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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
November 6, 1997
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Date of Report (Date of earliest event reported)
MIDCOM Communications Inc.
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(Exact name of registrant as specified in its charter)
Washington 91-1438806
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(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
19675 West Ten Mile Road, Suite 100, Southfield, MI 48075-2306
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(Address of principal executive offices)
(248) 304-1780
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(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS.
On October 31, 1997, MIDCOM Communications Inc. ("Midcom" or the
"Company") announced that after a lengthy period of dispute with Sprint
Communications Company regarding provisioning and other service and billing
issues, the two companies have reached a settlement agreement. The announcement
was made in a news release, a copy of which is filed herewith as Exhibit 99.1.
Midcom also announced that both its third and fourth quarter revenue will be
lower than the Company's previous expectations and that its available working
capital is not sufficient to satisfy significant current payable obligations.
As previously announced, Midcom has entered into an agreement
(the "Merger Agreement") with Phoenix Network, Inc. ("Phoenix"), pursuant to
which Phoenix would merge with and into Midcom (the "Merger"). The Merger was
originally expected to close in late 1997 or early 1998. However, on November 6,
1997, Phoenix gave notice of termination of the Merger Agreement. Phoenix
asserts that various actions by Midcom constitute breaches under the Merger
Agreement and material adverse changes to Midcom's business and that it is
therefore entitled to terminate the Merger Agreement. Midcom has denied that it
is in default under the Merger Agreement and has informed Phoenix that it has
not conceded to the termination of the Merger Agreement. Even if Midcom and
Phoenix resolve these disputes, consummation of the Merger is subject to
numerous conditions precedent and there can be no assurance that these
conditions precedent will be satisfied and that the Merger will be consummated.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
99.1 Press Release, dated October 31, 1997.
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: November 6, 1997 Midcom Communications Inc.
By: /s/ William H. Oberlin
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William H. Oberlin, President
and Chief Executive Officer
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<TABLE>
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Exhibit No. Description
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<S> <C>
99.1 Press Release dated October 31, 1997
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EXHIBIT 99.1
MIDCOM NEWS
FOR IMMEDIATE RELEASE
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Contact: Teresa C. Stackpole
Director, Corporate Communications
MIDCOM Communications Inc.
206/574-3152
MIDCOM AND SPRINT TO TERMINATE CONTRACT
MIDCOM THIRD QUARTER RESULTS TO FALL SHORT OF EXPECTATIONS
SOUTHFIELD, MI (October 31, 1997) - MIDCOM Communications Inc. (NASDAQ:
MCCI) today announced that after a lengthy period of dispute with Sprint
Communications Company regarding provisioning and other service and billing
issues, the two companies have reached a settlement agreement under which MIDCOM
and Sprint will work together to transition MIDCOM's traffic to its own or other
networks over the next ninety days. Sprint is currently MIDCOM's primary
provider of telecommunications services and MIDCOM has withheld a number of
payments to Sprint prior to reaching this settlement.
Under the settlement agreement, MIDCOM is required to make payments of
$1.25 million per week for three weeks beginning October 31, 1997, a $4 million
payment on November 21, 1997, and weekly payments of the lesser of $2 million or
the current outstanding balance thereafter. In addition, the companies have
agreed to arbitrate certain MIDCOM disputes of up to an aggregate of $5 million
on an expedited basis with a mutual release of all other claims. Included as
part of MIDCOM's disputes are certain inadvertent interruptions of services
provided by Sprint to MIDCOM beginning on October 28, 1997.
Related in part to the issues embodied in its dispute with Sprint, together
with pricing pressure in the long distance industry and slower than expected
progress in improving provisioning and its internal systems, MIDCOM announced
that both its third and fourth quarter revenue will be lower than the company's
previous expectations. The company now expects that revenue for the quarter
ended September 30, 1997 will be in the range of $24.5 to $25.5 million, with no
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significant improvement expected in the fourth quarter. MIDCOM expects to
announce final results for the third quarter on November 12, 1997.
"While sales continue to be strong, and provisioning continues to improve,
that progress has not occurred quickly enough for us to reach our short-term
targets," said William H. Oberlin, MIDCOM president and chief executive
officer. "We continue to believe that the ramping up of our switched network,
together with the other changes we are making to improve provisioning will yield
positive results in the longer term." Five of the company's six switches are
currently carrying traffic, with the New York switch scheduled to be carrying
traffic in November.
In addition to its payment obligations to Sprint and other suppliers and
working capital required to support operations, MIDCOM is scheduled to repay $8
million to its principal lender on November 1, 1997. At this time, the company
does not have sufficient resources to satisfy these obligations. MIDCOM is
engaged in discussions with its lender concerning both the payment due on
November 1 and its need for additional operating capital. Furthermore, MIDCOM is
in discussions with its financial advisors concerning possible sources of
working capital and other strategic alternatives, which may include a merger,
strategic partnership, or sale of the company. There can be no assurance that
the company will be successful in any of these endeavors and failure to obtain
significant working capital could force MIDCOM to seek protection under the
federal bankruptcy laws.
In addition, the company is engaged in discussions with Phoenix Network,
Inc. regarding the status of their pending merger transaction. With regard to
that transaction, Phoenix has assigned its rights and obligations under its
purchase agreements with Trans National Communications (TNC) to MIDCOM, and the
acquisition contemplated by those agreements is subject to due diligence by both
parties.
Forward-looking Statements
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Statements in this news release concerning future results or expectations,
including ranges for third and fourth quarter 1997 revenue, financing or loan
restructuring opportunities, provisioning improvements, and opportunities
related to mergers, strategic partnerships, or sale of the company are
forward-looking statements. Actual results, performance, or developments could
differ materially from those expressed or implied by such forward-looking
statements as a result of known or unknown risks, uncertainties and other
factors including those identified in the company's Annual Report on Form 10-K
and those described from time to time in the company's
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other filings with the Securities and Exchange Commission, press releases and
other communications.
Founded in 1989, MIDCOM provides a broad range of telecommunications
services to small and medium-sized businesses nationwide. The company has
regional offices throughout the nation and currently invoices approximately
100,000 customers monthly.
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