Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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) April 30, 2018 (April 26,
2018)
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FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
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Delaware
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001-32421
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58-2342021
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(State or other jurisdiction of incorporation)
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(Commission File Number)
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(IRS Employer Identification No.)
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420 Lexington Avenue, Suite 1718, New York, NY
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10170
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(Address of principal executive offices)
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(Zip Code)
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Registrant's
telephone number, including area code:
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(212) 201-2400
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Not Applicable
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(Former name or former address, if changed since last
report)
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Check
the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant
under any of the following provisions (see General Instruction A.2.
below):
☐
Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under
the Exchange Act (17 CFR 240.14a-12)
☐
Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
☐
Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Indicate
by check mark whether the registrant is an emerging growth company
as defined in Rule 405 of the Securities Act of 1933 (§230.405
of this chapter) or Rule 12b-2 of the Securities Exchange Act of
1934 (§240.12b-2 of this chapter).
Emerging
growth company ☐
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Item 1.01 Entry into a Material
Definitive Agreement.
On
April 26, 2018, Fusion Telecommunications International, Inc., a
Delaware corporation (“Fusion”), entered into an Eighth
Amendment (the “Eighth Amendment”) to the Agreement and
Plan of Merger, dated August 26, 2017 (as amended, the
“Merger Agreement”), by and among Fusion, Fusion BCHI
Acquisition LLC, a wholly-owned subsidiary of Fusion
(“BCHI”), and Birch Communications Holdings, Inc.
(“Birch”), with respect to a merger by and between BCHI
and Birch (the “Birch Merger”). Under the Eighth
Amendment, the parties agreed to increase the dollar amount of cash
that Fusion could raise by issuing equity or debt securities in
connection with capital raising activities prior to the closing of
the Birch Merger from $40 million to $50 million and also agreed
that any shares of common stock of Fusion, par value $0.01 per
share (the “Common Stock”), issued in such offering(s)
in an amount of up to such $50 million would be excluded in
determining the number of shares to be issued to BCHI Holding, LLC
as consideration in connection with the Birch Merger.
On
April 27, 2018, Fusion entered into a Ninth Amendment (the
“Ninth Amendment”) to the Merger Agreement. Under the
Ninth Amendment, the parties thereto agreed (i) to extend the
Outside Date (as defined in the Merger Agreement), after which
Fusion or Birch may terminate the Merger Agreement if the Birch
Merger has not been consummated, to May 15, 2018; (ii) that the
Outside Date may be extended to May 30, 2018 in order to obtain
certain regulatory and governmental approvals; and (iii) to extend
the date on which Fusion or Birch may terminate the Merger
Agreement due to an inability to secure commitments for the
required financing to May 15, 2018.
The
foregoing description of the Eighth Amendment and the Ninth
Amendment is not complete and is qualified in its entirety by
reference to the full text of each such document, which are filed
as Exhibits 10.1 and 10.2 hereto, and which are incorporated by
reference herein in their entirety.
Item 8.01 Other
Events
Fusion
is announcing that it is in the final stage of negotiations with
the owners of a privately-held Cloud Services provider
(“Target”) to acquire Target and its subsidiaries (the
“Proposed Acquisition”) for an aggregate purchase price
of approximately $70 million (subject to certain adjustments), up
to $10 million of which may be paid in shares of Common Stock.
Based on financial statements and other information provided to
Fusion, Target has approximately $70 million of annual revenue and
a 100% business customer base made up of more than 8,000 small,
medium and enterprise customers, with an average revenue per user
of approximately $750 and a churn rate averaging approximately one
percent. Based on current projections, Fusion believes that the
Proposed Acquisition would be at an acquisition price equivalent to
approximately 5x adjusted EBITDA (earnings before interest, taxes,
depreciation and amortization) of Target for the preceding twelve
months, after realization of projected synergies and annual cost
savings of approximately $16 million expected to be realized within
one year after the closing of the Proposed
Acquisition.
Fusion
believes that the Proposed Acquisition, if consummated, would be
consistent with Fusion’s historical acquisition strategy of
acquiring other companies in the Cloud Services space and would,
among other things, expand Fusion’s portfolio of products and
services, add a growing, high quality business customer base with
attractive attributes, present meaningful synergy opportunities
and/or expand Fusion’s overall scale, scope and distribution
network.
