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As filed with the Securities and Exchange Commission on December 19, 2000
Registration Statement No. 333-[_____]
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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K2 DIGITAL, INC.
(FORMERLY K2 DESIGN, INC.)
(Exact name of registrant as specified in its charter)
DELAWARE 13-3886065
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
30 BROAD STREET, 16TH FLOOR
NEW YORK, NY 10004
(212) 301-8800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
LYNN FANTOM, PRESIDENT
K2 DIGITAL, INC.
30 BROAD STREET, 16TH FLOOR
NEW YORK, NY 10004
(212) 301-8800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies of all communications to be sent to:
DAVID M. WARBURG, ESQ.
BROWN RAYSMAN MILLSTEIN FELDER & STEINER LLP
120 WEST 45TH STREET
NEW YORK, NEW YORK 10036
(212) 944-1515
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration Statement and
from time to time thereafter.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _______
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / / __________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Amount Offering Aggregate Amount Of
Title of Shares To Be Price Offering Registration
To Be Registered Registered Per Unit(1) Price(1) Fee
---------------- ---------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 2,677,647(2) $1.13 $3,025,741 $798.80
</TABLE>
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The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to such Section 8(a), may determine.
---------------
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(c) based on the average of the high and low reported
sales price on the Nasdaq SmallCap Market on December 18, 2000.
(2) Includes (a) 2,000,000 shares which we currently estimate will be issued
pursuant to a common stock purchase agreement, and (b) 677,647 shares
(including 297,162 shares underlying warrants granted to Fusion Capital) which
we currently estimate we will issue as a commitment fee.
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SUBJECT TO COMPLETION, DATED DECEMBER 19, 2000.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
Up to 2,677,647 Shares
K2 DIGITAL, INC.
Common Stock
This prospectus relates to the sale of up to 2,677,647 shares of our
common stock which we may issue to Fusion Capital Fund II, LLC. Fusion Capital
is referred to in this prospectus as the selling stockholder.
On December 11, 2000, we entered into a common stock purchase agreement
with Fusion Capital Fund II, LLC pursuant to which Fusion Capital agreed to
purchase up to $12.0 million of our common stock in two tranches. The purchase
price will be based upon the future market price of our common stock.
We estimate that the maximum number of shares we will sell to Fusion
Capital under the first tranche of the common stock purchase agreement will be
2,000,000. We will have the right under certain conditions to suspend and/or
terminate the common stock purchase agreement without any payment or liability
to Fusion Capital. Under the terms of the common stock purchase agreement, in
connection with commencing the first tranche, Fusion Capital will receive
380,485 shares of our common stock and warrants to purchase 297,162 shares of
common stock at an exercise price of $.01 per share as a commitment fee. This
prospectus relates to the offer and sale from time to time by Fusion Capital of
this aggregate of 2,677,647 shares. We will not receive any of the proceeds from
the sale of the shares being offered by this prospectus; however, we may
receive up to $6 million from the sale of shares to Fusion Capital under the
common stock purchase agreement.
Our common stock is quoted on the Nasdaq SmallCap Market under the
symbol "KTWO." On December 18, 2000, the last reported sale price for our common
stock as reported on the Nasdaq SmallCap Market was $1.1875 per share. We have
applied to have the shares of common stock offered pursuant to this prospectus
approved for trading on the Nasdaq SmallCap Market.
---------------
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF THESE RISKS.
THE SELLING STOCKHOLDER IS DEEMED TO BE AN "UNDERWRITER" WITHIN THE
MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED. ANY BROKER EXECUTING SELLING
ORDERS ON BEHALF OF THE SELLING STOCKHOLDER MAY BE DEEMED TO BE AN
"UNDERWRITER." COMMISSIONS RECEIVED BY ANY BROKER MAY BE DEEMED TO BE
UNDERWRITING COMMISSIONS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS [____], 2001.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
K2 DIGITAL, INC. ........................................... 3
RISK FACTORS................................................ 4
THE FINANCING TRANSACTION................................... 9
SELLING STOCKHOLDER......................................... 13
PLAN OF DISTRIBUTION........................................ 14
VALIDITY OF COMMON STOCK.................................... 15
EXPERTS..................................................... 15
ABOUT THIS PROSPECTUS....................................... 15
WHERE YOU CAN FIND MORE INFORMATION......................... 15
INCORPORATION BY REFERENCE.................................. 16
</TABLE>
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K2 DIGITAL, INC.
K2 Digital, Inc., a strategic digital professional services company,
provides consulting and development services including analysis, planning,
systems design, creative, and implementation. Employing a proprietary process
called W(3) Organizational Modeling, we construct user-centric digital channels
that map to corporate goals. These channels include business-to-business and
consumer Web sites, intranets, extranets, online media and wireless. Featured in
the end-to-end service offerings are qualitative and quantitative research,
usability labs to test graphical user interfaces, navigation, functionality and
systems, positioning studies for online branding, strategic planning, e-commerce
planning, business process reengineering, online media planning and buying,
proprietary media partnerships, marketing strategies, Web design, creative
services for online advertising (e.g., banners, rich media, interstitials),
technical strategies, requirements specifications and programming. Our
process-driven approach utilizes the strategic, conceptual, technical and
marketing experience we have developed since 1993 to help multi-divisional and
global companies maximize their Internet opportunities. Clients include ABB
Ltd., Aetna Financial Services, Inc., Morgan Stanley Dean Witter & Co., Philips
Electronics NV, Puerto Rico Convention Bureau, Silversea Cruises, Ltd., and
WorldCom Inc.
Our offices are located at 30 Broad Street, New York, New York 10004
and the telephone number is (212) 301-8800. Our Web site is located at
www.k2digital.com; however, nothing contained on the site is incorporated into
or a part of this prospectus.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE YOU
DECIDE TO BUY OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR,
OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS WOULD LIKELY SUFFER.
IN SUCH CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU COULD
LOSE ALL OR PART OF YOUR INVESTMENT.
CERTAIN STATEMENTS MADE IN THIS PROSPECTUS, AND OTHER WRITTEN OR ORAL
STATEMENTS MADE BY OR ON BEHALF OF K2 DIGITAL, INC., MAY CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE FEDERAL SECURITIES LAWS.
WHEN USED IN THIS PROSPECTUS, THE WORDS "BELIEVES," "EXPECTS," "ESTIMATES,"
"INTENDS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. STATEMENTS REGARDING FUTURE EVENTS AND DEVELOPMENTS AND OUR FUTURE
PERFORMANCE, AS WELL AS OUR EXPECTATIONS, BELIEFS, PLANS, INTENTIONS, ESTIMATES
OR PROJECTIONS RELATING TO THE FUTURE, ARE FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THESE LAWS. EXAMPLES OF SUCH STATEMENTS INCLUDED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS INCLUDE DESCRIPTIONS OF OUR PLANS WITH RESPECT TO
DEVELOPING OUR BUSINESS STRATEGY, OUR CONTINUING GROWTH AND OUR NEED FOR
ADDITIONAL FINANCING. ALL FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL EVENTS TO DIFFER MATERIALLY FROM
THOSE PROJECTED. WE BELIEVE THAT THESE FORWARD-LOOKING STATEMENTS ARE
REASONABLE; HOWEVER, YOU SHOULD NOT PLACE UNDUE RELIANCE ON SUCH STATEMENTS.
