until the 60th day after such party delivers such notice
of demand for payment).
(c)(i) If this Agreement shall have been terminated pursuant to Sections
7.1(b), 7.1(d) or 7.1(g) and either of the following shall have occurred
prior to such termination: (A) any Person (including CCI or any of its
Subsidiaries or CCI Affiliates, but excluding Merger Sub or any of its
Affiliates) shall have become the beneficial owner of more than 25% of the
outstanding shares of CCI Common Stock, or (B)(x) on or after the date of
this Agreement any Person (other than Merger Sub or any of its affiliates)
shall have made, or proposed, communicated or disclosed in a manner which
is or otherwise becomes public a bona fide intention to make a Control
Proposal (including by making such a Control Proposal), and (y) on or prior
to the twelve-month anniversary of the date of this Agreement, CCI either
consummates with any Person a transaction the proposal of which would
otherwise qualify as a Control Proposal or enters into a definitive
agreement with any Person with respect to a transaction the proposal of
which would otherwise qualify as a Control Proposal (whether or not such
Person is the Person referred to in clause (x) above); or
(ii) if this Agreement is terminated pursuant to Section 7.1(e) or
Section 7.1(f);
then CCI shall, (1) in the case of clause (c)(i)(A) and (c)(ii) above,
promptly, but in no event later than one Business Day after the termination of
this Agreement and (2) in the case of clause (c)(i)(B) above, promptly, but in
no event later than one Business Day after an event specified in subclause (y)
thereof shall have occurred, pay Blackstone Management Partners L.P. a fee
equal to $14 million less amounts paid pursuant to section 7.2(b), in cash,
which amount shall be payable in same day funds. No termination of this
Agreement at a time when a fee is payable pursuant to this Section 7.2(c)
following termination of this Agreement shall be effective until such fee is
paid. Only one fee shall be payable pursuant to this Section 7.2(c).
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(d) Notwithstanding the foregoing, no amount shall be payable pursuant to
Section 7.2(b) or 7.2(c) if (i) at the time this Agreement shall have been
terminated, Merger Sub is then in material breach of its obligations or
representations and warranties under this Agreement, (ii)(x) this Agreement
shall have been terminated pursuant to Section 7.1(b), (y) at the time of
such termination CCI is not then in material breach of its obligations or
representations and warranties under this Agreement and (z) at the time of
such termination any of the conditions set forth in Sections 6.1(b),
6.1(c), 6.2(c), 6.2(d), 6.2(e), 6.2(g) and 6.2 (h) shall not have been
satisfied or waived, provided, however, with respect to unsatisfied or
unwaived conditions set forth in Section 6.2(e), amounts shall be payable
pursuant to Section 7.2(b), but not Section 7.2(c), or (iii) this Agreement
shall have been terminated pursuant to (x) Section 7.1(c) and at the time
of such termination CCI is not then in material breach of its obligations
or representations and warranties under this Agreement, or (y) Section
7.1(a).
7.3. AMENDMENT. This Agreement (including the Annexes and Schedules hereto)
may be amended by the parties hereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after approval of the
matters presented in connection with the Merger by the shareholders of CCI,
but, after any such approval, no amendment shall be made which by law or in
accordance with the rules of Nasdaq requires further approval by such
shareholders without such further approval. This Agreement (including the
Annexes and Schedules hereto) may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
7.4. EXTENSION; WAIVER. At any time prior to the Effective Time, the parties
hereto, by action taken or authorized by their respective Boards of Directors,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive
any inaccuracies in the representations and warranties contained herein or in
any document delivered pursuant hereto and (iii) waive compliance with any of
the agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth
in a written instrument signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
ARTICLE VIII.
GENERAL PROVISIONS
8.1. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None of the
representations, warranties, covenants and other agreements in this Agreement
or in any instrument delivered pursuant to this Agreement, including any
rights arising out of any breach of such representations, warranties,
covenants and other agreements, shall survive the Effective Time, except for
those covenants and agreements contained herein and therein that by their
terms apply or are to be performed in whole or in part after the Effective
Time and for the provisions of this Article VIII. Nothing in this Section 8.1
shall relieve any party for any breach of any representation, warranty,
covenant or other agreement in this Agreement occurring prior to termination.
