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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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Date of Report (date of earliest event reported): March 31, 1999
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I-Storm, Inc.
(Formerly Digital Power Holding Company)
(Exact name of registrant as specified in its charter)
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Nevada 2-93477-D 87-0410127
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation) Identification No.)
2440 West El Camino Real, Suite 520
Mountain View, California 94040
(Address of principal executive offices)
Registrant's telephone number, including area code: (650) 962-5420
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Item 5. OTHER EVENTS.
Private Placement Offering of Series C Cumulative Convertible Preferred Stock
The Company raised a total of $4,550,000 in gross proceeds from a private
placement offering of Series C Cumulative Convertible Preferred Stock ("Series C
Preferred Stock"), made pursuant to Section 506 of Regulation D, at a price per
share of $12.25. The offering of such Series C Preferred Stock ("the Offering")
commenced on February 22, 1999 and concluded on May 31, 1999. A total of
371,429 shares of Series C Preferred Stock were offered and sold by the Company
with the assistance of financial consultants who received a consulting fee equal
to 12% of gross proceeds or $546,000. Additionally, certain consultants
received warrants to purchase 2,040 shares of Series C Preferred Stock at an
exercise price of $12.25. After deducting the consulting fees, a total of
$4,004,000 in proceeds was received by the Company from the Offering. The net
proceeds are being used for the development of I-Storm E-commerce stores, for
normal operating expenses during the Company's development stage, and for
general working capital purposes.
The Series C Preferred Stock has a par value of $0.01 per share. Each
share is entitled to cumulative annual dividends, when and as declared by the
Board of Directors, at an annual rate of nine percent (9%) each year, in
quarterly installments of $0.28 on February 15, May 15, August 15, and November
15, of each year, payable at the option of the Company either in shares of
Series C Preferred Stock or in cash. The right of the Series C Preferred Stock
to payment of either cash or Common Stock dividends is subordinate to the right
to cash or stock dividend payments of Series A Preferred Stock or Series B
Preferred Stock. The shares of Series C Preferred Stock are convertible into
Common Stock at any time following the closing of the Offering, at the option of
the holder, into such number of shares of the Company's Common Stock as shall
equal $12.25 divided by the lower of $3.50 (the "Conversion Price"), or should
the closing bid price for any five consecutive trading days during the period
commencing 11 months after the Final Closing of the Offering and ending one
month thereafter be less than $3.50, the Conversion Price shall be readjusted to
that price; provided, however, that in no event shall the Conversion Price be
reduced below $2.80. The number of shares of Common Stock to be issued upon
conversion shall also be subject to certain antidilution provisions. Each share
may be converted into Common Stock at the Conversion Price at the option of the
Company, at any time after one year from the Final Closing of the Offering, upon
the payment to the holder of any unpaid accumulated dividends, in cash or Common
Stock, at the option of the Company. The Common Stock exercisable upon
conversion of the Shares shall have piggy-back registration rights effective
from the Final Closing of this Offering and shall have demand registration
rights effective from the Final Closing until 12 months thereafter.
Issuance of Common Stock and Options to Consultants
In July 1999, the Board approved the grant of performance based options to
purchase 150,000 shares of Common Stock of the Company to NSA, a provider of
business consulting services, exercisable at $2.25 per share. The options will
cliff-vest in five years, subject to performance conditions and are also
accelerable, based upon certain performance conditions.
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In July 1999, the Board approved the grant of performance based options to
purchase 10,000 shares of Common Stock of the Company to each of Mary Su and
Jerry Klemushin, a provider of business consulting services, exercisable at
$2.25 per share. The options will cliff-vest in five years, subject to
performance conditions and are also accelerable, based upon certain performance
conditions.
In April 1999, consultant Michael Kane became entitled, subject to Board
approval, for services rendered, to 10,000 options exercisable at $6.37 per
share.
In May 1999, Mackenzie Shea, Inc. or its designees became entitled, subject
to Board approval, to a warrant to purchase 2,040 shares of Series C Preferred
Stock, exercisable for five years at a price of $12.25 per share.
The Company believes that the transactions set forth above were exempt from
registration with the Commission pursuant to Section 4(2) of the Securities Act
as transactions by an issuer not involving any public offering. No broker-
dealer or underwriter was involved in the foregoing transactions. All
certificates representing such securities were appropriately legended.