THESE STATEMENTS ARE BASED ON CURRENT EXPECTATIONS AND SPEAK ONLY AS OF THE DATE
OF SUCH STATEMENTS. WE UNDERTAKE NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY
FORWARD-LOOKING STATEMENT, WHETHER AS A RESULT OF FUTURE EVENTS, NEW INFORMATION
OR OTHERWISE.
IF WE ARE UNABLE TO OBTAIN SUFFICIENT FUNDS TO GROW, AND INCUR A CASH
FLOW DEFICIT, OUR BUSINESS COULD BE HARMED. Our focus is on increasing the
volume of all of our services. In order to enhance and expand our operations, we
have hired and will continue to hire additional personnel and have incurred and
will continue to incur substantial expenses for:
- administration
- production
- technical resources
- marketing
- customer support
- infrastructure
We had an operating cash flow deficit of $792,000 in fiscal 1997,
operating cash flow of $474,000 in fiscal 1998, an operating cash flow deficit
of $2,935,000 in fiscal 1999 and for the nine months ended September 30, 2000,
an operating cash flow deficit of $1,265,000. We may require additional sources
of financing in order to satisfy our working capital needs, which may be
unavailable or prohibitively expensive. Should such financing be unavailable or
prohibitively expensive when we require it, we would not be able to finance any
expansion of our business and may not be able to satisfy our working capital
needs, either of which would have a material adverse effect on our business,
operating results and financial condition.
Even if we are able to access all $12 million available under the
common stock purchase agreement with Fusion Capital, we may still need
additional capital to fully implement our business, operating and development
plans. In addition, one result of the raising of additional capital through the
common stock purchase agreement with Fusion Capital would be the issuance of
additional shares of our common stock. The issuance of additional shares to
Fusion Capital pursuant to the common stock purchase agreement could result in
substantial dilution to our existing stockholders. We only have the right to
receive $250,000 per month under the common stock purchase agreement unless our
stock price equals or exceeds $4.00 per share.
WE HAVE A RELATIVELY SHORT OPERATING HISTORY, HAVE INCURRED RECENT
OPERATING LOSSES AND EXPECT FUTURE OPERATING LOSSES. Our gross revenues for the
nine months ended September 30, 2000 and the years ended
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December 31, 1999, 1998 and 1997 were $5,544,000, $5,859,000, $6,420,000 and
$7,501,000, respectively. Our net revenues, excluding media pass-through costs,
for the nine months ended September 30, 2000 and the years ended December 31,
1999, 1998 and 1997 were $3,252,000, $3,705,000, $3,705,000 and $5,091,000,
respectively, with income (losses) from continuing operations of $(1,934,000),
$750,000, $(1,672,000) and $(1,241,000), respectively. Net loss was $1,934,000
for the nine months ended September 30, 2000, net income was $750,000 for fiscal
1999, $1,237,000 for fiscal 1998 and a net loss of $1,703,000 for fiscal 1997.
Our net income of $750,000 in fiscal 1999 included $2,521,000 in gains from the
sale of 86,492 shares of our stock in 24/7 Media, Inc. The Company did not sell
any of its remaining 110,000 shares of 24/7 Media Inc. during the nine months
ended September 30, 2000, and the market value of the shares of 24/7 Media Inc.
held by the Company has declined substantially from previous levels. There can
be no assurance that these holdings will increase in value, that revenue growth
can be sustained, or that we will be profitable in the future.
Our prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving markets and
especially those in Internet and other computer related markets, many of which
have or are experiencing extreme volatility and extended steep declines in their
public and private equity market values. There can be no assurance that we will
be successful in addressing these risks.
WE MAY BE UNABLE TO CONTINUE MANAGING SUCCESSIVE RAPID GROWTH. We have
experienced substantial growth in services to our customers and the number of
our employees, which has resulted in:
- increased responsibility of management;
- strain on management, administrative, operational, financial
and technical resources; and
- increased demands on our management information systems and
controls.
There can be no assurance that we will effectively develop and
implement systems, procedures or controls adequate to support our operations or
that management will be able to achieve the rapid execution necessary to fully
exploit all opportunities for our services. To manage our business and growth,
we must continue to implement and improve our operational and financial systems
and continue to expand, train and manage our employees. If we are unable to
manage our business effectively, our business, operating results and financial
condition will be materially adversely affected.
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF WE DO NOT CONTINUE DEVELOPING
OUR MARKET STRATEGY. Our marketing efforts have expanded as the range of
services which we offer has increased. In addition to developing strategic
relationships with other companies and channel sources (those companies that
seek to augment their businesses by directly or indirectly offering to their
clients Web site services provided by us and other third parties), we also
directly market our core creative services as well as the services of our media
group.
Should a channel source favor other providers of similar services, fail
to effectively market our services as a result of the channel source's
competitive position or otherwise, or not utilize our services to the extent
anticipated, our business may be adversely affected. Our inability to recruit,
manage or retain additional channel sources, or to provide services to even
indirect competitors of existing clients or channel sources, or their inability
to market our services effectively or provide timely and cost-effective customer
support and service, could materially adversely effect our business, operating
results and financial condition.
PROJECT-ORIENTED CLIENTS DOMINATE OUR REVENUE BASE, WHICH MAY ADVERSELY
AFFECT OUR ABILITY TO GENERATE REVENUE. Since many of our clients engage us on a
single project basis, clients from whom we generated substantial revenue in one
period have not necessarily been a substantial source of revenue in a subsequent
period. Additionally, costs are significantly higher with respect to single
projects as compared to servicing a client on a multiple project or continuous
basis. Due to our limited operating history and the emerging nature of the
Internet, we cannot be sure whether our future relationships with clients will
be on a project basis or on a longer term relationship basis. To the extent we
do not generate repeat or ongoing business from our clients, we will incur
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higher sales and marketing expenses associated with attracting new clients as
compared to lower expenses in obtaining additional business from existing
clients.
VOLATILITY OF TRADING MARKET MAY AFFECT YOUR INVESTMENT. The market
price for our securities has been and may continue to be highly volatile.