8.2. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery if
delivered personally or delivered by facsimile (but in the case of facsimile
transmission, transmitted on the same day by the method described in clause
(b)), (b) on the first Business Day following the date of dispatch if
delivered by a recognized next-day courier service, or (c) on the tenth
Business Day following the date of mailing if delivered by registered or
certified mail, return receipt requested, postage prepaid. All notices
hereunder shall be delivered as set forth below, or pursuant to such other
instructions as may be designated in writing by the party to receive such
notice:
(i) if to Merger Sub, to AV Acquisition Corp., c/o Blackstone Management
Associates II L.L.C., 345 Park Avenue, 31st Floor, New York, New York
10154, Attention: Mark T. Gallogly, Facsimile No (212) 754-8704, with a
copy to Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New
York 10017, Attention: Philip T. Ruegger III, Esq., Facsimile No. (212)
455-2502.
I-30
(ii) if to CCI, to CommNet Cellular Inc., 8350 East Crescent Parkway,
Suite 400, Englewood, Colorado 80111, Attention: President, Facsimile No.:
(303) 694-5590, with a copy to Latham & Watkins, 233 South Wacker Drive,
Suite 5800, Chicago, Illinois 60606, Attention: Mark D. Gerstein, Esq.,
Facsimile No.: (312) 993-9767.
8.3. INTERPRETATION. When a reference is made in this Agreement to Sections,
Annexes or Schedules, such reference shall be to a Section of or Annex or
Schedule to this Agreement unless otherwise indicated. The table of contents,
glossary of defined terms and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".
8.4. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
8.5. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES.
(a) This Agreement constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof, other than the
confidentiality and standstill agreement entered into by Blackstone
Management Partners L.P. and CCI in connection with the transactions
contemplated hereby, which shall survive the execution and delivery of this
Agreement.
(b) This Agreement shall be binding upon and inure solely to the benefit
of each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement, other
than Section 5.7 (which is intended to be for the benefit of the Persons
covered thereby and may be enforced by such Persons).
8.6. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New York.
8.7. SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any law or public policy,
all other terms and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
8.8. ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto, in whole
or in part (whether by operation of law or otherwise), without the prior
written consent of the other party, and any attempt to make any such
assignment without such consent shall be null and void, except that Merger Sub
may assign, in its sole discretion, any or all of its rights, interests and
obligations under this Agreement to any direct or indirect wholly owned
Subsidiary of Parent without the consent of CCI, but no such assignment shall
relieve Merger Sub of any of its obligations under this Agreement. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors
and assigns.
8.9. ENFORCEMENT. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the
parties shall be entitled to specific performance of the terms hereof, this
being in addition to any other remedy to which they are entitled at law or in
equity.
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8.10. DEFINITIONS. As used in this Agreement:
(a) "Affiliate" shall have the meaning ascribed to such term under Rule
12b-2 under the Exchange Act.
(b) "Board of Directors" means the Board of Directors of any specified
Person and any properly serving and acting committees thereof.
(c) "Business Day" means any day on which banks are not required or
authorized to close in the City of New York.
(d) "CCI Affiliates" means each of the corporations and partnerships
through which CCI holds indirect ownership interests in cellular licensees
and those cellular licensees in which CCI holds an ownership interest which
is not a Consolidated Subsidiary.
(e) "Control Proposal" means an Acquisition Proposal which seeks to
acquire a controlling interest in CCI.
(f) "Material Adverse Change" means any change in the business, financial
condition or results of operations of CCI or any of the Consolidated
Subsidiaries or Managed Affiliates that has had, or could reasonably be
expected to have, a Material Adverse Effect on CCI.
(g) "Material Adverse Effect" means, with respect to any entity, any
adverse change, circumstance or effect that, individually or in the
aggregate with all other adverse changes, circumstances and effects, is or
is reasonably likely to be materially adverse to the business, operations,
assets, liabilities (including, without limitation, contingent
liabilities), financial condition or results of operations of such entity
and its Subsidiaries taken as a whole.
(h) "Organizational Documents" means, with respect to any entity, the
charter, by-laws or other governing documents of such entity.
(i) "Person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization, entity
or "group" (as referred to in Section 13(d)(3) of the Exchange Act).
(j) "Subsidiary" when used with respect to any party means any
corporation or other organization, whether incorporated or unincorporated,
(i) of which such party or any other Subsidiary of such party is a general
partner (excluding partnerships, the general partnership interests of which
held by such party or any Subsidiary of such party do not have a majority
of the voting interests in such partnership) or (ii) at least a majority of
the securities or other interests of which having by their terms ordinary
voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or
by any one or more of its Subsidiaries, or by such party and one or more of
its Subsidiaries.
