SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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) MAY 24, 1999
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EQUALNET COMMUNICATIONS CORP.
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(Exact Name of Registrant as Specified in its Charter)
TEXAS 0-25482 76-0457803
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(State or Other (Commission File Number) (IRS Employer
Jurisdiction Identification No.)
of Incorporation)
1250 WOOD BRANCH PARK DRIVE, HOUSTON, TX 77079
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (281) 529-4600
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INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS
On May 26, 1999, Equalnet Communications Corp. (the
"Registrant") issued a press release (the "Press Release") announcing that the
Registrant's Board of Directors had approved a definitive agreement to merge
(the "Merger") with e.Volve Technology Group, Inc., a privately held corporation
("e.Volve"). G. A. Herrera & Co., financial advisor to the Independent Committee
of the Board of Directors of the Registrant, rendered a fairness opinion in
respect of the Merger and the Registrant's Board of Directors has resolved to
recommend the Merger to the Registrant's shareholders.
In the Merger, the Registrant's shareholders will receive
approximately 45 percent of the common stock, on a fully diluted basis, of the
combined company. In addition, the Registrant will assume approximately $7.65
million of e.Volve indebtedness that will be convertible into five percent of
the consolidated company's total common equity. The Merger is subject, among
other things, to approval by the shareholders of the Registrant and the
stockholders of e.Volve and to satisfactory completion of due diligence.
Commitments to vote in favor of the Merger have been made by shareholders
representing approximately 60 percent of the Registrant's shares expected to be
eligible to vote on the Merger.
The Registrant also announced in the Press Release that in
connection with the Merger transaction, the Registrant, as co-proponent of the
plan of reorganization (the "Plan") of its wholly owned subsidiary, EqualNet
Corporation, had raised sufficient funding, along with the issuance to the
bankruptcy trustee for the unsecured creditors of 3,000,000 shares of the
Registrant's common stock, to consummate the Plan. Further details concerning
such funds and the consummation of the Plan are contained in the Registrant's
Press Release, which is filed herewith.
Also filed herewith is the Registrant's unaudited pro forma
consolidated balance sheet as of April 30, 1999 which sets forth changes in the
Registrant's capital structure on a consolidated basis as a result of the
funding of the Plan. One of the requirements of the Nasdaq Listing
Qualifications Panel, as set forth in its letter to the Registrant dated May 5,
1999, for the continued listing of the Registrant's common stock was that a
public filing be made by the Registrant with the Securities and Exchange
Commission and Nasdaq on or before June 1, 1999 evidencing a minimum of
$10,000,000 in net tangible assets. Such filing is required to contain an April
30, 1999 balance sheet with pro forma adjustments for any significant
transactions or events occurring on or before the filing date. This Current
Report on Form 8-K is intended to satisfy those requirements of the Nasdaq
Listing Qualifications Panel.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
Exhibit number Description
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99.1 Press Release of May 26, 1999
99.2 April 30, 1999 Unaudited Pro Forma Consolidated
Balance Sheet
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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 COMMUNICATIONS CORP.
By: /s/ Mitchell H. Bodian
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Mitchell H. Bodian
President & Chief Executive Officer
Date: June 1, 1999
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EXHIBIT INDEX
Exhibit number Description
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99.1 Press Release of May 26, 1999
99.2 April 30, 1999 Unaudited Pro Forma Consolidated
Balance Sheet
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EXHIBIT 99.1
COMPANY CONTACT: MEDIA & INVESTOR RELATIONS:
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Mitchell H. Bodian, President & Co-CEO Shannon T. Squyres, President
Equalnet Communications Corp. Market Pathways
281.529.4661 949.955.1860
For Immediate Release
EQUALNET RAISES SUFFICIENT CAPITAL TO CONSUMMATE SUBSIDIARY'S REORG PLAN;
ENTERS INTO DEFINITIVE AGREEMENT TO MERGE WITH E.VOLVE TECHNOLOGY GROUP;
APPOINTS BARRETT WISSMAN CO-CEO, FRED VIERRA, EX-CEO OF TCI INTERNATIONAL AS
PROSPECTIVE CHAIRMAN; ANNOUNCES THIRD QUARTER RESULTS
HOUSTON, TEXAS, MAY 26, 1999 - EQUALNET COMMUNICATIONS CORP. (NASDAQ: ENETC),
announced today that it has raised the capital necessary to consummate the
bankruptcy plan of reorganization of its wholly owned subsidiary, EqualNet
Corporation. The total amount, $3.25 million, was raised from both existing
Equalnet investors and certain investment funds managed by HW Partners, an
institutional investment management firm based in Dallas, Texas, managed by
Barrett Wissman.
