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UNITED STATES
SECURITITES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
JUNE 5, 2000
(DATE OF REPORT - DATE OF EARLIEST EVENT REPORTED)
APPLIEDTHEORY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 000-25759 16-1491253
(STATE OR OTHER JURISDICTION OF (COMMISSION (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) FILE NUMBER) IDENTIFICATION NO.)
1500 BROADWAY, 3RD FLOOR 10036
NEW YORK, NY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 398-7070
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE
LAST REPORT DATE)
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ITEM 5. OTHER EVENTS
On June 5, 2000, AppliedTheory Corporation ("AppliedTheory") entered
into a purchase agreement ("Purchase Agreement") with seven investors (the
"Investors") pursuant to which it issued an aggregate of $30,000,000 in 5%
convertible debentures due June 5, 2003 ("Debenture"). Under the Purchase
Agreement and related agreements with the Investors, AppliedTheory can also
receive up to an additional $33,000,000 over the next five years from the
exercise of warrants and options for the purchase and sale of AppliedTheory
common stock, par value $.01 ("Common Stock"). The possible total investment by
the Investors in AppliedTheory under the agreements is an aggregate of
$63,000,000.
The additional $33,000,000 in financing is available from three sources.
First, pursuant to the Purchase Agreement, the Investors received warrants for
the purchase of additional shares of Common Stock, for up to $13,000,000.
Second, the Purchase Agreement contains an Investor call option, pursuant to
which the Investors can purchase additional warrants to purchase Common Stock,
for a purchase price of approximately $10,000,000. Finally, the Purchase
Agreement contains a put option, pursuant to which AppliedTheory can compel the
Investors to purchase additional warrants to purchase Common Stock, for a
purchase price of approximately $10,000,000 under certain circumstances. The
Debentures, the warrants, the Investor call option and Company put option are
more fully described below.
The Investors also have certain registration rights under a separate
registration rights agreement, as described below.
The Investors are led by the Halifax Fund, L.P. and include Palladin
Partners I, L.P.; Palladin Overseas Fund Ltd.; The Gleneagles Fund Company;
Lancer Securities (Cayman) Ltd.; Elliot Associates, L.P.; and Westgate
International, L.P.
CONVERTIBLE DEBENTURE
The $30,000,000 in Debentures earn interest at 5% per annum payable
semi-annually in June and December and mature on June 5, 2003. At
AppliedTheory's option, interest can be accrued or paid. Accrued interest is
convertible into shares of Common Stock. Principal and interest accrued on the
Debentures are convertible into Common Stock at the option of the holder. The
initial conversion price (the "Initial Conversion Price") will be 125% of the
average closing price of Common Stock for the 40 trading days following the
execution of the Purchase Agreement (the " Closing Price"). At six month
intervals beginning June 5, 2001 and ending June 5, 2003 (each a "Reset Date"),
the conversion price will reset to account for a portion of any decrease in
AppliedTheory's stock price based on the average closing price of the Common
Stock for the 20 trading days preceding a Reset Date (the "Reset Price"). The
conversion price may be subject to further adjustment as provided in the
transaction documents filed herewith. If the closing price for each of 60
consecutive trading days where the Common Stock is registered for resale is more
than 125% of the Initial Conversion Price, the conversion price will be finally
fixed at the Initial Conversion Price.
The agreements contain restrictions on the Investors' ability to sell
shares of Common Stock (including short sales) during the 20 trading days
preceding any Reset Date and certain of the Investors have agreed to short
selling restrictions during the initial 40 day pricing period.
The Company may require the Investors to convert the Convertible
Debentures into Common Stock if the volume weighted average price of the Common
Stock exceeds 200% of the
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Initial Conversion Price on each of 60 consecutive trading days where the Common
Stock is registered for resale. Under certain circumstances the Company may opt
to redeem the Debentures.
INITIAL WARRANTS
Under the Purchase Agreement, the Company issued Common Stock purchase
warrants to the Investors entitling them, in the aggregate, to purchase up to
$13,000,000 of Common Stock at a purchase price of 130% of the Closing Price as
adjusted. The warrants may be exercised until June 5, 2005.
PUT AND CALL OPTIONS
The Purchase Agreement includes a call option, pursuant to which the
Investors can purchase warrants to buy additional shares of Common Stock at an
exercise price of $.01 per share. The purchase price of the warrants is
$10,000,000 less the exercise price of the warrants. The number of shares which
can be purchased on exercise of the warrants is $10,000,000 divided by the
Initial Conversion Price as adjusted. The option can be exercised for one year
following the closing, and the warrants can be exercised for five years after
they are purchased.
