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As Filed with the Securities and Exchange Commission on March 4, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PROJECTAVISION, INC.
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(Exact name of registrant as specified in its charter)
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Delaware 13-3499909
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(State or other juris- (I.R.S. Employer
diction of incorpora- identification
tion or organization) number)
TWO PENN PLAZA, SUITE 640, NEW YORK, NEW YORK, (212) 971-3000
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(Name, address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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MARVIN MASLOW, CHAIRMAN OF THE BOARD
MARTIN HOLLERAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
PROJECTAVISION, INC.
TWO PENN PLAZA, SUITE 640, NEW YORK, NEW YORK 10121
(212) 971-3000
------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------------
COPIES TO:
CLIFFORD A. BRANDEIS, ESQ.
ZUKERMAN GORE & BRANDEIS, LLP
900 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 223-6700
Fax (212) 223-6433
Approximate date of commencement of proposed sale to the public: As soon as
practicable after effective date of the registration statement.
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, check the following box. |X| (continued overleaf)
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Proposed
Proposed Maximum
Title of each Amount Maximum Aggregate Amount of
class of securities to be Offering Price Offering Registration
to be registered Registered Per Share (1) Price (1) Fee
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<S> <C> <C> <C> <C> <C> <C>
Common Stock,
Par Value
$.0001 Per Share,
issuable upon
conversion of
Series F Convertible Amount Due
Preferred Stock 7,600,000(2) $ .75 $ 5,700,000 $1,681.50
Common Stock,
Par Value
$.0001 Per Share,
issuable upon
exercise of certain
outstanding assets 225,000 $ .75 $ 168,750 $ 49.79
---------
Total Due $1,731.29
=========
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</TABLE>
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c).
(2) For purposes of estimating the number of shares of the Company's common
stock, par value $.0001 per share (the "Common Stock") to be included in
this Registration Statement, the Company calculated 200% of the number of
shares of Common Stock issuable upon conversion of 2,850 shares of the
Company's Series F Convertible Preferred Stock, par value $.01 per share
("Series F Stock" or "Series F Preferred Stock") or otherwise pursuant to
the Certificate of Designations, Preferences and Rights of the Series F
Preferred Stock, based on a conversion price of $.75 per share in accordance
with Rule 416 of the Securities Act of 1933, as amended ("Rule 416").
Pursuant to Rule 416, the number of shares of Common Stock to be registered
hereunder also includes an indeterminate number of shares which may become
issuable upon conversion of or otherwise with respect to the Series F
Preferred to prevent dilution resulting from splits, stock dividends or
similar transactions or by reason of reduction in the conversion price of
the Series F Preferred Stock in accordance with the terms thereof.
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 future amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CROSS-REFERENCE SHEET
Pursuant to Item 501(b)
Item Number and Caption Location or Heading
in Form S-3 in Prospectus
- ------------------------ -----------------------------
1. Forepart of Registration Statement and Facing Page of Registration
Outside Front Cover Page of Prospectus. Statement; Cover Page of
Prospectus.
2. Inside Front and Outside Back Cover Inside Front and Outside Back
Pages of Prospectus. Cover Pages of Prospectus.
3. Summary Information, Risk Factors and Prospectus Summary; The
Ratio of Earnings to Fixed Charges. Company; Risk Factors.
4. Use of Proceeds. Prospectus Summary.
5. Determination of Offering Price. *
6. Dilution. *
7. Selling Security Holders. Cover Page; Selling
Shareholders.
8. Plan of Distribution. Cover Page; Plan of
Distribution.
9. Description of Securities to be Incorporation of Certain
Registered. Documents by Reference;
Description of Capital Stock.
10. Interests of Named Experts and *
Counsel.
11. Material Changes. The Company; Risk Factors;
Description of Capital Stock.
12. Incorporation of Certain Information Incorporation of Certain
by Reference. Documents by Reference.
13. Disclosure of Commission Position on *
Indemnification for Securities Act
Liabilities.
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* Omitted as not applicable.
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 4, 1998
PROSPECTUS
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PROJECTAVISION, INC.
7,825,000 shares of Common Stock,
$.0001 par value per share
This Prospectus solely relates to the offer and sale from time to time
of up to 7,825,000 shares (the "Shares") of common stock, par $.0001 value per
share (the "Common Stock") of Projectavision, Inc. (the "Company") by the
selling stockholders named herein (the "Selling Stockholders"), or by their
respective pledges, donees, transferees or other successors in interest that
receive such Shares as a gift, partnership distribution or other non-sale
related transfer. Of the 7,825,000 Shares being offered hereby: (i) 7,600,000
Shares are issuable upon conversion of or otherwise with respect to 2,850 shares
of the Company's Series F Convertible Preferred Stock, par value $.01 per share
("Series F Stock" or "Series F Preferred Stock"), held by the Selling
Stockholders; and (ii) 225,000 Shares are issuable upon the exercise of certain
warrants (the "Warrants") held by the Selling Stockholders. The Series F
Preferred Stock and the Warrants were issued by the Company to the Selling
Stockholders on February 17, 1998 in a private transaction ("the 1998 Private
Placement").
The number of Shares indicated as being issuable upon conversion of or
otherwise with respect to the Series F Preferred Stock and offered hereby
represents an estimate of the number of shares of Common Stock issuable upon
conversion of or otherwise with respect to the Series F Preferred Stock, based
on 200% of the number of shares of Common Stock issuable at a conversion price
of .75 per share in accordance with Rule 416 ("Rule 416") of the Securities Act
of 1933, as amended (the "Securities Act"), and in certain other events
described in the Certificate of Designations, Preferences and Rights of the
Series F Preferred Stock ("the Certificate of Designation"). Pursuant to Rule
416, the number of shares of Common Stock underlying the Series F Preferred
Stock and offered for sale hereby includes an indeterminate number of shares as
may be issued or issuable upon conversion of or otherwise with respect to the
Series F Preferred Stock by reason of the floating rate conversion price
mechanism and other adjustment mechanisms described in the Certificate of
Designation, or by reason of any stock splits, stock dividends or similar
transactions involving the Common Stock, in order to prevent dilution. Although
the Company will receive the exercise price of any Warrants that are exercised,
the Company will not receive any of the proceeds from the sale of the Shares by
the Selling Stockholders. The expenses of registration of the Shares which may
be offered hereby under the Securities Act will be paid by the Company. See
"Plan of Distribution."
The Common Stock is quoted on the Nasdaq SmallCap Market under the symbol
"PJTV." The Company's Series B Convertible Preferred Stock (the "Series B
Preferred Stock") is also quoted on the Nasdaq SmallCap Market under the
symbol "PJTVP," respectively. The last reported closing bid and
asked prices of the Common Stock on Nasdaq on March 3, 1998 were $.69 and
$.69 per share, and on February 10, 1998 $1.50 and $1.50 per share for the
Series B Preferred Stock.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD BE PURCHASED
ONLY BY THOSE PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. THE
COMPANY HAS INCURRED SUBSTANTIAL OPERATING LOSSES. SEE "RISK FACTORS" BEGINNING
ON PAGE 3.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
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COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL SECURITIES IN ANY
STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH STATE.
The Shares covered under this Registration Statement of which this
Prospectus forms a part may be offered for sale from time to time for the
account of the Selling Stockholders, or their pledgees, donees, transferees, or
other successors in interest, in the open market, on the Nasdaq SmallCap Market
or on one or more exchanges on which the Shares are then listed, in privately
negotiated transactions, in an underwritten offering, in a combination of such
methods, or by any other legally available means, at market prices prevailing
at the time of such sale, at prices related to such prevailing market prices at
negotiated prices or at fixed prices. The Shares are intended to be sold through
one or more broker-dealers or directly to purchasers. Such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Stockholders, their successors in interest and/or purchasers of the
Shares (or whom such broker-dealers may act as agent or to whom they may sell as
principal, or both, and which compensation as to a particular broker-dealer may
be in excess of customary commissions). To the extent required, the number of
Securities to be sold, the respective purchase price and public offering price,
the name of any agent, dealer or underwriter and any applicable commissions or
discounts with respect to a particular offer will be set forth in and
accompanied by a Prospectus Supplement. See "Selling Stockholders" and "Plan of
Distribution."
The Selling Stockholders, their successors in interest and any agents,
dealers or underwriters that participate with the Selling Stockholders in the
distribution of their shares may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act of 1933, as amended (the
"Securities Act"), and any commissions received by them and any profits on the
resale of the Selling Stockholders' shares, may be deemed to be underwriting
commissions or discounts under the Securities Act. Under applicable rules and
regulations promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), any person engaged in a distribution of securities may not
simultaneously bid for or purchase securities of the same class for a period of
two (2) business days prior to the commencement of such distribution. In
addition, and without limiting the foregoing, the Selling Stockholders will be
subject to the applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Rules 10b-2, 10b-5, 10b-6
and 10b-7, in connection with transactions in the Securities during the
effectiveness of the Registration Statement of which this Prospectus forms a
part. All of the foregoing may affect the marketability of the Securities.
The date of this Prospectus is ________________, 1998.
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FORWARD-LOOKING STATEMENTS
Certain information contained herein and/or incorporated by reference
in this Prospectus includes "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Reform Act"), and is
subject to the safe harbor created by the Reform Act. There are several
important factors that could cause actual results to differ materially from
those anticipated by the forward looking statement contained in such
discussions. Additional information as to the risk factors which could affect
the Company's financial results is included in this Prospectus and in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997
and the other documents incorporated by reference herein.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates herein by reference the following documents
heretofore filed with the Commission: the Annual Report of the Company on Form
10-K/A for the fiscal year ended December 31, 1997; and the Current Report of
the Company on Form 8-K dated ______________.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to
the termination of the offering hereby shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained in a document incorporated herein by
reference shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein (or in any other
subsequently filed document which also is incorporated herein by reference)
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed to constitute a part hereof except as so modified or
superseded.
The Company will provide, without charge to each person to whom a
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the documents incorporated herein by reference, other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference into the information that is incorporated into the Prospectus. Such
written requests should be directed to the Secretary of the Company at Two Penn
Plaza, Suite 640, New York, New York 10121, (212) 971-3000.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
descriptions and financial information and statements appearing elsewhere in
this Prospectus and the documents incorporated herein by reference.
The Company
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The Company, Projectavision, Inc., is in the business of identifying,
developing, patenting, supporting and marketing technical inventions in the
electronic display information industry.
The Company's principal offices are located at Two Penn Plaza, Suite
640, New York, New York 10121, telephone (212) 971-3000.
The Offering
- ------------
Up to 7,825,000 shares of Common Stock are being offered pursuant to
this Prospectus which may be offered from time to time by the Selling
Stockholders for their own account.
Plan of Distribution
- --------------------
The Selling Stockholders, directly or through agents or underwriters,
may offer and sell from time to time all or any part of the Securities held by
them in amounts and on terms to be determined or at quoted prices then
prevailing on the Nasdaq SmallCap Market. See "Selling Stockholders" and "Plan
of Distribution."
2
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RISK FACTORS
Investment in the Company's securities involves a high degree of risk.
Investors should carefully consider the following factors, among others,
relating to the Company.
ACCUMULATED DEFICIT; NO ASSURANCE OF PROFITABILITY. Until the fourth
quarter of 1997, the Company had been a development stage Company since its
inception in 1988. To date, the Company's sole revenues received have been (i)
$1,000,000 received in 1989 from the United States Advance Research Projects
Agency (then known as the Defense Department Advance Research Projects Agency)
("ARPA") to develop certain projection technology which could be used in a high
definition television projector, (ii) $105,000 in royalty income in 1993 from
licensing agreements, (iii) $200,000 in royalty income in 1995 from licensing
agreement, and (iv) approximately $1,000,000 in sales from sales of its first
product, the Digital Home Theater(TM) for the year ended December 31, 1997.
Primarily as a result of work performed in developing its own and supporting
certain other technologies, the Company has sustained losses aggregating
approximately $45,280,000 from its inception to December 31, 1997. The Company
has continued to incur losses since December 31, 1997. As of December 31, 1997,
the Company had available for Federal income tax purposes net operating loss
carryforwards of approximately $___________. The Internal Revenue code of 1986,
as amended, may impose certain restrictions of the amount of net operating loss
carryforwards which may be used in any year by the Company.
The Company continues to experience difficulties encountered by any
company first emerging from the development stage, many of which may be beyond
the Company's control. These include, but are not limited to, unanticipated
development, testing, production and marketing problems, costs and competition.
[Accordingly, the report of the Company's independent auditors with respect to
the Company's audited financial statements as of and for the period ended
December 31, 1997 contains an explanatory paragraph to the effect that
successful completion of the Company's development program, and ultimately the
attainment of profitable operations, is dependent upon future events including
maintaining adequate financing to fulfill its development activities and
achieving a level of revenue adequate to support the Company's cost structure.
There can be no assurance that the Company will ever generate sufficient
revenues to meet expenses, or to operate profitably.]
DEPENDENCE ON THIRD-PARTY LICENSES; UNPROVEN PRODUCTS. On March 31,
1997 the Company began shipping its first product, its patented front/rear
projection television computer known as the "Digital Home Theater(TM)." In
connection therewith, the Company has entered into arrangements with third
parties for the manufacture, marketing and distribution of its Digital Home
Theater(TM). The Company has also formed a non-exclusive strategic corporate
partnership and entered into an
3
<PAGE>
agreement with Texas Instruments pursuant to which Texas Instruments has agreed
to supply its Digital Light Processor (the "DLP") to the Company as a component
part of the Company's Digital Home Theater(TM). The Company has also entered
into contract manufacturing agreements with C-MAC Industries, Inc. and LDM
Technologies, Inc. for the manufacture and assembly of certain other components
of its Digital Home Theater(TM). The Company has also entered into an
agreement with the Boxlight Corporation, an established marketer and distributor
of video display systems to the commercial market. The Company has also retained
the Hamilton Group to provide customer service, as well as to gather and analyze
information regarding consumer reaction to the Digital Home Theater(TM). The
Company is dependent on all of the foregoing arrangements in order to
successfully manufacture, market and distribute the Digital Home Theater(TM).
Moreover, the Company's Digital Home Theater(TM) is presently an unproven
product, and there is no assurance that it will receive acceptance in the
marketplace from its intended users. In addition, the Company may seek other
applications of its technologies, although there can be no assurance that the
Company will be successful in applying its technologies in other areas.
The Company is also currently a party to two (2) royalty bearing,
non-exclusive patent license agreements with respect to its video projection
technologies and presently intends to enter into other similar, patent license
agreements, although there can be no assurances that the patent licenses that
the Company has entered into will be profitable or that the Company will be able
to enter into additional patent licenses on terms and conditions acceptable to
the Company, or at all.
DEPENDENCE ON UNTESTED DEVICE BY SOLE SUPPLIER. The DLP, an essential
part of the Company's Digital Home Theater(TM), is based upon and incorporates a
Digital Micromirror Device ("DMD") that has been developed by Texas Instruments.
The Company will be relying solely on Texas Instruments to produce the DLP and
there can be no assurance that Texas Instruments will be able or willing to
produce the DLP in significant qualities to satisfy the Company's immediate
and/or long-term needs. Although the Company is also pursuing LCD-based
alternatives to the DLP, there can be no assurance that any such alternatives
will prove to be viable.
DEPENDENCE ON KEY EMPLOYEES. The Company is dependent, to a substantial
degree, on the financial and managerial expertise of its Chief Executive Officer
and Chairman of the Board, Mr. Marvin Maslow and its President and Chief
Operating Officer, Mr. Martin Holleran. The loss of the services of either of
Mr. Maslow or Mr. Holleran could have a material adverse effect upon the
Company's operations. The Company has purchased a "key-man" life insurance
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policy on the life of Mr. Maslow in the amount of $500,000, and is the sole
owner and beneficiary of such policy. The Company has also purchased a "key-man"
life insurance policy on the life of Mr. Holleran in the amount of $1,000,000,
and is the sole owner and beneficiary of such policy.
TECHNOLOGICAL CHANGE. The television and video display industry and
other industries and markets in which the Company is pursuing applications of
its technologies are subject to rapid and significant changes. There can be no
assurance that technological changes will not occur that may render the
Company's products and present technologies obsolete.
COMPETITION. The television and video display industry is highly
competitive. The Company's television projection systems will compete with giant
screen, big screen and conventional size televisions sold under a variety of
brand names. Competitive features will include picture quality, image
brightness, clarity, image-size, pricing, product size and design, weight,
technology, brand name recognition and manufacturing, marketing and distribution
capabilities. Most of the Company's competitors and potential competitors have
and will have far greater financial resources, research and development
facilities, manufacturing and marketing experience, distribution and sales
networks, established customer bases, and greater brand name recognition than
the Company currently has. Although there can be no assurances, the Company
expects that it will be able to compete successfully against its competitors on
the basis of its proprietary projection technologies and anticipated patent
portfolio, product size and weight, price and picture quality.
PROPRIETARY RIGHTS. The Company is the owner of five (5) United States
patents and twenty-two (22) foreign patents and has patent applications pending
in numerous industrialized nations around the world. In addition, the Company
has also filed for further patent protection in various foreign countries for
improvement to its technologies and for protection of related technologies.
Notwithstanding the Company's patent or pending patent applications, there can
be no assurance that others have not developed such technologies without the
Company's knowledge, or that pending applications will be allowed, or that
others will not independently develop similar technologies, duplicate the
Company's technologies or design around the patented aspects of the Company's
technologies. In addition, in the event the Company's products are based upon
the DLP developed by Texas Instruments, the Company will also be dependent to a
certain extent on the efficacy of Texas Instruments' patents relative to DLP, of
which there can be no assurance. The Company has not conducted any independent
analysis of such patents owned by Texas Instruments. Even though the Company has
been issued patents, challenges may be instituted by third parties as to the
validity, enforceability and infringement of the patents. The cost of litigation
to uphold the validity and enforcability and prevent infringement of the
Company's patents can be substantial. In the event that others are able to
design around the Company's patents, the Company's business could be materially
and adversely affected. With the Company's termination of Mr.
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Eugene Dolgoff, a founder and former President and Chief Scientist of the
Company, Mr. Dolgoff has alleged, among other things, certain ownership rights
with respect to the Company's technologies. See "Risk Factors - Litigation."
6
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In some cases, the Company may rely on trade secrets to protect its
innovations. There can be no assurance that trade secrets will be established or
that others will not independently develop similar or superior technologies. The
Company will require and has required employees, Directors, consultants and
other third parties to whom confidential information has been or will be
disclosed, to agree to keep the Company's proprietary information confidential
and to refrain from using such information in any manner that is adverse to the
Company's interest. However, there can no assurance that such agreements will be
complied with or will be enforceable.
The Company is the owner of the trade name Projectavision, Inc. The mark was
registered by the United States Patent and Trademark Office on February 4, 1997.
