UNITED STATES
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): October 18, 1999
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Convergence Communications, Inc.
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(Exact name of registrant as specified in its charter)
Nevada 00-21143 87-0545056
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(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
102 West 500 South, Suite 320, Salt Lake City, Utah 84101
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (801) 328-5618
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Wireless Cable & Communications, Inc.
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(Former name or former address, if changed since last report.)
Item 5. Other Items.
On October 18, 1999, Convergence Communications, Inc. (the "Company")
closed the first portion of a $109.5 million private equity and credit facility
financing package with six accredited investors. At the closing, the Company
received $33 million in cash from the sale of 4,400,000 shares of its Series C
Convertible Preferred Stock (the "Series C Stock") to three of the six
accredited investors and exchanged approximately $15 million of debt it
previously issued to two of the accredited investors into 1,995,577 shares of
Series C Stock. Those five parties also acquired options to purchase 2,558,230
additional shares of Series C Stock (the "Options") and warrants to purchase
1,598,894 shares of Common Stock (the "Investor Warrants"), and the two existing
shareholders acquired additional warrants to purchase 520,000 shares of Common
Stock (the "FondElec/Internexus Warrants").
The parties under the stock purchase agreement (the "Agreement")
included Telematica EDC, C.A. ("Telematica"), TCW/CCI Holding LLC ("TCW"), the
International Finance Corporation ("IFC"), Glacier Latin-America, Ltd.
("Glacier"), and two existing shareholder entities, FondElec Essential Services
Growth Fund, L.P. ("FondElec"), and Internexus S.A. ("Internexus")
(collectively, the "Investors"). The IFC is a named party to the Agreement, but,
pursuant to a waiver by the other parties, did not join in the execution of the
Agreement at the first closing. The IFC has until November 19, 1999 to join in
the Agreement and fund its purchase obligations under it.
Telematica and TCW are obligated to purchase, for cash, an additional
2,666,666 shares of Series C Stock, Options for 1,066,666 shares of Series C
Stock and Investor Warrants for 666,666 shares of Common Stock for $20 million
at a second closing that will be held after the parties receive clearance under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Laws"). The parties expect clearance under the HSR Laws from the Department of
Justice and the Federal Trade Commission in early November 1999. The IFC is
obligated to purchase 666,666 shares of Series C Stock, and acquire an Option
for 266,666 shares of Series C Stock and an Investor Warrant for 166,666 shares
of Common Stock, for $5 million in cash if it joins in the execution of the
Agreement.
Assuming the consummation of all of the purchases under the Agreement,
the Investors will hold the following interests in the Company:
First Closing(1) Second Closing(1)
Investor Shares Percentage Shares(2) Percentage(2)
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Telematica 2,000,000 10.5% 3,333,333 14.9%
TCW 2,000,000 10.5% 3,333,333 14.9%
IFC -0- 0% 666,666 3.0%
Glacier 400,000 2.1% 400,000 1.8%
FondElec 3,395,681 17.8%(3) 3,395,681 15.2%(3)
Internexus 3,782,145 19.9%(4) 3,782,145 16.9%(4)
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(1) Assumes (i) the exercise by FondElec and Internexus of warrants to acquire,
respectively, 508,424 and 282,644 shares of Common Stock which were held by
those parties prior to October 18, 1999, but no exercise of any other warrants
or options held by other parties prior to October 18, 1999; (ii) no exercise of
the Option, Investor Warrants or FondElec/Internexus Warrants; and (iii) the
conversion of the outstanding shares of Series C Preferred Stock and Series B
Preferred Stock into shares of Common Stock on a voting basis.
(2) Reflects cumulative shareholder positions.
(3) Includes 2,220,591 shares of Common Stock held by FondElec prior to October
18, 1999 and assumes the exercise of warrants and options for 508,424 shares of
Common Stock. See Note (1) above. The shares FondElec received at the first
closing (666,666 shares) were obtained through the conversion of principal
amounts due FondElec under the Company's December 23, 1998 note in favor of
FondElec, in the original principal amount of $5 million.
(4) Includes 2,170,590 shares of Common Stock held by Internexus prior to
October 18, 1999 and assumes the exercise of warrants and options for 282,644
shares of Common Stock. See Note (1) above. The shares Internexus received at
the first closing (1,328,911 shares) were obtained through the conversion of the
principal and interest amounts due Internexus under the Company's December 23,
1998, June 12, 1999, September 3, 1999 and October 1, 1999 notes in favor of
Internexus, in the aggregate amount of $9,966,836.