Factors such as our financial results, introduction of new products in the
marketplace, and various factors affecting the advertising industry and the
Internet generally, including extreme volatility and extended steep declines in
equity market values of other Internet-related publicly traded companies, as
well as sharp declines in private equity valuations of Internet-related
privately-held companies, may have a significant impact on the market price of
our securities, as well as price and volume volatility affecting small and
emerging growth companies, in general, and not necessarily related to the
operating performance of such companies.
EVEN IF OUR STOCK PRICE DECREASES, WE MAY ELECT TO CAUSE PURCHASES of
OUR COMMON STOCK TO BE MADE UNDER THE COMMON STOCK PURCHASE AGREEMENT, CAUSING
MORE SHARES TO BE OUTSTANDING AND RESULTING IN SUBSTANTIAL DILUTION. The
purchase price for the common stock to be issued to the selling stockholder
under the common stock purchase agreement will fluctuate based on the closing
price of our common stock. See "The Financing Transaction--Purchase of Shares
Under the Common Stock Purchase Agreement" for a detailed description of the
purchase price and the relation of the purchase price to the percentage of the
outstanding shares of our common stock issuable to Fusion Capital pursuant to
the common stock purchase agreement.
All shares registered in this offering will be freely tradeable. We
expect that shares registered in this offering will be sold over a period of up
to 24 months from the date of this prospectus. The sale of a substantial number
of shares of our common stock under this offering, or anticipation of such
sales, could make it more difficult for us to sell equity or equity related
securities in the future at a time and price we deem appropriate.
If Fusion Capital purchased the full amount of shares purchasable under
the first tranche of the common stock purchase agreement on the date of this
prospectus, and assuming a purchase price per share of $1.1875 (the closing
sale price of the common stock on December 18, 2000), Fusion Capital would
have been able to purchase 5,052,631 shares of our common stock under the
common stock purchase agreement, and would have received 380,485 shares of
common stock and warrants exercisable for 297,162 shares of common stock as a
commitment fee. Assuming Fusion Capital's purchase under the first tranche of
the common stock purchase agreement of a total of 2,000,000 shares of common
stock on the date of this prospectus, those shares, along with the 677,647
shares issuable as a commitment fee, or issuable upon the exercise of warrants
issuable as a commitment fee, would represent 43.6% of the then outstanding
common stock. This would result in significant dilution to the ownership
interests of other holders of our common stock. Such dilution could be more
significant if the trading price of our common stock is lower than the current
trading price of our stock at the time Fusion Capital purchases shares of our
common stock under the common stock purchase agreement, as a lower trading
price would cause more shares of our common stock to be issuable to Fusion
Capital. Assuming a drop in the trading price of our common stock to $0.50,
and a corresponding decrease in the purchase price under the common stock
purchase agreement, 12,000,000 shares of common stock would be issuable to
Fusion Capital under the first tranche of the common stock purchase agreement,
not including shares of common stock or warrants issuable as a commitment fee.
This would represent more than 77% of the then outstanding common stock.
Although we have the right to block Fusion Capital's purchases under
the common stock purchase agreement if our stock price is below $15.00 for three
consecutive trading days, we may still elect to require Fusion Capital's
purchase of shares under the common stock purchase agreement. We can require
Fusion Capital to purchase additional shares if our closing sale price on each
of the five trading days immediately prior to the first trading day of any
30-day period is at least $4.00, provided the closing sale price of our common
stock during such 30-day period or periods is at least $4.00. In the event that
we decide to issue a number of shares that represents greater than 20% of our
outstanding shares of common stock, we would first seek stockholder approval. We
presently intend to seek such stockholder approval in the first quarter of 2001.
The purchase under the common stock purchase agreement of a significant
percentage of our outstanding stock may result in substantial dilution to the
ownership interests of other holders of our common stock. See page 10 for a
table that shows the number of shares issuable and potential dilution based on
varying market prices. Since we only plan to sell up to 2,000,000 shares
to Fusion Capital under the common stock purchase agreement, our stock price
will need to equal or exceed $3.00 per share for us to receive the maximum
proceeds of $6 million under the common stock purchase agreement. Assuming a
purchase price of $1.1875 per share (the closing sale price of the common stock
on December 18, 2000) and the purchase by Fusion Capital of the full amount of
shares purchaseble under the first tranche of the common stock purchase
agreement, proceeds to us would only be $2,375,000 unless we choose to issue
more than 2,000,000 shares, which we have the right to do.
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THE COMMON STOCK PURCHASE AGREEMENT COULD LEAD TO DOWNWARD PRESSURE on
OUR STOCK PRICE. Either actual dilution caused by sales of our common stock to
Fusion Capital or the perception of such dilution by holders of our common stock
could cause holders to elect to sell the shares of common stock held by them,
which could cause the trading price of our common stock to decrease.
Furthermore, a perception that sales of our common stock to Fusion Capital may
lead to downward pressure on the trading price of our common stock could provide
an incentive for selling which could also adversely affect the trading price of
our common stock.
WE MAY BE UNABLE TO ATTRACT AND RETAIN QUALIFIED TECHNICAL PERSONNEL.
Our success depends upon our key technical personnel and senior management. The
loss of the services of these persons could materially adversely affect our
ability to develop our business. Competition for qualified technical, sales and
marketing, customer support, financial and accounting, and managerial personnel
in the Internet industry is intense, and we cannot be certain that we will be
able to retain our key personnel or that we can attract, integrate or retain
other highly qualified personnel in the future. We have experienced in the past,
and may continue to experience in the future, difficulty in hiring and retaining
candidates with appropriate qualifications.
FAILURE OF OUR COMPUTER SYSTEMS MAY DISRUPT OUR OPERATIONS. Our success
largely depends on the uninterrupted operation of our computer and
communications hardware systems. Our systems and operations are vulnerable to
damage or interruption from fire, flood, power loss, telecommunications failure,
break-ins, earthquake and similar events. We presently have very limited
redundant systems. We do not have a formal disaster recovery plan and we carry
limited business interruption insurance to compensate for any losses that may
occur. Our servers are also vulnerable to computer viruses, physical or
electronic break-ins, and similar disruptions, which could materially and
adversely affect us.
OUR BUSINESS MAY NOT GROW IF THE INTERNET, AS A MEDIUM OF COMMERCE AND
COMMUNICATIONS, DOES NOT CONTINUE TO DEVELOP. Demand and market acceptance for
recently introduced services and products like those offered by us are subject
to a high level of uncertainty. The use of the Internet in marketing,
advertising and commerce, particularly by those individuals and enterprises that
have historically relied upon traditional means of marketing and advertising,
generally requires the acceptance of a new way of conducting business and
exchanging information. Enterprises that have already invested substantial
resources in other means of conducting business and exchanging information may
be particularly reluctant or slow to adopt a new strategy that may make their
existing resources and infrastructure less useful. There can be no assurance
that the market for our services will develop and if it fails to develop,
develops more slowly than expected or becomes saturated with competitors, or if
our services do not achieve market acceptance, our business, operating results
and financial condition will be materially adversely effected.