7
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NASDAQ LISTING AND MAINTENANCE REQUIREMENTS. The Company's Common Stock
(along with its Series B Preferred Stock) is traded in the over-the-counter
market on the Nasdaq SmallCap Market. If for any reason, however, the Company's
Common Stock is not eligible for continued listing, Common Stock acquired by the
Selling Stockholders either upon conversion of the Preferred Stock or upon
exercise of Warrants may not be readily marketable. Under the rules of the
National Association of Securities Dealers, Inc. ("NASD"), in order to
qualify for continued quotation of securities on the Nasdaq SmallCap Market, a
company, among other things, must have $2,000,000 in total assets, $1,000,000 in
total capital and surplus, $1,000,000 in market value of public float and a
minimum bid price of $1.00 per share. If the Company is unable to satisfy the
requirement for continued quotation on the Nasdaq SmallCap Market, trading, if
any, in the Common Stock acquired upon the conversion of the Preferred Stock or
upon exercise of the Warrants would be conducted in the over-the-counter market
in what are commonly referred to as the "pink sheets" or on the NASD Electronic
Bulletin Board. As a result, an investor may find it more difficult to dispose
of, or to obtain accurate quotations as to the price of, the Common Stock
issuable upon conversion of the Preferred Stock or upon exercise of the
Warrants.
In addition, if the Common Stock acquired on conversion of the
Preferred Stock or upon exercise of the Warrants are removed from the Nasdaq
SmallCap Market, transactions involving the sale of the Company's Common Stock
could be subject to a rule that imposes additional sales practice requirements
on broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally defined as persons with assets in
excess of $1,000,000 or annual income exceeding
8
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$200,000 individually or $300,000 together with their spouse). For transactions
covered by this rule, the broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to purchase. Consequently, the rule may
restrict the ability of broker-dealers to sell the Company's securities and may
affect the ability of the Selling Stockholders, and purchasers of the Selling
Stockholders' Common Stock to sell the Company's securities in the secondary
market.
RISK OF DELISTING FROM NASDAQ. The Company's Common stock is currently
traded on the Nasdaq SmallCap Market. There are no assurances, however, that
the Company's Common Stock will continue to be included on such market, or that
an active market for such stock will exist. The failure to meet the listing
requirements for the Nasdaq SmallCap Market could result in the Company's Common
Stock being delisted from the Nasdaq Stock Market ("NASDAQ"). If the Common
Stock is delisted from trading on NASDAQ, trading, if any, would thereafter be
conducted in the over-the-counter market in the so-called "pink sheets" or the
"Electronic Bulletin Board" of the National Association of Securities Dealers,
Inc. (the "NASD") and consequently, an investor will likely find it more
difficult to dispose of, or to obtain accurate quotations as to the price of,
the Common Stock.
In addition, if the Common Stock is not quoted on NASDAQ, or if the
Company does not meet the other exceptions to the penny stock regulations cited
in the risk factor below, trading in the Common Stock would be covered by Rule
15g-9 promulgated under the Exchange Act for non-NASDAQ and non-national
securities exchange listed securities. Under such rule, broker/dealers who
recommend such securities to persons other than established customers and
accredited investors must make a special written suitability determination for
the purchaser and receive the purchaser's written agreement to a transaction
prior to sale. Securities a1so are exempt from this rule if the market price is
at least $5.00 per share.
If the Common Stock becomes subject to the regulations applicable to
penny stocks, the market liquidity for the Common Stock could be adversely
affected. In such event, the regulations on penny stocks could limit the ability
of broker/dealers to sell the Common Stock and thus the ability of purchasers of
the Common Stock to sell their securities in the secondary market.
PENNY STOCK RULES. The Commission has adopted regulations which define
a "penny stock" to be any equity security that has a market price (as defined)
less than $5.00 per share, subject to certain exceptions. For any transaction
involving a penny stock, unless exempt, the rules require the delivery, prior to
the transaction, of a disclosure schedule prepared by the Commission relating to
the penny stock market. The broker-dealer also must disclose the commissions
payable to both the broker-dealer and the registered representative, current
quotations for the securities and, if the broker-dealer is the sole marketmaker,
the broker-dealer must disclose this fact and the broker-dealer's presumed
control of the market. Finally, monthly statements must be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stock. Transactions in a Nasdaq-listed security
would be exempt from all but the sole marketmaker provision for (i) issuers who
have $2,000,000 in tangible assets ($5,000,000 if the issuer has not been in
continuous operation for three years or average annual return of at least
$6,000,000 if the issuer has been in continuous operation for less then three
years), (ii) transactions in which the customer is an institutional accredited
investor and (iii) transactions that are not recommended by the broker-dealer.
In addition, transactions in a Nasdaq security directly with a Nasdaq
marketmaker for such securities would be subject only to the sole marketmaker
disclosure and the disclosure with respect to commissions to be paid to the
broker-dealer and the registered representative.
<PAGE>
The above-described rules do not currently apply to the Company and
would only apply if the Company were to have its securities de-listed from the
Nasdaq Small Cap Market. In such event, the above described rules may materially
adversely affect the liquidity of the market of the Company's securities.
POTENTIAL FOR DILUTION. As of February 17, 1998, 2,850 Shares of the
Series F Preferred Stock were issued and outstanding. Each share of Series F
Preferred Stock is convertible into such number of shares of Common Stock as is
determined by dividing the stated value ($1,000) of each share of Series F
Preferred Stock (as such value is increased by an annual premium of 8%) by the
then current conversion price of the Series F Preferred Stock (which is
determined, generally, by reference to 75% of the average of the closing market
price of the Common Stock during the five consecutive trading days immediately
preceding the date of determination provided that generally such conversion
price cannot be less than $.50 per Share or, under any circumstances, cannot be
greater than $1.00 per Share). Based on a conversion price of .75 per share for
the stated value of the Series F Preferred Stock, the Series F Preferred Stock
would be convertible into approximately 3,800,000 shares of Common Stock. The
number of shares issuable upon conversion may be less than or greater than this
number, depending upon (a) the market price of the Common Stock at the time of
conversion, and (b) the Company's ability to maintain its NASDAQ listing. In the
event of a decrease in the trading price of the Common Stock, holders of the
Common Stock could experience commensurately greater dilution upon conversion of
the Series F Preferred Stock. Two hundred percent (200%) of the amount of shares
of Common Stock into which the Series F Preferred Stock may be converted are
being registered pursuant to this Registration Statement.
LITIGATION. In April of 1995 (Docket No. 108820/95), the Company and
Jules Zimmerman, Richard Hickok, Dr. Craig Fields, Marvin Maslow, Martin
Holleran and Sherman Langer were sued by Eugene Dolgoff, a founder and former
officer and employee of the Company. Mr. Dolgoff alleges claims for breaches of
his employment agreement, wrongful discharge, tortious interference, libel and
slander, and declaratory relief with respect to the ownership of the Company's
technologies, claiming that he has certain rights with respect to the Company's
technologies, breach of contract with regard to a patent assignment agreement, a
constructive trust or unjust enrichment, or replevin, conversion, the right to
obtain access to corporate
9
<PAGE>
records, and for a declaration regarding his status as an officer. Mr. Dolgoff
is seeking damages, punitive damages and equitable relief totalling in excess of
$100 million. In April of 1996, the New York State Supreme Court issued an order
and opinion which (i) disqualified the Company's litigation counsel, Anderson,
Kill & Olick, P.C. ("Anderson, Kill") on the basis that Anderson, Kill had a
conflict of interest vis-a-vis Mr. Dolgoff, (ii) substantionally denied the
Company's motion to dismiss Mr. Dolgoff's entire complaint, and (iii) denied Mr.
Dolgoff's motion to have a receiver appointed.
The Company appealed the New York Supreme Court's decision regarding
the disqualification of Anderson, Kill and the denial of its motion to dismiss
Mr. Dolgoff's complaint. Mr. Dolgoff appealed the New York Supreme Court's
denial of his motion to have a receiver appointed. In January of 1997, the
Supreme Court of the State of New York Appellate Division First Department (the
"First Department") affirmed the lower court's disqualification of Anderson,
Kill, and the lower court's denial of the Company's motion to dismiss, but also
ordered that a receiver be appointed to protect whatever interest, if any, Mr.
Dolgoff may ultimately be able to prove that he has in any of the inventions
that Mr. Dolgoff assigned to the Company. At the present time, neither the
nature, nor scope, nor authority, nor term of the receivership has been
determined, all of which will be decided by the New York State Supreme Court,
which initially denied Mr. Dolgoff's motion for a receivership. In addition, at
this time, neither the Appellate Court, nor any other court, has determined that
Mr. Dolgoff has any proof to support his claims; the Appellate Court has merely
reaffirmed the lower court's decision that, at this preliminary stage of the
litigation, Mr. Dolgoff's complaint has satisfied procedural pleading
requirements. In addition, since the institution of the litigation by Mr.
Dolgoff, new facts have come to the attention of the Company. As a consequence,
the Company has amended its pleadings and filed counter-claims against Mr.
Dolgoff, his affiliated companies, Breakthrough Enterprises, Inc. and Floating
Images, Inc., and certain members of the board of directors of those enitities,
for fraud, breach of fiduciary duty, misappropriation of trade secrets,
conversion, breach of contract, diversion of corporate assets and opportunities,
unjust enrichment, and tortious interference with contractual relations. The
Company also intends, in connection with amending its pleadings, to seek
injunctive relief and a constructive trust, in addition to monetary damages in
excess of $200 million from Mr. Dolgoff and others.
In June of 1995 and August of 1995, two class action suits were filed
against the Company as well as certain of its officers and directors by
stockholders of the Company. In October of 1995 the plaintiffs in the second
action joined as plaintiffs in the first action and the second action was
dismissed without prejudice (Docket No. 95 4867JGK). In July 1996, the class
action suit was dismissed without prejudice and the plaintiffs were given an
opportunity to appeal. The class action suit now alleges numerous violations of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including,
but not limited to, violations of Section 10(b) of the Exchange Act. The suit
also alleges claims for negligent misrepresentation and for common law fraud and
deceit. In response, the Company and the individual defendents have submitted
motions to dismiss the action. These motions are pending before the Court. In
July of 1997 the class action suit was dismissed with prejudice by the U.S.
District Court in New York. Plantiffs have filed a notice of appeal with the
Second Circuit Appelate Court, but has not yet perfected the notice of appeal.
Except as set forth above, the Company is not presently a party to any
litigation nor, to the knowledge of management, is any material litigation
threatened against the Company.
Common Stock Eligible for Future Sale. Sales of shares of Common Stock
by existing stockholders under Rule 144 of the Securities Act or through the
exercise of outstanding registration rights, or the issuance of shares of Common
Stock upon conversion of the Series F Preferred Stock, exercise of the Warrants,
and/or exercise of options or other warrants to purchase Common Stock could
materially adversely affect the market price of the Common Stock and could
materially impair the Company's future ability to raise capital through an
offering of equity securities. A substantial number of shares of Common Stock
are available for sale under Rule 144 in the public market and no predictions
can be made as to the effect. If any, that market sales of such shares or the
availability of such shares for future sale will have on the market price of the
Common Stock prevailing from time to time.
10
<PAGE>
THE COMPANY
General
- -------
The Company was formed to capitalize on, and is designed to generate
revenues and profits primarily from, the licensing of its proprietary
technologies and inventions to manufacturers. The Company is in the business of
identifying, developing, patenting, supporting and marketing technologies and
inventions in the electronic display information industry. The Company commenced
shipping its first product, the Digital Home Theater(TM), in March 1997. The
Digital Home Theater(TM) is a versatile, large-screen projection system that
offers consumers both a T.V. and computer display screen in family usable sizes.
The Company's Digital Home Theater(TM) incorporates a 60" rear-projection
television with a front-projection system and a large-screen SVGA computer
monitor, all in one product, which has the capability of producing image sizes
ranging from 60 to 200 inches in diameter. The product, which will initially
retail under the Company's own brand name for approximately $10,000 each, is
designed to be purchased in a three box set and can be taken home and assembled
by the consumer without tools. The Digital Home Theater(TM) integrates Texas
Instruments' DLP projection technology with the Company's patented dual use
"docking station," an innovative cabinet design allowing for interchangeable use
of rear and front projection. The Company has also entered into an agreement
with the Boxlight Corporation, an established marketer and distributor of
commercial video display systems, whom, in 1996. The Company believes that its
agreements with Nobody Beats the Wiz and The Boxlight Corporation will result in
material sales to the Company inasmuch as both of these companies are
established marketers and distributors of video display products in their
respective fields.
In addition to its agreements with Texas Instruments and the Boxlight
Corporation, the Company has contracted with C-MAC Electronic Systems, Inc., a
Canadian-based company that provides sophisticated contract manufacturing
services, to manufacture the projector that houses the Texas Instrument DLP
light engine. The three main components of the DHT, the projector, cabinet and
screen, are assembled and shipped to end-users by the LDM Corporation, an
experienced, private United States concern based in Detroit, Michigan that
specializes in plastic design and molding. The Company has also retained the
Hamilton Group to provide customer service, as well as to gather and analyze
information regarding consumer reaction to the Digital Home Theater(TM).
Finally, although the Company belives that its product has application
in the military market, no agreement has been entered into with respect to this
potential market for the Company's product.
On January 8, 1998, the Company's majority owned subsidiary, Tamarack
Storage Devices, Inc., effected a reverse merger into Grand Enterprises, Ltd.,
a company whose securities are traded on the OTC Bulletin Board, and in
connection therewith, Grand Enterprises, Ltd. changed its name to Manhattan
Scientifics, Inc. As a consequence of this transaction, the Company became the
majority owner of Manhattan Scientifics, Inc. and Tamarack Storage Devices,
Inc. became a wholly-owned subsidiary of Manhattan Scientifics, Inc.
On January 20, 1998, the Company signed a definitive Acquisition
Agreement to acquire all of the assets of Vidikron Industries, S.p.A.,
including its American owned subsidiary, Vidikron of America, Inc., relating
to Vidikron's manufacturing, marketing, sale and distribution of high-end home
theater products. The acquisition of the assets of Vidikron Industries,
S.p.A., which is subject to financing and further due diligence by the Company,
is presently intended to close in May of 1998.
Recent Financings
- -----------------
In February, 1996, the Company completed a private placement to
non-U.S. investors in accordance with Regulation S promulgated under the
Securities Act in which it issued an aggregate of $10,000,000 of unsecured
convertible debentures (the "Convertible Debentures") resulting in net proceeds
to the Company of $9,500,000. The Convertible Debentures bore interest at the
rate of 8% per annum, payable quarterly in arrears until the principal is paid
in full or has been converted. After sixty (60) days from issuance, up to 50% of
the Convertible Debentures were convertible into Common Stock, at the option of
the holder, and after ninety (90) days, all or any portion of the Convertible
Debentures were convertible into Common Stock at the option of the holder. The
conversion price of the Convertible Debentures were equal to 75% of the then
current market price per share of the Common Stock. The Convertible Debentures
matured in three (3) years, at which time any Convertible Debentures then
outstanding are repayable by the Company in cash or in the
11
<PAGE>
Company's Common Stock, at the sole option of the Company. The Company has
converted or refinanced the majority of the Convertible Debentures, as more
fully described below.
In June of 1996, the Company issued an aggregate of $7,500,000 of a
newly created Series C Preferred Stock to an Austrian financial institution
pursuant to Regulation D promulgated under the Securities Act, resulting in net
proceeds to the Company of $7,000,000. The net proceeds from the sale of the
Series C Convertible Preferred Stock were used primarily to retire unconverted
portions of the convertible debt issued in February 1996. There currently
remains $625,000 of convertible debt. At the present time, all of the shares of
the Series C Preferred Stock has been converted into the Company's Common Stock.
For a description of the terms and conditions of the Series C Preferred Stock,
see "Description of Capital Stock - Preferred Stock - Series C Preferred Stock."
In connection with the sale of the Series C Preferred Stock the Company
also issued 750,000 common stock purchase warrants to the purchaser of the
Series C Preferred Stock to purchase 750,000 shares of Common Stock; 250,000 of
which are exercisable for three (3) years commencing December 31, 1997 for $5.00
per share; 250,000 of which are exercisable for three (3) years commencing
December 31, 1998 for $3.75 per share; and 250,000 of which are exercisable for
three (3) years commencing December 31, 1999 for $2.50 per share.
In January of 1997, the Company issued an aggregate of 35,000 shares of
6% Series D convertible preferred stock to two foreign institutional investors
for an aggregate purchase price of $3,500,000, resulting in net proceeds to the
Company of $3,500,000. In connection therewith, the Company issued 210,000
common stock purchase warrants to purchase 210,000 shares of common stock at
various prices. These warrants were subsequently extinguished and replaced by
the warrants referred to in the immediately following paragraph.
In October, 1997 the two (2) foreign institutional investors
transferred, with the consent of the Company, all of the Series D Preferred
Stock and common stock purchase warrants issued in connection therewith to two
other institutional investors. In connection with such transfer, the Series D
Preferred Stock was restructured such that each share of Series D Preferred
Stock is now convertible, at the option of the holder, into shares of the
Company's Common Stock as follows: 20% of the Series D Preferred Stock is
convertible on or after February 10, 1998; 20% of the Series D Preferred Stock
is convertible on or after March 10, 1998; 20% of the Series D Preferred Stock
is convertible on or after April 10, 1998; 20% of the Series D Preferred Stock
is convertible on or after May 10, 1998; and the remaining 20% of the Series D
Preferred Stock is convertible on or after June 10, 1998. The Series D Preferred
Stock is convertible into Common Stock at a 25% discount to the then current
market price of the Company's Common Stock at the time of conversion (the
"Series D Conversion Price"). In addition, the two(2) new institutional
investors received an aggregate of 310,000 common stock purchase warrants to
purchase 310,000 shares of common stock at a purchase price of $1.625. The
Company has the right to redeem the Series D Preferred Stock, in whole or in
part, at any time as follows: up to and through February 10, 1998, at par (plus
all accrued dividends thereon); for the next thirty days (i.e., through March
12, 1998) at a redemption premium of 10% (plus all accrued and unpaid dividends
thereon); for the thirty day period subsequent to March 12, 1998 (i.e., through
April 11, 1998) at a redemption premium of 20% (plus all accrued and unpaid
dividends thereon), and after April 11, 1998, the redemption premium shall be
30%.
12
<PAGE>
In July of 1997, the Company issued an aggregate of 1,000 shares of 8%
Series E Convertible Preferred Stock to a foreign, institutional investor for an
aggregate purchase price of $1,000,000, resulting in net proceeds to the Company
of $1,000,000. In connection with such investor purchasing an additional
$500,000 of Series E Preferred Stock as more fully described below, the Series E
Preferred Stock has been restructured such that each share of Series E Preferred
Stock is convertible, at a 25% discount to the then current market price of the
Company's Common Stock at the time of conversion, into shares of the Company's
Common Stock. In connection with the sale of the Series E Preferred Stock the
Company issued 60,000 common stock purchase warrants to purchase 60,000 shares
of Common Stock at an exercise price of $1.625 per share.
In connection with the sale of the Series E Preferred Stock, the
Company also issued an aggregate of 60,000 common stock purchase warrants to
the purchaser of the Series E Preferred Stock to purchase an aggregate of 60,000
shares of Common Stock at an exercise price of $1.625 per share.
In December of 1997 the Company agreed to issue an additional 650
shares of Series E Preferred Stock to the same investor on the same terms and
conditions for $500,000 and 39,000 common stock purchase warrants to purchase
39,000 shares of Common Stock at an exercise price of $1.625.
