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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
June 19, 1997
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Date of Report (Date of earliest event reported)
Phoenix Network, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 0-17909 84-0881154
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(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
1687 Cole Boulevard, Golden, Colorado 80401
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(Address of principal executive offices)
(303) 205-3500
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(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS.
On June 19, 1997, Phoenix Network, Inc. (the "Company")
announced that it had entered into a letter of intent (the "Letter of Intent")
with US ONE Communications Corp. (collectively with its subsidiaries "US ONE")
and Resurgens Capital Group, Inc. ("Resurgens"), providing for the merger (the
"Merger") of the three companies. It has not yet been determined which of the
three companies, if any, will survive the Merger. The announcement was made in a
news release, a copy of which is filed herewith as Exhibit 99.1. In the Merger,
stockholders of the Company, US One and Resurgens would receive 39.5%, 39.5% and
21.0%, respectively, of the capital stock of the surviving company, on a
fully-diluted basis. John D. Phillips, the controlling shareholder of Resurgens
and a leader in the alternative long distance business, will become Chairman and
Chief Executive Officer of the surviving company following the Merger.
The Merger represents a vehicle for furtherance of the
Company's new strategy for lowering line costs by deploying a long distance
network system and loading it with substantial volumes of traffic. Following
consummation of the Merger, the surviving company will directly own US ONE's
switching equipment and be able to load its network with the uncommitted long
distance traffic of the Company. Further, the constituent companies believe that
the Merger will facilitate the roll-out of local dial tone services to retail
customers. Following the Merger, the surviving company will be responsible for
capital expenditures in connection with the acquisition of equipment relating to
the operation and maintenance of its network and will require additional capital
to continue its national switching and local dial tone services roll-out.
US ONE is a growth-stage competitive local exchange carrier
("CLEC") that has deployed a national telecommunications network of 14 Lucent
5ESS-2000, 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 six of
its switches. In addition, 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.
Resurgens is a privately held company formed to pursue
investment opportunities in the telecommunications arena.
The Merger is subject to numerous conditions, including the
following:
1. Resurgens is to arrange interim financing (the "Interim
Financing") secured by all available assets of the Company and US One to meet
their respective working capital requirements prior to the closing date of
the Merger;
2. The Merger participants shall have raised sufficient
financing to meet their current obligations, to fund the roll-out of the CLEC
business and to finance future acquisitions to be closed simultaneously with the
closing of the Merger;
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3. Each of the parties shall have obtained fairness opinions
prior to signing of definitive agreements for the Merger concluding that the
Merger is fair from a financial point of view to such party and its
shareholders;
4. Negotiation of definitive documentation, regulatory and
stockholder approvals, due diligence investigations, and other conditions set
forth in the Letter of Intent, which is filed herewith as Exhibit 99.2. The
Letter of Intent supersedes the Company's previously announced Letter of Intent
for a bi-lateral merger with US One.
The Letter of Intent provides that any party to the Merger may
terminate the Letter of Intent if the Interim Financing has not been arranged to
the satisfaction of either the Company or US One by July 7, 1997. As of the date
of filing of this Current Report on Form 8-K, the interim financing has not yet
been arranged to the satisfaction of the Company, but the Company has not
elected to terminate the Letter of Intent as a result of such failure of
condition. If Interim Financing satisfactory to the Company has not been
arranged prior to execution of definitive agreements for the Merger (for funding
concurrent with such execution), or if long term financing sufficient to allow
the surviving company to carry out its business plan has not been arranged prior
to the scheduled closing date for the Merger (for funding concurrent with such
closing), the Company does not anticipate that the Merger will close.
The Company had originally intended to hold a conference call
to discuss the Merger on June 24, 1997. Because the parties were unable to reach
agreement on the terms and conditions of the Interim Financing, and because
other substantive issues with regard to the transaction had not yet been
finalized, the Company announced in a news release on June 23, 1997, and again
in a news release on June 26, 1997, that it was delaying such conference call. A
conference call to discuss the Merger was held on June 30, 1997, and summarized
in a news release on July 2, 1997. During such conference call, the Merger
participants expressed a need for Interim Financing of approximately $35
million, which is expected to be provided or arranged by Resurgens Capital Corp.
and funded at the time definitive agreements for the Merger are executed.
The Merger participants also discussed the need to restructure
US One's payables to Lucent Technologies Inc. ("Lucent") and acknowledged that
they are in talks with Lucent to restructure such debt. US One is considering,
among other strategies, filing for Chapter 11 Bankruptcy to reorganize itself
and help the surviving company in the Merger to achieve its stated objectives.