The subsidiary's plan of reorganization, which calls for the distribution of
$1.35 million in cash and 3 million shares of Equalnet common stock to a trust
for the benefit of unsecured creditors of EqualNet Corporation, is scheduled to
be consummated by May 28, 1999.
In connection with the investment of the HW Partners' managed funds in Equalnet,
Equalnet's board of directors approved a definitive stock for stock merger
agreement with e.Volve Technology Group, Inc. ("e.Volve"), a private company.
Under the terms of the proposed merger agreement, shareholders of Equalnet will
receive approximately 45 percent of the consolidated common stock, on a fully
diluted basis, of the combined company. In addition, Equalnet will assume $7.65
million of e.Volve indebtedness that will be convertible into 5 percent of the
consolidated company's total common equity.
The closing of the transaction is subject to various conditions, including
satisfactory completion of due diligence by e.Volve and the approval of two
thirds of the shareholders of Equalnet. Equalnet shareholders representing
approximately 60 percent of those expected to be eligible to vote on the merger
have agreed to vote in favor of the transaction. It is anticipated that the
merger will close in the fourth calendar quarter of 1999.
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e.Volve is an emerging facilities-based communications company building an
international IP (Internet Protocol) and ATM (Asynchronous Transfer Mode)
network capable of compressing voice, video, and data transmissions at rates of
up to 8 times greater than more conventional methods. e.Volve's technology
focuses on Internet telephony and the convergence of the transmission of voice,
video and data over the public Internet and private Intranets. In its most
recently completed quarter, ended March 31, 1999, e.Volve reported revenue of
approximately $8 million and EBITDA of approximately $476,000. For the ten
months ended March 31, 1999, e.Volve generated revenues in excess of $21.1
million, a tenfold increase from $2.1 million for the year ended May 31, 1998.
Upon consummation of the merger, the surviving company will operate under the
e.Volve name. Mitchell H. Bodian and Barrett Wissman, a managing director of HW
Partners, will serve as co-CEOs of Equalnet. Mr. Wissman, who is also a member
of the board of directors of e.Volve, has extensive expertise in capitalizing
and operating emerging technology and communications companies. His experience
focuses specifically on the convergence of integrated voice, video and data
transmission over IP/ATM networks. Mr. Wissman is currently a director of IBS
Interactive (Nasdaq:IBSX), a leading Internet consulting and hosting company,
and Axistel International, an international facilities-based telecommunications
company specializing in the deployment of next-generation convergent
technologies.
Additionally, Fred Vierra has agreed to serve as chairman of the board of
e.Volve upon consummation of the merger with Equalnet. Mr. Vierra served as CEO
of Tele-Communications International, Inc., the international arm of
Tele-Communications, Inc. (TCI). He also served as vice chairman of the board of
directors of TCI until November 1998, when TCI was acquired by AT&T (NYSE:T).
Prior to joining TCI, Mr. Vierra was president and chief operating officer of
United Artists Entertainment Company, where he was in charge of all day-to-day
operations and ongoing strategies for the corporation. Mr. Vierra has served on
the boards of Turner Broadcasting (AMEX:TUR), Discovery Channel, and Telewest
PLC (Nasdaq:TWSTY). Currently, Mr. Vierra is on the boards of WLL International,
Flextech PLC, Formus Communications, Inc., Jones International Networks, LTD and
AboveNet Communications Inc.
(Nasdaq:ABOV).
In addition to e.Volve's plans to expand its existing international network,
following the consummation of the merger, the combined companies will endeavor
to transform Equalnet's domestic nationwide digital-switch facilities into a
nationwide IP/ATM-based network by deploying state-of-the-art ATM switches from
Network Equipment Technologies, Inc. (NYSE: NWK). If successful, this would give
the combined company a complete nationwide network capable of delivering voice,
video, data and Internet transmission across the U.S. to complement e.Volve's
international capabilities.
e.Volve plans not only to increase its international and domestic carrier
capabilities in the new, convergent paradigm, but also to invest in and develop
Internet-based technologies and businesses taking advantage of the evolution of
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convergent communications. Barrett Wissman, the new co-CEO of Equalnet, said, "I
am excited about the union of Equalnet and e.Volve. Combining the domestic and
international networks of these companies creates tremendous synergy and
provides a dynamic platform for the development of an Internet-based worldwide
network. This combination positions the company at the leading edge of
technology development in the multi-billion dollar communications technology
industry."
Equalnet also announced today the results of its third quarter and nine-month
period ended March 31, 1999. Revenues for the three-month period ended March 31,
1999 increased 62.1 percent to $9.3 million, compared to fiscal 1998 third
quarter revenues of $5.8 million. Depreciation and amortization increased 226
percent for the three-month period ended March 31, 1999, to $3.7 million
compared to $1.1 million for the same period in the previous year. The company
reported a net loss of $5.1 million and included no tax benefit. The net loss
for the corresponding period in the previous year was $4.0 million and included
no tax benefit.