In December of 1997 the Company also agreed, in consideration of gross
proceeds of $1,600,000, to issue an aggregate of 16,000 more share of Series D
Preferred Stock on the same terms and conditions and 96,000 common stock
purchase warrants to purchase 96,000 shares of Common Stock at an exercise price
of $1.625 per share to the two (2) new institutional investors who acquired the
Series D Preferred Stock in October 1997. In connection with the sale of these
additional shares of Series D Preferred Stock the Company is obligated to pay a
broker's fee of $75,000.
In February of 1998, the Company issued an aggregate of 2,850 shares of
Series F Convertible Preferred Stock to a foreign, institutional investor for
an aggregate purchase price of $2,850,000, resulting in net proceeds to the
Company of approximately $2,500,000. The Series F Convertible Preferred Stock is
generally convertible with shares of the Company's Common Stock at a 25%
discount to the average of the closing market price of the Common Stock at the
time of conversion (plus a conversion premium of 8% per annum of the principal
amount outstanding); provided that the Series F Preferred Stock is generally not
convertible at a price of less than $.50 per share and in no event is the Series
F Preferred Stock convertible at a price of more than $1.00 per share. The
Series F Preferred Stock is not convertible into Common Stock until August 16,
1998 and subsequent to August 16, 1998, in increments of 570 shares of Series F
Preferred Stock every thirty (30) days thereafter. The Company has the right to
redeem to Series F Preferred Stock in whole or in part at any time at a premium
of 12.5% until May 18, 1998, at a premium of 25% until August 16, 1998, and for
the benefit of the bargain thereafter. See "Description of Securities - Series F
Preferred Stock."
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management discussion and analysis should be read in
conjunction with the financial statements and notes thereto.
As of December 31, 1997, the Company had working capital of
approximately $1,500,000. With respect to changes for the twelve (12) months
ending December 31, 1997 versus the twelve (12) months ended December 31, 1997,
the increase in general and administrative expense is due to increased
participation in trade shows and to higher advertising and travel expense.
Higher legal fees are due to the on-going litigation with a former officer of
the Company. To date, the Company has funded its operations primarily from sales
of capital stock. In January 1997, the Company completed a private placement of
preferred stock of $3.5 million, in July 1997 the Company completed a private
placement of preferred stock of $1.0 million, and in December 1997 the Company
completed a private placement of $1.6 million. The sale of securities was used
to fund working capital and to purchase production tooling for the Digital Home
Theater. As of December 31, 1997, the Company had cash and cash equivalents of
$___________ and government securities of $_________. In March 1997 the Company
shipped its first Digital Home Theater to retail distribution, and for the year
ended December 31, 1997, the Company had sales of approximately $1,000,000.
The Company also intends to rely on arrangements with retailers and
contract manufacturers in connection with meeting the balance of the capital
requirements necessary for the Company to manufacture, market and distribute the
Digital Home Theater. Specifically, the Company has negotiated sixty (60) day
payment terms with all of those entities that manufacture components of the
Digital Home Theater, while at the same time requiring retailers to pay the
Company within 45 days, or alternatively within 30 days with a 2% discount.
Further, the Company's agreement with the Boxlight Corporation, which sells the
Digital Home Theater to the consumer market, requires the Boxlight Corporation
to pay the Company in full upon receipt of the merchandise. The Company emerged
from the development stage in the fourth quarter of 1997 and, through December
31, 1997, its sole revenues have been $1,455,000 in fees and $1,017,000 from the
sale of the Digital Home Theater. Of such fees, $1,000,000 was derived from a
government agency to develop certain projection technology for use in a high
definition television projector and the remaining balance, $455,000, from
licensing agreements. The Company has completed research and development with
respect to the Digital Home Theater projector, although certain engineering
refinements are still ongoing, including optimizing picture brightness for a new
rear projection system.
Primarily as a result of work performed in developing its technology,
the Company has sustained losses aggregating approximately $45,000,000 from its
inception to December 31, 1997. The Company has continued to incur losses since
December 31, 1997. As of December 31, 1997, the Company had available for
Federal income tax purposes net operating and capital loss carry-forwards of
approximately $__________. The Internal Revenue Code of 1986, as amended, may
impose certain restrictions on the amount of net operating loss carry-forwards
which may be used in any year by the Company.
14
<PAGE>
SELLING STOCKHOLDERS
The shares being offered for resale by the Selling Stockholders were
acquired in connection with the 1998 Private Placement and consist of the shares
of Common Stock issuable upon the conversion of or otherwise with respect to the
Series F Preferred Stock and upon exercise of the Warrants. In connection with
the 1998 Private Placement, the Company granted the Selling Stockholders certain
registration rights pursuant to which the Company agreed to keep the
Registration Statement, of which this Prospectus is a part, effective until the
date that all of such Shares have been sold pursuant to the Registration
Statement. The Company has agreed to indemnify the Selling Stockholders and each
of their officers, directors, members, employees, partners, agents and each
person who controls any of the Selling Stockholders against certain expenses,
claims, losses, damages and liabilities for any action, proceeding or inquiry by
any regulatory or self-regulatory organization in respect thereof. The Company
has agreed to pay its expenses of registering the Shares under the Securities
Act, including registration and filing fees, blue sky expenses, printing
expenses, accounting fees, administrative expenses and its own counsel fees.
The following table sets forth the name of each Selling Stockholder,
the number of shares of Common Stock beneficially owned by such Selling
Stockholder as of March 4, 1998 and the number of shares being offered by each
Selling Stockholder. The shares being offered hereby are being registered to
permit public secondary trading, and the Selling Stockholders may offer all or
part of the Shares for resale from time to time. However, such Selling
Stockholders are under no obligation to sell all or any portion of such Shares
nor are such Selling Stockholders obligated to sell any shares immediately under
this Prospectus. All information with respect to share ownership has been
furnished by the Selling Stockholders. Because the Selling Stockholders may sell
all or part of their shares, no estimates can be given as to the number of
shares that will be held by any Selling Stockholders upon termination of any
offering made hereby. See "Plan of Distribution".
In the case of the Shares underlying the Series F Preferred Stock, the
number of Shares owned and offered for sale hereby represents an estimate of the
number of shares of Common Stock issuable upon conversion of or otherwise with
respect to the Series F Preferred Stock, based on 200% of the number of shares
of Common Stock issuable at a conversion price of $.75 in accordance with Rule
416 and in certain other events described in the Certificate of Designation.
Pursuant to Rule 416 under the Securities Act, Selling Stockholders may also
offer and sell Shares issued with respect to the Series F Preferred Stock and/or
the Warrants as a result of (i) stock splits, stock dividends or similar
transactions, (ii) the effect of anti-dilution provisions contained in the
Certificate of Designation of the Series F Preferred Stock and in the Warrants,
and (iii) by reason of changes in the conversion price of the Series F Stock
accordance with the terms thereof. This is not intended to constitute a
prediction as to the number of Shares into which the Series F Preferred Stock
will be converted and the Warrants will be exercised.
<PAGE>
<TABLE>
<CAPTION>
Number of Number of
Shares Shares
Beneficially Beneficially
Owned Number of Owned
Prior to Shares to After this
Name and Address Offering(1) be Offered Offering(1)(2)
- ---------------- ------------ -------------- -------------
<S> <C> <C> <C>
Zanett Lombardier, Ltd. 7,750,000(1) 7,750,000(3)(4) 0
Tower 49
31st Floor
12 E. 47th Street
New York, NY 10017
The Zanett Securities 75,000(5) 75,000(5) 0
Corporation
Tower 49
31st Floor
12 E. 47th Street
New York, NY 10017
----------- -------
TOTAL 7,825,000(3)(4)(5) 0
</TABLE>
- -------------------
(1) Except as set forth in footnote (4) below, beneficial ownership is
determined in accordance with Rule 13d-3 of the Exchange Act. The persons
named in the table above have sole voting and investment power with respect
to all shares of Common Stock shown as beneficially owned by them.
(2) Assumes all Shares offered hereby are sold in the Offering.
(3) Includes 150,000 shares of Common Stock issuable upon exercise of Warrants.
(4) In accordance with Rule 416, the number of shares of Common Stock set forth
in the table represents an estimate of the number of shares of Common Stock
to be offered by the Selling Stockholder, based on 200% of the number of
shares of Common Stock that would have been issuable upon conversion of or
otherwise with respect to the Series F Preferred Stock at a conversion
price of $.75 per share in accordance with Rule 416 (7,600,000 shares). The
actual number of shares of Common Stock issuable upon conversion of the
Series F Preferred Stock is determined by a fomula based on the market
price at the time of conversion, is therefore subject to adjustment and
could be materially less or more than such estimated number depending on
factors that cannot be predicted by the Company. Specifically, at any given
time, the Series F Preferred Stock is convertible into a number of shares
of Common Stock determined by dividing the sum of (a) the stated value of
the Series F Preferred Stock and (b) a premium amount equal to 8% (on an
annualized basis) of the principal outstanding amount of the Series F
Preferred Stock, by the then applicable conversion price (calculated
generally as 75% of the average closing bid price of the Common Stock for
the five (5) consecutive trading days immediately preceding the date of
determination) subject to certain restrictions and adjustments, including a
general prohibition of conversions at less than $.50 per share and an
absolute prohibition of conversions at greater than $1.00 per share. The
Shares offered hereby, and included in the Registration Statement of which
this Prospectus is a part, include such additional number of shares of
Common Stock as may be issued or issuable upon conversion of the Series F
Preferred Stock by reason of the floating rate conversion price mechanism
or other adjustment mechanisms described in the Certificate of Designation
for the Series F Preferred Stock, or by reason of any stock split, stock
dividend or similar transaction involving the Common Stock in order to
prevent dilution in accordance with Rule 416. Pursuant to the terms of the
Series F Preferred Stock and the Warrants, the Shares of Series F Preferred
Stock and the Warrants are convertible or exercisable by any holder only to
the extent that the number of shares of Common Stock thereby issuable,
together with the number of shares of Common Stock owned by such holder and
its affiliates (but not including shares of Common Stock underlying
unconverted shares of Series F Preferred Stock or unexercised portions of
the Warrants) would not exceed 4.99% of the then outstanding Common Stock
as determined in accordance with Section 13(d) of the Exchange Act.
Accordingly, the number of Shares set forth in the table for a Selling
Stockholder may exceed the number of Shares that such Selling Stockholder
could own beneficially at any given time through such Selling Stockholder's
ownership of the Series F Preferred Stock and the Warrants. In that regard,
beneficial ownership of such Selling Stockholder set forth in the table is
not determined in accordance with Rule 13d-3 under the Exchange Act.
(5) Includes 75,000 shares of Common Stock issuable upon exercise of Warrants.
15
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Through July 31, 1995 the Company made advances of approximately
$219,000 to another entity, whose president at the time was the brother of
Martin Holleran, the Company's President and Chief Operating Officer, in
contemplation of making an investment in such other entity. The Company
ultimately did not make such an investment and the advance was fully reserved
for on the Company's financial statements as of December 31, 1995. In November,
1996, in accordance with the agreement between the Company and the other entity
that was reached at the outset of the transaction, and that had been reviewed
and approved by the disinterested members of the Company's Board of Directors
prior thereto, $109,166 of the advance was repaid to the Company as a final
settlement of the amounts advanced. The Company's policy with respect to
affiliated transactions, which was followed in the instant case, is that all
such transactions are subject to the prior review and approval of the
disinterested members of the Company's Board of Directors.
PLAN OF DISTRIBUTION
The Shares may be sold or distributed from time to time by the Selling
Stockholders or by pledgees, donees or transferees of, or successors in interest
to, the Selling Stockholders, directly to one or more purchasers (including
pledgees) or through brokers, dealers or underwriters who may act solely as
agents or may acquire Shares 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 distribution of the Shares
may be effected in one or more of the following methods (i) ordinary brokers
transactions, which may include long or short sales, (ii) transactions involving
cross or block trades or otherwise on the NASDAQ Smallcap Market, (iii)
purchases by brokers, dealers or underwriters as principal and resale by such
purchasers for their own accounts pursuant to this Prospectus, (v) "at the
market" to or through other market makers or into an existing market for the
Common Stock, (v) in other ways not involving market makers or established
trading markets, including direct sales to purchasers or sales effected through
agents, (vi) through transactions in options, swaps or other derivatives
(whether exchange listed or otherwise) or (vii) any combination of the
foregoing, or by any other legally available means. In addition, the Selling
Stockholders or their successors in interest may enter into hedging transactions
with broker dealers who may engage in short sales of shares of Common Stock in
the course of hedging the positions they assume with the Selling Stockholders.
The Selling Stockholders or their successors in interest may also enter into
option or other transactions with broker-dealers that require that delivery by
such broker-dealers of the Shares, which Shares may be resold thereafter
pursuant to this Prospectus.
Brokers, dealers, underwriters or agents participating in the
distribution of the Shares may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders and/or the purchasers
of Shares for whom such broker-dealers may act as agent or to whom they may sell
as principal, or both (which compensation as to a particular broker-dealer may
be in excess of customary commissions). The Selling Stockholders and any broker-
dealers acting in connection with the sale of the Shares hereunder may be deemed
to be underwriters within the meaning of Section 2(11) of the Securities Act,
and any commissions received by them and any profit realized by them on the
resale of Shares as principals may be deemed underwriting compensation under the
Securities Act. Neither the Company nor any Selling Stockholder can presently
estimate the amount of such compensation. The Company knows of no existing
arrangements between any Selling Stockholder and any other Stockholder, broker,
dealer, underwriter or agent relating to the sale or distribution of the Shares.
16
<PAGE>
Each Selling Stockholder and any other persons participating in a
distribution of securities will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which may restrict certain activities of, and limit
the timing of purchases and sales of securities by, Selling Stockholder and
other persons participating in a distribution of securities. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and certain other activities with
respect to such securities for a specified period of time prior to the
commencement of such distributions subject to specified exceptions or exemption.
All of the foregoing may affect the marketability of the securities offered
hereby.
Any securities covered by this Prospectus that qualify for sale
pursuant to Rule 144 under the Securities Act may be sold under that Rule rather
than pursuant to this Prospectus.
There can be no assurance that the Selling Stockholders will sell any
or all of the shares of Common Stock offered by them hereunder.
The Company will pay all of the expenses incident to the registration
of the shares of Common stock other than any fees or expenses of any counsel
retained by the Selling Stockholders and any out of pocket expenses incurred by
the Selling Stockholders or any person retained by the Selling Stockholders in
connection with the registration of the shares, fees and expenses of compliance
with state securities or blue sky laws and commissions and discounts of
underwriters, dealers or agents, if any. The espenses payable by the Company are
estimated to be $20,000.
USE OF PROCEEDS
All of the Shares offered hereby are being offered for the account of
the Selling Stockholders. Accordingly, the Company will not receive any of the
proceeds of any sales made hereunder, but will receive the exercise price of any
Warrants exercised by the Selling Stockholders. Any proceeds received from the
exercise of Warrants will be used for working capital and general corporate
expenses.
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DESCRIPTION OF CAPITAL STOCK
The authorized securities of the Company consists of 50,000,000
authorized shares of Common Stock, par value $.0001 per share, 20,666,567 shares
of which were outstanding as of March 3, 1998; and 1,000,000 authorized shares
of preferred stock of which 100 shares of Series A Preferred Stock were
outstanding on March 3, 1998, 351,258 shares of Series B Preferred Stock were
outstanding, 49,000 shares of Series D Preferred Stock were outstanding on
March 3, 1998, 1,650 shares of Series E Preferred Stock were outstanding
on March 3, 1998, and 2,850 shares of Series F Preferred Stock were outstanding
on March 3, 1998.
Common Stock
- ------------
Holders of Common Stock are entitled to dividends from funds available
therefor when, as and if declared by the Board of Directors of the Company and
are entitled to share ratably in all of the assets of the Company available for
distribution to holders of Common Stock upon the liquidation, dissolution or
winding up of the affairs of the Company after any priority distribution to
which holders of Series B Preferred Stock are entitled has been distributed.
Holders of Common Stock do not have preemptive, subscription or conversion
rights. There are no redemption of sinking fund provisions in the Company's
Restated Certificate of Incorporation. All shares of Common Stock to be sold by
the Company in this Offering will be fully paid and nonassessable.
Holders of Common Stock are entitled to one (1) vote for each share of
Common Stock held on record on matters submitted to a vote of stockholders. The
Common Stock does not have cumulative voting rights.
Preferred Stock
- ----------------
Series A Preferred Stock
------------------------
The Company has issued one hundred (100) shares of Series A Preferred
Stock, par value $.01 per share, to Martin D. Fife in connection with the
Merger. No other shares of Series A Preferred Stock are authorized or
outstanding. The holder of Series A Preferred Stock is entitled to a preference
of $1,000 per share ($100,000 in the aggregate) upon the liquidation,
dissolution or winding up of the affairs of the Company prior to any
distributions to which holders of Common Stock are entitled. After receipt of
such preferential distributions, the holder of Series A Preferred Stock, as
such, will not be entitled to any additional distributions. Except as required
by law, the holder of Series A Preferred Stock is not entitled to vote, receive
dividends and does not have any preemptive, subscription, conversion or
redemption rights.
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Series B Preferred Stock
The Company has issued and outstanding 351,258 shares of Series B
Preferred Stock as of March 3, 1998. The terms of the Series B Preferred Stock
are set forth in the Certificate of Designation and Preferences (the "Series B
Certificate") which is summarized below.
Voting Rights
The Series B Preferred Stock has no voting rights except as provided by
law.
Dividends
Holders of shares of Series B Preferred Stock are entitled to receive,
of, when and as declared by the Board of Directors out of funds legally
available therefor, cumulative annual dividends of $.40 per share or eight
percent (8%) per annum (based upon a liquidation preference of $5.00 per share)
solely in Common Stock. Such dividends shall be payable semi-annually on March
9th and September 9th of each year, to holders of record as of a record date no
more than fifty days prior to such dividend payment date as may be fixed by the
Board. Dividends on the Series B Preferred Stock will be cumulative and will
accrue from the date of initial issuance. Holders of the Series B Preferred
Stock shall not be entitled to any dividends, whether payable in cash, property
or securities, in excess of the full cumulative dividends. The amount of
dividends payable for the initial dividend period or any period shorter than a
full dividend period shall be computed on the basis of a 360-day year of twelve
30-day months.
If the Company pays all or any portion of a dividend in Common Stock,
the number of shares of Common Stock to be issued by the Company in payment of
such portion shall be the dollar amount of such portion divided by the Computed
Price (as defined below) of the Common Stock.
The "Computed Price" of a share of Common Stock, as defined in the
Series B Certificate, means the price equal the average Closing Sale Price of
the Common Stock for the twenty (20) consecutive trading days ending on the
fifth trading day prior to the applicable dividend payment date.
For purposes of this provision, the "Closing Sales Price" of the Common
Stock on any date means the closing sale price (or if no such price is reported,
the closing bid price) on such date as reported in the composite transactions
for the principal United States securities exchange on which the Common Stock is
traded or, if the Common Stock is not listed on a United States national or
regional stock exchange, as reported by NASDAQ or the National
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Quotation Bureau Incorporated, or if the Common Stock is not so listed and such
closing sale price and closing bid are not reported by NASDAQ or the National
Quotation Bureau Incorporated, then such price shall be determined by the Board
in good faith, such determination to be conclusive.
No interest or sum of money in lieu of interest shall be payable in
respect to any dividend payment or payments which may be in arrears.
