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Filed Pursuant to Rule 424(b)(3)
Reg No. 333-36572
Prospectus Supplement No. 1, dated November 10, 2000
(To Prospectus dated September 1, 2000)
The Netplex Group, Inc.
15,498,907 shares
Common Stock
-----------------------------------
This prospectus supplement supplements and amends the prospectus dated
September1, 2000 relating to 15,498,907 shares of The Netplex Group, Inc.'s
common stock.
On November 10, 2000, we entered into an Exchange, Redemption and Conversion
Agreement with certain of the selling shareholders to restructure certain of the
selling shareholders' Series D Preferred Stock holdings. The terms of the
Exchange, Redemption and Conversion Agreement require us to redeem 500 shares of
the Series D Preferred Stock for $500,000, issue a new series of Preferred Stock
in exchange for the retirement of 6,177 shares of Series D Preferred Stock and
all related warrants and requires certain of the selling shareholders to convert
a portion of their remaining Series D Preferred Stock to common stock both
immediately and over time. As a result of such restructuring, we have updated
our prospectus to include changes to financial, capital and other matters
effecting the Company. A copy of the Exchange, Redemption and Conversion
Agreement was filed with the Securities and Exchange Commission on Form 8-K
filed on November 13, 2000.
This prospectus supplement amends and restates certain sections of the
prospectus by replacing those sections with the corresponding items set forth
below:
1. The section entitled "THE OFFERING" in our September 1, 2000 Prospectus is
hereby amended and restated in its entirety and replaced with the following:
THE OFFERING
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Common stock offered by the selling shareholders ...................... 15,498,507 shares
Common stock outstanding as of November 10, 2000....................... 18,493,975 shares (1)
Use of proceeds........................................................ All of the net proceeds from the sale of the
common stock covered by this prospectus will go
to the selling shareholders who offer and sell
shares of the common stock. We will not receive
any proceeds from the sale of the common stock
offered by the selling shareholders. See
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<TABLE>
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"Use of Proceeds."
Nasdaq SmallCap Market symbol.......................................... NTPL
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(1) This amount excludes the following securities issuable as of November 10,
2000:
. 80,597 shares of common stock issuable upon conversion of shares of our
Class A Preferred Stock;
. 11,586,901 shares of common stock issuable upon conversion of shares of our
Class C Preferred Stock, which are convertible after September 28, 2003
into the number of shares equal to $2,300,000 plus accrued but unpaid
dividends, divided by 25% of the 20 day average trading price of the common
stock immediately prior to conversion;
. 5,101,493 shares of common stock issuable upon conversion of 3,323 shares
of our Series D Preferred Stock, at a conversion and exercise price of
$0.65625 per share, including, 1,808,473 shares of common stock issued to
the holders of our Series D Preferred Stock upon conversion of 1,178 shares
of Series D Preferred Stock on November 10, 2000 and 1,000 shares of common
stock sold to the holders of our Series D Preferred Stock at a price of
$0.65625 per share;
. 6,382,979 shares of common stock issuable as of November 10, 2000 upon
conversion of 3,000 shares of our Series E Preferred Stock, at a conversion
price of $0.47, plus any dividend shares;
. 5,610,342 shares of common stock issuable upon exercise of prepaid
warrants; and
. an aggregate of 8,563,214 shares of common stock issuable upon exercise of
other options and warrants at a weighted average exercise price of $3.64
per share.
2. In between the sections entitled "THE OFFERING" and "SUMMARY FINANCIAL
DATA" in our September 1, 2000 Prospectus, the following new Section shall be
inserted:
NOVEMBER 2000 SERIES D PREFERRED STOCK RESTRUCTURING
On November 10, 2000, we entered into an Exchange, Redemption and
Conversion Agreement with certain of the selling shareholders to restructure our
arrangements with the selling shareholders holding Series D Preferred Stock.
Persuant to the terms of the Exchange, Redemption and Conversion Agreement, on
November 10, 2000, we retired $6,177,000 of the original face amount of the
Series D Preferred Stock and the related warrants in exchange for our issuance
of $3,000,000 of our new Series E Preferred Stock which is redeemable for
$3,000,000 at our option on or before April 30, 2001, provided we redeem at
least $1,500,000 of such stock on or before January 30, 2001. If the Series E
Preferred Stock is not redeemed and in certain other circumstances it becomes
convertible at a conversion rate of $0.47 per share.
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As part of the agreement to restructure the Series D Preferred Stock, the
Company has on November 10, 2000 redeemed 500 of the remaining 3,823 shares of
Series D Preferred Stock at the face value of $500,000 and the holders of the
Series D Preferred Stock converted 1,178 shares of Series D Preferred Stock into
1,808,473 shares of common stock. In addition, the holders of the Series D
Preferred Stock have agreed to waive their rights to purchase additional shares
of Series D Preferred Stock or receive any further dividends on the Series D
Preferred Stock. Further, the Company sold to the holders of the Series D
Preferred Stock 1,000 shares of the Company's common stock. The remaining 2,145
shares of Series D Preferred Stock will have a conversion price of $0.65625 and
will be convertible into 3,293,020 shares of common stock.
3. Certain Paragraphs of the section entitled "RISK FACTORS" in our
September 1, 2000 Prospectus are amended and restated in their entirety:
The Risk Factor entitled "WE HAVE A SIGNIFICANT NUMBER OF OUTSTANDING
SHARES OF CONVERTIBLE PREFERRED STOCK AND WARRANTS WITH CONVERSION OR EXERCISE
PRICES THAT FLUCTUATE BASED ON THE MARKET PRICE OF OUR COMMON STOCK. THE
CONVERSION OF THESE PREFERRED SHARES OR WARRANTS COULD RESULT IN THE DILUTION OF
YOUR OWNERSHIP INTEREST AND ADVERSELY IMPACT THE PRICE OF OUR COMMON STOCK" is
amended and restated in its entirety and replaced with the following:
WE HAVE A SIGNIFICANT NUMBER OF OUTSTANDING SHARES OF CONVERTIBLE PREFERRED
STOCK AND WARRANTS WITH CONVERSION OR EXERCISE PRICES THAT FLUCTUATE BASED ON
THE MARKET PRICE OF OUR COMMON STOCK. THE CONVERSION OF THESE PREFERRED SHARES
AND WARRANTS COULD RESULT IN THE DILUTION OF YOUR OWNERSHIP INTEREST AND
ADVERSELY IMPACT THE PRICE OF OUR COMMON STOCK.
Class C Preferred Stock. To the extent that our stock price decreases and
we do not exercise our right of redemption prior to conversion, the number of
shares of our common stock to be issued upon conversion of our Class C Preferred
Stock could increase significantly; the issuance of additional shares of common
stock could substantially dilute your ownership interest and depress the price
of our common stock. Additionally, the perceived risk of dilution from
conversion of the Class C Preferred Stock may cause other shareholders to sell
their shares before conversion or encourage short sales of our common stock;
those sales could also place further downward pressure on the price of our
common stock.
The Class C Preferred Stock is convertible after September 28, 2003 into
the number of shares equal to $2,300,000 plus accrued but unpaid dividends,
divided by 25% of the 20 day average trading price of our common stock
immediately prior to conversion. The conversion of the outstanding Class C
Preferred Stock on the basis of the 20 day average trading price of our common
stock would result in the issuance of 11,586, 901 shares of common stock if the
average trading price had been calculated as of November 10, 2000. If this 20
day average trading price decreased by 75%, then the conversion of the
outstanding Class C Preferred Stock would result
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in the issuance of 46,370,967 shares of common stock. The conversion of the
Class C Preferred Stock into common stock may result in the sale of a
significant number of shares of common stock into the market; these sales could
decrease the price of our common stock. The rights and preferences of Class C
Preferred Stock are discussed under "Description of Securities - Class C
Zanett Prepaid Warrants. In connection with a recent private placement, we
issued to Zanett Lombardier, Ltd. and/or its affiliates or designees prepaid
common stock purchase warrants to purchase an aggregate number of shares of
common stock equal to $1,500,000 divided by the lower of
- $10; or
- the amount obtained by multiplying the average of the 5 lowest closing
bid prices for the common stock during the 20 consecutive trading day
period ending on the trading day immediately preceding the date of
determination or exercise by 0.75 or 0.65, depending on when the
warrants are exercised.
If the market value of our common stock decreases, the number of shares of
common stock to be issued upon exercise of these prepaid warrants could increase
significantly and result in significant dilution in your ownership interest. For
example, the exercise of these prepaid warrants on the basis of the average of
the 5 lowest closing bid prices for the common stock during the 20 consecutive
trading day period ending on November 10, 2000 would have resulted in the
issuance of 4,342,791 shares of common stock, based on the average of the 5
lowest closing bid prices for the common stock during the 20 consecutive trading
day period ending on that date, or $0.3454 per share. If the warrants are
exercised after December 19, 2000, the average of the 5 lowest closing bid
prices for the common stock during the 20 consecutive trading day period will be
decreased by the 65% factor. As a result and as an example, if the warrants are
exercised after December 19, 2000 and the average of the 5 lowest closing bid
prices for the common stock during the 20 consecutive trading day period ending
on that date happened to be as it was on November 10, 2000, the exercise of the
outstanding prepaid warrants would result in the issuance of 5,010,913 shares of
common stock. The terms and conditions of the prepaid warrants are discussed
under "Selling Shareholders - Material Terms of Warrants Issued to Zanett."
The Risk Factor entitled "THE EXERCISE OF CERTAIN RIGHTS BY THE HOLDERS OF OUR
PREFERRED STOCK AND WARRANTS COULD RESULT IN SUBSTANTIAL DILUTION OF YOUR
OWNERSHIP INTEREST AND ADVERSELY IMPACT THE PRICE OF OUR COMMON STOCK" is
amended and restated in its entirety and replaced with the following:
THE EXERCISE OF CERTAIN RIGHTS BY THE HOLDERS OF OUR PREFERRED STOCK COULD
RESULT IN SUBSTANTIAL DILUTION OF YOUR OWNERSHIP INTEREST AND ADVERSELY IMPACT
THE PRICE OF OUR COMMON STOCK.
The conversion of Series D Preferred Stock and Series E Preferred Stock and
subsequent sales of common stock by the selling shareholders may depress the
price of our common stock
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and substantially dilute your ownership interest.
To the extent the Series D Preferred Stock is converted into shares of
common stock and to the extent the Series E Preferred Stock is converted into
shares of common stock rather than redeemed by us or dividends on the Series E
Preferred Stock are paid in shares of common stock rather than cash, a
significant number of additional shares of common stock may be sold into the
market and could decrease the price of our common stock due to the additional
supply of shares relative to demand in the market. In anticipation of the sale
of a large amount of shares of our common stock upon conversion of the Series D
Preferred Stock or the Series E Preferred Stock, or the payment of dividends in
lieu of cash on the Series E Preferred Stock, market participants may engage in
short sales of our common stock. Short sales could place further downward
pressure on the price of our common stock. Additionally, the perceived risk of
dilution from the occurrence of any of these events may cause shareholders to
sell their shares to avoid this dilution and could therefore place further
downward pressure on the price of our common stock. The rights and preferences
of Series E Preferred Stock are discussed under "Selling Shareholders - Material
Terms of Series E Preferred Stock " and "Description of Securities - Series E
Preferred Stock." The rights and preferences of Series D Preferred Stock are
discussed under "Selling Shareholders - Material Terms of Series D Preferred
Stock " and "Description of Securities - Series E Preferred Stock."
On November 10, 2000, pursuant to the Exchange, Redemption and Conversion
Agreement, the selling shareholders converted $1,178,000 of the face amount of
their Series D Preferred Stock into 1,808,473 shares of common stock. Upon such
conversion, the number of shares of common stock outstanding increased by
approximately 9.8%; this increase in the amount of stock diluted your percentage
ownership interest in us and could depress the price of our common stock.
Under the terms of the restructuring contemplated by the Exchange,
Redemption and Conversion Agreement, the remaining Series D Preferred Stock,
will be convertible as of November 10, 2000 into approximately 3,293,020 shares
of common stock, subject to the 4.99% limitation and 9.99% limitation described
below, representing approximately 14.57% of the common stock that would be
outstanding following the conversion, based upon the common shares outstanding
on November 10, 2000.
The conversion of, and the payment of dividends in shares of common stock
in lieu of cash on, the Series D Preferred Stock may result in substantial
dilution to the interests of other holders of our common stock. Even though no
selling shareholder may convert its Series D Preferred Stock if the conversion
would make the selling shareholder the beneficial owner of more than 4.99% of
our then outstanding common stock or, when added to the number of shares
acquired or held during the prior 60 days, would exceed 9.99% of our outstanding
common stock, this restriction does not prevent a selling shareholder from
selling a substantial number of shares in the market. By periodically selling
shares into the market, the individual selling shareholders intend to sell all
of their shares of common stock while never holding more than 4.99% at any
specific time or exceeding 9.99% during any 60 day period.