Additional Employee Stock Option Plan
In June 1999, the Board approved the establishment of an employee stock
option plan proposed in 1998 consisting of 1.5 million shares of Common Stock.
Such options and the stock underlying such options shall not be exempt from
registration under the federal securities laws.
Appointment of Director
In June 1999, the Board appointed John Matthews to fill a vacancy left by
Richard Snyder who terminated his directorship in April 1999. Mr. Matthews has
been the Chairman of the Board and Chief Executive Officer of Weatherly
Securities Corp. since June 1996. Mr. Matthews previously served as the Chief
Operating Officer of Americorp Securities, Inc., a New York based investment-
banking firm, from June 1992 to May 1996. From 1990 to 1992, Mr. Matthews was a
Vice President of Vantage Securities, Inc., an investment-banking firm located
in Melville, New York. In 1990, prior to entering the securities industry, Mr.
Matthews served as a Director of the New York Office of Senator Daniel Patrick
Moynhihan (D-NY). His responsibilities included managing the Senator's staff,
coordinating all intergovernmental relations in New York, serving as the
Senator's senior ombudsman, as well as directing legislative initiatives and
constituent services for the State of New York. Mr. Matthews has also replaced
Mr. Snyder on the Audit Committee.
Executive Compensation
Robert Tomz entered into a consulting arrangement with the Company on
December 8, 1998, whereby he was entitled to receive monthly compensation of
$8,000 a month and
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warrants to purchase 14,000 shares of Common Stock, exercisable at $2.00 per
share, each month for a period of 12 months commencing January 11, 1999. Mr.
Tomz also served briefly as Acting Chief Financial Officer of the Company from
January 1 to March 15, 1999. Mr. Tomz and the Company terminated this consulting
arrangement on June 15, 1999, and renegotiated the consulting fee so that Mr.
Tomz received in total $90,000 and 84,000 warrants to purchase Common Stock of
the Company exercisable at $2.00 per share.
The Board approved in June 1999 the issuance of an option to Cal Lai to
purchase up to 255,000 shares of Series C Cumulative Convertible Preferred Stock
of the Company, $.01 par value per share. The Company intends that such options
shall be exercisable at a purchase price of $12.25 per share until March 22,
2009. Such options will cliff-vest five years from the date of grant of the
Options, or the vesting of the Options can be accelerated at a rate of 105,000
Options at the time that the first E-commerce CyberStore of the Company becomes
operational, an additional 75,000 Options at the time the second E-commerce
CyberStore of the Company becomes operational, and an additional 75,000 options
at the time that the third E-commerce CyberStore shall become operational.
The Board approved in June 1999 the issuance of an option to Stephen Venuti
to purchase up to 126,000 shares of Series C Cumulative Convertible Preferred
Stock of the company, $.01 par value per share. The Company intends that such
Options shall be exercisable at a purchase price of $12.25 per share until March
22, 2009. Such Options will cliff-vest five years from the date of grant of the
Options, or the vesting of the Options can be accelerated at a rate of 51,000
Options at the time that the first E-commerce CyberStore of the Company becomes
operational, an additional 37,500 Options at the time the second E-commerce
CyberStore of the Company becomes operational, and an additional 37,500 Options
at the time that the third E-commerce CyberStore shall become operational.
Consulting Agreements
A financial consulting agreement was entered into between the Company and
Irfan Salim to provide managerial and financial consulting services to the
Company commencing April 1, 1999 on a month-to-month basis at a rate of $16,666
per month. Subject to approval of the Board of Directors, Mr. Salim also
received 15,000 warrants exercisable over a period of five years, which vested
in January 1999 to purchase Common Stock of the Company at an exercise price of
$8.50.
A business consulting agreement was entered into between Peter Janssen and
the Company in June 1998. Under this consulting agreement, Mr. Janssen was paid
$35,000 in 1998. Mr. Janssen's consulting agreement has been extended for the
year of 1999 for a monthly fee of $16,666.
A business consulting agreement was entered into between Matthew Howard, a
director, and the Company in June 1998. Under this consulting agreement, Mr.
Howard was paid $20,000 in 1998. Mr. Howard's consulting agreement has been
extended for the year of 1999 for a monthly fee of $5,000. As of July 1999, the
Board is presently considering the grant of options to purchase 150,000 shares
of Common Stock of the Company exercisable at
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$2.00 per share to Mr. Howard in further consideration of his performance under
the consulting agreement. Under this proposal, 50,000 options would vest
immediately upon grant, and the remainder would vest ratably over a twenty-four
month period.
