SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (or Date of Earliest Event Reported): December 22, 1999
USOL HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
OREGON 01-14271 93-1197477
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorpoation)
10300 Metric Boulevard
Austin, Texas 78758
(Address of principal executive offices) (Zip Code)
(512) 651-3780
(Registrant's telephone number, including area code)
FIRSTLINK COMMUNICATIONS, INC.
190 SW Harrison
Portland, Oregon 97201
(Former name or former address, if changed since last report)
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
The consummation of the merger of USOL Holdings, Inc., a Delaware
corporation, with and into FirstLink Communications, Inc., an Oregon corporation
(the "Registrant") was effective as of December 22, 1999. In connection with the
merger, the Registrant's Articles of Incorporation were amended to change the
Registrant's name to USOL Holdings, Inc. This transaction was previously
reported on Form 8-K filed with the Securities and Exchange Commission on
January 6, 2000, and amended January 12, 2000. This amendment to such Form 8-K
contains the financial statements required by Item 7 for such transaction.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) and (b) Financial statements of business acquired and pro forma financial
information:
USOL HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial information
is presented to give effect to the merger of FirstLink Communications, Inc.
("FirstLink") and USOL Holdings, Inc. ("Holdings") on December 22, 1999. The
unaudited pro forma consolidated balance sheet as of September 30, 1999, and the
unaudited pro forma consolidated statements of operations for the nine months
ended September 30, 1999 are based on the individual balance sheets and
statements of operations of Holdings appearing elsewhere in this filing, U.S
OnLine Communications, Inc. (the predecessor of Holdings, "Communications")
appearing in a previously filed Proxy and FirstLink appearing in a previously
filed Form 10QSB. The Company acquired U.S. OnLine Communications, Inc.
effective July 1, 1999.
On December 22, 1999, Holdings merged with and into FirstLink. In
connection with the merger, FirstLink exchanged 3,175,000 shares of its common
stock and 1,480,000 shares of preferred stock for an equal number of shares of
Holdings' common and preferred stock. FirstLink also assumed a three-year,
$3,674,000 note underlying 2,000,000 shares of Holdings' common stock.
Additionally, FirstLink issued Holdings' shareholders 2,084,000 warrants to
purchase common stock (at prices ranging from $2.00 to $6.00 per share) and
exchanged stock options to acquire 1,591,000 shares of FirstLink common stock at
prices ranging from $1.00 to $5.50 per share for identical Holdings' stock
options.
The issuance of the shares resulted in the Holdings shareholders owning
approximately 84% of the voting securities of the Company. Also, Holdings
nominates a controlling number of seats on the Company's board of directors and
the officers of Holdings have retained their positions after the merger. As the
stockholders, directors and officers of Holdings hold the controlling interest
in the Company, this merger was accounted for as a reverse acquisition under the
purchase method of accounting. A reverse acquisition occurs when the legal
acquirer (FirstLink) is deemed not to be the accounting acquirer. In these
cases, the legal form of the transaction is ignored, and the target company
(Holdings ) is treated as the acquiring company for financial reporting
purposes.
The pro forma financial information is provided for comparative
purposes only and does not purport to be indicative of the results that actually
would have been obtained if the merger set forth above had been effected on the
dates indicated or of the results that may be obtained in the future. The pro
forma financial statements are based on preliminary estimates of values and
transaction costs. The actual recording of the transactions will be based on the
final appraisals, values and transaction costs. Accordingly, the actual
recording of the transactions can be expected to differ from these pro forma
financial statements.
The unaudited pro forma condensed consolidated balance sheet assumes
that the merger was consummated on September 30, 1999. The unaudited pro forma
condensed statements of operations reflect the consolidation of the results of
operations of Holdings for the period from inception (May 12, 1999) through
September 30, 1999, Communications for the six months ended June 30, 1999 and
FirstLink for the nine months ended September 30, 1999 as if the merger had been
consummated on January 1, 1999.
<PAGE>
<TABLE>
USOL HOLDINGS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS SEPTEMBER 30, 1999
(UNAUDITED)
<CAPTION>
USOL HOLDINGS, INC.
