UNITED STATES
SECURITIES 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
Date of Report (Date of earliest event reported): March 31, 2000
NETTAXI.COM
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(Exact name of registrant as specified in its charter)
000-26109
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(Commission File Number)
Nevada 82-0486102
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1696 Dell Avenue, Campbell, CA 95008
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(Address of Principal Executive Offices Including Zip Code)
Registrant's telephone number, including area code: (408)879-9880
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ITEM 5. OTHER EVENTS
On March 31, 2000, we filed a Complaint in the Superior Court of the State
of California for the County of Santa Clara against RGC International Investors
LDC and certain RGC affiliates, seeking declaratory relief regarding our ability
to prepay the outstanding balance of our 5% convertible debentures held
by RGC. Prior to filing the Complaint, we tendered to RGC the sum of $2,558,800
as payment in full of the outstanding principal and interest of the convertible
debentures. The Complaint also seeks damages in excess of $20,000,000 for fraud
and breach of fiduciary duty and rescission of the underlying securities
purchase agreement and restitution, and requests injunctive relief against
further wrongful conduct by RGC as well as an award of attorneys' fees and
costs.
The factual basis for our Complaint stems from the March 31, 1999
securities purchase agreement between RGC and Nettaxi.com whereby RGC loaned us
the sum of $5,000,000 in exchange for convertible debentures containing our
promise to repay this sum, convertible into shares of our common stock at the
applicable conversion price, conversion options giving RGC the right to purchase
the same number of shares as are converted at the same price and warrants to
purchase up to 150,000 shares of our common stock.
The debentures were convertible at the option of the holder into that
number of shares of our common stock equal to the principal amount of the
debentures to be converted including accrued interested, divided by the
conversion price, which is equal to the "applicable percentage" multiplied by
the lesser of (i) the average of the lowest closing bid prices for our common
stock on any three trading days, which need not be consecutive, during the 22
consecutive trading day period ending one trading day prior to the conversion of
the debentures or (ii) $11.88, subject to adjustment for stock splits, stock
dividends, and similar events. Initially, the applicable percentage was 100%;
however, it was reduced to 80% when we did not secure the listing or quotation
of our common stock on the Nasdaq National Market by September 27, 1999. In
addition, at the time that a holder converts all or any portion of the
debentures, such holder has an "investment option" which gives the holder a
right to purchase one additional share of common stock for every share of common
stock issuable as a result of such conversion at an exercise price equal to the
applicable conversion price.
Our Complaint alleges that we were induced to enter into the securities
purchase agreement and accompanying agreements in reliance upon certain promises
and representations made by RGC, including representations that (i) RGC would be
our "partner" for future rounds of financing; (ii) RGC would avoid taking any
action which might harm us or our stockholders; (iii) RGC would use its best
efforts to promote our growth and expansion; (iv) RGC would not place its own
interests above ours; (v) RGC, when converting the debentures to common stock,
would not detrimentally impact the value of our common stock; (vi) RGC would
only sell our common stock in a strong market; (vii) RGC would assist us in
listing our common stock on NASDAQ and positioning our stock for a secondary
public offering; (viii) RGC would provide us with additional financing when
needed; and (ix) we could prepay any debt to RGC, including the convertible
debentures, using outside financing.
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Our Complaint alleges that at the time RGC made these promises and
representations, it knew them to be false and did not intend to perform them.
Rather, we believe that RGC's actual intent was to manipulate the price of our
common stock through short sales and cause the common stock price to decline,
thus obtaining a more favorable conversion price. Beginning in April 1999, the
price of a share of our common stock declined from $32.00 to approximately $5.00
in November 1999. During the same period, RGC denied our requests for additional
financing and refused to approve financing proposals from third parties.
Commencing in November 1999, RGC began to convert the convertible
debentures and exercise its investment option. We believe RGC immediately sold
the resulting common stock into the open market. We believe that as a direct
result of this conduct, the price of our common stock fell dramatically. The
conversion price decreased accordingly. Given this impact of the convertible
debentures, the formula for determining the conversion price, and the lack of a
fixed conversion price, NASDAQ refused to list our common stock.
As of March 31, 2000, $2,600,000 principal amount of the debentures, plus
accrued interest thereon had been converted into 1,434,695 shares of our common
stock by RGC and RGC had exercised its investment options to purchase an
additional 1,434,695 shares of common stock. As of March 15, 2000, the
$2,400,000 principal amount of the convertible debentures, plus an amount equal
to 5% of such principal amount accrued since March 15, 1999, could have been
converted into common stock at a conversion price of $1.1416 per share.
Shortly after tendering the funds to RGC to repay the convertible
debentures and filing the Complaint, we received from RGC a mandatory redemption
notice demanding immediate redemption by us of RGC's outstanding convertible
debentures. In its notice, RGC claimed that its right to redemption is based
upon our alleged failure to maintain registration under the Securities Act of
1933, as amended, of the shares of Nettaxi.com common stock underlying the
convertible debentures or otherwise issuable under the investment option. In
May 1999, we filed a registration statement on Form S-1 (File No. 333-78129)
covering approximately 200% of the number of shares of common stock then
issuable upon conversion of the convertible debentures and exercise of RGC's
investment option and warrants. This registration statement was declared
effective on August 13, 1999. Due to the steep decline in our stock price,
which we believe resulted from the actions of RGC, the conversion price of the
convertible debentures has decreased since the effective date of the
registration statement, and the number of shares issued or issuable pursuant to
the convertible debentures and investment option has increased significantly.
