This one looks like a classic:
excerpt from form SB-2 filed by Stockgroup.com (SWEB)
On April 3, 2000, we entered into a Convertible Note Purchase Agreement pursuant to which we obtained $3 million in a financing with two institutional investors.
The funding included $3 million of 8% Convertible Debenture Notes, and 5-year Callable Warrants. The notes mature on March 31, 2002 and are convertible into common stock only after July 31, 2000. The notes may only be converted if we do not make payment on a note holder's prepayment request, or if we seek to prepay the notes. The initial conversion price for the notes is $3.72, and the exercise price of the warrants is $3.30. The
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initial conversion price and the exercise price are subject to adjustment upon the happening of certain events, such as the payment of a stock dividend, or the issuance of warrants at a below market price or at a price below the conversion price. Prepayments on the notes are subject to a tiered prepayment schedule that increases as the number of days between the closing date and the prepayment date increases, being 105%, 110%, and 115% of principal from days 1-60, 61-120, and after 120 days, respectively. Interest accrues on the notes at the rate of 8% per annum, and is payable on each conversion date and at maturity. Interest may be paid in the form of cash or registered stock, at our option. The lenders have the right to put back to us up to 25% of the unconverted amount of the notes during any 30 day period after July 31, 2000. Upon the lenders' exercise of such right, we have the option of prepaying the portion of the notes sought to be converted, such prepayment to be in accordance with the tiered prepayment schedule set forth above. If we do not make such prepayment within 10 days after our receipt of a "put" notice, the conversion rate of the note changes to the lesser of (a) the initial conversion price, and (b) 88% of the five lowest closing prices of our common stock during the 30 trading days prior to the date of conversion.
The warrants permit the holders to acquire up to 272,727 shares of our stock. The warrants may be called by us, at a purchase price of $.01 per underlying share, if our common stock trades at the level of 175% of the initial conversion price of $3.72 for any 20 consecutive trading days after the effective date of our registration statement, provided that the holders have the right to exercise the warrants within 30 days after their receipt of such a call.
The placement agent in the transaction received warrants to purchase 90,909 shares of common stock on the same terms as the warrants issued to the lenders.
Assuming that the notes were fully convertible on the date of this prospectus, conversion of the entire $3,000,000 principal amount of the convertible notes and accrued interest at 8% thereon, would yield 2,260,949 shares of common stock, given a conversion price of $1.342 per share. Based upon the interest rate and the conversion price of $1.342, which is subject to adjustment as described above, the number of shares of common stock issuable upon conversion of the notes will increase by approximately 490 shares daily until conversion.
If the notes have not been converted or redeemed on March 30, 2002, they will automatically convert into shares of common stock as of that date. Upon the occurrence of events specified in the Convertible Note Purchase Agreement, the holders of the notes may elect to have us redeem the notes at a premium to their purchase price. These events include, but are not limited to:
- failure by us to issue shares of our common stock upon conversion of the notes;
- failure by us to keep the specified number of shares of our common stock reserved for issuance upon conversion of the notes; and
- our making an assignment for the benefit of our creditors or our bankruptcy, insolvency, reorganization or liquidation.
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The warrants issued to Deephaven, Amro and Jesup may be exercised at any time during the five-year period following their issuance. The exercise price for the warrants is subject to adjustment for stock dividends, stock splits, recapitalizations, reclassifications, combinations, and dilutive issuances of securities. The notes and warrants contain provisions which limit the number of shares of common stock into which the notes are convertible and the warrants are exercisable. Under these provisions, the number of shares of common stock into which the notes are convertible and the warrants are exercisable on any given date, together with any additional shares of common stock held by Deephaven or Amro, will not exceed 4.99% of our then outstanding common stock.
The foregoing has been a brief description of some of the terms of the notes and warrants. For a more detailed description of the rights of the holders of the notes and warrants, prospective investors are directed to the actual forms of the notes and warrants, and the Convertible Note Purchase Agreement under which they were issued, which were all filed as exhibits to our Form 8-K filed with the SEC on April 18, 2000. |