Description of Property
In March 1999, the Company moved its headquarters to a leased office
facility at 2440 West El Camino Real, Suite 520, Mountain View, California
94040-1400. The new location consists of approximately 11,500 square feet and
the Company has entered into a two-year lease for the facility.
Employees
As of June 30, 1999, the Company and its subsidiaries employed 21 full-time
and one part-time employees. The number of employees decreased as a result of
the Company's cessation in March 1999 of the advertising line of business,
formerly managed by LVL Advertising, Inc. As of June, 1999, six employees have
annual salaries of $100,000.
Retirement of Contingent Liability Under the Plan of Reorganization
As of September 1, 1999, the Company had entered into agreements with
certain creditors of LVL Communications Corporation to retire in their entirety
certain alleged secured claims which they had made in connection with the LVL
Plan of Reorganization, in the aggregate amount of $588,775. Such creditors
agreed that they would retire their claims in their entirety for an aggregate
sum of $149,694. As of September 10, 1999, the Company has paid this aggregate
sum of $149,694 in its entirety.
Closing of Bankruptcy Estate
On September 15, 1999, the United States Bankruptcy Court for the Northern
District of California issued an order closing the Chapter Eleven bankruptcy
proceedings for LVL Communications Corporation, the wholly owned subsidiary of
I-Storm, based upon the satisfaction of substantial payments required under the
April 16, 1998 Plan of Reorganization.
The Business of I-Storm, Inc.
On June 16, 1999, the Company entered into a three-year E-commerce Sales
and Marketing Agreement with AIG Warranty Services and Insurance Agency ("AIG").
During the three-year term of the Sales and Marketing Agreement, I-Storm will be
the exclusive on-line marketer of AIG's on-line warranties and service contract
agreements.
In March 1999, the Company reorganized its internal corporate structure and
terminated the advertising services business formerly handled in LVL
Advertising, Inc. The Company phased out this traditional advertising business
to focus its managerial, technical and capital resources on its strategy of
financing, developing and operating E-commerce storefronts
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with Product Partners. As a result, the Company presently has no revenue from
any former advertising services business client.
Although Garden Botanika, HTG Group and Abercrombie and Kent had previously
signed letters of intent with the Company in 1998 to provide feasibility studies
on the construction of CyberStores, there can be no assurance, and it is
unlikely, that the Company will enter into final CyberStore Agreements with any
of these potential Product Partners. The Company has not entered into any such
agreements as of June 30, 1999, and the Company to date has not constructed
CyberStores for these entities.
In May 1998, Oracle Corporation ("Oracle"), a global supplier of software
for enterprise information management, entered into a Memorandum of
Understanding with I-Storm to potentially produce and manage world-class
electronic marketing sites for high profile consumer brand companies. Under the
proposed arrangement, it is anticipated that I-Storm would have the right to own
and develop each E-commerce site for the target account, and Oracle would
subcontract its software and technical consulting services on an "as-needed
project basis." Both Oracle and I-Storm propose to jointly invest the pre-sales
and up-front marketing resources needed to win the target account. The E-
commerce sites would be co-branded with both the "On Oracle" and the "I-Storm"
commerce marks. On July 6, 1999, Oracle and I-Storm reaffirmed their commitment
to work together to provide services to Fortune 500 companies pursuing
aggressive and focused channel-building programs.
I-Storm, Inc.'s strategy is to build and operate some of the world's most
powerful E-commerce storefronts, partnering with Fortune 500 companies. I-
Storm's online stores will couple the latest in Internet technology with a deep
understanding of marketing, merchandising and customer experience to create new
and profitable channels of distribution for I-Storm partners. By leveraging its
partner's existing brand, fulfillment, service and support structures, I-Storm
will focus on its core competencies of storefront construction and online
selling, while the partners stay focused on their existing businesses and
traditional markets. With a dedicated staff committed to ensuring their success
in the online channel, I-Storm expects to create significant value for its
partners, allowing them to share in new profit streams without the risks and
technical complexity normally associated with this new channel.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: September 20, 1999 By: /s/ Calbert Lai
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Calbert Lai, President
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