UNITED STATES
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): MARCH 5, 1998
EQUALNET HOLDING CORP.
(Exact name of registrant as specified in charter)
0-25482
(Commission File No.)
TEXAS 76-0457803
(State of Incorporation) (I.R.S. Employer Identification No.)
1250 WOOD BRANCH PARK DRIVE
HOUSTON, TEXAS 77079
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 281/529-4600
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
On March 5, 1998, the shareholders of EqualNet Holding Corp. (the
"Company") approved certain transactions (the "Transactions") pursuant to which
the Company issued an aggregate of 5,400,000 shares of Common Stock, par value
$.01 per share, of the Company (the "Common Stock") and a warrant to purchase an
additional 400,000 shares of Common Stock (the "Warrant") to Willis Group LLC in
exchange for certain telecommunications assets and cash. In addition, the
Company issued (i) 2,000 shares of a newly established Series A Preferred Stock,
which shares are convertible into approximately 2,000,000 shares of Common
Stock, (ii) 2,081,633 additional shares of Common Stock to Netco Acquisition
LLC, a joint venture between Willis Group LLC and MCM Partners, and (iii)
1,522,000 additional shares of Common Stock to Advantage Fund Ltd, an affiliate
of MCM Partners, in exchange for principal and interest on certain working
capital loans. Following the consummation of the Transactions and the
distribution by Netco LLC to Willis LLC and MCM Partners of the 2,000 shares of
Series A Preferred Stock and 3,581,633 shares of Common Stock, Willis Group LLC
holds approximately 52% of the Common Stock. If Willis Group LLC were to
exercise the Warrant and the warrant for 200,000 shares of Common Stock that it
received in connection with an October 1997 financing, it would hold
approximately 54% of the Common Stock.
Pursuant to the agreements entered into in connection with the
Transactions, (i) the Company agreed to increase the size of the Board of
Directors to eight members, (ii) Willis Group LLC received the right to
designate four nominees to be elected directors at the March 5, 1998 annual
meeting of shareholders and (iii) MCM Partners received the right to designate
one nominee to be elected director at the March 5, 1998 annual meeting of
shareholders. At such meeting, the designees of Willis Group LLC, Messrs. John
Isaac Epsley, James T. Harris, Ronald J. Salazar and Mark A. Willis, and the
designee of MCM Partners, Mr. Mitchell H. Bodian, were elected directors.
Also in connection with the transactions, Mr. Michael Willis, a majority
owner of Willis Group LLC, personally guaranteed up to $6 million of a loan to
the Company by Finova Capital Corporation in consideration of which the Company
issued to Mr. Willis a warrant to purchase 500,000 shares of Common Stock.
Separately, Willis Group LLC loaned $400,000 to the Company which is
evidenced by a promissory note, dated January 20, 1998, payable by the Company
in favor of Willis Group LLC in the principal amount of $400,000, bears interest
at an annual rate of 10% and matures March 31, 1998.
ITEM 5. OTHER EVENTS
Pursuant to the requirements of The Nasdaq Stock Market, Inc., the Company
is filing as Exhibit 99.1 to this Current Report on Form 8-K, a pro forma
balance sheet as of January 31, 1998, giving effect to the consummation of the
Transactions.
Page 2
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) EXHIBITS.
The following documents are filed as exhibits to this report.
99.1 Pro Forma Balance Sheet.
Page 3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EQUALNET HOLDING CORP.
Dated: March 9, 1998 By: /S/ MICHAEL L. HLINAK
Michael L. Hlinak
Chief Operating Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit
NUMBER EXHIBIT
99.1 Pro Forma Balance Sheet.
Page 5
EQUALNET HOLDING CORP.
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
JANUARY 31, 1998
<TABLE>
<CAPTION>
TRANSACTION ADJUSTMENTS PRO-FORMA
1/31/98 ------------------------------ POST-TRANS
(UNAUDITED) DR. CR. 1/31/98
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash & Equivalents ...................................... $ 835,765 $4,000,000(D) $ 533,000(C,F) $ 4,302,765
Accounts Receivable (net) ............................... 5,211,190 -- -- 5,211,190
Receivable from Officers ................................ 32,167 -- -- 32,167
Due From Agents (net) ................................... 1,740,524 -- -- 1,740,524
Prepaid Expenses and Other .............................. 284,273 -- -- 284,273
----------- ----------- ---------- -----------
Total Current Assets .................................... 8,103,919 4,000,000 533,000 11,570,919
Property & Equipment
Computer Equipment ...................................... 3,513,390 14,037,133(C,D,F) -- 17,550,523
Office Furniture & Fixtures ............................. 1,209,032 -- -- 1,209,032
Leasehold Improvements .................................. 1,174,777 -- -- 1,174,777
----------- ----------- ---------- -----------
5,897,199 14,037,133 -- 19,934,332
Accumulated Depreciation & Amortization ................. (3,826,972) -- -- (3,826,972)
----------- ----------- ---------- -----------
2,070,227 14,037,133 -- 16,107,360
Customer Acquisition Costs (net of amort) ............... 823,418 -- -- 823,418
Other Assets ............................................ 1,176,599 500,000(D) -- 1,676,599
Goodwill (net of amort) ................................. 908,357 -- -- 908,357
=========== =========== ========== ===========
TOTAL ASSETS ............................................ $13,082,520 $18,537,133 $ 533,000 $31,086,653
=========== =========== ========== ===========
</TABLE>
See notes to unaudited pro forma balance sheet
<PAGE>
EQUALNET HOLDING CORP.