(k) (i) "Tax" (including, with correlative meaning, the terms "Taxes" and
"Taxable") means all federal, state, local and foreign income, profits,
franchise, gross receipts, environmental, customs duty, capital stock,
severance, stamp, payroll, sales, employment, unemployment disability, use,
property, withholding, excise, production, value added, occupancy and other
taxes, duties or assessments of any nature whatsoever, together with all
interest, penalties, fines and additions to tax imposed with respect to
such amounts and any interest in respect of such penalties and additions to
tax, and (ii) "Tax Return" means all returns and reports (including
elections, claims, declarations, disclosures, schedules, estimates,
computations and information returns) required to be supplied to a Tax
authority in any jurisdiction relating to Taxes.
(l) "the other party" means, with respect to CCI, Merger Sub and means,
with respect to Merger Sub, CCI.
8.11. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND FOR ANY
COUNTERCLAIM THEREIN.
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IN WITNESS WHEREOF, CCI and Merger Sub have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
Commnet Cellular Inc.
/s/ Arnold C. Pohs
By: _________________________________
Name: Arnold C. Pohs
Title: President
AV Acquisition Corp.
/s/ Mark T. Gallogly
By: _________________________________
Name: Mark T. Gallogly
Title: President
I-33
LOGO
ANNEX II
May 27, 1997
Special Committee of the Board of Directors
CommNet Cellular Inc.
8350 East Crescent Parkway
Suite 400
Englewood, CO 80111
Members of the Special Committee:
CommNet Cellular Inc. (the "Company") and AV Acquisition Corp. (the
"Acquisition Sub"), an entity formed by Blackstone Management Associates II
L.L.C. ("Blackstone") and a wholly owned subsidiary of affiliates of
Blackstone (collectively, the "Acquiror"), propose to enter into an Agreement
and Plan of Merger dated as of May 27, 1997 (the "Agreement") pursuant to
which the Acquisition Sub will be merged with the Company in a transaction
(the "Merger") in which each outstanding share of the Company's common stock,
par value $0.001 per share (the "Shares"), other than Shares owned by any
wholly owned subsidiary of the Company or by the Acquiror, the Acquisition Sub
or any subsidiary of the Acquiror and other than Dissenting Shares (as defined
in the Agreement), will be converted at the election of the holder thereof
into either $36.00 in cash or the right to retain, subject to the terms of the
Agreement, one (1) Share (a "Non-Cash Election Share").
You have asked us whether, in our opinion, the consideration to be received
by the holders of the Shares (other than any wholly owned subsidiary of the
Company or by the Acquiror, the Acquisition Sub or any subsidiary of the
Acquiror and other than Dissenting Shares) pursuant to the Merger is fair from
a financial point of view to such holders.
In arriving at the opinion set forth below, we have, among other things:
1. Reviewed certain publicly available business and financial information
relating to the Company and the Acquiror that we deemed to be relevant;
2. Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects of
the Company furnished to us by the Company and the Acquiror;
3. Conducted discussions with members of senior management of the Company
concerning the matters described in clauses 1 and 2 above, as well as the
Company's business and prospects before and after giving effect to the
Merger;
4. Reviewed the market prices and valuation multiples for the Shares and
compared them with those of certain publicly traded companies that we
deemed to be relevant;
5. Reviewed the results of operations of the Company;
6. Compared the proposed financial terms of the Merger with the financial
terms of certain other transactions that we deemed to be relevant;
7. Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their financial and
legal advisors as well as other proponents of proposals to acquire equity
interests in the Company;
8. Reviewed the potential pro forma impact of the Merger;
9. Reviewed the Agreement; and
10. Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
II-1
LOGO
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have
not assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or been furnished with any such evaluation or
appraisal. In addition, we have not assumed any obligation to conduct, nor
have we conducted, any physical inspection of the properties or facilities of
the Company. With respect to the financial forecast information furnished to
or discussed with us by the Company, we have assumed that they have been
reasonably prepared and reflect the best currently available estimates and
judgment of the Company's management as to the expected future financial
performance of the Company.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available
to us as of, the date hereof. We have assumed that in the course of obtaining
the necessary regulatory or other consents or approvals (contractual or
otherwise) for the Merger, no restrictions, including any divestiture
requirements or amendments or modifications, will be imposed that will have an
adverse effect on the contemplated benefits of the Merger.
We are acting as financial advisor to the Company in connection with the
Merger and will receive a fee from the Company for our services, a significant
portion of which is contingent upon the consummation of the Merger. In
addition, the Company has agreed to indemnify us for certain liabilities
arising out of our engagement. We have, in the past, provided financial
advisory and financing services to the Company and the Acquiror and/or its
affiliates and may continue to do so and have received, and may receive, fees
for the rendering of such services. In addition, in the ordinary course of our
business, we may actively trade the Shares and other securities of the Company
for our own account and for the accounts of customers and, accordingly, may at
any time hold a long or short position in such securities.
