ISSUANCE OF THE INVESTOR PREFERRED
In May 1998, the Board of Directors considered and in August 1998, the Board of Directors accepted a proposal from Netvest and certain other parties, including Netvest participants and affiliates, to acquire up to 100,000 shares of a newly authorized class of convertible preferred shares ("Investor Preferred") at a per share price of $50.00 per share. In December 1998, certain related parties agreed to convert $5,000,000 payable to them into the 100,000 shares of Investor Preferred. If Proposal II is approved at the Meeting, the holders, at their option, will be entitled to convert the Investor Preferred on the basis of one hundred shares of restricted Common Stock for each share of Investor Preferred. Thus, if fully converted, the holders would be entitled to an aggregate of 10 million shares of Common Stock, on a fully diluted basis.
The Investor Preferred was offered on these terms because there was no assurance that there would be sufficient authorized shares of the Company's Common Stock to allow for conversion to shares of restricted Common Stock, and no assurance of conversion or registration could be provided. Since the number of shares into which the Investor Preferred is convertible exceeds 20% of the outstanding Common Stock, under the new NASDAQ Rules as described below (see "NASDAQ Matters"), stockholder approval is required for the issuance of the Common Stock upon conversion of the Investor Preferred Stock. Until Proposal I is approved, resulting in an increase in the number of authorized shares of the Common Stock to 100 million shares, the conversion of the Investor Preferred is limited.
The other terms and relative rights of the Investor Preferred are described below (see "Description of Capital Stock of the Company"). If the Investor Preferred is converted into Common Stock, the shares of Common Stock will be issued as restricted shares but the holders will be entitled to pendent registration rights in registration statements filed by the Company, including a registration statement filed in connection with any consolidation, merger or other combination of the Company and Zulu-tek.
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Note that this investment, combined with other Netvest holdings, appears to make Netvest/Hayton majority shareholder in the new company.
Surprise, surprise. |