FOR THE PERIOD FROM U.S. ONLINE FIRSTLINK
INCEPTION (MAY 12, 1999) COMMUNICATIONS,INC. FOR THE NINE
THROUGH FOR THE SIX MONTHS MONTHS ENDED PRO FORMA
SEPTEMBER 30, 1999 ENDED JUNE 30, 1999 SEPTEMBER 30, 1999 ADJUSTMENTS PRO FORMA
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUE $ 1,550,249 $ 2,831,07 $ 1,024,329 $ $ 5,405,657
--------------------------------------------------------------------------------------------
EXPENSES:
Operating 1,102,071 2,100,739 811,276 4,014,086
Selling, general and administrative 1,433,767 1,554,807 1,247,721 4,236,295
Depreciation and amortization 557,767 878,286 188,264 2,079,259 H 3,703,576
Stock compensation expense 944,366 - - 944,366
--------------------------------------------------------------------------------------------
Total expenses 4,037,971 4,533,832 2,247,261 2,079,259 12,898,323
--------------------------------------------------------------------------------------------
Operating loss (2,487,722) (1,702,753) (1,222,932) (2,079,259) (7,492,666)
--------------------------------------------------------------------------------------------
OTHER (INCOME) EXPENSE:
Interest,net 77,678 1,722,942 (74,933) 1,725,687
Other - 77,699 30,394 108,093
--------------------------------------------------------------------------------------------
77,678 1,800,641 (44,539) - 1,833,780
--------------------------------------------------------------------------------------------
LOSS BEFORE MINORITY INTEREST (2,565,400) (3,503,394) (1,178,393) (2,079,259) (9,326,446)
MINORITY INTEREST IN INCOME OF SUBSIDIARY (11,309) 2,414 - - (8,895)
--------------------------------------------------------------------------------------------
Net loss (2,576,709) (3,500,980) (1,178,393) (2,079,259) (9,335,341)
PREFERRED STOCK DIVIDENDS (863,333) - - - (863,333)
============================================================================================
Loss attributable to common $ (3,440,042) $ (3,500,980) $ (1,178,393) $(2,079,259) $(10,198,674)
shareholders ============================================================================================
PER SHARE AMOUNTS:
Basic and diluted loss per common share $ (0.33) $ (1.50)
==================== =============
Basic and diluted weighted average
common shares 3,621,074 3,175,000 I 6,796,074
==================== =============
</TABLE>
See accompanying notes to the unaudited pro forma condensed financial
information.
<PAGE>
<TABLE>
USOL HOLDINGS, INC.
PRO FORMA BALANCE SHEET
As of September 30, 1999
(unaudited)
<CAPTION>
USOL Pro Forma
Holdings, Inc. FirstLink Adjustments Pro Forma
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 17,385,010 $ 2,942,239 $ - $ 20,327,249
Accounts receivable 447,305 216,709 - 664,014
Related party receivables 134,896 37,543 (71,439)A 101,000
Supply inventory 924,624 - - 924,624
Prepaids and other current assets 203,890 70,269 - 274,159
--------------------------------------------------------------------
Total current assets 19,095,725 3,266,760 (71,439) 22,291,046
--------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET 14,475,255 1,648,797 - 16,124,052
GOODWILL, NET 6,088,572 - 27,501,275 E 33,812,031
222,184 G
DEFERRED LOAN COSTS, NET 848,746 - - 848,746
OTHER ASSETS 910,989 222,184 (222,184)G 910,989
====================================================================
Total assets $ 41,419,287 $ 5,137,741 $ 27,429,836 $ 73,986,864
====================================================================
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 2,642,626 $ 359,686 $ - $ 3,002,312
Payable to affiliate 37,543 33,896 (71,439)A -
Current portion of capital lease obligations 525,000 69,249 - 594,249
Preferred dividends payable 863,333 - - 863,333
Deferred revenue 403,074 - - 403,074
--------------------------------------------------------------------
Total current liabilities 4,471,576 462,831 (71,439) 4,862,968
--------------------------------------------------------------------
LONG-TERM DEBT
Capital lease obligations, less current portion 1,754,454 124,574 - 1,879,028
Other 47,303 - - 47,303
--------------------------------------------------------------------
Total long-term debt 1,801,757 124,574 - 1,926,331
--------------------------------------------------------------------
MINORITY INTEREST 59,201 - - 59,201
STOCKHOLDERS' EQUITY:
Preferred stock 34,410,000 - 34,410,000 B 34,410,000
(34,410,000)B
Common stock 3,175 8,538,796 (3,988,460)C 36,396,211
3,175 D
(3,175)D
27,501,275 E
4,341,425 F
Additional paid in capital - common stock 4,341,425 - (4,341,425)F -
Deferred compensation (227,805) - - (227,805)
Retained deficit (3,440,042) (3,988,460) 3,988,460 C (3,440,042)
--------------------------------------------------------------------
Total stockholders' equity 35,086,753 4,550,336 27,501,275 67,138,364
--------------------------------------------------------------------
====================================================================
Total liabilities and stockholders' $ 41,419,287 $ 5,137,741 $ 27,429,836 $ 73,986,864
equity ====================================================================
</TABLE>
See accompanying notes to the unaudited pro forma condensed financial
information.