In fact, conversions of the convertible debentures by RGC depleted the shares
available in the first registration statement, and between February 18, 2000 and
February 23, 2000, additional RGC conversions resulted in the issuance of
734,026 shares of restricted common stock to RGC. Accordingly, we filed a new
registration statement on Form S-1 (File No. 333-30074) covering additional
shares of common stock. This registration statement was declared effective by
the Securities and Exchange Commission on April 6, 2000.
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Under the terms of the convertible debentures and accompanying registration
rights agreement, the failure to make available shares of registered common
stock upon such conversions may have been deemed a default and may have
constituted grounds for mandatory redemption of the convertible debentures with
accompanying financial penalties. The mandatory redemption amount, including
the penalty, claimed by RGC is equal to the "parity value" of the debentures to
be redeemed, where the parity value means the product of (i) the highest number
of shares of our common stock issuable upon conversion of or otherwise with
respect to the debentures, including shares issuable upon exercise of the
investment option, immediately preceding the redemption date, multiplied by (ii)
the highest closing bid price of our common stock during the period beginning on
the date of the event triggering mandatory redemption and ending one day prior
to the redemption date; provided, however, that in no event would the redemption
price be less than 120% of the sum of the then-outstanding principal amount of
the debentures and all accrued and unpaid interest thereon at the time of
the redemption. RGC claims that the mandatory redemption amount under the terms
of the convertible debentures, including penalties, equals $33,239,116.41.
On April 13, 2000, RGC International Investors, LDC filed a Notice of
Removal which had the automatic effect of removing the litigation to the United
States District Court for the Northern District of California (Case No.
C-0020404 JF PVT. On April 14, 2000, RGC and certain of its affiliates filed a
complaint in the United States District Court for the District of Delaware (Case
No. 00-405) against us, seeking declaratory relief regarding the respective
rights of RGC and Nettaxi.com under the securities purchase agreement and the
convertible debentures. The Complaint also seeks damages in an amount not less
than $33,239,116 for breach of the securities purchase agreement, the
convertible debentures and the registration rights agreement and the
accompanying duty of good faith and fair dealing and fraud, rescission of our
February 2000 private placement for the alleged breach of RGC's right of first
refusal in the securities purchase agreement and injunctive relief against
registration of Nettaxi.com common stock in accordance with the February 2000
private placement. The Complaint also requests damages for allegedly libelous
statements made by Nettaxi.com with reference to RGC in our registration
statement on Form S-1 filed on April 3, 2000 (File No. 333-30074).
On April 18, 2000 we filed an Application for Temporary Restraining Order
and Order to Show Cause Regarding Preliminary Injunction seeking a temporary
restraining order restraining RGC from seeking to convert their debenture into
common stock and from selling shares of our common stock in their possession.
The court has ordered RGC to file its opposition papers on or before Monday,
April 24, 2000. The court presently intends to take the matter under submission
and decide without oral argument.
We intend to vigorously pursue our action against RGC, including our belief
that we have the right to prepay the convertible debentures. We also intend to
vigorously defend against the allegations set forth in RGC's complaint.
However, there can be no assurance that we will be successful in our claims,
that RGC will fail in its attempt to effect a mandatory redemption of the
convertible debentures, or that if successful, that RGC will not be able to
obtain the mandatory redemption amount it seeks and other damages and relief
sought.
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The foregoing has included a brief description of some of the terms of the
debentures and warrants. For a more detailed description of the rights of the
holders of the debentures and warrants, please see the actual form of
convertible debenture, securities purchase agreement and registration rights
agreement that have been filed as exhibits to our registration statement on Form
S-1 (No. 333-78129) declared effective by the Securities and Exchange Commission
on August 13, 1999.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits. The following Exhibits are attached hereto and incorporated
herein by reference:
Exhibit Number Description of Exhibit
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*4.3 Convertible Debenture dated March 31, 1999 in favor of RGC
International Investors, LDC
*10.30 Securities Purchase Agreement dated March 31, 1999 by and
among RGC International Investors, LDC and the Company
*10.31 Stock Purchase Warrant dated March 31, 1999 by and among RGC
International Investors, LDC and the Company
*10.32 Registration Rights Agreement dated March 31, 1999 by and
among RGC International Investors, LDC and the Company
* Incorporated by reference to the exhibits filed with the Registrant's
Registration Statement on Form S-1 (File No. 333-78129) which was declared
effective on August 13, 1999.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NETTAXI.COM
Date: April 20, 2000 By: /s/ Robert A. Rositano, Jr.
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Robert A. Rositano, Jr.,
Chief Executive Officer
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