In the event we do not redeem the Series E Preferred Stock, a conversion of
all the Series E Preferred Stock at the fixed conversion price of $0.47 would
result in the issuance of 6,382,979 shares of common stock. Also, dividends on
the Series E Preferred Stock may be paid in shares
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of common stock rather than cash, which would increase this number of shares
over time.
We may be required to delist our shares from the Nasdaq Small Cap Market as
described below, in which event trading volume of our shares and the price of
our common stock might decrease substantially.
The National Association of Securities Dealers, Inc. imposes certain
requirements on the issuance of securities of a company listed on the Nasdaq
Stock Market. For instance, any company, including our company, is required to
obtain shareholder approval (or a waiver from the NASD) for an issuance of
securities if the number of securities to be issued could equal or exceed 20% of
the issuer's outstanding listed securities (immediately or by conversion). Also,
the voting rights of holders of securities that are convertible into common
stock based on the future stock price of the issuer cannot be disproportionate
to their investment in the issuer. We believe that the issuances of our Series D
Preferred Stock and the Series E Preferred Stock comply with the NASD rules. For
instance, our Preferred Stock does not have voting rights, except as required by
law. Both the Series D Preferred Stock and the Series E Preferred Stock limit
our obligation to issue our common stock upon the conversion of the Series D
Preferred Stock and the Series E Preferred Stock that exceeds 19.99% of the
outstanding common stock on the respective date of issuances of the Preferred
Stock unless shareholder approval or a waiver from the NASD is obtained. In
order to avoid any penalty which could include the delisting of our common
stock, we obtained shareholder approval for the issuance of shares of our common
stock upon conversion of, or the payment of dividends on (if any), the Series D
Preferred Stock in excess of 19.99% of the number of outstanding shares of
common stock on March 29, 2000, the date of issuance of the Series D Preferred
Stock. Similarly, we are obligated to call a metting for stockholder approval
(or obtain a waiver of the approval requirement from the NASD) with respect to
the issuance of the shares of common stock issuable upon conversion of the
Series E Preferred Stock. There is no guaranty we will obtain such approval or
waiver. If we do not call a meeting for such approval (or a waiver) prior to
January 31, 2001, we will be in default under the provisions of the Series E
Preferred Stock which result, among other things, in our loss of the right to
thereafter redeem the Series E Preferred Stock and permits the holders of the
Series E Preferred Stock to exercise their conversion privilege, which, if
exercised in full, would require us to redeem, at a premium, that number of
shares of Series E Preferred Stock which could not be converted because of the
limitation described above or to delist our stock from trading on the Nasdaq
SmallCap Market, which can be expected to reduce liquidity for our stock and
place downward pressure on the stock price.
There is no similar limitation on our obligation to issue shares of common
stock upon conversion of the Class C Preferred Stock. Consequently, the issuance
of our Class C Preferred Stock may not have complied with the NASD rules. We
have not sought an interpretation or waiver from the NASD with respect to the
compliance with the NASD rules of the issuance of the Class C Preferred Stock.
If the NASD found that we are in violation of its requirements the NASD could
among other penalties possible delist our shares of common stock from the Nasdaq
Stock Market in which event trading in our shares and the price of our common
stock would likely decrease substantially.
The Risk Factor entitled "WE HAVE A SIGNIFICANT NUMBER OF OUTSTANDING WARRANTS,
OPTIONS AND SHARES OF PREFERRED STOCK THAT COULD
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ADVERSELY IMPACT THE PRICE OF OUR COMMON STOCK AND OUR ABILITY TO OBTAIN
ADDITIONAL FUNDING" is amended and restated in its entirety and replaced with
the following:
WE HAVE A SIGNIFICANT NUMBER OF OUTSTANDING WARRANTS, OPTIONS AND SHARES OF
PREFERRED STOCK THAT COULD ADVERSELY IMPACT THE PRICE OF OUR COMMON STOCK AND
OUR ABILITY TO OBTAIN ADDITIONAL FUNDING
As of November 10, 2000, we had outstanding:
- shares of Class A Preferred Stock that were immediately convertible
into 80,597 shares of common stock;
- shares of our Class C Preferred Stock that are convertible after
September 28, 2003 into the number of shares equal to $2,300,000 plus
accrued but unpaid dividends, divided by 25% of the 20 day average
trading price of the common stock immediately prior to conversion,
which if converted, would result in the issuance of 11,586, 901 shares
of common stock;
- 2,145 shares of our Series D Preferred Stock outstanding that were
convertible on November 10, 2000, together with unpaid dividends, into
a total of 3,293,018 shares of common stock, at a conversion and
exercise price of $0.65625 per share;
- 3,000 shares of our Series E Preferred Stock that are convertible into
a total of 6,382,989 shares of our common stock at a fixed price of
$0.47 per share.
- prepaid warrants exercisable into 5,610,342 shares of common stock;
and
- other options and warrants to purchase an aggregate of 8,563,214
shares of our common stock at a weighted average exercise price of
$3.64 per share.
As of November 10, 2000, there were outstanding convertible preferred
shares, warrants and options to acquire up to approximately 35,492,614 shares of
common stock at prices ranging from $0.1943 to $13.875 per share. The exercise
of all of the outstanding warrants, including the prepaid warrants, options
and/or conversion of the outstanding convertible preferred stock, would dilute
the then-existing shareholders' percentage ownership of our common stock, and
any sales in the public market could adversely affect prevailing market prices
for our common stock. Moreover, because the holders of outstanding warrants,
options and preferred stock will likely exercise or convert these securities,
our ability to obtain additional equity capital could be adversely affected
because we probably could obtain any needed capital on terms more favorable than
those provided by the conversion of these securities. We lack control over the
timing of any exercise or the number of shares issued or sold if exercises or
conversions occur.
The Risk Factor entitled "WE WILL BE PENALIZED IF WE FAIL TO REGISTER
SHARES UNDERLYING OUR SERIES D PREFERRED STOCK, THE WARRANTS ISSUED TO THE
HOLDERS OF OUR SERIES D PREFERRED STOCK, AND THE
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PREPAID WARRANTS, INCENTIVE WARRANTS AND PLACEMENT AGENT WARRANTS THAT WE ISSUED
IN MARCH 2000" is amended and restated in its entirety and replaced with the
following:
WE WILL BE PENALIZED IF WE FAIL TO MAINTAIN THE REGISTRATION OF THE SHARES
UNDERLYING OUR SERIES D PREFERRED STOCK AND IF WE FAIL TO REGISTER SHARES
UNDERLYING OUR SERIES E PREFERRED STOCK, ANY OF THE WARRANTS ISSUED TO THE
HOLDERS OF OUR SERIES D PREFERRED STOCK, AND THE PREPAID WARRANTS, INCENTIVE
WARRANTS AND PLACEMENT AGENT WARRANTS
If we fail to maintain the effectiveness of our Registration Statement for
the public sale of our common shares acquired upon conversion of the Series D
Preferred Stock (for any reason other than the issuance of a stop order by SEC),
the holders of the Series D Preferred Stock will be entitled to demand that we
redeem their remaining shares of Series D Preferred Stock at a 25% premium. The
same is true if we fail to timely file a Registration Statement for the sale of
the common stock acquirable upon conversion of the Series E Preferred Stock.
If we fail to obtain and maintain the timely effectiveness of our SEC
Registration Statement for the public sale of our common shares acquired upon
conversion of the Series E Preferred Stock, we will be subject to a penalty,
required to be paid in cash (if the Company can do so) equal to 1% of the
principal (plus interest) amount of the Series E Preferred Stock then
outstanding, per day (up to 15 days during any 365 day period) that such
effectiveness if not obtained or maintained.
4. The section entitled "THE CAPITALIZATION" in our September 1, 2000
Prospectus is hereby amended and restated in its entirety and replaced with the
following:
CAPITALIZATION
The following table describes our capitalization as of June 30, 2000. The first
column reflects our capitalization on an actual basis; the second column
reflects our capitalization as adjusted to give effect to the restructuring of
the Series D Preferred Stock pursuant to the Exchange, Redemption and Conversion
Agreement on November 10, 2000; and the third column reflects our capitalization
that would give effect to:
- the conversion of our Series D Preferred Stock and the number of
shares of common stock issuable in lieu of cash dividends payable on
the Series D Preferred Stock over its entire term, based on a price of
$0.65625 per share, the applicable dividend conversion price as of
November 10, 2000;
- the conversion of our Series E Preferred Stock and the number of
shares of common stock issuable in lieu of cash dividends payable on
the Series E Preferred Stock over its entire term, based on a price of
$0.47 per share and the applicable dividend conversion price,
respectively;
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- the conversion of the prepaid common stock purchase warrants issued to
Zanett Lombardier, Ltd. and/or its affiliates or designees, as of
August 28, 2000, the issuance of 78,000 shares of common stock
issuable upon the exercise of the incentive warrants issued in
connection with the Zanett prepaid warrants and the issuance of 39,000
shares of common stock issuable upon the exercise of incentive
warrants issued to the placement agent and/or its designees in
connection with the Zanett prepaid warrants;
- the aggregate amount of shares of common stock issuable upon the
exercise of the PMG warrant;
- the aggregate number of shares of common stock issuable upon the
exercise of warrants issued to TMP Interactive, Inc.;
- the aggregate amount of shares of common stock issuable upon the
exercise of the warrant issued to Silicon Valley Bank; and
- the aggregate amount of shares of common stock issuable upon the
exercise of the warrant issued to Roseland II, LLC.
When you read this table, it is important that you also read "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our financial statements and related notes.
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June 30, 2000
Actual As Restructured As Adjusted
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Long term debt $195,504.00 $195,504 $195,504
Redeemable - Preferred Stock - Series D Cumulative 10,800,000 0 0
$0.01 par value; 15,000 shares authorized; 10,000
shares issued and outstanding at June 30, 2000; no
shares issued and outstanding as adjusted and as
restructured
Stockholders equity:
Preferred Stock:
Class A, $0.1 par value, liquidation 805 805 805
preference at $4.00 per share; 2,000,000
shares authorized; 80,597 shares issued
and outstanding at June 30, 2000, as
adjusted and as restructured
Class C, $0.01 par value; liquidation
preference of $3.50 per share; 2,500,000 15,000 15,000 15,000
shares
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<S> <C> <C> <C>
authorized; 1,500,000 shares issued
and outstanding at June 30, 2000,
as restructured and as adjusted
Class D, $0.01 par value; 15,000 shares 0 21 0
authorized; 10,000 shares issued and
outstanding at June 30, 2000,2145 shares
issued and outstanding as restructured and
as adjusted
Class E, $0.01 par value; liquidations 0 30 0
preference $1,000 per share; 3,000 shares
authorized; 3,000 shares issued as
restructured as adjusted
18,238 18,238 34,134
Common Stock, $0.001 par value, 100,000,000
share authorized; 18,238,284 shares issued and
outstanding at June 30, 2000; 34,134,454 shares
issued and outstanding, as restructured and
as adjusted (1)
Additional paid in capital 24,069,949 34,369,898 50,842,124
Accumulated deficit (22,566,707) (22,566,707) (22,566,707)
------------ ------------ ------------
Total stockholders' equity 1,537,285 11,837,285 28,325,356
--------- ---------- ----------
Total Capitalization $12,532,789 $12,032,789 $28,520,860
=========== =========== ===========
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(1) The actual, restructured and as adjusted amounts exclude the following
outstanding securities as of November 10, 2000:
- shares of convertible Class A Preferred Stock that are immediately
convertible into 80,597 shares of common stock;
- shares of our Class C Preferred Stock that are convertible after
September 28, 2003 into the number of shares equal to $2,300,000 plus
accrued but unpaid dividends, divided by 25% of the 20 day average
trading price of the common stock immediately prior to conversion,
which if converted, would result in the issuance of 11,586,901 shares
of common stock;
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- prepaid warrants exercisable into 2,822,732 shares of common stock;
- other options and warrants to purchase an aggregate of 5,563,214
shares of our common stock at a weighted average exercise price of
$1.29 per share;
5. The section entitled "SELLING SHAREHOLDERS" in our September 1, 2000
Prospectus is hereby amended and restated in its entirety and replaced with the
following:
Holders of Series D Preferred Stock
An aggregate of 2,145 shares of Series D Preferred Stock are held by HFTP
Investment L.L.C., Fisher Capital Ltd. and Wingate Capital Ltd. pursuant to a
securities purchase agreement dated March 28, 2000, as amended. The shares of
common stock being offered by these selling shareholders are issuable:
- upon conversion of the Series D Preferred Stock, or
- as dividends that accrued on the Series D Preferred Stock prior to
November 10, 2000.
