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As Filed with the Securities and Exchange Commission on July 30, 1999
Registration No. 333-70219
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
================================================================================
Washington, D.C. 20549
______________
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
IJNT.NET, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0611753
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
2800 LAFAYETTE
SUITE D
NEWPORT BEACH, CALIFORNIA 92663
TELEPHONE (949) 723-2183
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)
Copies to:
BRANDON B. POWELL CHRISTOPHER A. WILSON, ESQ.
GENERAL COUNSEL PILLSBURY MADISON & SUTRO LLP
IJNT.net, INC. 650 TOWN CENTER DRIVE
2800 LAFAYETTE 7TH FLOOR
NEWPORT BEACH, CA 92663 COSTA MESA, CALIFORNIA 92626-7122
(949) 723-2183 (714) 436-6800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM
TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum
Amount to be Offering Price per Aggregate Offering Amount of
Title of Shares to be Registered Registered Share (1) Price (1) Registration Fee
- ------------------------------------- ------------------- ----------------------- ------------------------ -------------------
<S> <C> <C> <C> <C>
common stock, $0.001 par value
per share reserved for conversion
of series A preferred stock 2,000,000(2) $ 2.6875 $ 5,375,000 $ 1,494.25
- ------------------------------------- ------------------- ----------------------- ------------------------ -------------------
common stock reserved for
issuance upon exercise of certain
put rights to compel purchase of
such additional shares 1,500,000(3) $ 2.6875 $ 4,031,250 $ 1,120.69
- ------------------------------------- ------------------- ----------------------- ------------------------ -------------------
common stock 500,000(4) $ 2.6875 $ 1,343,750 $ 373.56
- ------------------------------------- ------------------- ----------------------- ------------------------ -------------------
placement agent's warrants(5) 75,000 $ .01 $ 750 $ 0.21
- ------------------------------------- ------------------- ----------------------- ------------------------ -------------------
common stock reserved for
issuance upon exercise of
placement agents' warrants(6) 75,000 $ 2.75 $ 206,250 $ 57.34
- ------------------------------------- ------------------- ----------------------- ------------------------ -------------------
Total 4,150,000 $10,957,000 $ 3,046.05(7)
- ------------------------------------- ------------------- ----------------------- ------------------------ -------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee in accordance with Rule 457(c) under the Securities Act
of 1933, as amended (the "Securities Act"), based on the average of the
bid and asked price for the common stock, $0.001 par value per share, as
reported on the OTC Bulletin Board at December 30, 1998.
(2) Includes a presently indeterminable number of shares of common stock,
estimated to be not more than 2,000,000, to be offered and sold by the
selling shareholders named herein of series A preferred stock upon
conversion of the series A preferred stock into common stock.
(3) To be offered and sold by the selling shareholders upon the exercise of
one or more put right options by the Registrant to sell shares of its
common stock to the selling shareholders at a price equal to 80% of the
market price at the date of exercise of these put right options.
(4) To be offered and sold by the selling shareholders as a result of
adjustment of the number of shares of common stock to be issued as
additional shares as a result of certain events which may cause a delay or
suspension of the sales of shares of common stock by the selling
shareholders.
(5) Includes warrants issued to Havkit Corporation in partial consideration
for its services as placement agent in connection with the purchase of the
shares by the selling shareholders.
(6) The Registration Statement also covers any additional shares of common
stock which may become issuable by virtue of the anti-dilution provisions
of the warrants issued to the placement agent. No additional registration
fee is included for these shares.
(7) A filing fee of $2,988.50 was previously paid by the Registrant.
<PAGE>
Pursuant to Rule 416 under the Securities Act, there are also being
registered such additional number of shares as may be issuable as a result of
the anti-dilution provisions of the preferred stock.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act, or until this Registration Statement shall become effective
on such date as the Commission, acting pursuant to said Section 8(a), may
determine.
<PAGE>
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Dated July 30, 1999
Selling Shareholder Offering Prospectus
- ---------------------------------------
IJNT.net, INC.
4,000,000 SHARES OF COMMON STOCK
OFFERED AT MARKET PRICE
Certain of our shareholders named on page 12 of this prospectus are
offering and selling up to an estimated 4,000,000 shares of our common stock,
which consist of:
(1) an estimated 2,000,000 shares of our common stock issuable
to the above-described selling shareholders upon their
conversion of all of the series A preferred stock;
(2) an estimated 1,500,000 shares of our common stock, which
we have the right to sell to the selling shareholders at
various times and prices; and
(3) an estimated 500,000 shares of our common stock, which we
may become obligated to issue to the selling shareholders as
additional shares if certain events delay their ability to
sell their common stock.
We will not receive any of the proceeds from the sale of our common stock by the
selling shareholders.
The selling shareholders may offer and sell some, all or none of the
common stock under this prospectus. The selling shareholders may determine the
prices at which they will sell such common stock, which may be at market prices
prevailing at the time of such sale or some other price. In connection with such
sales, the selling shareholders may use brokers or dealers which may receive
compensation or commissions for such sales.
In addition, we have issued to Havkit Corporation warrants to 75,000
shares of our common stock in partial consideration for its services as
placement agent in connection with the purchase of the shares by the selling
shareholders. The warrants are exercisable at $2.25 per share and will expire on
March 1, 2001.
OTC Bulletin Board Symbol: IJNT
Recent Price: $4.97 at July 29, 1999
____________________
IJNT.net, INC. provides wireless Internet
access through microwave technology
____________________
A purchase of our shares involves a high degree of risk. You should
purchase shares of our common stock only if you can afford a complete loss of
your investment. You should carefully consider the risk factors beginning on
page 1 of this prospectus before purchasing any of our common stock from the
selling shareholders.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
____________________
JULY 30, 1999
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SOME TERMS OF THE SALE
We have sold 2,000 shares of our series A preferred stock to the
selling shareholders for $1,000.00 per share. Our series A preferred stock is
convertible into our common stock at any time at a conversion price equal to 80%
of the average closing bid price of our common stock for the five trading days
prior to the conversion, as reported by Bloomberg L.P. Currently, if the selling
shareholders converted all of their series A preferred stock, they would receive
approximately 897,000 shares of our common stock.
We can also have option or put rights to sell shares of common stock to
the selling shareholders at 80% of the average closing bid price of our common
stock for the ten trading days prior to the date of sale. The number of shares
we can sell depends upon the price and trading volume of our common stock. We
estimate that we may sell a maximum of 1,500,000 shares of our common stock
under this arrangement.
We may be obligated to issue up to an additional 500,000 shares of our
common stock to the selling shareholders, if certain events delay their ability
to sell their common stock.
As a result, the actual number of shares that we may issue to the
selling shareholders and which the selling shareholders may sell under this
prospectus will depend upon the market price and trading volume of our common
stock at various times. You should look at the discussion under "Selling
Shareholders" for more details about these terms.
In any event, the total number of shares which this Prospectus covers
will be the maximum number of shares that we may issue to the selling
shareholders and which the selling shareholders may sell under this prospectus.
We have also issued to Havkit Corporation warrants to purchase 75,000
shares of our common stock in partial consideration of its services as placement
agent in connection with the purchase of the shares of our common stock by the
selling shareholders. The warrants are exercisable at $2.25 per share and will
expire on March 1, 2001.
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TABLE OF CONTENTS
PAGE
----
HIGH RISK FACTORS............................................................. 1
THE COMPANY...................................................................10
WHERE YOU CAN FIND MORE INFORMATION...........................................10
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.............................10
SELLING SHAREHOLDERS..........................................................12
Regulation D Preferred Stock and Private Equity Line of Credit
Agreement Overview.................................................12
Series A Preferred Stock.............................................12
Put Rights...........................................................12
Limitations and Conditions to Our Rights.............................13
Termination of Obligations to Purchase Put Shares and Damages........13
Short Sales..........................................................14
Right of First Refusal...............................................14
Placement Agent......................................................14
Selling Shareholders Right of Indemnification........................14
Stock Ownership......................................................15
PLAN OF DISTRIBUTION..........................................................16
DESCRIPTION OF SECURITIES.....................................................16
Common Stock.........................................................16
Preferred Stock......................................................17
Over-the-Counter Market..............................................17
Transfer Agent.......................................................18
LEGAL MATTERS.................................................................18
EXPERTS .....................................................................18
INDEMNIFICATION...............................................................18
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We have informed the selling shareholders that the anti-manipulative
rules under the Exchange Act of 1934, as amended (the "Exchange Act"), including
Regulation M, may apply to their sales in the market. We have furnished the
selling shareholders with a copy of these rules. We have also informed the
selling shareholders that they must deliver a copy of this prospectus with any
sale of their shares.
ii
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HIGH RISK FACTORS
An investment in our common stock is very risky. You should be aware
you could lose the entire amount of your investment. Prior to making an
investment decision, you should carefully read this entire prospectus and
consider the following risk factors:
WE HAVE BEEN ENGAGED IN THE WIRELESS INTERNET BUSINESS FOR A VERY SHORT PERIOD
OF TIME, AND THEREFORE CANNOT PREDICT OUR SUCCESS OR FUTURE PERFORMANCE WITH ANY
REASONABLE DEGREE OF CERTAINTY.
We commenced operations in January, 1997 and therefore have a limited
operating history. Our operations have been limited to obtaining spectrum
licenses, opening our first five market areas and obtaining financing. We cannot
assure you that we will be able to open additional markets, acquire additional
licenses, achieve a significant level of sales or attain profitability at any
time in the future. We only recently launched our service and we cannot assure
you that our services will achieve broad consumer or commercial acceptance. In
order for us to generate revenues and become profitable, we must attract a large
number of Internet subscribers willing to pay the monthly fees and installation
costs associated with our wireless services, which are currently priced at a
premium to many other online services. We cannot guarantee that large numbers of
subscribers will be willing to pay this premium for our services. If we are
unable to achieve or sustain broad market acceptance of our pricing levels, we
may be unable to generate sufficient cashflow to meet our debt service, capital
expenditure and working capital requirements. Additionally, if we are unable to
establish broad market acceptance for our services, we may be unable to generate
sufficient revenues from operations to become profitable. Consequently, an
investment in our common stock is highly speculative. We do not guarantee any
return on an investment in our common stock nor that you will be able to recover
your investment.
