Excerpts from the 11 Dec S2...what a mess....sorry for the format, too lazy to figegr it out...
freeedgar.com
Several of our outstanding series of convertible preferred stock are convertible into a variable number of shares of common stock pursuant to a formula which results in the holders receiving more shares of common stock the lower the trading price of our common stock.
Conversion of some of our preferred stock and the resale of the common stock could result in a lower market price for our securities. Such conversions could also result in other holders of our convertible securities receiving more shares of common stock resulting in even greater potential dilution. As of December 7, 1998, if all of the convertible preferred stock outstanding was converted, we would issue approximately 11.6 million additional shares of common
stock, representing approximately 36% of our total outstanding shares of common stock.
RECENT DEVELOPMENTS
On December 1, 1998 (a Closing Date), the Company issued 250 shares of $0.01 par value, 6% Convertible Preferred Series 98-C ("Series 98-C Preferred") and one warrant to one foreign investor for cash. The Company received net proceeds of $247,500 which represents the second tranche of the Series 98-C Preferred. Additionally, on December 11, 1998 (a Closing Date), the Company issued 250 shares of $0.01 par value, Series 98-C Preferred and one warrant to one Foreign Investor for cash. The Company received net proceeds of $247,500 which represents the third tranche of the Series 98-C Preferred. The securities were issued by the Company in reliance upon exemptions from registration provided by Section 4(2) of the Securities Act and the provisions of Regulation D. These shares have a liquidation preference of $1,000 per share and a dividend preference of 6% per annum, cumulative. The number of shares of common stock to be issued upon conversion for each tranche of the Series 98-C Preferred will be determined by dividing the amount to be converted by the lesser of
(i) $0.36 for the second tranche and $0.40 for the third tranche (ii) 75% of the five lowest closing bid prices of the common stock during the Lookback Period. The Lookback Period is defined as the five trading days immediately preceding the date the notice of conversion is received by the Company. After the last trading day of each month that the Series 98-C Preferred remains outstanding, starting on the first day of the fourth month after the respective Closing Date, the Lookback Period will be increased by two trading days per month until the Lookback Period equals a maximum of 30 trading days. The Series 98-C Preferred is redeemable at the option of the Company, in whole or in part, in cash, at 125% of the liquidation value plus accrued and unpaid dividends. In the event the Series 98-C Preferred is not converted two years from the Closing Date of the tranche then the outstanding Series 98-C Preferred Stock shall be redeemed by the Company as if the Company voluntarily elected such redemption, subject to Utah law. The warrants are convertible into 12,500 shares of common stock each, at an exercise price equal to 110% of the average closing bid price for the five trading days preceding the closing date ($0.38 for the second tranche and $0.40 for the third tranche). The warrants are exercisable beginning two days following the closing date and expire five years from the resepctive Closing
Dates.The shares of common stock underlying the 98-C Preferred and warrants are subject to a Registration Rights Agreement, which requires the Company to file a registration statement for these securities with the Securities and Exchange Commission ("SEC"), within thirty calendar days after the closing date. In the event the registration statement is not filed by the Company by the 30th
calendar day after the closing date, or if the registration statement is not declared effective by the SEC by the 90th day after the closing date, the Company must pay, in cash, to the holders thereof on a pro-rata basis, as liquidated damages 1.5% of the Series 98-C Preferred purchased for the first month late and 2% thereafter. In the event the registration statement is not declared effective prior to the 180th calendar day after the closing date the Company must redeem the 98-C Preferred Stock, subject to Utah law. In connection with the sale of the second and third tranches of the Series 98-C
Preferred, the Company paid an unaffiliated placement agent a fee consisting of 50 shares of 98-C Preferred Stock having a face value of $50,000 and warrants to purchase 25,000 shares of common stock as compensation for placement services. The securities were issued by the Company in reliance upon exemptions from registration provided by Section 4(2) of the Securities Act and the provisions of Regulation D. The warrants are exercisable at 110% of the average closing bid
price for the five trading days preceding the closing date. The warrants are exercisable beginning two days following the Closing Date and expire five years from the Closing Date. The net proceeds of this transaction will be used for working capital purposes. |