Revenues for the nine-month period ended March 31, 1999 increased 23.2 percent
to $25.4 million compared to $20.6 million for the same period in the previous
fiscal year. The company reported a net loss of $19.2 million or $1.01 share for
the nine-month period ended March 31, 1999, compared to $8.5 million or $0.45
per share for the same period the prior fiscal year. Depreciation and
amortization expense increased 168.6 percent for the most recent nine-month
period to $8.5 million from $3.3 million in the same period in the prior fiscal
year.
Mitchell H. Bodian, co-CEO of Equalnet, said, "This merger has the potential to
add significant scale to the company and expand its position in the
communications industry. Size provides the advantage of spreading the risks
associated with doing business in a highly competitive environment over a
broader range of markets. These two companies offer a unique blend of assets,
providing leverage into burgeoning areas of the rapidly transforming
communications industry."
Safe Harbor Statement
This press release included "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities and Exchange Act of 1934, as amended. All statements other than
statements of historical fact, included in this press release, including without
limitation, Equalnet's business strategy, plans, and objectives, are
forward-looking statements. Although Equalnet believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be. In addition, Equalnet can
give no assurance that it will be able to satisfy the conditions for its merger
with e.Volve. Numerous factors could cause actual results to differ materially
from Equalnet's expectation. Additional risk factors are discussed in Equalnet's
Annual Report on Form 10-K for the year ended June 30, 1998, which is on file
with the Securities and Exchange Commission. Readers should carefully review the
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cautionary statements and risk factors described in documents filed by Equalnet
from time to time with the Securities Exchange Commission.
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EXHIBIT 99.2
EQUALNET COMMUNICATIONS CORP.
PRO FORMA FINANCIAL INFORMATION
EXPLANATORY NOTE
On May 24, 1999, Equalnet Communications Corp. (the "Company") (Nasdaq: ENETC)
raised the funding necessary to allow EqualNet Corporation ("EqualNet"), a
wholly owned subsidiary of the Company, to consummate its Plan of Reorganization
under the supervision and orders of the Bankruptcy Court. The Company and
EqualNet were co-proponents of the Plan which called for the Company to pay
approximately $1.3 million and to issue approximately 3,000,000 shares of the
Company's Common Stock to the Trustee of the Creditors Committee. The Company
raised the capital needed to consummate the Plan from five investor groups.
The following unaudited Pro Forma Balance Sheet as of April 30, 1999 is derived
from the Registrant's historical unaudited Consolidated Balance Sheet as of
April 30, 1999 and has been adjusted to reflect as if certain subsequent equity
transactions had occurred as of that date. Such adjustments are preliminary and
are based upon negotiated terms. The Pro Forma Consolidated Balance Sheet has
not been adjusted for the proposed merger between the Company and e.Volve
Technology Group, Inc. or the Company's acquisition of The Intelesis Group Inc.,
which was disclosed in the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, which transactions have not been consummated.
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EQUALNET COMMUNICATIONS CORP.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
APRIL 30, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
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<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
CASH $ 599,437 2,200,000 (A) $ 1,949,437
500,000 (B)
(1,350,000) (C)
ACCOUNTS RECEIVABLE (NET OF ALLOWANCE) 13,174,484 13,174,484
-
ADVANCES 301,193 301,193
PREPAID EXPENSES & OTHER NOTE RECEIVABLE 379,364 327,000 (G) 706,364
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TOTAL CURRENT ASSETS 14,454,478 1,677,000 16,131,478
EQUIPMENT
COMPUTER EQUIPMENT 18,815,816 18,815,816
OFFICE FURNITURE & FIXTURES 1,209,032 1,209,032
LEASEHOLD IMPROVEMENTS 1,246,855 1,246,855
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TOTAL EQUIPMENT 21,271,703 21,271,703
ACCUMULATED DEPRECIATION & AMORITIZATION (7,907,308) (7,907,308)
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13,364,395 13,364,395
CUSTOMER ACQ COST (NET OF AMORT) 5,094,367 5,094,367
MARKETING AGENT CONTRACTS (NET OF AMORT) 1,668,493 1,668,493
OTHER ASSETS 902,177 902,177
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TOTAL ASSETS $ 35,483,909 1,677,000 $37,160,909