The Company currently is targeting the Fourth Quarter of 1997
to consummate the Merger.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
99.1 News Release, released on June 19, 1997,
announcing the Merger.
99.2 Letter of Intent, dated June 19, 1997,
between the Company, US ONE and Resurgens,
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: July 10, 1997 Phoenix Network, Inc.
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By: /s/ Wallace M. Hammond
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Wallace M. Hammond, President
and Chief Executive Officer
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EXHIBIT INDEX
99.1 News Release, released on June 19, 1997,
announcing the Merger.
99.2 Letter of Intent, dated June 19, 1997,
between the Company, US ONE and Resurgens,
with respect to the Merger.
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EXHIBIT 99.1
News Release For Immediate Release
June 19, 1997
Contact: Tod Chmar, Resurgens James H. Sturges, US ONE
(404) 261-6190 (972) 376-8520
Monica Williamson, Phoenix
(800) 448-0804
JACK PHILLIPS JOINS PHOENIX NETWORK/US ONE MERGER TO SPEARHEAD NEW ROUND OF
TELECOMMUNICATIONS CONSOLIDATION
JUNE 19, 1997--ATLANTA, GA; GOLDEN, CO; DALLAS, TX --Resurgens Capital Group,
Inc., a private company controlled by John D. Phillips; Phoenix Network, Inc.
(AMEX:PHX) and US ONE Communications Corp. announced today that they have
entered into a letter of intent to merge to form a national switch-based long
distance company and competitive local exchange carrier (CLEC) with the
capacity to offer local dialtone in major markets. The companies also announced
that they are in the final stages of negotiations with two other long distance
companies with combined annualized revenues in excess of $85 million that may
become parties to the merger. However, no definitive agreements have been
signed and announcements with regard to these continuing negotiations will be
made as appropriate.
Commenting on the merger, John D. Phillips, who will become Chairman and Chief
Executive Officer of the surviving entity, said, "Our business plan is a simple
one. Using as a base the companies who are parties to the announced merger, we
intend to accumulate, through acquisitions and internal growth, a revenue base
in excess of $1 billion over the next few years. By combining a number of
additional companies and adding their traffic to our US ONE switch-based
network, we expect to realize substantial line cost improvements and meaningful
reductions in overhead."
Phillips continued, "Equally as important, if not more so, is that the US ONE
network gives us the capability to offer local dialtone service as a CLEC,
using an in-place, state-of-the-art network, which is where the entire
telecommunications industry is heading."
Wallace M. Hammond, President and CEO of Phoenix, said, "We are very excited
about the addition of Resurgens to our previously announced merger with US ONE
and about Jack Phillips agreeing to become the CEO of the surviving company. He
is one of the pioneers of the alternative long distance business and adds
tremendous momentum to our previously announced acquisition strategy."
James H. Sturges, Chairman and CEO of US ONE, added, "Jack Phillips was one of
the leaders in the first major round of consolidations in the late 1980's and
1990's, having founded and built up ATC and Resurgens Communications Group
before they merged with Metromedia Communications Corporation and LDDS (now
WorldCom) in 1992 and 1993."
The surviving entity will serve over 50,000 customers and have annualized
revenues of approximately $85 million, without accounting for any revenues
attributable to other possible acquisitions. Under the letter of intent, the
shareholders of Phoenix and US ONE will each own
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39.5% of the surviving entity, and Resurgens Capital Group, Inc. will own 21%.
According to the letter of intent, Resurgens is to arrange interim financing to
meet the working capital requirements of the parties prior to the closing. 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 Boards of Directors of all companies, as well as
shareholder, SEC, and regulatory approvals, and the simultaneous closing of
sufficient financing to meet the companies' current obligations, to fund the
roll-out of the CLEC business, and to finance future acquisitions.
On Tuesday, June 24th at 9:00 am Mountain time, the companies will hold a joint
conference call to discuss the merger. Interested parties can participate by
calling 800-377-9997. In addition, a recorded version of the call can be
accessed for 48 hours following the call by dialing 888-284-4559.
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 CLEC which owns and operates a national
network of Lucent 5ESS-2000 switches capable of both local and long distance
telephone services. The company has obtained CLEC status in ten states
including New York, California, Massachusetts, Florida and Illinois.