We determined the number of shares of common stock to be offered for resale
by the selling shareholders holding Series D Preferred Stock by agreement with
them and in order to adequately cover the number of shares required. In
accordance with the terms of a Registration Rights Agreement, this prospectus
covers the resale of 175% of the number of shares of common stock issuable upon
conversion of the Series D Preferred Stock, 175% of the number of shares of
common stock issuable in lieu of cash dividends payable on the Series D
Preferred Stock over its entire term and 175% of the number of shares of common
stock issuable upon exercise of the related warrants which were exchanged
pursuant to the Exchange, Redemption and Conversion Agreement. The number of
shares currently registered pursuant to this prospectus is equal to 134% of the
number of shares (i) issuable upon conversion of the outstanding Series D
Preferred Stock; and (ii) issued on November 10, 2000 upon conversion of the
Series D Preferred Stock pursuant to the Exchange Redemption of Conversion
Agreement.
See "Selling Shareholders--Material Terms of Series D Preferred Stock and
Related Warrants--Registration Rights Agreement."
Zanett
The common stock offered by this prospectus also includes up to
- 4,437,870 shares of common stock issuable upon the conversion of
$1,500,000 of prepaid common stock purchase warrants sold to Zanett
Lombardier, Ltd. and/or its affiliates or designees in connection with
a recent private placement,
- 78,000 shares of common stock issuable upon the exercise of the
incentive warrants issued in connection with the Zanett prepaid
warrants, and
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- 39,000 shares of common stock issuable upon the exercise of incentive
warrants issued to the placement agent and/or its designees in
connection with the Zanett prepaid warrants.
Our calculation of the number of shares to be offered for resale in connection
with the Zanett prepaid warrants is based on an exercise/conversion of $0.3454
per share, the amount obtained by multiplying a percentage, which decreases over
time and is described in the warrants, by the average of the 5 lowest closing
bid prices for the common stock during the 20 consecutive trading day period
ending on the trading day immediately preceding November 10, 2000.
In the case of the shares of common stock underlying the Zanett prepaid,
incentive and placement agent warrants, there may be changes in the number of
shares offered hereby due to changes in the exercise/conversion price of those
warrants in accordance with the terms of the warrants. This calculation is not
intended to constitute a prediction as to the number of shares of common stock
into which these warrants will be exercised. Moreover, in the case of the shares
of common stock underlying the Zanett prepaid warrants, the number of shares of
common stock owned and offered for sale hereby represents a good faith estimate
of the number of shares of common stock issuable upon conversion of or otherwise
with respect to the Zanett prepaid warrants, based on an exercise/conversion
price of $0.3454 per share, the applicable price as of November 10, 2000.
Additionally, the exercise price of the Zanett incentive warrants will be
adjusted upon the occurrence of certain events, including the issuance of
securities that are convertible or exchangeable into our common stock at a
conversion or exchange rate that is based on a discount of the market price of
our common stock at the time of conversion or exercise.
TMP Interactive, Inc., Pennsylvania Merchant Group, Roseland II L.L.C. and
Silicon Valley Bank
The common stock offered by this prospectus also includes:
- 3,000,000 shares of common stock issuable upon the exercise of
warrants issued to TMP Interactive, Inc. in connection with a
co-branded services arrangement we entered into with one of our
subsidiaries and TMP Interactive, Inc. in May 2000;
- 250,000 shares of common stock issuable upon the exercise of the
warrant issued to Pennsylvania Merchant Group in connection with an
investment banking arrangement we have with it;
- 15,000 shares of common stock issuable upon the exercise of the
warrant issued to Roseland II L.L.C. in connection with a leasing
arrangement; and
- 75,000 shares of common stock issuable upon the exercise of the
warrant we issued to Silicon Valley Bank in connection with our line
of credit.
The following table sets forth:
- the name of each selling shareholder;
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- the number of shares of outstanding common stock beneficially owned by
each selling shareholder as of November 10, 2000;
- the aggregate number of shares of common stock that each selling
shareholder may offer and sell for its account under this prospectus;
and
- to our knowledge and assuming that all of the shares of common stock
offered under this prospectus are sold, the aggregate number of shares
of common stock and the percentage of outstanding shares of common
stock to be beneficially owned by each selling shareholder upon
completion of the offering made under this prospectus.
The second column of the table below lists, for each selling
shareholder holding Series D Preferred Stock, the number of shares of common
stock that are held or are issuable to those selling shareholders as of November
10, 2000, assuming conversion of all Series D Preferred Stock and Series E
Preferred Stock and accrued dividends without regard to any limitations on
conversions. With respect to each selling shareholder holding Zanett prepaid
warrants, the second column lists the number of shares of common stock that are
issuable to those selling shareholders as of November 10, 2000, assuming
conversion of all prepaid warrants on that date. Because conversion of the
Series E Preferred Stock is based on a formula that depends on the number of
days that have elapsed since the last payment, if any, of accrued dividends to
holders of Series E Preferred Stock and because conversion of the Zanett prepaid
warrants is based on a formula that fluctuates with the trading price of our
common stock and the length of time the warrants remain outstanding, the number
of shares that will actually be issued upon conversion or exercise, as the case
may be, may vary from the shares being offered by this prospectus. The third
column lists each selling shareholder's portion of the shares of common stock
being offered by this prospectus. The fourth column assumes the sale of all of
the shares offered by each selling shareholder.
To our knowledge, except for the ownership of preferred stock and warrants
and as otherwise indicated below, none of the selling shareholders has had
within the past three years any position, office or other material relationship
with us or any of our predecessors or affiliates. We are registering shares of
our common stock in order to permit the selling shareholders to offer these
shares for resale from time to time. The selling shareholders may sell all, some
or none of their shares in this offering. See "Plan of Distribution."
<TABLE>
<CAPTION>
Shares Beneficially
Number of Owned
Shares After offering (2)
Aame of Selling Number of Shares Beneficially Offered ------------------
Security Holder Owned Prior to Offering (1) Hereby Number
--------------- ----------------------------- ---------- ---------
<S> <C> <C> <C>
HFTP Investment L.L.C. (3) 3,905,337 (4) 2,552,435 2,170,553
Fisher Capital Ltd. (5) 5,008,168 (6) 3,220,572 2,738,727
Wingate Capital Ltd (5) 2,697,768 (7) 1,734,154 1,474,699
TMP Interactive, Inc. 1,000,000 (8) 3,000,000 (9) 0
Zanett Lombardier, Ltd. (10) 3,215,032 (11) 4,349,112 229,290
Zanett Lombardier Master Fund, LP 76,440 (12) 76,400 0
Pennsylvania Merchant Group 175,000 (13) 250,000 (14) 0
Stephen Turner 290,746 (15) 34,882 (16) 255,864
J. Craig Jones 125,885 (17) 24,426 (16) 101,459
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C> <C>
David McCarthy (10) 68,886 (18) 102,748 0
Claudio Guazzoni (10) 56,870 (19) 12,431 (20) 44,439
Samuel Milbank (10) 17,732 (21) 8,288 (22) 9,444
Augie LaTorre (10) 27,233 (23) 5,850 (24) 21,383
Stephen McBryde 23,936 3,046 (16) 20,890
Timothy Shelton 23,936 3,046 (16) 20,890
William Bell 55,743 3,594 (16) 52,149
David Turner 18,643 2,882 (16) 15,761
Robert Gladstone 12,500 (25) 12,500 (25) 0
David Nussbaum 12,500 (25) 12,500 (25) 0
Roseland II L.L.C. 15,000 (26) 15,000 (26) 0
Silicon Valley Bank 75,000 (27) 75,000 (27) 0
</TABLE>
---------------------------
* Less than one percent of the common stock outstanding.
(1) Unless otherwise indicated in this section of the prospectus, the selling
shareholders have sole voting power and investment power with respect to all
shares listed as owned by such selling shareholders. Under our amended
Certificate of Incorporation, no selling shareholder holding Series D Preferred
Stock and Series E Preferred Stock, may convert such securities to the extent
the conversion (i) would cause its beneficial ownership of our common stock
(other than shares deemed beneficially owned through ownership of unconverted
shares of the Series D Preferred Stock or the Series E Preferred Stock) to
exceed 4.99% of the outstanding shares of our common stock on the date of
conversion or (ii) would cause selling shareholder, together with its
affiliates, to have acquired a number of shares of common stock during the 60
day period ending on the date of conversion which, when added to the number of
shares of common stock held at the beginning of such 60 period, would exceed
9.99% of our then outstanding common stock, excluding for purposes of such
determination shares of common stock issuable upon conversion of the Series D
Preferred Stock and the Series E Preferred Stock which have not been converted.
The number of shares in the second column do not reflect these limitations.
(2) Assumes that the selling shareholders sell all of the shares offered in this
offering.
(3) Promethean Investment Group, LLC, a New York limited liability company,
serves as investment advisor to HFTP Investment, L.L.C. and may be deemed to
share beneficial ownership of the shares beneficially owned by HFTP by reason of
shared power to vote and to dispose of the shares beneficially owned by HFTP.
Promethean disclaims beneficial ownership of the shares beneficially owned by
HFTP. Mr. James F. O'Brien, Jr. indirectly controls Promethean. Mr. O'Brien
disclaims beneficial ownership of the shares beneficially owned by Promethean
and HFTP. HFTP is not a registered broker-dealer. HFTP, however, is under common
control with, and therefore an affiliate of, a registered broker-dealer.
(4) Includes up to 758,857 shares of common stock issuable upon conversion of
the Series D Preferred Stock at a conversion price of $0.65625, 5,676 shares of
common stock issuable upon conversion of dividends accrued on the Series D
Preferred Stock through November 10, 2000, 2,170,213 shares of common stock
issuable upon conversion of the Series E Preferred Stock at a conversion price
of $0.47, 970,591 shares of common stock held by the selling stockholders of
common stock.
(5) Citadel Limited Partnership is the trading manager of each of Fisher Capital
Ltd. and Wingate Capital Ltd. and consequently has voting control and investment
discretion over securities held by Citadel, Fisher and Wingate. Kenneth C.
Griffin indirectly controls Citadel. The ownership information for each of
Citadel, Fisher and Wingate does not include ownership information for any of
the others. Citadel, Kenneth C. Griffin and each of Citadel, Fisher and
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<PAGE>
Wingate disclaims ownership of the shares held by any of the others. Neither
Fisher nor Wingate is a registered broker-dealer. Each of Fisher and Wingate,
however, is under common control with, and therefore an affiliate of, a
registered broker-dealer.
(6) Includes 1,630,476 shares of common stock issuable upon conversion of the
Series D Preferred Stock at a conversion price of $0.65625, 12,195 shares of
common stock issuable upon conversion of dividends accrued on the Series D
Preferred Stock through November 10, 2000, 2,738,298 shares of common stock
issuable upon conversion of the Series E Preferred Stock at a conversion price
of $0.47 and 627,198 shares of common stock held by the selling stockholders.
(7) Includes 879,238 shares of common stock issuable upon conversion of the
Series D Preferred Stock at a conversion price of $0.65625, 6,576 shares of
common stock issuable upon conversion of dividends accrued through November 10,
2000, 1,474,468 shares of common stock issuable upon conversion of the Series E
Preferred Stock at a conversion price of $0.47 and 337,485 shares of common
stock held by the selling stockholders.
(8) Shares beneficially owned consist of 2,000,000 shares of common stock
issuable upon the exercise of a TMP warrant (at an exercise price of $9.00,
subject to certain adjustments as stated therein), which expires May 2, 2003 and
is not presently exercisable except under conditions as set forth in the
warrant.
(9) Consists of those shares discussed in footnote 8 above and 1,000,000 shares
of common stock issuable upon the exercise of a TMP warrant (at an exercise
price of $6.00, subject to certain adjustments as stated therein), which expires
May 2, 2003 and is currently exercisable.
(10) Under the terms of the prepaid, incentive and placement agent warrants
issued to Zanett and/or its affiliates or designees and except under certain
circumstances, none of the selling shareholders is entitled to exercise those
warrants to the extent that exercise would cause the selling shareholder to
beneficially own more than 4.99% of the total outstanding common stock of the
Company, excluding for purposes of such determination shares of common stock
issuable upon exercise of warrants which have not been exercised. The number of
shares in the second column does not reflect this limitation.
(11) Shares beneficially owned consist of 2,766,277 shares of common stock
issuable upon the exercise of the Zanett prepaid warrants, based on an exercise
price of $0.5314 and 448,755 shares of common stock issuable upon the exercise
of prepaid warrants issued in April, 1998, based on an exercise price of
$0.3454. Pursuant to the terms of the prepaid warrants issued in April, 1998,
the selling shareholder has the right to purchase shares of common stock at an
exercise price equal to the lower of (A) $1.47 and (B) the amount obtained by
multiplying 65% by the average of the 5 lowest closing bid prices for the common
stock during the 20 consecutive trading day period ending on the trading day
immediately preceding the date of determination or exercise.
(12) Shares beneficially owned consist of 76,440 shares of common stock issuable
upon the exercise of the Zanett incentive warrants, which expire March 22, 2005.
