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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
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MARCH 17, 2000
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GRACE DEVELOPMENT, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COLORADO 0-25582 84-1110469
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(STATE OR OTHER (COMMISSION FILE NUMBER) (IRS EMPLOYER
JURISDICTION OF IDENTIFICATION
INCORPORATION) NUMBER)
1690 CHANTILLY DRIVE, ATLANTA, GEORGIA 30324
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (678) 222-3030
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ITEM 5. OTHER EVENTS.
The Registrant has determined to provide certain explanations and
clarifications with respect to information reported in prior filings with the
Commission. This information includes (a) the feasibility of deploying a radio
microwave and wireless telephony network, (b) the Registrant's relationship
with Lucent Technologies and its subsidiaries with respect to certain equipment
leases and (c) the status of a contingent liability reserve established with
respect to the acquisition of Avana Communications Corporation in May, 1999
(collectively, the "Previously Reported Information").
The information set forth herein is intended to address the Previously
Reported Information. Although this material should be read in conjunction with
the Registrant's prior filings with the Commission and other publicly available
information relating to the Registrant, the Registrant expressly disavows all
information and statements contained in prior filings and public announcements
by the Registrant (including, without limitation, press releases and
electronically disseminated information) to the extent such information and any
such statements conflict or are otherwise inconsistent with the material set
forth herein. In the event of any such conflict or inconsistency, the
information contained herein shall control, and no reliance should be placed on
such conflicting or inconsistent prior information.
Deployment of Radio Microwave and Wireless Telephony Network
The Registrant, with the assistance of a wireless consulting firm with
which it contracted, has evaluated the feasibility of deploying a radio
microwave and wireless telephony network. Although the Registrant has not ruled
out deployment of such a network, in light of certain technical limitations and
costs, the Registrant does not expect to deploy any such network in the
foreseeable future. While no assurances can be given whether such a network will
be deployed or whether, if deployed, it will generate revenues, management
believes that if deployed, such a network would not be expected to contribute
materially to the Registrant's consolidated annual revenues.
In May, 1999, New Millennium Multimedia, Inc., ("NM"), which became a
subsidiary of the Registrant in September, 1999, entered into an agreement with
Ascend Credit Corporation, a subsidiary of Ascend Communications ("Ascend"),
pursuant to which Ascend would provide NM with a credit facility of no less
than $5.1 million for operating leases for certain technology enhancements and
a working capital facility of $600,000. At the time of these negotiations, NM
was aware that Ascend had entered into an agreement to be acquired by Lucent
Technologies ("Lucent"). In exchange for the lease and the credit facilities,
NM issued to Ascend warrants to purchase 200,000 shares of NM common stock (the
"Ascend Warrants"). The Ascend Warrants expired seven years from the date of
issuance and were exercisable at a price equal to $3.00 per share. At the time
the warrants were issued, NM's authorized capital stock was 1,000,000 shares of
common stock; hence the warrant issued to Ascend represented not less than 20%
of NM on a fully-diluted basis. Subsequent to the issuance of the Ascend
Warrants, Ascend was acquired by
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Lucent. NM was informed that Lucent had agreed, in connection with its spin-off
from AT & T, that it would not own more than five (5%) percent of the voting
stock of any telecommunications company. Accordingly, Lucent exercised the
Ascend Warrants with respect to 49,000 shares and agreed to surrender the
remaining 151,000 warrants in consideration of (a) payment of $395,620 and (b)
payment in full of the working capital facility. The terms of the warrant
surrender were the result of arms-length negotiations between NM and Lucent.
Subsequent to the Registrant's acquisition of NM, NM ordered twelve
items of remote networking equipment ("TNTs") (approximate value $3.85 million)
pursuant to its agreement with Ascend. The equipment was purchased to support
its Internet service activities and certain inter-exchange carrier ("IXC")
activities. Following a reconfiguration of its remote local sites, the
Registrant determined that it had excess capacity and accordingly made
arrangements to return nine of the twelve TNTs (with an approximate value of
$2.9 million), and restructured the leasing arrangement from an operating lease
to a capital lease arrangement. NM also ordered from Ascend certain
"voice-over" TNTs to support its IXC activities. Following the acquisition of
NM by the Registrant, the Registrant determined that Lucent had available more
capable "voice- over" technology. Accordingly, during the fourth quarter of
1999, the Registrant entered into negotiations with Ascend and Lucent and
determined to return the Ascend "voice-over" equipment ordered by NM and
replace it with equipment better suited to the Registrant's IXC and competitive
local exchange carrier ("CLEC") activities. Equipment returned and credited in
this regard totaled approximately $1.55 million. All such equipment was leased
pursuant to the NM equipment lease agreement with Ascend (filed as Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-QSB for the period ending
September 30, 1999). The aggregate value of equipment retained by the
Registrant under such lease is approximately $1.78 million.
In January, 2000, the Registrant completed negotiations with Lucent
for a new equipment lease arrangement of up to $25 million through General
Electric Capital Corporation. Equipment to be supplied pursuant to such
agreement includes PathStar Access Server(TM), Stinger(TM) digital subscriber
line ("DSL") access concentrators, the Lucent SoftSwitch for internet protocol
networks and the PacketStar(TM) ATM access concentrators.
Status of Avana Contingent Liability Reserve
NM acquired Avana Communications Corporation ("Avana") in May, 1999.
At the time of this acquisition, Avana, which was a regional Internet service
provider ("ISP") in the Atlanta, Georgia metropolitan area, had a customer base
of approximately 4,000 individual and business customers comprising
approximately 5,500 users. As part of the terms of the Avana acquisition,
payment of $100,000.00 of the purchase price for Avana was contingent upon
Avana's retaining at least 95% of the aggregate number of accounts serviced by
Avana during the year immediately preceding the acquisition. Upon completion of
the acquisition of Avana, NM implemented service upgrades and performed audit
verification of delinquent Avana accounts, which resulted in cancellation of
approximately 10% of the Avana customer base. In accordance with the terms of
the acquisition agreement, NM was not required to make the $100,000.00
contingent purchase price payment. As of November 30, 1999, Avana's customer
base consisted of approximately 4,500 individual and business customers,
comprising 6,700 users. The Registrant believes that
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growth in the Avana customer base is a result of sales and marketing efforts
implemented by NM and the Registrant following the acquisition of Avana.
THIS REPORT INCLUDES "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. ALL STATEMENTS, OTHER THAN
STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS REPORT, INCLUDING, WITHOUT
LIMITATION, THOSE REGARDING THE REGISTRANT'S FINANCIAL POSITION, BUSINESS,
MARKETING AND PRODUCT DEVELOPMENT PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE
OPERATIONS, ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE REGISTRANT BELIEVES
THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE
BEEN CORRECT.
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SIGNATURE
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, thereunto duly authorized.
GRACE DEVELOPMENT, INC.
By: /s/ James Blanchard
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James Blanchard
President & Chief Operating Officer
Dated as of March 17, 2000
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