Our ability to derive revenues will also depend upon a robust industry
and the infrastructure for providing Internet access and carrying Internet
traffic. The Internet may not prove to be a viable commercial marketplace
because of inadequate development of the necessary infrastructure or timely
development of complementary products, such as high speed modems and bandwidths.
Moreover, other critical issues concerning the commercial use of the Internet
(including security, reliability, cost, ease of use and access, and quality of
service) remain unresolved and may impact the growth of Internet use. Because
global commerce and online exchange of information on the Internet and other
similar open wide area networks are new and evolving, it is difficult to predict
with any assurance whether the Internet will prove to be and remain a viable
commercial marketplace. If the infrastructure necessary to support the
Internet's commercial viability is not developed, or if the Internet does not
become a viable marketplace, our business, operating results and financial
condition would be materially and adversely effected.
TECHNOLOGICAL CHANGE MAY RENDER OUR SERVICE OBSOLETE. Our services, and
the services and products we expect to offer in the future, are impacted by
rapidly changing technology, evolving industry standards, emerging competition
and frequent new service, software and other product introductions. There can be
no assurance that we can successfully identify new business opportunities and
develop and bring new services or products to market in a timely and
cost-effective manner, or that services, products or technologies developed by
others will not render our
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services or products noncompetitive or obsolete. In addition, there can be no
assurance that services, products or enhancements introduced by us will achieve
or sustain market acceptance or be able to effectively address compatibility,
inoperability or other issues raised by technological changes or new industry
standards. Our pursuit of technological advances may also require us to seek
assistance from third parties.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY. We believe that
our success in our core business of interactive advertising is not dependent
upon patents, copyrights or trademarks and we do not currently have any
registered patents, copyrights or trademarks, although applications for various
trademarks have been made. Consequently, we rely principally on a combination of
common-law and statutory law to protect our proprietary information and
know-how. We also utilize technology owned by third parties. There can be no
assurance that licenses for any technology developed by third parties that might
be required for our services would be available on reasonable terms, if at all.
Although we do not believe that our services infringe the proprietary
rights of any third parties, there can be no assurance that third parties will
not assert claims based on our services or that any of those claims would not be
successful. In addition, many of our competitors rely upon trade secret law.
Litigation may be necessary in the future to enforce our intellectual property
rights and to protect our proprietary information, to determine the validity and
scope of the proprietary rights of others, or to defend against claims of
infringement or invalidity. Litigation of this nature, whether or not
successful, could result in substantial costs and diversions of resources,
either of which could have a material adverse effect on our business, financial
condition and operating results. Furthermore, parties making claims against us
could secure a judgment awarding substantial damages, as well as injunctive or
other equitable relief which could directly or indirectly prohibit us from
providing certain services and products. A judgment of this nature could have a
material adverse effect on our business, financial condition and results of
operations.
ABSENCE OF DIVIDENDS. We have not paid any cash dividends on our common
stock and do not anticipate paying any such cash dividends on our common stock
in the foreseeable future. Earnings, if any, will be retained to finance future
growth. Our ability to declare dividends on our common stock may be restricted
by future financings or lenders, if any.
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THE FINANCING TRANSACTION
GENERAL
On December 11, 2000, we entered into a common stock purchase agreement
with Fusion Capital Fund II, LLC ("Fusion Capital") pursuant to which Fusion
Capital agreed to purchase up to $12 million of our common stock in two
tranches. Each $6 million tranche is to be purchased over a period of up to
twenty-four months, subject to a six month extension or earlier termination at
our discretion. The selling price of the shares will be equal to the lesser of
(1) $15.00 or (2) a price based upon the future market price of the common stock
without any fixed discount to the market price.
After all of the shares of our common stock purchasable under the first
tranche of the common stock purchase agreement have been purchased by Fusion
Capital, we have the right to deliver to Fusion Capital an irrevocable written
notice stating that we elect to commence the second tranche. The obligation of
Fusion Capital to commence the second tranche is subject only to customary
conditions, all of which are outside the control of Fusion Capital.
PURCHASE OF SHARES UNDER THE COMMON STOCK PURCHASE AGREEMENT
Under the common stock purchase agreement, Fusion Capital will purchase
shares of our common stock by purchasing from time to time a specified dollar
amount of our common stock. Subject to the limits on purchase and the
termination rights described below, during each 30-day period during the term
of the first tranche of up to 24 months, Fusion Capital will purchase $250,000
of our common stock. If our stock price equals or exceeds $4.00 per share, we
have the right to increase this monthly amount up to the full remaining
unfunded portion of the $6 million commitment. This amount may be decreased by
us at any time. If our stock price equals or exceeds $4.00 per share, we have
the right to increase this monthly amount up to the full remaining portion of
the $6 million commitment. The selling price per share is equal to the lesser
of:
- the lowest sale price of our common stock on the day of
submission of a purchase notice by Fusion Capital; or
- the average of any five closing bid prices of our common
stock, selected by Fusion Capital, during the 15 trading days
prior to the date of submission of a purchase notice by Fusion
Capital; or
- $15.00
The selling price will be adjusted for any reorganization,
recapitalization, non-cash dividend, stock split or other similar transaction
occurring during the fifteen (15) trading days in which the closing bid price is
used to compute the purchase price. Notwithstanding the foregoing, Fusion
Capital may not purchase shares of common stock under the common stock purchase
agreement if Fusion Capital or its affiliates would beneficially own more than
9.9% of our then aggregate outstanding common stock immediately after the
proposed purchase. If the 9.9% limitation is ever reached this shall not effect
or limit Fusion Capital's obligation to fund the required monthly purchase
amount of $250,000 or Fusion Capital's mandatory purchase obligation under the
common stock purchase agreement.
9
<PAGE> 12
The following table sets forth the number of shares of our common stock
that would be sold to Fusion Capital upon our sale of common stock under the
first tranche of the common stock purchase agreement at varying purchase prices:
<TABLE>
<CAPTION>
PERCENT OF OUR COMMON STOCK
ASSUMED NUMBER OF SHARES TO BE ISSUED UPON A OUTSTANDING AS OF NOVEMBER 30, 2000,
PURCHASE FULL PURCHASE OF THE FIRST TRANCHE OF AFTER GIVING EFFECT TO THE ISSUANCE
PRICE THE COMMON STOCK PURCHASE AGREEMENT TO FUSION CAPITAL(1)
---------------- ------------------------------------------ ------------------------------------
<S> <C> <C>
$ 0.50 2,677,647(2) 43.6%
$ 1.00 2,677,647(2) 43.6%
$ 1.19(3) 2,677,647(2) 43.6%
$ 4.00 2,177,647 38.6%
$10.00 1,277,647 27%
$15.00 1,077,647 23.7%
</TABLE>
Since we only plan to sell up to 2,000,000 shares to Fusion Capital
under the common stock purchase agreement, our stock price will need to equal
or exceed $3.00 per share for us to receive the maximum proceeds of $6 million
under the common stock purchase agreement. Assuming a purchase price of $1.1875
per share (the closing sale price of the common stock on December 18, 2000) and
the purchase by Fusion Capital of the full amount of shares purchaseble under
the first tranche of the common stock purchase agreement, proceeds to us would
only be $2,375,000 unless we choose to issue more than 2,000,000 shares, which
we have the right to do.