Completion
of the Proposed Acquisition is subject to finalization and
execution of a definitive merger agreement and associated
documents, and Fusion raising the capital to finance the cash
consideration for the Proposed Acquisition. Fusion may finance the
Proposed Acquisition through the incurrence of debt, the issuance
of equity securities, cash on hand or a combination thereof. There
can be no assurance that Fusion and the owners of Target will
finalize and execute the definitive merger agreement or that Fusion
will be able to secure the capital necessary to finance the
Proposed Acquisition. Other unforeseen events could occur that
would delay, interfere with or prevent the consummation of the
Proposed Acquisition. In addition, if the definitive merger
agreement is entered into, the consummation of the Proposed
Acquisition will be subject to satisfaction of certain closing
conditions, including obtaining any required regulatory
approvals.
2
As
previously announced, Fusion has engaged Goldman Sachs, Morgan
Stanley and MUFG (the “Arrangers”) as joint lead
arrangers and joint bookrunners to arrange new senior secured
credit facilities (the “New Credit Facilities”) in
connection with the Birch Merger. To finance the cash consideration
for the Proposed Acquisition, Fusion is seeking to increase the
principal amount of the first lien secured “tranche B”
term loans (the “New Tranche B Loans”) under the New
Credit Facilities by approximately $62 million. After giving effect
to the increase, the New Credit Facilities being sought by Fusion
will consist of first lien secured term loans in an aggregate
principal amount of approximately $570 million, second lien secured
term loans in an aggregate principal amount of approximately $70
million and a revolving credit facility in an aggregate amount of
approximately $40 million (the “New Revolving
Facility”). The actual allocation between the first lien
secured term loans and the second lien secured term loans may
change based on demand. If the Proposed Acquisition is not
completed within three months of the closing of the New Credit
Facilities, Fusion will be required to promptly prepay the
incremental amount of the New Tranche B Loans, at par. The
Arrangers will be paid, for their own respective accounts, certain
fees if the closing of the New Credit Facilities occurs. Goldman
Sachs and Birch’s M&A advisor may defer, for up to 90
days following the closing of the New Credit Facilities, payment by
Fusion of up to $4 million in the aggregate of fees that would
otherwise be due to them in connection with the New Credit
Facilities and the Birch Merger (the “Deferred Fees”),
which Deferred Fees will constitute a non-recurring current
liability of Fusion and an anticipated near-term use of its
cash.
A
prospective lender (the “TLB Lender”) has expressed an
interest in purchasing a significant portion of the New Tranche B
Loans, principally through a newly formed controlled affiliate (the
“SPV TLB Lender”), but only if the SPV TLB
Lender’s purchase can be financed, in part, with debt
incurred by the SPV TLB Lender (the “SPV TLB Lender
Financing”). It is currently contemplated that Goldman Sachs
will provide the SPV TLB Lender Financing and that the SPV TLB
Lender Financing will be in the form of a senior secured loan made
by Goldman Sachs to the SPV TLB Lender (the “GS/SPV Senior
Secured Loan”), with the cash proceeds thereof, together with
the proceeds of cash that will be contributed by the TLB Lender to
the SPV TLB Lender, to be used by the SPV TLB Lender to purchase a
significant portion of the New Tranche B Loans. The closing of the
SPV TLB Lender Financing will occur simultaneously with the closing
of the New Credit Facilities.
As part
of the SPV TLB Lender Financing, Fusion will agree to purchase, for
cash at par, a $25 million subordinated note issued by the SPV TLB
Lender (the “Fusion/SPV Subordinated Note”). The
Fusion/SPV Subordinated Note will be unsecured and will be
subordinated in right of payment to the GS/SPV Senior Secured Loan.
The current forms of the credit agreement governing the GS/SPV
Senior Secured Loan and the Fusion/SPV Subordinated Note, in
substantially final form, are filed as Exhibits 99.1 and 99.2
hereto, and are incorporated by reference herein in their
entirety.
As
credit support for the GS/SPV Senior Secured Loan, Goldman Sachs
will receive a pledge of all of the assets of the SPV TLB Lender,
including the New Tranche B Loans held by the SPV TLB Lender and
all cash held by the SPV TLB Lender (including the entire cash
proceeds of the Fusion/SPV Subordinated Note), and a pledge of the
equity interests in the SPV TLB Lender held by the TLB Lender, as
well as a limited guaranty from the TLB Lender. The SPV TLB Lender
will be required to provide additional cash collateral to Goldman
Sachs based on daily mark-to-market valuations of the fair market
value of the New Tranche B Loans held by the SPV TLB Lender
compared to the outstanding principal amount of the GS/SPV Senior
Secured Loan, which mark-to-market payments (if any) will be funded
by the TLB Lender. None of the collateral or other credit support
provided by the SPV TLB Lender or the TLB Lender to Goldman Sachs
will secure the Fusion/SPV Subordinated Note or the New Credit
Facilities.