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The Series C Stock, which is described in more detail below, is a
newly-designated series of the Company's preferred stock. The Options have a
term of nine (9) months, and may be exercised in whole or in part. The exercise
price for the Series C Stock under the Options is $7.50 per share. The Investor
Warrants and FondElec/Internexus Warrants, which are essentially identical, have
terms of four years, may be exercised only after the occurrence of a Disposition
Event, as described below, and give their holders the right to purchase shares
of Common Stock at an initial exercise price of $7.50 per share. That exercise
price is subject to downward adjustment based on the Company's financial
performance, as measured on the effective date of the Disposition Event that
triggers the right of exercise. The minimum exercise price for the Investor
Warrants and FondElec/Internexus Warrants is $.01 per share. The Company also
granted the Investors both demand and "piggyback" registration rights for any
shares of Common Stock they receive on the exercise of the Investor Warrants or
FondElec/Enternexus Warrants, or through the conversion of their Series C Stock
into Common Stock.
Under the terms of the Agreement, Telematica also agreed to invest, at
the second closing, $5.25 million dollars in Chispa Dos Inc. ("Chispa"), a
controlled subsidiary of the Company which conducts telecommunications
operations in El Salvador. Telematica will acquire approximately 32.64% of the
outstanding stock of Chispa in exchange for its investment, and Chispa will use
a portion of the proceeds of Telematica's investment ($3,864,529) to pay down
the principal and interest amounts outstanding under the promissory note Chispa
delivered to FondElec in April 1999 in the original principal amount of
$4,769,497. In connection with Telematica's investment in Chispa, the Company
will acquire additional shares in Chispa by contributing to capital
approximately $901,000 of the amounts Chispa owes it. Upon consummation of the
Chispa transactions, Chispa will be held approximately 32.64% by each of the
Company and Telematica, 27.87% by FondElec and 6.85% by third parties. Under the
terms of the shareholders' agreements for Chispa's operation, the Company will
maintain day-to-day control over Chispa's operations and will be entitled to
elect 50% of Chispa's directors.
Telematica also agreed to under the Agreement negotiate in good faith
with the Company the terms of a joint venture pursuant to which each of the
Company and Telematica will invest $5 million to conduct telecommunications
operations in the Republic of Colombia. The parties anticipate that the joint
venture will be structured in a manner which will provide the Company with
control of its day-to-day management operations. The letter of intent requires
the parties to enter into the definitive agreements for the joint venture by
February 15, 2000.
On October 18, 1999, Telematica also entered into a long-term $26
million credit facility with InterAmerican Net de Venezuela, S.A., the Company's
wholly-owned Venezuelan operating subsidiary ("InterAmerican"). In connection
with that transaction, Telematica agreed that it or its affiliates would also
enter into (i) a fiber optic lease agreement with InterAmerican (the "Lease
Agreement"), pursuant to which InterAmerican will lease a portion of
Telematica's existing fiber optic network in Caracas, Venezuela, and (ii) a
commercial services agreement (the "Commercial Services Agreement"), under which
Telematica's affiliate will provide billing, collection and other commercial
services to InterAmerican.
A portion of the $26 million credit facility, $7 million, will be paid
to InterAmerican in cash, and $19 million will be advanced to InterAmerican, as
required, for the purpose of paying InterAmerican's obligations under the Lease
Agreement and Commercial Services Agreement. Four million dollars ($4 million)
of the $19 million of in-kind payments will be allocated to lease payments under
the Lease Agreement, $12 million will be allocated to the payment of amounts
otherwise payable by InterAmerican for extensions to the fiber optic network
under the Lease Agreement, and the remaining approximately $3 million will be
allocated to the Commercial Services Agreement.
All outstanding amounts under the credit facility bear interest at a
rate of 3% per year. Interest will be capitalized during the first four (4)
years of the facility, and, thereafter, are payable in cash. The outstanding
principal and unpaid interest amounts under the facility are convertible into
shares of InterAmerican at the election of Telematica at any time after the
third anniversary of the facility, but Telematica can convert the amounts due
under the facility prior to the third anniversary of the facility if
InterAmerica defaults under the facility. Assuming the draw down of the entire
facility and no payment by InterAmerican of any of the advanced amounts, the
principal and interest advanced under the facility would be convertible into
shares representing 50% of the equity ownership of InterAmerican. The credit
facility also provides for a corresponding subscription right in favor of
Telematica, pursuant to which it may purchase 50% of the outstanding stock of
InterAmerican for $26 million. As InterAmerican draws on the credit facility,
the subscription obligation will be proportionately reduced. Any election by
Telematica to convert the amounts due under the facility into shares of
InterAmerican must be exercised with the subscription right.
The credit facility requires the parties to negotiate in good faith the
terms of the Commercial Services Agreement and Lease Agreement. The Company
anticipates the parties will complete those negotiations in early November 1999.
