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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
April 21, 1997
Date of Report (Date of earliest event reported)
Phoenix Network, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 0-17909 84-0881154
-------------- ------------ -------------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
</TABLE>
1687 Cole Boulevard, Golden, Colorado 80401
(Address of principal executive offices)
(303) 205-3500
(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS.
On April 23, 1997, Phoenix Network, Inc. (the "Company") and US
ONE Communications Corp. (collectively with its subsidiaries "US ONE")
announced that they had entered into a letter of intent providing for the
merger (the "Merger") of US ONE into the Company, with the Company surviving
the Merger. The announcement was made in a joint news release, a copy of which
is filed herewith as Exhibit 99.1. In the Merger, stockholders of US ONE would
receive approximately 37,500,000 shares of common stock of the Company,
representing approximately 50%, on a fully diluted basis, of the surviving
entity. The Merger is subject to customary conditions, including negotiation
of definitive documentation, regulatory and stockholder approvals, due
diligence investigations and the conditions set forth in the letter of intent,
which is filed herewith as Exhibit 99.2.
US ONE is a growth-stage company that has deployed a national
telecommunications network of 14 Lucent 5ESS-2000 switches with proprietary
software, located in Boston, New York City, Washington, D.C., Atlanta, Tampa,
Columbus, Chicago, Minneapolis, Kansas City, Dallas, Denver, Los Angeles, San
Francisco and Seattle. US ONE began handling long distance carrier traffic in
August 1996 and is presently handling long distance carrier traffic on eight of
its switches. Further, US ONE is currently completing the initial build-out of
its first competitive local dial tone service operation in New York City, with
comprehensive customer field tests now underway. Recently, US ONE has sought
investors or strategic partners to provide capital to complete the build-out of
its national switching and local dial tone service facilities. In order to
conserve cash and focus on its immediate strategic goal of implementing local
dial tone service, US ONE recently reduced its work force.
Since early 1996, a significant part of the Company's business
strategy has been to deploy and load long distance traffic on a long distance
network system consisting of leased and owned switching equipment in major
metropolitan areas and leased transmission facilities between such switching
equipment. By relying primarily on leased switching equipment and transmission
facilities, the Company intended to deploy its planned network without
substantial capital investment. The Merger represents a strategic shift for
the Company because, following consummation of the Merger, the Company will
directly own US ONE's switching equipment and be responsible for capital
expenditures in connection with the acquisition of equipment relating to the
operation and maintenance of its network. Further, in addition to retail long
distance and local dial tone services, the Company would be reselling such
services on a wholesale basis. The Company will require additional capital
following the Merger to continue its national switching and local dial tone
services rollout.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
99.1 News Release, released on April 23, 1997,
announcing the Merger.
99.2 Letter of Intent, dated April 21, 1997,
between the Company and US ONE, with respect
to the Merger.
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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.
Date: April 25, 1997 Phoenix Network, Inc.
By: /s/ Wallace M. Hammond
-------------------------------------
Wallace M. Hammond, President
and Chief Executive Officer
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
99.1 News Release, released on April 23, 1997, announcing the Merger.
99.2 Letter of Intent, dated April 21, 1997, between the Company and
US ONE, with respect to the Merger.
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Exhibit 99.1
News Release
For Immediate Release
April 23, 1997
Contact: Monica Williamson
Phoenix Network Investor Relations
(800) 448-0804
PHOENIX NETWORK ANNOUNCES PROPOSED MERGER WITH US ONE COMMUNICATIONS CORP.
APRIL 23, 1997--GOLDEN, CO--Phoenix Network, Inc. (AMEX: PHX) announced today
that it has entered into a letter of intent to merge with US ONE Communications
Corp., a Dallas, Texas based CLEC (competitive local exchange carrier) which
owns and operates a national network of Lucent 5ESS-2000 switches capable of
both local dialtone and long distance telephone services. The transaction will
be a stock for stock exchange, treated as a merger of equals, whereby Phoenix
Network, the surviving entity, will distribute approximately 37,500,000 newly
issued shares to the shareholders of US ONE. The companies intend to sign a
definitive agreement within 30 days and close within 120 days, subject to
definitive documentation, appropriate due diligence reviews, the approval of
the Board of Directors of both companies, as well as shareholder, SEC, and
regulatory approvals.
