Note 4 - Series C Convertible Preferred Stock.
Designation
The Board of Directors designated a new series of preferred stock, Series C Convertible Preferred Stock, effective January 8, 2002, $1.00 par value, and authorized 750,000 shares for issuance. The stated value per each Series C Preferred Share is $20.00, which includes the par value of $1.00 per share. The holders of the outstanding Series C Preferred Shares have no voting rights with respect to the Series C Preferred Shares, except as required by law, including but not limited to the General Corporation Law of Delaware, and as expressly provided in the Certificate of Designation. A Holder has the right to convert the Series C Preferred Shares according to a conversion ratio into shares of our common stock, $.01 par value per share, on the terms and conditions set forth in our Certificate of Designation. The Conversion Ratio means the number of shares of restricted Common Stock issuable upon conversion of each share of Series C Preferred Stock, which number of shares of Common Stock varies depending upon the number of Series C Preferred Stock purchased. The price per share of Common Stock into which each share of Series C Preferred Stock is convertible is determined at the time of purchase of the Series C Preferred Stock pursuant to a discount formula related to the amount of investment by each investor. The discount formula is based upon two variables in order to determine price per share of Common Stock: (1) the total amount of the subscription on date of purchase which shall determine the applicable discount; and (2) the average of the closing bid prices per share for the common stock during the 30 trading days immediately preceding (and including) the date of subscription for the Series C Preferred Stock, to determine the price per share of Common Stock and the applicable discount, on the following basis:
Subscription Amount
|
|
Discount Percentage from
The Average Bid Price Per Share
|
|
| $100,000 to $249,999 |
|
15% |
|
| $250,000 to $499,999 |
|
20% |
|
| $500,000 and greater |
|
25% |
|
Once determined, the price per share (of Common Stock into which the Series C Preferred Stock is convertible) is divided into the amount paid per share for the Series C Preferred Stock in order to determine the number of shares of Common Stock issuable upon conversion of each share of Series C Preferred Stock. Subject to the restrictions identified in the Certificate of Designation, any Holder shall be entitled to convert any or all of the Series C Preferred Stock into fully paid and nonassessable restricted shares of Common Stock at the Conversion Ratio at any time on or from time to time after 180 days from the initial date of issuance of the first Series C Preferred Stock provided the Company has the statutory power and authority to issue such restricted shares at the time of conversion. The Company is not statutorily authorized and does not have available nor has it reserved the necessary shares of Common Stock, solely for the purpose of effecting the full conversion of the Series C Preferred Stock. If, after 180 days subsequent to the Initial Issuance Date, the Company lacks the Statutory or legal capacity to issue Common Stock pursuant to a Holder’s Conversion Notice, the Conversion Waiting Period shall be automatically extended for additional and successive three month periods until such time that the Company is statutorily and legally empowered to issue Common Stock on conversion. The registered Holders of the outstanding Series C Preferred Stock are entitled to receive cumulative dividends at the rate of 4% per annum of the Stated Value per each Series C Preferred Share. Such Dividend is payable quarterly in arrears on the last day of March, June, September and December of each year, commencing on December 31, 2002. Such Dividend shall accrue on each Series C Preferred Stock from the date of issuance of such Series C Preferred Stock (with appropriate pro-ration for any partial dividend period) and shall accrue from day-to- day, whether or not earned or declared. Dividend payments made with respect to Series C Preferred Stock may be made in cash when and as declared by the Board of Directors out of funds legally available therefor.
Private Placement
The Company sold a total of 280,150 shares of Series C Convertible Preferred Stock valued at $5,603,000 in a private placement offering, of which 176,250 shares valued at $3,525,000 have been reserved pursuant to subscriptions received related to the offering.
Stock Option
The Company entered into a Series C Preferred Stock Option Agreement with the Chairman of the Board (the “Optionee”) on January 8, 2002 (“Date of Grant”). Pursuant to and subject to the terms and conditions of the Agreement, the Company granted to him, the right and option (the “Call Option”) to purchase at $20.00 per share (the “Stated Value”) on the terms and conditions stated therein all or any part of an aggregate of 250,000 shares of our Series C Convertible Preferred Stock of the currently authorized and unissued Series C Preferred Stock, par value $1.00 per share (the “Shares”). The Call Option is exercisable, in whole or in part, during the period commencing with the date on which it was granted and ending on December 31, 2003.
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