<PAGE>
USOL HOLDINGS, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated financial information is
based on the following adjustments and related assumptions. The actual purchase
accounting adjustments will be made on the basis of the appraisal and evaluation
as of the date of consummation of the merger and therefore, will differ from
those reflected in the unaudited pro forma condensed financial information. The
Company believes that the actual adjustments, in the aggregate, will not be
materially different from those herein.
On December 22, 1999, Holdings merged with and into FirstLink. In
connection with the merger, FirstLink exchanged 3,175,000 shares of its common
stock and 1,480,000 shares of preferred stock for an equal number of shares of
Holdings common and preferred stock. FirstLink also assumed a three-year,
$3,674,000 note underlying 2,000,000 shares of Holdings' common stock.
Additionally, FirstLink issued Holdings shareholders 2,084,000 warrants to
purchase common stock (at prices ranging from $2.00 to $6.00 per share) and
exchanged stock options to acquire 1,591,000 shares of FirstLink common stock at
prices ranging from $1.00 to $5.50 per share for identical Holdings stock
options.
PRO FORMA ADJUSTMENTS
A. To eliminate the intercompany receivable and payable between Holdings
and FirstLink.
B. To reflect the issuance by FirstLink of 1,480,000 shares of preferred
stock in exchange for the outstanding preferred stock of Holdings.
C. To eliminate the retained deficit of FirstLink.
D. To reflect the issuance by FirstLink of 3,175,000 shares of no par
common stock in exchange for the common stock of Holdings.
E. To record the step-up of the FirstLink assets to estimated fair market
value. For the common stock, FirstLink determined fair market value by
using the average price of FirstLink's publicly traded common stock
three days before and three days after signing the definitive merger
agreement ($6.22 per share). For the FirstLink warrants and options,
FirstLink determined fair market value by taking the closing price of
the FirstLink publicly traded warrant on the date the definitive merger
agreement was signed and applied the same intrinsic value to the
private warrants and stock options:
FirstLink Common Stock $23,130,091
FirstLink Stock Options 4,214,972
FirstLink Stock Purchase Warrants 4,706,548
------------
32,051,611
Less FirstLink Net Assets (4,550,336)
$27,501,275
F. To eliminate the additional paid in capital of Holdings.
G. To reclassify the pre-merger costs incurred by FirstLink.
H. To record amortization of the goodwill created by the merger over ten
years.
I. To reflect the issuance of common stock by FirstLink in connection
with the merger. Conversion of the preferred shares, stock options and
warrants issued in connection with the merger is not assumed, as the
impact is anti-dilutive to loss per common share.
<PAGE>
<TABLE>
USOL HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET - - SEPTEMBER 30, 1999
(Unaudited)
<CAPTION>
ASSETS
CURRENT ASSETS:
<S> <C>
Cash and cash equivalents $ 17,385,010
Accounts receivable, net 447,305
Related-party receivables 134,896
Supply inventory 924,624
Other current assets 203,890
-------------
Total current assets 19,095,725
PROPERTY AND EQUIPMENT, net 14,475,255
GOODWILL, net 6,088,572
DEFERRED LOAN COSTS, net 848,746
OTHER ASSETS 910,989
Total assets $ 41,419,287
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 2,642,626
Payable to affiliate 37,543
Preferred stock dividends payable 863,333
Current portion of capital leases 525,000
Deferred revenue 403,074
-------------
Total current liabilities 4,471,576
CAPITAL LEASE OBLIGATIONS, less current portion 1,754,454
-------------
OTHER LONG-TERM LIABILITIES 47,303
MINORITY INTEREST 59,201
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par, 2,000,000 shares authorized, 1,480,000 outstanding, 34,410,000
liquidation preference of $37.0 million
Common stock, $.001 par value, 30,000,000 shares authorized, 3,175,000 outstanding 3,175
Additional paid-in capital - common stock 4,341,425
Deferred compensation (227,805)
Accumulated deficit (3,440,042)
-------------
Total stockholders' equity 35,086,753
Total liabilities and stockholders' equity $ 41,419,287
=============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
<TABLE>
USOL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (MAY 12, 1999)
THROUGH SEPTEMBER 30, 1999
(Unaudited)
(Notes 1 and 2)
<CAPTION>
<S> <C>
REVENUES $ 1,550,249
-------------
OPERATING EXPENSES:
Operating 1,102,071
Selling, general and administrative 1,433,767
Depreciation and amortization 557,767
Stock compensation expense 944,366