THE CONVERSION OF THE SERIES A PREFERRED STOCK BY THE SELLING SHAREHOLDERS AND
THE EXERCISE OF OUR PUT RIGHTS MAY LOWER THE MARKET PRICE OF OUR COMMON STOCK
AND SUBSTANTIALLY DILUTE THE INTERESTS OF OTHER HOLDERS OF OUR COMMON STOCK.
OUR SERIES A PREFERRED STOCK IS CONVERTIBLE AT A RATE BELOW THE
PREVAILING MARKET PRICE OF THE COMMON STOCK.
We have issued 2,000 shares of series A preferred stock, which are
convertible into such number of shares of common stock equal to the stated value
of $1,000 divided by the per share conversion price of the series A preferred
stock. The per share conversion price is equal to eighty percent of the closing
bid price of our common stock over the five consecutive trading days ending on
the trading day immediately preceding the date that the applicable holder of the
series A preferred stock elects to have shares of series A preferred stock
converted. Accordingly, the series A preferred stock is convertible at a
floating rate that will be below the market price of our common stock. As a
result, the lower the price of our common stock is at the time the holder
converts, the more shares of common stock that such holder will receive. This
right of the holders of the series A preferred stock to receive more shares of
common stock at increasingly lower prices, may materially reduce the price of
our common stock to the detriment of our other shareholders.
AS WE EXERCISE OUR PUT RIGHTS, WE WILL BE REQUIRED TO ISSUE SHARES OF
OUR COMMON STOCK TO SELLING SHAREHOLDERS AT A PRICE BELOW THE
PREVAILING MARKET PRICE OF THE COMMON STOCK.
The shares issuable to the selling shareholder upon exercise of our put
rights will be issued at a price equal to eighty percent of the closing bid
price of our common stock over the 10 consecutive trading days ending on the
trading day immediately preceding the closing date of the transaction.
Accordingly, the shares issuable to the selling shareholders upon exercise of
our put rights will be issued at a floating rate that will be below the market
price of our common stock.
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THE CONVERSION OF PREFERRED STOCK AND SALE OF MATERIAL AMOUNTS OF
COMMON STOCK COULD REDUCE THE PRICE OF OUR COMMON STOCK AND ENCOURAGE
SHORT SALES.
As the selling shareholders convert the shares of preferred stock and
then sell the common stock, the common stock price may decrease due to the
additional shares in the market. As the price of the common stock continues to
decrease, the selling shareholders will be able to convert their preferred stock
into a larger number of shares of common stock. Similarly, as the price of our
common stock decreases, we will be required to issue more shares of our common
stock upon exercise of our put rights for any given dollar amount invested by
the selling shareholders. This may encourage short sales, which could place
further downward pressure on the price of the common stock.
THE CONVERSION OF THE PREFERRED STOCK AND EXERCISE OF OUR PUT RIGHTS
MAY SUBSTANTIALLY DILUTE THE INTERESTS OF OTHER HOLDERS.
The holders of the series A preferred stock may convert and sell the
full amount of the shares of common stock issuable upon conversion. As
additional shares of common stock are sold, the price of the common stock may
decrease and entitle the holders of the preferred stock to receive a greater
number of shares of common stock upon conversion of the preferred stock. As a
result, more shares of common stock will be available for sale by the selling
shareholders, who may sell the full amount issuable upon conversion of the
series A preferred stock. Similarly, the shares of common stock issuable upon
exercise of our put rights will be available for sale immediately upon issuance.
Accordingly, the conversion of the preferred stock by the selling shareholders
and exercise of our put rights may result in substantial dilution to the
interests of the other holders of the common stock.
EXCHANGE RULES CONCERNING FUTURE PRICED SECURITIES MAY PREVENT US FROM
LISTING OUR SECURITIES WHILE THE SERIES A PREFERRED STOCK AND OUR PUT
RIGHTS ARE OUTSTANDING.
As long as the series A preferred stock is outstanding we may not meet
the listing standards of any recognized exchange, including the Nasdaq SmallCap
and Nasdaq National Market. Because the conversion price of the series A
preferred stock is linked to a percentage discount to the future market price of
our underlying common stock, and accordingly the conversion rate floats with the
market price of the common stock, the series A preferred shares are considered
future priced securities. The conversion of our future priced securities may be
followed by a decline in our common stock price, creating additional dilution to
our existing common stock shareholders. Such a price decline allows the holders
of our future priced securities to convert into even larger amounts of our
common stock. As a result, the holders of the series A preferred stock could
obtain voting control of our company. Consequently, recognized exchanges may not
accept our securities for listing while we have future priced securities
outstanding, and if accepted for listing, the conversion of our future price
securities could lead to our securities being delisted.
POTENTIAL FLUCTUATIONS IN OUR QUARTERLY RESULTS MAY ADVERSELY AFFECT OUR
OPERATING RESULTS, FINANCIAL CONDITION AND THE TRADING PRICE OF OUR COMMON
STOCK.
We cannot predict with any significant degree of certainty our
quarterly revenue and operating results, which have fluctuated in the past and
will likely fluctuate in the future. As a result, we believe that
period-to-period comparisons of our revenues and results of operations are not
necessarily meaningful and you should not rely upon them as indicators of future
performance. It is likely that in one or more future quarters our results may
fall below the expectations of analysts and investors. In such event, the
trading price of our common stock would likely decrease.
Our quarterly operating results may fluctuate significantly in the
future due to several factors, many of which are beyond our control. These
factors include the rate at which customers subscribe to our services, the
prices subscribers pay for such services, subscriber turnover rates and the
demand for Internet services. Additional factors that may affect our quarterly
operating results generally include the amount and timing of capital
expenditures and other costs relating to the expansion of our business, our or
our competitors' introduction of new Internet and telecommuting services, price
competition or pricing changes in the Internet, cable and telecommuting
industries, technical difficulties or network downtime, general economic
2
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conditions and economic conditions specific to the Internet, Internet media and
corporate intranet. Because we rely on revenue forecasts when committing to a
significant portion of our future expenditures, we may not be able to adjust our
spending in the event of revenue shortfalls. Consequently, such shortfalls could
have an immediate material adverse affect on our business and financial
condition and operating results. We also plan on increasing our operating
expenditures to fund increased sales and marketing efforts, general and
administrative activities and to strengthen our infrastructure. To the extent
that these expenditures are not accompanied by a commensurate increase in
revenues, our business, operating results and financial condition could be
materially adversely effected.
OUR NETWORK'S SCALABILITY AND SPEED ARE UNPROVEN AND ITS VIABILITY HAS NOT BEEN
TESTED AT FULL CAPACITY.
Because we only recently initiated our services, we do not know whether
we will be able to connect and manage a substantial number of online subscribers
at high transmission speeds. If we achieve our expected subscriber levels, we
may not be able to maintain our system's superior performance. While peak
downstream data transmission speeds approach 10 megabits per second, the actual
downstream data transmission speeds over our system could be significantly
slower due to several factors, including the type and location of content,
Internet traffic, the number of active subscribers at the time and the
capability of modems used by such subscribers. As subscriber penetration
increases, we may need to augment our equipment in order to maintain adequate
downstream data transmission speeds. A subscriber's actual data delivery speed
also may be significantly lower than peak data transmission speeds due to the
subscriber's hardware, operating system and software configurations. To access
our service, a subscriber needs a personal computer with at least a 486 or
equivalent microprocessor, 16 megabytes of main memory and the ability to
support an ethernet connection. Due to the foregoing factors, as the number of
subscribers to our system increases, we cannot guarantee that we will be able to
achieve or maintain high-speed data transmission. Our failure to achieve or
maintain high-speed data transmission could significantly reduce consumer demand
for our services and have a material adverse effect on our business, operating
results and financial condition.
WE EXPERIENCE INTENSE COMPETITION IN OUR MARKETS FOR INTERNET ACCESS SERVICES,
ONLINE CONTENT AND DATA TRANSMISSION SERVICES, AND WE EXPECT COMPETITION TO
INTENSIFY IN THE FUTURE.
The markets for consumer and business Internet access services, on-line
content and data transmission services, are extremely competitive, and we expect
that competition will intensify in the future. Many of our competitors and
potential competitors have substantially greater financial, technical and
marketing resources, larger subscriber bases, longer operating histories,
greater name recognition and more established relationships with advertisers and
content and application providers than we do. Such competitors may be able to
undertake more extensive marketing campaigns, adopt more aggressive pricing
policies and devote substantially more resources to developing Internet services
and online content than we can. We cannot predict whether we will be able to
compete successfully against current or future competitors or that competitive
pressures faced by us will not materially adversely affect our business. Any
increase in competition could reduce our gross margins, require increased
spending by us on research and development and sales and marketing, and
otherwise materially adversely affect our business, financial condition,
prospects and ability to repay our debts.
We face competition from many sources. Our most direct competitors in
our markets are Internet service providers, national long distance carriers and
local exchange carriers, cable operators, other wireless service providers,
online service providers and Internet content aggregators. We also compete with
other wireless, telephone or cable-based data services. Competitors in our
markets compete principally on the basis of the following factors: data
transmission speed; reliability of service; ease of access; price/performance;
ease of use; content quality; quality of presentation; customer support; brand
recognition; and operating experience.
We cannot guarantee that we will be able to compete successfully
against current or future competitors or that competitive pressure we face will
not materially adversely affect our business, operating results or financial
condition. Further, as a strategic response to changes in the competitive
environment, we may make certain pricing, service or marketing decisions or
enter into acquisitions or new ventures that could have a material adverse
effect on our business, operating results or financial condition.
3
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A FAILURE OF OUR SYSTEM COULD CAUSE INTERRUPTION OF OUR WIRELESS INTERNET
SERVICES.