This opinion is at the request and for the use and benefit of the Special
Committee of the Board of Directors of the Company. Our opinion does not
address the merits of the underlying decision by the Company to engage in the
Merger and does not constitute a recommendation to any shareholder as to how
such shareholder should vote on the proposed Merger. In addition, we express
no opinion as to what the trading price of the Non-Cash Election Shares will
be upon consummation of the Merger.
On the basis of, and subject to the foregoing, we are of opinion that, as of
the date hereof, the consideration to be received by the holders of the Shares
(other than any wholly owned subsidiary of the Company or by the Acquiror, the
Acquisition Sub or any subsidiary of the Acquiror and other than Dissenting
Shares) pursuant to the Merger is fair from a financial point of view to such
holders.
Very truly yours,
Merrill Lynch, Pierce, Fenner &
Smith Incorporated
/s/ Michael R. Costa
By __________________________________
Managing Director
Investment Banking Group
II-2
ANNEX III
DISSENTERS' RIGHTS PROVISIONS OF THE
COLORADO BUSINESS CORPORATION ACT
PART 1: RIGHT OF DISSENT--PAYMENT FOR SHARES
7-113-101 Definitions.
For purposes of this article: (1) "Beneficial shareholder" means the
beneficial owner of shares held in a voting trust or by a nominee as the
record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring domestic or foreign
corporation, by merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section
7-113-102 and who exercises that right at the time and in the manner required
by part 2 of this article.
(4) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action except to the extent that exclusion would
be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at the legal rate as
specified in section 5-12-101, C.R.S.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
that are registered in the name of a nominee to the extent such owner is
recognized by the corporation as the shareholder as provided in section 7-107-
204.
(7) "Shareholder" means either a record shareholder or a beneficial
shareholder.
7-113-102 Right to Dissent.
(1) A shareholder, whether or not entitled to vote, is entitled to dissent
and obtain payment of the fair value of the shareholder's shares in the event
of any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party if:
(I) Approval by the shareholders of that corporation is required for
the merger by section 7-111-103 or 7-111-104 or by the articles
of incorporation, or
(II) The corporation is a subsidiary that is merged with its parent
corporation under section 7-111-104;
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired;
(c) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of the corporation for
which a shareholder vote is required under section 7-112-102(1);
and
(d) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of an entity controlled
by the corporation if the shareholders of the corporation were
entitled to vote upon the consent of the corporation to the
disposition pursuant to section 7-112-102(2).
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(1.3) A shareholder is not entitled to dissent and obtain payment, under
subsection (1) of this section, of the fair value of the shares of any class
or series of shares which either were listed on a national securities exchange
registered under the federal "Securities Exchange Act of 1934", as amended, or
on the national market system of the national association of securities
dealers automated quotation system, or were held of record by more than two
thousand shareholders, at the time of:
(a) The record date fixed under section 7-107-107 to determine the
shareholders entitled to receive notice of the shareholders'
meeting at which the corporate action is submitted to a vote;
(b) The record date fixed under section 7-107-104 to determine
shareholders entitled to sign writings consenting to the corporate
action; or
(c) The effective date of the corporate action if the corporate action
is authorized other than by a vote of shareholders.
(1.8) The limitation set forth in subsection (1.3) of this section shall not
apply if the shareholder will receive for the shareholder's shares, pursuant
to the corporate action, anything except:
(a) Shares of the corporation surviving the consummation of the plan of
merger or share exchange;
(b) Shares of any other corporation which at the effective date of the
plan of merger or share exchange either will be listed on a
national securities exchange registered under the federal
"Securities Exchange Act of 1934", as amended, or on the national
market system of the national association of securities dealers
automated quotation system, or will be held of record by more than
two thousand shareholders.
(c) Cash in lieu of fractional shares; or
(d) Any combination of the foregoing described shares or cash in lieu
of fractional shares.
(2.5) A shareholder, whether or not entitled to vote, is entitled to dissent
and obtain payment of the fair value of the shareholder's shares in the event
of a reverse split that reduces the number of shares owned by the shareholder
to a fraction of a share or to scrip if the fractional share or scrip so
created is to be acquired for cash or the scrip is to be voided under section
7-106-104.
(3) A shareholder is entitled to dissent and obtain payment of the fair
value of the shareholder's shares in the event of any corporate action to the
extent provided by the bylaws or a resolution of the board of directors.
(4) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this article may not challenge the corporate action
creating such entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
7-113-103 Dissent by Nominees and Beneficial Owners.