OUR RIGHT TO PREVENT PURCHASES
At any time or from time to time, so long as the closing sale price of
our common stock has been below $15.00 for the most recent three trading days,
we shall have the unconditional right to prevent any purchases effective upon
three trading days prior notice. To the extent we need to use the cash proceeds
of the sales of common stock under the common stock purchase agreement for
working capital or other business purposes, we do not intend to restrict
purchases under the common stock purchase agreement.
OUR RIGHT TO MANDATORY PURCHASES
If the closing sale price of our common stock on each of the five
trading days immediately prior to the first trading day of any 30-day period is
at least $4.00, we shall have the right to require purchase by Fusion Capital of
part or all of the outstanding $6 million (in such amounts as determined by us),
during such time or times as Fusion Capital shall determine during the next two
30-day periods, provided the closing sale price of our common stock during such
30-day period or periods is at least $4.00. Our right to require purchase by
Fusion Capital shall be exercisable by written notice from us to Fusion Capital
prior to the first trading day of any 30-day period.
OUR TERMINATION RIGHTS
Prior to the date on which shares are purchased by Fusion Capital, we
shall have the right to terminate the common stock purchase agreement at any
time for any reason by issuing to Fusion Capital the shares to be issued
-------------
(1) Based on 3,462,794 shares of common stock outstanding as of November 30,
2000. Assumes the issuance of 380,485 shares of common stock issuable to Fusion
Capital and 297,162 shares of common stock issuable to Fusion Capital upon
exercise of warrants issued to it as a commitment fee, and the number of shares
issuable at the corresponding assumed purchase price set forth in the adjacent
column.
(2) We estimate that we will issue no more than 2,000,000 shares to Fusion
Capital under the first tranche of the common stock purchase agreement,
excluding the shares of common stock issuable as a commitment fee, all of which
are included in this offering. If more than 2,000,000 shares are issuable to
Fusion Capital under the first tranche of the common stock purchase agreement,
we currently intend to terminate the common stock purchase agreement without any
payment or liability to Fusion Capital.
(3) The closing price as of December 18, 2000 was $1.1875.
10
<PAGE> 13
as a commitment fee. After the date on which shares are first purchased by
Fusion Capital, if at any time the closing sale price of our common stock for
each of any ten consecutive trading days is below $15.00, we may, at any time
within the next three trading days, give notice to Fusion Capital exercising our
right to terminate the common stock purchase agreement. Such notice shall be
effective three trading days after Fusion Capital receives such notice. We may
not exercise our termination rights in anticipation of, or in connection with, a
change of control or other major transaction unless the change of control or
other major transaction has been publicly disclosed for at least 45 trading
days.
EFFECT OF PERFORMANCE OF THE COMMON STOCK PURCHASE AGREEMENT ON K2 AND OUR
STOCKHOLDERS
All shares registered in this offering will be freely tradable. It is
anticipated that shares registered in this offering will be sold over a period
of up to 24 months from the date of this prospectus. The sale of a significant
amount of shares registered in this offering at any given time could cause the
trading price of our common stock to decline and to be highly volatile. Fusion
Capital may ultimately purchase all of the shares of common stock issuable under
the first tranche of the common stock purchase agreement, and it may sell all of
the shares of common stock it acquires upon purchase. Therefore, the purchases
under the common stock purchase agreement may result in substantial dilution to
the interests of other holders of our common stock. However, we have the right
to block purchases of the common stock purchase agreement and to require
termination of the common stock purchase agreement in some cases.
NO SHORT-SELLING OR HEDGING BY FUSION CAPITAL
Fusion Capital has agreed that neither it nor any of its affiliates
will engage in any direct or indirect short-selling or hedging of our common
stock during any time prior to the termination of the common stock purchase
agreement.
EVENTS OF DEFAULT
Generally, Fusion Capital may terminate the common stock purchase
agreement without any liability or payment to K2 upon the occurrence of any of
the following events of default:
- if for any reason the shares offered by this prospectus cannot
be sold pursuant to this prospectus for a period of 10
consecutive trading days or for more than an aggregate of 30
trading days in any 365-day period;
- suspension by the Nasdaq SmallCap Market of our common stock
from trading for a period of 10 consecutive trading days or
for more than an aggregate of 30 trading days in any 365-day
period;
- our failure to satisfy any listing criteria of the Nasdaq
SmallCap Market for a period of 10 consecutive trading days or
for more than an aggregate of 30 trading days in any 365-day
period;
- (1) notice from our transfer agent to the effect that it
intends not to comply with a proper request for purchase under
the common stock purchase agreement of shares of common stock;
(2) our failure to promptly confirm to the transfer agent
Fusion Capital's purchase notice or (3) the failure of the
transfer agent to issue shares of our common stock promptly
upon delivery of a purchase notice;
- any material breach of the representations or warranties or
covenants contained in the common stock purchase agreement or
any related agreements which has or which could have a
material adverse affect on K2 subject to a cure period of 10
trading days;
11
<PAGE> 14
- if the number of shares to be issued to Fusion Capital reaches
an aggregate amount that would require stockholder approval
under Nasdaq regulations (to the extent not previously
obtained and then required) or otherwise cause K2 to breach
Nasdaq rules and regulations;
- the removal or resignation of both Lynn Fantom as Chief
Executive Officer of K2 and of Gary W. Brown as K2's Chief
Operating Officer;
- a default of any payment obligation of K2 in excess of $1.0
million; or
- commencement of insolvency or bankruptcy proceedings by or
against K2.
ADDITIONAL SHARES ISSUED TO FUSION CAPITAL
Under the terms of the common stock purchase agreement, in connection
with the commencement of the first tranche, Fusion Capital will receive shares
of our common stock, together with warrants to purchase shares of our common
stock, equal to 12% of $6.0 million or an aggregate of 677,647 shares (including
297,162 shares issuable upon exercise of the warrants) as a commitment fee. The
warrants have an exercise price of $0.01 per share and are exercisable for five
years from the date of issue. Unless an event of default occurs, these shares
must be held by Fusion Capital until the common stock purchase agreement has
been terminated. On the date that the second tranche is commenced, Fusion
Capital will be entitled to receive an additional commitment fee, payable in
shares of our common stock, equal to 8% of $6.0 million, divided by the lower of
(1) the average of the closing price of our common stock for the five
consecutive trading days immediately preceding the trading day which is two
trading days prior to the commencement of the second tranche and (2) the average
of the closing price of our common stock for the five consecutive trading days
immediately preceding the date the Company delivers notice to Fusion Capital of
its intent to commence the second tranche.