Our operations are dependent upon our ability to support our highly
complex network infrastructure and avoid damage from fires, earthquakes, floods,
power losses, telecommunications failures and similar events. The occurrence of
any one or more of these events could interrupt our wireless services and
materially disrupt our operations. In addition, the failure of any of our
service providers to provide the communications capacity we require could
interrupt our services and materially disrupt our operations. Any systems damage
or failure that disrupts our operation could increase our operating costs and
reduce our operating income, and could have a material adverse effect on our
business, financial condition, prospects and ability to repay our debts.
WE MUST RESPOND QUICKLY TO TECHNOLOGICAL DEVELOPMENTS, INTRODUCTIONS OF NEW
COMPETING PRODUCTS AND SERVICES, AND EVOLVING INDUSTRY STANDARDS TO REMAIN
COMPETITIVE.
The markets for consumer and business Internet access services, online
content and data transmission services are characterized by rapid technological
developments, frequent introductions of new products and services, and evolving
industry standards. In order to remain competitive in these rapidly evolving
markets, we must continually improve the performance, features and reliability
of our network, Internet content and consumer and business services,
particularly in response to competitive offerings. We cannot assure you that we
will be able to respond quickly, cost effectively and sufficiently to any such
developments. The market opportunity for our wireless-based Internet services
may be limited or short-lived. We cannot guarantee that we will successfully
achieve widespread acceptance of our services before competitors offer products
and services with performance features similar to our current offerings. Our
inability to respond quickly to any such developments could cause us to lose
substantial market share and could have a material adverse effect on our
business, operating results and financial condition.
WE MAY BE REQUIRED TO EXPEND SUBSTANTIAL FUNDS AND INCUR ADDITIONAL LIABILITY TO
IMPROVE OR ENHANCE OUR SERVICES AND PRODUCTS.
The widespread adoption of any new Internet or telecommuting
technologies or standards could require us to expend substantial funds to modify
or adapt our network, products and services, and could fundamentally affect the
character, viability and frequency of Internet-based advertising. As a result,
such adoption of new technologies or standards could increase our operating
expenses and could have a material adverse effect on our business, operating
results and financial condition. In addition, we may face substantial liability
for offering new Internet or telecommuting services or enhancements that contain
design flaws or other defects, which also may materially adversely affect our
business, operating results and financial conditions.
WE MAY BE LIMITED IN OUR ABILITY TO GAIN WIDESPREAD MARKET ACCEPTANCE FOR OUR
SERVICES OR TO EXPAND OUR MARKET SHARE BECAUSE SUBSCRIBERS MUST USE SPECIALIZED
EQUIPMENT TO ACCESS OUR SERVICES.
Except for subscribers to our Houston system, each of our subscribers
currently must obtain a Hybrid Networks, Inc. modem to access our services. Our
ability to expand could be delayed or impaired if Hybrid Networks, Inc. or an
alternative vendor is unable to supply a sufficient quantity of such modems at
acceptable price and performance levels. In addition, certain wireless
subscribers, depending on the geographic market, must purchase approximately
$1,200 of additional capital equipment in order to access our service. Our
dependence on specialized and relatively expensive equipment may impair our
ability to gain widespread market acceptance for our services, which could have
a material adverse effect on our business, prospects, operating results and
financial condition.
MARKET ACCEPTANCE OF OUR SERVICES SUBSTANTIALLY DEPENDS UPON THE CONTINUED
GROWTH OF ONLINE COMMERCE AND INTERNET USAGE.
4
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The markets for online commerce and Internet access services are at an
early stage of development and are rapidly evolving. As is typical for new and
rapidly evolving industries, demand and market acceptance for recently
introduced services are subject to a high level of uncertainty. In the case of
our wireless Internet services, this uncertainty is compounded by the risks that
consumers will not adopt online commerce and that an appropriate infrastructure
necessary to support increased commerce on the Internet will fail to develop.
Critical issues concerning the commercial use of the Internet remain unresolved
and may affect the growth of Internet use, especially in the business and
consumer markets we have targeted. Inconsistent quality of service, the
unavailability of cost-effective, high-speed service, and a limited number of
local access points for corporate users, have deterred many consumers from
purchasing Internet access services. In addition, the inability to integrate
business applications on the Internet, and inadequate security to protect
confidential information have deterred consumers. The adoption of the Internet
for commerce and communications, particularly by those individuals and
enterprises that have historically relied upon alternative means of commerce and
communications, generally requires an understanding and acceptance of a new way
of conducting business and exchanging information. In particular, enterprises
that have already invested substantial resources in other means of conducting
commerce and exchanging information, or in relationships with other Internet
service providers, may be reluctant and slow to adopt a new strategy that may
make their existing personnel, infrastructure and relationships with other
service providers obsolete. If these markets fail to develop or develop more
slowly than expected, or if Internet usage decreases, our business, operating
results and financial condition may be materially adversely affected.
WE MAY FACE POTENTIAL LIABILITY FOR FAILING TO PROTECT SUBSCRIBER INFORMATION
AND SYSTEMS FROM UNAUTHORIZED ACCESS, COMPUTER VIRUSES AND OTHER DISRUPTIVE
PROBLEMS.
Our network may be vulnerable to unauthorized access, computer viruses
and other disruptive problems. Internet service providers and online service
providers in the past have experienced, and in the future may experience,
interruptions in service as a result of the accidental or intentional actions of
Internet users, current and former employees or others. Unauthorized access
could also potentially jeopardize the security of confidential information
stored in our or our subscribers' computer systems. This may result in our
becoming liable to our subscribers and also might deter potential subscribers.
Prior industry-standard security measures employed by us have been susceptible
to circumvention. Accordingly, we cannot guarantee that new industry-standard
security measures employed by us will not be circumvented. Eliminating computer
viruses and alleviating other security problems may require interruptions,
delays or cessation of service to our subscribers. Any such interruptions,
delays or cessation of service to our subscribers, could have a material adverse
effect on our business, operating results and financial condition.
DIRECT AND INDIRECT GOVERNMENT REGULATION CAN ADVERSELY AFFECT OUR BUSINESS.
Our services are subject to current regulations of the Federal
Communications Commission with respect to the use of our wireless access. In
addition, changes in the regulatory environment relating to the Internet
connectivity market could affect the prices at which we may sell our services.
These include regulatory changes that, directly or indirectly, affect
telecommunications costs, limit usage of subscriber-related information or
increase the likelihood or scope of competition from the regional Bell operating
companies or other telecommunications companies. For example, regulations
recently adopted by the Federal Communications Commission are intended to
subsidize Internet connectivity rates for schools and libraries, which could
affect demand for our services. We cannot predict the impact, if any, that
future regulation or regulatory changes might have on our business. Any changes
in law or regulations directly or indirectly relating to telecommunications and
the Internet, whether in the United States or abroad, could materially adversely
affect our business, operating results, financial condition, prospects and
ability to repay our debts.
5
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WE MAY FACE POTENTIAL LIABILITY FOR DEFAMATORY OR INDECENT CONTENT.
The law relating to liability of Internet service providers and online
service providers for information carried on or disseminated through their
networks is currently unsettled. A number of lawsuits have sought to impose
liability for defamatory speech and indecent materials. A recent federal statute
seeks to impose liability, in some circumstances, for transmission of obscene or
indecent materials. In one case, a court has held that an online service
provider could be found liable for defamatory matter provided through its
service, on the ground that the service provider exercised active editorial
control over postings to its service. Other courts have held that Internet
service providers and online service providers may, under certain circumstances,
be subject to damages for copying or distributing copyrighted materials. The
Telecommunications Act of 1996 prohibits, and imposes criminal penalties and
civil liability for using, an interactive computer service for transmitting
indecent or obscene communications. Because of the potential liability on
Internet service providers or online service providers for materials carried on
or disseminated through their systems, we may have to implement costly measures
to reduce our exposure to such liability. Consequently, we may be required to
expend substantial resources or discontinue certain product or service
offerings. In addition, our business, operating results and financial conditions
could be adversely affected if we become liable for information carried on our
network.
OUR OFFICERS AND DIRECTORS CONTROL OUR OPERATIONS AND THEIR DECISIONS MAY NOT
REFLECT THE BEST INTERESTS OF OUR SHAREHOLDERS.
Our officers and directors presently beneficially own 7,907,016 shares
of our outstanding common stock or approximately 52.39% of the outstanding
common stock as of December 31, 1998. As a result, such persons are able to
elect a majority of the Board of Directors, to dissolve, merge, or sell our
assets, and to direct and control our operations, policies and business
decisions. This relationship may result in decisions that do not reflect the
best interests of our other shareholders.
NO BROAD PUBLIC MARKET FOR OUR COMMON STOCK EXISTS AND ONE MAY NOT DEVELOP IN
THE FUTURE.
Presently, a broad public market for our common stock does not exist,
and there can be no assurance that a broad public market for our common stock
will develop or be sustained in the near future. The absence of a broad public
market could severely affect the liquidity of our common stock by limiting the
ability of broker/dealers to buy and sell our common stock. In turn, the absence
of a public market and the lack of liquidity may materially adversely affect the
price of our common stock.
OUR STOCK PRICE IS VOLATILE.
Our common stock's trading price could be subject to wide fluctuations in
response to quarterly variations in operating results, or in response to our
competitors' announcement of technological innovations or new products, and
other events or factors. In addition, in recent years the stock market has
experienced extreme price and volume fluctuations that have had a substantial
effect on the market prices for many computer, Internet and emerging growth
companies, which may be unrelated to the operating performance of the specific
companies. General market price declines or market volatility in the future
could adversely affect the price of our common stock, and thus, the current
market price may not be indicative of future market prices.
ECONOMIC DOWNTURNS AND CHANGES IN MARKET CONDITIONS COULD MATERIALLY ADVERSELY
AFFECT OUR BUSINESS.