US ONE, which began operations in 1994, has designed and deployed what is
considered to be one of the most advanced telecommunications infrastructures in
the country. The US ONE network is based upon 14 Lucent 5ESS-2000 switches
utilizing custom applications of Advanced Intelligent Network (AIN) software
and is currently capable of switching 1+, 800, and dedicated services, in
combination with local dialtone. The switches are located in New York City,
Chicago, Los Angeles, Boston, Washington D.C., Atlanta, Tampa, Columbus,
Minneapolis, Kansas City, Dallas, Denver, San Francisco, and Seattle.
US ONE began handling long distance carrier traffic in August, 1996, and
Phoenix Network has already successfully converted more than 5% of its traffic
to the US ONE network. US ONE is currently completing the initial build-out of
its first CLEC operation in New York City, with comprehensive customer field
tests of its unbundled local loop dialtone strategy now underway, and scheduled
to be completed in June. Additional major cities are scheduled for CLEC
roll-out in 1998.
Commenting on the merger, Wallace M. Hammond, President and CEO of Phoenix
Network said, "This is truly a case where the whole is far greater than the sum
of the parts. In addition to the significant value which US ONE has built with
its national switching network, we believe
--more--
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News Release
Phoenix Network Announces Merger with US ONE, April 23, 1997
Page two
that US ONE has a competitive advantage over most of its CLEC competitors in
New York, having already negotiated a favorable interconnection agreement with
NYNEX and having secured a fiber ring in the city through its partnership with
National Fiber Network. Complementing US ONE's network infrastructure, Phoenix
Network brings significant volumes of uncommitted long distance traffic, an
accomplished retail sales distribution network, an entree into the wholesale
market in selling to other resellers, and proven expertise in the acquisition
of other resellers.
Additionally, the new entity will be able to take full advantage of Phoenix's
favorable contractual relationship with Comdisco, whereby Phoenix is able to
buy private line service at a significant discount to the market. The combined
entity expects to use Comdisco as its primary vendor for switch
interconnection."
Hammond continued, "As the Telecom Act takes shape and its repercussions are
made known, success, in this business, will be predicated on a number of key
ingredients--controlling a network, having sufficient uncommitted minutes, and
being able to sell, bill, and provide customer service for bundled local and
long distance traffic. With this merger, we believe that we are well on our
way to accomplishing all of the above."
The combined companies will be based in Golden, Colorado with Hammond serving
as the CEO immediately following the merger. Hammond continued, "We are
thrilled that the US ONE Board of Directors has confidence in Phoenix's
management team and its strategic direction that it would accept an all stock
offer in light of other potentially attractive opportunities."
US ONE is a privately-held company which has attracted a significant following
from institutional investors including Willis Stein & Partners, Fleet Equity
Partners, Burr, Egan, Deleage & Co., Southern Farm Bureau Casualty, and Irby
Construction Co. In total, institutional investors have invested more than $60
million of the total of $74 million of equity. US ONE has been seeking
investors or strategic partners to complete the build-out of its national
switching and CLEC facilities. The combined entity will seek additional
capital in order to accomplish its strategic plan, accelerate the CLEC
build-out, and expand the national switching network.
US ONE founder, CEO and Chairman of the Board, James H. Sturges commented, "I
am convinced that substantial synergies will result from this merger. US ONE
has the network and the expertise to reduce the costs of Phoenix's network
operations. The new Phoenix will be one of the first carriers capable of
combining both local and long distance service over its own network. We also
believe that Phoenix will have the ability to make acquisitions and grow
revenue in order to further exploit these advantages. With its multi-purpose
switches and networking capabilities installed in major cities throughout the
U.S., the new company will be significantly ahead of most of its competitors."