NO VARIABLE PRICED FINANCINGS
Until the termination of the common stock purchase agreement, we have
agreed not to issue, or enter into any agreement with respect to the issuance
of, any variable priced equity or variable priced "equity-like" securities
unless we have obtained Fusion Capital's prior written consent.
HOLDINGS OF FUSION CAPITAL UPON TERMINATION OF THE OFFERING
Because Fusion Capital may sell all, some or none of the common stock
offered by this prospectus, no estimate can be given as to the amount of common
stock that will be held by Fusion Capital upon early termination of the
offering.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares of our
common stock by the selling stockholder; however, we may receive up to $6
million from the sale of shares to Fusion Capital under the common stock
purchase agreement. We are registering the shares for sale
to provide the selling stockholder with freely tradable securities, but the
registration of these shares does not necessarily mean that any of these shares
will be offered or sold by the selling stockholder.
12
<PAGE> 15
SELLING STOCKHOLDER
The selling stockholder is Fusion Capital Fund II, LLC. Under the
common stock purchase agreement, Fusion Capital agreed to purchase up to $12.0
million of our common stock in two tranches of $6.0 million. The purchase price
of our common stock is based upon the future market price of our common stock.
We will commence the first tranche with Fusion Capital after this registration
statement is effective. At our sole option, we can require Fusion Capital to
commence the second tranche and purchase up to an additional $6.0 million of our
common stock.
We estimate that the maximum number of shares we will sell to Fusion
Capital under the first tranche of the common stock purchase agreement will be
2,000,000. We have the right under certain conditions to suspend and/or
terminate the common stock purchase agreement without any payment or liability
to Fusion Capital. We have also agreed to issue 380,485 additional shares of
common stock and warrants to purchase 297,162 shares of common stock at an
exercise price of $.01 per share to Fusion Capital as a commitment fee for
commencing the first tranche under the common stock purchase agreement. Unless
an event of default occurs, these shares must be held by Fusion Capital until
the common stock purchase agreement has been terminated. This prospectus relates
to the offer and sale from time to time by Fusion Capital of these shares. The
common stock purchase agreement is described in detail under the heading "The
Financing Transaction."
Notwithstanding the limitations set forth in the common stock purchase
agreement, if Fusion Capital was to purchase all of the common stock issuable in
the first tranche of the common stock purchase agreement, the 2,000,000 shares
purchased, together with the 677,647 additional shares we estimate may be
issuable to Fusion Capital, or issuable upon exercise of warrants issued to it,
as a commitment fee, Fusion Capital would beneficially own 43.6% of our then
outstanding common stock.
HOLDINGS OF FUSION CAPITAL UPON COMPLETION OF THIS OFFERING
Following completion of this offering, Fusion Capital will beneficially
own no more than 380,485 shares of common stock and warrants to acquire 297,162
shares of common stock. This aggregate of 677,647 shares to be issued or
issuable as a commitment fee may be sold following termination of the common
stock purchase agreement. All of these shares are deemed to be beneficially
owned by Steven G. Martin and Joshua B. Scheinfeld, the principals of Fusion
Capital. Messrs. Martin and Scheinfeld have shared voting and dispositive power
of the shares being offered pursuant to this prospectus.
13
<PAGE> 16
PLAN OF DISTRIBUTION
The common stock offered by this prospectus is being offered by the
selling stockholder, Fusion Capital Fund II, LLC. The common stock may be sold
or distributed from time to time by the selling stockholder, or by donees or
transferees of, or other successors in interests to, the selling stockholder,
directly to one or more purchasers or through brokers, dealers or underwriters
who may act solely as agents or may acquire such common stock as principals, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, at negotiated prices, or at fixed prices, which may be
changed. The sale of the common stock offered by this prospectus may be effected
in one or more of the following methods:
- ordinary brokers' transactions;
- transactions involving cross or block trades or otherwise on
the Nasdaq SmallCap Market;
- purchases by brokers, dealers or underwriters as principal and
resale by such purchasers for their own accounts pursuant to
this prospectus;
- "at the market" to or through market makers or into an
existing market for the common stock;
- in other ways not involving market makers or established
trading markets, including direct sales to purchasers or sales
effected through agents;
- in privately negotiated transactions; or
- any combination of the foregoing.
In order to comply with the securities laws of certain states, if
applicable, the shares may be sold only through registered or licensed brokers
or dealers. In addition, in certain states, the shares may not be sold unless
they have been registered or qualified for sale in such state or an exemption
from such registration or qualification requirement is available and complied
with.
Brokers, dealers, underwriters or agents participating in the
distribution of the shares as agents may receive compensation in the form of
commissions, discounts or concessions from the selling stockholder and/or
purchasers of the common stock for whom such broker-dealers may act as agent, or
to whom they may sell as principal, or both. The compensation paid to a
particular broker-dealer may be less than or in excess of customary commissions.
The selling stockholder is an "underwriter" within the meaning of the
Securities Act of 1933. Any broker-dealers who act in connection with the sale
of the shares hereunder may be deemed to be "underwriters" within the meaning of
the Securities Act, and any commissions they receive and proceeds of any sale of
the shares may be deemed to be underwriting discounts and commissions under the
Securities Act.
Neither we nor the selling stockholder can presently estimate the
amount of compensation that any agent will receive. We know of no existing
arrangements between any selling stockholder, any other stockholder, broker,
dealer, underwriter or agent relating to the sale or distribution of the shares.
At a time a particular offer of shares is made, a prospectus supplement, if
required, will be distributed that will set forth the names of any agents,
underwriters or dealers and any compensation from the selling stockholder and
any other required information.
We will pay all of the expenses incident to the registration, offering
and sale of the shares to the public other than commissions or discounts of
underwriters, broker-dealers or agents. K2 has also agreed to indemnify the
selling stockholder and related persons against specified liabilities, including
liabilities under the Securities Act.
14
<PAGE> 17
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of K2, we
have been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is therefore,
unenforceable.
FUSION CAPITAL AND ITS AFFILIATES HAVE AGREED NOT TO ENGAGE IN ANY DIRECT OR
INDIRECT SHORT SELLING OR HEDGING OF OUR COMMON STOCK DURING THE TERM OF THE
COMMON STOCK PURCHASE AGREEMENT.