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the record shareholder's name only if the record
shareholder dissents with respect to all shares beneficially owned by any one
person and causes the corporation to receive written notice which states such
dissent and the name, address, and federal taxpayer identification number, if
any, of each person on whose behalf the record shareholder asserts dissenters'
rights. The rights of a record shareholder under this subsection (1) are
determined as if the shares as to which the record shareholder dissents and
the other shares of the record shareholder were registered in the names of
different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to the shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder causes the corporation to receive the
record shareholder's written consent to the dissent not later than
the time the beneficial shareholder asserts dissenters' rights; and
III-2
(b) The beneficial shareholder dissents with respect to all shares
beneficially owned by the beneficial shareholder.
(3) The corporation may require that, when a record shareholder dissents
with respect to the shares held by any one or more beneficial shareholders,
each such beneficial shareholder must certify to the corporation that the
beneficial shareholder and the record shareholder or record shareholders of
all shares owned beneficially by the beneficial shareholder have asserted, or
will timely assert, dissenters' rights as to all such shares as to which there
is no limitation on the ability to exercise dissenters' rights. Any such
requirement shall be stated in the dissenters' notice given pursuant to
section 7-113-203.
PART 2: PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
7-113-201 Notice of Dissenters' Rights.
(1) If a proposed corporate action creating dissenters' rights under section
7-113-102 is submitted to a vote at a shareholders' meeting, the notice of the
meeting shall be given to all shareholders, whether or not entitled to vote.
The notice shall state that shareholders are or may be entitled to assert
dissenters' rights under this article and shall be accompanied by a copy of
this article and the materials, if any, that, under articles 101 to 117 of
this title, are required to be given to shareholders entitled to vote on the
proposed action at the meeting. Failure to give notice as provided by this
subsection (1) shall not affect any action taken at the shareholders' meeting
for which the notice was to have been given, but any shareholder who was
entitled to dissent but who was not given such notice shall not be precluded
from demanding payment for the shareholder's shares under this article by
reason of the shareholder's failure to comply with the provisions of section
7-113-202(1).
(2) If a proposed corporate action creating dissenters' rights under section
7-113-102 is authorized without a meeting of shareholders pursuant to section
7-107-104, any written or oral solicitation of a shareholder to execute a
writing consenting to such action contemplated in section 7-107-104 shall be
accompanied or preceded by a written notice stating that shareholders are or
may be entitled to assert dissenters' rights under this article, by a copy of
this article, and by the materials, if any, that, under articles 101 to 117 of
this title, would have been required to be given to shareholders entitled to
vote on the proposed action if the proposed action were submitted to a vote at
a shareholders' meeting. Failure to give notice as provided by this subsection
(2) shall not affect any action taken pursuant to section 7-107-104 for which
the notice was to have been given, but any shareholder who was entitled to
dissent but who was not given such notice shall not be precluded from
demanding payment for the shareholder's shares under this article by reason of
the shareholder's failure to comply with the provisions of section 7-113-
202(2).
7-113-202 Notice of Intent to Demand Payment.
(1) If a proposed corporate action creating dissenters' rights under section
7-113-102 is submitted to a vote at a shareholders' meeting and if notice of
dissenters' rights has been given to such shareholder in connection with the
action pursuant to section 7-113-201(1), a shareholder who wishes to assert
dissenters' rights shall:
(a) Cause the corporation to receive, before the vote is taken, written
notice of the shareholder's intention to demand payment of the
shareholder's shares if the proposed corporate action is
effectuated; and
(b) Not vote the shares in favor of the proposed corporate action.
(2) If a proposed corporate action creating dissenters' rights under section
7-113-102 is authorized without a meeting of shareholders' pursuant to section
7-107-104 and if notice of dissenters' rights has been given to such
shareholder in connection with the action pursuant to section 7-113-201(2), a
shareholder who wishes to assert dissenters' rights shall not execute a
writing consenting to the proposed corporate action.
(3) A shareholder who does not satisfy the requirements of subsection (1) or
(2) of this section is not entitled to demand payment for the shareholder's
shares under this article.
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7-113-203 Dissenter's Notice.
(1) If a proposed corporate action creating dissenters' rights under section
7-113-102 is authorized, the corporation shall give a written dissenters'
notice to all shareholders who are entitled to demand payment for their shares
under this article.