15
<PAGE>
(13) Shares beneficially owned consist of shares of common stock issuable upon
the exercise of the PMG warrant, which expires October 21, 2004. Currently, the
PMG warrant is exercisable for 175,000 shares of common stock.
(14) Consists of those shares discussed in footnote 13 above and 75,000 shares
of common stock issuable upon exercise of the PMG warrant after October 21, 2000
if the conditions described in the warrant are met.
(15) Includes 8,333 shares of common stock issuable upon the exercise of
employee stock options.
(16) Includes shares of common stock issued in February 2000 pursuant to the
supplement of the Agreement of Merger between one of our subsidiaries and the
shareholders of Automated Business Systems of North Carolina, Inc. and Kellar
Technology Group.
(17) Includes 16,666 shares of common stock issuable upon the exercise of
employee stock options.
(18) Consists of 56,455 shares of common stock issuable upon the exercise of the
Zanett prepaid warrants, based on an exercise price of $0.5314, 1,560 shares of
common stock issuable upon the exercise of the Zanett incentive warrants and
12,431 shares of common stock issuable upon the exercise of the Zanett placement
agent warrants.
(19) Shares beneficially owned consist of those discussed in footnote 20 below,
27,483 shares of common stock issuable upon the exercise of other incentive
warrants issued in connection with various private placements and 16,956 shares
of common stock.
(20) Shares to be sold in this offering consist of 12,431 shares of common stock
issuable upon the exercise of the Zanett placement agent warrants, which expire
March 22, 2005.
(21) Shares beneficially owned consist of those discussed in footnote 22 below
and 9,444 shares of common stock issuable upon the exercise of other incentive
warrants issued in connection with the private placement in April 1998.
(22) Shares to be sold in this offering consist of 8,288 shares of common stock
issuable upon the exercise of the Zanett placement agent warrants, which expire
March 22, 2005.
(23) Shares beneficially owned consist of those discussed in footnote 24 below
and 21,383 shares of common stock.
(24) Shares to be sold in this offering include 5,850 shares of common stock
issuable upon the exercise of the Zanett placement agent warrants, which expire
March 22, 2005.
(25) Consists of shares of common stock issued to the selling shareholder in
December 1999. These shares were issued upon exercise of certain restricted
warrants, which were originally issued in 1996 to certain Class A preferred
shareholders and subsequently transferred to the
16
<PAGE>
selling shareholder.
(26) Consists of 15,000 shares of common stock issuable upon exercise of the
Roseland II L.L.C. warrant at an exercise price of $7.72.
(27) Consists of 75,000 shares of common stock issuable upon exercise of the
Silicon Valley Bank warrant at an exercise price of $6.00.
Material Terms of Series D Preferred Stock and Related Warrants
Securities Purchase Agreement, as amended, for Series D Preferred Stock
On March 28, 2000, we entered into a Securities Purchase Agreement, which
was subsequently amended, with certain of the selling shareholders pursuant to
which we sold 10,000 shares of our Series D Preferred Stock for an aggregate
purchase price of $10,000,000. In addition, as further consideration for this
purchase, we entered into warrant agreements with the purchasers of our Series D
Preferred Stock pursuant to which we issued warrants to purchase up to an
aggregate of 1,165,644 shares of our common stock. These warrants were
exercisable for a period of three years. The net proceeds of the offering, after
expenses, were approximately $9.5 million.
On November 10, 2000, we entered into an Exchange, Redemption and
Conversion Agreement with the holders of the Series D Preferred Stock. Pursuant
to such agreement, the holders of the Series D Preferred Stock received 3,000
shares of our Series E Preferred Stock in exchange for 6,177 shares of Series D
Preferred Stock and all of the outstanding related warrants. Additionally,
pursuant to the Exchange, Redemption and Conversion Agreement, we redeemed from
the holders of Series D Preferred Stock, 500 shares of their Series D Preferred
Stock for a cash payment of $500,000. As part of the Exchange, Redemption and
Conversion Agreement the Company sold to the holders of the Series D Preferred
Stock 1,000 shares of the Company's common stock at a price of $0.65625 per
share.
The rights of the holders of our Series D Preferred Stock are set forth in
our amended Certificate of Incorporation and are summarized under "Description
of Securities--Series D Preferred Stock."
The securities purchase agreement, as amended, provides the holders of our
Series D Preferred Stock with a call option to purchase an aggregate of 5,000
additional shares of the Series D Preferred Stock and related warrants. This
call option was triggered on October 31, 2000.Pursuant to the Exchange,
Redemption and Conversion Agreement, the holders of the Series D Preferred Stock
have agreed to waive any call rights or options.
Warrant Agreements
Pursuant to the Exchange, Redemption and Conversion Agreement, we have
redeemed all outstanding warrants issued in connection with the sale of the
Series D Preferred Stock.
Limitation on Conversion of Series D Preferred Stock
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<PAGE>
No holder of shares of the Series D Preferred Stock may convert its shares
if the conversion (i) would make the holder the beneficial owner of more than
4.99% of our then outstanding common stock excluding for purposes of this
determination shares of common stock issuable upon conversion of Series D
Preferred Stock or Series E Preferred Stock which have not been converted or
(ii) would cause selling shareholder, together with its affiliates, to have
acquired a number of shares of common stock during the 60 day period ending on
the date of conversion which, when added to the number of shares of common stock
held at the beginning of such 60 period, would exceed 9.99% of our then
outstanding common stock, excluding for purposes of such determination shares of
common stock issuable upon conversion of the Series D Preferred Stock and the
Series E Preferred Stock which have not been converted.
Registration Rights Agreement
We have entered into a registration rights agreement with the holders of
the Series D Preferred Stock pursuant to which we agreed to prepare and file a
registration statement within 120 days of the closing of the sale of the Series
D Preferred Stock. The registration statement must register for resale at least
175% of the number of shares of common stock issuable upon conversion and/or
exercise of the Series D Preferred Stock and warrants. Subject to the terms of
the registration rights agreement, we will pay all reasonable expenses, other
than underwriting discounts and commissions, incurred in connection with the
registration, filing or qualification of the common stock underlying the Series
D Preferred Stock and warrants, including listing, accounting, printing and
attorney's fees. We filed such a registration statement on May 22, 2000, 2000,
which became effective.
Placement Agent
The placement agent for the sale of the Series D Preferred Stock was J.C.
Bradford & Co., LLC. Under the terms of the placement agreement, J.C. Bradford
acted as our exclusive agent in connection with the financing transaction,
contacted and solicited interest from investors who purchased Series D Preferred
Stock and assisted in the negotiation of the structure of the transaction. J.C.
Bradford received a placement fee equal to 5% of the funds raised, or $500,000.
Material Terms of Series E Preferred Stock And Related Matters
Exchange, Redemption and Conversion Agreement for Series E Preferred Stock
Pursuant to the Exchange, Redemption and Conversion Agreement, we issued
3,000 shares of Series E Preferred Stock in exchange for 6,177 shares of Series
D Preferred Stock and all related warrants exercisable held by the Selling
Shareholders.
The rights of the holders of our Series E Preferred Stock are set forth in
our Amended Certificate of Incorporation and are summarized under "Description
of Securities--Series E Preferred Stock."
We may, at our option, redeem the Series E Preferred Stock, subject to
certain conditions contained in the Exchange, Redemption and Conversion
Agreement and our Amended Certificate of Incorporation at an price of $1,000 per
share on or before April 30, 2001, provided that we redeem at least 1,500 shares
of Series E Preferred Stock on or before January 31, 2001. In the event we do
not make these redemptions, such failure will allow the holders of the Series D
Preferred Stock to convert to Series E Preferred Stock prior to April 30, 2001.
18
<PAGE>
Limitation on Conversion of Series E Preferred Stock
No holder of shares of the Series E Preferred Stock may convert its shares
if the conversion (i) would make the holder the beneficial owner of more than
4.99% of our then outstanding common stock excluding for purposes of this
determination shares of common stock issuable upon conversion of the Series D
Preferred Stock and the Series E Preferred Stock which have not been converted
or (ii) would cause selling shareholder, together with its affiliates, to have
acquired a number of shares of common stock during the 60 day period on the date
of conversion which, when added to the number of shares of common stock held at
the beginning of such 60 period, would exceed 9.99% of our then outstanding
common stock, excluding for purposes of such determination shares of common
stock issuable upon conversion of the Series D Preferred Stock and the Series E
Preferred Stock which have not been converted.
Registration Rights Agreement
We have entered into a registration rights agreement with the holders of
the Series E Preferred Stock pursuant to which we agreed to prepare and file a
registration statement within 90 days of the closing of the sale of the Series E
Preferred Stock. The registration statement must register for resale at least
100% of the number of shares of common stock issuable upon conversion of the
Series E Preferred Stock. Subject to the terms of the registration rights
agreement, we will pay all reasonable expenses, other than underwriting
discounts and commissions, incurred in connection with the registration, filing
or qualification of the common stock underlying the Series E Preferred Stock,
including listing, accounting, printing and attorney's fees.
If we do not file these registration statements within 20 days of the
issuance of the Series E Preferred Stock, or the SEC does not declare it
effective within 90 days of the issuance of the Series E Preferred Stock, we
will have to pay a cash penalty to the holders of the Series E Preferred Stock.
Placement Agent
We did not retain a placement agent in connection with the issuance of the
Series C Preferred Stock.
Material Terms of Warrants Issued to Zanett
Prepaid Warrants
In connection with a recent private placement, we issued to Zanett
Lombardier Ltd. and/or its affiliates or designees prepaid common stock purchase
warrants to purchase an aggregate number of shares of common stock equal to
$1,500,000 divided by the lower of
. $10, or
. the amount obtained by multiplying the average of the 5 lowest closing
bid prices for the common stock during the 20 consecutive trading day
period ending on the trading day immediately preceding the date of
determination or exercise by 0.75 or 0.65, depending on how long the
warrants have been outstanding.
These prepaid warrants are exercisable at any time. No holder of the
prepaid warrants
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<PAGE>
may exercise the warrants if exercise would result in the holder becoming the
beneficial owner of more than 4.99% of our then outstanding common stock. We are
not obligated to issue any shares of common stock upon exercise of any prepaid
warrants if as a result of exercise, the aggregate number of shares of common
stock issued upon exercise of the prepaid warrants would equal or exceed 20% of
the amount of our common stock outstanding on the date the prepaid warrants were
exercised.
There are some events of default under the prepaid warrants, including:
. our failure to deliver shares of common stock upon a proper request to
exercise the warrants under the terms of the prepaid warrant
agreements,
. our failure to file and have declared effective registration
statements covering the resale of the common stock issued on exercise
of the prepaid warrants required under a registration rights agreement
we have entered into with the holders of the prepaid warrants,
. the sale of substantially all of our assets, or
. the consummation of certain other transactions resulting in a change
in control of Netplex.
We will be required to pay cash penalties to the holders of the prepaid
warrants if an event of default occurs.
Additionally, the exercise price of the prepaid warrants will be adjusted
upon the occurrence of certain events, including:
. stock splits,
. payment of stock dividends or other distributions to the holders of
our common stock, and
. the issuance of securities that are convertible or exchangeable into
our common stock at a conversion or exchange rate that is based on a
discount of the market price of our common stock at the time of
conversion or exercise.
If the market value of our common stock decreases and the warrants remain
outstanding until October 19, 2000, the number of shares of common stock to be
issued upon exercise of these prepaid warrants could increase significantly and
result in significant dilution in your ownership interest.
Incentive and Placement Agent Warrants
We also issued to Zanett Lombardier Ltd. and/or its affiliates or designees
incentive warrants to purchase up to 78,000 shares of our common stock in
connection with the issuance of
20
<PAGE>
the prepaid warrants and placement agent warrants to The Zanett Securities
Corporation to purchase up to 39,000 shares of our common stock in consideration
for its services as the placement agent in the private placement. The incentive
and placement agent warrants are exercisable for a period of five years after
their issuance at an exercise price of $13.875 per share and $10.00 per share,
respectively.
The exercise price of the incentive and placement agent warrants will be
adjusted upon the occurrence of certain events, including:
- stock splits,
- payment of stock dividends or other distributions to the holders of
our common stock, and
- the issuance of securities that are convertible or exchangeable into
our common stock at a conversion or exchange rate that is based on a
discount of the market price of our common stock at the time of
conversion or exercise. It is probable that the issuance of the Series
E Preferred Stock will be considered an issuance of a security
convertible at less than the market price of our common stock.
Accordingly, the number of shares subject to the warrant and exercise
price of the incentive warrants are likely to be adjusted.
Under the terms of our placement agency agreement with Zanett Securities
Corporation, we paid Zanett approximately $182,000 as a placement fee, as well
as the placement agent warrants, for assisting us, on a best efforts basis, in
finding qualified investors to participate in the private placement.