-------------
Total operating expenses 4,037,971
LOSS FROM OPERATIONS (2,487,722)
OTHER:
Interest expense, net 77,678
Total other 77,678
LOSS BEFORE MINORITY INTEREST (2,565,400)
MINORITY INTEREST IN INCOME OF SUBSIDIARY (11,309)
-------------
Net loss (2,576,709)
PREFERRED STOCK DIVIDENDS: (863,333)
Loss attributable to common shareholders $ (3,440,042)
==============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
<TABLE>
USOL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (MAY 12, 1999)
THROUGH SEPTEMBER 30, 1999
(Unaudited)
(Notes 1 and 2)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,576,709)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization 557,767
Minority interest 11,309
Stock compensation expense 944,366
Changes in operating assets and liabilities-
Receivables, net (292,656)
Other assets (331,007)
Accounts payable and accrued expenses 495,781
Other liabilities 85,669
-------------
Net cash used in operating activities (1,105,480)
-------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of assets from GMACCM (2,500,000)
Cash paid to acquire US OnLine (845,000)
Cash acquired from US OnLine 1,413,353
Purchases of property and equipment (1,141,798)
-------------
Net cash used in investing activities (3,073,445)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt acquired from US OnLine (9,391,055)
Principal payments on capital lease obligations (2,607,689)
Payment of deferred financing costs (848,746)
Proceeds from sale of common stock 1,425
Proceeds from sale of preferred stock, net 34,410,000
of issuance costs of $2,590,000 -------------
Net cash provided by financing activities 21,563,935
-------------
INCREASE IN CASH AND CASH EQUIVALENTS 17,385,010
CASH AND CASH EQUIVALENTS, beginning of period -
CASH AND CASH EQUIVALENTS, end of period $ 17,385,010
=============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 909,646
Acquisition of certain assets and liabilities from US OnLine, net 182,948
Issuance of warrants in connection with acquisitions 1,668,600
Common stock issued for a note 3,674,000
Non-Cash Stock Offering Costs 325,000
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
USOL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BUSINESS:
USOL Holdings, Inc., its wholly owned subsidiary USOL, Inc. (USOL), and USOL's
50 percent owned subsidiary, U.S.-Austin Cable Associates I, Ltd. (USAC)
(collectively referred to herein as the Company), provide integrated
telecommunications services including local telephone, long distance telephone,
enhanced calling features and cable television to residents of multifamily
apartment complexes and condominiums (MDUs) in Texas, Virginia and Colorado. The
services are provided to the tenants in accordance with long-term operating
agreements between the Company and the property owners under which the property
owners share in the telecommunication revenues generated from their properties.
The agreements provide the tenants with the option to use either the Company or
the local telephone and long distance carriers for telephone services. Tenants
desiring to subscribe to cable television must utilize the Company.
USOL also wholly owns TheResidentClub.com, Inc. (TRC), an Internet-based
business that provides a range of move-in and lifestyle enhancement services for
the multifamily housing market.
2. ORGANIZATION AND BASIS
OF PRESENTATION:
The Company was formed on May 12, 1999, for the purpose of acquiring entities
providing telecommunications, cable television, Internet access and other
services to residents of MDUs. On July 21, 1999, the Company, through USOL,
purchased substantially all of the assets and certain liabilities of U.S. OnLine
Communications, Inc. (US OnLine). For financial reporting purposes the
transaction was deemed effective as of July 1, 1999, the date at which
management obtained control of US OnLine. US OnLine provided telecommunications
and cable television services to residents of MDUs in Texas, Virginia and
Colorado. Pursuant to the asset purchase agreement, the purchase price of
$20,498,502 consisted of 750,000 shares of the Company's common stock valued at
$2.00 per share, warrants to purchase 1,500,000 shares of the Company's common
stock at an exercise price of $5.50 per share, approximately $845,000 of cash
and the assumption of $16,828,702 of liabilities. The Company valued the
warrants using the Black-Scholes pricing model at approximately $1,324,800. The
Black-Scholes valuation was based on the warrant terms using the Company's then
current stock price of $2.00 per share and a volatility percentage
representative of a public company operating in this industry.