In connection with the execution of the Agreement, the Investors, the
Company and other parties (including Lance D'Ambrosio and Troy D'Ambrosio,
officers of the Company) executed a shareholders' agreement (the "Shareholders'
Agreement"). The Shareholders' Agreement provides, among other things, that the
shareholder parties to it may not transfer their securities of the Company
(other than to their affiliates) unless (i) all such parties, acting together,
transfer their Company securities for cash or publicly traded securities, or
(ii) there occurs a registered public offering of the Company's securities
meeting certain requirements (the "Disposition Events"). After a public offering
referred to in clause (ii), the parties may transfer their securities of the
Company, subject to rights of co-sale on the part of the other shareholder
parties to the Shareholders' Agreement, except in the case of transfers to
affiliates. The Shareholders' Agreement provides for a board of directors of
five members (to be expanded to ten members), and permits each of five groups of
shareholder parties to the Shareholders' Agreement to designate a director (two
directors after the expansion of the board to ten members), with all shareholder
parties agreeing to vote for such designees. Under the terms of the
Shareholders' Agreement, the board of directors of the Company will make all
decisions with respect to ordinary matters regarding the business and operations
of the Company by simple majority vote of the directors present at a meeting
duly called and convened. Certain actions by the Company, however, require the
vote of a designated director of any three of the groups, certain other actions
require the vote of a designated director of any four of the groups, and other
actions require the vote of a designated director from all five groups.
The Shareholders' Agreement also provides that, if any third party
offers to acquire all of the Company's equity held by the shareholder parties
for cash consideration at a price that will cause the shareholder parties to
obtain a specified rate of return on their investment, and three of the
shareholder parties who designate director nominees agree to enter into that
transaction, then all of the shareholder parties will be obligated to
participate in the transaction. The Shareholders' Agreement further provides for
purchase and sale options in favor of the Company and Telematica with respect to
any subsidiary of the Company in which Telematica holds (or has the right to
acquire) a 50% or greater interest. The options are triggered in the event of a
public offering of the Company that meets certain size requirements, a sale of
all or substantially all of the Company's assets, or the occurrence of certain
other fundamental corporate transactions.
To facilitate the Company's performance of its obligations under the
Agreement, on October 12, 1999, the Company's Board of Directors designated the
Series C Stock as a new series of the Company's authorized preferred stock. The
certificate designating the rights and preferences of the Series C Shares was
filed with the Nevada Secretary of State's Office on October 13, 1999 and
declared effective on October 14, 1999.
The Series C Stock consists of 14,250,000 shares of preferred stock,
par value $.001 per share, and has the following general rights and preferences:
- It votes with the outstanding shares of the Company's common stock
and Series B Preferred Stock (unless otherwise required by law), and has one
vote per share.
- It is convertible into shares of the Company's common stock,
initially on a one-for-one basis. The conversion ratio is subject to adjustment
for fundamental corporate transactions. Conversion is generally optional, but is
mandatory upon the occurrence of a Disposition Event.
- It has a liquidation preference which is superior to the Company's
common shares, but subordinate to the Company's Series B Preferred Stock. The
initial liquidation preference is $7.50 per share.
- It is not redeemable.
- Its holders are entitled to receive cash dividends or distributions
of property when, as and if declared by the Board of Directors. If the Company
declares a dividend or distribution on its Common Stock, it is required to pay a
dividend or distribution to the holders of the Series C Stock in an amount equal
to what they would have received had the holders converted their Series C Stock
into Common Stock.
- Its holders have a preemptive right to purchase their prorata share
of any new securities issued by the Company. The preemptive rights do not apply
to issuances of stock to management or employees, any merger or similar
transaction approved by the Board of Directors, to securities issued in a stock
split or dividend, or certain other transactions approved by the Board of
Directors. The preemptive rights terminate on the effective date of a public
offering meeting certain size requirements.
In connection with the first closing under the Agreement, Peter
Schiller, Troy D'Ambrosio and George Sorensen resigned from the Company's Board
of Directors, the Board of Directors set the number of the members of the Board
at five, and the Board of Directors appointed Messrs. Mario L. Baeza and
Norberto Corredor as members of the Board of Directors to fill the vacancies
left by Messrs. Shiller's, D'Ambrosio's and Sorenson's resignations. Messrs.
Baeza and Corredor were each appointed as members of the Company's Class II
directors. Mr. Baeza is the Chief Executive Officer and Chairman of TCW/Latin
America Partners, LLC, an affiliate of TCW which is an investment fund
specializing in businesses in emerging growth countries. Mr. Corredor is the
Manager of the Department of Telecommunications and Automation Services for a
Venezuelan utility company that is an affiliate of Telematica.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired. N/A
(b) Pro Forma Financial Information. N/A
(c) Exhibits. The following exhibit is included in this filing in
accordance with the provisions of Item 601 of Regulation S-K:
4.3 Certificate Establishing and Designating the Rights,
Preference and Restrictions of Shares of Series C
Convertible Preferred Stock of Convergence Communications,
Inc.
CONVERGENCE COMMUNICATIONS, INC.
/s/ Jerry Slovinski
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By: Jerry Slovinski, Chief Financial Officer
Dated: November 2, 1999