The
credit agreement and other transaction documents governing the
GS/SPV Senior Secured Loan will contain representations of the SPV
TLB Lender and the TLB Lender, covenants binding upon them and
events of default relating to the SPV TLB Lender Financing, as
described therein. The GS/SPV Senior Secured Loan will also be
subject to certain mandatory prepayment events, as described in the
credit agreement and other transaction documents governing the
GSP/SPV Senior Secured Loan.
3
Under
the proposed terms of the SPV TLB Lender Financing and the proposed
terms of the Fusion/SPV Subordinated Note, repayment by the SPV TLB
Lender of the Fusion/SPV Subordinated Note will be permitted if (1)
Fusion has achieved an Adjusted Debt to EBITDA Level (as described
below) of less than 1.00:1.00 as of the end of each fiscal quarter
in any period of four consecutive fiscal quarters and no default or
event of default then exists under the GS/SPV Senior Secured Loan,
or (2) the GS/SPV Senior Secured Loan has been repaid in full. The
“Adjusted Debt to EBITDA Level” will be calculated by
Goldman Sachs and will be equal, as of the end of each fiscal
quarter, to the product of (a) (i) the outstanding principal amount
of the GS/SPV Senior Secured Loan, divided by (ii) the
outstanding principal amount of the New Tranche B Loans held by the
SPV TLB Lender, and (b) (i) the total outstanding principal amount
of the New Credit Facilities (assuming that the New Revolving
Facility has been drawn in full) and any debt senior to, or pari
passu with, the New Credit Facilities, divided by (ii)
Fusion’s consolidated adjusted EBITDA for the preceding
twelve months.
As
currently contemplated, Fusion will pledge the Fusion/SPV
Subordinated Note to secure its obligations in respect of the New
Credit Facilities, with the New Revolving Facility having payment
priority in respect thereof as described below. In the event Fusion
receives any repayment or other amount in respect of the Fusion/SPV
Subordinated Note and Fusion’s Total Leverage Ratio (as
described below) is greater than or equal to 2.50:1.00 as of the
end of the then most recently ended fiscal quarter or a default or
an event of default then exists under the New Credit Facilities,
then the repayment or other amount received by Fusion will be
required to be deposited into a segregated deposit account, to be
held as cash collateral in respect of the New Credit Facilities,
subject to the New Revolving Facility payment priority described
below. If Fusion achieves a Total Leverage Ratio of less than
2.50:1.00 as of the end of any subsequent fiscal quarter and no
default or event of default then exists under the New Credit
Facilities, then the cash collateral in the segregated deposit
account will be released to Fusion. If an event of default exists
under the New Credit Facilities, any value realized from the
exercise of remedies in respect of the Fusion/SPV Subordinated
Note, including any cash collateral in the segregated deposit
account, will be available to repay obligations outstanding in
respect of the New Revolving Facility and to cash collateralize any
letters of credit outstanding thereunder before being applied to
any other obligations in respect of the New Credit Facilities. The
“Total Leverage Ratio” will be equal, as of the end of
any fiscal quarter, to the ratio of Fusion’s consolidated
total debt as of such date to its consolidated adjusted EBITDA for
the four fiscal quarters ending on such date.
While
it is currently contemplated that the Fusion/SPV Subordinated Note
will secure Fusion’s obligations in respect of the New Credit
Facilities as described above, the cash collateral pledged by the
SPV TLB Lender to Goldman Sachs as part of the SPV TLB Lender
Financing will be available to repay the Fusion/SPV Subordinated
Note, and thereby be available for the benefit of Lenders under the
New Revolving Facility and, after application thereto, the other
New Credit Facilities, only to the extent such collateral is not
required to be applied to repay the GS/SPV Senior Secured Loan. The
Fusion/SPV Subordinated Note will not be secured by any assets of
the SPV TLB Lender, and Fusion will have no claims against the SPV
TLB Lender under the Fusion/SPV Subordinated Note other than the
right to payment thereunder in accordance with its terms. Lenders
under the New Credit Facilities will not have any claims against
the SPV TLB Lender (other than as set forth in the New Credit
Facilities), and will be entitled to share in the proceeds of
payments on the Fusion/SPV Subordinated Note only to the extent of
their lien on the Fusion/SPV Subordinated Note described
above.