--more--
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News Release
Phoenix Network Announces Merger with US ONE, April 23, 1997
Page three
On Thursday April 24th at 9:00 A.M. Mountain time, Phoenix Network and US ONE
will be holding a joint conference call to discuss the merger. Interested
parties can participate by calling 201-628-6885. In addition, a recorded
version of the call can be accessed for the 24 hours following the call by
dialing the same number.
Phoenix Network is an inter-exchange carrier (IXC) which, in addition to its
core long distance products and services, offers Internet access, enhanced fax
services, international call-back, conference calling, travel cards, debit
cards, custom invoices, management reports, and a variety of other products and
services. Phoenix Network's World Wide Web address is
<http://www.phoenixnet.com>.
US ONE Communications Corp. is a national value-added telecommunications
service company built to capitalize on the trend toward increasing competition
in the telecommunications industry. US ONE's service offerings include Carrier
Controlled Switching (CCS), exchange access service and, in the near future,
wholesale and retail local dialtone.
This release contains forward-looking statements that involve risks and
uncertainties. These statements may differ materially from actual future
events or results. Readers are referred to the documents filed by Phoenix
Network, Inc. with the U.S. Securities and Exchange Commission, specifically
the most recent reports on Forms 10-K and 10-Q and registration statements on
Forms S-3 and S-4, which identify important risk factors that could cause
actual results to differ from those contained in the forward-looking
statements.
###
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EXHIBIT 99.2
April 21, 1997
Mr. Wallace M. Hammond
President and Chief Executive Officer
Phoenix Network, Inc.
1687 Cole Boulevard
Golden, Colorado 80401
Dear Mr. Hammond:
US ONE Communications Corp. ("US ONE") is pleased to submit this
proposal (this "Letter of Intent") to effect a business combination with
Phoenix Network, Inc. ("Phoenix"), pursuant to which US ONE will be merged with
and into Phoenix (the "Merger"), with Phoenix surviving the Merger. The
principal terms and conditions of this proposal are as follows:
1. Principal Terms of Merger. The principal terms of the Merger
will be as follows:
a. All issued and outstanding shares of capital stock of
US ONE will be exchanged for shares (the "Issuable
Shares") of common stock, par value $.001 per share
("Phoenix Common Stock"), of Phoenix such that,
following the Merger and subject to adjustment as
provided in subparagraph 1.c. below, Phoenix will be
owned 50% by the stockholders of US ONE immediately
prior to the Merger (the "US ONE Stockholders") and
50% by the common stockholders of Phoenix immediately
prior to the Merger (the "Phoenix Stockholders"), on
a fully-diluted basis assuming the exercise or
conversion of all convertible debt, stock, warrants
and options of Phoenix immediately prior to the
Merger. All outstanding options and warrants of US
ONE immediately prior to the Merger will be
extinguished upon consummation of the Merger. The
aggregate number of shares issuable to the US ONE
Stockholders is expected to be approximately
37,500,000. Each holder of shares of Phoenix Common
Stock following the Merger will be entitled to one
vote per share. US ONE recognizes that it has an
obligation to
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provide incentives to the management team of US ONE
that will be joining the management team of the
combined entity.
b. All issued and outstanding shares of Phoenix Common
Stock immediately prior to the Merger will remain
outstanding after the Merger.
c. If the average of the daily market prices for shares
of Phoenix Common Stock for each day during the ten
consecutive trading days prior to the closing of the
Merger (the "Average Trading Price") is between $1.75
(the "Trading Price Floor") and $2.25 (the "Trading
Price Cap"), no adjustment will be made in the number
of shares to be issued to the US ONE Stockholders
pursuant to the Merger. If, however, the Average
Trading Price (i) exceeds the Trading Price Cap, then
the aggregate number of shares to be issued to the US
ONE Stockholders pursuant to the Merger will be
reduced to a number which, when multiplied by the
Average Trading Price, equals the product of the
Issuable Shares times the Trading Price Cap or (ii)
is less than the Trading Price Floor, then the
aggregate number of shares to be issued to the US ONE
Stockholders pursuant to the Merger will be increased
to an amount which, when multiplied by the Average
Trading Price, equals the Issuable Shares times the
Trading Price Floor. In the event that, prior to the
closing of the Merger, the parties enter into an
agreement with a third party pursuant to which the
third party proposes to acquire all or substantially
all of the assets or common stock of US ONE and all
or substantially all of the assets of Phoenix or the
Phoenix Common Stock pre-Merger, or all or
substantially all of the assets of Phoenix or the
Phoenix Common Stock post-Merger, neither the Trading
Price Floor nor the Trading Price Cap shall apply and
the consideration to be issued in such acquisition
shall be calculated as if the US ONE Stockholders
owned 50% of the Phoenix Common Stock on a
fully-diluted basis immediately prior to the
consummation of such transaction.
