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): June 15, 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 (Commission File IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
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
Wireless Cable & Communications, Inc.
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(Former name or former address, if changed since last report.)
Item 2. Acquisition or Deposition of Assets.
On June 15, 1999, the Company (through its subsidiary, Convergence
Communications, S.A. de C.V.) acquired 10% of the capacity (the "Acquired
Capacity") of a fiberoptic network in Mexico City. The purchase was made
pursuant to the terms of an April 28, 1999 agreement (the "Acquisition
Agreement") between the Company and owner of the network, MetroNet, S.A. de C.V.
("MetroNet"). Under the terms of the Acquisition Agreement, the Company has the
right to purchase up to 33% of the capacity of the network.
The network consists of approximately 117 route kilometers (containing
approximately 6,600 kilometers of fiber strands), and is configured in two
existing rings. MetroNet anticipates that it will complete a third ring in 1999
which, when deployed, will increase the total network to approximately 270 route
kilometers.
The Company paid $3,928,616 (plus $589,292 in value added taxes and
$200,000 in related transaction costs) for the Acquired Capacity. At the
closing, the Company also paid $149,565 (plus $22,435 in value added taxes) for
a two-year option to acquire additional capacity (the "Additional Capacity")
which, with the Acquired Capacity, will result in the Company owning a total of
approximately 33% of the network's capacity. If the Company exercises its option
for the Additional Capacity in full, the purchase price for the Additional
Capacity would be $4,464,230 (plus value added taxes applicable to the
acquisition). The Company may acquire the Additional Capacity in one or more
portions, so long as the exercise price for any portion it acquires is at least
$500,000. If it acquires any portion of the Additional Capacity after December
15, 1999, the purchase price for that portion will be increased by 3% for each
month after December 15, 1999 and through the closing for that portion.
In connection with the purchase of the Acquired Capacity, the parties
entered into a maintenance agreement that governs the terms of the Company's use
of the Acquired Capacity (and Additional Capacity, if purchased) and the
network's maintenance. Under the agreement, MetroNet has the obligation to (i)
maintain the network and cause it to operate efficiently (with minimum
interruptions of service or impairment in the quality of services), and (ii)
construct at CCI's request any "last links" between the network and points of
demarcation to the Company's subscribers. The Company is required to pay
MetroNet a portion of the costs of its maintenance services, plus a fee for the
construction of any last links (in an amount equal to MetroNet's costs of
construction plus 12%). The Maintenance Agreement will remain in effect as long
as the Company holds any interest in the network, subject to the Company's right
to terminate the agreement on any fifth anniversary of the agreement.
Under the terms of the Acquisition Agreement, the Company and MetroNet
also agreed to jointly pursue the development of new fiber networks in the
Mexican cities of Monterrey, Guadalajara, Puebla, Cancun, Ciudad Juarez, Leon,
Tijuana, and in such other locations in Mexico as the parties may agree from
time to time. The parties will be jointly responsible for determining the
nature, structure, magnitude and geographic coverage of any development project
in those markets, as well as the manner in which the rights in each of those
projects will be owned by the Company and MetroNet.
MetroNet will be responsible for the overall management of the design,
construction and installation of each selected project, and will be responsible
for obtaining any required governmental approvals for the projects. MetroNet
will receive a management fee equal to 12% of the Company's participation
percentage of the development costs for each project in exchange for providing
those services.
The Company financed the purchase of the Acquired Capacity through a
$2,615,925 loan from FondElec Essential Services Group Fund, L.P. ("FondElec")
and a $2,550,000 loan from Internexus, S.A. ("Internexus"). The loans are
evidenced by senior promissory notes which bear interest at 10% per annum, and
are due (together with unpaid interest) on the earlier of January 3, 2000 or the
receipt by the Company of proceeds from any equity or debt financing. FondElec
and Internexus will also receive warrants to acquire shares of the Company's
common stock while the notes are outstanding and a premium based on the actual
repayment date of the notes. The premium will be an amount equal to 3.08% of the
original principal amount if the loans are repaid on or before August 1, 1999,
9.18% of the original principal amount if they are repaid between August 2, 1999
and September 20, 1999, 15.35% of the original principal amount if they are
repaid between September 21, 1999 and November 9, 1999, and 20.46% of the
original principal amount if they are repaid between November 10, 1999 and
January 3, 2000.
Under the terms of the loans, the Company is required to refrain from
engaging in certain types of business activities (including sales of its assets,
mergers or other fundamental corporate transactions) without the consent of both
lenders, and, as an accommodation to the lenders, certain of the Company's
shareholders (who, in the aggregate, beneficially own approximately 44% of the
Company's outstanding shares) delivered share proxies to the lenders. The
proxies are not exercisable unless the Company defaults on the loans, and, in
the event of any such default, the proxies will be voted jointly by the lenders,
in accordance with an agreement to be reached by them.
Item 7. Financial Statements and Exhibits.
(a) Exhibits. N/A.
(b) Financial Statements. N/A.
CONVERGENCE COMMUNICATIONS, INC.
/s/ Jerry Slovinski
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By: Jerry Slovinski, Chief Financial Officer
Dated: June 23, 1999