On July 21, 1999, the Company, through its subsidiary TRC, purchased certain
assets and contract rights from GMAC Commercial Mortgage Corporation (GMACCM).
Pursuant to the asset purchase agreement, the purchase price of $2,843,800
consisted of cash of $2,500,000 and a warrant to purchase 325,000 shares of the
Company's common stock at an exercise price of $2.00 per share. The Company
valued this warrant using the Black-Scholes pricing model at approximately
$343,800. The Black-Scholes valuation was based on the warrant terms using the
Company's then current stock value of $2.00 per share and a volatility
percentage representative of a public company operating in this industry. The
acquisition was accounted for as a purchase with the entire purchase price being
recorded as goodwill.
<PAGE>
Simultaneous with the transaction described above, the Company and FirstLink
Communications, Inc. (FirstLink), entered into an agreement whereby FirstLink
common stock would be exchanged for USOL common stock, and USOL would be merged
with and into FirstLink, subject to the approval of FirstLink shareholders. The
Company completed its merger with FirstLink on December 22, 1999 (See Note 5)
The minority interest in the income of USAC is deducted from the consolidated
loss. All intercompany balances and transactions have been eliminated in
consolidation.
3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Interim Financial Information
The accompanying interim financial statements as of September 30, 1999, and for
the period from inception (May 12, 1999) through September 30, 1999, are
unaudited and have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of the Company's management, the
unaudited interim financial statements contain all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation. The
results of operations for the interim periods are not necessarily indicative of
the results that may be expected for the entire year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Supply Inventory
Supply inventory consists of various service and maintenance items related to
the Company's transmission systems and are stated at the lower of cost or market
using the first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Expenditures for repairs and maintenance are charged to expense when incurred.
Expenditures for major renewals and betterments, which extend the useful lives
of existing equipment, are capitalized and depreciated. Upon retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statement of operations.
<PAGE>
The Company leases certain equipment under agreements accounted for as capital
leases. The assets under capital leases are recorded at the lesser of the
present value of aggregate future minimum lease payments or the fair value of
the assets under lease. Assets under capital lease are depreciated over their
estimated useful lives as it is management's intent to exercise the bargain
purchase options available under the agreements.
Goodwill
Goodwill is related to the purchase of the US OnLine assets and TRC's purchase
of assets from GMACCM as described in Note 2 and is being amortized on the
straight-line method over 10 years.
Deferred Loan Costs
Deferred loan costs consist of costs incurred in connection with obtaining a
senior credit facility.
Revenue Recognition
Revenue from subscribers is recognized in the period that service is provided.
Amounts billed prior to providing services are reflected as deferred revenue.
Installation fees are recognized as revenue upon origination of service to
subscribers. Costs incurred to obtain subscribers are expensed as incurred.
Income Taxes
The Company follows the liability method of accounting for income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes." Under this method,
deferred assets and liabilities are recorded for future tax consequences of
temporary differences between the financial reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and laws that will
be in effect when the underlying assets or liabilities are recovered or settled.
Comprehensive Income
The Company follows the provisions of SFAS No. 130, "Reporting Comprehensive
Income." The objective of SFAS No. 130 is to report all changes in equity that
result from transactions and economic events other than transactions with
owners.
Credit Risk and Significant Customers
The Company's accounts receivable subject the Company to credit risk, as
collateral is generally not required. The Company's risk of loss is limited due
to advance billings to certain customers for services and the ability to
terminate access on delinquent accounts. The large number of customers
comprising the customer base mitigates the concentration of credit risk.
Financial Instruments
The carrying amounts of cash equivalents, accounts receivable, accounts payable
and accrued liabilities approximate fair value because of the short-term nature
of these instruments. The fair value of all long-term debt was estimated by
discounting the future cash flows using market interest rates and does not
differ significantly from that reflected in the financial statements.
<PAGE>
4. STOCKHOLDERS' EQUITY:
Preferred Stock
On July 21, 1999, the Company issued 1,325,000 shares of Series A Preferred
Stock and 155,000 shares of Series B Preferred Stock (collectively the Preferred
Stock) for $37 million.
The Preferred Stock accretes cumulative dividends from the date of issuance at
the rate of 12 percent per year, payable quarterly in arrears on the last day of
March, June, September and December. The Company has the option of paying the
dividend in cash or shares of its common stock.
