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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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): JANUARY 26, 2005
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USURF AMERICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
NEVADA 1-15383 91-2117796
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE NO.) (IRS EMPLOYEE
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
390 Interlocken Crescent, Suite 900
Broomfield, Colorado 80021
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
303-789-7100
(ISSUER TELEPHONE NUMBER)
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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))
This Form 8-K and other reports filed by Usurf America, Inc. (the
"Registrant" or the "Company") from time to time with the Securities and
Exchange Commission (collectively the "Filings") contain forward looking
statements and information that are based upon beliefs of, and information
currently available to, the Registrant's management as well as estimates and
assumptions made by the Registrant's management. When used in the Filings the
words "anticipate", "believe", "estimate", "expect", "future", "intend", "plan"
or the negative if these terms and similar expressions as they relate to the
Registrant or the Registrant's management identify forward looking statements.
Such statements reflect the current view of the Registrant with respect to
future events and are subject to risks, uncertainties, assumptions and other
factors relating to the Registrant's industry, operations and results of
operations and any businesses that may be acquired by the Registrant. Should one
or more of these risks or uncertainties materialize, or should the underlying
assumptions prove incorrect, actual results may differ significantly from those
anticipated, believed, estimated, expected, intended or planned.
ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
On January 26, 2005, Usurf America, Inc. (the "Company") entered into a
Securities Purchase Agreement (the "Acquisition Agreement") with Sovereign
Partners, LLC, a Colorado limited liability company ("Sovereign") and each of
the members of Sovereign (the "Members"). The Acquisition Agreement provides,
among other things, for the acquisition by the Company of 100% of the membership
interests of Sovereign from the Members in exchange for the issuance of shares
of the Company's common stock, $0.0001 par value per share (the "Common Stock")
and shares of the Company's newly created Series B Convertible Preferred Stock,
$0.0001 par value per share (the "Preferred Stock"). Upon the completion of the
acquisition, Sovereign will be owned and operated as a wholly-owned subsidiary
of the Company. A copy of the Acquisition Agreement is attached hereto as
Exhibit 10.1. Any and all descriptions of the Acquisition Agreement as described
in this Current Report on Form 8-K are qualified in their entirety by reference
to the full text of the attached Acquisition Agreement.
Under the terms of the Acquisition Agreement, the Members will be issued
shares of Common Stock and Preferred Stock, as follows: (i) 35,000,000 shares of
Common Stock and 100,000 shares of Preferred Stock at the closing of the
acquisition; (ii) 125,000 shares of Preferred Stock on each of January 1, 2006
and July 1, 2006; (iii) 250,000 shares of Preferred Stock at such time as the
Net Operating Income of Sovereign after January 1, 2005 is equal to or greater
than $6,000,000; and (iv) 400,000 shares of Preferred Stock if the Net Operating
Income of Sovereign ending on the period twenty-four months following the
closing of the acquisition is equal to or greater than $5,000,000. For the
purposes of the Acquisition Agreement, Net Operating Income means for any period
the "EBITDA" on a consolidated basis for Sovereign and all of its subsidiaries,
in accordance with generally accepted accounting principles. "EBITDA" means
earnings before interest, taxes, depreciation and amortization.
In addition, the Members may earn additional shares of Common Stock or
Preferred Stock if the average annualized Net Operating Income for the period
commencing on the closing and ending on the twenty-four month anniversary date
of the closing is: (A) greater than $5,000,000, but less than or equal to
$6,000,000, then the Members will receive in the aggregate an additional 0.05
shares of Preferred Stock for each dollar that the average annualized Net
Operating Income for that period exceeds $5,000,000; (B) greater than $6,000,000
but less than or equal to $7,000,000, then the Members will receive in the
aggregate an additional 0.10 shares of Preferred Stock for each dollar that the
average annualized Net Operating Income for that period exceeds $5,000,000; (C)
greater than $7,000,000 but less than or equal to $8,000,000, then the Members
will receive in the aggregate 0.15 shares of Preferred Stock for each dollar
that the average annualized Net Operating Income for that period exceeds
$5,000,000; or (D) greater than $8,000,000 for that period, then the Members
will receive in the aggregate 0.20 shares of Preferred Stock for each dollar
that the average annualized Net Operating Income for that period exceeds
$5,000,000 (collectively, the "Twenty-Four Month Issuances").