Registration Rights Agreement
We have entered into a registration rights agreement with the holders of
the prepaid, incentive and placement agent warrants pursuant to which we agreed
to prepare and file a registration statement. The registration statement must
register for resale at least 200% of the number of shares of common stock
issuable upon exercise of the prepaid warrants and at least 100% of the number
of shares of common stock issuable upon exercise of the incentive and placement
agent warrants. Subject to the terms of the registration rights agreement, we
will pay all reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with the registration, filing or
qualification of the common stock underlying the warrants, including listing,
accounting, printing and attorney's fees.
If we do not file these registration statements, or the SEC does not
declare them effective, within 105 days of the closing of the sale of the
prepaid, incentive and placement agent warrants, we will have to pay a cash
penalty to the holders of the prepaid, incentive and placement agent warrants.
This registration was filed with the SEC on May 22, 2000 and declared
effective.
Dilution Upon Certain Decreases in Our Stock Price
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<PAGE>
The following table illustrates the effect that a 25%, 50% and 75% decline
in the price of our common stock, as determined on November 10, 2000, would have
on the number of shares of common stock issuable upon conversion of our
outstanding Class C Preferred Stock and the prepaid common stock purchase
warrants being registered in connection with this prospectus.
The numbers in this table are not intended to constitute a prediction as to
the number of shares of common stock into which the outstanding Class C
Preferred Stock Preferred Stock may be converted and into which the outstanding
prepaid warrants may be exercised. The number of shares of common stock to be
issued upon the conversion of the Class C Preferred Stock and the exercise of
and prepaid warrants is dependent on a number of variables that are different
for each security and that we cannot know at this time, including the future
price of our common stock, the time at which the preferred stock or warrants are
converted or exercised, and our failure to take certain actions in the future.
As a result, rather than a prediction, the numbers in the table below are
intended solely to illustrate the impact that decreases in the market value of
our common stock may have on the number of shares of common stock to be issued
upon the conversion of the Class C Preferred Stock the and the exercise of the
prepaid warrants, assuming that all other factors remain constant.
Shares of
Common Stock
Issuable on Shares of Common
Conversion of Stock Issuable
Class C on Exercise of
Preferred Stock Prepaid Warrants Total
Price determined as of
November 10, 2000 11,586,902 5,610,342 17,197,244
25% decline in the
price determined as of
November 10, 2000 15,446,608 7,206,292 22,652,900
50% decline in the
price determined as of
November 10, 2000 23,162,135 10,401,888 33,564,023
75% decline in the
price determined as of
November 10, 2000 46,370,968 19,973,888 66,344,856
In addition to the factors identified above, this table is subject to the
following:
- We issued to Zanett Lombardier Ltd. and/or its affiliates or designees
prepaid common stock purchase warrants to purchase an aggregate number
of shares of common stock equal to $1,500,000 divided by the lower of
(A) $10 or (B) the amount obtained by multiplying the average of the 5
lowest closing bid prices for
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<PAGE>
the common stock during the 20 consecutive trading day period ending
on the trading day immediately preceding the date of determination or
exercise by 0.65, which number is subject to reduction at certain
times in the future. The average of the 5 lowest closing bid prices
for the common stock during the 20 consecutive trading day period
ending on November 10, 2000 was $0.3454 per share. Decreases of 25%,
50% and 75% in this average price would result in average prices of
$0.2591, $0.1727 and $0864 per share, respectively.
Material Terms of Warrants Issued to TMP
Co-branded Services Agreement
We have issued warrants to purchase up to 3,000,000 shares of common stock
to TMP Interactive, Inc. in connection with a co-branded services arrangement
one of our subsidiaries and TMP Interactive, Inc. entered into in May 2000.
Under the terms of this two-year arrangement with TMP Interactive, Inc., the
parent of TMP Worldwide, Inc., whose global online career site and flagship
brand is Monster.com, Contractors Resources MyBizOffice service is now a
co-branded component of the Monster Talent Market, an online auction-style
marketplace for independent professionals. For additional information regarding
MyBizOffice, see "Business." Contractors Resources will create and host a
co-branded website which may be accessed from the Monster Talent Market and
Monster.com. As a result of this co-branded website, MyBizOffice will be
positioned within the Monster Talent Market as the primary provider of e-office
services and the Monster Talent Market will be positioned within mybizoffice.com
as the primary provider of online career information, project search tools,
resume and profile building and search tools, and project listing and resume
data for contract talent. We agreed to guarantee Contractors Resources'
obligations under the agreement. However, this guarantee obligation, as well as
any other of our obligations under the agreement, terminate upon the initial
public offering of the Contractors Resources' securities.
Warrant Agreements
The warrants we issued to TMP Interactive, Inc. in connection with the
co-branded services arrangement are exercisable for a period of three years
after the date they were issued. The exercise price for the warrants to purchase
up to 2,000,000 shares of common stock is $9.00 per share. The exercise price
for the remaining warrants to purchase up to 1,000,000 shares of common stock is
$6.00 per share.
The exercise price of these warrants will be adjusted upon the occurrence
of certain events, including stock splits, payment of stock dividends or other
distributions to the holders of our common stock, and the reclassification of
our common stock or recapitalization.
The warrants that we issued to TMP Interactive provide the holders with the
right to have the shares of common stock issuable upon exercise of the warrants
included in certain registration statements we file. Also, the holders of 25% or
more of the warrants may request on one occasion that we file a registration
statement covering the shares of common stock issuable upon the exercise of
their warrants. In lieu of effecting these registrations, we may purchase the
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securities that are requested to be registered at a price per share equal to the
difference between 95% of the last sales price of the common stock on the day
the request for registration is made and the exercise price then in effect.
Subject to the terms of the warrant, we will pay all reasonable expenses, other
than underwriting discounts and commissions, incurred in connection with the
registration, filing or qualification of the common stock underlying the
warrants, including listing, accounting, printing and attorney's fees.
Material Terms of Warrants Issued to Pennsylvania Merchant Group
The common stock offered by this prospectus also includes 250,000 shares of
common stock issuable upon the exercise of the warrant issued to Pennsylvania
Merchant Group ("PMG") in connection with an investment banking arrangement we
have with it. Under the terms of a letter agreement with PMG, PMG will provide
us with:
- strategic and financial advisory services, including planning
strategy, analyzing various financial data and markets, advising us on
potential strategic alliances and capital requirements, and
- assisting our management team on ways to enhance corporate and
shareholder value;
- banking services, including advising us on the timing and structure of
any proposed financing transactions or capital raising alternatives,
including public and private issues or equity or debt; and
- merger and acquisition services, including advising and assisting us
in determining one or more acquisition or strategic partnering
strategies and tactics and in identifying, evaluating, negotiating,
and structuring proposed acquisitions of, investments by, or strategic
partnerships with, related companies with complementary businesses
and/or technology.
In addition to the warrants, the one-year arrangement, which is subject to
optional renewal in our sole discretion, requires us to pay PMG a monthly
retainer of $5,000 and issue the warrant for 250,000 shares of our common stock,
at an exercise price of $3.00 per share. Of the 250,000 shares subject to this
warrant, 175,000 vested as of October 21, 1999 and the remaining 75,000 vest
after one year, if we extend the arrangement. The terms of the warrant require
that, upon PMG's request, we register the shares underlying the warrant with any
subsequent registration statement we file during the period the warrant is
exercisable for our common stock. We have agreed to register for resale all
shares of common stock underlying the warrant with this prospectus in accordance
with the registration rights granted to PMG.
Material Terms of Warrant Issued to Roseland II L.L.C.
The warrant exercisable for up to 15,000 shares of common stock that we
issued to Roseland II L.L.C. in connection with our leasing arrangements is
exercisable for a period of five years after the date the warrant was issued.
The exercise price for the warrant is $7.72 per share.
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The exercise price of this warrant will be adjusted upon the occurrence of
certain events, including stock splits, payment of stock dividends or other
distributions to the holders of our common stock, and the reclassification of
our common stock or recapitalization. The warrant provides Roseland II L.L.C.
with the right to have the shares of common stock issuable upon exercise of the
warrants included in certain registration statements we file.
Material Terms of Warrant issued to Silicon Valley Bank
The warrant exercisable for up to 75,000 shares of common stock that we
issued to Silicon Valley Bank in connection with our line of credit is
exercisable for a period of five years after the date it was issued. The
exercise price for the warrant is $6.00 per share. The exercise price of this
warrant will be adjusted upon the occurrence of certain events, including stock
splits, payment of stock dividends or other distributions to the holders of our
common stock, and the reclassification of our common stock or recapitalization.
A registration rights agreement we entered into in connection with the warrant
provides Silicon Valley Bank with the right to have the shares of common stock
issuable upon exercise of the warrant included in certain registration
statements we file. Subject to the terms of the registration rights agreement,
we will pay all reasonable expenses, other than underwriting fees, discounts and
commissions, incurred in connection with the registration, filing or
qualification of the common stock underlying the warrants, including listing,
accounting, printing and attorney's fees. An antidilution agreement we entered
into in connection with the warrant provides that, subject to certain
exceptions, if we issue common stock or securities that can be exchanged or
converted into common stock at a price less than the exercise price then in
effect for the warrants after the date of the warrant, then the number of shares
issuable upon the exercise of the warrant shall be increased proportionally
based upon the amount by which the lower price is less than the current exercise
price of the warrant.
6. The section entitled "DESCRIPTION OF SECURITIES" in our September 1, 2000
Prospectus is hereby amended and restated in its entirety and replaced with the
following:
DESCRIPTION OF SECURITIES
As of November 10, 2000, our authorized capital stock consisted of:
- 100,000,000 shares of common stock, par value $0.001 per share, of
which 18,493,975 shares (not including 1,809,473 shares of our common
stock issued to the holders of the Series D Preferred Stock on
November 10, 2000 pursuant to the Exchange, Redemption and Conversion
Agreement) were issued and outstanding, 5,028,205 shares were reserved
for issuance pursuant to our stock option and purchase plans and
7,875,690 shares were issuable and reserved for issuance pursuant to
securities (other than shares reserved for issuance pursuant to the
Company's stock option and purchase plans) exercisable or exchangeable
for, or convertible into, shares of common stock, and
- 6,000,000 shares of preferred stock, par value $0.01 per share, of
which 1,904,438 shares have been designated as Class A Preferred Stock
of which 80,597 shares were
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issued and outstanding; 1,500,000 shares have been designated Class B
Preferred Stock of which no shares were issued and outstanding;
1,500,000 shares have been designated Class C Preferred Stock of which
1,500,000 shares were issued and outstanding; 15,000 shares have been
designated Series D Preferred Stock of which 2,145 shares were issued
and outstanding; and 3,000 shares have been designated Series E
Preferred Stock of which 3,000 shares were issued and outstanding.
The descriptions below of the terms of the common stock, preferred stock
and the related warrants are summaries of the material terms only and do not
purport to be complete. The descriptions below are subject to and qualified by
the detailed provisions of our amended Certificate of Incorporation and Bylaws,
all of which have been filed with the SEC and are incorporated into this
prospectus by reference and by applicable law.
Common Stock
The holders of our common stock are entitled to one vote per share on all
matters on which shareholders are entitled to vote. Subject to the rights of
holders of any class or series of shares, including preferred shares, having a
preference over the common stock as to dividends or upon liquidation, the
holders of our common stock are also entitled to dividends as may be declared by
our Board of Directors out of funds that are lawfully available, and are
entitled upon liquidation to receive pro rata the assets that are available for
distribution to holders of common stock. Holders of the common stock have no
preemptive, subscription or conversion rights. The common stock is not subject
to assessment and has no redemption provisions.
Preferred Stock
In addition to the Series D Preferred Stock and the Series E Preferred
Stock, we have the authority to issue 4,414,258 additional shares of preferred
stock in one or more series and to fix the designations, relative powers,
preferences, and rights and the qualifications, limitations or restrictions of
all shares of each series, including dividend rates, conversion rights, voting
rights, redemption and sinking fund provisions, liquidation preferences and the
number of shares constituting each series, without any further vote or action by
the shareholders.
The issuance of preferred stock could decrease the amount of earnings and
assets available for distribution to holders of common stock or adversely affect
the rights and powers, including voting rights, of the holders of common stock
and could have the effect of delaying, deferring or preventing a change in
control of Netplex without further action by the shareholders.
Class A Preferred Stock
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General
We have designated 1,904,438 shares of our preferred stock as Class A
Preferred Stock. For each share of Class A Preferred Stock issued, the
shareholder also received a warrant to purchase one share of our common stock at
an exercise price of $2.50 per share. Each warrant became exercisable on March
19, 1997 and expires on September 19, 2001. We have the right to call the
warrants at a redemption price of $0.01 per share upon:
. registration of the shares underlying the warrant, or
. 30 days written notice given at any time upon the common stock
attaining a trading price of at least $5.00 per share and sustaining
that price for 20 trading days.