Under Delaware law, cash dividends may be paid only out of unrestricted
and unreserved earned surplus, except that cash dividends may be paid on the
Series B Preferred Stock, in the absence of earned surplus, out of unrestricted
capital surplus in discharge of cumulative dividends. Stock dividends require
the availability of surplus at least to the extent of the aggregate par value of
the shares issued.
Conversion
Each share of Series B Preferred Stock may be converted by the holder
into one (1) share of Common Stock, subject to adjustment, commencing September
9, 1993.
The conversion rate is subject to adjustment upon the occurrence of
certain events, including (i) the payment of a dividend in shares of Common
Stock to holders of Common Stock or a dividend to holders of Common Stock
payable in shares of the Company's capital stock other than Common Stock; (ii)
the subdivision or combination of outstanding share of Common Stock; (iii)
issuance to all holders of Common Stock of rights and Public Redeemable Warrants
entitling them for a period of not more than forty-five (45) days to purchase
shares of Common Stock (or securities convertible into Common Stock) at a price
per share (or having a conversion price per share) less than the then current
per share market price for such Common Stock; and (iv) the distribution to all
holders of Common Stock of evidences of indebtedness or assets (excluding cash
dividends) or rights or Public Redeemable Warrants (other than those referred to
above). No adjustment of the conversion rate will be required until cumulative
adjustments would require an increase or decrease of at least 1% in the number
of shares of Common Shares into which each share of Series B Preferred Stock is
then convertible. No adjustment of the conversion rate will be made for cash
distributions or cash dividends.
The Company also has the option, exercisable at any time, to increase
the conversion rate, so long as such increase is for a minimum period of twenty
(20) days and is irrevocable during such period and the Company notifies holders
of Series B Preferred Stock at least fifteen (15) days prior to the date on
which the reduced conversion price takes effect.
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<PAGE>
In case of any consolidation or merger to which the Company is a party
other than a merger or consolidation in which the Company is the surviving
corporation, in case of any statutory exchange of securities with another
corporation, or in case of any sale or conveyance to another corporation of all
or substantially all of the assets of the Company, there will be no adjustment
of the conversion rate but each holder of a share of Series B Preferred Stock
then outstanding will have the right thereafter to convert such share solely
into the kind and amount of securities, cash or other property receivable upon
such consolidation, merger, statutory exchange, sale or conveyance by a holder
of the number of shares of Common Stock into which each such share of Series B
Preferred Stock might have been converted immediately prior to such
consolidation, merger, statutory exchange, sale or conveyance, assuming such
holder of Common Stock failed to exercise his rights of election, if any, as to
the kind or amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance (provided, that if
the kind or amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance is not the same
for each non-electing share, as to the kind and amount of securities, cash or
other property receivable upon such consolidation, merger, statutory exchange,
sale or conveyance for each non-electing share shall be deemed to be the kind
and amount so receivable per share by plurality of the non-electing share). In
the case of a cash merger of the Company into another corporation or any other
cash transaction of the type mentioned above, the effect of these provisions
would be that the conversion features of the Series B Preferred Stock would
thereafter be limited to converting the Series B Preferred Stock at the
conversion rate in effect at such time into the same amount of cash per share
that such holder would have received had such holder converted the Series B
Preferred Stock into Common Stock immediately prior to the effective date of
such cash merger or transaction. Depending upon the terms of such cash merger or
transaction, the aggregate amount of cash so received on conversion could be
more or less than the liquidation preference of the Series B Preferred Stock.
Liquidation Rights
In the event of any liquidation , dissolution or winding up of the
Company, the holders of shares of Series B Preferred Stock shall be entitled to
receive, from the Company's assets available for distribution to shareholders,
$5.00 per share plus accrued and unpaid dividends to the date fixed for
distribution before any distribution of assets may be made to holders of Common
Stock or any other class of stock of the Company or series thereof ranking
junior to the Series B Preferred Stock with respect to the distribution of
assets. If upon any liquidation, dissolution or winding up of the company, the
amounts payable with respect to
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<PAGE>
the Series B Preferred Stock and any other shares of stock of the Company
ranking as to any such distribution on a parity with the Series B Preferred
Stock are not paid in full, the holders of the Series B Preferred Stock and of
such other shares will share ratably in any such distribution of assets of the
Company in proportion to the full respective preferential amounts to which they
are entitled. After payment of the full amount of the liquidating distribution
to which they are entitled, the holders of shares of Series B Preferred Stock
will not be entitled to any further participation in any distribution of assets
by the Company. Such liquidation rights are not triggered by any consolidation
or merger of the Company with or into any other corporations, or by any sale,
transfer or lease of all or substantially all of the Company's assets, provided
that in each case effective provision is made by the resulting and surviving
corporation or otherwise for the protection of the rights of the holders of
Series B Preferred Stock.
Optional Redemption
The Series B Preferred Stock may be redeemed by the Company commencing
September 9, 1994, if the Closing Sales Price of the Common Stock equals or
exceeds $5.00 for twenty (20) trading days within a period of thirty (30)
consecutive trading days ending no more than five days prior to the notice of
redemption. Subject to the foregoing, the Series B Preferred Stock is redeemable
at the option of the Company at any time as a whole or from time to time in
part, on at least 30 and not more than sixty (60) days notice.
The redemption price for each share of Series B Preferred Stock is
$1.00 per share.
On or after the redemption date, dividends will cease to accumulate on
shares of Series B Preferred Stock called for redemption provided that the
redemption price (including any accrued but unpaid dividends to the date fixed
for redemption) has been duly paid or provided for.
If fewer than all of the shares of Series B Preferred Stock are to be
redeemed at any time, the Company will select those to be redeemed pro rata, by
lot or by a substantially equivalent method.
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<PAGE>
Series D Preferred Stock
The Company has issued and outstanding 49,000 shares of Series D
Preferred Stock as of March 3, 1998. The terms of the Series D Preferred
Stock are set forth in the Certificate of Designation of Convertible Series D
Preferred Stock which is summarized below.
Voting Rights
The Series D Preferred Stock has no voting rights except as provided by
law.
Dividends
The holders of the Series D Preferred Stock are entitled to receive if,
when and as declared by the Board of Directors out of funds legally available
therefor, cumulative dividends, payable in cash or common stock of the Company,
par value $.0001 per share (the "Common Stock") at the Company's election, at
the rate of 6% per annum of the Liquidation Value of the Series D Preferred
Stock until and through June 30, 1997, at the rate of 6% per annum of the
Liquidation Value of the Series D Preferred Stock commencing July 1, 1997 until
and through June 30, 1998, and at the rate of 8% per annum of the Liquidation
Value of the Series D Preferred Stock commencing on July 1, 1998 and at any time
thereafter. The Liquidation Value shall be equal to $1,000.00 per share (the
"Dividend Rate"). The dividend is payable annually within seven (7) business
days after each of December 31 and June 30 of each year, commencing December 31,
1996 (each, a "Dividend Declaration Date"). Dividends shall be paid only with
respect to shares of Series D Preferred Stock actually issued and outstanding on
a Dividend Declaration Date and to the holders of record as of the Dividend
Declaration Date. Dividends shall accrue from the first day of the semi-annual
period in which such dividend may be payable. In the event that the Company
elects to pay dividends in Common Stock, each holder of Series D Preferred Stock
shall receive shares of Common Stock equal to the quotient of (i) the Dividend
Rate in effect on the applicable Dividend Declaration Date divided by (ii) the
average of the closing bid quotation of the Common Stock as reported on the
over-the-counter market, or the closing sale price if listed on a national
exchange, for the five (5) trading days immediately prior to the Dividend
Declaration Date (the "Stock Dividend Price").
Conversion
The holders of the Series D Preferred Stock shall have the right to
convert their shares of Preferred Stock into Common Stock at any time.
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<PAGE>
(a) Conversion Price. The Series D Preferred Stock is convertible
into shares of Common Stock based upon the product of (i) the average closing
bid quotation of the Common Stock as reported on the over-the-counter market, or
the closing sale price if listed on a national securities exchange, for the five
(5) trading days immediately preceding the date of the conversion notice
multiplied by (ii).75.
(b) Adjustments to Conversion Price for Stock Dividends and for
Combinations or Subdivisions of Common Stock. If the Company at any time or from
time to time while shares of Series D Preferred Stock are issued and
outstanding shall declare or pay, without consideration, any dividend on the
Common Stock payable in Common Stock, or shall effect a subdivision of the
outstanding shares of Common Stock into a greater number of shares of Common
Stock (by stock split, reclassification or otherwise than by payment of a
dividend in Common Stock or in any right to acquire Common Stock), or if the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
then the Conversion Price in effect immediately
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<PAGE>
before such event shall, concurrently with the effectiveness of such event, be
proportionately decreased or increased, as appropriate. If the Company shall
declare or pay, without consideration, any dividend on the Common Stock payable
in any right to acquire Common Stock for no consideration, then the Company
shall be deemed to have made a dividend payable in Common Stock in an amount of
shares equal to the maximum number of shares issuable upon exercise of such
rights to acquire Common Stock.
(c) Adjustments for Reclassification and Reorganization. If the
Common Stock issuable upon conversion of the Series D Preferred Stock shall be
changed into the same or a different number of shares of any other class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares as herein
provided), the Conversion Price then in effect shall, concurrently with the
effectiveness of such reorganization or reclassification, be proportionately
adjusted so that the Series D Preferred Stock shall be convertible into, in lieu
of the number of shares of Common Stock which the holders would otherwise have
been entitled to receive, a number of shares of such other class or classes of
stock equivalent to the number of shares of Common Stock that would have been
subject to receipt by the holders upon conversion of the Series D Preferred
Stock immediately before that change.
Liquidation Preference.
The holders of shares of Series D Preferred Stock will be entitled to
receive, in the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, out of or to the extent of the net
assets of the Company legally available for such distribution, before any
distributions are made with respect to any Common Stock or any stock ranking
junior to the Series E Preferred Stock, $100.00 per share, plus any declared
but unpaid dividends (the "Liquidation Preference"). After payment of the full
amount of the Liquidation Preference, the holders of shares of Series D
Preferred Stock will not be entitled to any further participation in any
distribution of assets by the Company.
Series E Preferred Stock
The Company has issued and outstanding 1,650 shares of Series E
Preferred Stock as of March 3, 1998. The terms of the Series E Preferred Stock
are set forth in the Certificate of Designation of Convertible Series E
Preferred Stock which is summarized below.
Voting Rights
The Series E Preferred Stock has no voting rights except as provided by
law.
Dividends
The holders of the Series E Preferred Stock are entitled to receive if,
when and as declared by the Board of Directors out of funds legally available
therefor, cumulative dividends, payable in cash or common stock of the Company,
par value $.0001 per share (the "Common Stock") at the Company's election, at
the rate of 8% per annum of the Liquidation Value of the Series E Preferred
Stock. The Liquidation Value shall be equal to $1,000.00 per share (the
"Dividend Rate"). The dividend is payable annually within seven (7) business
days after each of December 31 and June 30 of each year, commencing December 31,
1997 (each, a "Dividend Declaration Date"). Dividends shall be paid only with
respect to shares of Series E Preferred Stock actually issued and outstanding on
a Dividend Declaration Date and to the holders of record as of the Dividend
Declaration Date. In the event that the Company elects to pay dividends in
Common Stock, each holder of Series E Preferred Stock shall receive shares of
Common Stock equal to the quotient of (i) the Dividend Rate in effect on the
applicable Dividend Declaration Date divided by (ii) the average of the closing
bid quotation of the Common Stock as reported on the over-the-counter market, or
the closing sale price if listed on a national exchange, for the five (5)
trading days immediately prior to the Dividend Declaration Date (the "Stock
Dividend Price").
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<PAGE>
Conversion
The holders of the Series E Preferred Stock shall have the right to
convert their shares of Preferred Stock into Common Stock at any time.
(a) Conversion Price. The term Series E Preferred Stock is
convertible into shares of Common Stock based upon the product of (i) the
average closing bid quotation of the Common Stock as reported on the
over-the-counter market, or the closing sale price if listed on a national
securities exchange, for the five (5) trading days immediately preceding the
date of the conversion notice referred to in Section 3(c) below multiplied by
(ii).75.
(b) Adjustments to Conversion Price for Stock Dividends and for
Combinations or Subdivisions of Common Stock. If the Company at any time or from
time to time while shares of Series E Preferred Stock are issued and outstanding
shall declare or pay, without consideration, any dividend on the Common Stock
payable in Common Stock, or shall effect a subdivision of the outstanding shares
of Common Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or if the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification or otherwise, into
a lesser number of shares of Common Stock, then the Conversion Price in effect
immediately before such event shall, concurrently with the effectiveness of such
event, be proportionately decreased or increased, as appropriate. If the Company
shall declare or pay, without consideration, any dividend on the Common Stock
payable in any right to acquire Common Stock for no consideration, then the
Company shall be deemed to have made a dividend payable in Common Stock in an
amount of shares equal to the maximum number of shares issuable upon exercise of
such rights to acquire Common Stock.
(c) Adjustments for Reclassification and Reorganization. If the
Common Stock issuable upon conversion of the Series E Preferred Stock shall be
changed into the same or a different number of shares of any other class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares as herein
provided), the Conversion Price then in effect shall, concurrently with the
effectiveness of such reorganization or reclassification, be proportionately
adjusted so that the Series E Preferred Stock shall be convertible into, in lieu
of the number of shares of Common Stock which the holders would otherwise have
been entitled to receive, a number of shares of such other class or classes of
stock equivalent to the number of shares of Common Stock that would have been
subject to receipt by the holders upon conversion of the Series E Preferred
Stock immediately before that change.
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<PAGE>
Liquidation Preference.
The holders of shares of Series E Preferred Stock will be entitled to
receive, in the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, out of or to the extent of the net
assets of the Company legally available for such distribution, before any
distributions are made with respect to any Common Stock or any stock ranking
junior to the Series E Preferred Stock, $100.00 per share, plus any declared
but unpaid dividends (the "Liquidation Preference"). After payment of the full
amount of the Liquidation Preference, the holders of shares of Series D
Preferred Stock will not be entitled to any further participation in any
distribution of assets by the Company.
Series F Preferred Stock
The Company has issued and outstanding 2,850 shares of Series F
Preferred Stock as of March 3, 1988. The terms of the Series F Preferred Stock
are set forth in the Certificate of Designation of Convertible Series F
Preferred Stock which is summarized below.
Voting Rights
The Series F Preferred Stock has no voting rights except as provided by
law.
Conversion
In the absence of a default by the Company, the holders of the Series F
Preferred Stock shall not have the right to convert their shares of Preferred
Stock into Common Stock at any time prior to August 16, 1998, at which time the
holder of the Series F Preferred Stock can convert twenty (20%) percent of the
Series F Preferred Stock and an additional twenty (20%) percent of the Series F
Preferred Stock every thirty (30) days thereafter.
(a) Conversion Price. The Series F Preferred Stock is generally
convertible into shares of Common Stock based upon the product of the average
closing bid quotation of the Common Stock as reported on the NASDAQ SmallCap
Market for the five (5) trading days immediately preceding the date of the
conversion below multiplied by (ii).75; provided, however, that in general the
Series F Preferred Stock cannot be converted at a conversion price of less than
$.50 per share and in no event may the Series F Preferred Stock be converted at
a price in excess of $1.00 per share.
(b) Adjustments to Conversion Price for Stock Dividends and for
Combinations or Subdivisions of Common Stock. If the Company at any time or from
time to time while shares of Series F Preferred Stock are issued and outstanding
shall declare or pay, without consideration, any dividend on the Common Stock
payable in Common Stock, or shall effect a subdivision of the outstanding shares
of Common Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or if the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification or otherwise, into
a lesser number of shares of Common Stock, then the Conversion Price in effect
immediately before such event shall, concurrently with the effectiveness of such
event, be proportionately decreased or increased, as appropriate. If the Company
shall declare or pay, without consideration, any dividend on the Common Stock
payable in any right to acquire Common Stock for no consideration, then the
Company shall be deemed to have made a dividend payable in Common Stock in an
amount of shares equal to the maximum number of shares issuable upon exercise of
such rights to acquire Common Stock.
(c) Adjustments for Reclassification and Reorganization. If the Common
Stock issuable upon conversion of the Series F Preferred Stock shall be changed
into the same or a different number of shares of any other class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares as herein provided), the Conversion
Price then in effect shall, concurrently with the effectiveness of such
reorganization or reclassification, be proportionately adjusted so that the
Series F Preferred Stock shall be convertible into, in lieu of the number of
shares of Common Stock which the holders would otherwise have been entitled to
receive, a number of shares of such other class or classes of stock equivalent
to the number of shares of Common Stock that would have been subject to receipt
by the holders upon conversion of the Series F Preferred Stock immediately
before that change.
<PAGE>
Liquidation Preference.
The holders of shares of Series F Preferred Stock will be entitled to
receive, in the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, out of or to the extent of the net
assets of the Company legally available for such distribution, before any
distributions are made with respect to any Common Stock or any stock ranking
junior to the Series F Preferred Stock, $1000.00 per share, plus any declared
but unpaid dividends (the "Liquidation Preference"). After payment of the full
amount of the Liquidation Preference, the holders of shares of Series F
Preferred Stock will not be entitled to any further participation in any
distribution of assets by the Company.
Redemption
The Series F Preferred Stock can be redeemed by the Company in whole or
in part at any time and from time to time. In the event that the Company redeems
the Series F Preferred Stock on or before May 18, 1998, it will be required to
pay a 12.5% premium, in the event that the Series F Preferred Stock is redeemed
after May 18, 1988 but before August 16, 1998, the Company will be required to
pay a 25% premium; therefore, any redemption of the Series F Preferred Stock
shall be at the so-called benefit of the bargain. In addition, under certain
circumstances, the holder of the Series F Preferred Stock shall have the right
to cause the redemption of the Series F Preferred Stock.
Public Redeemable Warrants
The Public Redeemable Warrants were issued by the Company pursuant to
an agreement (the "Warrant Agreement") dated as of the effective date of the
initial public offering, July 24, 1990, by and between the Company and
Continental Stock Transfer & Trust Company (the "Warrant Agent"). The following
discussion of certain terms and provisions of the Public Redeemable Warrants
gives effect to the Company's March 1992 two-for-one stock split and is
qualified in its entirety by reference to the detailed
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provisions of the Warrant Agreement, the form of which has been filed as an
exhibit to the Registration Statement relating to the Company's initial public
offering.
Each Public Redeemable Warrant presently represents the right of the
registered holder to purchase two (2) shares of Common Stock at an exercise
price of $1.50 per share until July 24, 1995, subject to adjustment (the
"Purchase Price"). The Company has the right to reduce the Purchase Price or
increase the number of shares issuable upon the exercise of Public Redeemable
Warrants commencing July 24, 1991. The Public Redeemable Warrants will be
entitled to the benefit of adjustments in the Purchase Price and in the number
of shares of Common Stock and/or other securities deliverable upon exercise
thereof in the event of a stock dividend, stock split, reclassification,
reorganization, consolidation or merger.
Each Public Redeemable Warrant expires on July 23, 1998 (the
"Expiration Date"), subject to extension. The Company may at any time extend the
Expiration Date of all outstanding Public Redeemable Warrants for such increased
period of time as it may determine.