In addition, the Members may earn additional shares of Common Stock or
Preferred Stock as follows: if the average annualized Net Operating Income for
the period commencing on the Closing and ending on the thirty-six month
anniversary date of the closing is: (A) greater than $5,000,000, but less than
or equal to $6,000,000, the Members will receive in the aggregate an additional
0.10 shares of Preferred Stock for each dollar that the average annualized Net
Operating Income for that period exceeds $5,000,000; (B) greater than $6,000,000
but less than or equal to $7,000,000, then the Members will receive in the
aggregate an additional 0.20 shares of Preferred Stock for each dollar that the
average annualized Net Operating Income for that period exceeds $5,000,000; (C)
greater than $7,000,000 but less than or equal to $8,000,000, then the Members
will receive in the aggregate 0.30 shares of Preferred Stock for each dollar
that the average annualized Net Operating Income for that period exceeds
$5,000,000; or (D) greater than $8,000,000 for that period, then the Members
will receive in the aggregate 0.40 shares of Preferred Stock for each dollar
that the average annualized Net Operating Income for that period exceeds
$5,000,000. Such issuances will be reduced by the number of shares of Common
Stock or Preferred Stock received pursuant to the Twenty-Four Month Issuances,
if any.
Under the terms of the Acquisition Agreement, the aggregate number of
shares of capital stock of the Company issuable to the Members is limited to
300,000,000 shares of Common Stock or such number of shares of Preferred Stock
that is convertible into 300,000,000 shares of Common Stock, or any combination
of Preferred Stock and Common Stock which does not exceed 300,000,000 shares of
Common Stock in total.
The Company may suspend the issuance of additional shares of Common Stock
or Preferred Stock upon certain "breaches" by Sovereign defined in the
Acquisition Agreement. In the event of a breach, any shares that have not yet
been issued to the Members under the terms of the Acquisition Agreement may be
withheld by the Company until the earlier of (i) twelve months from the date
such shares would have otherwise been issued to the Members or (ii) such time as
any such breach has been cured by Sovereign.
The Closing of the Acquisition Agreement is scheduled for February 28,
2005.
The Acquisition Agreement also provides for customary representations and
warranties of all parties, certain covenants and agreements related to the
closing and mutual indemnification of the parties.
In connection with the Acquisition Agreement, it is contemplated that the
Company will amend its By-Laws to provide that the provisions of Nevada Revised
Statutes Sections 78.378 to 78.3793 do not apply to the acquisition of the
capital stock of the Company by Sovereign, its Members or its affiliates in
connection with the Acquisition Agreement.
In addition, at the closing, it is contemplated that the Company will
enter into a Registration Rights Agreement with the Members whereby the Company
will undertake to prepare and file a registration statement on Form SB-2 to
register the Common Stock (and the Common Stock which may be issued upon
conversion of the Preferred Stock) to be issued to the Members. Under the terms
of the proposed Registration Rights Agreement, the registration statement is
required to be filed within seventy-five days of the closing, and then within
seventy-five days of each subsequent issuance of Common Stock or Preferred Stock
under the Acquisition Agreement. The Company must cause the registration
statement to become effective within 180 days of the filing of the registration
statement, or it must pay cash to the Members in the amount of 0.5% per month of
the fair market value of the Common Stock then held by the Members.
It is also contemplated that at closing the Company will enter into a
Management Agreement which will provide that Mr. Ed Garneau, the current manager
of Sovereign, will continue to serve as manager of Sovereign and that the
Members will continue to elect the manager of Sovereign after the closing for a
period of three years. The Management Agreement will also provide that while the
Company may use Sovereign's cash on hand following the closing, should there be
an objection to such use, the Board of Directors of the Company shall determine
whether the cash may be used for the Company's corporate purposes.