Dividends
Each share of Class A Preferred Stock shall receive a cumulative dividend
of 10% per year, payable in cash or additional shares of Class A Preferred
Stock.
Liquidation Preference
The Class A Preferred Stock shall rank senior to all classes and series of
our capital stock now or hereafter authorized, issued, or outstanding. In the
event of any voluntary or involuntary liquidation, dissolution, winding up, or
change in control of Netplex, the holders of Class A Preferred Stock shall
receive the greater of:
. $4.00 per share of Class A Preferred Stock, plus any accrued but
unpaid dividends, or
. the amount the holders of Class A Preferred Stock would have received
if they had converted their preferred stock into common stock, plus
any accrued but unpaid dividends.
Voting Rights
The holders of Class A Preferred Stock are not entitled to vote on any
matter except as required by law.
Conversion
The holders of the Class A Preferred Stock have the right, at any time, to
convert each share of Class A Preferred Stock into one share of common stock,
plus any accrued but unpaid dividends payable in cash or the Class A Preferred
Stock.
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Redemption
Upon the effectiveness of a registration statement that registers the
common stock underlying the Class A Preferred Stock, we may redeem the Class A
Preferred Stock for $2.00 plus any accrued but unpaid dividends. Additionally,
we may redeem the Class A Preferred Stock upon 30 days written notice at any
time after September 19, 2000 if:
. the last sale price of the common stock has been at least $5.00 per
share on all 20 of the trading days ending on the third date prior to
the date on which written notice of redemption is given, or
. the last sale price of the common stock has been at least 20
percentage points higher than the prior year's price as the prior
year's price relates to $2.50 per share (i.e., 220% of $2.50 in the
fifth year, 240% of $2.50 in the sixth year, etc.) on all 20 which
notice of redemption is given.
Class B Preferred Stock
In October 1998, we issued 643,770 shares of Class B Preferred Stock. Each
share of Class B Preferred Stock is immediately convertible into one share of
common stock. No dividends are payable on Class B Preferred Stock. There are no
shares of Class B Preferred Stock currently outstanding.
Class C Preferred Stock
General
We have designated 1,500,000 shares of preferred stock as Class C Preferred
Stock. The holders of the Class C Preferred Stock have received warrants to
purchase 150,000 shares of common stock at $1.375 per share. In addition, we are
required to issue warrants to purchase 100,000 additional shares of common stock
for each 18 month period the Class C Preferred Stock is outstanding, up to a
total of 400,000 additional shares of common stock. The warrants have a 10-year
term and are immediately exercisable.
Dividends
Each share of the Class C Preferred Stock earns cumulative dividends at
9.99% per year, payable in cash. The dividend rate increases to 15% per year
once the Class A Preferred Stock is no longer issued and outstanding.
Liquidation Preference
The Class C Preferred Stock shall rank senior to the common stock and shall
rank junior to the Class A Preferred Stock with respect to dividend rights or
rights on liquidation, winding up, dissolution, or change in control. In the
event of any voluntary or involuntary liquidation, dissolution, winding up, or
change in control, the holders of the Class C Preferred Stock shall
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receive, before the holders of any securities junior to the Class C Preferred
Stock, the greater of:
. $3.99 per share of Class C Preferred Stock, plus any accrued but
unpaid dividends, or
. the amount the holders of Class C Preferred Stock would have received
if they had converted their preferred stock into common stock, plus
any accrued but unpaid dividends.
Voting Rights
The holders of the Class C Preferred Stock are not entitled to vote on any
matter except as required by law.
Conversion
The Class C Preferred Stock is convertible at any time after the earlier of
a change in control of Netplex or five years from the date of issuance and is
redeemable at our option at any time within the first five years. The number of
shares into which the Class C Preferred Stock is convertible is equal to
$2,300,000 plus accrued unpaid dividends divided by 25% of the 20 day average
trading price of our common stock immediately prior to conversion.
To the extent that our stock price decreases and we do not exercise our
right of redemption prior to conversion, the number of shares of our common
stock to be issued upon conversion of our Class C Preferred Stock could increase
significantly; the issuance of additional shares of common stock could
substantially dilute your ownership interest and depress the price of our common
stock. The conversion of the Class C Preferred Stock into common stock may
result in the sale of a significant number of shares of common stock into the
market; these sales could decrease the price of our common stock. Additionally,
the perceived risk of dilution from conversion of the Class C Preferred Stock
may cause other shareholders to sell their shares before conversion or encourage
short sales of our common stock; those sales could also place further downward
pressure on the price of our common stock.
Redemption
We may redeem the Class C Preferred Stock at any time prior to or on
September 28, 2003 at an aggregate amount equal to $2,300,000 plus any accrued
but unpaid dividends.
Series D Preferred Stock
General
We have designated 15,000 shares of our preferred stock as Series D
Preferred Stock. As of November 10, 2000, 2,145 shares of Series D Preferred
Stock are issued and outstanding.
Dividends
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Commencing November 10, 2000, the holders of the Series D Preferred Stock
have waived the continued accrual or payment of dividends on that stock
commencing November 10, 2000. Prior to such date the Series D Preferred Stock
earned a cumulative dividend at a rate of 7% per year which was payable
quarterly, beginning on the first day of the calendar quarter subsequent to the
date of issuance. Subject to the terms of our amended Certificate of
Incorporation, we were permitted to pay the dividends in cash or shares of our
common stock, and prior to November 10, 2000, a total of 190,608 shares of
Common Stock were issued as dividends thereunder.
Liquidation Preference
In the event of our liquidation, the holders of the Series D Preferred
Stock will be entitled to a liquidation preference before any amounts are paid
to the holders of any of our capital stock of any class junior in rank to the
Series D Preferred Stock. The liquidation preference is equal to the amount
originally paid for the shares of Series D Preferred Stock, or $1,000 per share,
plus an additional amount equal to a 7% annual return on the amount originally
paid for the shares of Series D Preferred Stock plus any unpaid dividends and
any unpaid default interest.
Voting Rights
The holders of the Series D Preferred Stock are not entitled to vote on any
matter except as required by law, except that the consent of holders of at least
two-thirds of the outstanding shares of Series D Preferred Stock will be
required to effect any change in our amended Certificate of Incorporation that
would change any of the rights of the shares of Series D Preferred Stock.
Conversion
The Series D Preferred Stock is convertible, at a conversion price of
$0.65625 per share, into shares of common stock at the option of the holder
thereof at any time from the date of issuance. Pursuant to the Exchange
Conversion and Redemption Agreement, the holders of the Series D Preferred Stock
are required to convert all of their remaining shares of Series D Preferred
Stock on or before March 28, 2002, subject to certain limitations to conversion
described below. The number of shares of common stock to be issued upon a
conversion of a share of Series D Preferred Stock is determined by dividing the
sum of $1,000 (the amount paid for the share), plus accrued and unpaid dividends
($7.479 as of November 10, 2000) plus any unpaid default interest by $0.65625.
If we fail to deliver shares of common stock after being requested by a
holder of the Series D Preferred Stock to convert its shares to common stock,
then will be subject to certain cash penalties after 5 business days from our
receipt of the request:
. after 12 business days from our receipt of the request,
. if the holder exercises its right to void the conversion request,
the conversion price will be reduced to the lesser of the
conversion price then
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in effect or the lowest closing sale price of our common stock
during the period beginning on the date the holder requested
conversion and ending on the date the conversion request was
voided; and
. the holder that made the request will be entitled to require us
to redeem its shares of Series D Preferred Stock.
Also, if we issue certain options or convertible securities that are
convertible into or exchangeable or exercisable for common stock at a price that
varies based on the market price of our common stock, then the holders of the
Series D Preferred Stock may elect to substitute the variable price of these
options or convertible securities for the conversion price then in effect when
they elect to convert their shares of Series D Preferred Stock.
The conversion of the outstanding Series D Preferred Stock at the fixed
conversion price of $0.65625 will result in the issuance of 3,293,018 shares of
common stock.
No holder of shares of the Series D Preferred Stock may convert its shares
if the conversion (i) would make the holder the beneficial owner of more than
4.99% of our then outstanding common stock, excluding shares deemed beneficially
owned through ownership of unconverted shares of the Series D Preferred Stock
and Series E Preferred Stock or (ii) would cause selling shareholder, together
with its affiliates, to have acquired a number of shares of common stock during
the 60 day period ending on the date of conversion which, when added to the
number of shares of common stock held at the beginning of such 60 period, would
exceed 9.99% of our then outstanding common stock, excluding for purposes of
such determination shares of common stock issuable upon conversion of the Series
D Preferred Stock and the Series E Preferred Stock which have not been
converted. Although, originally we were not obligated to issue any shares of
common stock if as a result of the issuance the aggregate number of shares of
common stock issued upon conversion of the Series D Preferred Stock and exercise
of the related warrants would equal or exceed 20% of the amount of our common
stock outstanding on March 29, 2000, this limitation is no longer applicable
because we obtained shareholder approval as required by the applicable rules of
the Nasdaq SmallCap Market for such an issuance. As a result of this approval,
there is no limit on the amount of shares that can be issued upon conversion of
the Series D Preferred Stock.
Mandatory Conversion
Pursuant to the Exchange, Redemption and Conversion Agreement, the holders
of our Series D Preferred Stock are obligated to convert all of their shares of
Series D Preferred Stock in to our common stock on or before March 29, 2002.
Accordingly, on November 10, 2000, such shareholders converted 1,178 shares of
Series D Preferred Stock into 1,808,473 shares of common stock. Subject to the
4.99% limitation and the 9.99% limitation discussed above and other conditions
contained in the Exchange, Redemption and Conversion Agreement, the holders of
the Series D Preferred Stock shall from time to time convert their remaining
2,145 shares into common stock.
Redemption
Beginning on March 29, 2002, subject to extension in certain circumstances, we
can redeem the outstanding Series D Preferred Stock that we issued on March 29,
2000 for the price originally paid for the shares plus an additional amount
equal to a 7% annual return on the amount originally paid for the shares of
Series D Preferred Stock plus unpaid default interest. If we do not redeem all
of these shares of Series D Preferred Stock by June 3, 2002, we will be required
to convert the shares that we do not redeem into the number of shares of common
stock determined by dividing the sum of $1,000 plus an additional amount equal
to a 7% annual return on the
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amount originally paid for the shares of Series D Preferred Stock plus unpaid
default interest by the applicable conversion price. The applicable conversion
price at the time of the conversion will be 95% of the dollar volume-weighted
average price of the common stock on June 3, 2002. During the period beginning
on and including April 2, 2002 and ending on and including June 3, 2002, the
holders of the shares of common stock issued upon the conversion of the Series D
Preferred Stock will be limited in the amount of the shares that they may sell.
Upon the occurrence of the trigger events listed below, the holders of Series D
Preferred Stock have the right to require us to redeem all or a portion of their
Series D Preferred Stock at a redemption price per preferred share equal to the
greater of:
. 125% of the price paid for such share of Series D Preferred Stock plus
unpaid dividends and unpaid default interest; or
. The relative percentage that the average closing sales price of the
common stock on the date immediately preceding such trigger event
bears to the applicable conversion price in effect at such time the
holders give notice of their election to redeem upon the occurrence of
a triggering event of the price paid for such share of Series D
Preferred stock plus any unpaid dividends and any unpaid default
interest.
The events that will entitle the holders of the Series D Preferred Stock to
exercise these redemption rights are the failure by us to deliver shares of
common stock upon conversion of the Series D Preferred Stock and the occurrence
of any of the following trigger events:
. the effectiveness of a registration statement we are required to file
under the terms of the registration rights agreement lapses for any
reason or is unavailable to the holders of the Series D Preferred
Stock (excluding such unavailability imposed by the Securities and
Exchange Commission and not at our request) and such lapse or
unavailability continues for a period of five consecutive trading days
or for more than an aggregate of 10 trading days in any 365-day
period;
. our common stock is suspended or delisted from trading on the Nasdaq
SmallCap Market, the Nasdaq National Market, the American Stock
Exchange, the New York Stock Exchange or the bulletin board
over-the-counter market (as operated by NASD) for a period of at least
five consecutive trading days or for more than 10 trading days in any
365-day period;
. we give notice to any holder of Series D Preferred Stock of our intent
not to comply with a request for conversion tendered in accordance
with the terms of the Series D Preferred Stock;
. we fail to issue shares of common stock to any holder of the Series D
Preferred Stock prior to the 12th business day after the holder
requests such conversion;
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We are informed by our auditing firm that, because the Series D Preferred Stock
is not redeemable upon the occurrence of any event which is beyond our control,
the Series D Preferred Stock has been accounted for as equity in our current
consolidated balance sheet.