(2) The dissenters' notice required by subsection (1) of this section shall
be given no later than ten days after the effective date of the corporate
action creating dissenters' rights under section 7-113-102 and shall:
(a) State that the corporate action was authorized and state the
effective date or proposed effective date of the corporate action;
(b) State an address at which the corporation will receive payment
demands and the address of a place where certificates for
certificated shares must be deposited;
(c) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(d) Supply a form for demanding payment, which form shall request a
dissenter to state an address to which payment is to be made;
(e) Set the date by which the corporation must receive the payment
demand and certificates for certificated shares, which date shall
not be less than thirty days after the date the notice required by
subsection (1) of this section is given;
(f) State the requirement contemplated in section 7-113-103(3), if such
requirement is imposed; and
(g) Be accompanied by a copy of this article.
7-113-204 Procedure to Demand Payment.
(1) A shareholder who is given a dissenters' notice pursuant to section 7-
113-203 and who wishes to assert dissenters' rights shall, in accordance with
the terms of the dissenters' notice:
(a) Cause the corporation to receive a payment demand, which may be the
payment demand form contemplated in section 7-113-203(2)(d), duly
completed, or may be stated in another writing; and
(b) Deposit the shareholder's certificates for certificated shares.
(2) A shareholder who demands payment in accordance with subsection (1) of
this section retains all rights of a shareholder, except the right to transfer
the shares, until the effective date of the proposed corporate action giving
rise to the shareholder's exercise of dissenters' rights and has only the
right to receive payment for the shares after the effective date of such
corporate action.
(3) Except as provided in section 7-113-207 or 7-113-209(1)(b), the demand
for payment and deposit of certificates are irrevocable.
(4) A shareholder who does not demand payment and deposit the shareholder's
share certificates as required by the date or dates set in the dissenters'
notice is not entitled to payment for the shares under this article.
7-113-205 Uncertificated Shares.
(1) Upon receipt of a demand for payment under section 7-113-204 from a
shareholder holding uncertificated shares, and in lieu of the deposit of
certificates representing the shares, the corporation may restrict the
transfer thereof.
(2) In all other respects, the provisions of section 7-113-204 shall be
applicable to shareholders who own uncertificated shares.
III-4
7-113-206 Payment.
(1) Except as provided in section 7-113-208, upon the effective date of the
corporate action creating dissenters' rights under section 7-113-102 or upon
receipt of a payment demand pursuant to section 7-113-204, whichever is later,
the corporation shall pay each dissenter who complied with section 7-113-204,
at the address stated in the payment demand, or if no such address is stated
in the payment demand, at the address shown on the corporation's current
record of shareholders for the record shareholder holding the dissenter's
shares, the amount the corporation estimates to be the fair value of the
dissenter's shares, plus accrued interest.
(2) The payment made pursuant to subsection (1) of this section shall be
accompanied by:
(a) The corporation's balance sheet as of the end of its most recent
fiscal year or, if that is not available, the corporation's balance
sheet as of the end of a fiscal year ending not more than sixteen
months before the date of payment, an income statement for that
year, and, if the corporation customarily provides such statements
to shareholders, a statement of changes in shareholders' equity for
that year and a statement of cash flow for that year, which balance
sheet and statements shall have been audited if the corporation
customarily provides audited financial statements to shareholders,
as well as the latest available financial statements, if any, for
the interim or full-year period, which financial statements need
not be audited;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under
section 7-113-209; and
(e) A copy of this article.
7-113-207 Failure to Take Action.
(1) If the effective date of the corporate action creating dissenters'
rights under section 7-113-102 does not occur within sixty days after the date
set by the corporation by which the corporation must receive the payment
demand as provided in section 7-113-203, the corporation shall return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares.
(2) If the effective date of the corporate action creating dissenters'
rights under section 7-113-102 occurs more than sixty days after the date set
by the corporation by which the corporation must receive the payment demand as
provided in section 7-113-203, then the corporation shall send a new
dissenters' notice, as provided in section 7-113-203, and the provisions of
sections 7-113-204 to 7-113-209 shall again be possible.
7-113-108 Special Provisions Relating to Shares Acquired After Announcement
of Proposed Corporate Action.
(1) The corporation may, in or with the dissenters' notice given pursuant to
section 7-113-203, state the date of the first announcement to news media or
to shareholders of the terms of the proposed corporate action creating
dissenters' rights under section 7-113-102 and state that the dissenter shall
certify in writing, in or with the dissenter's payment demand under section 7-
113-204, whether or not the dissenter (or the person on whose behalf
dissenters' rights are asserted) acquired beneficial ownership of the shares
before that date. With respect to any dissenter who does not so certify in
writing, in or with the payment demand, that the dissenter or the person on
whose behalf the dissenter asserts dissenters' rights acquired beneficial
ownership of the shares before such date, the corporation may, in lieu of
making the payment provided in section 7-113-206, offer to make such payment
if the dissenter agrees to accept it in full satisfaction of the demand.