At any time prior to the close of business on the Expiration Date (on
which date the Public Redeemable Warrants become wholly void and of no value),
the Public Redeemable Warrants may be exercised at the office of the Warrant
Agent except as otherwise set forth below.
Under the provisions of the Warrant Agreement, the Company has the
right at any time commencing on the later of January 24, 1991 or six months
after the Separation Date to redeem the Public Redeemable Warrants in whole for
cancellation at a price of $.10 each, by written notice mailed 30 days prior to
the redemption date to each Redeemable Warrant holder at his address as it
appears on the books of the Warrant Agent, such notice only to be given within
15 days following any period of 20 consecutive trading days during which the
average closing bid price for the shares of Common Stock (if then traded on the
National Association of Securities Dealers, Inc. Automated Quotation System or
on a national securities exchange) equals or exceeds $3.94 per share, subject to
adjustments for stock dividends, splits and the like. If the Public Redeemable
Warrants are called for redemption and cancellation, they must be exercised
prior to the close of business on the date of any such redemption and
cancellation or the right to purchase the applicable shares of Common Stock is
forfeited.
No holder, as such, of any Public Redeemable Warrant shall be entitled
to vote or receive dividends or be deemed the holder of shares of Common Stock
for any purpose whatsoever until such Public Redeemable Warrant has been duly
exercised and the
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Purchase Price has been paid.
The Company is required either to maintain the effectiveness of the
Registration Statement or to file a new registration statement with the
Securities and Exchange Commission, with respect to the securities underlying
the Public Redeemable Warrants prior to the exercise of the Public Redeemable
Warrants and to deliver a prospectus as required by Section 10(a)(3) of the
Securities Act of 1933, as amended, with respect to such securities to all
Redeemable Warrant holders prior to the exercise or redemption of such Public
Redeemable Warrants.
Transfer Agent, Registrar and Warrant Agent
The Company has appointed Continental Stock Transfer & Trust Company, 2
Broadway, New York, NY 10004 as transfer agent and registrar for the Units, the
Common Stock and the Public Redeemable Warrants, and as Warrant Agent under the
Warrant Agreement.
MARKET FOR THE COMPANY'S COMMON EQUITY AND DIVIDENDS
The Company's Common Stock, Public Redeemable Warrants and Series B
Preferred Stock are quoted on NASDAQ under the following symbols:
Common Stock: PJTV
Public Redeemable Warrants: PJTVW
Series B Preferred Stock: PJTVP
The Common Stock and Public Redeemable Warrants were initially
registered and traded as Units and were not separately transferrable until
August 24, 1991. The Units commenced trading in the over-the-counter market on
the closing of the Company's initial public offering on August 1, 1990.
On February 27, 1992 the Company announced a two-for-one stock split,
effective March 2, 1992. Accordingly, all quoted prices for the Company's
securities commencing with the first quarter of 1992 are adjusted to reflect the
March 1992 two-for-one stock split.
29
<PAGE>
The Series B Preferred Stock was initially registered on September 9,
1992 in connection with the Company's Public Redeemable Warrant incentive
program (the "Warrant Incentive Program"). Prior to that time, there was no
public market for the Series B Preferred Stock. Pursuant to the Warrant
Incentive Program, holders of the Company's Public Redeemable Warrants who
exercised their Public Redeemable Warrants within 65 days after September 9,
1992 received one (1) share of Series B Preferred Stock for every three (3)
Public Redeemable Warrants exercised. In connection with the Warrant Incentive
Program, the Company issued 246,452 shares of Series B Preferred Stock.
The Common Stock, Public Redeemable Warrants and Series B Preferred
Stock of the Company are traded in the over-the-counter market and are quoted
on the NASDAQ inter-dealer automated quotations system. There is no public
trading market for the Company's Series A Preferred Stock and only one (1)
holder thereof. The high and low bid quotations for the Common Stock, Public
Redeemable Warrants and Series B Preferred Stock for each full quarterly
period for the fiscal years ending December 31, 1995, December 31, 1996 and
December 31, 1997 for the first quarter of 1998 through February 12, 1998 are
listed below:
30
<PAGE>
PUBLIC
REDEEMABLE SERIES B
COMMON STOCK WARRANTS PREFERRED STOCK
1995 Calendar Quarter Quoted Bid Price Quoted Bid Price Quoted Bid Price
- --------------------- ----------------- ---------------- ----------------
High Low High Low High Low
------ ----- ------ ----- ------ -----
First Quarter 3.67 2.50 4.17 2.67 4.00 3.04
Second Quarter 3.30 1.81 3.17 1.33 3.58 2.29
Third Quarter 3.90 2.54 4.38 2.50 4.13 2.92
Fourth Quarter 5.52 3.44 7.83 5.33 5.83 4.25
PUBLIC
REDEEMABLE SERIES B
COMMON STOCK WARRANTS PREFERRED STOCK
1996 Calendar Quarter Quoted Bid Price Quoted Bid Price Quoted Bid Price
- --------------------- ----------------- ---------------- ----------------
High Low High Low High Low
------ ----- ------ ----- ------ -----
First Quarter 4.56 4.00 5.25 5.00 6.00 5.00
Second Quarter 3.56 2.19 4.00 3.25 4.00 3.00
Third Quarter 4.00 2.81 6.13 4.25 4.50 4.00
Fourth Quarter 3.69 2.56 6.50 5.50 3.50 2.75
PUBLIC
REDEEMABLE SERIES B
COMMON STOCK WARRANTS PREFERRED STOCK
1997 Calendar Quarter Quoted Bid Price Quoted Bid Price Quoted Bid Price
- --------------------- ----------------- ---------------- ----------------
High Low High Low High Low
------ ----- ------ ----- ------ -----
First Quarter 3.47 2.00 5.50 2.00 3.75 2.25
Second Quarter 2.68 1.63 6.50 3.0 3.00 2.00
Third Quarter 2.19 1.50 6.50 3.0 2.75 2.00
Fourth Quarter 2.06 .75 6.50 3.0 2.00 1.06
SERIES B
COMMON STOCK PREFERRED STOCK
1998 Calendar Quarter Quoted Bid Price Quoted Bid Price
- --------------------- ----------------- ----------------
High Low High Low
------ ----- ------ -----
First Quarter (through
March 3, 1998) 1.44 .69 1.50 1.0
On March 3, 1998, the closing bid and asked prices of Common Stock
as reported on the NASDAQ system were $.69 and $.69 per share, respectively.
On December 3, 1997, the closing bid and asked prices of Public Redeemable
Warrants as reported on the NASDAQ system were $3.0 and $3.0 per Public
Redeemable Warrant, respectively. Since such date the Redeemable Warrants have
been de-listed from the Nasdaq SmallCap Market. On February 20, 1998, the
closing bid and asked prices of Series B Preferred Stock on the NASDAQ system
were $1.50 and $1.50, respectively.
On March 3, 1998, there were 407 holders of record of
31
<PAGE>
Common Stock and 20,666, 567 shares of Common Stock issued and outstanding; 4
holders of record of Public Redeemable Warrants and 36,733 Warrants issued and
outstanding; and 6 holders of record of Series B Preferred Stock and 351,258
shares of Series B Preferred Stock issued and outstanding.
No cash dividends have been paid by the Company and management does not
anticipate paying cash dividends in the foreseeable future.
32
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock will be passed upon for the
Company by Zukerman Gore & Brandeis, LLP, New York, New York.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company in accordance with the
Exchange Act can be inspected and copies made at the public reference facilities
maintained by the Commission at Room 1204, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, DC 20549, Suite 1400, Northwestern Atrium Center, 500 West
Madison Street, Chicago, IL 60661 and 7 World Trade Center, New York, NY 10048.
Copies of such material can be obtained at prescribed rates from the public
reference section of the Commission at 450 Fifth Street, N.W., Washington, DC
20549. The Commission maintains a Web-site that contains reports, proxy and
information statements and other information regarding the Company that are on
file with the Commission. The address of the Commission's Web-site is
http://www.see.gov.
The Company has filed with the Commission a Registration Statement on
Form S-3 (including all amendments thereto, the "Registration Statement"), with
respect to the Securities offered hereby. As permitted by the rules and
regulations of the Commission, this Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information about the Company and the Securities
offered hereby, reference is made to the Registration Statement and the exhibits
thereto, which may be examined without charge at the public reference facilities
maintained by the Commission at Room 1204, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, DC 20549, and copies of which may be obtained from the
Commission upon payment of the prescribed fees.
No person has been authorized by the Company to give any
33
<PAGE>
information or to make any representation other than as contained in this
Prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by the Company. Neither the delivery of
this Prospectus nor any distribution of the shares of the Common Stock issuable
under the terms of this Prospectus, under any circumstances, create any
implication that there has been no change in the affairs of the Company since
the date hereof.
34
<PAGE>
No dealer, salesman or other person has been authorized to give any information
or to make any representations not contained in this Prospectus and if given or
made, such information or representations must not be relied upon as having been
authorized by the Company or any Underwriter. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date hereof. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to make such offer or solicitation in such
jurisdiction.
TABLE OF CONTENTS
Page
----
Incorporation of Certain
Documents by Reference.......
Prospectus Summary............
Risk Factors..................
The Company...................
Selling Stockholders..........
Plan of Distribution..........
Description of
Capital Stock................
Market for the Company's
Common Equity
and Dividends...............
Legal Matters.................
Experts.......................
Available Information.........
PROJECTAVISION, INC.
7,825,000 Shares of Common Stock,
Offered by Selling Stockholders
----------------------------
PROSPECTUS
----------------------------
____________________, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Items 14. Other Expenses of Issuance and Distribution.
--------------------------------------------
The following table sets forth expenses payable by the Company in
connection with the registration of the securities being registered. All of the
amounts show are estimates, other than the Securities and Exchange Commission
Registration Fee.
SEC filing fee.......................... $ 1,731.29
Accounting fees and expenses............ 7,500.00
Legal fees and expenses................. 7,500.00
Printing and engraving.................. 0.00
Transfer Agent's and Registrar fees..... 0.00
Miscellaneous expenses.................. 3,268.71
---------
Total.............................. $20,000.00
=========
Item 15. Indemnification of Directors and Officers.
------------------------------------------
The Company's Certificate of Incorporation provides for indemnification
of personal liability of the Directors of the Corporation to the fullest extent
permitted by paragraph "7" of Subsection (b) of Section 102 of the General
Corporation Law of the State of Delaware.
Article VII of the Amended By-Laws of the Company ("By-Laws"), which is
set forth below in its entirety, provides for indemnification of officers,
directors, employees and agents substantially to the extent permitted under the
Delaware General Corporation Law.
Article VII of the Amended By-Laws provides as follows:
"ARTICLE VII"
INDEMNIFICATION
The Corporation shall (a) 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 he is or was a director or officer 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)
actually and reasonably incurred by him in connection with the defense or
settlement or such action or suit, (b) indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
II-1
<PAGE>
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 or officer of
the Corporation, or served at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with any such action, suit or proceeding, in each case to the fullest
extent permissible under subsections (a) through (f) of Section 145 the of
General Corporation Law of the State of Delaware of the indemnification
provisions of any successor statute and (c) advance reasonable and necessary
expenses in connection with such actions or suits, and not seek reimbursement of
such expenses unless there is a specific determination that the officer or
director is not entitled to such indemnification. The foregoing right of
indemnification shall in no way be exclusive of any other rights of
indemnification to which any such persons may be entitled, under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise, and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
The Company has entered into an Indemnification Agreement with each of
its Directors and certain officers, employees, agents or fiduciaries designated
by the Board of Directors (the "Indemnified Party") which provides that the
Company indemnify the Director or other party thereto to the fullest extent
permitted by applicable law. The agreement includes indemnification, to the
extent permitted by applicable law, against expenses, including reasonable
attorneys' fees, judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by the Indemnified Party in connection with any
civil or criminal action or administrative proceeding arising out of the
Indemnified Party's performance of his duties as a Director or officer of the
Company. Such indemnification is available if the Indemnified Party acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the Company, and, with respect to any criminal action, had
no reasonable cause to believe his conduct was unlawful.
The Company maintains officers' and directors' liability insurance that
provides for a maximum of $6,000,000 of coverage, subject to a $100,000
corporate reimbursement per occurrence payable by the Company. Any payments made
by the Company under an Indemnification Agreement which are not covered by the
insurance policy may have an adverse impact on the Company's earnings.
II-2
<PAGE>
Item 16. Exhibits.
----------
Exhibit No.
- -----------
* 3.1 Certificate of Incorporation of the Company
** 3.2 Amendment to Certificate of Incorporation
* 3.3 Amended By-Laws of the Company
+ 5.1 Opinion of Zukerman Gore & Brandeis, LLP
*** 10.1 OEM Alliance Agreement with Como Products Corporation
*** 10.2 OEM Alliance Agreement with C-Mac Electronic Systems
*** 10.3 OEM Basic Transaction Agreement with Texas Instruments
*** 10.4 Agreement with Boxlight Corporation
+ 24.1 Consent of Zukerman Gore & Brandeis, LLP included in Exhibit 5.1
+ 24.2 Consent of Deloitte & Touche LLP
- ---------------
*** Previously filed as an exhibit to Registration
Statement on Form S-3, registration no. 333-24926.
** Filed herewith.
* Previously filed as an exhibit to Company's annual report
on Form 10-K for the fiscal year ended December 31, 1991.
+ To be filed by amendment.
Item 17. Undertakings.
--------------
The undersigned Company hereby undertakes:
(a)(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 of 1933;
(ii) To reflect in the prospectus any facts or 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;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement;
II-3
<PAGE>
or any material change to such information set forth in the
registration statement; provided, however, that paragraphs
(a)(1)(i) and (a)(1)(ii) do not apply if the registration
statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Company
pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 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 the 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.
(a) The undersigned Company hereby undertakes that, for the purposes of
determining any liability under the securities Act of 1933, each filing of the
Company's annual report pursuant to section 13(a) and 15(d) of the Securities
Exchange Act of 1934 that is incorporate 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.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to afforded to directors, officers or
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company 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, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant, certifies that it has reasonable grounds to believe
that it meets all the requirements for filing on Form S-3 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of New York, State of New York on March __, 1998.
PROJECTAVISION, INC.
By:/s/ Martin Holleran
___________________________
Martin Holleran, President
Chief Executive Officer and
Director
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement was signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
- ---------- ------- ------
/s/ Marvin Maslow Chairman of the Board March __, 1998
- -------------------------
Marvin Maslow
/s/ Martin Holleran President, Chief Executive March __, 1998
- ------------------------- Officer and Director
Martin Holleran
/s/ Jules Zimmerman Chief Financial March __, 1998
- ------------------------- Officer, Secretary and
Jules Zimmerman Director
/s/ Martin D. Fife Director March __, 1998
- -------------------------
Martin D. Fife
/s/ Richard S. Hickok Director March __, 1998
- -------------------------
Richard S. Hickok
/s/ Dr. Craig I. Fields Director March __, 1998
- -------------------------
Dr. Craig I. Fields
/s/ Sherman Langer Director March __, 1998
- -------------------------
Sherman Langer
/s/ Arthur Lipper Director March __, 1998
- -------------------------
Arthur Lipper III
<PAGE>
EXHIBIT INDEX
Item 16. Exhibits.
----------
Exhibit No.
- -----------
* 3.1 Certificate of Incorporation of the Company
** 3.2 Amendment to Certificate of Incorporation
* 3.3 Amended By-Laws of the Company
+ 5.1 Opinion of Zukerman Gore & Brandeis, LLP
*** 10.1 OEM Alliance Agreement with Como Products Corporation
*** 10.2 OEM Alliance Agreement with C-Mac Electronic Systems
*** 10.3 OEM Basic Transaction Agreement with Texas Instruments
*** 10.4 Agreement with Boxlight Corporation
+ 24.1 Consent of Zukerman Gore & Brandeis, LLP included in Exhibit 5.1
+ 24.2 Consent of Deloitte & Touche LLP
- ---------------
*** Previously filed as an exhibit to Registration
Statement on Form S-3, registration no. 333-24926.
** Filed herewith.
* Previously filed as an exhibit to Company's annual report
on Form 10-K for the fiscal year ended December 31, 1991.
+ To be filed by amendment.
<PAGE>
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
of
SERIES F CONVERTIBLE PREFERRED STOCK
of
PROJECTAVISION, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
PROJECTAVISION, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies that the
following resolutions were adopted by the Board of Directors of the Corporation
pursuant to authority of the Board of Directors as required by Section 151 of
the Delaware General Corporation Law.
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "Board of Directors" or the "Board")
in accordance with the provisions of its Certificate of Incorporation and
Bylaws, each as amended and restated through the date hereof, the Board of
Directors hereby authorizes a series of the Corporation's previously authorized
Preferred Stock, par value $.01 per share (the "Preferred Stock") and hereby
states the designation and number of shares, and fixes the relative rights,
preferences, privileges, powers and restrictions thereof as follows:
<PAGE>
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 2,850 shares of
Preferred Stock, is the Series F Convertible Preferred Stock (the "Series F
Preferred Stock") and the face amount shall be One Thousand U.S. Dollars
($1,000.00) per share (the "Face Amount").
II. NO DIVIDENDS
The Series F Preferred Stock will bear no dividends, and the holders of
the Series, F Preferred Stock shall not be entitled to receive dividends on the
Series F Preferred Stock.
III. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms
shall have the following meanings:
A. "Average Price" means, as of any date of determination, the average
of the Closing Bid Prices for the Corporation's common stock, par value $.0001
per share ("Common Stock"), during the five (5) consecutive trading days ending
on the trading day immediately preceding such date of determination (subject to
equitable adjustment for any stock splits, stock dividends, reclassifications or
similar events during such five (5) trading day period).
B. "Closing Bid Price" means, for any security as of any date, the
closing bid price of such security on the principal securities exchange of
trading maket where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Corporation and reasonably acceptable to holders of a majority
of the then outstanding shares of Series F Preferred Stock if Bloomberg
Financial Markets is not then reporting closing bid prices of such security
(collectively, "Bloomberg"), or if the foregoing does not apply, the last
reported sale price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
sale price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as reasonably determined by an investment banking firm selected by the
Corporation and reasonably acceptable to holders of a majority of the then
outstanding shares of Series F Preferred Stock, with the cost of such appraisals
to be borne by the Corporation.
C. "Conversion Date" means, for any Conversion, the date specified in
the notice of conversion in the form attached hereto (the "Notice of
Conversion"), so long as the copy of the Notice of Conversion is faxed (or
delivered by other means resulting in notice) to the Corporation before 11:59
p.m., New York City time, on the Conversion Date indicated in the Notice of
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<PAGE>
Conversion. If the Notice of Conversion is not so faxed or otherwise delivered
before such time, then the Conversion Date shall be the date the holder faxes or
otherwise delivers the Notice of Conversion to the Corporation.
D. "Conversion Percentage" shall mean seventy-five percent (75%), and
shall be subject to adjustment as provided herein.
E. "Conversion Price" means, with respect to any Conversion Dates, the
lower of the Fixed Conversion Price and the Variable Conversion Price, each in
effect as of such date and subject to adjustment as providcd herein.
F. "Fixed Conversion Price" means $1.00, and shall be subject to
adjustment as provided herein.