In addition, holders also may redeem the Series D Preferred Stock upon a
change of control of the Company other than a tender offer at a redemption price
per preferred share equal to the greater of:
. 125% of the price paid for such the shares of Series D Preferred Stock
plus unpaid dividends and unpaid default interest or
. The relative percentage that the average closing sales price of the
common stock during the five trading days immediately preceding the
date the holders give notice of their election to redeem upon a change
of control bears to the applicable conversion price in effect at such
time the holders give notice of their election to redeem upon a change
of control of the price paid for such share of Series D Preferred
stock plus any unpaid dividends and any unpaid default interest.
Preemptive Rights
Until December 27, 2000, subject to the exceptions described in the
securities purchase agreement under which the Series D Preferred Stock was sold,
we may not negotiate or contract with any party for any equity financing or
issue any equity securities or securities convertible or exchangeable into or
for equity securities in any form unless we have first delivered to each holder
of Series D Preferred Stock a written notice describing the proposed
transaction. In addition, we must provide each holder an option to purchase a
certain participation percentage of the securities to be issued in the proposed
transaction equal to 75% of its pro rata portion of the Series D Preferred Stock
issued in March, 2000.
Pursuant to the Exchange, Redemption and Conversion Agreement, the holders
of the Series D Preferred Stock have agreed to waive any call rights or options
to buy additional shares of the Series D Preferred Stock.
Series E Preferred Stock
General
We have designated 3,000 shares of our preferred stock as Series E
Preferred Stock. To date, we have issued 3,000 shares of Series E Preferred
Stock.
Dividends
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The Series E Preferred Stock shall bear cumulative dividends at a rate of
7% per year and be payable quarterly, beginning on May 1, 2001 and thereafter on
the first day of each calendar quarter commencing July 1, 2001. Subject to the
terms of our amended Certificate of Incorporation, we may pay the dividends in
cash or shares of our common stock. If we choose to pay dividends in shares of
our common stock, the number of shares to be issued in payment of the dividend
on each share of the Series E Preferred Stock will be equal to the accrued
dividends (plus any unpaid default interest) divided by the applicable dividend
conversion price. The applicable dividend conversion price will be equal to the
average of the closing sale prices for our common stock on the 10 consecutive
trading days immediately preceding the date of determination.
We will not have the right to pay dividends in shares of our common stock
if any of the trigger events identified below under "Description of
Securities--Series E Preferred Stock--Redemption--Redemption at option of
holders of Series E Preferred Stock" has occurred and is continuing.
Liquidation Preference
In the event of our liquidation, the holders of the Series E Preferred
Stock will be entitled to a liquidation preference before any amounts are paid
to the holders of any of our capital stock of any class junior in rank to the
Series E Preferred Stock. The liquidation preference is equal to the amount
originally paid for the shares of Series E Preferred Stock, or $1,000 per share,
plus an additional amount equal to a 7% annual return on the amount originally
paid for the shares of Series E Preferred Stock plus any unpaid dividends and
any unpaid default interest.
Voting Rights
The holders of the Series E Preferred Stock are not entitled to vote on any
matter except as required by law, except that the consent of holders of at least
two-thirds of the outstanding shares of Series E Preferred Stock will be
required to effect any change in our amended Certificate of Incorporation that
would change any of the rights of the shares of Series E Preferred Stock.
Conversion
Subject to our rights of redemption described below under "Description of
Securities--Series E Preferred Stock--Redemption of Securities", the Series E
Preferred Stock is convertible at a conversion rate of $0.47 per share into
shares of common stock at the option of the holder thereof at any time after we
fail to redeem such shares in accordance with the schedule described under the
heading "Redemption", below or upon the occurence of certain other events. We
can require the holders to convert the Series E Preferred Stock on May 31, 2002.
The number of shares of common stock to be issued upon conversion of a share of
Series E Preferred Stock issued in November 2000 is determined by dividing the
sum of $1,000 (the amount paid for each share), plus an additional amount equal
to a 7% annual return on the principal amount of the Series E Preferred Stock
accrued from the last date on which dividends were paid (or if no dividends have
been paid, November 10, 2000) plus unpaid default interest, by $0.47.
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If we fail to deliver shares of common stock after being requested by a
holder of the Series E Preferred Stock to convert its shares to common stock,
then
- we will be subject to certain cash penalties after 5 business days
from our receipt of the request;
- after 12 business days from our receipt of the request,
- the holder may exercise its right to void the conversion request, and
the conversion price of any Series E Preferred Stock returned or
retained by the holder shall be adjusted to the lesser of $0.47 or the
lowest closing sales price of the common stock during the period
beginning on the date the holders give notice of their election to
convert and ending on the date such holder voided the conversion
request; and
- the holder that made the request will be entitled to require us to
redeem its shares of Series E Preferred Stock at a premium.
The conversion as of November 10, 2000 of the outstanding Series E Preferred
Stock at the fixed conversion price of $0.47 would result in the issuance of
6,382,979 shares of common stock.
As the conversion price of the Series E Preferred Stock is significantly less
than the current market value of our common stock, if all of the Series E
Preferred Stock are converted into common stock and if we pay dividends in
shares of our common stock, the number of shares of common stock to be issued in
payment of the dividends and/or upon conversion of the Series E Preferred Stock
could result in significant dilution in your ownership interest.
No holder of shares of the Series E Preferred Stock may convert its shares
if the conversion (i) would make the holder the beneficial owner of more than
4.99% of our then outstanding common stock, excluding shares deemed beneficially
owned through ownership of unconverted shares of the Series D Preferred Stock
and the Series E Preferred Stock or (ii) would cause selling shareholder,
together with its affiliates, to have acquired a number of shares of common
stock during the 60 day period ending on the date of conversion which, when
added to the number of shares of common stock held at the beginning of such 60
period, would exceed 9.99% of our then outstanding common stock, excluding for
purposes of such determination shares of common stock issuable upon conversion
of the Series D Preferred Stock and the Series E Preferred Stock which have not
been converted. It is possible that the applicable rules of the Nasdaq SmallCap
Market might limit the issuance of an aggregate number of shares of common stock
issued upon conversion of the Series E Preferred Stock to 20% or less of the
amount of our common stock outstanding on or before November 10, 2000. We are
obligated to either call a meeting to obtain shareholder approval for the
issuance of the common stock upon the conversion of the Series E Preferred Stock
or receive a waiver from Nasdaq to the effect that the 20% limitation does not
apply to such issuance. After obtaining such approval or waiver, there will be
no limit on the amount of shares that can be issued upon conversion or the
payment of dividends in lieu of cash on the Series E Preferred Stock. In the
event we do not call such a shareholder meeting or received such waiver by
January 31, 2001, we will incur certain cash penalties and the holders of the
Series E Preferred Stock will have the option to require us to redeem their
shares of the Series E Preferred Stock.
Redemption
Redemption at our option. We have the option to redeem from the selling
shareholders,
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their shares of Series E Preferred Stock. Our right to redeem the outstanding
Series E Preferred Stock expires on the first to occur of April 30, 2001 if we
have redeemed 1,500 shares of Series E Preferred Stock by January 31, 2001, or
January 31, 2001. The redemption price will be the face value of such shares of
Series E Preferred Stock redeemed plus any unpaid default interest.
Additionally, on March 29, 2002, subject to extension in certain circumstances,
we can redeem any remaining unconverted Series E Preferred Stock for a
redemption price equal to the Liquidation Preference. If we do not redeem all of
these shares of Series E Preferred Stock by March 29, 2002 (or such applicable
extended date), we will be required to convert the shares that we do not redeem
into the number of shares of common stock determined by dividing the sum of
$1,000 plus an additional amount equal to a 7% annual return on the principal
amount of the Series E Preferred Stock accrued from the last date on which
dividends were paid (or if no dividends were paid, the date of issuance) plus
unpaid default interest by the applicable conversion price. The applicable
maturity conversion price will be 100% of the closing bid price on the date of
such conversion.
Redemption at option of holders of Series E Preferred Stock. Upon the
occurrence of the trigger events listed below, the holders of Series E Preferred
Stock have the right to require us to redeem all or a portion of their Series E
Preferred Stock at a redemption price equal to the greater of:
. 125% of the price paid for the shares of Series E Preferred Stock plus
unpaid dividends and unpaid default interest or
. the relative percentage that the average closing sales price of the
common stock on the date immediately preceding such trigger event
bears to the applicable conversion price in effect at such time the
holders give notice of their election to redeem upon the occurrence of
a triggering event of the price paid for such share of Series E
Preferred stock plus any unpaid dividends and any unpaid default
interest.
The events that will entitle the holders of the Series E Preferred Stock to
exercise these redemption rights are the failure by us to deliver shares of
common stock upon conversion of the Series E Preferred Stock and the occurrence
of any of the following trigger events:
. Our failure to file any registration statement we are required to file
under the terms of the registration rights agreement we entered into
with the holders of the Series E Preferred Stock on or prior to the
date required by the terms of the registration rights agreement;
. we give notice to any holder of Series E Preferred Stock of our intent
not to comply with a request for conversion tendered in accordance
with the terms of the Series E Preferred Stock;
. we fail to issue shares of common stock to any holder of the Series E
Preferred Stock prior to the 12th business day after the holder
requests such conversion;
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. we fail to delist from the Nasdaq SmallCap Market (or if our common
stock is not traded on the Nasdaq SmallCap Market, then the principal
securities exchange or trading market (including, without limitation,
the over-the-counter electronic bulletin board (sponsored by the
Nasdaq Stock Market, Inc.)) within five (5) Business Days of the
Corporation's receipt of a conversion notice because such issuance
would cause us to exceed the limitation on the number of shares that
may be issued in accordance with the applicable rules of the Nasdaq
SmallCap Market;
. we fail to make any liquidity default payments (See "Description of
Securities--Series E Preferred Stock--Liquidity Defaults); or
. we fail to call a meeting of the shareholders by January 31, 2001 and
fail to recommend the approval of the proposal to issue common stock
in excess of 20% of our outstanding common stock to the holders of the
Series E Preferred Stock or fail to obtain a waiver from the NASD of
such 20% limitation.
In addition, holders also may redeem the Series E Preferred Stock upon a
change of control of Netplex at a redemption price equal to the greater of:
. 100% of the price paid for the shares of Series E Preferred Stock plus
unpaid dividends and unpaid default interest or
. The relative percentage that the average closing sales price of the
common stock during the five trading days immediately preceding the
date the holders give notice of their election to redeem upon a change
of control bears to the applicable conversion price in effect at such
time the holders give notice of their election to redeem upon a change
of control of the price paid for such share of Series E Preferred
stock plus any unpaid dividends and any unpaid default interest.
Liquidity Defaults
Upon the occurrence of the following events, we will incur certain cash
penalties payable to the holders of the Series E Preferred Stock:
. the failure of the applicable registration statement filed in
connection with the Series E Preferred Stock to be declared effective
within 90 days of the issuance of the Series E Preferred Stock.
. the effectiveness of a registration statement we are required to file
under the terms of the registration rights agreement lapses for any
reason or is unavailable to the holders of the Series E Preferred
Stock and such lapse or unavailability continues for a period of five
consecutive trading days or for
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more than an aggregate of 10 trading days in any 365-day period;
. our common stock is suspended or delisted from trading on the Nasdaq
SmallCap Market, the Nasdaq National Market, the American Stock
Exchange, the over-the-counter electronic bulletin board (sponsored by
the Nasdaq Stock Market, Inc.) or the New York Stock Exchange for a
period of at least five consecutive trading days or for more than 10
trading days in any 365-day period;
. we breach any representation, warranty, covenant or other term or
condition of the documents governing the issuance of the Series E
Preferred Stock and the breach would have a material adverse effect on
our business or is not cured within 20 days after its occurrence.
. A purchase, tender or exchange offer made to and accepted by the
holders of more than 50% of the outstanding shares of common stock
Prohibition on Issuance of Certain Securities
While any Series E Preferred Stock remains outstanding, we are prohibited
from issuing any options or convertible securities that are convertible into or
exchangeable or exercisable for common stock at a price, which may vary with the
market price of the Common Stock.
Registration Rights
We have granted to holders of our Series E Preferred Stock registration
rights that will require us to file registration statements under the Securities
Act covering all or a portion of the common stock issued or issuable upon
conversion of the Series E Preferred Stock or to include these shares of common
stock in a registration under the Securities Act that we initiate. Certain
registration rights agreements that we have entered into are discussed under
"Selling Shareholders."
Anti-takeover Effects of Certain Provisions of New York Law and our Amended
Certificate of Incorporation and Bylaws
A number of provisions of New York law, our amended Certificate of
Incorporation, and our Bylaws could make any attempt to acquire us by means of a
tender offer, a proxy contest, or otherwise and the removal of incumbent
officers and directors more difficult. These provisions are intended to
discourage certain types of coercive takeover practices and inadequate takeover
bids even though these types of transactions may offer our shareholders the
opportunity to sell their stock at a price above the prevailing market price.
These provisions also encourage persons seeking to acquire control of us to
negotiate with us first.