Resurgens Capital Group, Inc. is a privately held company controlled by Jack
Phillips which was formed to pursue investment opportunities in the
telecommunications arena. Phillips served as President and CEO of Metromedia
International Group, Inc., an international communications media and
entertainment company, from November 1995 through December 1996. From April
1994 through November 1995, he was President and CEO of Actava, a $1.2 billion
conglomerate, which was merged with Metromedia in November 1995. Phillips was a
founder, president, and CEO of Resurgens Communications Group, Inc., a full
service telecommunications company, from May 1989 through September 1993. Prior
to that, he was a founder and president of Advanced Telecommunications
Corporation from 1982 through 1988.
This release contains forward-looking statements that involve risks and
uncertainties. The 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
Resurgens Capital Group, Inc.
945 East Paces Ferry Road
2210 Resurgens Plaza
Atlanta, GA 30326
June 19, 1997
US One Communications Corp.
5400 LBJ Freeway
1 Lincoln Centre, Suite 700
Dallas, TX 75240
Phoenix Network, Inc.
1687 Cole Boulevard
Golden, CO 80401
Re: Proposed merger of Phoenix Network, Inc. ("Phoenix"), US One
Communications Corp. ("US One") and Resurgens Capital Group,
Inc. ("Resurgens") (the "Transaction").
Gentlemen:
The purpose of this letter is to set forth our present mutual intentions
with respect to the Transaction. The Transaction shall occur pursuant to a
merger agreement (the "Agreement") to be entered into by and among each of the
parties. The Agreement would contain, in addition to those matters specifically
set forth in this letter, representations, warranties, covenants and agreements
of each of Phoenix, US One and Resurgens, various conditions of closing and
other matters as agreed to by the parties.
The following are the principal points agreed to by us to date:
1. At the closing of the Transaction (the "Closing"), expected to occur on
or about September 30, 1997, or at such other date as mutually agreed to by the
parties (the "Closing Date"), Phoenix, US One and Resurgens will merge as
follows (the entity which shall survive the merger is referred to hereafter as
"Survivor"):
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US One Communications Corp.
Phoenix Network, Inc.
a. All of the issued and outstanding capital stock or any rights to
subscribe for or to purchase, or any warrants or options for the purchase
of capital stock, or any stock or securities convertible into or
exchangeable for capital stock, of Phoenix (assuming the consummation of
the TNC acquisition) shall be converted into the right to receive issued
and outstanding capital stock, or, as applicable, rights to subscribe for
or to purchase, or warrants or options for the purchase of capital stock,
or stock or securities convertible into or exchangeable for capital stock,
equal to 39.5% of the Survivor on a fully diluted basis;
b. All of the issued and outstanding capital stock or any rights to
subscribe for or to purchase, or any warrants or options for the purchase
of capital stock, or any stock or securities convertible into or
exchangeable for capital stock, of US One shall be converted into the
right to receive issued and outstanding capital stock, or, as applicable,
rights to subscribe for or to purchase, or warrants or options for the
purchase of capital stock, or stock or securities convertible into or
exchangeable for capital stock, equal to 39.5% of the Survivor on a fully
diluted basis;
c. All of the issued and outstanding capital stock or any rights to
subscribe for or to purchase, or any warrants or options for the purchase
of capital stock, or any stock or securities convertible into or
exchangeable for capital stock, of Resurgens shall be converted into the
right to receive issued and outstanding capital stock, or, as applicable,
rights to subscribe for or to purchase, or warrants or options for the
purchase of capital stock, or stock or securities convertible into or
exchangeable for capital stock, equal to 21% of the Survivor on a fully
diluted basis.
2. Resurgens shall arrange interim financing secured by all available
assets of US One and Phoenix to meet the working capital requirements of US One
and Phoenix, respectively, prior to the Closing Date (the "Interim Financing").
3. As of the Closing, the board of directors of Survivor shall consist of
ten members, two designated by each of Phoenix and US One and six designated by
Resurgens. John D. Phillips shall be elected Chairman and Chief Executive
Officer of Survivor as of Closing.
4. The Transaction shall be subject to the following:
a. The parties shall have raised financing sufficient to meet the
parties' current obligations, to fund the roll-out of the CLEC business,
and to finance future acquisitions which shall be closed simultaneously
with the Transaction on the Closing Date (the "Financing"). If the
Financing includes the issuance of equity of Survivor or if additional
entities become parties to the Transaction, the percentage to be received
by each of the
2
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US One Communications Corp.