Use of our services and the demand for personal computers are dependent
upon general economic conditions. During recent years, segments of the personal
computer industry have experienced significant economic downturns characterized
by decreased product demand and price erosion. Any such economic downturn or
changes in market conditions could decrease the demand for our wireless Internet
services and could materially adversely affect our business, operating results
and financial condition.
6
<PAGE>
IF WE ARE UNABLE TO QUALIFY FOR EXCHANGE LISTING, THE LIQUIDITY OF OUR COMMON
STOCK WILL BE ADVERSELY AFFECTED.
We intend to list our common stock on The Nasdaq SmallCap Market(sm)
upon completion of our next round of financing. We cannot guarantee, however,
that we will satisfy and maintain the requirements for listing and continued
listing on The Nasdaq SmallCap Market(sm), as intended or at any time in the
future. In order to qualify for a listing on The Nasdaq SmallCap Market(sm), a
company must have at least $4,000,000 in net tangible assets, at least 300
shareholders and a minimum bid price of $3.00 per share. If we are unable to
satisfy and maintain Nasdaq's listing criteria and our common stock is not
listed as intended, any trading in our common stock will continue to be
conducted in the over-the-counter market or over the NASD's "Electronic Bulletin
Board", which was established for securities that do not meet The Nasdaq
SmallCap Market(sm) listing requirements. Consequently, an investor may find it
more difficult to dispose of, or to obtain accurate quotations as to the price
of, our securities. These factors could result in lower prices and larger
spreads in the bid and ask prices of our common stock.
In addition, if our common stock is not quoted on the Automated
Quotation System of the National Association of Securities Dealers, Inc.
("Nasdaq"), or if we fail to maintain at least $2,000,000 in net tangible
assets, trading in our common stock would be covered by Rule 15c2-6 promulgated
under the Exchange Act for non-Nasdaq and non-exchange listed securities. Under
such rule, broker/dealers who recommend our securities to persons other than
established customers and accredited investors must make a special written
suitability determination for the purchaser and receive the purchaser's written
agreement to a transactions prior to sale. Accredited investors generally
include institutions with assets in excess of $5,000,000 or individuals with a
net worth in excess of $1,000,000 or an annual income exceeding $200,000, or
$300,000 jointly with their spouse. Securities are exempt from this rule if
their market price is at least $5.00 per share, or for warrants, if the warrants
have an exercise price of at least $5.00 per share.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure related to the market for penny stocks and for trades in
any stock defined as a penny stock. The Securities and Exchange Commission has
adopted regulations under such Act which define a penny stock to be any Nasdaq
or non-Nasdaq equity security that has a market price or exercise price of less
than $5.00 per share and allow for the enforcement against violators of the
proposed rules. In addition, unless exempt, the rules require the delivery,
prior to any transaction involving a penny stock, of a disclosure schedule
prepared by the Commission explaining important concerns involving the penny
stock market, the nature of such markets, terms used in such market, the
broker/dealer's duties to the customer, a toll-free telephone number for
inquiries about the broker/dealer's disciplinary history, and the customer's
rights and remedies in case of fraud or abuse in the sale. Disclosure must also
be made about commissions payable to both the broker/dealer and the registered
representative, current quotations for the securities, and if the broker/dealer
is the sole market-maker, the broker/dealer must disclose this fact and its
control over the market. Finally, monthly statements must be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks.
While many stocks traded on the Nasdaq markets are covered by the
proposed definition of penny stock, transactions in Nasdaq stock would be exempt
from all but the sole market-maker provision for:
(a) issuers who have $2,000,000 in tangible assets, or
$5,000,000 in tangible assets if the issuer has not
been in continuous operation for three years;
(b) transactions in which the customer is an institutional
accredited investor; and
(c) transactions that are not recommended by the
broker/dealer. In addition, transactions in a Nasdaq
security directly with Nasdaq market-maker for such
securities, are subject only to the sole market-maker
disclosure, and the disclosure with regard to
commissions to be paid to the broker/dealer and the
registered representatives.
7
<PAGE>
Finally, all Nasdaq securities are exempt if Nasdaq raised its
requirements for continued listing so that any issuer with less than $2,000,000
in net tangible assets or stockholder's equity would be subject to delisting.
These criteria are more stringent than the Nasdaq's maintenance requirements.
If our securities were subject to the existing rules on penny stocks,
the market liquidity for our securities could be severely affected by limiting
the ability of broker/dealers to sell our securities.
OUR BOARD'S ABILITY TO AUTHORIZE ISSUANCE OF ADDITIONAL PREFERRED STOCK WITHOUT
SHAREHOLDER APPROVAL AND RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS UNDER
DELAWARE LAW COULD DISCOURAGE A CHANGE OF CONTROL.
We are authorized to issue 1,000,000 shares of preferred stock, par
value $0.001 per share, of which 2,000 shares have been designated series A
preferred stock. All 2,000 shares of series A preferred stock are issued and
outstanding. The Board of Directors has the authority to issue additional shares
of preferred stock with voting and other rights superior to those of the common
stock, which could effectively deter a change in our control. In addition, the
Delaware General Corporation Law prohibits certain mergers, consolidations,
sales of assets or similar transactions between us on the one hand and another
company which is, or is an affiliate of, a beneficial holder of 15% or more of
our voting power, for three years after the acquisition of the voting power,
unless our Board of Directors pre-approved the acquisition of the voting power
or the transaction is approved by a majority of our other stockholders. The
provisions prohibiting interested stockholder transactions could also preserve
management's control over our operations.
OUR ABILITY TO EXPAND OUR WIRELESS INTERNET SERVICES INTO ADDITIONAL MARKETS
WILL DEPEND ON THE AVAILABILITY OF ADDITIONAL CAPITAL ON SATISFACTORY TERMS.
Our business is capital intensive. Because we intend to continue our
expansion efforts into additional markets, we may be required to seek additional
capital in the future through equity or debt financings or credit facilities in
order to fund such growth. We have no commitments for such additional financing
other than the commitment from the selling shareholders to purchase up to
$8,000,000 of our common stock under certain terms and conditions, as described
below in "Selling Shareholders." We cannot guarantee that we will be successful
in obtaining such additional financing or that it will be available on
satisfactory terms when needed.
OUR SUCCESS WILL DEPEND ON OUR ABILITY TO MANAGE EFFECTIVELY OUR GROWTH AND
EXPANDED OPERATIONS.
Rapid growth or expansion of our services will place a significant
strain on our managerial, operating, financial and other resources, which we may
not be equipped to manage successfully. Our future performance will depend, in
part, on our management's ability to manage growth effectively. This will
require us to implement financial controls systems and management information
systems capabilities, to develop our operating, administrative, financial and
accounting systems and controls, to maintain close coordination among
engineering, accounting, finance, marketing, sales and operations, and to hire
and train additional technical and marketing personnel. Our inability to manage
effectively our growth and expanded operations could increase our operating
costs and reduce our operating income, and could have a material effect on our
business and financial condition.
SALES OF RESTRICTED SHARES OF OUR COMMON STOCK COULD ADVERSELY AFFECT THE MARKET
PRICE OF OUR COMMON STOCK.
As of December 31, 1998, we had 15,091,766 shares of common stock
outstanding. All but 1,356,377 of such shares are "restricted securities," as
that term is defined by Rule 144 under the Securities Act. The shares of common
stock outstanding do not include shares of common stock that may be issued on
conversion of our series A preferred stock or upon exercise of various options
and warrants. Under Rule 144, a person who holds restricted securities for a
period of one year may sell a limited number of shares to the public in ordinary
brokerage transactions. Sales under Rule 144 and sales of common stock covered
by registration statements filed by us could adversely affect the prevailing
market price of our common stock.
8
<PAGE>
WE DO NOT INTEND TO PAY CASH DIVIDENDS ON OUR COMMON STOCK IN THE NEAR FUTURE.
The holders of common stock are entitled to receive dividends when, and
if, declared by our Board of Directors out of funds legally available for the
payment of such dividends. To date, we have not paid any cash dividends. Our
Board of Directors does not intend to declare any cash dividends in the
foreseeable future, but instead intends to retain any and all earnings for use
in our business operations. Since we may be required to obtain additional
financing, it is likely that the terms of such financing will impose
restrictions on our ability to declare any dividends.
9
<PAGE>
THE COMPANY
We are engaged in the business of providing wireless Internet Access
through microwave technology. We also offer dial-up Internet access, web site
design and web hosting services. We currently offer one-way wireless, two-way
wireless, dial-up Internet access and web site design and hosting services from
our system in Salt Lake City, Utah and all of the foregoing except two-way
wireless Internet access from our system in Beaumont, Texas. From our Houston,
Texas system we currently offer dial-up Internet access and are in the process
of designing a wireless system to be installed in Houston. We recently commenced
providing service in San Francisco and Orange County, California, and we intend
to continue exploring opportunities in other markets.
We were incorporated in the State of Delaware on June 11, 1992 under
the name PicoMetrix, Inc. On August 8, 1997, we acquired all of the issued and
outstanding stock of InterJet Net, Inc. In connection with this acquisition, we
changed our name to InterJet Net Corporation. Subsequently, on September 24,
1998, we changed our name to IJNT.net, INC.
Our executive offices are located at 2800 Lafayette, Suite D, Newport
Beach, California 92663. Our telephone number is (949) 723-2183; our facsimile
number is (949) 723-2192.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document we file at the Securities and Exchange Commission's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on public reference rooms. Our Securities and Exchange Commission
filings are also available to the public from the Securities and Exchange
Commission's web site at http://www.sec.gov.
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and later information that we file with the Securities and Exchange
Commission will automatically update and replace this information. We
incorporate by reference the documents listed below and any future filings made
with the Securities and Exchange Commission under Sections 13(a), 13(c), 14, or
15(d) of the Exchange Act until the selling shareholder sells all the shares.
This prospectus is part of a registration statement we filed with the Securities
and Exchange Commission (Registration No.
333-70219).
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
1. Annual Report on Form 10-KSB for the year ended March 31, 1999.
2. All documents that are filed in the future pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
General Counsel
IJNT.net, INC.