We are subject to the "business combination" provisions of Section 912 of
the New York Business Corporation Law and expect to continue to be so subject if
and for so long as we have a class of securities registered under Section 12 of
the Exchange Act. Section 912 provides, with
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some exceptions, which include, among others, transactions with shareholders who
became interested prior to the effective date of an amendment to our Certificate
of Incorporation providing that we would be subject to Section 912 if we did not
then have a class of stock registered pursuant to Section 12 of the Exchange
Act, that a New York corporation may not engage in a "business combination"
(e.g., merger, consolidation, recapitalization, or disposition of stock) with
any "interested shareholder" for a period of five years from the date that the
person first became an interested shareholder unless:
. the transaction resulting in a person becoming an interested
shareholder was approved by the board of directors of the corporation
prior to that person becoming an interested shareholder; or
. the business combination is approved by the holders of a majority of
the outstanding voting stock not beneficially owned by the interested
shareholder or any affiliate or associate of the interested
shareholder at a meeting called no earlier than five years after the
interested shareholder's stock acquisition date; or
. the business combination meets certain valuation requirements for the
stock of the New York corporation.
An "interested shareholder" is defined as any person that
. is the beneficial owner, directly or indirectly, of 20% or more of the
outstanding voting stock of a New York corporation, or
. is an affiliate or associate of the corporation that at any time
during the prior five years was the beneficial owner, directly or
indirectly, of 20% or more of the then outstanding voting stock.
A "business combination" includes mergers, asset sales, and other
transactions resulting in a financial benefit to the interested shareholder.
Subject to a number of exceptions, an "interested shareholder" is a person who,
together with affiliates and associates, owns, or within five years did own, 20%
or more of the corporation's outstanding voting stock. This statute could
prohibit or delay the accomplishment of mergers or other takeover or change in
control attempts with respect to us and, accordingly, may discourage attempts to
acquire us.
The "stock acquisition date," with respect to any person and any
New York corporation, means the date that the person first becomes an interested
shareholder of the corporation.
In addition, some provisions of our amended Certificate of
Incorporation and Bylaws summarized in the following paragraphs may be deemed to
have an anti-takeover effect and may delay, defer, or prevent a tender offer or
takeover attempt that a shareholder might consider in its best interest,
including those attempts that might result in a premium over the market price
for the shares held by shareholders.
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BOARD COMPOSITION. Our amended Certificate of Incorporation currently
authorizes six directors. The amended Certificate of Incorporation provides
that our board will be divided into three classes, with each class serving
staggered three-year terms. Any additional directorships resulting from an
increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of
one-third of the directors. This staggered classification of the board of
directors may have the effect of delaying or preventing changes in control
or management.
BOARD OF DIRECTORS VACANCIES. Our Bylaws and amended Certificate of
Incorporation authorize the board of directors to fill vacant directorships
or increase the size of the board of directors. This authority may deter a
shareholder from removing incumbent directors and simultaneously gaining
control of the Board of Directors by allowing the board to fill the
vacancies created by the removal with its own nominees.
ADVANCE NOTICE OF SHAREHOLDER PROPOSALS AND NOMINEES. Rules promulgated
under the Exchange Act establish an advance notice procedure for
shareholders to make nominations of candidates for election as directors or
bring other business before any meeting of our shareholders. The
shareholder notice procedure provides that only persons who are nominated
by, or at the direction of, the board, or by a shareholder who has given
timely written notice prior to the meeting at which directors are to be
elected, will be eligible for election as directors. In addition, the
shareholder notice procedure provides that at a shareholders' meeting, the
only business that may be conducted is business that has been brought
before the meeting by, or at the direction of, the board of directors or by
a shareholder who has given timely written notice of his or her intention
to bring such business before the meeting.
Under the shareholder notice procedure, for notice of shareholder
nominations or other business to be made at a shareholders' meeting to be
timely, the notice must be received by us not less than 120 calendar days
prior to the anniversary of the date of the proxy statement for last year's
annual meeting.
A shareholder's notice to us proposing to nominate a person for election as
a director or proposing other business must contain information specified
in the rules promulgated under the Exchange Act including a representation
that the shareholder is a record holder of our stock entitled to vote at
the meeting and information regarding each proposed nominee or each
proposed matter of business that would be required under the federal
securities laws to be included in a proxy statement soliciting proxies for
the proposed nominee or the proposed matter of business.
The shareholder notice procedure may have the effects of precluding a
contest for the election of directors or the consideration of shareholder
proposals if the proper
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procedures are not followed and of discouraging or deterring a third party
from conducting a solicitation of proxies to elect its own slate of
directors or to approve its own proposal without regard to whether
consideration of the nominees or proposals might be harmful or beneficial
to us and our shareholders.
SPECIAL MEETINGS OF SHAREHOLDERS. Our Bylaws provide that special meetings
of shareholders can be only called by the board of directors or any officer
instructed by the board to call a special meeting except when the
shareholders are expressly entitled by the New York Business Corporation
Law to demand the call of a meeting.
AMENDMENT OF OUR CERTIFICATE OF INCORPORATION. Our amended Certificate of
Incorporation may only be further amended by a majority vote of the
directors and the shareholders. By making it more difficult to alter the
provisions of the amended Certificate of Incorporation, the anti-takeover
provisions specified in this section will be more likely to withstand
attempts to minimize their anti-takeover intent.
AUTHORIZED BUT UNISSUED SHARES. Our authorized but unissued shares of
common stock and preferred stock are available for future issuance without
shareholder approval, subject to the limitations imposed by the Nasdaq
SmallCap Market. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions, and employee benefit plans. The existence
of authorized but unissued and unreserved common stock and preferred stock
could render more difficult or discourage an attempt to obtain control of
us by means of a proxy contest, tender offer, merger, or otherwise.
Limitation of Liability and Indemnification Matters
Our amended Certificate of Incorporation limits the liability of directors
to the fullest extent permitted by New York law. Specifically, a director will
not be personally liable to us or our shareholders for damages for any breach of
duty in his or her capacity as a director unless a judgment or other final
adjudication adverse to the director establishes that:
[] his or her acts or omissions were in bad faith or involved intentional
misconduct or a knowing violation of law,
[] he or she personally gained in fact a financial profit or other advantage
to which he or she was not legally entitled, or
[] his or her acts violated Section 719 of the New York Business Corporation
Law, which relates to unlawful declarations of dividends or other
distributions of assets to shareholders or the unlawful purchase of our
shares.
This provision is intended to afford directors protection and limit
their potential
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liability from suits alleging a breach of the duty of care by a director. We
believe this provision will assist us in maintaining and securing the services
of directors who are not our employees. As a result of this provision,
shareholders may be unable to recover monetary damages against directors for
actions taken by them that constitute negligence or gross negligence or that are
in violation of their fiduciary duties although it may still be possible to
obtain injunctive or other equitable relief with respect to those actions. If
equitable remedies are found not to be available to shareholders for any
particular case, shareholders may not have any effective remedy against the
challenged conduct. This provision does not affect the directors'
responsibilities, under any other laws, such as the federal securities laws or
other state or federal laws.
Our Bylaws also provide that directors and officers shall be
indemnified against liabilities arising from their service as directors or
officers to the fullest extent permitted by law. To obtain this benefit, there
is generally a requirement that the individual acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to our best
interests. We may not indemnify any director or officer if a judgment or other
final adjudication adverse to him or her establishes that his or her acts were
committed in bad faith, were the result of active and deliberate dishonesty and
were material to the cause of action so adjudicated, or that he or she
personally gained in fact a financial profit or other advantage to which he or
she was not legally entitled.
In addition, New York law provides that the indemnification permitted
under New York law shall not be deemed exclusive of any other rights to which
the directors and officers may be entitled under our Bylaws, any agreement, a
vote of shareholders, or otherwise as long as those rights are not inconsistent
with New York law.
We have also entered into agreements to indemnify our directors and
executive officers in addition to the indemnification provided for in our
Bylaws. We believe that these provisions and agreements are necessary to attract
and retain qualified directors and executive officers. Additionally, as
permitted under New York law, we have obtained directors' and officers'
liability insurance for our officers and directors.
At present, there is no pending litigation or proceeding involving any director,
officer, employee, or agent as to which indemnification will be required or
permitted under our amended Certificate of Incorporation, Bylaws, or any
indemnification agreement. We are not aware of any threatened litigation or
proceeding that may result in a claim for indemnification.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock
Transfer and Trust Company.
7. The Section entitled "SHARES ELIGIBLE FOR FUTURE SALE" in our September 1,
2000 Prospectus is hereby amended and restated in its entirety and replaced with
the following:
SHARES ELIGIBLE FOR FUTURE SALE
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As of November 10, 2000, 20,303,448 shares of our common stock were
outstanding. Of the shares outstanding as of November 10, 2000, 18,760,181 were
freely tradable without restriction. The remaining 1,286,992 shares of our
common stock outstanding as of November 10, 2000 are "restricted securities" as
that term is defined under Rule 144, and may not be sold unless registered under
the Securities Act or sold under an available exemption. DOES NOT INCLUDE TODAYS
MATTERS
In general, under Rule 144, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- one percent of the number of shares of common stock outstanding at
that time, which equaled approximately 184,939 shares as of November
10, 2000; or
- the average weekly trading volume of our common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect to
manner of sale, notice and the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the three months preceding a sale and who has beneficially owned
the shares proposed to be sold for at least two years, is entitled to sell the
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Approximately 1,286,992 shares of restricted common stock were held by
affiliates as of November 10, 2000. So long as shares of the restricted common
stock remain in the hands of affiliates, unless sold pursuant to a registration
statement, it will be subject to all of the conditions of Rule 144 except for
the holding period. If these holders of our common stock cease to be affiliates
and, in the case of restricted stock, the two-year holding period of Rule 144(k)
has been met, these shares may become freely tradable without regard to most of
the Rule 144 restrictions, including the volume limitation.
In addition to the outstanding shares of our common stock, as of November
10, 2000, we had 7,100,000 shares of our common stock reserved for issuance upon
the exercise of outstanding options issued under our stock option plans of which
1,014,731 were vested, issued and exercisable. All shares issuable upon exercise
of options granted under our stock option plans are generally available for
resale in the public market.
In addition, as of November 10, 2000, we had outstanding
- shares of our Series D Preferred Stock, that are convertible into a
total of 3,293,018 shares of common stock, assuming a conversion and
exercise price of $0.65625 per share;
- shares of our Series E Preferred Stock, that are convertible into a
total of 6,382,989
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shares of common stock, assuming a conversion and exercise price of
$0.47 per share;
- prepaid warrants exercisable into 5,601,342 shares of common stock;
and
- options and warrants, other than options issued under our stock option
plans, to purchase an aggregate of 8,563,214 shares of our common
stock.
We are registering for sale in the Registration Statement of which this
prospectus forms a part 15,498,907 shares of common stock on behalf of the
holders of our outstanding shares of Series D Preferred Stock and related
warrants, some of the prepaid warrants and some of the other options and
warrants. The remaining shares of common stock subject to the foregoing prepaid
warrants, options and warrants are available for resale in the public market.
As of November 10, 2000, we also had outstanding:
- shares of our Class A Preferred Stock that are immediately convertible
into 80,597 shares of common stock; and
- shares of our Class C Preferred Stock that are convertible after
September 28, 2003 into the number of shares equal to $2,300,000 plus
accrued but unpaid dividends, divided by 25% of the 20 day average
trading price of the common stock immediately prior to conversion,
which, if converted on the basis of the 20 day average trading price
calculated as of November 10, 2000, would result in the issuance of
11,586,901 shares of common stock.
The 80,597 shares of common stock that are issuable upon conversion of the
Class A Preferred Stock are available for resale in the public market. Of the
11,586,901 shares of common stock issuable upon conversion of the Class C
Preferred Stock as of November 10, 2000, 2,450,000 will be available for resale
in the public market upon issuance. The remaining 9,136,901 shares of common
stock issuable upon conversion of the Class C Preferred Stock are subject to
registration rights.
8. The section entitled "LEGAL MATTERS" in our September 1, 2000 Prospectus is
hereby amended and restated in its entirety and replaced with the following:
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered hereby
and certain other matters was passed upon for us by Venable, Baetjer and Howard,
LLP.
--------------------------------
The prospectus, together with this prospectus supplement, constitutes the
prospectus required to be delivered by Section 5(b) of the Securities Act of
1933, as amended, with respect to offers and sales of the common stock. All
references in the prospectus to "this prospectus" are amended to read "this
prospectus (as supplemented and amended)."
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PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER MATTERS DISCUSSED UNDER THE
CAPTION "RISK FACTORS" BEGINNING ON PAGE 7 OF THE PROSPECTUS AND SUCH RISK
FACTORS AS AMENDED IN THIS SUPPLEMENT. NEITHER THE SECURITIES AND EXCHANGE
COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF
THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE PROSPECTUS OR
ANY ACCOMPANYING PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus supplement No. 1 is November 10, 2000.
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