In connection with the Acquisition Agreement, the Company, each member of
the Company's Board of Directors, and each of the Members will at closing, enter
into an Investor Rights Agreement. Pursuant to the Investor Rights Agreement,
each of the parties agree to take all steps necessary, including the exercise of
their voting rights as a shareholder of the Company, to ensure the Mr. Ed
Garneau and one other person selected by the Members, is elected to the
Company's Board of Directors and serves as a Director until all of the shares of
Common Stock issued to the Members have either been registered and sold on an
effective registration statement or are eligible for resale under Rule 144 of
the Securities Act of 1933. The Investor Rights Agreement will also provide that
should certain events happen, each party to the Investor Rights Agreement will
take all steps necessary to increase the number of Directors of the Company and
grant the Members the right to fill all such newly created Board of Director
vacancies. In addition, the Investor Rights Agreement will provide for certain
protective operating covenants that prohibit the Company from taking certain
actions absent the prior consent of the Members.
In connection with the Acquisition Agreement, it is contemplated that the
Company will file with the Secretary of the State of Nevada, a Certificate of
Designation designating the Series B Convertible Preferred Stock. The features
of the Series B Convertible Preferred Stock will include the right on the part
of the Company or the holders to effect the conversion of the Preferred Stock to
Common Stock from time to time when there is sufficient authorized but unissued
shares of Common Stock available for issuance upon conversion. The Preferred
Stock will be convertible into Common Stock at the conversion rate of 100 to 1.
In the event the Company fails to increase the number of authorized shares of
Common Stock to a level sufficient to allow for the conversion of all of the
Preferred Stock into Common Stock by June 30, 2006, the Company will be
obligated, at the request of the holders of the Preferred Stock, to redeem the
Preferred Stock at the then fair market value of the underlying Common Stock
into which the Preferred Stock would otherwise be convertible. The Preferred
Stock designation will also provide that the Preferred Stock will be senior to
the Common Stock with respect to rights upon liquidation, winding up or
dissolution of the Company, but will be junior to the Company's existing Series
A Convertible Preferred Stock. The Preferred Stock will vote together with the
Common Stock as a single class on an as-converted to Common Stock basis.
Upon the closing, the Company will enter into an Employment Agreement with
Mr. Ed Garneau. The Employment Agreement will provide that Mr. Garneau be
employed as the President of Sovereign and the Chief Operating Officer of the
Company for an initial period of three years following the closing of the
Acquisition.
In order to close the Acquisition Agreement, several shareholders and
investors in the Company are required to grant their consent to actions
contemplated by the Acquisition. In addition, in contemplation of the
acquisition, certain outstanding notes and warrants of the Company have been
modified and/or terminated. It is anticipated that all such consents, waivers
and modifications will be completed as of the closing of the Acquisition.
ITEM 7.01. REGULATION FD DISCLOSURE.
The Company incorporates by reference the matters described and set forth
under Item 1.01 above and Item 8.01 below as if set forth under this Item 7.01
in their entirety.
ITEM 8.01. OTHER EVENTS.
On January 31, 2005, the Company issued a press release announcing the
pending acquisition of Sovereign and its subsidiaries (the "Sovereign
Companies") pursuant to the Acquisition Agreement described under Item 1.01
above. A copy of the press release is attached as Exhibit 99.1 to this Current
Report.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
Not applicable.
(b) Pro Forma Financial Information.
Not applicable.
(c) Exhibits.
Exhibit No. Description
10.1 Securities Purchase Agreement dated as of January 26
2005 by and among Usurf America, Inc., Sovereign
Partners, LLC and each of the members of Sovereign
listed on the signature pages thereto
99.1 Press Release dated January 31, 2005
SIGNATURES
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.
USURF AMERICA, INC.
By: /s/ Douglas O. McKinnon
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PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: January 26, 2005
EXHIBIT INDEX
EXHIBIT DESCRIPTION
NO.
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10.1 Securities Purchase Agreement dated as of January 26, 2005 by and
among Usurf America, Inc., Sovereign Partners, LLC and each of the
members of Sovereign listed on the signature Pages thereto
99.1 Press Release dated January 31, 2005