d. Following the Merger, the number of directors on the
Board of Directors of Phoenix will be increased from
seven members to
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twelve members in accordance with the applicable
bylaw provisions of Phoenix. The newly-created
directorships will be filled by James H. Sturges and
four other representatives to be named in the merger
agreement applicable to the transaction.
e. The closing of the Merger will occur as soon as is
reasonably practicable following the execution and
delivery of the Definitive Agreements (as hereinafter
defined) and the procurement of all requisite
Approvals (as hereinafter defined).
2. Scope and Form of Transaction. The scope and form of the
proposed Merger shall be mutually acceptable to the parties
and pursuant to the following agreements described herein
(collectively, the "Definitive Agreements"):
a. Agreement and Plan of Merger. The parties will
negotiate and enter into a mutually satisfactory
Agreement and Plan of Merger pursuant to which US ONE
will merge with and into Phoenix, with Phoenix
surviving.
b. Stockholders Agreement. The principal stockholders
of US ONE will negotiate and enter into a mutually
satisfactory Stockholders Agreement pursuant to which
each party to the Stockholders Agreement will agree,
among other things, to vote in favor of the Merger
and the transactions contemplated thereby.
c. Lock-up Agreement. US ONE and Phoenix will negotiate
a mutually satisfactory Lock-up Agreement pursuant to
which (i) the institutional stockholders of US ONE
who will receive shares of Phoenix Common Stock
pursuant to the Merger and (ii) the directors and
executive officers of Phoenix other than Thomas Bell
will agree not to sell or otherwise transfer their
respective shares of Phoenix Common Stock for a
period not to exceed 180 days after the date the
Merger is consummated. Thomas Bell will agree to a
comparable lock-up for a portion of the Phoenix
Common Stock owned beneficially and directly by him
in an amount to be determined.
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3. Conditions to Merger. The consummation of the proposed Merger
is subject to and conditioned upon each of the following:
a. Definitive Agreements. The parties shall have
negotiated, executed and delivered the Definitive
Agreements.
b. Approvals. The parties shall have obtained all
necessary (i) corporate approvals, including, without
limitation, approval of the Definitive Agreements by
their respective Boards of Directors and approval of
the Agreement and Plan of Merger by the US ONE
Stockholders and the Phoenix Stockholders, and (ii)
governmental and regulatory approvals (collectively,
the "Approvals").
c. Fairness Opinions. The parties shall have received
appropriate fairness opinions prior to the execution
and delivery of the Agreement and Plan of Merger.
d. Acquisitions by Phoenix. Phoenix shall have
acquired, either by a stock acquisition or an asset
acquisition, TNC or another company similar to TNC
with respect to volume of, and other relevant
characteristics related to, traffic.
e. New York Local Dialtone. US ONE shall have completed
successfully its local dialtone trial in New York
City. In conjunction with the execution and delivery
of this Letter of Intent, US ONE will provide Phoenix
with a written detailed description of US ONE's local
dialtone trial in New York City, which description
shall include specifications. US ONE's local
dialtone trial in New York City shall be deemed to
have been completed successfully upon the completion
of the trial in accordance with the written
description provided to Phoenix by US ONE.
f. Lucent Commitment. Lucent shall have committed to
fund the reasonable network capital requirements of
Phoenix following the Merger for a period of at least
24 months following the consummation of the Merger.