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
JANUARY 31, 1998
<TABLE>
<CAPTION>
TRANSACTION ADJUSTMENTS PRO-FORMA
1/31/98 ------------------------------- POST-TRANS
(UNAUDITED) DR. CR. 1/31/98
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable ....................................... $ 2,357,928 -- -- $ 2,357,928
Accrued Expenses ....................................... 1,669,762 -- -- 1,669,762
Accrued Sales Taxes .................................... 325,456 -- -- 325,456
Brokerage Commissions Payable .......................... 79,056 -- -- 79,056
Payable to Providers of LD Services .................... 6,939,163 -- -- 6,939,163
Notes Payable to LD Provider ........................... 1,166,645 -- -- 1,166,645
Note Payable to Willis Group ........................... 1,000,000 $ 1,051,333(A) -- (51,333)
Discount on Note ....................................... (21,370) -- $ 21,370(A) --
Subordinated Note - In Default ......................... 3,216,651 3,216,651(B) -- --
Contractual Obligation with Regards to Receivables ..... 2,528,173 -- -- 2,528,173
----------- ---------- ----------- -----------
Total Current Liabilities .............................. 19,261,464 4,267,984 21,370 15,014,850
Long Term Debt ......................................... -- -- 6,050,000(C) 6,050,000
Commitments & Contingencies ............................ -- -- -- --
Shareholders' Equity (Deficit)
Preferred Stock $0.01 par ........................... -- -- 30(B) 50
value, 1,000,000 shares authorized and 0 ............ -- -- 20(D)
shares outstanding (Pro Forma 5,000,000
shares authorized, 2,000 Series A and 3,000
Series B shares issued and outstanding ..............
Series A Liquidation Value $2,000,000,
Series B Liquidiation Value $3,000,000)
Common Stock, $0.01 par value, 20,000,000 ........... 66,827 -- -- 170,389
shares authorized and 6,682,718 shares
issued and outstanding at September 30, 1997
(Pro Forma 50,000,000 shares authorized and
16,616,023 shares issued and outstanding)
- Convert Willis Note ............ -- -- 10,513(A)
- Convert Furst Group Note ....... -- -- 3,008(B)
- Acquire Switches ............... -- -- 14,000(C)
- Acquire Network Assets ......... -- -- 36,041(D)
- TWG Share Purchase ............. -- -- 40,000(E)
Treasury Stock ...................................... (804,881) -- -- (804,881)
Additional Paid-In Capital .......................... 21,435,837 -- -- 37,046,657
- Convert Willis Note ............ -- -- 1,019,450(A)
- Convert Furst Group Note ....... -- -- 677,328(B)
- Acquire Switches ............... -- -- 1,386,000(C)
- Acquire Network Assets ......... -- -- 3,568,092(D)
- Issue Preferred Stock .......... -- -- 4,999,950(B,D)
- TWG Share Purchase ............. -- -- 3,960,000(E)
Stock Warrants ...................................... 410,740 -- -- 1,191,740
- Convert Furst Group Note ....... -- 169,000(B) --
- Acquire Switches ............... -- -- 900,000(C)
- Closing Fees ................... -- -- 50,000(F)
Deferred Compensation ............................... (204,993) -- -- (204,993)
Retained Deficit .................................... (27,082,474) -- -- (27,377,159)
- Convert Furst Group Note ....... -- 294,685(B) --
----------- ---------- ----------- -----------
Total Shareholders' Equity (Deficit) ................... (6,178,944) 463,685 16,664,432 10,021,803
=========== ========== =========== ===========
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY (DEFICIT) ..... $13,082,520 $4,731,669 $22,735,802 $31,086,653
=========== ========== =========== ===========
</TABLE>
See notes to unaudited pro forma balance sheet
<PAGE>
EQUALNET HOLDING CORP.
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
(1) BASIS OF PRESENTATION
The preceding table sets forth certain pro-forma balance sheet data of the
Company. The unaudited Pro Forma Balance Sheet gives effect to the completion of
the transactions described in this Current Report on Form 8-K as if these
transactions had occurred on January 31, 1998. The pro forma information set
forth above is not necessarily indicative of the results that actually would
have been achieved had such transactions been consummated as of the date
reflected or that may be achieved in the future.
(2) ADJUSTMENTS TO HISTORICAL FINANCIAL STATEMENTS
The preceding pro forma adjustments have been made to the unaudited January 31,
1998 balance sheet of the Company to give effect to the transactions as if they
had occurred on January 31, 1998.