In
addition, in connection with its participation in the New Tranche B
Loans, the TLB Lender will be provided by Fusion with non-voting
board observation rights. As a result of its board observation
rights, the TLB Lender and its affiliates may receive information
with respect to Fusion and its subsidiaries that is not available
to other lenders, which may include material non-public information
with respect to Fusion and its subsidiaries. The TLB Lender will be
obligated to maintain confidentiality with respect to material
non-public information that originates from or is otherwise derived
from its board observation rights, and comply with relevant
securities laws. Under the proposed terms of the SPV TLB Lender
Financing, Goldman Sachs will not be a beneficiary of any such
board observation rights, and will not have any right over the
selection of any board observer or any control over any board
observer. Such board observation rights will not be transferrable
to any assignee of the New Tranche B Term Loans held by the TLB
Lender or the SPV TLB Lender.
4
Goldman
Sachs has indicated that it may provide up to $20 million in
commitments under the New Revolving Facility at closing. There can
be no assurance, however, that Goldman Sachs will provide any
portion of the New Revolving Facility.
The
closing of the New Credit Facilities will be conditioned on, among
other things, Fusion selling (1) $5 million of Common Stock,
expected to be issued at a price of $3.50 per share, to a
prospective lender under the second lien term facility, (2) $15
million, issued at 98% of par, of a newly designated series of 12%
perpetual non-convertible preferred stock to certain current
stockholders of Birch (the “Redeemable Preferred
Stock”), which will be redeemable by Fusion at any time, and
(3) a new $10 million subordinated unsecured note to certain
current stockholders of Birch (the “New Subordinated
Note”). In addition, certain current stockholders of Birch
will defer the repayment of approximately $3.3 million of existing
loans to a subsidiary of Birch, which loans were previously
contemplated to be repaid in full at closing of the Birch Merger,
with such deferred loans becoming due in three equal quarterly
installments beginning with the third quarter of 2018 and being
subordinated to the New Credit Facilities. At closing of the New
Credit Facilities, and after giving effect to the equity issuances
and debt transactions described above and the payment of related
transaction fees and expenses (but subject to the deferral of
payment of the Deferred Fees as described above), Fusion projects
that it will have approximately $20 million of unrestricted cash on
hand, and $40 million available for borrowing under the New
Revolving Facility. Under the proposed terms of the Redeemable
Preferred Stock, Fusion will be required to redeem the Redeemable
Preferred Stock with the proceeds of any offering of shares of
Common Stock occurring after the closing of the Birch Merger, but
such redemption will be subject to prior payment, in full, of the
Deferred Fees. In addition, the Eighth Amendment to the Merger
Agreement permits Fusion to issue up to an additional $5 million of
Common Stock prior to the closing of the Birch Merger (after taking
into consideration the sale of $5 million of Common Stock described
in the first sentence of this paragraph). If any such additional
Common Stock is issued, Fusion anticipates that the proceeds
thereof, together with the proceeds of the other Common Stock
issuance described above, would be used for general corporate
purposes.
The
terms, structure, amount, timing and availability of the New Credit
Facilities (including the relative amounts of the first lien
secured term loans and the second lien secured term loans), the
GS/SPV Senior Secured Loan, the Fusion/SPV Subordinated Note, the
New Subordinated Note, the Redeemable Preferred Stock and the other
equity financings described above depend on market and other
conditions and may change, and such changes may be material. At
this time, none of Goldman Sachs, the other Arrangers, the TLB
Lender, the SPV TLB Lender, any existing stockholder of Birch or
any other person is obligated to provide any portion of the New
Credit Facilities, the New Subordinated Note or the Redeemable
Preferred Stock, as applicable, enter into the SPV TLB Lender
Financing or provide any other equity or debt financing to Fusion,
and the successful closing of any of the foregoing cannot be
assured. In addition, in the event the SPV TLB Lender Financing is
not provided by Goldman Sachs, the TLB Lender and the SPV TLB
Lender may determine to reduce their participation in the New
Tranche B Loans, or may determine not to participate at all, which
is likely to materially adversely affect Fusion’s ability to
obtain the entire amount of the New Credit Facilities, including
the New Tranche B Loans, and to close the New Credit Facilities. In
such event, Fusion may be required to raise additional or other
debt or equity capital, which may be preferred equity, thereby
increasing its leverage or resulting in additional dilution for
Fusion’s existing preferred and common stockholders. If the
SPV TLB Lender Financing is entered into, the interests of the
parties thereto may differ from those of the Arrangers and lenders
under the New Credit Facilities and Fusion’s existing and
prospective equity holders. In addition, the interests of Goldman
Sachs and the other Arrangers in respect of the New Credit
Facilities may differ from those of the other lenders under the New
Credit Facilities and Fusion’s existing and prospective
equity holders.