In addition, Lucent shall have
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committed to fund the existing network of US ONE upon
terms and conditions reasonably satisfactory to the
parties.
g. US ONE Creditors. The parties shall have entered
into mutually acceptable arrangements with the
creditors of US ONE. In conjunction with the
execution and delivery of this Letter of Intent, US
ONE will provide Phoenix with a complete list of the
current creditors of US ONE.
h. Phoenix Amendment. US ONE and Phoenix shall have
executed that certain Amendment No. 5 to Service
Agreement ("Amendment No. 5") concurrently with the
execution of Amendment No. 6 to Service Agreement
("Amendment No. 6"), which Amendment No. 6 shall
delete any provision in Amendment No. 5 related to
vendor carrier shortfalls.
i. Other Conditions. All conditions precedent contained
in the Agreement and Plan of Merger shall have been
satisfied.
j. Additional Capital. Sufficient equity and/or debt
capital will have been raised to provide for the
realization of the combined entity's business plan.
4. Condition to Letter of Intent. The effectiveness of this
Letter of Intent is subject to and conditioned upon the
parties' receipt from each of their respective Boards of
Directors of approval of the terms of this Letter of Intent,
subject to final documentation, within ten days after
execution of this Letter of Intent.
5. Continuing Network Operation. Prior to the closing of the
Merger contemplated by this Letter of Intent, the direct and
indirect costs (the "Costs") of US ONE's maintaining the long
distance network which currently carries Phoenix's traffic
will be borne equally, one-half by US ONE and one-half by
Phoenix; provided, however, that the Costs will be calculated
net of any revenues to US ONE from customers of US ONE other
than Phoenix. The Costs will be paid monthly and will not
exceed an aggregate of $500,000 per month in out-of-pocket
expenses to US ONE and Phoenix collectively. Upon execution
of this Letter of Intent, Phoenix shall advance $250,000 to US
ONE by wire
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transfer of funds to an account designated by US ONE to cover
Costs in respect of the 30-day period beginning on the date of
execution hereof.
6. Management of the Combined Entity. The current management
team of Phoenix will continue to manage the combined entity;
provided, that (i) Wallace M. Hammond will be named the
interim Chief Executive Officer/Chief Operating Officer until
the Board of Directors of the combined entity identifies a
successor that is mutually acceptable to the Phoenix board
members and the US ONE board members and (ii) James H. Sturges
will join the senior executive management team.
7. Joint Operating Agreement. Upon the execution and delivery of
the Agreement and Plan of Merger, the parties hereto will
enter into a Joint Operating Agreement with terms mutually
acceptable to the parties. Such Joint Operating Agreement
will terminate upon the closing of the Merger.
8. Expenses. Other than as specifically set forth herein, each
party will bear its own fees and expenses in connection with
the proposed Merger.
9. Exclusivity.
a. From the date hereof until the earlier of (i) the
execution and delivery of the Agreement and Plan of
Merger or (ii) 11:59 p.m. on May 20, 1997, neither US
ONE nor Phoenix will, nor will either of them permit
any of their respective subsidiaries to, nor will
either of them authorize or permit any officer,
director or employee of, or any investment banker,
attorney or other advisor or representative of,
either of them or any of their respective
subsidiaries to, directly or indirectly, (A) solicit,
initiate or encourage the submission of any
Acquisition Proposal (as hereinafter defined) or (B)
participate in any discussions or negotiations
regarding, or furnish to any person any information
with respect to, or take any other action to
facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal. Each
of US ONE and Phoenix will notify each other
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immediately of any inquiries or proposals with
respect to any Acquisition Proposal that is received
by, or any such negotiations or discussions that are
sought to be initiated with, such person. For
purposes of this Letter of Intent, an "Acquisition
Proposal" means any proposal with respect to a
merger, consolidation, share exchange, tender offer
or similar transaction involving US ONE (and not
involving Phoenix) or Phoenix (and not involving US
ONE) or any of their Significant Subsidiaries (within
the meaning of Rule 1-02 of Regulation S-X under the
Securities Act of 1933, as amended), or any purchase
of all or any significant portion of the assets of US
ONE (and not Phoenix) or Phoenix (and not US ONE) or
any of their Significant Subsidiaries, other than the
transactions contemplated hereby. The exclusivity
obligations expressed in this paragraph 9 are
intended to be legally binding on the parties hereto.
