Auric,
sec.gov
The Company provides knowledge-based professional services and high- quality technology-based solutions to government and commercial customers. See "THE COMPANY." From 1993 through early 1997, the Company invested its free cash flow and incurred substantial debt in order to fund the development of telecommunications business units, but did not realize the revenues that it had anticipated from these business units. By January 1997, the Company concluded that it should seek to raise additional capital in order, among other things, to continue its operations, and thus entered into financing agreements with the Selling Stockholder and another investor. Under the agreement with the Selling Stockholder, the Company sold a $4 million aggregate principal amount 5% debenture due January 30, 2000 convertible at the Selling Stockholder's option under certain circumstances into shares of the Company's Common Stock at a conversion price specified in the agreement. The Company also entered into an agreement with another investor pursuant to which the investor, under certain circumstances and subject to certain conditions specified in the agreement, may be required to purchase from the Company up to $18 million of the Company's Common Stock over a period of 42 months. The Company issued to the Selling Stockholder and the other investor seven year warrants to purchase up to 520,000 total shares of the Company's Common Stock at specified prices.
Convertible Debenture. The Company and the Selling Stockholder entered into a Convertible Securities Subscription Agreement, dated as of January 21, 1997 (the "Subscription Agreement"), pursuant to which the Selling Stockholder agreed to purchase a $4 million aggregate principal amount 5% Convertible Debenture due January 30, 2000 (the "Debenture"). Interest on the Debenture is payable quarterly in cash or, at the Company's option, the amount due may be added to the outstanding principal due under the Debenture. Sixty days after January 30, 1997, the Debenture became convertible, at the Selling Stockholder's option at any time and from time to time, into the Company' Common Stock at the lesser of (i) $11 per share, subject to adjustment under certain circumstances, or (ii) 94% of the lowest reported sale price during the three trading days immediately preceding the date of conversion. If the Company is in default under the terms of the Debenture, the Selling Stockholder may sell the Debenture to the Company at 120% of the amount of the outstanding principal due under the Debenture plus accrued but unpaid interest. As of September 17, 1997, the Selling Stockholder had given the Company notices for converting and had converted $2.0 million of the $4.0 million Debenture into 405,817 shares of the Company's Common Stock.
As consideration for entering into the Subscription Agreement, the Company has issued to the Selling Stockholder a seven year warrant, which, subject to certain exceptions, is not exercisable until July 30, 1998, to purchase 320,000 shares of the Company's Common Stock at a price of $8.47 per share (the "Warrant"). If the Company (i) sells all or substantially all of its assets, (ii) enters into a merger, consolidation, reorganization or other similar transaction that results in the shareholders of the Company owning in the aggregate less than 50% of the common equity or having less than 50% of the voting power of the surviving entity, or (iii) fixes a record date for the declaration of a material special distribution or dividend, then the Selling Stockholder may sell the Debenture to the Company at 115% of the outstanding principal due under the Debenture plus accrued but unpaid interest, and the Warrant becomes immediately exercisable a price equal to the lesser of (i) $8.47 per share or (ii) 80% of the "Transaction Value" per share. "Transaction Value" is defined in the Warrant to mean, in the case of a merger, acquisition, sale of Common Stock, sale of assets or similar transaction, the fair market value of the consideration to be received per share of Common Stock, as evidenced by the average of the closing sale price for the Common Stock during the 10 trading days following the announcement of such definitive agreement, and in the case of a material special dividend or distribution, the fair market value of the dividend or distribution.
Here is something I would NOT want to see in companies I owned.
The Company's Board of Directors has the authority, without any further vote by the Company's stockholders, to issue up to 300,000 shares of Preferred Stock in one or more series and to determine the designations, powers, preferences and relative, participating, optional or other rights thereof, including without limitation, the dividend rate (and whether dividends are cumulative), conversion rights, voting rights, rights and terms of redemption, redemption price and liquidation preference. Although the Company has no current plans to issue any shares of Preferred Stock, the rights of the holder of Common Stock would be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. Issuance of Preferred Stock could have the effect of delaying, deterring or preventing a change in control of the Company, including the imposition of various procedural and other requirements that could make it more difficult for holders of Common Stock to effect certain corporate actions, including the ability to replace incumbent directors and to accomplish transactions opposed by the incumbent Board of Directors.
Chester |
