The dilution looks pretty substantial. J.P. Morgan gets 27,000 shares at one cent per share. Newstart/Logimetrics gets 100,000 shares at one cent per share. CS First Boston affiliate gets to purchase $10 million worth of CVUS stock at 12 percent discount. Marion Interglobal gets 110,000 shares for "nominal consideration" and the right to purchase $2 million worth of CVUS stock for the lesser of 20 percent discount or $3.20 per share, with a floor of $1.60. See below:
On January 21, 1998, the Company issued new Subordinated Exchange Notes, in the aggregate principal amount of $1,191,147 (the "New Notes"), to the holders (the "Holders") of the Company's Subordinated Exchange Notes (the "Original Notes") held by an affiliate of J.P. Morgan, in exchange for $1 million in cash and as payment of $191,147 in respect of an interest payment due
on December 28, 1997. Also, in connection with the issuance of the New Notes, the Holders waived certain defaults under the Original Notes. As consideration for the purchase of the New Notes and the waiver of certain defaults under the Original Notes, the Holders received a warrant to purchase 27,000 shares of the Company's Common Stock at an exercise price of $0.01 per share.
On April 1, 1998, the Company entered into separate financing agreements with Proprietary Convertible Investment Group, Inc. ("Proprietary"), which is an affiliate of CS First Boston, and Marion Interglobal Ltd. ("Marion"). Pursuant to a Securities Purchase Agreement, dated April 1, 1998, between the Company and Proprietary (the "Proprietary Purchase Agreement"), on April 6,
1998 the Company issued 3,500 shares of its Series A Convertible Preferred Stock ("Convertible Preferred Stock") to Proprietary for $3.5 million. Subject to certain conditions, including the registration under the Securities Act of the underlying shares of Common Stock, the Proprietary Purchase Agreement provides for the issuance, at the Company's option, of an additional 3,500 shares of Convertible Preferred Stock at a purchase price of $1,000 per share at any time
on or after June 15, 1998 and prior to December 31, 1998. The Proprietary Purchase Agreement also provides for the issuance, at Proprietary's option, of an additional 3,000 shares of Convertible Preferred Stock at a purchase price of $1,000 per share during the three year period following April 6, 1998. The Convertible Preferred Stock has a dividend rate of 4%, which may be paid in cash
or, at the option of the Company and subject to certain conditions, in stock. The Convertible Preferred Stock may be converted into Common Stock of the Company at any time at the option of the holder thereof at an initial conversion price of $5.25 for the ninety day period following April 6, 1998. Following such ninety-day period, or in the event that certain conditions are not satisfied during such ninety-day period, the conversion price shall be the lesser of (i) $5.25 and (ii) 88% of the lesser of (A) the average of the lowest sale prices for the Common Stock on each of any three trading days during the twenty two trading days occurring immediately prior to (but not including) the applicable conversion date and (B) the average of the three lowest closing bid prices for the Common Stock during the twenty two trading days occurring immediately prior to (but not including) the applicable conversion date. In addition, the Company has the right to redeem all the Convertible Preferred Stock outstanding in the event that the closing bid price for the Common Stock is above $10 for twenty two consecutive trading days at a price equal to 130% of (i) the stated value of the Convertible Preferred Stock ($1,000 per share) plus (ii) accrued and unpaid dividends thereon. The Convertible Preferred Stock is subject to mandatory redemption upon the occurrence of certain events of default. In addition, the Proprietary Purchase Agreement contains certain capital raising limitations which could preclude certain equity-linked financing transactions in excess of
$6 million for a period of one year following the final issuance of Convertible Preferred Stock under the agreement.
Pursuant to a Securities Purchase Agreement, dated April 1, 1998, between the Company and Marion (the "Marion Purchase Agreement"), on April 6, 1998, the Company issued to Marion (i) a Warrant to purchase up to $2 million worth of shares of Common Stock (the "Warrant Shares") and (ii) 110,000 shares of its Common Stock. The shares of Common Stock were issued for nominal consideration and the Warrant is exercisable (the "Exercisability Date") from and after the earlier to occur of (i) the date on which there is an effective registration statement under the Securities Act of 1933, as amended, relating to the resale of the Warrant Shares and (ii) June 28, 1998. The Company has the right to cause Marion to exercise the Warrant following the Exercisability Date. The exercise price per share of Common Stock is the lesser of (i) 80% of the average closing
price of the Common Stock on the five trading days preceding the issuance of such Common Stock and (ii) $3.20 per share, provided that such price will in no event be less than $1.60 per share. The Company has the right to cancel the Warrant at any time prior to the Exercisability Date. In the event that the Company elects to cancel the aforementioned warrant, the Company does not currently have capital available to make the scheduled June 30, 1998 payments to
the Holders of the Original Notes and the New Notes without raising additional capital for this purpose.
Pursuant to a Letter Agreement, dated April 1, 1998, among the Company, CVNY and Newstart (the "Newstart Agreement"), the parties agreed to restructure the terms of CVNY's Secured Promissory Note (the "Original Note") on the following terms: (i) the Company paid Newstart $500,000 from the proceeds of the initial sale of Preferred Stock pursuant to the Proprietary Purchase Agreement, (ii) the Original Note was amended and restated as a Secured Convertible Promissory Note in the principal amount of $2,315,917 (the "New Note") and (iii) the Company issued to Newstart a warrant to purchase 125,000 shares of the Company's Common Stock at an exercise price of $5.00 per share of Common Stock. The New Note provides that CVNY will pay an additional $500,000 on or before the earlier to occur of (i) the consummation by the Company of a financing transaction yielding gross proceeds to the Company in excess of $2.5 million and (ii) ninety days following April 1, 1998. In addition, CVNY has the right to prepay the New Note in full at any time prior to October 1, 1998 at a price equal to 125% of the outstanding principal amount. At the option of the holder, the New Note may be converted in whole or in part at any time and from time to time at a conversion price per share equal to 91% of the average of the lowest trading price on each of the four trading days immediately prior to the conversion notice, provided, however, that the holder may not convert more than $500,000 in principal amount of the New Note in any calendar month. In the event that Newstart has not exercised their option to convert the New Note by April 1, 1999, the Company is obligated to pay the remaining balance, including accrued interest. The New Note is subject to acceleration upon the occurrence of certain events of default.
To effectuate the restructuring contemplated by the Newstart Agreement, the Company and CVNY entered into an Agreement, dated April 1, 1998, with the holders of the Company's Subordinated Exchange Notes (the "Subordinated Exchange Notes Agreement") pursuant to which such holders consented to such restructuring. In consideration for such consent, the Company granted such holders warrants to purchase 100,000 shares of the Company's Common Stock at an exercise price of $.01 per share of Common Stock. |
