FYI: USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Shareholders.
DESCRIPTION OF SECURITIES
The Shares being registered are shares of common stock of the Company
which will be issued upon conversion by the holders of Series C Preferred Stock
issued by the Company on May 14, 1998. The number of shares of common stock
being registered are stated at 140% of the currently estimated shares issuable
upon conversion, however, the actual number of such shares may be lesser or
greater than the indicated amount as a result of the application of the floating
conversion price to be calculated in accordance with the terms of the Series C
Preferred Stock as follows: (A) for any conversion occurring prior to November
10, 1998 (the "Initial Conversion Period"), the lesser of (i) eighty six percent
(86%) of the average of the three (3) lowest Closing Bid Prices for the Common
Stock occurring during the period of twenty-two (22) Trading Days (as defined in
the Securities Purchase Agreement) immediately prior to (but not including) the
applicable Conversion Date (the "Floating Conversion Price") and (ii) two
hundred percent (200%) of the average Closing Bid Price for the common Stock
during the period of twenty-two (22) Trading Days immediately prior to (but not
including) May 14, 1998 (or $23.97) (the price determined in accordance with
this clause (ii) being referred to herein as the "Conversion Cap") and (B) for
any Conversion occurring after the Initial Conversion Period, the lesser of the
Floating Conversion Price and the Fixed Conversion Price. "Fixed Conversion
Price" shall mean the lesser of (i) the average Closing Bid Price of the Common
Stock during the period of twenty-two (22) Trading Days immediately prior to
(but not including) the last day of the Initial Conversion Period and (ii) the
Conversion Cap.
Conversion of the Series C Preferred Stock by the holders is limited to
(i) 19.99% of the number of outstanding shares of common stock on May 18, 1998
and (ii) beneficial ownership of not more than 4.99% of the number of
outstanding shares of common stock by the holder converting shares of Series C
Preferred Stock at the time of the conversion. Additionally, the holders of the
Series C Preferred Stock, under certain circumstances, have the right to require
the Company to prepare and file a proxy statement to seek the approval of
shareholders to approve the conversion of the Series C Preferred Stock in excess
of 19.99%.
The holders of the Series C Preferred Stock have a mandatory redemption
option upon the occurrence of certain events. These events include (i) the
failure of the Company to issue the shares of common stock upon conversion of
the Series C Preferred Stock, (ii) the Company breaches any material term of the
Series C Preferred Stock, the Securities Purchase Agreement between the Company
and the Selling Shareholders, or the Registration Rights Agreement between the
Company and the Selling Shareholders, (iii) any material representation in any
of the aforementioned agreements, (iv) this Registration Statement is not
declared effective by September 11, 1998 or if declared effective, such
effectiveness does not lapse, provided that the failure of the Registration
Statement to be declared effective or the lapse thereof is due to voluntary
action by the Company or failure by the Company to take action, and (v) the
common stock is not quoted on the Nasdaq SmallCap Market or Nasdaq National
Market or listed on the New York State Exchange or American Stock Exchange or
trading in the common stock on any such exchange is suspended for more than 5
Trading Days. The redemption price is the greater of (i) Liquidation Preference
of the Series C Preferred Stock being redeemed multiplied by 125% and (ii) an
amount determined by dividing the Liquidation Preference of the Series C
Preferred Shares being redeemed by the Conversion Price in effect on the
redemption date and multiplying the resulting quotient by the average Closing
Bid Price for the common stock on the five Trading Days immediately preceding
the redemption date.
Additionally, the Company has the option to redeem the Series C
Preferred Stock if, during any period of ten Trading Days, the average Closing
Bid Price for the common stock is less than $3.50 ($10.50 post-reverse split) at
a redemption price equal to the aggregate Liquidation Preference of the Series C
Preferred Stock then held by such holder multiplied by 116.28%.
SELLING SHAREHOLDERS
The Shares are being registered pursuant to registration rights
obligations the Company has to Marshall Capital Management, Inc. and CC
Investments, LDC pursuant to a Securities Purchase Agreement with the Company
dated as of April 30, 1998. In addition, 250,000 shares are being registered for
sale by Charles K. Stewart, which acquired such shares in a private transaction
from CC Investments, LDC. Other than the Shares offered hereby, neither of the
Selling Shareholders holds more than one percent (1%) or more of the Company's
common stock nor have the Selling Shareholders ever held any position or office
with the Company.
The Company has been advised that such Selling Shareholders intend to
sell such Shares at unspecified times on a delayed or continuous basis depending
upon, among other things, favorable market conditions.
The following table sets forth certain information as of November 1,
1998 with respect to the beneficial ownership of the Shares by the Selling
Shareholders, subject to the assumptions in notes 2 and 3 following the table.
<TABLE>
<CAPTION>
Beneficial Ownership Number of Shares of Ownership of Shares of
Name of Selling of Shares of Common Common Stock Common Stock
Shareholder Stock Prior to to be Offered2, 3 After Offering
Offering
---------------------- -------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Marshall Capital 457,849 2, 4 2,000,793 2,4
Management, Inc.1 0
CC Investments, 457,849 3, 4 1,721,292 3, 4 0
LDC1
Charles K. Stewart 250,000 250,000 0
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