2030 Main Street, Suite 620
Irvine, California 92614
Telephone No.: (949) 798-1120
10
<PAGE>
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. The selling shareholders will
not make any offer of these shares in any state where the offer is not
permitted. You should not assume that the information in this prospectus or any
supplement is accurate as of any date other than the date on the front of those
documents.
____________________
Except for historical information contained herein, the matters set
forth in this prospectus are forward looking and involve a number of risks and
uncertainties. Our actual results could differ materially from those described
for a variety of factors. Such factors could include, but are not limited to,
those discussed in "High Risk Factors" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in our Form 10-KSB Annual
Report filed for the fiscal year ended March 31, 1998, as well as those
discussed elsewhere in our other public filings with the Securities and Exchange
Commission. Forward looking statements include our statements regarding
liquidity, anticipated cash needs and availability, and anticipated expense
levels in "Management's Discussion and Analysis of Financial Condition and
Results of Operations." All forward looking statements included in this document
are based on information available to us on the date hereof, and we assume no
obligation to update any such forward looking statements. It is important to
note that our actual results could differ materially from those in such forward
looking statements.
11
<PAGE>
SELLING SHAREHOLDERS
REGULATION D PREFERRED STOCK AND PRIVATE EQUITY LINE OF CREDIT AGREEMENT
OVERVIEW
On December 4, 1998 (the "Subscription Date"), we entered into a
Preferred Stock and Private Equity Line of Credit Agreement (the "Subscription
Agreement") and a Registration Rights Agreement with Sovereign Partners Limited
Partnership, Dominion Investment Fund, LLC, and Dominion Capital Fund, Ltd.
(collectively, the "Selling Shareholders"). Pursuant to the Subscription
Agreement, we sold to the Selling Shareholders an aggregate of 2,000 shares of
series A preferred stock for an aggregate purchase price of $2,000,000. The
Subscription Agreement provides us with certain put rights entitling us to
require the Selling Shareholders to purchase up to $8,000,000 of our common
stock from time to time during an eighteen-month period beginning thirty days
after the effective date of the registration statement relating to this
Prospectus.
SERIES A PREFERRED STOCK
The Selling Shareholders may convert the series A preferred stock into
shares of common stock at any time during a two-year period commencing on the
Subscription Date. See "Description of Securities -- Preferred Stock."
PUT RIGHTS
In order to exercise a put right, we must have an effective and current
registration statement, registering the shares of common stock issued to the
Selling Shareholders upon exercise of such put right. During the commitment
period specified in the Subscription Agreement we may give 30 trading days
advance notice to any Subscriber of the date on which we intend to exercise a
particular put right. In general, the commitment period will last until such
time as the Selling Shareholders shall have purchased shares of common stock
upon exercise of our put rights for an aggregate purchase price of $8,000,000,
unless the Subscription Agreement is sooner terminated. The notice of exercise
of our put rights must indicate:
(1) that the person whose signature appears on such notice is our
duly elected and authorized officer;
(2) that our representations and warranties, as set forth in the
Subscription Agreement, are true and correct in all material
respects as though made on and as of the date of such notice;
(3) that we have performed in all material respects all of the
conditions, covenants and agreements to be performed by us on or
prior to the closing date related to the notice and have complied
in all material respects with all obligations and conditions
contained in the Subscription Agreement; and
(4) the aggregate dollar amount to be invested by the Selling
Shareholders for the purchase of shares upon exercise of any put
right as notified by us to the Selling Shareholders, in
accordance with the Subscription Agreement.
The aggregate amount invested at any one time by any one Subscriber may
not be less than $100,000 nor exceed an amount determined pursuant to the
Subscription Agreement, which corresponds to the average daily trading volume
for our common stock during the 30 days immediately preceding the date on which
we shall have delivered notice of our intent to exercise a put right and the
closing bid price on such date.
For each share so purchased, the Selling Shareholders will pay us a
price equal to 80% of the average closing bid prices of our common stock over
the 10 trading days immediately preceding the closing date of the purchase.
12
<PAGE>
LIMITATIONS AND CONDITIONS TO OUR RIGHTS
If we fail to comply with the provisions relating to the put rights
contained in the Subscription Agreement on two separate occasions, we shall have
waived our right to exercise a put right at any time thereafter.
If the rules of the principal trading market of the common stock
require, we are required to seek stockholder approval for any below market price
issuance of our common stock to the Selling Shareholders in excess of twenty
percent (20%) of the number of shares of our common stock outstanding as of the
related subscription date. If we are unable to obtain stockholder approval, or
if a meeting for obtaining such approval is not held prior to the 45th day after
the date we first become subject to such requirement, we are required to seek a
waiver from the principal trading market of our common stock for such issuance.
If we do not obtain such a waiver within ten days after the end of the 45-day
period, we must pay to the Selling Shareholders a cash amount equal to the value
of the excess shares issuable to the Selling Shareholders. Such cash amount will
be determined by the number of such excess shares multiplied by the closing bid
price for the 10th trading day after the end of the 45-day period.
TERMINATION OF OBLIGATIONS TO PURCHASE PUT SHARES AND DAMAGES
The obligation of the Selling Shareholders to purchase shares shall
terminate permanently in the event that either:
(1) there shall occur any stop order or suspension of the
effectiveness of the Registration Statement for an aggregate of 10 trading days
during the period during which they have committed to purchase such shares, for
any reason other than deferrals or suspensions in accordance with the
registration rights agreement as a result of corporate developments subsequent
to the Subscription Date that would require such Registration Statement to be
amended to reflect such event in order to maintain its compliance with the
disclosure requirements of the Securities Act and any relevant regulations
promulgated thereunder; or
(2) we fail at any time to:
(A) continue to reserve and keep available at
all times, free of preemptive rights, shares
of common stock for the purpose of enabling
us to satisfy any obligation to issue shares
to the Selling Shareholders in connection
with any put right;
(B) maintain the listing of our common stock on
the OTC Bulletin Board or other principal
trading market of our common stock, and as
soon as practicable list the shares
purchased in connection with the exercise of
any put right on the OTC Bulletin Board or
other principal trading market;
(C) if we apply to have the common stock traded
on any other principal trading market,
include in such application shares purchased
in connection with the exercise of any put
right, and take such other action as is
necessary or desirable in the opinion of the
Selling Shareholders to cause the common
stock to be listed on such other principal
trading market as promptly as possible;
(D) continue the listing and trading of our
common stock on the principal trading market
of our common stock, including, without
limitation, maintaining sufficient net
tangible assets, and comply in all respects
with our reporting, filing and other
obligations under the bylaws or rules of
such principal trading market;
(E) cause our common stock to continue to be
registered under Section 12(b) of the
Exchange Act, comply in all respects with
our reporting and filing obligations under
the Exchange Act, and refrain from taking
any action or filing any document to
terminate or suspend such registration or to
terminate or suspend our reporting and
filing obligations under the Exchange Act;
or
(F) take all steps necessary to preserve and continue
our corporate existence.
13
<PAGE>
SHORT SALES
The Selling Shareholders and their affiliates may not make short sales
of our common stock.
RIGHT OF FIRST REFUSAL
The Selling Shareholders have the right of first refusal for a period
of 5 days after our delivery to the Selling Shareholders of written notice of
our intention to offer, sell, grant any option to purchase, or otherwise dispose
of (or announce any offer, sale, grant any option to purchase, or other
disposition) any of our equity or equity equivalent securities or any instrument
that permits the holder thereof to acquire shares of common stock at any time
prior to the expiration of the period during which the Selling Shareholders have
committed to purchase shares in connection with our put rights, except as to:
(1) the granting of options or warrants to employees, officers and
directors, and the issuance of shares of common stock upon exercise of options
granted under any stock option plan that we may have duly adopted;
(2) shares issued upon exercise of any currently outstanding warrants
or options, and
(3) shares issued in a bona fide public offering by us of our
securities.
Any such notice shall fully describe the transaction, the gross
proceeds raised thereby, the potential investor in such transaction and a term
sheet of the proposed transaction.
The Selling Shareholders must notify us within five business days after
receipt of such notice of their intention to participate in such financing on
substantially the same terms as set forth in our notice to them, subject to the
completion of mutually agreeable documentation. If the Selling Shareholders do
not exercise their right of first refusal the Selling Shareholders shall have
the right, from then on, to refuse any notice of our intention to exercise a put
right, which we subsequently serve upon them.
PLACEMENT AGENT AND ESCROW AGENT
Havkit Corporation is acting as placement agent for this transaction
and is indirectly related to the Selling Shareholders. In consideration for its
services, the placement agent is entitled to receive a cash fee of up to 8.75%
for the first $2,000,000 we received on the Subscription Date. Subsequently, the
placement agent is entitled to receive on the closing date of the purchase of
shares in connection with the exercise of each put right, 9.25% of the amount
invested by the Selling Shareholders in connection with such purchase. The third
party escrow agent for this transaction is entitled to receive, in consideration
for its services, an initial fee of $25,000 on each such closing date, .75% of
the amount invested for legal, administrative and escrow fees. In addition, we
have issued to the placement agent warrants to purchase up to 75,000 shares of
our common stock at an exercise price of $2.25 per share. The warrants issued to
the placement agent will expire on March 1, 2001.
SELLING SHAREHOLDERS RIGHT OF INDEMNIFICATION
We are obligated to indemnify the Selling Shareholders from all
liability and losses resulting from any misrepresentations in or breaches by us
of the Subscription Agreement, the registration rights agreement or any other
related agreement, or the registration statement relating to this prospectus.
14
<PAGE>
STOCK OWNERSHIP
The following table sets forth as of March 31, 1999: (1) the name of
the Selling Shareholder and the placement agent; (2) the amount of common stock
held directly or indirectly by the Selling Shareholders, assuming the company
exercise all put rights and all series A preferred shares are converted into
common stock and the exercise of the placement agent's warrants; (3) the
percentage of common stock beneficially owned by the Selling Shareholders and
the placement agent; (4) the number of Shares to be offered; and (5) the number
of shares to be owned after the offering, assuming all shares offered are sold.