The Purchase Agreement also includes a put option, pursuant to which the
Company can require the Investors to purchase warrants to buy additional shares
of Common Stock at an exercise price of $.01 per share. The purchase price of
the warrants is $10,000,000 less the exercise price of the warrants. The number
of shares which can be purchased on exercise of the warrants is $10,000,000
divided by the Initial Conversion Price as adjusted. The warrants can be
exercised for five years after they are purchased. AppliedTheory can exercise
this option for one year following the closing, but only if the market price
for the Common Stock exceeds 125% of the Initial Conversion Price for the 10
trading days prior to the put option exercise and certain other conditions are
met.
RESERVATION OF SHARES
The Company must at all times reserve a number of shares of Common Stock
sufficient to cover 200% of the maximum number of shares issuable upon
conversion of the Debentures, exercise of the warrants, exercise of warrants
upon exercise of the Investors' call option and exercise of warrants upon
exercise of the Company's put option.
REGISTRATION RIGHTS AGREEMENT
In connection with the agreements described above, AppliedTheory also
entered into a registration rights agreement (the "Registration Rights
Agreement") with the Investors whereby it agreed to file a Registration
Statement with the Securities and Exchange Commission on Form S-3 ("S-3") within
30 days of the sale of the Convertible Debentures. The S-3 must register shares
of Common Stock sufficient to cover 200% of the shares issued upon conversion of
the Debentures, the exercise of the initial warrants and any shares issued
pursuant to the exercise of warrants upon exercise of the put and call options.
The S-3 is required to be effective within 120 days following the sale of the
Debentures or the applicable conversion price on the Debenture will be reduced.
Commencing on the 120th day the Investors may become entitled to other payment
and redemption rights.
The purchase price for the sale of the Debentures, the issuance of the
warrants and the other transactions contemplated by the Purchase Agreement was
determined through arm's-length negotiations between AppliedTheory and the
Investors.
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The Purchase Agreement, a Debenture, an initial warrant, the
Registration Rights Agreement and the form of option warrant have been included
at exhibits 2.10, 2.11, 2.12, 2.13 and 2.14, respectively, in this Current
Report on Form 8-K. The form of Debenture and initial warrant issued to each
Investor is identical to the Debenture and initial warrant issued to Halifax
Fund LP filed herewith. Please review these documents for additional
information regarding the terms of these agreements.
ITEM 7. FINANCIAL STATEMENTS, PROFORMA FINANCIAL INFORMATION AND EXHIBITS
(a.) Financial Statements
Not required.
(b.) Pro Forma Financial Information.
Not required
(c.) Exhibits.
Following is the Index of Exhibits furnished in accordance with Item 601
of Regulation S-K, filed as part of this Current Report on Form 8-K or
incorporated by reference herewith:
2.10 Purchase Agreement, dated June 5, 2000, by and among AppliedTheory
Corporation, a Delaware corporation, and the Investors.
2.11 Convertible Debenture, dated June 5, 2000, by and among,
AppliedTheory Corporation and Halifax Fund, LP.
2.12 Warrant, dated June 5, 2000, by and among, AppliedTheory
Corporation and Halifax Fund, LP.
2.13 Registration Rights Agreement dated June 5, 2000, by and between
AppliedTheory Corporation and the Investors.
2.14 Form of warrant for issuance of warrants in connection with the
put and call options pursuant to the Purchase Agreement, dated
June 5, 2000, by and among, AppliedTheory Corporation and the
Investors.
99.4 Press release issued by AppliedTheory Corporation on June 6, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AppliedTheory Corporation
Date: June 20, 2000 by: /s/ Richard Mandelbaum
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Richard Mandelbaum
Chairman of the Board,
Chief Executive Officer, and
Director (Principal Executive Officer)
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EXHIBIT INDEX
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Exhibit No. Description
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2.10 Purchase Agreement, dated June 5, 2000, by and among AppliedTheory
Corporation, a Delaware corporation, and the Investors.
2.11 Convertible Debenture, dated June 5, 2000, by and among,
AppliedTheory Corporation and Halifax Fund, LP.
2.12 Warrant Agreement, dated June 5, 2000, by and among, AppliedTheory
Corporation and Halifax Fund, LP.
2.13 Registration Rights Agreement dated June 5, 2000, by and between
AppliedTheory Corporation and the Investors.
2.14 Form of warrant for issuance of warrants in connection with the
put and call options pursuant to the Purchase Agreement, dated
June 5, 2000, by and among, AppliedTheory Corporation and the
Investors.
99.4 Press release issued by AppliedTheory Corporation on June 6, 2000.
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