We have advised the selling stockholder that while it is engaged in a
distribution of the shares included in this prospectus it is required to comply
with Regulation M promulgated under the Securities Exchange Act of 1934, as
amended. With certain exceptions, Regulation M precludes the selling
stockholder, any affiliated purchasers, and any broker-dealer or other person
who participates in such distribution from bidding for or purchasing, or
attempting to induce any person to bid for or purchase any security which is the
subject of the distribution until the entire distribution is complete.
Regulation M also prohibits any bids or purchases made in order to stabilize the
price of a security in connection with the distribution of that security. All of
the foregoing may affect the marketability of the shares offered hereby this
prospectus.
This offering will terminate on the earlier of (1) the date on which
the shares are eligible for resale without restrictions pursuant to Rule 144(k)
under the Securities Act or (2) the date on which all shares offered by this
prospectus have been sold by the selling stockholder.
VALIDITY OF COMMON STOCK
The validity of the common stock offered by this prospectus will be
passed upon for us by Brown Raysman Millstein Felder & Steiner LLP, New York,
New York.
EXPERTS
The financial statements incorporated in this prospectus by reference
to the Annual Report on Form 10-KSB of K2 Digital, Inc. (formerly K2 Design,
Inc.) for the year ended December 31, 1999 have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission using a "shelf" registration process.
Under this shelf process, a company that has the right to receive shares of our
common stock may sell up to an aggregate of 2,667,647 shares of common stock in
one or more offerings. This prospectus and any applicable prospectus supplement
provided to you should be considered together with the additional information
described under the heading "Where You Can Find More Information."
The registration statement that contains this prospectus (including the
exhibits to the registration statement) contains additional information about
our company and the securities offered by this prospectus. That registration
statement can be read at the SEC web site or at the SEC offices mentioned under
the heading "Where You Can Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission. Those reports, proxy statements and other
information may be obtained:
- At the Public Reference Room of the SEC, Room 1023 - Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
15
<PAGE> 18
- At the public reference facilities at the SEC's regional
offices located at Seven World Trade Center, 13th Floor, New
York, New York 10048 or Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661;
- At the offices of the Nasdaq Stock Market, Inc., Reports
Section, 1735 K Street, N.W., Washington, D.C. 20006; or
- From the Internet site maintained by the SEC at
http://www.sec.gov, which contains reports, proxy statements
and other information regarding issuers that file
electronically with the SEC.
Some locations may charge prescribed rates or modest fees for copies.
For more information on the public reference rooms, call the SEC at
1-800-SEC-0330.
This Prospectus is part of a registration statement that we filed with
the SEC. The registration statement contains more information than this
Prospectus regarding our business and our common stock and warrants, including
certain exhibits. You can get a copy of the registration statement from the SEC
at the addresses listed above or from its Internet Web site.
INCORPORATION BY REFERENCE
We "incorporate by reference" into this prospectus the information we
file with the SEC, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is an important part of this prospectus and any information that we file
subsequently with the SEC will automatically update this prospectus. We
incorporate by reference:
(a) Our Annual Report on Form 10-KSB for the year ended December
31, 1999, filed with the SEC on March 30, 2000;
(b) Definitive Proxy Statement on Schedule 14A dated April 28,
2000;
(c) Our Quarterly Report on Form 10-QSB for the quarter ended
March 31, 2000;
(d) Our Quarterly Report on Form 10-QSB for the quarter ended June
30, 2000;
(e) Our Quarterly Report on Form 10-QSB for the quarter ended
September 30, 2000;
(f) Our Current Report on Form 8-K dated April 24, 2000;
(g) Our Current Report on Form 8-K dated July 11, 2000;
(h) Our Current Report on Form 8-K dated December 19, 2000;
(i) The description of our common stock and warrants contained in
the Registration Statement on Form SB-2, filed with the
Commission on July 17, 1996 (File No. 333-4319).
All documents subsequently filed by us pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a post-effective
amendment hereto indicating that all securities offered hereby have been sold or
which deregisters all securities then remaining unsold, shall be deemed to be
incorporated by reference in this Prospectus and to be a part of this Prospectus
from the respective dates of filings of such documents.
Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
16
<PAGE> 19
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated herein by reference modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
We undertake to provide, without charge, to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon the written or oral
request of such person, a copy of any and all of the documents incorporated
herein by reference (other than exhibits to such documents unless such exhibits
are specifically incorporated by reference herein). Requests for such documents
should be directed to our Chief Financial Officer at 30 Broad Street, 16th
Floor, New York, New York 10004. Telephone requests for such copies should be
directed to the Chief Financial Officer at (212) 301-8800.
17
<PAGE> 20
================================================================================
UP TO 2,677,647 SHARES
K2 DIGITAL, INC.
COMMON STOCK
----------
PROSPECTUS
----------
[_____________], 2001
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<S> <C>
K2 Digital, Inc. 3
Risk Factors 4
The Financing Transaction 9
Selling Stockholder 13
Plan of Distribution 14
Validity of Common Stock 15
Experts 15
About This Prospectus 15
Where You Can Find More Information 15
Incorporation by Reference 16
</TABLE>
================================================================================
18
<PAGE> 21
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, payable by the
registrant in connection with the sale of common stock being registered. All
amounts are estimates, except the SEC registration fee and the Nasdaq listing
fee.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee ........................ $ 798.80
Nasdaq National Market listing fee .......... 17,500.00
Printing expenses ........................... 5,000.00*
Legal fees and expenses ..................... 15,000.00*
Accounting fees and expenses ................ 5,000.00*
Blue sky fees and expenses .................. 1,000.00*
Miscellaneous ............................... 5,701.20*
Total ..................................... $ 50,000.00*
===========
</TABLE>
* Indicates estimate
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of Section 145 of the General Corporation Law of the
State of Delaware empowers a corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 145 further provides that to the extent a director or officer
of a corporation has been successful on the merits or otherwise in the defense
of any action, suit or proceeding referred to in subsections (a) and (b) of
II-1
<PAGE> 22
Section 145, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith; that indemnification provided for by
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; that indemnification provided for by Section
145 shall, unless otherwise provided when authorized or ratified, continue as to
a person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of such person's heirs, executors and administrators, and
empowers the corporation to purchase and maintain insurance on behalf of a
director or officer of the corporation against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liabilities under Section 145.
Section 102(b)(7) of the General Corporation Law of the State of
Delaware provides that a certificate of incorporation may contain a provision
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director provided that such provision shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
Article Seventh of the Company's Certificate of Incorporation states
that:
(a) A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except to the extent such exemption from liability
or limitation thereof is not permitted under the Delaware General Corporation
Law.
(b)(1) Each person (and the heirs, executors or administrators
of such person) who was or is a party or is threatened to be made a party to, or
is involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, shall be
indemnified and held harmless by the Corporation to the fullest extent permitted
by the Delaware General Corporation Law. The right to indemnification conferred
in this Article Seventh shall also include the right to be paid by the
Corporation the expenses incurred in connection with any such proceeding in
advance of its final disposition to the fullest extent permitted by the Delaware
General Corporation Law. The right to indemnification conferred in this Article
Seventh shall be a contract right.