(A) To reflect the conversion of the Willis Group $1,000,000 Convertible
Secured Note plus interest of $51,333 for 1,051,333 shares of Common Stock
at a price of $1.00 per share.
(B) To reflect the exchange of The Furst Group Note and Warrant. The Note
principal and Warrant is exchanged into 3,000 shares of Series B Preferred
Stock at $1,000 per share. The accrued interest is paid by the issuance of
300,786 shares of Common Stock at $1.00 per share. An additional interest
charge of $210,550 was recorded for the difference in the $1.00 and the
fair market value of the stock at the time the exchange terms were agreed
to, which was approximately $1.70 per share.
The stated value for the Series B Preferred Stock is based on a negotiated
amount and not a formal valuation. The Series B Preferred Stock is
convertible into Common Stock at a rate of 500.00 shares of Common Stock
per share of Series B Preferred, or an aggregate of 1,500,000 shares of
Common Stock. The exchange ratio was established based on the strike price
of the warrants that were originally granted with the Note.
(C) To reflect the acquisition of the switches from the Willis Group by
the Company for $5,850,000 in cash, and 1,400,000 shares of Common Stock
(valued at $1,400,000 based on $1.00 per share), and Warrants to purchase
400,000 additional shares of Common Stock at $1.00 per share (valued at
$400,000). The Company has secured financing for the switches through a
loan from an unaffiliated third party lender. A portion of this financing
is personally guaranteed by Mr. Michael Willis. As consideration for this
guaranty Mr. Willis received a Warrant to purchase 500,000 shares of
Common Stock, exercisable at $1.00 per share.
The switches are carried at $8,083,000 which is the fair market value of
all consideration paid by the Company for the equipment and associated
software ($5,850,000 in cash; $433,000 in sales taxes, 1,400,000 shares of
Common Stock at an assumed value of $1.00 per share and 400,000 warrants
at an assumed value of $1.00 per share).
(D) To reflect the purchase of the network assets from Netco Acquisition
LLC for 2,081,633 shares of Common Stock at $1.00 per share and 2,000
shares of Series A Preferred Stock at $1,000.00 per share. The Company
borrowed $1.5 million from Netco Acquisition LLC to fund the
implementation of the telecommunications network. At closing , the amount
advanced, plus accrued interest, was exchanged for Common Stock based on a
$1.00 per share conversion price which was the market price of the stock
at the time that the terms were agreed to.
<PAGE>
The stated value of the Series A Preferred Stock is based on a negotiated
amount and not on a formal valuation. The Series A Preferred Stock is
convertible into Common Stock at a rate of 1,000.00 shares of Common Stock
per share of Series A Preferred, or an aggregate of 2,000,000 shares of
Common Stock. The exchange ratio was established based on the market value
of the Company's Common Stock on the date that the terms were agreed to.
The excess of the cash and value of the network assets over the par value
of the 3,581,633 shares issued in the transaction is allocated to
Additional Paid In Capital.
The network assets are carried at $5,604,133 which is the estimated fair
market value of all consideration paid by the Company for the assets
(2,000 shares of Preferred Stock at an assumed value of $1,000 per share,
2,081,633 shares of Common Stock at an assumed value of $1.00 per share
and 1,522,500 shares of Common Stock at an assumed value of $1.00 per
share).
(E) To reflect the purchase by the Willis Group of 4,000,000 shares of
Common Stock (valued at $1.00 per share).
(F) To reflect the estimated closing costs of $300,000 cash and 50,000
warrants (valued at $50,000 based on $1.00 per share).
(3) DEPRECIATION AND AMORTIZATION
All equipment and intangibles associated with the switches and network assets
are assumed to be amortized over 5 years.
(4) ADDITIONAL PAID IN CAPITAL
The amount allocated to Additional Paid In Capital is determined by the excess
of cash paid or the fair value of stock sold or issued, respectively, over the
par value of $0.01 per share.
(5) IMPACT ON PRO-FORMA EARNINGS
Had the proposed transactions taken place at the beginning of the respective
periods indicated below, the proposed transactions would have had the following
effect on selected results for the year ended June 30, 1997 and the seven months
ended January 31, 1998:
<TABLE>
<CAPTION>
YEAR ENDED 6/30/97 SEVEN MONTHS ENDED 1/1/98
---------------------------- --------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Depreciation & amortization $ 5,999,000 $ 8,416,200 $ 2,473,400 $ 3,882,900
Operating income (loss) ... $(10,746,300) (13,162,700) $(4,294,100) $(5,703,600)
Interest expense .......... $ (1,022,284) $ (1,744,000) $ (726,400) $ (938,100)
Net income ................ $(14,980,544) $(18,118,600) $(4,922,500) $(6,543,700)
Earnings per share ........ $ (2.46) $ (1.28) $ (0.78) $ (0.46)
</TABLE>