The New
Credit Facilities, if obtained, will not increase Fusion’s
leverage ratio as of the closing date, but will increase its
overall leverage and debt service obligations and exacerbate the
risks related to its substantial leverage described in its Annual
Report on Form 10-K for the year ended December 31, 2017 filed with
the Securities and Exchange Commission (the “SEC”). All
of Fusion’s debt, as well as its preferred stock, would be
entitled to payment prior to any payments to holders of Common
Stock.
5
Forward-Looking Statements
Certain
statements contained in this filing may be considered
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including statements
regarding the Birch Merger and the Proposed Acquisition, the nature
of financing to be incurred in connection with the Birch Merger or
the Proposed Acquisition, the consideration to be paid in
connection with the Proposed Acquisition and the ability of the
parties to consummate the Birch Merger and the Proposed
Acquisition. These forward looking statements generally include
statements that are predictive in nature and depend upon or refer
to future events or conditions, and include words such as
“believes,” “plans,”
“anticipates,” “projects,”
“estimates,” “expects,”
“intends,” “strategy,”
“future,” “opportunity,” “may,”
“will,” “should,” “could,”
“potential,” or similar expressions. Statements that
are not historical facts are forward-looking statements.
Forward-looking statements are based on current beliefs and
assumptions that are subject to risks and uncertainties. Forward
looking statements speak only as of the date they are made, and
Fusion undertakes no obligation to update any of them publicly in
light of new information or future events. Actual results could
differ materially from those contained in any forward-looking
statement as a result of various factors, including the risks
related to the Birch Merger and the Proposed Acquisition and the
financing thereof, including related to our leverage and liquidity,
the ability to consummate such transactions, and if consummated, to
achieve the anticipated benefits in the expected timeframe, if at
all, and the other risks disclosed in Fusion’s Form 10-K and
other filings filed by Fusion with the SEC, which are available on
the SEC’s website at www.sec.gov. Readers are cautioned not
to place undue reliance on these forward-looking statements, which
speak only as of the date thereof.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
EXHIBIT
INDEX
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Exhibit
No.
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Description
of Exhibit
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Eighth
Amendment, dated as of April 26, 2018, to Agreement and Plan of
Merger by and among Fusion Telecommunications International, Inc.,
Fusion BCHI Acquisition LLC and Birch Communications Holdings,
Inc.
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Ninth
Amendment, dated as of April 27, 2018, to Agreement and Plan of
Merger by and among Fusion Telecommunications International, Inc.,
Fusion BCHI Acquisition LLC and Birch Communications Holdings,
Inc.
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Form
of credit agreement governing the GS/SPV Senior Secured
Loan
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Form
of Fusion/SPV Subordinated Note
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6
SIGNATURE
Pursuant to the
requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report on Form 8-K to be signed
on its behalf by the undersigned thereunto duly
authorized.
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FUSION TELECOMMUNICATIONS
INTERNATIONAL, INC.
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By: /s/ James P. Prenetta,
Jr.
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James P. Prenetta, Jr.
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April 30, 2018
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EVP and General Counsel
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7
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Exhibit
No.
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Description
of Exhibit
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Eighth
Amendment, dated as of April 26, 2018, to Agreement and Plan of
Merger by and among Fusion Telecommunications International, Inc.,
Fusion BCHI Acquisition LLC and Birch Communications Holdings,
Inc.
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Ninth
Amendment, dated as of April 27, 2018, to Agreement and Plan of
Merger by and among Fusion Telecommunications International, Inc.,
Fusion BCHI Acquisition LLC and Birch Communications Holdings,
Inc.
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Form
of credit agreement governing the GS/SPV Senior Secured
Loan
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Form
of Fusion/SPV Subordinated Note
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8