As of March 31, 1999, we had issued 15,975,129 shares of our common
stock.
<TABLE>
<CAPTION>
Percentage Shares to be
Name and Address of Number of Beneficially Shares to Owned After
Selling Shareholders Shares Owned(1) Owned Be Offered Offering
- -------------------- --------------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Sovereign Partners LP (2) 700,000 4.2% 700,000 -0-
Dominion Investment Fund, LLC (3) 175,000 1.1% 178,000 -0-
Dominion Capital Fund, Ltd.(4) 2,625,000 14.1% 2,625,000 -0-
Haurit Corporation(5) 75,000 0.5% 75,000 -0-
</TABLE>
- ----------
(1) The Certificate of Determination for the series A preferred stock provides
that each Selling Shareholders agrees not to convert any portion of the
Series A preferred stock if such conversion would result in such Selling
Shareholders beneficially owning more than 4.99% of the then outstanding
share of common stock immediately following such conversion. This
limitation shall not interfere with any selling shareholder's right to
convert any portion of the series A preferred stock into more than 4.99% of
the then outstanding share of common stock in the aggregate, over time, and
is not intended to mean that each selling shareholder is limited in its
conversion to an aggregate total of no mote than 4.99% of then outstanding
shares of common stock. This restriction does not apply in the event of an
automatic conversion. See "Description of Securities--Series A Preferred
Stock."
(2) Includes up to: (i) 300,000 shares of common stock that could be issued in
connection with the exercise of our put rights under the Subscription
Agreement; (ii) 400,000 shares of common stock that could be issued upon
the conversion of the series A preferred stock exercisable for a two-year
period at a price equal to 80% of the average closing bid price of our
common stock during the 5 trading days preceding the applicable conversion
date. Does not include an indeterminate number of shares of common stock
that could be issued to the Selling Shareholders as a result of adjustment
in the number of shares to be issued as additional shares upon the
occurrence of certain events which may cause a delay or suspension of the
sales of shares. Address is c/o Southridge Capital Management, 90 Grove
Street, Suite 1, Ridgefield, CT 06877. Sovereign Partners LP is
beneficially owned and controlled by Stephen Hicks and Daniel Pickett.
(3) Includes up to: (i) 75,000 shares of common stock that could be issued in
connection with the exercise of our put rights under the Subscription
Agreement; (ii) 100,000 shares of common stock that could be issued upon
the conversion of the series A preferred shares exercisable for a two-year
period at a price equal to 80% of the average closing bid price of our
common stock during the 5 trading days preceding the applicable conversion
date. Does not include an indeterminate number of shares of common stock
that could be issued to the Selling Shareholders as a result of adjustment
in the number of shares to be issued as additional shares upon the
occurrence of certain events which may cause a delay or suspension of the
sales of shares. Address is c/o Citco Fund Services, Bahamas Financial
Center, 3rd Floor, Shirley & Charlotte Streets, CB 13136, Nassau, Bahamas.
Dominion Investment Fund, LLC is 100% owned Livingston Asset Management
Ltd. and controlled by David Simms.
(4) Includes up to: (i) 1,125,000 shares of common stock that could be issued
in connection with the exercise of our put rights under the Subscription
Agreement; (ii) 1,500,000 shares of common stock that could be issued upon
the conversion of the series A preferred shares exercisable for a two-year
period at a price equal to 80% of the average closing bid price of our
common stock during the 5 trading days preceding the applicable conversion
date. Does not include an indeterminate number of shares of common stock
that could be issued to the Selling Shareholders as a result of adjustment
in the number of shares to be issued as additional shares upon the
15
<PAGE>
occurrence of certain events which may cause a delay or suspension of the
sales of shares. Address is c/o Citco Fund Services, Bahamas Financial
Center, 3rd Floor, Shirley & Charlotte Streets, CB 13136, Nassau, Bahamas.
Dominion Capital Fund, LTD. is 100% owned Livingston Asset Management
Ltd. and controlled by David Simms.
(5) Includes up to 75,000 shares of common stock that could be issued upon the
exercise of the placement agent warrants at an exercise price of $2.25 per
share and expiring on March 1, 2001.
We have agreed to pay for all costs and expenses in the issuance,
offer, sale and delivery of the shares of common stock covered by this
Prospectus. These include, all expenses and fees of preparing, filing and
printing the Registration Statement and mailing of these items. We will not pay
selling commissions and expenses for any sales by the Selling Shareholders. We
will indemnify the Selling Shareholders against civil liabilities including
liabilities under the Securities Act.
PLAN OF DISTRIBUTION
Our common stock may be sold by the Selling Shareholders, or by other
successors in interest. The sales may be made on one or more exchanges or in the
over-the-counter market, or at prices related to the then current market price,
or in negotiated transactions.
Our common stock may be sold by one or more of the following methods,
including, without limitation:
(1) a block trade in which the broker-dealer so engaged will attempt to
sell the common stock as agent, but may position and resell a portion of the
block as principal;
(2) purchases by a broker or dealer as principal and resale by such
broker or dealer;
(3) ordinary brokerage transactions and transactions in which the
broker solicits purchasers; and
(4) face-to-face or other direct transactions between the Selling
Shareholders and purchasers without a broker-dealer or other intermediary.
In making sales, broker-dealers, or agents engaged by the Selling
Shareholders may arrange for other broker-dealers or agents to participate. Such
broker-dealers may receive commissions or discounts from the Selling
Shareholders in amounts to be negotiated immediately prior to the sale. These
broker-dealers and agents and any other participating broker-dealers or agents,
as well as the Selling Shareholders and the placement agent, may be considered
to be "underwriters" within the meaning of the Act. In addition, any securities
covered by this prospectus that qualify for sale under Rule 144 may be sold
under Rule 144 rather than by this prospectus.
DESCRIPTION OF SECURITIES
We are authorized to issue up to 20,000,000 shares of common stock, par
value $.001 per share, of which 15,975,129 shares were outstanding as of March
31, 1999. We are also authorized to issue up to 1,000,000 shares of Preferred
Stock, par value $.001 per share, of which 2,000 shares have been designated
series A preferred stock and were issued and outstanding as of March 31, 1999.
COMMON STOCK
Subject to the dividend rights of the holders of preferred stock,
holders of shares of common stock are to receive ratably such dividends, if any,
as may be declared by the Board of Directors out of funds legally available
therefore. Upon liquidation, dissolution, or winding up of our company, the
holders of common stock are entitled to share ratably in all of our assets which
are legally available for distribution, after payment of all debts and other
liabilities and the liquidation preference of any outstanding preferred stock.
Holders of common stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Holders of common stock have no
preemptive, subscription, redemption or conversion rights.
16
<PAGE>
PREFERRED STOCK
Our Company is authorized to issue up to 1,000,000 shares of preferred
stock, par value $.001 per share. The Board of Directors has the authority
without any further action by our shareholders to issue any or all of the
authorized shares of preferred stock in one or more series and to establish the
rights, preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences, sinking fund terms and the number of shares constituting any series
or the designation of such series. The issuance of preferred stock could
adversely affect the holders of common stock and could have the effect of
delaying, deferring or preventing a change in our control.
Presently we have authorized 2,000 shares of series A preferred stock,
all of which are outstanding.
SERIES A PREFERRED STOCK
We established the series A preferred stock on December 1, 1998. The
series A preferred stock has a par value equal to $.01 per share. The series A
preferred stock is immediately convertible into such numbers of shares of common
stock determined by dividing the stated value of the series A preferred stock by
the conversion price. The stated value of the series A preferred stock is $1,000
per share, as stated in the Certificate of Designation. The Certificate of
Designation provides that the conversion price shall be equal to eighty percent
(80%) of the closing bid price per share of our common stock over the five
consecutive trading days ending on the trading day immediately preceding the
date the applicable holder of the series A preferred stock elects to have shares
of series A preferred stock converted. If all outstanding shares of series A
preferred stock have not been converted prior to the second anniversary of the
date issuance, then the series A preferred stock shall be automatically
converted on the second anniversary date as if the holder voluntarily elected
such conversion.
Existing holders of the series A preferred stock are entitled to
receive shares of common stock that may be resold pursuant to an effective
registration statement filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended. Assuming an effective registration
covers the resale of such shares of common stock, the outstanding shares of
series A preferred stock would convert into an aggregate of approximately
551,146 shares of our common stock (at an applicable conversion price of
approximately $3.63 per share), as of the date of this Registration Statement.
As this Registration Statement has not been declared effective as of the date
hereof, the beneficial conversion feature of the series A preferred stock is not
reflected in our financial statements.
Holders of the series A preferred stock shall be entitled to receive a
dividend, payable in cash or unrestricted shares of series A preferred stock, at
our option, on each share of series A preferred stock held by such holders in an
amount equal to eight percent (8%) per annum of the series A liquidation
preference on the conversion date of such shares of series A preferred stock.
The series A liquidation preference is $1,000 per share, as specified in the
Certificate of Designation.
Holders of shares of the series A preferred stock are not entitled to
vote on any matters presented to our shareholders for approval, except as
required by law. Holders of the series A preferred stock will be entitled to
receive $1,000 per share, upon our liquidation, dissolution or winding up. This
payment shall be prior to our payment of any amounts to the holders of common
stock or other shares of our stock which are junior to the series A preferred
stock.
OVER-THE-COUNTER MARKET
Our common stock is currently listed on the OTC Bulletin Board. We
intend to list our common stock on The Nasdaq SmallCap Market(sm), and believe
that we will be able to satisfy and maintain its current and proposed entry
standards following our next round of financing.
Prior to such future financing, or if we are unable to satisfy and
maintain the requirements for listing on The Nasdaq SmallCap Market(sm)
following such financing, trading, if any, of our shares, will continue to be
conducted in the over-the-counter market in the OTC Bulletin Board.
