Here is the details of the transactions that Motley Fool refers to. The first is with a sale of Preferred stock to Microsoft, which is not purely of the same catagory. The second is from a sales to Halifax which is the problem transaction.
Interesting thing is in the annual report, they say they have enough funds to do their planned roll out, but are getting additional funding anyway. That doesn't make much sense, especially when you might consider 5 million only a drop in the bucket. Also indicates the company either had few choices for getting additional funds as Motley Fool said, or they didn't expect the market to react to their prospects so quickly.
Anyway, here's the Preferred stock story. Anybody want to put it into laymans terms?
Regards,
Mark
NOTE 7: PREFERRED STOCK
On February 27, 1998, the Company entered into an agreement with Microsoft
Corp. ("Microsoft") for the sale of 50,000 shares of Series A Convertible
Preferred Stock and the license of certain of the Company's technology. The
aggregate consideration for the sale of Series A preferred stock was $4,500,000.
The Series A preferred stock is convertible at a rate of 72.58 shares of common
stock for each share of Series A preferred stock, subject to adjustment in
certain circumstances. The liquidation preference of each share of Series A
preferred stock is $90 plus any declared but unpaid dividends. Each share of
Series A preferred stock is entitled to receive, if and when the Company's Board
of Directors declares a dividend payable on common stock, a dividend equal to
the dividend per share of common stock on an "as if converted" basis. Series A
preferred stock dividends are payable in preference to any dividends on the
Company's common stock and are non-cumulative. Series A preferred stock is
eligible to vote with common stock on an "as if converted" basis. An adjustment
to the accumulated deficit of approximately $3,665,000 was recorded during the
three-month period ended March 31, 1998, to recognize the value of favorable
conversion rights of Series A preferred stock, representing the difference
between the fair market value of the Company's common stock on the date of the
agreement of $2.25 and the sale price of $1.24 per common share equivalent.
On March 3, 1998, the Company entered into a financing transaction with a
private investment group that provided $5,000,000 in cash to the Company from
the sale of 5,000 shares of its 5 1/2% Cumulative Convertible Series B Preferred
Stock. The private investment group was comprised of the following entities: the
Halifax Fund, L.P., Heracles Fund, RGC International Investors, LDC, and Themis
Partners, L.P. Each share of Series B preferred stock is entitled to one vote
and has special voting rights with respect to matters that adversely affect the
rights of holders of Series B preferred stock. Each share of Series B preferred
stock is entitled to receive cumulative dividends at 5 1/2% of the Series B
preferred stock liquidation preference per annum, which are payable in
preference to any dividends on the Company's common stock. The liquidation
preference of Series B preferred stock is $1,000 plus any accrued but unpaid
dividends and is payable pari-passu with the Company's Series A preferred stock.
Subject to adjustment in certain circumstances, each share of Series B preferred
stock is convertible into shares of common stock by dividing the liquidation
preference by the lesser of $3.00 or 85% of the lowest sales price per share of
common stock during the five trading days prior to conversion. The Company has
the right to redeem all Series B preferred stock at 120% of the liquidation
preference upon a change of control transaction (as defined in the agreement).
The holders of Series B preferred stock have the right to require the Company to
redeem any or all Series B preferred stock at 130% of the liquidation preference
upon the occurrence of certain events including a change of control transaction,
bankruptcy or insolvency of the Company. As part of the financing transaction,
the Company issued 400,000 warrants to purchase common stock at a price of $3.38
per share. The warrants have a five-year term and are immediately exercisable.
The Company has an option to secure an additional $5,000,000 of financing
on similar terms, and the holders of Series B preferred stock have the right to
invest an additional $2,000,000 on similar terms. Both of these options are
subject to certain conditions, including share price, average trading volume and
total equity.
An adjustment to the accumulated deficit of approximately $1,728,000 was
recorded in the three-month period ended March 31, 1998, to recognize the value
of favorable conversion and exercise rights of Series B preferred stock and
warrants, respectively, issued during the period. The adjustment represents the
difference between the fair market value of the Company's common stock on the
date of the financing transaction of $3.69 and the per share conversion price of
$3.00, as well as the value attributable to the warrants. |
