SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 7, 1998
COMMNET CELLULAR INC.
(Exact name of registrant as specified in charter)
Colorado 0-15056 84-0924904
(State or other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
8350 East Crescent Parkway 80111
Suite 400 (Zip Code)
Englewood, Colorado
(Address of Principal
Executive Offices)
Registrant's telephone number, including area code: (303) 694-3234
Item 5. Other Events.
CommNet Cellular Inc. (the "Company") announced on January 7, 1998
that it is commencing tender offers (the "Offers") to purchase for cash all of
its outstanding 11 3/4% Senior Subordinated Discount Notes Due 2003 (the
"Discount Notes") and all of its 11 1/4% Subordinated Notes due 2005 (the
"Subordinated Notes," together with the Discount Notes, the "Securities").
Concurrently with the Offers, the Company is soliciting consents to proposed
amendments to the indentures governing the Securities to eliminate certain
covenants and to amend certain other provisions. The Offers and consent
solicitations are being made in connection with the proposed merger (the
"Merger") of AV Acquisition Corp., a Delaware corporation ("Newco") formed by an
affiliate of Blackstone Capital Partners II Merchant Banking Fund L.P., with and
into the Company pursuant to a Merger Agreement dated May 27, 1997 (the "Merger
Agreement").
The Company also announced that on December 30, 1997 the Federal
Communications Commission ("FCC") granted applications filed in connection with
the Merger to transfer control of eight cellular licenses. The eight cellular
licenses had been the subject of previously disclosed petitions seeking to
dismiss or deny such applications. The FCC further denied the petitions to
dismiss or deny the applications filed in connection with the Merger with
respect to the eight licenses. Applications to transfer control of the balance
of the cellular licenses and to transfer control of certain microwave licenses
(including certain applications which also are the subject of petitions to
dismiss or deny) remain pending before the FCC. Although the Company believes
that the applications to transfer control of the balance of the cellular and
microwave licenses will be granted by the FCC in due course, there can be no
assurance that this will be the case.
The following pro forma consolidated financial statements were
distributed to holders of the Securities in connection with the Offers and
consent solicitations.
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 included in the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1997 filed with the Securities
and Exchange Commission on December 29, 1997 (the "Annual Report"). The pro
forma consolidated statement of operations for the fiscal year ended September
30, 1997 gives effect to the Merger and related transactions, including the
Offers (as if all of the Securities were repurchased in the Offers) as if such
transactions had been consummated as of October 1, 1996. The pro forma
consolidated balance sheet gives effect to the Merger and related transactions
as if such transactions had occurred as of September 30, 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 period 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
included in the Annual Report.
At the effective time of the Merger, Newco will be merged with and into the
Company and the Company 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.
2
PRO FORMA CONSOLIDATED BALANCE SHEET
(Unaudited)
SEPTEMBER 30, 1997
-------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS (A) PRO FORMA
---------- -------------- ---------
(AMOUNTS IN THOUSANDS)
ASSETS
- ------
Current assets:
Cash and cash equivalents.............. $ 14,132 $ 6,636 $ 20,768
Accounts receivable, net............... 25,386 25,386
Current portion of advances to
affiliates............................ 2,873 2,873
Inventory and other.................... 4,558 4,558
--------- --------- ---------
Total current assets................. 46,949 6,636 53,585
Investment in and advances to affiliates. 47,211 47,211
Investment in cellular system equipment.. 10,243 10,243
Property and equipment, net.............. 143,875 143,875
FCC licenses and filing rights, net...... 98,216 98,216
Deferred loan costs and other, net....... 6,422 20,279 26,701
--------- --------- ---------
$ 352,916 $ 26,915 $ 379,831
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
- ------------------------------------
Current liabilities:
Accounts payable....................... $ 7,695 $ 7,695
Accrued liabilities.................... 19,994 19,994
Accrued interest....................... 2,302 $ (2,302) --
Current portion of secured bank
financing and other long-term debt.... 1,118 (1,118) --
--------- --------- ---------
Total current liabilities............ 31,109 (3,420) 27,689
Long-term debt:
Secured bank financing................. 8,803 (8,803) --
New bank financing..................... -- 680,000 680,000
Note payable and other long-term debt.. 2,916 2,916
Discount Notes ........................ 159,133 (159,133) --
Subordinated Notes..................... 80,000 (80,000) --
Minority interests....................... 9,055 9,055
Shareholders' equity (deficit):
Preferred Stock ....................... -- --
Common Stock .......................... 14 (9) 5
Capital in excess of par value ........ 165,989 129,421 295,410
Accumulated deficit.................... (104,103) (531,141) (635,244)
--------- --------- ---------
Total shareholders' equity (deficit). 61,900 (401,729) (339,829)
--------- --------- ---------
$ 352,916 $ 26,915 $ 379,831
========= ========= =========
See Notes to Pro Forma Consolidated Balance Sheet
3
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............ $821,810 $(475,078) $(23,240) $(279,356) $(37,500) $ 6,636
