OneEighty Networks sale under fire

Spokane telecommunications company OneEighty Networks Inc. plans to sell its assets to a South Dakota telephone corporation next week in the face of “insolvency,” forming a regional business that provides voice, data and Internet services.

But a group of shareholders is questioning the ethicality of the roughly $5.2 million cash deal with OrbitCom Inc., saying most stockholders won’t benefit while CEO and majority owner Greg Green will.

Green asserted the resulting Spokane-based company will do $20 million a year in revenue and cover 14 Western states, bringing a “significant economic benefit” locally.

The deal, expected to close Thursday, calls for five-year-old, privately held OneEighty Networks to use proceeds to pay off millions of dollars in debt to secured creditors, then repay co-founder Green roughly $2.68 million he claims he’s infused into the company. That likely leaves “no value to any of us shareholders,” Green wrote in an Oct. 9 letter to shareholders.

Any remaining money would go to shareholders within a year, and the company would be liquidated.

That “essentially strands all of the shareholders except for one and gives us no options other than to either take it or choose to fight it,” said Chad Skidmore, shareholder and former company president.

“Today, it appears that our total debt exceeds our total asset value, and while we have positioned ourselves appropriately on a going forward basis, prior obligations are greatly impacting our cash flow,” Green wrote. “The cost to operate OneEighty Networks at its current size is just simply not palatable.”

As a competitive local exchange carrier licensed in Washington, Idaho and Oregon, OneEighty offers Internet service, Web hosting and server co-location. It owns a fiber-optic network, part of it purchased from now-defunct Avista Communications, where Green also was CEO, in 2002.

Its network extends from Seattle to Spokane, Coeur d’Alene, the Tri-Cities, Walla Walla and Pendleton, Ore.

Preliminary financial documents show OneEighty Networks posted a year-to-date net loss of $815,612 at the end of August, reporting revenues of $3.61 million. Last year, the company reported revenues of $5.75 million. It owed $4.62 million to several creditors, including Green, as of Oct. 31.

OneEighty Networks’ roughly 32 employees will keep their jobs, and the company will continue to serve customers in Northwest markets, including The Spokesman-Review, as OneEighty, Green said.

The new company will leverage OneEighty Networks’ equipment to provide Voice over Internet Protocol telephone service, he said. It will have 14,000 voice lines and more than 8,000 DSL, Ethernet and Internet customers, according to a news release.

Stockholders representing ownership of about 85 percent of stock approved the deal, according to meeting minutes.

The dissenting shareholders suspected Green is required to purchase stock in OrbitCom with sale proceeds, making it a stock exchange – which Green and company attorneys denied. They also requested the transaction be delayed 30 days.

State law allows dissenting shareholders in a merger or some sales to be paid “fair value” for shares.

The deal, however, is “specifically excluded” from that law, Scott Simpson, an attorney for OneEighty Networks, wrote to the shareholders’ lawyers. The company will reveal documents required by law, but many of those requested are not mandated, he wrote.

“What Mr. Green does with any cash which he receives from One Eighty Networks in repayment of its debt to him is entirely his decision,” Simpson wrote.

If the shareholders don’t receive access to requested documents, they might consider legal action, Skidmore said.

“Our feeling is if there is nothing to hide, it shouldn’t be an issue to disclose some of that information so shareholders can make a reasonable decision, but that hasn’t happened yet,” he said.

Green owns about 78 percent of the company and serves as a director. He formed OneEighty Communications in 1998, and Avista Corp. bought a majority interest in 1999, but the company became a consistent money loser.

“Quite frankly, the reason I lent that money to the company was there weren’t any other institutions that were willing to invest in telecom over the last couple of years,” Green said.

Darek Smehlik, former vice president of network engineering, said he paid taxes on shares issued as a bonus. The company granted shares in 2005 valued at 36 cents and some in 2007 at 48 cents, but stockholders were told at the meeting shares are worth nothing, suggesting the valuation formula had changed, he said.

Green said the current valuation remains unclear.

Skidmore said OneEighty had an “acquire as many customers at all costs” approach. OneEighty had purchased at least four Internet and telecom companies. Green, however, said the company should have pursued voice earlier. “I don’t think you can just be a niche player and do data,” he said. Since Skidmore and other managers left in 2005, “we’ve made significant bottom-line impact for the company and really done a better job of managing the business,” Green said.

“If everybody’s being honest, then there’s no complaint,” said Kaine Kornegay, former director of business development at OneEighty Networks. “Bad things happen. But without the opportunity to make that judgment, it’s pretty tough to be comfortable with a transaction going forward that you’ve been told by the CEO of the company will result in your shares being worth nothing.”

Founded in 2000 as an alternative phone company, OrbitCom is based in Sioux Falls, S.D.