Each share of Series A Preferred Stock has 12-1/2 votes per share on any matter
on which holders of common stock are entitled to vote, except for the election
of directors. Four of the entities that have been issued Series A Preferred
Stock each have the right to nominate and elect, voting as a class and
separately from all other classes and series, a majority of the Company's
directors. Holders of Series B Preferred Stock do not have the right to vote on
any matter, except for a proposal to merge or consolidate with or into another
entity, or any recapitalization or reorganization in which they would be
adversely affected.
Beginning July 21, 2001, each share of Preferred Stock shall convert into common
stock on the earliest to occur of (a) the closing of a firm commitment public
offering pursuant to which the Company offers its equity securities for gross
proceeds of $40 million or more; (b) the day that the closing sales price of the
Company's common stock is $10.00 per share or more for 15 consecutive trading
days; or (c) if the common stock is trading at more than $2.00 per share on July
21, 2006.
In the event of liquidation, the Preferred Stock shareholders are entitled to
receive $25 per share and all unpaid cumulative dividends, prior to, and in
preference to any distribution to the holders of common stock. If undistributed
assets remain after satisfying the Preferred Stock shareholders, such assets
shall be distributed ratably among the holders of common stock, and holders of
Preferred Stock have no further right or claim to any of the remaining assets.
The Preferred Stock converts into common stock at $2.00 per share. The holders
of the Preferred Stock may convert their shares in whole or in part into common
stock at any time. The holders of Series B Preferred Stock may convert their
shares into Series A Preferred Stock at any time.
Stock Subscription Receivable
On July 21, 1999, the Company issued 2 million shares of common stock in
exchange for notes receivable totaling $3,674,000 and $1,000 in cash. The shares
were sold for $2.00 per share, however, one party purchased shares at $1.675 per
share in recognition of their services for identifying certain investors. The
notes accrue interest at 5 percent per annum and are due July 21, 2002. The
$325,000 difference between the fair market value of the stock and the purchase
price has been reflected as a stock offering cost.
Capital Stock
The Company's original articles of incorporation provide for the authorization
of 2,000,000 shares of $.001 par value common stock. Upon its formation, the
Company issued 425,000 shares of common stock to members of management in
exchange for $425 in cash. The Company recorded $849,575 of stock compensation
expense related to the issuance of these shares based on the difference between
the cash paid and the estimated $2 per share fair market value of the shares on
the date of issuance.
<PAGE>
Stock Options
On July 19, 1999, the Company adopted the 1999 Incentive Plan (the Incentive
Plan) to provide incentives to attract and retain key employees and directors.
Under the Incentive Plan, the Company can issue up to 3,000,000 shares of common
stock to individuals designated by the board of directors, with the number of
shares authorized for issuance automatically increasing when additional shares
of stock of the Company are issued so that the number of shares available equals
10 percent of the total number of issued and outstanding shares at such time.
On July 21, 1999, the Company granted options to certain employees to purchase
325,000 shares of the Company's common stock at $1 per share. These options have
a life of 10 years and vest over 3 years, with 25 percent vested on the date of
grant. The Company recorded deferred compensation of $243,750 and recognized
stock compensation expense of $81,250 as the estimated fair value of the
Company's common stock was $2 per share on the date the options were granted.
Also on July 21, 1999, the Company granted options under the Incentive Plan to
certain employees for the purchase of 1,585,000 shares of the Company's common
stock with exercise prices ranging from $2 to $5.50 per share. These options
have a life of 10 years and vest over 3 years with certain options vesting 25
percent on the date of grant.
5. SUBSEQUENT EVENTS:
Merger
On December 22, 1999, the Company was merged with and into FirstLink.
Senior Credit Facility
On December 30, 1999, the Company executed a senior credit facility (the
Facility) with a bank that provides for borrowings of up to $35 million. Under
terms of the Facility, the Company may borrow funds for a two-year period
commencing January 1, 2000, and ending December 31, 2001, at which time the
Facility will convert to a five-year term loan. The Facility bears interest at
the Company's option at an annual rate of prime plus 2.75 percent or LIBOR plus
3.75 percent subject to certain discounts based on leverage ratios. The Facility
is secured by all assets of the Company, excluding TRC. The Facility contains an
unused commitment fee ranging from .5 percent to 1.25 percent depending on
borrowing levels and an annual administrative fee of $30,000. At December 31,
1999, there were no borrowings under the Facility.
SIGNATURE
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.
USOL HOLDINGS, INC.
Date: March 6, 2000 By: /s/ Jeffrey S. Sperber
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Jeffrey S. Sperber
Chief Financial Officer