Consequently, our shares may be subject to Rule 15g-9 of the Exchange Act. That
rule imposes additional sales practice requirements on broker-dealers that sell
low-priced securities to persons other than established customers, "accredited
investors" or institutional accredited investors. Accredited investors are
generally defined to include individuals with a net worth in excess of
$1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their
spouses. For transactions covered by this rule, a broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to consummating the sale.
Consequently, the rule may affect the ability of broker-dealers to sell our
shares and affect the ability of holders to sell our shares in the secondary
market.
17
<PAGE>
TRANSFER AGENT
The Transfer Agent for our shares of common stock is Executive
Registrar & Transfer Agency, Post Office Box 56517, Phoenix, Arizona 85079-6517,
and their telephone number is (602) 415-1273.
LEGAL MATTERS
Certain legal matters in connection with the common stock being offered
hereby will be passed upon by Pillsbury Madison & Sutro LLP, 650 Town Center
Drive, 7th Floor, Costa Mesa, California, 92626-7122.
EXPERTS
The consolidated financial statements of IJNT.net, INC. appearing in
IJNT.net, INC.'s Annual Report (Form 10-KSB) for the year ended March 31, 1998,
have been audited by Smith & Company, independent certified public accountants,
as set forth in their report thereon included therein and incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
INDEMNIFICATION
Section 145 of the General Corporation Law of Delaware allows a
corporation to indemnify any person who was or is threatened to be made a party
to any threatened, pending or completed suit or proceeding. This applies whether
the matter is civil, criminal, administrative or investigative because he or she
is or was a director, officer, employee or agent of the corporation.
A corporation may indemnify against expenses (including attorney's
fees) and, except for an action by or in the name of the corporation, against
judgments, fines and amounts paid in settlement as part of such suit or
proceeding. This applies only if the person indemnified acted in good faith and
in a manner he or she reasonably believed to be in the best interest of the
corporation. In addition, with respect to any criminal action or proceeding, the
person had no reasonable cause to believe his or her conduct was unlawful.
In the case of an action by or in the name of the corporation, no
indemnification of expenses may be made for any claim, as to which the person
has been found to be liable to the corporation. The exception is if the court in
which such action was brought determines that the person is reasonably entitled
to indemnity for expenses.
Section 145 of the General Corporation Law of Delaware further provides
that if a director, officer, employee or agent of the corporation has been
successful in the defense of any suit, claim or proceeding described above, he
or she will be indemnified for expenses (including attorneys' fees) actually and
reasonably incurred by him or her.
Insofar as indemnification for liabilities arising under the Act is
permitted as to directors, officers and controlling persons, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by us in the
successful defense of any action, suit or proceeding) is asserted, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by us is against public policy. We will be governed by the
final adjudication of such issue.
18
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses, all of which are
being paid by us, in connection with this offering.
Registration fee................................$ 2,988.50*
Legal fees and expenses......................... 22,500.00*
Accounting fees and expenses.................... 2,500.00*
Printing expenses............................... 2,500.00*
Miscellaneous................................... 2,500.00*
--------------
TOTAL .................................$ 32,988.50*
- ----------------
* Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware allows a
corporation to indemnify any person who was or is, or is threatened to be made a
party to any threatened, pending or completed suit or proceeding. This applies
whether the matter is civil, criminal, administrative or investigative because
he or she is or was a director, officer, employee or agent of the corporation.
A corporation may indemnify against expenses (including attorney's
fees) and, except for an action by or in the name of the corporation, against
judgments, fines and amounts paid in settlement as part of such suit or
proceeding. This applies only if the person indemnified acted in good faith and
in a manner he or she reasonably believed to be in the best interest of the
corporation. In addition, with respect to any criminal action or proceeding, the
person had no reasonable cause to believe his or her conduct was unlawful.
In the case of an action by or in the name of the corporation, no
indemnification of expenses may be made for any claim, as to which the person
has been found to be liable to the corporation. The exception is if the court in
which such action was brought determines that the person is reasonably entitled
to indemnity for expenses.
Section 145 of the General Corporation Law of Delaware further provides
that if a director, officer, employee or agent of the corporation has been
successful in the defense of any suit, claim or proceeding described above, he
or she will be indemnified for expenses (including attorneys' fees) actually and
reasonably incurred by him or her.
Insofar as indemnification for liabilities arising under the Act is
permitted as to directors, officers and controlling persons, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by us in the
successful defense of any action, suit or proceeding) is asserted, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by us is against public policy. We will be governed by the
final adjudication of such issue.
II-1
<PAGE>
ITEM 16. EXHIBITS.
EXHIBIT DESCRIPTION
- ------- -----------
4(i) Certificate of Designation for Series A Convertible Preferred
Stock.*
4(ii) Specimen Certificate for Series A Convertible Preferred
Stock.*
5 Opinion of Pillsbury Madison & Sutro, LLP, as to the
validity of the securities being registered.*
23 Consent of Independent Certified Public Accountants.*
27(i) Financial Data Schedule.**
- -----------
* Filed herewith
** Previously filed with the Registrant's Annual Report on Form 10-KSB for the
fiscal year ended March 31, 1999.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned company hereby undertakes:
(i) to file, during any period in which it offers or sells
securities, a post-effective amendment to this Registration Statement
to include any additional or changed material information on the plan
of distribution;
(ii) that, for determining any liability under the Securities
Act, treat each such post-effective amendment as a new Registration
Statement of the securities offered at that time shall be deemed to be
the initial bona fide offering thereof; and
(iii) to file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(e) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
(f) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's Annual Report pursuant to Section 13(a) or 15(d) of the Exchange
Act that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, we certify that we
have reasonable grounds to believe that we meet all of the requirements for
filing on Form S-3 and have duly caused this Registration Statement to be signed
on our behalf by the undersigned, thereunto duly authorized, in the City of
Irvine and the State of California, on this 30th day of July, 1999.
IJNT.net, INC.
By: /s/ JON H. MARPLE
----------------------------------
Jon H. Marple
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ JON H. MARPLE Chairman of the Board of Directors, April 22, 1999
- ------------------------------ Chief Executive Officer and Chief
Jon H. Marple Financial Officer
/s/ MARY E. BLAKE Director April 22, 1999
- ------------------------------
Mary E. Blake
/s/ JEFFREY R. MATSEN Director April 22, 1999
- ------------------------------
Jeffrey R. Matsen
</TABLE>
II-4
<PAGE>
IJNT INTERNATIONAL, INC.
CERTIFICATE OF DESIGNATION
FOR
SERIES A CONVERTIBLE
PREFERRED STOCK
---------------------------------
Pursuant to Section 151
of the General Corporation Law of the State of Delaware
---------------------------------
IJNT International, Inc. (the "CORPORATION"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "DGCL"), does hereby certify that pursuant to the provisions of
Section 151 of the DGCL, the Board of Directors of the Corporation, at a meeting
duly convened on December 1, 1998 at which a quorum was present at all times,
adopted the following resolution, which resolution remains in full force and
effect as of the date hereof:
WHEREAS, the Board of Directors of the Corporation is
authorized, within the limitations and restrictions stated in the Corporation's
Certificate of Incorporation, to fix by resolution or resolutions the
designation of each class or series of preferred stock (the "PREFERRED STOCK")
and the voting powers, and any designations, preferences, and relative,
participating, optional or other special rights of any such class or series of
Preferred Stock, as well as such other provisions with regard to redemption (at
the option of the holders thereof and/or at the option of the Corporation),
dividends, dissolution or the distribution of assets, conversion or exchange,
and any qualifications or restrictions thereof or such other subjects or matters
as shall be stated and expressed in the resolution or resolutions providing for
the issue of such stock adopted by the Board of Directors; and
WHEREAS, it is the desire of the Board of Directors of the
Corporation, pursuant to such authority, to authorize and fix the terms of the
series of Preferred Stock designated as Series A Convertible Preferred Stock.
NOW THEREFORE, be it resolved, that the terms and provisions
of such series and all other right or preferences granted to or imposed upon
such series or the holders thereof are as herein set forth:
1. DESIGNATION, AMOUNT AND PAR VALUE. Of the authorized but
unissued shares of Preferred Stock, 2,000 shares are designated Series A
Convertible Preferred Stock (the "SERIES A PREFERRED STOCK"). The Series A
Preferred Stock will have a par value equal to $0.01 per share.
<PAGE>
2. RANK. The Series A Preferred Stock shall, with respect to
dividend rights or rights upon liquidation, dissolution and winding-up of the
Corporation, rank PARI PASSU with all other series of Preferred Stock or other
class of security expressly ranking PARI PASSU ("PARI PASSU CLASSES") with the
Series A Preferred Stock and prior to all series or classes of common stock of
the Corporation $0.01 par value per share (the "COMMON STOCK"). Nothing
contained herein shall be construed to prohibit the Corporation from authorizing
or issuing, in accordance with its Certificate of Incorporation and By-Laws, as
the same may be amended and in effect from time to time, any classes or series
of equity securities of the Corporation ranking senior to or PARI PASSU with the
Series A Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution and winding-up of the Corporation or both.
3. DIVIDENDS. The holders of the shares of the Series A
Preferred Stock shall be entitled to receive a dividend, payable, in cash or
unrestricted shares of Series A Preferred Stock, at the option of the
Corporation, on each share of Series A Preferred Stock held by such holders (the
"SERIES A DIVIDEND") in an amount equal to eight percent (8%) per annum
(computed on the basis of a 360 day year of twelve 30 day months) of the Series
A Liquidation Preference (as defined below) on the Conversion Date (as defined
below), or upon the Expiration Date (as defined below). In the event dividends
become due and the Corporation is unable to issue unrestricted shares of Common
Stock the Corporation shall pay such dividends in cash as set forth above.