G. "Floor Price" shall initially mean $.50; provided, however, that in
the event the Corporation (i) fails to (A) consummate a private placement of not
less than $10,000,000 of the Corporation's equity securities on or before June
30, 1998 (the "Private Placement") and (B) use the proceeds of such Private
Placement to acquire the assets of Vidikron Industries, S.p.A. an or before June
30, 1998 (the "Proposed Acquisition"), or (ii) fails to achieve gross revenues
from the sale of its television products of at least $10,000,000 for the six (6)
month period ending June 30, 1998, the Floor Price shall mean zero, ($0);
provided, further, however, that in the event the corporation (i) consummates
the Private Placement and the Proposed Acquisition at any time after June 30,
1998 or (ii) achieves gross revenues from the sale of its television products of
at least $10,000,000 at any time after June 30, l998, the Floor Price shall
again mean $.50. In addition the Floor Price shall be subject to adjustment as
provided herein.
H. "Issuance Date" means the date of the closing under that certain
Securities Purchase Agreement by and among the Corporation and the purchasers
named therein with respect to the issuance of the Series F Preferred Stock (the
"Securities Purchase Agreement").
I. "N" means the number of days from, but excluding, the Issuance Date.
J. "Premium" means an amount equal to (.08)x(N/365)x(1,000).
K. "Variable Conversion Price" means, as of any date of determination,
the amount obtained by multiplying the Conversion Percentage then in effect by
the Average Price as of such date, and shall be subject to adjustment as
provided herein.
-3-
<PAGE>
IV. CONVERSION
A. Conversion at the Option of the Holder. (i) Subject to the
limitations on conversions contained in Paragraph C of this Article IV, each
holder of shares of Series F Preferred Stock may, at any time and from time to
time after the earlier of (x) the one hundred tenth (110th) day following the
Issuance Date and (y) the date on which the registration statement required to
be filed by the Corporation pursuant to Section 2(a) of that certain
Registration Agreement, dated as of the Issuance Date, by and among the
Corporation and the other signatories thereto (the "Registration Rights
Agreement") is declared effective by the United States Securities and Exchange
Commission, convert (a "Conversion") each of its shares of Series F Preferred
Stock into a number of fully paid and nonassessable shares of Common Stock
determined in accordance with the following formula if the Corporation timely
redeems the Premium thereon in cash in accordance with subparagraph (ii) below.
1,000
----------------
Conversion Price
or in accordance with the following formula if the Corporation does not
timely redeem the Premium thereon in accordance with subparagraph (ii) below:
1,000 + the Premium
--------------------
Conversion Price
(ii) (a) The Corporation shall have the right, in its sole discretion,
upon receipt of a Notice of Conversion, to redeem the Premium subject to such
conversion for a sum of cash equal to the amount of the Premium being so
redeemed. All cash redemption payments hereunder shall be paid in lawful money
of the United States of America at such address for the holder as appears on the
record books of the Corporation (or at such other address as such holder shall
hereafter give to the Corporation by written notice). In the event the
Corporation so elects to redeem the Premium in cash and fails to pay such holder
the applicable redemption amount to which such holder is entitled by depositing
a check in the U.S. Mail to such holder within three (3) business days of
receipt by the Corporation of a Notice of Conversion, the Corporation shall
thereafter forfeit its right to redeem such Premium in cash and such Premium
shall thereafter be converted into shares of Common Stock in accordance with
Article IV.A(i).
(b) Each holder of Series F Preferred Stock shall have the right to
require the Corporation to provide advance notice to such holder stating whether
the Corporation will elect to redeem the Premium in cash pursuant to the
Corporation's redemption rights discussed in subparagraph (a) of this Article
IV.A(ii). A holder may exercise such right from time to time by sending notice
(an "Election Notice") to the Corporation, by facsimile, requesting that the
Corporation disclose to such holder whether the Corporation would elect to
redeem the Premium for cash in lieu of issuing shares of Common Stock therefor
if such holder were to exercise its right of
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<PAGE>
conversion pursuant to this Article IV.A. The Corporation shall, no later than
the close of business on the next business day following receipt of an Election
Notice, disclose to such holder whether the Corporation would elect to redeem
the Premium in connection with a conversion pursuant to a Notice of Conversion
delivered over the subsequent five (5) business day period. If the Corporation
does not respond to such holder within such one (1) business day period via
facsimile, the Corporation shall, with respect to any conversion pursuant to a
Conversion Notice delivered within the subsequent five (5) business day period,
forfeit its rights to redeem such Premium in accordance with subparagraph (a)
of this Article IV.A(ii) and shall be required to convert such Premium into
shares of Common Stock
D. Mechanics of Conversion. In order to effect a Conversion, a holder
shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice of
Conversion to the Corporation or the transfer agent for the Common Stock and (y)
surrender or cause to be surrendered the original certificates representing the
Series F Preferred Stock being converted (the "Preferred Stock Certificates"),
duly endorsed, along with a copy of the Notice of Conversion as soon as
practicable thereafter to the Corporation or the transfer agent. Upon receipt by
the Corporation of a facsimile copy of a Notice of Conversion from a holder, the
Corporation shall immediately send, via facsimile, a confirmation to such holder
stating that the Notice of Conversion has been received, the date upon which the
Corporation expects to deliver the Common Stock issuable upon such conversion
and the name and telephone number of a contact person at the Corporation
regarding the conversion. The Corporation shall not be obligated to issue shares
of Common Stock upon a conversion unless either the Preferred Stock Certificates
are delivered to the Corporation or the transfer agent as provided above, or the
holder notifies the Corporation or the transfer agent that such certificates
have been lost, stolen or destroyed and delivers the documentation to the
Company required by Article XIV.B hereof.
(i) Delivery of Common Stock Upon Conversion. Upon the surrender of
Preferred Stock Certificates from a holder of Series F Preferred Stock
accompanied by a Notice of Conversion, the Corporation shall, no later than the
later of (a) the second business day following the Conversion Date and (b) the
business day following the date of such surrender (or, in the case of lost,
stolen or destroyed certificates, after provision of indemnity pursuant to
Article XIV.B) (the "Deliveity Period"), issue and deliver to the holder or its
nominee (x) that number of shares of Common Stock issuable upon conversion of
such shares of Series F Preferred Stock being converted and (y) a certificate
representing the number of shares of Series F Preferred Stock not being
converted, if any. If the Corporation's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program, and
so long as the certificates therefore do not bear a legend and the holder
thereof is not obligated to return such certificate for the placement of a
legend thereon, the Corporation shall cause its transfer agent to electronically
transmit the Common Stock issuable upon conversion to the holder by crediting
the account of the holder or its nominee with DTC through its Deposit Withdrawal
Agent Commission system ("DTC Transfer"). If the aforementioned condition to a
DTC Transfer are not satisfied, the Corporation shall deliver to the holder
physical certificates representing the Common Stock issuable upon conversion.
Further, a holder may instruct the Corporation to deliver to the holder physical
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certificates representing the Common Stock issuable upon conversion in lieu of
delivering such shares by way of DTC Transfer.
(ii) Taxes. The Corporation shall pay any and all taxes which may be
imposed upon it with respect to the issuance and delivery of the shares of
Common Stock upon the conversion of the Series F Preferred Stock.
(iii) No Fractional Shares. If any conversion of Series F Preferred
Stock would result in the issuance of a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon conversion of the Series F Preferred Stock shall be the next
higher whole number of shares.
(iv) Conversion Disputes. In the case of any dispute with respect to a
conversion, the Corporation shall promptly issue such number of shares of Common
Stock as are not disputed in accordance with subparagrah (i) above. If such
dispute involves the calculation of the Conversion Price, the Corporation shall
submit the disputed calculation to an independent outside accountant via
facsimile within two (2) business days of receipt of the Notice of Conversion.
The accountant, at the Corporation's sole expense, shall audit the calculations
and notify the Corporation and the holder of the results no later than two (2)
business days from the date it receives the disputed calculations. The
accountant's calculation shall be deemed conclusive, absent manifest error. The
Corporation shall then issue the appropriate number of shares of Common Stock in
accordance with subparagraph (i) above.
C. Limitations on Conversions. The conversion of shares of Series F
Preferred Stock shall be subject to the following limitations (each of which
limitations shall be applied independently):
(i) Cap Amount. Unless permitted by the applicable rules and
regulations of the principal securities market on which the Common Stock is
listed or traded, in no event shall the total number of shares of Common Stock
issued upon conversion of the Series F Preferred Stock exceed the maximum number
of shares of Common Stock that the Corporation can so issue pursuant to Rule
4460(i) of the National Association of Securities Dealers ("NASD") (or any
successor rule) (the "Cap Amount") which, as of the date of issuance of the
Series F Preferred Stock, shall be 4,064,000 shares. The Cap Amount shall be
allocated pro-rata to the holders of Series F Preferred Stock as provided in
Article XIV.C. In the event the Corporation is prohibited from issuing shares
of Common Stock as a result of the operation of this subparagraph (i), the
Corporation shall comply with Article VII.
(ii) No Five Percent Holders. Unless a holder of shares of Series F
Preferred Stock delivers a waiver in accordance with the last sentence of this
subparagraph (ii), in no event shall a holder of shares of Series F Preferred
Stock be entitled to receive shares of Common Stock upon a conversion to the
extent that the sum of (x) the number of shares Common Stock beneficially owned
by the holder and its affiliates (exclusive of shares issuable upon conversion
of
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the unconverted portion of the shares of Series F Preferred Stock or the
unexercised or unconverted portion of any other securities of the Corporation
(including, without limitation, the warrants (the "Warrants") issued by the
Corporation pursuant to the Securities Purchase Agreement) subject to a
limitation on conversion or exercise analogous to the limitations contained
herein) and (y) the number of shares of Common Stock issuable upon the
conversion of the shares of Series F Preferred Stock with respect to which the
determination of this subparagraph is being made, would result in beneficial
ownership by the holder and its affiliates or more than 4.99% of the outstanding
shares of Common Stock. For purposes of this subparagraph, beneficial ownership
shall be determined in accorance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and Regulation 13 D-G therunder, except as otherwise
provided in clause (x) above. Except as provided in the immediately succeeding
sentence, the restriction contained in this subparagraph (ii) shall not be
altered, amended, deleted or changed in any manner whatsoever unless the holders
of a majority of the outstanding shares of Common Stock and each holder of
outstanding shares of Series F Preferred Stock shall approve such alteration,
amendment, deletion or change. Notwithstanding the foregoing, a holder of shares
of Series F Preferred Stock may waive the restriction set forth in this
subparagraph (ii) by written notice to the Corporation upon not less than
sixty-one (61) days prior notice (with such waiver taking effect only upon the
expiration of such sixty-one (61) day period).
(iii) Time Limitations. (a) So long as no Conversion default (as
defined in Article VI hereof) or Mandatory Redemption Event (as defined in
Article VIII.A hereof) has occurred and is then continuing, and except as
otherwise provided below, a holder of Series F Preferred Stock may not convert
shares of Series F Preferred Stock to the extent that the total number of shares
of Series F Preferred Stock previously converted by such holder (excluding for
purposes of this calcualtion any shares of Series F Preferred Stock converted by
such holder following the occurrence and during the continuation of a Conversion
Default or Mandatory Redemption Event) together with the number of shares of
Series F Preferred Stock which such holder is attempting to convert exceeds the
Maximum Conversion Percentage (as defined herein) multiplied by the total number
of shares of Series F Preferred Stock purchased by such holder pursuant to the
Securities Purchase Agreement (with respect to each such holder, the "Original
Share Amount"). A holder's Original Share Amount shall be increased or
decreased, as applicable, upon any sale or purchase by such holder of shares of
Series F Preferred Stock occurring after the Issuance Date. "Maximum Conversion
Percentage" means:
If the Conversion Date is: Then the Maximum Conversion Percentage is:
- -------------------------- ------------------------------------------
On or after the 181st day
following the Issuance Date
and before the 211th day
following the Issuance Date 20%
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<PAGE>
On or after the 211th day
following the Issuance Date
and before the 241st day
following the Issuance Date 40%
On or after the 241st day
following the Issuance Date
and before the 271st day
following the Issuance Date 60%
On or after the 271st day
following the Issuance Date
and before the 301st day
following the Issuance Date 80%
On or after the 301st day
following the Issuance Date 100%
(b) Notwithstanding the foregoing, the restrictions on conversion set
forth in this Article IV.C.(iii) shall terminate (I) on or after the date the
Corporation makes a public announcement that it intends to merge or consolidate
with any other entity (other than a merger in which the Corporation is the
surviving or continuing entity and its capital stock is unchanged) or to sell or
transfer all or substantially all of the assets of the Corporation or (II) on or
after the date any person, group or entity (including the Corporation) publicly
announces a tender offer, exchange offer or another transaction to purchase 50%
or more of the Corporation's Common Stock or otherwise publicly announces an
intention to replace a majority of the Corporation's Board of Directors by
waging a proxy battle or otherwise.
(iv) So long as no Conversion Default or Mandatory Redemption Event has
occurred and is then continuing, holders of shares of Series F Preferred Stock,
may not effect a Conversion of shares of Series F Preferred Stock on any
Conversion Date on which the Average Price then in effect is less than the Floor
Price then in effect.
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V. RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. Upon the initial issuance of the shares of Series F
Preferred Stock, the Corporation shall reserve 7,600,000 shares of the
authorized but unissued shares of Common Stock for issuance upon conversion of
the Series F Preferred Stock and thereafter the number of authorized but
unissued shares of Common Stock so reserved (the "Reserved Amount") shall not be
decreased and shall at all times be sufficient to provide for the conversion
of the Series F Preferred Stock outstanding at the then current Conversion Price
thereof. The Reserved Amount shall be allocated to the holders of Series F
Preferred Stock as provided in Article XIV.C.
B. Increases to Reserved Amount. If the Reserved Amount for any three
(3) consecutive trading days (the last of such three (3) trading days being the
"Authorization Trigger Date") shall be less than 135% of the number of shares of
Common Stock issuable upon conversion of the then outstanding shares of Series F
Preferred Stock, the Corporation shall immediately notify the holders of Series
F Preferred Stock of such occurrence and shall take immediate action (including,
if necessary, seeking shareholder approval to authorize the issuance of
additional shares of Common Stock) to increase the Reserved Amount to 200% of
the number of shares of Common Stock then issuable upon conversion of the
outstanding Series F Preferred Stock. In the event the Corporation fails to so
increase the Reserved Amount within ninety (90) days after an Authorization
Trigger Date, each holder of Series F Preferred Stock shall thereafter have the
option, exercisable in whole or in part at any time and from time to time by
delivery of a Mandatory Redemption Notice (as defined in Article VIII.C) to the
Corporation, to required the Corporation to purchase for cash, at an amount per
share equal to the Mandatory Redemption Amount (as defined in Article VIII.B) a
portion of the holder's Series F Preferred Stock such that, after giving effect
to such purchase, the holder's allocated portion of the Reserved Amount exceeds
135% of the total number of shares of Common Stock issuable to such holder upon
conversion of its Series F Preferred Stock. If the Corporation fails to redeem
any of such shares within five (5) business days after its receipt of such
Mandatory Redemption Notice, then such holder shall be entitled to the remedies
provided in Article VIII.C.
VI. FAILURE TO SATISFY CONVERSIONS
A. Conversion Default Payments. If, at any time, (x) a holder of shares
of Series F Preferred Stock submits a Notice of Conversion and the Corporation
fails for any reason (other than because such issuance would exceed such
holder's allocated portion of the Reserved Amount or Cap Amount, for which
failures the holders shall have the remedies set forth in Articles V and VII,
respectively) to deliver, on or prior to the fourth (4th) business day following
the expiration of the Delivery Period for such conversion, such number of freely
tradeable shares of Common Stock to which such holder is entitled upon such
conversion, or (y) the Corporation provides notice to any holder of Series F
Preferred Stock at any time of its intention not to issue freely tradeable
shares of Common Stock upon exercise by any holder of its covnersion rights in
accordance with the terms of this Certificate of Designation (other than because
such issuance would exceed such holder's
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<PAGE>
allocated portion of the Reserved Amount or Cap Amount) (each of (x) and (y)
being a "Conversion Default"), then the Corporation shall pay to the affected
holder, in the case of a Conversion Default described in clause (x) above, and
to all holders, in the case of a Conversion Default described in clause (y)
above, an amount equal to:
(.24)x(D/365)x(the Default Amount)
where:
"D" means the number of days after the expiration of the Delivery
Period through and including the Default Cure Date;
"Default Amount" means (i) the total Face Amount of all shares of
Series F Preferred Stock held by such holder, plus (ii) the total accrued
Premium as of the first day of the Conversion Default on all shares of Series F
Preferred Stock included in clause (i) of this definition; and
"Default Cure Date" means (i) with respect to a Conversion Default
described in clause (x) of its definition, the date the Corporation effects the
conversion of the full number of shares of Series F Preferred Stock, and (ii)
with respect to a Conversion Default described in clause (y) of its definition,
the date the Corporation begins to issue freely tradeable shares of Common Stock
in satisfaction of all conversions of Series F Preferred Stock in accordance
with Article IV.A, and (iii) with respect to either type of a Conversion
Default, the date on which the Corporation redeems shares of Series F Preferred
Stock held by such holder pursuant to paragraph D of this Article VI.
The payments to which a holder shall be entitled pursuant to this
Paragraph A are referred to herein as "Conversation Default Payments." A holder
may elect to receive accrued Conversion Default Payments in cash or to convert
all or any portion of such accrued Conversion Defaul Payments, at any time, into
Common Stock at the lowest Conversion Price in effect during the period
beginning on the date of the Conversion Default through the Conversion Date with
respect to such Conversion Default Payments. In the event a holder elects to
receive any Conversion Default Payments in cash, it shall so notify the
Corporation in writing. Such payment shall be made in accordance with and be
subject to the provisions of Article XIV.E. In the event a holder elects to
convert all or any portion of the Conversion Default Payments into Common Stock,
the holder shall indicate on a Notice of Conversion such portion of the
Conversion Default Payments which such holder elects to so convert and such
conversion shall otherwise be effected in accordance with the provisions of
Article IV.
B. Adjustment to Conversion Price. If a holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Delivery Period with respect to a conversion of
Series F Preferred Stock for any reason (other than because such issuance would
exceed such holder's allocated portion of the Reserved Amount of Cap Amount, for
which failures the holders shall have the remedies set forth in Articles V and
VII, respectively), then the Fixed Conversion Price in respect of any shares of
Series F Preferred Stock held by such
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<PAGE>
holder (including shares of Series F Preferred Stock submitted to the
Corporation for conversion, but for which shares of Common Stock have not been
issued to such holder) shall thereafter be the lesser of (i) the Fixed
Conversion Price on the Conversion Date specified in the Notice of Conversion
which resulted in the Conversion Default and (ii) the lowest Conversion Price in
effect during the period beginning on, and including, such Conversion Date
through and including the earlier of (x) the day such shares of Common Stock are
delivered to the holder and (y) the day on which the holder regains its rights
as a holder of Series F Preferred Stock with respect to such unconverted shares
of Series F Preferred Stock pursuant to the provisions of Article XIV.F hereof.
If there shall occur a Conversion Default of the type described in clause (y) of
Article VI.A, then the Fixed Conversion Price with respect to any conversion
thereafter shall be the lowest Conversion Price in effect at any time during the
period beginning on, and including, the date of the occurrence of such
Conversion Default through and including the Default Cure Date. The Fixed
Conversion Price shall thereafter be subject to further adjustment for any
events described in Article XI.