Deferred loan costs..... (4,836) 25,115 20,279
Accrued interest........ (2,302) (2,302)
Current portion of
secured bank
financing.............. (1,118) (1,118)
Existing secured bank
financing.............. (8,803) (8,803)
New bank financing...... 680,000 680,000
Discount Notes.......... (159,133) (159,133)
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..... (475,065) (23,240) (32,836) (531,141)
- --------
(1) The estimated sources and uses of cash are calculated as follows:
(AMOUNTS IN
THOUSANDS)
-----------
Sources of cash:
New bank financing......................................... $680,000
Common equity.............................................. 141,810
--------
Total.................................................... $821,810
========
Uses of cash:
Value of common stock and options.......................... $519,508
Value of retained common stock............................. (21,190)
--------
Payment of cash merger consideration and settlement of
options................................................... 498,318
Estimated transactions fees and expenses................... 37,500
Repayment of existing debt and accrued interest............ 279,356
Increase to cash and cash equivalents...................... (6,636)
--------
Total.................................................... $821,810
========
(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 of $28,000,000, and assumes all of the holders of the
Securities tender their Securities in the Offers. The pro forma
repayment amount differs from the actual amount required to pay the
total consideration for the Discount Notes and the Subordinated Notes
on the payment date due primarily to additional accretion of the Discount
Notes recorded subsequent to September 30, 1997. In addition, unamortized
deferred loan costs of $4,836,000 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.
4
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
YEAR ENDED SEPTEMBER 30, 1997
----------------------------------
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- --------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Revenues:
Cellular service.......................... $107,383 $107,383
In-roaming................................ 39,881 39,881
Equipment sales........................... 3,603 3,603
-------- --------
150,867 150,867
Costs and expenses:
Cellular operations:
Cost of cellular service................ 26,837 26,837
Cost of equipment sales................. 12,598 12,598
General and administrative.............. 29,819 29,819
Marketing and selling................... 23,344 23,344
Depreciation and amortization........... 20,433 20,433
Corporate:
General and administrative.............. 7,330 $ 500 (a) 7,830
Depreciation and amortization........... 2,755 (824)(b) 1,931
Less amounts allocated to
nonconsolidated affiliates............. (6,416) (6,416)
-------- -------- --------
116,700 (324) 116,376
-------- -------- --------
Operating income............................ 34,167 324 34,491
Equity in net loss of affiliates............ (7,589) (7,589)
Minority interest in net loss of
consolidated affiliates.................... (2,964) (2,964)
Gain on sales of affiliates and other....... 350 350
Interest expense............................ (29,464) (2,791)(b) (69,831)
(37,576)(c)
Interest income............................. 6,532 6,532
-------- -------- --------
Net income (loss)........................... $ 1,032 $(40,043) $(39,011)
======== ======== ========
Net income (loss) per common share.......... $ 0.07 $ (8.62)
======== ========
Weighted average shares outstanding......... 13,767 4,528
======== ========
See Notes to Pro Forma Consolidated Statements of Operations
5
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
year ended September 30, 1997. 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 statement of operations does 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 statement of operations, consistent with the
historical financial statements for the period presented.
(a) The adjustment represents an annualized monitoring fee payable to
Blackstone Management Partners L.P.
(b) The pro forma adjustment to amortization expense reflects the following
(amounts in thousands):
Amortization of existing deferred loan costs.................... $ (824)
Amortization of estimated deferred loan costs................... 2,791
-------
Total adjustment............................................ $ 1,967
=======
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
(amounts in thousands):
Interest expense on existing indebtedness...................... $(29,034)
Interest expense on new bank financing (at an assumed weighted
average rate of 9.70%)........................................ 65,960
Fees relating to new bank financings........................... 650
--------
Total adjustment........................................... $ 37,576
========
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 $850,000 for the year ended September 30, 1997.
Each $1,000,000 increase in the borrowings under the revolving credit facility
under the new bank financing would change the pro forma interest expense by
$87,500 for the year ended September 30, 1997. All of the Securities are
assumed to have been repurchased in the Offers.
6
The Company has issued a press release announcing the Offers and
consent solicitations, which is filed herewith as Exhibit 99.1.
Item 7. Financial Statements and Exhibits.
(c) The following exhibit is filed with this report:
99.1 Press Release dated January 7, 1998
7
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
COMMNET CELLULAR INC.
Date: January 8, 1998 By: /s/ Daniel P. Dwyer
----------------------------
Daniel P. Dwyer
Chief Financial Officer