Joe, the WAVO convertible preferred information is and existing situation and not a new one. Nevertheless, thanks for calling it to our attention. Also, did you see Fridays' press release. Check it out on Yahoo. Here's the complete scoop on the convertibles:
PROPOSAL TO APPROVE THE ISSUANCE AND SALE OF SERIES C CONVERTIBLE
PREFERRED SHARES AND THE RESERVATION FOR ISSUANCE AND ISSUANCE OF
COMMON SHARES UPON CONVERSION OF THE SERIES C CONVERTIBLE PREFERRED
SHARES AND OTHERWISE IN ACCORDANCE WITH THE TERMS THEREOF
The rules of the Nasdaq Stock Market applicable to the Nasdaq National
Market, on which the Company's Common Shares are traded, require that the
Company obtain shareholder approval prior to the issuance of Common Shares, or
securities convertible into or exercisable for Common Shares in connection with
a private placement if the issuance by the Company of such Common Shares will be
equal to 20% or more of the Common Shares (or voting power) outstanding before
such issuance, for less than the greater of book or market value of such Common
Shares.
Because the applicable conversion price of the Company's Series C
Convertible Preferred Stock (the "Series C Preferred Shares"), and thus the
number of Common Shares that may be issued upon conversion thereof, are
dependent upon presently unknown future market prices for the Company's Common
Shares, the number of such Common Shares to be issued upon conversion is not
presently determinable. Based on the Fixed Conversion Price of $8.80 per share,
the Company would be obligated to issue approximately 2,636,364 Common Shares if
all 23,200 Series C Preferred Shares outstanding on March 20, 1998 were
converted as of such date. The amount of Common Shares which could be issued in
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the future in connection with the conversion of the Series C Preferred Shares,
as a dividend, payment of a redemption price or otherwise pursuant to the
provisions thereof, could, under certain circumstances, equal or exceed 20% of
the number of Common Shares (or voting power) outstanding prior to the issuance
of the Series C Preferred Shares in the private placement.
The Securities Purchase Agreement between the Company and each of the
purchasers of the Series C Preferred Shares in the private placement provides
that at its next meeting of shareholders the Company shall seek shareholder
approval of the issuance and sale of the Series C Preferred Shares and the
reservation for issuance and issuance of the Common Shares upon conversion of
the Series C Preferred Shares in accordance with the terms of the Articles of
Amendment to the Company's Articles of Incorporation (the "Articles of
Amendment") by which the Series C Preferred Shares were designated. Therefore,
in order to comply with the provisions of the Securities Purchase Agreement and
the above-referenced Nasdaq rules, the Company is requesting that the holders of
its Common Shares approve this Proposal. No further authorization or vote of the
holders of the Company's Common Shares will be sought or required with respect
to the issuance of Common Shares in connection with this transaction. The
issuance of such Common Shares may be dilutive of the interests of the holders
of the currently outstanding Common Shares. Holders of the Company's Common
Shares have no pre-emptive rights with respect to the issuance and sale of any
securities of the Company. The failure by the holders of the Company's Common
Shares to approve the transactions contemplated by the Securities Purchase
Agreement relating to the reservation for issuance and issuance of the Common
Shares upon conversion of the Series C Preferred Shares would constitute a
Mandatory Redemption Event under the terms of the Series C Preferred Shares. If
a Mandatory Redemption Event occurs, each holder of Series C Preferred Shares
would have the right to require the Company to redeem those shares for cash
equal to the stated value of the Series C Preferred Shares ($1,000 per share)
being redeemed multiplied by 120%, unless the Mandatory Redemption Event relates
to the Company's failure to deliver Common Shares in certain circumstances, in
which case the Mandatory Redemption Price will be equal to (a) the Stated Value
of the shares being redeemed, plus (b) the Stated Value of such shares
multiplied by 1.125% for each month elapsed between the date the Series C
Preferred Shares were purchased from the Company and the Mandatory Redemption
Date. If a Mandatory Redemption Event occurs, there can be no assurance that the
Company will have the necessary funds to effect such redemption or that the
satisfaction of such redemption will not materially adversely affect the
financial condition of the Company.
Holders of the Series C Preferred Shares are entitled to receive
cumulative dividends at the rate of 6% per annum, payable quarterly in cash or
Common Shares, at the option of the Company, when and as declared by the
Company's Board of Directors in preference and priority to any payment of any
dividend on Common Shares. In the event of any liquidation, dissolution or
winding up of the Company, holders of the Series C Preferred Shares are entitled
to receive, prior and in preference to any distribution of any assets of the
Company to the holders of Common Shares, the amount of $1,000 per share, plus
any accrued but unpaid dividends (the "Series C Liquidation Preference"). The
Series C Preferred Shares may be redeemed, subject to certain restrictions, at
any time beginning on the first anniversary after the date of issuance, at a
redemption price equal to 115% of the Stated Value of the Series C Preferred
Shares being liquidated. Such redemption price may be paid in cash or Common
Shares. The Stated Value of the Series C Preferred Shares is $1,000 per share.