(2) The Corporation may, by action of its board of directors,
provide indemnification to such of the employees and agents of the Corporation
and such other persons serving at the request of the Corporation as employees or
agents of another corporation, partnership, joint venture, trust or other
enterprise to such extent and to such effect as is permitted by the Delaware
General Corporation Law and the board of directors shall determine to be
appropriate.
(c) The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any expense, liability or loss
incurred by such person in any such capacity or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the Delaware General Corporation Law.
(d) The rights and authority conferred in this Article Seventh
shall not be exclusive of any other right which any person may otherwise have or
hereafter acquire.
II-2
<PAGE> 23
(e) No amendment, modification or repeal of this Article
Seventh, nor the adoption of any provision of this certificate of incorporation
or the bylaws of the Corporation, nor, to the fullest extent permitted by the
Delaware General Corporation Law, any amendment, modification or repeal of law
shall eliminate or reduce the effect of this Article Seventh or adversely affect
any right or protection then existing hereunder in respect of any acts of
omissions occurring prior to such amendment, modification, repeal or adoption.
The Registrant also provides liability insurance for its directors and
officers which provides for coverage against loss from claims made against
directors and officers in their capacity as such, including liabilities under
the Securities Act of 1933, as amended. The Registration Rights Agreement
between the Registrant and the selling stockholder contains provisions for
indemnification by the Registrant of the selling securityholder against certain
liabilities under the Act.
ITEM 16. EXHIBITS
4.1.1 Certificate of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 filed with the Registrant's Registration
Statement on Form SB-2, as filed on May 22, 1996 (Registration No.
333-04319)).
4.1.2 Certificate of Amendment to the Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1(a) filed with the
Registrant's Registration Statement on Form SB-2A, as filed on July 17,
1996 (Registration No. 333-04319)).
4.2.1 By-laws of the Registrant (incorporated by reference to Exhibit 3.2
filed with the Registrant's Registration Statement on Form SB-2, as
filed on May 22, 1996 (Registration No. 333-04319)).
4.2.2 Amended By-laws of the Registrant (incorporated by reference to Exhibit
3.2(b) filed with the Registrant's Registration Statement on Form
SB-2A, as filed on July 17, 1996 (Registration No. 333-04319)).
5.1 Opinion of Brown Raysman Millstein Felder & Steiner LLP.*
10.1 Common Stock Purchase Agreement dated as of December 11, 2000 between
the Company and Fusion Capital Fund II, LLC (incorporated by reference
to Exhibit 10.1 filed with the Registrant's Current Report on Form 8-K,
as filed on December 19, 2000).
10.2 Form of Registration Rights Agreement (incorporated by reference to
Exhibit 10.2 filed with the Registrant's Current Report on Form 8-K, as
filed on December 19, 2000).
23.1 Consent of Brown Raysman Millstein Felder & Steiner LLP (included in
Exhibit 5.1).*
23.2 Consent of Arthur Andersen LLP.
---------------
* To be filed by amendment.
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<PAGE> 24
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) to include any prospectus required by section
10(a)(3) of the Securities Act;
(ii) to reflect in the Prospectus any facts of events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the commission pursuant to Rule
424(b) if, in the aggregate, the charges in volume
and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement; and
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
section 13 or section 15(d) of the Exchange Act that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Exchange Act)
that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the registrant pursuant to the Delaware General Corporation Law, the
charter or the bylaws of the registrant, or otherwise, the registrant
has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered
hereunder, the registrant will, unless in
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<PAGE> 25
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
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<PAGE> 26
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and authorized this Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized, in New York, New York on the 15th day of December 2000.
K2 DIGITAL, INC.
By: /s/ Lynn Fantom
--------------------------------
Lynn Fantom, President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Lynn Fantom and Gary Brown, jointly and
severally, his or her attorneys-in-fact, each with the power of substitution,
for him or her in any and all capacities to sign any amendments (including
post-effective amendments, exhibits thereto and other documents in connection
therewith) to this Registration Statement and any subsequent Registration
Statement filed by the registrant pursuant to Securities and Exchange Commission
Rule 462, which relates to this Registration Statement, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed by the following persons in
the capacities and on the dates stated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Lynn Fantom December 15, 2000
----------------------------------------
Lynn Fantom President, Chief Executive Officer
and Director (Principal Executive Officer)
/s/ Matthew G. de Ganon December 15, 2000
----------------------------------------
Matthew G. de Ganon Chairman of the Board
/s/ Gary Brown December 15, 2000
----------------------------------------
Gary Brown Acting Chief Financial Officer
(Principal Financial and Accounting
Officer)
/s/ Douglas E. Cleek December 15, 2000
----------------------------------------
Douglas E. Cleek Executive Vice President and Director
/s/ David R. Sklaver December 15, 2000
----------------------------------------
David R. Sklaver Director
</TABLE>
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<PAGE> 27
<TABLE>
<S> <C> <C>
----------------------------------------
Steven N. Goldstein Director
----------------------------------------
Scott Munro Director
</TABLE>
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<PAGE> 28
EXHIBIT INDEX
4.1.1 Certificate of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 filed with the Registrant's Registration
Statement on Form SB-2, as filed on May 22, 1996 (Registration No.
333-04319)).
4.1.2 Certificate of Amendment to the Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1(a) filed with the
Registrant's Registration Statement on Form SB-2A, as filed on July 17,
1996 (Registration No. 333-04319)).
4.2.1 By-laws of the Registrant (incorporated by reference to Exhibit 3.2
filed with the Registrant's Registration Statement on Form SB-2, as
filed on May 22, 1996 (Registration No. 333-04319)).
4.2.2 Amended By-laws of the Registrant (incorporated by reference to Exhibit
3.2(b) filed with the Registrant's Registration Statement on Form
SB-2A, as filed on July 17, 1996 (Registration No. 333-04319)).
5.1 Opinion of Brown Raysman Millstein Felder & Steiner LLP.*
10.1 Common Stock Purchase Agreement dated as of December 11, 2000 between
the Company and Fusion Capital Fund II, LLC (incorporated by reference
to Exhibit 10.1 filed with the Registrant's Current Report on Form 8-K,
as filed on December 19, 2000).
10.2 Form of Registration Rights Agreement (incorporated by reference to
Exhibit 10.2 filed with the Registrant's Current Report on Form 8-K, as
filed on December 19, 2000).
23.1 Consent of Brown Raysman Millstein Felder & Steiner LLP (included in
Exhibit 5.1).*
23.2 Consent of Arthur Andersen LLP.
---------------
* To be filed by amendment.