b. Notwithstanding anything contained in subparagraph
9.a. above, the parties acknowledge that (i) US ONE
currently has an informal arrangement with Lazard
Freres & Co. ("Lazard Freres") pursuant to which
Lazard Freres may identify potential partners for the
combined entity and (ii) at any time prior to the
consummation of the Merger, US ONE and Phoenix may
furnish information (subject to a confidentiality
agreement in reasonably customary form) to, and
negotiate or otherwise engage in discussions with,
any party who delivers a written Acquisition Proposal
if and so long as the Board of Directors of US ONE or
Phoenix, as applicable, determines in good faith,
based upon advice of its outside legal counsel, that
failing to take such action would reasonably be
expected to constitute a breach of the fiduciary
duties of the Board of Directors of US ONE or
Phoenix, as applicable. In the event US ONE or
Phoenix (either, the "Terminating Party") determines
to accept an Acquisition Proposal at any time prior
to the consummation of the Merger or enters into an
Acquisition Proposal within 18 months from the date
hereof with any party that has initiated an
Acquisition Proposal prior to the termination date
for the Merger (as set forth in the Agreement and
Plan of Merger) or May 20, 1997 (if no Agreement and
Plan of Merger has yet been executed), then the
Terminating Party will pay to the non-
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terminating party in cash by wire transfer of
immediately available funds to an account designated
by the non-terminating party a termination fee in an
amount equal to $2,500,000, plus reasonable
documented out- of-pocket expenses incurred by the
non-terminating party in connection with the
transactions contemplated hereby.
10. Letter of Intent. It is understood and agreed that this is a
Letter of Intent and does not contain all matters upon which
agreement must be reached in order for the proposed Merger to
be consummated and creates no binding rights or obligations in
favor of either party, except for the rights and obligations
referred to in Paragraphs 4, 5, 8, 9, 12, 13, 14 and this
Paragraph 10. A binding commitment with respect to the
proposed Merger will result only from the execution of a
definitive Agreement and Plan of Merger and shall be subject
to the terms and conditions specified therein.
11. Counterparts. This Letter of Intent may be executed in one or
more counterparts which, when taken together, shall represent
a fully executed Letter of Intent.
12. Expiration. Each of the parties hereto shall proceed promptly
to the good faith negotiation and documentation of the
Definitive Agreements and the drafting and filing of the Form
S-4 (as hereinafter defined). It is the intention of the
parties to execute the Agreement and Plan of Merger no later
than May 20, 1997.
13. Compliance with Laws. Phoenix shall proceed promptly with the
preparation and filing of a Form S-4 registration/proxy
statement complying in all material respects with the
Securities Exchange Act of 1934, as amended, and the
regulations promulgated thereunder, and applicable state law
(the "Form S-4").
14. Publicity. Except as may be required under applicable law,
neither US ONE nor Phoenix or their respective representatives
will without the prior written consent of the other party make
any public announcement about this Letter of Intent or the
negotiations or transactions contemplated hereby.
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If the foregoing is acceptable, please so indicate on behalf of
Phoenix by signing and dating this Letter of Intent in the space provided.
US ONE COMMUNICATIONS CORP.
By: /s/ J.H. Sturges
------------------------------
Name: J.H. Sturges
----------------------------
Title: Chairman and CEO
---------------------------
Accepted and agreed to
this 21st day of April, 1997
PHOENIX NETWORK, INC.
By: /s/ Wallace M. Hammond
-----------------------------------------------------
Name: Wallace M. Hammond
---------------------------------------------------
Title: President and Chief Executive Officer
--------------------------------------------------
9