C. Buy-In Cure. Unless the Corporation has notified the applicable
holder in writing prior to the delivery by such holder of a Notice of Conversion
the the Corporation is unable to honor conversions, if (i) (a) the Corporation
fails for any reason to deliver during the Delivery Period shares of Common
Stock to a holder upon a conversion of shares of Series F Preferred Stock or (b)
there shall occur a Legend Removal Failure (as defined in Article VIII.A(iii)
below) and (ii) thereafter, such holder purchases (in an open market transaction
or otherwise) shares of Common Stock to make delivery in satisfaction of a sale
by such holder of the unlengeded shares of Common Stock (the "Sold Shares")
which such holder anticipated receiving upon such conversion (a "Buy-In"), the
Corporation shall pay such holder (in addition to any other remedies available
to the holder) the amount by which (x) such holder's total purchase price
(including brokerage commisisons, if any) for the un1egended shares of Common
Stock so purchased exceeds (y) the net proceeds received by such holder from the
sale of the Sold Shares. For example, if a holder purchases unlegended shares of
Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to shares of Common Stock it sold for $10,000, the Corporation will be
required to pay the holder $1,000. A holder shall provide the Corporation
written notification and supporting documentation indicating any amounts payable
to such holder pursuant to Paragraph C. The Corporation shall make any payments
required pursuant to this Paragraph C in accordance with and subject to the
provisions of Article XIV.E.
D. Redemption Rights. If the Corporation fails, and such failure
continues uncured for five (5) business days after the Corporation has been
notified thereof in writing by the holder, for any reason (other thm because
such issuance would exceed such holder's allocated portion of the Reserved
Amount or Cap Amount, for which failures the holders shall have the remedies set
forth in Articles V and VII, respectively) to issue shares of Common Stock
within ten (10) business days after the expiration of the Delivery Period with
respect to any conversion of Series F Preferred Stock, then the holder may elect
at any time and from time to time prior to the Default Cure Date for such
Conversion Default by delivey of a Mandatory Redemption Notice to the
Corporation, to have all or any portion of such holder's outstanding shares of
Series F Preferred Stock purchased by the Corporation for cash, at an amount per
share equal to the Mandatory Redemption Amount (as
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<PAGE>
defined in Article VIII.B). If the Corporation fails to redeem any of such
shares within five (5) business days after its receipt of such Mandatory
Redemption Notice, then such holder shall be entitled to the remedies provided
in Article VIII.C
VII. INABILITY TO CONVERT DUE TO CAP AMOUNT
A. Obligation to Cure. If at any time after the first date on which the
Series F Preferred Stock may be converted in accordance with Article IV hereof
the then unissued portion of any holder's Cap Amount is less than 135% of the
number of shares of Common Stock then issuable upon conversion of such holder's
shares of Series F Preferred Stock (a "Trading Market Trigger Event"), the
Corporation shall immediately notify the holders of Series F Preferred Stock of
such occurrence and shall take immediate action (including, if necessary,
seeking the approval of its shareholders to authorize the issuance of the full
number of shares of Common Stock which would be issuable upon the conversion of
the then outstanding shares of Series F Preferred Stock but for the Cap Amount)
to eliminate any prohibitions under applicable law or the rules or regulations
of any stock exchange, interdealer quotation system or other self-regulatory
orgainzation with jurisdiction over the Corporation or any of its securities on
the Corporation's ability to issue shares of Common Stock in excess of the Cap
Amount. In the event the Corporation fails to eliminate all such prohibitions
within ninety (90) days after the Trading Market Trigger Event, then each holder
of Series F Preferred Stock shall thereafter have the option, exercisable in
whole or in part at any time and from time to time until such date that all such
prohibitions are eliminated, by delivery of a Mandatory Redemption Notice (as
defined in Article VII.C) to the Corporation, to require the Corporation to
purchase for cash, at an amount per share equal to the Mandatory Redemption
Amount, a number of the holder's shares of Series F Preferred Stock such that,
after giving effect to such redemption, the then unissued portion of such
holder's Cap Amount exceeds 135% of the total number of shares of Common Stock
issuable upon conversion of such holder's shares of Series F Preferred Stock. If
the Corporation fails to redeem any of such shares within five (5) business days
after its reciept of such Mandatory Redemption Notice, then such holder shall be
entitled to the remedies provided in Articles VII.B.and VIII.C.
B. Remedies. If the Corporation fails to redeem any shares of Series F
Preferred Stock pursuant to Article VII.A. within five (5) business days after
its receipt of such Mandatory Redemption Notice, and therafter the Corporation
is prohibited, at any time, from issuing shares of Common Stock upon conversion
of Series F Preferred Stock to any holder because such issuance would excced the
then unissued portion of such holder's Cap Amount becuase of applicable law or
the rules or regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Corporation or its
securities, any holder who is so prohibited from converting its Series F
Preferred Stock may elect either or both of the following additional remedies:
(i) to require, with the consent of holders of at least fifty percent
(50%) of the outstanding shares of Series F Preferred Stock (including any
shares of Series F Preferred Stock held
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<PAGE>
by the requesting holder), the Corporation to terminate the listing of its
Common Stock on the Nasdaq SmallCap Market (or any other stock exchange,
interdealer quotation system or trading market) and to cause its Common Stock to
be eligible for trading on the over-the-counter electronic bulletin board; or
(ii) to require the Corporation to issue shares of Common Stock in
accordance with such holder's Notice of Conversion at a conversion price equal
to the Average Price in effect as of the date of the holder's written notice to
the Corporation of its election to receive shares of Common Stock pursuant to
this subparagraph (ii).
VIII. REDEMPTION DUE TO CERTAIN EVENTS
A. Redemption by Holder. In the event (each of the events described in
clauses (i)-(vii) below after expiration of the applicable cure period (if any)
being a "Mandatory Redemption Event"):
(i) the Common Stock (including any of the shares of Common Stock
issuable upon conversion of the Series F Preferred Stock) is suspended from
trading on any of, or is not listed (and authorized) for trading on at least one
of, the New York Stock Exchange, the American Stock Exchange, the Nasdaq
National Market or the Nasdaq SmallCap Market for an aggregate of ten (10)
trading days in any nine (9) month period;
(ii) the Registration Statement required to be filed by the Corporation
pursuant to Section 2(a) of the Registration Rights Agreement has not been
declared effective by the one hundred eightieth (180th) day following the
Issuance Date, or such Registration Statement, after being declared effective,
cannot be utilized by the holders of Series F Preferred Stock for the resale of
all of their Registrable Securities (as defined in the Registration Rights
Agreement) for an aggregate of more than thirty (30) days;
(iii) the Corporation fails to remove any restrictive legend on any
certificate or any shares of Common Stock issued to the holders of Series F
Preferred Stock upon conversion of the Series F Preferred Stock as and when
required by this Certificate of Designation, the Securities Purchase Agreement
or the Registration Rights Agreement (a "Legend Removal Failure"), and any such
failure continues uncured for five (5) business days after the Corporation has
been notified thereof in writing by the holder;
(iv) the Corporation provides notice to any holder of Series F
Preferred Stock, including by way of public announcement, at any time, of its
intention not to issue shares of Common Stock to any holders of Series F
Preferred Stock upon conversion in accordance with the terms of this Certificate
of Designation (other than due to the circumstances contemplated by Articles V
or VII for which the holders shall have the remedies set forth in such
Articles);
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<PAGE>
(v) the Corporation shall:
(a) sell, convey or dispose of all or substantially all of its
assets;
(b) merge, consolidate or engage in any other business
combination with any other entity (other than pursuant to am migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Corporation and other than pursuant to a merger in which the Corporation is
the surviving or continuing entity and its capital stock is unchanged); or
(c) have fifty percent (50%) or more of the voting power of its
capital stock owned beneficially by one person, entity or "group" (as such term
is used under Section 13(d) of the Securities Exchange Act of 1934, as amended),
except as a direct result of the Private Placement;
(vi) the Corporation otherwise shall breach any material term
hereunder/or under the Securities Purchase Agreement or the Registration Rights
Agreement and such breach continues uncured for ten (10) business days after the
Corporation has been notified thereof in writing by the holder; or
(vii) Marvin Maslow ceases for any reason to serve as Chairman of the
Board of Directors of the Corporation or Martin Holleran ceases for any reason
to serve as President and Chief Executive Officer of the Corporation;
then, upon the occurrence of any such Mandatory Redemption Event, each holder of
shares of Series F Preferred Stock shall thereafter have the option, exercisable
in whole or in part at any time and from time to time by delivery of a Mandatory
Redemption Notice (as defined in Paragraph C below) to the Corporation while
such Mandatory Redemption Event continues, to require the Corporation to
purchase for cash any or all of the then outstanding shares of Series F
Preferred Stock held by such holder for an amount per share equal to the
Mandatory Redemption Amount (as defined in Paragraph B below) in effect at the
time of the redemption hereunder. For the avoidance of doubt, the occurrence of
any event described in clauses (i), (ii), (iv), (v) or (vii) above shall
immediately constitute a Mandatory Redemption Event and there shall be no cure
period. Upon the Corporation's receipt of any Mandatory Redemption Notice
hereunder (other than during the three (3) trading day period following the
Corporation's delivery of a Mandatory Redemption Announcement (as defined below)
to all of the holders in response to the Corporation's initial receipt of a
Mandatory Redemption Notice from a holder of Series F Preferred Stock), the
Corporation shall immediately (and in any event within one (1) business day
following such receipt) deliver a written notice (a "Mandatory Redemption
Announcement") to all holders of Series F Preferred Stock stating the date upon
which the Corporation received such Mandatory Redemption Notice and the amount
of Series F Preferred Stock covered thereby. The Corporation shall not redeem
any shares of Series F Preferred Stock during the three (3) trading day period
following the delivery of a required Mandatory Redemption Announcement
hereunder. At any time and from time to time during such three (3) trading day
period, each holder of Series F Preferred Stock may request (either orally or
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in writing) information from the Corporation with respect to the instant
redemption (including, but not limited to, the aggregate number of shares of
Series F Preferred Stock covered by Mandatory Redemption Notices received by the
Corporation) and the Corporation shall furnish (either orally or in writing) as
soon as practicable such requested information to such requesting holder.
B. Definition of Mandatory Redemption Amount. The "Mandatory Redemption
Amount" with respect to a share of Series F Preferred Stock means an amount
equal to the greater of:
(i) V
-------- x M
CP
and
(ii) The sum of (x) the product of (I) one hundred percent (100%)
divided by the Conversion Percentage in effect on the date on which the
Corporation receives the Mandatory Redemption Notice, times (II) the Face Amount
thereof, plus (y) the accrued Premium thereon and all unpaid Conversion Dafault
Payments owing (if any) with respect thereto through the date of payment of the
Mandatory Redemption Amount.
where:
"V" means the Face Amount thereof plus the accrued Premium thereon and all
unpaid Conversion Default Payments owing (if any) with respect thereto through
the date of payment of the Mandatory Redemption Amount;
"CP" means the Conversion Price in effect on the date on which the
Corporation receives the Mandatory Redemption Notice; and
"M" means (i) with respect to all redemptions other than redemptions
pursuant to Article VIII.A(v) hereof, the highest Closing Bid Price of the
Corporation's Common Stock during the period beginning on the date on which the
Corporation receives the Mandatory Redemption Notice and ending on the date
immediately preceding the date of payment of the Mandatory Redemption Amount and
(ii) with respect to redemptions pursuant to Article VIII.A(v) hereof, the
greater of (a) the amount determined pursuant to clause (i) of this definition
or (b) the fair market value, as of the date on which the Corporation receives
the Mandatory Redemption Notice, of the consideration payable to the holder of a
share of Common Stock pursuant to the transaction which triggers the redemption.
For purposes of this definition, "fair market value" shall be determined by the
mutual agreement of the Corporation and holders of a majority-in-interest of the
shares of Series F Preferred Stock then outstanding, or if such agreement cannot
be reached within five (5) business days prior to the date of redemption, by an
investment banking firm selected by the Corporation and reasonably acceptable to
holders of a majority-in-interest of the then outstanding shares of Series F
Preferred Stock, with the costs of such appraisal to be borne by the
Corporation.
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C. Redemption Defaults. If the Corporation fails to pay any holder the
Mandatory Redemption Amount with respect to any share of Series F Preferred
Stock within five (5) business days after its receipt of a notice requiring such
redemption (a "Mandatory Redemption Notice"), then the holder of Series F
Preferred Stock delivering such Mandatory Redemption Notice (i) shall be
entitled to interest on the Mandatory Redemption Amount at a per annum rate
equal to the lower of twenty-four percent (24%) and the highest interest rate
permitted by applicable law from the date on which the Corporation receives the
Mandatory Redemption Notice until the date of payment of the Mandatory
Redemption Amount hereunder, and (ii) shall have the right, at any time and from
time to time, to require the Corporation, upon written notice, to immediately
convert (in accordance with the terms of Paragraph A of Article IV) all or any
portion of the Mandatory Redemption Amount, plus interest as aforesaid, into
shares of Common Stock at the lowest Conversion Price in effect during the
period beginning on the date on which the Corporation receives the Mandatory
Redemption Notice and ending on the Conversion Date with respect to the
conversion of such Mandatory Redemption Amount. In the event the Corporation is
not able to redeem all of the shares of Series F Preferred Stock subject to
Mandatory Redemption Notices delivered prior to the date upon which such
redemption is to be effected, the Corporation shall redeem shares of Series F
Preferred Stock from each holder pro rata, based on the total number of shares
of Series F Preferred Stock outstanding at the time of redemption included by
such holder in all Mandatory Redemption Notices delivered prior to the date upon
which such redemption is to be effected relative to the total number of shares
of Series F Preferred Stock outstanding at the time of redemption included in
all of the Mandatory Redemption Notices delivered prior to the date upon which
such redemption is to be effected.
D. Redemption at the Corporation's Option.
(i) The Corporation shall have the right, at any time and from time to
time, so long as no Conversion Default or Mandatory Redemption Event shall have
occurred and be continuing, to redeem (an "Optional Redemption") all or any
portion of the then outstanding shares of Series F Preferred Stock (excluding
shares of Series F Preferred Stock subject to a Notice of Conversion delivered
to the Corporation prior to the date of the Optional Redemption Notice (as
defined in subparagraph (iii) below)) for cash, at an amount per share equal to
the Optional Redemption Amount (as defined below), by delivering an Optional
Redemption Notice to the holders of Series F Preferred Stock. Subject to the
provisions of Article IV.C hereof, holders of Series F Preferred Stock may
convert all or any part of their shares of Series F Preferred Stock selected for
redemption hereunder into Common Stock by delivering a Notice of Conversion to
the Corporation at any time prior to the Effective Date of Redemption. For
purposes hereof, the "Optional Redemption Amount" with respect to a share of
Series F Preferred Stock means:
(a) With respect to an Optional Redemption for which the Effective
Date of Redemption (as defined in subparagraph (iii) below) occurs on or before
the ninetieth (90th) day following the Issuance Date, an amount equal to the sum
of (x) 112.5% of the Face Amount thereof, plus (y) the accured Premium thereon
and all unpaid Conversion Dafault Payments owing (if any) with respect thereto
through the Effective Date of Redemption:
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(b) With respect to an Optional Redemption for which the
Effective Date of Redemption occurs after the ninetieth (90th) day following the
Issuance Date and on or before the one hundred eightieth (180th) day following
the Issuance Date, an amount equal to the sum of (x) 125% of the Face Amount
thereof, plus (y) the accrued Premium thereon and all unpaid Conversion Default
Payments owing (if any) with respect thereto through the Effective Date of
Redemption; and
(c) With respect to an Optional Redemption for which the
Effective Date of Redemption occurs after the one hundred eightieth (180th) day
following the Issuance Date, an amount equal to the greater of:
(x) V
------------- x M
CP
and
(y) The sum of (i) the product of (A) one hundred percent
(100%) divided by the Conversion Percentage in effect on the date of the
Optional Redemption Notice, times (B) the Face Amount thereof, plus (II) the
accrued Premium thereon and all unpaid Conversion Default Payments owing (if
any) with respect thereto through the Effective Date of Redemption.
where:
"V" means the Face Amount thereof plus the accrued Premium thereon and
all unpaid Conversion Default Payments owing (if any) with respect thereto
through the Effective Date of Redemption;
"CP" means the Conversion Price in effect on the date of the Optional
Redemption Notice; and
"M" means the Closing Bid Price of the Corporation's Common Stock on
the date of the Optional Redemption Notice.
(ii) The Corporation may not deliver an Optional Redemption Notice
to the holders of Series F Preferred Stock unless on or prior to the date of
delivery of such Optional Redemption Notice, the Corporation shall have
deposited with an escrow agent reasonably acceptable to holders of a majority of
the then outstanding shares of Series F Preferred Stock, as a trust fund, cash
sufficient in amount to pay all amounts to which the holders of Series F
Preferred Stock are entitled upon such redemption pursuant to subparagraph (i)
of this Paragraph D, with irrevocable instructions and authority to such escrow
agent to complete the redemption thereof in accordance with this Paragraph D.
Any Optional Redemption Notice delivered in accordance with the immediately
preceding sentence shall be accompanied by a statement executed by a duly
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authorized officer of its escrow agent, certifying the amount of funds which
have been deposited with such escrow agent and that the escrow agent has been
instructed and agrees to act as redemption agent hereunder.
(iii) The Corporation shall effect an Optional Redemption under
this Section VIII.D by giving prior written notice (the "Optional Redemption
Notice") of the date on which such redemption is to become effective (the
"Effective Date of Redemption"), the number of shares of Series F Preferred
Stock subject to such Optional Redemption and the Optional Redemption Amount to
(i) the holders of Series F Preferred Stock at the address and facsimile number
of each holder appearing in the Corporation's register for the Series F
Preferred Stock and (ii) the transfer agent for the Common Stock, which Optional
Redemption Notice shall be deemed to have been delivered on the business day
after the Corporation's fax (with a copy sent by overnight courier to the
holders of Series F Preferred Stock) of such notice to the holders of Series F
Preferred Stock. To be effective, an Optional Redemption Notice must be so
delivered (i) not less than three (3) business days prior to the Effective Date
of Redemption specified in such notice, in the case of an Optional Redemption
occurring on or before the one hundred eightieth (180th) day following the
Issuance Date, and (ii) not less than ten (10) business days prior to the
Effective Date of Redemption specified in such notice, in the case of an
Optional Redemption occurring after the one hundred eightieth (180th) day
following the Issuance Date.
(iv) The Optional Redemption Amount shall be paid to the holders
of the Series F Preferred Stock being redeemed within three (3) business days of
the Effective Date of Redemption, provided however, that the Corporation shall
not be obligated to deliver any portion of the Optional Redemption Amount until
either the certificates evidencing the Series F Preferred Stock being redeemed
are delivered to the office of the Corporation or the escrow agent or the holder
notifies the Corporation or the escrow agent that such certificates have been
lost, stolen or destroyed and delivers the documentation in accordance with
Article XIV.B hereof. Notwithstanding anything herein to the contrary, in the
event that the certificates evidencing the Series F Preferred Stock being
redeemed are not delivered to the Corporation or the escrow agent prior to the
third business day following the Effective Date of Redemption, the redemption of
the Series F Preferred Stock pursuant to this Article VIII.D shall be deemed
effective as of the Effective Date of Redemption and the Optional Redemption
Amount shall be paid to the holder of Series F Preferred Stock being redeemed
within five (5) business days of the date the certificates evidencing the Series
F Preferred Stock being redeemed are actually delivered to the Corporation or
the escrow agent.