However, the Company may not exercise its right of redemption unless the closing
sale price of the Common Shares exceeds 150% of the Fixed Conversion Price for
any consecutive ten trading days. Holders of the Series C Preferred Shares may
convert Series C Preferred Shares into Common Shares, subject to certain
limitations and procedures described in the Articles of Amendment. The number of
Common Shares that may be acquired upon conversion will equal the Stated Value
of the Series C Preferred Shares being converted divided by the applicable
Conversion Price. From the date of issuance through January 23,
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1998 (the "Fixed Conversion Price Period"), the conversion price was $8.80,
which is equal to 115% of the average of the closing sale prices of the
Company's Common Shares as reported on Nasdaq on the five trading days
immediately prior to but not including the date of issuance (the "Fixed
Conversion Price"). Following the Fixed Conversion Price Period, the conversion
price is the lesser of: (i) the Fixed Conversion Price, or (ii) a "floating"
conversion price equal to the average of the third to seventh lowest closing
sale prices for the Company's Common Shares during the 30 trading days
immediately prior to but not including the conversion date. On the fifth
anniversary of the date of issuance, or July 24, 2002, all Series C Preferred
Shares then outstanding will be automatically converted into the number of
Common Shares equal to the Stated Value of the Series C Preferred Shares being
converted divided by the applicable Conversion Price. In the event of certain
Mandatory Redemption Events, which events the Company believes are within its
control, each holder of Series C Preferred Shares will have the right to require
the Company to redeem those shares for cash at the Mandatory Redemption Price,
which will be equal to the Liquidation Preference of the Series C Preferred
Shares being redeemed multiplied by 120%, unless the Mandatory Redemption Event
relates to the Company's failure to deliver Common Shares in certain
circumstances, in which case the Mandatory Redemption Price will be equal to (a)
the Stated Value of the Shares being redeemed, plus (b) the Stated Value of such
Shares multiplied by 1.125% for each month elapsed between the date of issuance
and the Mandatory Redemption Date. Mandatory Redemption Events include, but are
not limited to, the failure of the Company to timely deliver Common Shares as
required under the terms of the Series C Preferred Shares or Warrants; the
Company's failure to satisfy registration requirements applicable to such
securities; the failure by the Company's shareholders to approve the
transactions contemplated by the agreement relating to the issuance of the
Series C Preferred Shares, including the issuance and sale of the Series C
Preferred Shares and the reservation for issuance and the issuance of the Common
Shares upon conversion of the Series C Preferred Shares, and the failure by the
Company, within 20 days following the meeting at which the shareholders failed
to approve such transactions to cause the Common Shares to be listed or quoted
on a national securities exchange or quotation system that does not require
stockholder approval of such transactions; the failure by the Company to
maintain the listing of its Common Shares on Nasdaq or another national
securities exchange; and certain transactions involving the sale of assets or
business combinations involving the Company.
The Company is utilizing the net proceeds of approximately $22,725,000
from the private placement of the Series C Preferred Shares for general
corporate purposes, including working capital, and has paid $9,000,000 to
Paracel Online Services, Inc. in connection with the purchase of certain assets
thereof.
The Company has filed with the Securities and Exchange Commission a
Registration Statement covering the resale by the holders of the Series C
Preferred Shares of the Common Shares which may be issued on conversion of the
Series C Preferred Shares, as a dividend, payment of a redemption price or
otherwise pursuant to the provisions thereof regarding determination of the
applicable conversion price, including adjustments to the conversion price to
prevent dilution resulting from stock splits, stock dividends or similar
transactions, or by reason of reductions in the conversion price in accordance
with the terms thereof (including, but not limited to, the terms which cause the
variable conversion price thereof to decrease to the extent the market price of
the Company's Common Shares declines). Such Registration Statement was declared
effective by the Securities and Exchange Commission on September 26, 1997.
The Company's Articles of Incorporation contain certain provisions that
could have the effect of delaying, deferring or preventing a change in control
of the Company. In addition, certain provisions of the Indiana Business
Corporation Law restrict business combinations with any "interested shareholder"
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as defined in such law. These provisions may discourage, delay, or prevent
certain types of transactions involving actual or potential change in control of
the Company, including transactions in which the shareholders might otherwise
receive a premium for their Common Shares over then-current market prices, and
may limit the ability of the Company's shareholders to approve transactions
which they may deem to be in their best interests. These provisions may have the
effect of delaying or preventing a change in control of the Company without
action by the shareholders, and therefore could adversely affect the price of
the Company's Common Shares.
The Company's Board of Directors has the authority to issue a total of
up to 10,000,000 shares of preferred stock and to fix the rates, preferences,
privileges, and restrictions, including voting rights, of such preferred stock,
without any further vote or action by the shareholders. The rights of the
holders of the Common Shares will be subject to, and may be adversely affected
by, the rights of the holders of the preferred stock that have been issued, or
might be issued in the future. The issuance of preferred stock, while providing
desired flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company, thereby
delaying, deferring, or preventing a change in control of the Company.
Furthermore, holders of such preferred stock may have other rights, including
economic rights senior to the Common Shares, and, as a result, the existence and
issuance thereof could have a material adverse affect on the market value of the
Common Shares. The Company has in the past issued, and may from time to time in
the future issue, preferred stock for financing or other purposes with rights,
preferences, or privileges senior to the Common Shares. |