Phoenix Network, Inc.
parties set forth in paragraph 1 above shall be proportionately reduced.
b. The parties shall have completed to their satisfaction legal and
financial due diligence of one another.
c. The parties shall have completed required governmental filings,
and received requisite governmental approvals and any applicable waiting
periods shall have expired, and there shall be no litigation pending or
threatened seeking to enjoin the parties from consummating the
Transaction.
d. The parties shall have completed all necessary corporate action
(including action by their directors and officers).
e. Each of the parties shall have obtained a fairness opinion prior
to signing the Agreement, in reasonably satisfactory form, concluding that
the Transaction is fair from a financial point of view to such party and
its shareholders.
f. The parties shall have completed to their satisfaction the
Agreement and all other necessary documentation.
5. Until the execution and delivery of the Agreement or such earlier date
as negotiations may terminate pursuant to the terms hereof:
a. Each of Phoenix and US One will conduct its business only in the
normal and ordinary course, and without prior written consent of the other
parties hereto, will not incur or guarantee any obligations for borrowed
money, purchase or commit to the purchase of any capital or fixed assets
for a price exceeding $250,000 in the aggregate; increase any salaries,
wages or any employee benefits for any employees; hire, commit to hire or
terminate any employee except in the ordinary course of business; amend
its articles of incorporation or bylaws or pay any dividends or redeem or
issue any of its capital stock.
b. Each of Phoenix and US One shall not entertain, solicit or accept
any offer to purchase a material amount of its assets or any of its
capital stock or equity, or to merge with or enter into any other
reorganization or business combination with, any third party (an
"Acquisition Proposal") without the consent of the other parties hereto,
unless such party 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 members
of such party's board of directors.
c. Each party will make available to the other parties, its counsel,
accountants,
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US One Communications Corp.
Phoenix Network, Inc.
actuaries and other representatives access to its facilities and personnel
and such information and documents as the other parties may reasonably
request.
6. In the event (a) the Interim Financing has not been arranged to the
satisfaction of either of Phoenix or US One on or prior to July 7, 1997, or (b)
no definitive agreement is entered into on or prior to July 30, 1997, any party
hereto may terminate the provisions hereof and any further negotiations with
respect to such party, without incurring any penalty, liability or obligations,
except that the Interim Financing with respect to such party shall be due and
payable immediately upon such termination.
7. In the event any of US One or Phoenix (the "Terminating Party")
determines to accept an Acquisition Proposal at any time prior to entering the
Agreement or termination of this letter of intent after July 30, 1997, if the
Agreement has not been entered into, then the Terminating Party shall pay a
termination fee in an amount set forth below (the "Termination Fee") in cash by
wire transfer of immediately available funds to the non-terminating parties.
The non-terminating parties will share such Termination Fee in accordance with
the percentages set forth in paragraph 1 adjusted to exclude any interest of
the Terminating Party. The amount of the Termination Fee is as follows: (a) if
US One is the Terminating Party, the Termination Fee shall be $2,000,000; and
(b) if Phoenix is the Terminating Party, the Termination Fee shall be
$2,000,000. In addition to the Termination Fee, the Terminating party shall pay
each non-terminating party its reasonable, documented out-of-pocket expenses
incurred in connection with the Transaction.
8. Each party acknowledges that it is bound by the terms of the letter
agreement regarding confidentiality, dated June 6, 1997.
9. All parties represent that they are under no obligation, either oral or
written, that would restrict or inhibit their ability to execute and deliver
this letter of intent or to take the actions or to complete the transactions
contemplated herein.
10. This letter of intent reflects the parties' current intentions only,
it memorializes preliminary negotiations conducted to date and, except with
respect to paragraphs 5, 6, 7, 8, 9, 10 and 11, is not and shall not be
construed as a binding or enforceable agreement for any purpose. Each party
will pay its own expenses, including attorneys fees, related to this
transaction.
11. This letter and the terms and conditions of the Transaction set forth
herein supersede any prior understanding or agreement between any of the
parties hereto with respect to the subject matter hereof, including, without
limitation, the Letter of Intent, dated April 21, 1997, by and between US One
and Phoenix. This letter shall be governed by and construed in accordance with
the laws of the State of Georgia.
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US One Communications Corp.
Phoenix Network, Inc.
If the foregoing accurately reflects the discussions between us to date,
please indicate your acceptance and agreement below.
Very truly yours,
RESURGENS CAPITAL GROUP, INC.
By: /s/ John D. Phillips
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John D. Phillips, President
Accepted and Agreed
this 19th day of June, 1997:
US One Communications Corp.
By: /s/ J. H. Sturges
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Title: Chairman/Pres. & CEO
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Phoenix Network, Inc.
By: /s/ Wallace M. Hammond
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Title: President & CEO
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