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(v) In the event that any Optional Redemption Notice delivered by
the Corporation pursuant to this Article VIII.D relates to less than all of the
shares of Series F Preferred Stock then outstanding, the Corporation shall
redeem shares of Series F Preferred Stock from each holder pro rata, based on
the total number of shares of Series F Preferred Stock outstanding on the
Effective Date of Redemption held by each holder of Series F Preferred Stock
relative to the total number of shares of Series F Preferred Stock outstanding
on the Effective Date of Redemption held by all holders of Series F Preferred
Stock.
IX. RANK
All shares of the Series F Preferred Stock shall rank (i) prior to the
Corporation's Common Stock; (ii) prior to (a) the Corporation's Series A
Preferred Stock, Series C Preferred Stock and Series E Preferred Stock and (b)
any class or series of capital stock of the Corporation hereafter created
(unless, with the consent of the holders of Series F Preferred Stock obtained in
accordance with Article XIII hereof, such class or series of capital stock
specifically, by its terms ranks senior to or pari passu with the Series F
Preferred Stock) (collectively with the Common Stock, "Junior Securities");
(iii) pari passu with any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series F Preferred Stock
obtained in accordance with Article XIII hereof) specifically ranking, by its
terms, on parity with the Series F Preferred Stock (the "Pari Passu
Securities"); and (iv) junior to (a) the Series B Preferred Stock and the Series
D Preferred Stock of the Corporation and (b) any class or series of capital
stock of the Corporation hereafter created (with the consent of the holders of
Series F Preferred Stock obtained in accordance with Article XIII hereof)
specifically ranking, by its terms, senior to the Series F Preferred Stock
(collectively, the "Senior Securities"), in each as to distribution of assets
upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
X. LIQUIDATION PREFERENCE
A. If the Corporation shall commence a voluntary case under the U.S.
Federal bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the U.S. Federal bankruptcy laws or any other
applicable bankruptcy, insolvency or similar law resulting in the appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of sixty (60) consecutive
days and, on account of any such event, the Corporation shall liquidate,
dissolve or wind up, or if the Corporation shall otherwise
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liquidate, dissolve or wind up, including, but not limited to, the sale or
transfer of all or substantially all of the Corporation's assets in one
transaction or in a series of related transactions (a "Liquidation Event"), no
distribution shall be made to the holders of any shares of capital stock of the
Corporation (other than Senior Securities) upon liquidation, dissolution or
winding up unless prior thereto the holders of shares of Series F Preferred
Stock shall have received the Liquidation Preference with respect to each share.
If, upon the occurrence of a Liquidation Event, the assets and funds available
for distribution among the holders of the Series F Preferred Stock and holders
of Pari Passu Securities shall be insufficient to permit the payment to such
holders of the preferential amounts payable thereon, then the entire assets and
funds of the Corporation legally available for distribution to the Series F
Preferred Stock and the Pari Passu Securities shall be distributed ratable among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate Liquidation Preference payable on all
such shares.
B. The purchase or redemption by the Corporation of stock of any class, in
any manner permitted by law, shall not, for the purposes hereof, be regarded as
a liquidation, dissolution or winding up of the Corporation. Neither the
consolidation or merger of the Corporation with or into any other entity nor the
sale or transfer by the Corporation of less than substantially all of its assets
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Corporation.
C. The "Liquidation Preference" with respect to a share of Series F
Preferred Stock means an amount equal to the Face Amount thereof plus the
accrued Premium thereon through the date of final distribution. The Liquidation
Preference with respect to any Pari Passu Securities shall be as set forth in
the Certificate of Designation filed in respect thereof.
XI. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price and the Floor Price shall be subject to adjustment
from time to time as follows:
A. Stock Splits, Stock Dividends, Etc. If at any time on or after the
Issuance Date, the number of outstanding shares of Common Stock is increased by
a stock split, stock dividend, combination, reclassification or other similar
event, the Fixed Conversion Price and the Floor Price shall be proportionately
reduced, or if the number of outstanding shares of Common Stock is decreased by
a reverse stock split, combination or reclassification of shares, or other
similar event, the Fixed Conversion Price and the Floor Price shall be
proportionately increased. In such event, the Corporation shall notify the
Corporation's transfer agent of such change on or before the effective date
thereof.
B. Adjustment Due to Merger, Consolidation, Etc. If, at any time after
the Issuance Date, there shall be (i) any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par
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value, or as a result of a subdivision or combination), (ii) any consolidation
or merger of the Corporation with any other entity (other than a merger in which
the Corporation is the surviving or continuing entity and its capital stock is
unchanged), (iii) any sale or transfer of all or substantially all of the assets
of the Corporation or (iv) any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property (each of (i)-(iv) above being a "Corporate Change"), then the holders
of Series F Preferred Stock shall thereafter have the right to receive upon
conversion, in lieu of the shares of Common Stock otherwise issuable, such
shares of stock, securities and/or other property as would have been issued or
payable in such Corporate Change with respect to or in exchange for the number
of shares of Common Stock which would have been issuable upon conversion
(without giving effect to the limitations contained in Article IV.C) had such
Corporate Change not taken place, and in any such case, appropriate provisions
shall be made with respect to the rights and interests of the holders of the
Series F Preferred Stock to the end that the provisions hereof (including,
without limitation, provisions for adjustment of the Conversion Price and the
Floor Price and of the number of shares of Common Stock issuable upon conversion
of the Series F Preferred Stock) shall thereafter be applicable, as nearly as
may be practicable in relation to any shares of stock or securities thereafter
deliverable upon the conversion thereof. The Corporation shall not effect any
Corporate Change unless (i) each holder of Series F Preferred Stock has received
written notice of such transaction at least seventy-five (75) days prior
thereto, but in no event later than twenty (20) days prior to the record date
for the determination of shareholders entitled to vote with respect thereto, and
(ii) the resulting successor or acquiring entity (if not the Corporation)
assumes by written instrument the obligations of this Certificate of
Designation. The above provisions shall apply regardless of whether or not there
would have been a sufficient number of shares of Common Stock authorized and
available for issuance upon conversion of the shares of Series F Preferred Stock
outstanding as of the date of such transaction, and shall similarly apply to
successive reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
C. Adjustment Due to Major Announcement. In the event the Corporation
at any time after the Issuance Date (i) makes a public announcement that it
intends to consolidate or merge with any other entity (other than a merger in
which the Corporation is the surviving or continuing entity and its capital
stock is unchanged) or to sell or transfer all or substantially all of the
assets of the Corporation or (ii) any person, group or entity (including the
Corporation) publicly announces a tender offer, exchange offer or another
transaction to purchase 50% or more of the Corporation's Common Stock (other
than in connection with the Private Placement) or otherwise publicly announces
an intention to replace a majority of the Corporation's Board of Directors by
waging a proxy battle or otherwise (the date of the announcement referred to in
clause (i) or (ii) of this Paragraph C is hereinafter referred to as the
"Announcement Date"), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the sixth (6th) trading day following
the earlier of the consummation of the proposed transaction or tender offer,
exchange offer or another transaction or the Abandonment Date (as defined
below), be equal to the lower of (x) the Conversion Price which would have been
applicable for a Conversion occurring on the Announcement Date and (y) the
Conversion Price determined in accordance with Article III.E on the Conversion
Date set forth in the Notice of Conversion for the Conversion. From and after
the
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sixth (6th) trading day following the Abandonment Date, the Conversion Price
shall be determined as set forth in Article III.E. "Abandonment Date" means with
respect to any proposed transaction or tender offer, exchange offer or another
transaction for which a public announcement as contemplated by this
Paragraph C has been made, the date upon which the Corporation (in the case of
clause (i) above) or the person, group or entity (in the case of clause (ii)
above) publicly announces the termination or abandonment of the proposed
transaction or tender offer, exchange offer or another transaction which caused
this Paragraph C to become operative.
D. Adjustment Due to Distribution. If at any time after the Issuance
Date the Corporation shall declare or make any distribution of its assets (or
rights to acquire its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise (including any
dividend or distribution to the Corporation's shareholders in cash or shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e. a spin-off) (a
"Distribution"), then the holders of Series F Preferred Stock shall be entitled,
upon any conversion of shares of Series F Preferred Stock after the date of
record for determining shareholders entitled to such Distribution to receive the
amount of such assets which would have been payable to the holder with respect
to the shares of Common Stock issuable upon such conversion (without giving
effect to the limitations contained in Article IV.C) had such holder been the
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such Distribution.
E. Issuance of Other Securities With Variable Conversion Price. If the
Corporation shall issue any securities which are convertible into or
exchangeable for Common Stock ("Convertible Securities") at a conversion or
exchange rate based on a discount to the market price of the Common Stock at the
time of conversion or exercise, then the Conversion Percentage in respect of any
conversion of Series F Preferred Stock after such issuance shall be calculated
utilizing the higher of the greatest discount applicable to any such
Convertible Securities and the difference between one hundred percent (100%) and
the Conversion Percentage then in effect.
F. Purchase Rights. If at any time after the Issuance Date, the
Corporation issues any Convertible Securities or rights to purchase stock,
warrants, securities or other property (the "Purchase Rights") pro rata to the
record holders of any class of Common Stock, then the holders of Series F
Preferred Stock will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock acquirable
upon complete conversion of the Series F Preferred Stock (without giving effect
to the limitations contained in Article IV.C) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.
G. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price and/or the Floor Price pursuant to this
Article XI, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment and prepare and furnish to each holder of Series F
Preferred Stock a certificate setting forth such adjustment or readjustment and
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showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Series F Preferred Stock, furnish to such holder a like certificate setting
forth (i) such adjustment or readjustment, (ii) the Conversion Price and/or the
Floor Price at the time in effect and (iii) the number of shares of Common Stock
and the amount, if any, of other securities or property which at the time would
be received upon conversion of a share of Series F Preferred Stock.
XII. VOTING RIGHTS
The holders of the Series F Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Delaware General Corporation
Law (the "Business Corporation Law"), in this Article XII and in Article XIII
below.
Notwithstanding the above, the Corporation shall provide each holder of
Series F Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). If the Corporation takes a record of its shareholders for the
purpose of determining shareholders entitled to (a) receive payment of any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or (b) to vote in connection with any proposed sale,
lease or conveyance of all or substantially all of the assets of the
Corporation, or any proposed merger, consolidation, liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
holder, at least twenty (20) days prior to the record date specified therein (or
seventy-five (75) days prior to the consummation of the transaction or event,
whichever is earlier, but in no event earlier than public announcement of such
proposed transaction), of the date on which any such record is to be taken for
the purpose of such vote, dividend, distribution, right or other event, and a
brief statement regarding the amount and character of such vote, dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the Business Corporation Law the vote of the
holders of the Series F Preferred Stock, voting separately as a class or series,
as applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the then
outstanding shares of the Series F Preferred Stock represented at a duly held
meeting at which a quorum is present or by written consent of the holders of at
least a majority of the then outstanding shares of Series F Preferred Stock
(except as otherwise may be required under the Business Corporation Law) shall
constitute the approval of such action by the class. To the extent that under
the Business Corporation Law holders of the Series F Preferred Stock are
entitled to vote on a matter with holders of Common Stock, voting together as
one class, each share of Series F Preferred Stock shall be entitled to a
number of votes equal to the number of shares of Common Stock into which it is
then convertible (subject to the limitations contained in Article IV.C(ii))
using the record date for the taking of such vote of shareholders as the date as
of which the Conversion Price is calculated.
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XIII. PROTECTION PROVISIONS
So long as any shares of Series F Preferred Stock are outstanding, the
Corporation shall not without first obtaining the approval (by vote or written
consent, as provided by the Business Corporation Law) of the holders of (i) all
of the then outstanding shares of Series F Preferred Stock with respect to
subsection (a) below or (ii) at least 67% of the then outstanding shares of
Series F Preferred Stock with respect to subsections (b) through (i) below:
(a) alter or change the rights, preferences or
privileges of the Series F Preferred Stock;
(b) alter or change the rights, preferences or
privileges of any capital stock of the Corporation so as to affect adversely the
Series F Preferred Stock;
(c) create any new class or series of capital stock
having a preference over the Series F Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article IX hereof, "Senior Securities");
(d) create any new class or series of capital stock
ranking pari passu with the Series F Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article IX hereof, "Pari Passu Securities");
(e) increase the authorized number of shares of Series F
Preferred Stock;
(f) issue any shares of Senior Securities or Pari Passu
Securities;
(g) issue any shares of Series F Preferred Stock other
than pursuant to the Securities Purchase Agreement;
(h) redeem, or declare or pay any cash dividend or
distribution on any Junior Securities; or
(i) increase the par value of the Common Stock.
Notwithstanding the foregoing, no change pursuant to this Article XIII shall be
effective to the extent that, by its terms, it applies to less than all of the
holders of shares of Series F Preferred Stock then outstanding.
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XIV. MISCELLANEOUS
A. Cancellation of Series F Preferred Stock. If any shares of Series F
Preferred Stock are converted pursuant to Article IV, the shares so converted
shall be canceled, shall return to the status of authorized, but unissued
preferred stock of no designated series, and shall not be issuable by the
Corporation as Series F Preferred Stock.
B. Lost of Stolen Certificates. Under receipt by the Corporation of (i)
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to the Corporation, or (z) in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Corporation shall execute and deliver new Preferred Stock
Certificate(s) of like tenor and date. However, the Corporation shall not be
obligated to reissue such lost or stolen Preferred Stock Certificate(s) if the
holder contemporaneously requests the Corporation to convert such Series F
Preferred Stock.
C. Allocation of Cap Amount and Reserved Amount. The Initial Cap Amount
and Reserved Amount shall be allocated pro rata among the holders of Series F
Preferred Stock based on the number of shares of Series F Preferred Stock issued
to each holder. Each increase to the Cap Amount and the Reserved Amount shall be
allocated pro rata among the holders of Series F Preferred Stock based on the
number of shares of Series F Preferred Stock held by each holder at the time of
the increase in the Cap Amount or Reserved Amount. In the event a holder shall
sell or otherwise transfer any of such holder's shares of Series F Preferred
Stock, each transferee shall be allocated a pro rata portion of such
transferor's Cap Amount and Reserved Amount. Any portion of the Cap Amount or
Reserved Amount which remains allocated to any person or entity which does not
hold any Series F Preferred Stock shall be allocated to the remaining holders of
shares of Series F Preferred Stock, pro rata based on the number of shares of
Series F Preferred Stock then held by such holders.
D. Quarterly Statements of Available Shares. For each calendar quarter
beginning in the quarter in which the registration statement required to be
filed pursuant to Section 2(a) of the Registration Rights Agreement is declared
effective and thereafter so long as any shares of Series F Preferred Stock are
outstanding, the Corporation shall deliver (or cause its transfer agent to
deliver) to each holder a written report notifying the holders of any occurrence
which prohibits the Corporation from issuing Common Stock upon any such
conversion. The report shall also specify (i) the total number of shares of
Series F Preferred Stock outstanding as of the end of such quarter, (ii) the
total number of shares of Common Stock issued upon all conversions of Series F
Preferred Stock prior to the end of such quarter, (iii) the total number of
shares of Common Stock which are reserved for issuance upon conversion of the
Series F Preferred Stock as of the end of such quarter and (iv) the total number
of shares of Common Stock which may thereafter be issued by the Corporation upon
conversion of the Series F Preferred Stock before the Corporation would exceed
the Cap Amount and the Reserved Amount. The Corporation (or its transfer agent)
shall deliver the report for each quarter to each holder prior to the tenth
(10th) day of the calendar month following the quarter to which such report
relates. In addition, the Corporation (or its transfer agent) shall
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provide, within fifteen (15) days after delivery to the Corporation of a written
request by any holder, any of the information enumerated in clauses (i)-(iii) of
the Paragraph D as of the date of such request.
E. Payment of Cash: Defaults. Whenever the Corporation is required to
make any cash payment to a holder under this Certificate of Designation (as a
Conversion Default Payment upon redemption or otherwise), such cash payment
shall be made to the holder within five (5) business days after delivery by such
holder of a notice specifying that the holder elects to receive such payment in
cash and the method (e.g., by check, wire transfer) in which such payment should
be made. If such payment is not delivered within such five (5) business day
period, such holder shall thereafter be entitled to interest on the unpaid
amount at a per annum rate equal to the lower of twenty-four percent (24%) and
the highest interest rate permitted by applicable law until such amount is paid
in full to the holder.
F. Status as Stockholder. Upon submission of a Notice of Conversion by
a holder of Series F Preferred Stock, (i) the shares covered thereby (other than
the shares, if any, which cannot be issued because their issuuance would exceed
such holder's allocated portion of the Reserved Amount or Cap Amount) shall be
deemed converted into shares of Common Stock and (ii) the holder's rights as a
holder of such converted shares of Series F Preferred Stock shall cease and
terminate, excepting only the right to receive certificates for such shares of
Common Stock and to any remedies provided herein or otherwise available at law
or in equity to such holder because of a failure by the Corporation to comply
with the terms of this Certificate of Designation. In situations where Article
VI.B is applicable, the number of shares of Common Stock referred to in clauses
(i) and (ii) of the immediately preceding sentence shall be determined on the
date on which such shares of Common Stock are delivered to the holder.
Notwithstanding the foregoing, if a holder has not received certificates for all
shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Delivery Period with respect to a conversion of Series F
Preferred Stock for any reason, then (unless the holder otherwise elects to
retain its status as a holder of Common Stock by so notifying the Corporation
within five (5) business days after the expiration of such ten (10) business day
period after expiration of the Delivery Period) the holder shall regain the
rights of a holder of Series F Preferred Stock with respect to such unconverted
shares of Series F Preferred Stock and the Corporation shall, as soon as
practicable, return such unconverted shares to the holder. In all cases, the
holder shall retain all of its rights and remedies (including, without
limitation, (i) the right to receive Conversion Default Payments pursuant to
Article VI.A to the extent required thereby for such Conversion Default and any
subsequent Conversion Default and (ii) the right to have the Conversion Price
with respect to subsequent conversions determined in accordance with Article
VI.B) for the Corporation's failure to convert Series F Preferred Stock.
G. Remedies Cumulative. The remedies provided in this Certificate of
Designation shall be cumulative and in addition to all other remedies available
under this Certificate of Designation, at law or in equity (including a decree
of specific performance and/or other injunctive
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relief), and nothing herein shall limit a holder's right to pursue actual
damages for any failure by the Corporation to comply with the terms of this
Certificate of Designation. The Corporation acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the holders of Series F
Preferred Stock and that the remedy at law for any such breach may be
inadequate. The Corporation therefore agrees, in the event of any such breach or
threatened breach, that the holders of Series F Preferred Stock shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
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IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation this 11th day of February, 1998.
PROJECTAVISION, INC.
By: /s/ Martin J. Holleran
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Name: Martin J. Holleran
Title: President and Chief
Executive Officer
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