(2) An offer to make payment under subsection (1) of this section shall
include or be accompanied by the information required by section 7-113-206(2).
III-5
7-113-209 Procedure if Dissenter is Dissatisfied with Payment or Offer.
(1) A dissenter may give notice to the corporation in writing of the
dissenter's estimate of the fair value of the dissenter's shares and of the
amount of interest due and may demand payment of such estimate, less any
payment made under section 7-113-206, or reject the corporation's offer under
section 7-113-208 and demand payment of the fair value of the shares and
interest due, if:
(a) The dissenter believes that the amount paid under section 7-113-206
or offered under section 7-113-208 is less than the fair value of
the shares or that the interest due was incorrectly calculated;
(b) The corporation fails to make payment under section 7-113-206
within sixty days after the date set by the corporation by which
the corporation must receive the payment demand; or
(c) The corporation does not return the deposited certificates or
release the transfer restrictions imposed on uncertificated shares
as required by section 7-113-207(1).
(2) A dissenter waives the right to demand payment under this section unless
the dissenter causes the corporation to receive the notice required by
subsection (1) of this section within thirty days after the corporation made
or offered payment for the dissenter's shares.
PART 3: JUDICIAL APPRAISAL OF SHARES
7-113-301 Court Action.
(1) If a demand for payment under section 7-113-209 remains unresolved, the
corporation may, within sixty days after receiving the payment demand,
commence a proceeding and petition the court to determine the fair value of
the shares and accrued interest. If the corporation does not commence the
proceeding within the sixty-day period, it shall pay to each dissenter whose
demand remains unresolved the amount demanded.
(2) The corporation shall commence the proceeding described in subsection
(1) of this section in the district court of the county in this state where
the corporation's principal office is located or, if the corporation has no
principal office in this state, in the district court of the county in which
its registered office is located. If the corporation is a foreign corporation
without a registered office, it shall commence the proceeding in the county
where the registered office of the domestic corporation merged into, or whose
shares were acquired by, the foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unresolved parties to the proceeding
commenced under subsection (2) of this section as in an action against their
shares, and all parties shall be served with a copy of the petition. Service
on each dissenter shall be by registered or certified mail, to the address
stated in such dissenter's payment demand, or if no such address is stated in
the payment demand, at the address shown on the corporation's current record
of shareholders for the record shareholder holding the dissenter's shares, or
as provided by law.
(4) The jurisdiction of the court in which the proceeding is commenced under
subsection (2) of this section is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend a decision
on the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to such order. The parties to the
proceeding are entitled to the same discovery rights as parties in other civil
proceedings.
(5) Each dissenter made a party to the proceeding commenced under subsection
(2) of this section is entitled to judgment for the amount, if any, by which
the court finds the fair value of the dissenter's shares, plus interest,
exceeds the amount paid by the corporation, or the fair value, plus interest,
of the dissenter's shares for which the corporation elected to withhold
payment under section 7-113-208.
III-6
7-113-302 Court Costs and Counsel Fees.
(1) The court in an appraisal proceeding commenced under section 7-113-301
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court
shall assess the costs against the corporation; except that the court may
assess costs against all or some of the dissenters, in amounts the court finds
equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under section 7-113-
209.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any dissenters if the court
finds the corporation did not substantially comply with the
requirements of part 2 of this article; or
(b) Against either the corporation or one or more dissenters, in favor
of any other party, if the court finds that the party against whom
the fees and expenses are assessed acted arbitrarily, vexatiously,
or not in good faith with respect to the rights provided by this
article.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to said counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefitted.
III-7
Questions and requests for assistance or additional copies of the Proxy
Statement or the Form of Election may be directed to the Information Agent at
the address set forth below:
The Information Agent is:
BEACON HILL PARTNERS, INC.
90 Broad Street
New York, New York 10004
(800) 253-3814
(Toll Free)
(212) 843-8500
(Call Collect)
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 7-109-101, et seq., of the Colorado Business Corporation Act
generally provides that a corporation may indemnify its directors, officers,
employees, fiduciaries and agents against liabilities and reasonable expenses
incurred in connection with any threatened, pending or completed action, suit
or proceeding whether civil, criminal, administrative or investigative and
whether formal or informal (a "Proceeding"), by reason of being or having been
a director, officer, employee, fiduciary or agent of the corporation, if such
person acted in good faith and reasonably believed that his conduct, in his
official capacity, was in the best interests of the corporation (or, with
respect to employee benefit plans, was in the best interests of the
participants of the plan), and in all other cases his conduct was at least not
opposed to the corporation's best interests. In the case of a criminal
proceeding, the director, officer, employee, fiduciary or agent must have had
no reasonable cause to believe his conduct was unlawful. Under Colorado law,
the corporation may not indemnify a director, officer, employee, fiduciary or
agent in connection with a Proceeding by or in the right of the corporation if
the director, officer, employee, fiduciary or agent is adjudged liable to the
corporation, or in any other Proceeding in which the director, officer,
employee or agent is adjudged liable for an improper personal benefit.