============= ============= ============
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LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES - NOT SUBJECT TO COMPROMISE
-POST PETITION
PAYABLE TO PROVIDER OF LD SERVICE $ 1,352,769 $ 1,352,769
ACCOUNTS PAYABLE 5,416,786 - 5,416,786
ACCRUED EXPENSES 2,391,802 - 2,391,802
ACCRUED SALES TAXES 945,785 945,785
DEBT IN DEFAULT 5,989,341 5,989,341
CONTRACTUAL OBLIGATIONS WITH REGARD TO RECEIVABLES 2,718,810 2,718,810
SALES AGREE
NOTES PAYABLE 1,608,507 1,608,507
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PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- -----
TOTAL CURRENT LIABILITIES NOT SUBJECT TO COMPROMISE - 20,423,800 20,423,800
POST PETITION
CURRENT LIABILITIES - NOT SUBJECT TO COMPROMISE
-PRE PETITION
ACCRUED SALES TAX 287,902 287,902
CONTRACTUAL OBLIGATIONS WITH REGARD TO RECEIVABLES 2,010,072 2,010,072
SALES AGREE
NOTES PAYABLE 400,000 400,000
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TOTAL CURRENT LIABILITIES NOT SUBJECT TO COMPROMISE - 2,697,974 2,697,974
PETITION
CURRENT LIABILITIES SUBJECT TO COMPROMISE 15,216,266 (1,350,000) (C) -
(3,281,250) (D)
(10,585,016) (F)
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TOTAL CURRENT LIABILITIES 38,338,040 (15,216,266) 23,121,774
NOTES PAYABLE 2,172,436 2,172,436
CONVERTIBLE DEBT 2,559,812 (2,559,81) (E) -
STOCKHOLDERS' EQUITY 2,000,000 2,000,000
PREFERRED STOCK SERIES A 3,000,000 3,000,000
PREFERRED STOCK SERIES B 5,826,446 5,826,446
PREFERRED STOCK SERIES C 2,002,235 2,002,235
PREFERRED STOCK SERIES D 500,000 (B) 500,000
PREFERRED STOCK SERIES E 2,559,812 (E) 2,559,812
PREFERRED STOCK SERIES F
COMMON STOCK 243,272 36,667 (A) 309,939
30,000 (D)
ADDITIONAL PAID IN CAPITAL 40,003,977 2,163,333 (A) 45,418,560
3,251,250 (D)
TREASURY STOCK (2,522,644) (2,522,644)
WARRANTS OUTSTANDING 2,853,460 327,000 (G) 3,180,460
DEFERRED COMPENSATION (20,415) (20,415)
RETAINED EARNINGS (60,972,710) 10,585,016 (F) (50,387,694)
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TOTAL STOCKHOLDERS' EQUITY (7,586,379) 19,453,078 11,866,699
------------- ------------ ------------
TOTAL LIABILITIES STOCKHOLDERS' EQUITY $ 35,483,909 1,677,000 $37,160,909
============= ============ ============
</TABLE>
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EQUALNET COMMUNICATIONS CORP.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
APRIL 30, 1999
1. BASIS OF PRESENTATION
The unaudited pro forma consolidated balance sheet presents the financial
position of the Company assuming the Plan of Reorganization were consummated as
of April 30, 1999. These statements were prepared taking into consideration
certain equity transactions that occurred related to the consummation of
EqualNet's Plan of Reorganization.
The unaudited pro forma consolidated balance sheet was prepared by the Company
in accordance with generally accepted accounting principles. All calculations
have been made based upon certain assumptions and adjustments described in these
notes.
The unaudited pro forma consolidated balance sheet should be read in conjunction
with the historical consolidated financial statements of the Company. The
Company's historical consolidated financial statements are included in its
Annual Report on Form 10-K for the fiscal year ended June 30, 1998, and
Quarterly Reports on Form 10-Q for the quarters ended September 30, 1998,
December 31, 1998 and March 31, 1999.
2. PRO FORMA ADJUSTMENTS
The following adjustments have been made to the accompanying unaudited pro forma
consolidated balance sheet as of April 30, 1999:
(A) Receipt of $2.2 million for the purchase of 3,666,667 shares of the
Company's Common Stock.
(B) Receipt of $.5 million for the purchase of 833,333 shares of the Company's
Series E Preferred Stock with a liquidation preference of $5.00 per share.
(C) Payment of $1.35 million to the Trustee of the Creditors Committee for
outstanding obligations under the Plan of Reorganization.
(D) Issuance of 3,000,000 shares of the Company's Common Stock to the Trustee
of the Creditors Committee for outstanding obligations under EqualNet's
Plan of Reorganization.
(E) Conversion of approximately $2.6 million of convertible debt into the
Company's Series F Preferred Stock. The Series F Preferred Stock receives a
6% dividend payable in kind.
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(F) Balance of outstanding debt that was relieved through the Plan of
Reorganization. This number is subject to adjustment depending on the
outcome of certain claim objections.
(G) Issuance of 300,000 warrants to Comerica Leasing for settlement of claims
against the Company and EqualNet. The value of such warrants was determined
using the Black-Scholes model.
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