Article IX of the Registrant's Articles of Incorporation provides in part:
B. The Corporation shall, to the fullest extent permitted by applicable law,
(i) indemnify, and (ii) advance litigation expenses prior to the final
disposition of an action, to any person made or threatened to be made a party
to an action or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that he or she is or was a director or
officer of the Corporation or served any other enterprise as a director or
officer at the request of the Corporation and such rights of indemnification
and to advancement of litigation expenses shall also be applicable to the
heirs, executors, administrators and legal representatives of such director or
officer.
C. The foregoing provisions of Article IX shall be deemed to be a contract
between the Corporation and each director and officer who serves in such
capacity at any time while this Article IX is in effect, and any repeal or
modification hereof shall not affect the rights or obligations then or
theretofore existing or any action, suit or proceeding theretofore or
thereafter brought based in whole or in part upon any such stated facts.
D. The foregoing rights to indemnification and to advancement of litigation
expenses shall not be deemed exclusive of any other rights to which a director
or officer or his or her legal representatives may be entitled apart from the
provisions of this Article IX.
The Registrant's Bylaws provide that the Registrant shall have the power to
indemnify officers, directors, employees and agents to the fullest extent
provided by Colorado law.
The Registrant maintains officers' and directors' insurance covering certain
liabilities that may be incurred by officers and directors in the performance
of their duties.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
See the Exhibit Index included immediately preceding the exhibits to this
Registration Statement.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease
II-1
in volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high and of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed to be underwriters, in addition to
the information called for by the other Items of the applicable form.
The Registrant undertakes that every prospectus: (i) that is filed pursuant
to the immediately preceding undertaking, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Englewood, State of
Colorado, on August 12, 1997.
COMMNET CELLULAR INC.
/s/ Arnold C. Pohs
By: ________________________________
Arnold C. Pohs
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Daniel P. Dwyer and Amy M. Shapiro, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for such person and in such person's name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as such person might or
could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Arnold C. Pohs President, Chief Executive August 12,
- ------------------------- Officer and Director 1997
Arnold C. Pohs
/s/ Daniel P. Dwyer Executive Vice President, August 12,
- ------------------------- Treasurer, Chief Financial 1997
Daniel P. Dwyer Officer and Director
/s/ Andrew J. Gardner Senior Vice President and August 12,
- ------------------------- Controller (Principal 1997
Andrew J. Gardner Accounting Officer)
/s/ John E. Hayes, Director August 12,
Jr. 1997
- -------------------------
John E. Hayes, Jr.
/s/ Robert J. Paden Director August 12,
- ------------------------- 1997
Robert J. Paden
/s/ David E. Simmons Director August 12,
- ------------------------- 1997
David E. Simmons
II-3
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
2.1 Agreement and Plan of Merger dated as of May 27, 1997, between
CommNet Cellular Inc. and AV Acquisition Corp. (incorporated
herein by reference to Exhibit 2.1 to the Company's Current Report
on Form 8-K filed with the Commission on May 29, 1997). Annexes
and schedules to the Agreement and Plan of Merger have not been
filed, but will be provided supplementally to the Commission upon
request.
5.1 Opinion of Amy M. Shapiro.
8.1 Opinion of Latham & Watkins.
10.1 Commitment Letter of The Chase Manhattan Bank and Chase Securities
Inc.
23.1 Consent of Ernst & Young.
23.2 Consent of Amy M. Shapiro (contained in Exhibit 5.1).
23.3 Consent of Latham & Watkins (contained in Exhibit 8.1).
23.4 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
24.1 Powers of Attorney (See Page II-3 of this Registration Statement).
99.1 Form of Proxy Card for Special Meeting of Shareholders.
99.2 Form of Non-Cash Election Form to be used in connection with the
Merger.
99.3 Form of Letter of Transmittal to be used in connection with the
Merger.
99.4 Consent of Mark T. Gallogly.
99.5 Consent of Lawrence H. Guffey.
99.6 Consent of Simon P. Lonergan.