4. LIQUIDATION PREFERENCE.
a) Subject to the rights of holders of any class of capital
stock or series thereof expressly ranking senior to the Series A Preferred
Stock, upon any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, the holder of each share of
the Series A Preferred Stock then outstanding shall be entitled to be paid
out of the assets of the Corporation available for distribution to its
stockholders an amount equal to One Thousand ($1,000) Dollars for each
share of Series A Preferred Stock (the "STATED VALUE") then held by such
holder plus the Series A Dividend owed through such date (such amount being
herein called the "LIQUIDATION PREFERENCE") before any payment shall be
made or any assets distributed to the holders of Common Stock or any other
series of capital stock junior to the Series A Preferred Stock. If the
assets of the Corporation are not sufficient to pay in full the payments
payable to the holders of outstanding shares of Series A Preferred Stock
and any Pari Passu Classes upon the liquidation, dissolution or winding up
of the affairs of the Corporation, then the holders of all such shares
shall share ratably with all other holders of shares of Series A Preferred
Stock and Pari Passu Classes in such distribution of assets in proportion
to the Liquidation Preference of the respective shares.
b) For the purposes of this Section 4, neither the voluntary
sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all the property
or assets of the Corporation nor the consolidation or merger of the
Corporation with or into one or more other corporations or other entities
shall be deemed to be a liquidation, dissolution or winding up of the
Corporation.
5. CONVERSION.
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<PAGE>
a) RIGHTS OF HOLDER TO CONVERT. The holders of shares of
Series A Preferred Stock shall have the right to convert all or a portion
of the Series A Preferred Stock into shares of Common Stock so that each
share of Series A Preferred Stock is convertible into such numbers of
shares of Common Stock determined by dividing the Stated Value of each
share of Series A Preferred Stock by the Conversion Price defined herein
(the "CONVERSION RATIO"). For the purposes hereof, the "CONVERSION PRICE"
shall be equal to 80% of the average of the Closing Bid Price (as defined
below) per share of the Common Stock over the five consecutive trading days
ending on the trading day immediately preceding the date the applicable
holder of Series A Preferred Stock elects to have shares of Series A
Preferred Stock converted (the "CONVERSION DATE"). The "CLOSING BID PRICE"
means, for any security as of any date, the last closing bid price on the
OTC Bulletin Board (the "OTC") as reported by Bloomberg Financial Markets
("BLOOMBERG"), or, if the OTC is not the principal trading market for such
security, the last closing bid price of such security on the principal
securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the last
closing bid price of such security on the pink sheets for such security as
reported by Bloomberg, or, if no closing bid price is reported for such
security by Bloomberg, the last closing trade price of such security as
reported by Bloomberg. If the Closing Bid Price cannot be calculated for
such security on such date on any of the foregoing bases, the Closing Bid
Price of such security on such date shall be the fair market value as
reasonably determined in good faith by the Board of Directors of the
Company (all as appropriately adjusted for any stock dividend, stock split
or other similar transaction during such period).
b) ADJUSTMENTS TO CONVERSION RATIO. The Conversion Ratio shall
be adjusted, from time to time by the Board of Directors of the
Corporation, to reflect the effect of any stock dividend, stock split,
reverse stock split, merger, consolidation, recapitalization (other than
the issuance of Common Stock in exchange for indebtedness or other
obligation of similar value), reorganization or other similar transaction
affecting the Corporation so that immediately following such event the
holders of the Series A Preferred Stock shall be entitled to receive upon
conversion thereof the kind and amount of shares of securities of the
Corporation and other property which they would have owned or been entitled
to receive upon or by reason of such event if such shares of Series A
Preferred Stock had been converted immediately before the record date (or,
if no record date, the effective date) for such event. An adjustment made
pursuant to this paragraph b) of this Section 5 shall become effective
immediately after the opening of business on the next day immediately
following the record date in the case of a dividend or distribution and
shall become effective immediately after the opening of business on the day
next following the effective date in the case of a subdivision,
combination, reclassification, merger, recapitalization, reorganization or
other similar transaction. In case of (i) any consolidation or merger to
which the Corporation is a party, other than a merger or consolidation in
which the Corporation is the surviving or continuing corporation and which
does not result in any reclassification of, or change in (other than a
change in par value or from par value to no par value or from no par value
to par value, or as a result of a subdivision or combination), outstanding
shares of Common Stock (or such other class or series of common stock into
which shares of Series A Preferred Stock are then convertible), or (ii) any
sale or conveyance of all or substantially all of the property and assets
of the Corporation, then provision shall be made as part of the terms of
such transaction whereby the holder of each share of Series A Preferred
Stock which is not converted into the right to receive stock or other
securities and property in connection with such transaction shall have the
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<PAGE>
right thereafter to convert such share of Series A Preferred Stock into the
kind and amount of shares of stock or other securities and property
receivable upon such consolidation, merger, sale or conveyance by a holder
of the number of shares of Common Stock into which such shares of Series A
Preferred Stock could have been converted immediately prior to such
consolidation, merger, sale or conveyance, subject to adjustment which
shall be as nearly equivalent as may be practicable to the adjustments
provided for in this paragraph (b) of this Section 5. The Corporation shall
not enter into any of the transactions referred to in clauses (i) or (ii)
of the first sentence of this paragraph unless, prior to the consummation
thereof, effective provision shall be made in a certificate or articles of
incorporation or other constituent document or written instrument of the
Corporation or the Surviving Entity, as the case may be, so as to provide
for the assumption by the Corporation or such Surviving Entity, as the case
may be, of the obligation to deliver to each holder of shares of Series A
Preferred Stock such stock or other securities and property and otherwise
give effect to the provisions set forth in this paragraph. For the purposes
hereof, "SURVIVING ENTITY" means any entity (other than the Corporation)
surviving any consolidation or merger referred to in this paragraph, or the
entity acquiring the Corporation's assets. The provisions of this paragraph
shall apply similarly to successive consolidations, mergers, sales or
conveyances.
The Corporation shall give each holder of Series A Preferred
Stock prior written notice delivered to the applicable address set forth on
the record books of the Corporation of each adjustment made pursuant to
this paragraph b) of Section 5.
c) PROCEDURES FOR CONVERSION. Any holder of Series A Preferred
Stock electing to convert such shares or any portion thereof shall deliver
to the Corporation at its principal office by telecopying an executed and
completed Notice of Conversion and, by express courier, the certificate
representing the Series A Preferred Stock to the Corporation. Each business
date (between the hours of 9:00 a.m. and 5:00 p.m. local time for the
holder) on which a Notice of Conversion is telecopied to and received by
the Corporation in accordance with the provisions hereof shall be deemed a
"CONVERSION DATE". The Corporation will transmit the certificates
representing shares of Common Stock issuable upon conversion of any Series
A Preferred Stock (together with the certificates representing the Series A
Preferred Stock not so converted) to the holders via express courier, by
electronic transfer or otherwise within five business days after the
Conversion Date if the Corporation has received the original Notice of
Conversion and Series A Preferred Stock certificate being so converted by
such date, or within five business days after receipt by the Corporation of
the original Notice of Conversion and Series A Preferred Stock certificate
being so converted. In addition to any other remedies which may be
available to the holders, in the event that the Corporation fails for any
reason to effect delivery of such shares of Common Stock within such five
business day period, the holders will be entitled to revoke the relevant
Notice of Conversion by delivering a notice to such effect to the
Corporation whereupon the Corporation and the holders shall each be
restored to their respective positions immediately prior to delivery of
such Notice of Conversion. The Notice of Conversion and Series A Preferred
Stock representing the portion of the shares converted shall be delivered
to the principal office of the Corporation at its then current address.
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<PAGE>
In the event that the Common Stock issuable upon conversion of
the Series A Preferred Stock is not delivered within three business days
after the Conversion Date, the Corporation shall pay to the holders, in
immediately available funds, upon demand, as liquidated damages for such
failure and not as a penalty, for each $100,000 aggregate Stated Value of
Series A Preferred Stock sought to be converted, Five Hundred ($500)
Dollars for each of the first 10 calendar days and One Thousand ($1,000)
Dollars per calendar day thereafter that the shares of Common Stock due
upon conversion are not delivered. Such liquidated damages shall run from
the sixth business day after the Conversion Date up until the time that
either the Notice of Conversion is revoked or the Common Stock has been
delivered, at which time liquidated damages shall cease. Any and all
payments required pursuant to this paragraph shall be payable only in
immediately available funds to the holders of the Series A Preferred Stock
at the addresses indicated in the records of the Corporation. Payment by
the Corporation of liquidation damages as set forth herein, shall not
relieve the Corporation of its obligation to deliver the shares of Common
Stock upon conversion of the Series A Preferred Stock pursuant to the
conversion provisions contained herein.
d) NO FRACTIONAL SECURITIES. No fractional shares of Common
Stock shall be issued upon conversion of shares of Series A Preferred
Stock. Instead of any fractional shares of Common Stock which would
otherwise be issuable upon conversion of any share or shares of Series A
Preferred Stock, the Corporation shall pay to such holder, within the time
restraints set forth in Section 5 c) above, in cash, the value of such
fractional share which value shall be based upon the Closing Bid Price of
the Common Stock on the trading day immediately preceding the Conversion
Date.
e) TAXES. If a holder converts shares of Series A Preferred
Stock, the Corporation shall pay any documentary, stamp or similar issue or
transfer tax due on the issue of securities of the Corporation to the
holder upon the conversion.
f) RESERVATION OF SHARES. At all times, the Company shall
reserve and keep available out of its authorized but unissued Common Stock
solely for issuance upon the conversion of shares of the Series A Preferred
Stock as herein provided, such number of shares of Common Stock as, from
time to time, shall be issuable upon the conversion of all the shares of
the Series A Preferred Stock at the time outstanding. If at any time the
number of authorized but unissued shares of Common Stock shall be
insufficient to satisfy the conversion rights hereunder, in addition to
such other remedies as shall be available to the holder of Series A
Preferred Stock, the Company will take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose. All shares
of Common Stock issued upon due conversion of shares of Series A Preferred
Stock shall be validly issued, fully paid and non-assessable.
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<PAGE>
g) AUTOMATIC CONVERSION. In the event that this Series A
Preferred Stock has not all been converted prior to the second anniversary
of the date the Series A Preferred Stock was issued, then the Series A
Preferred Stock shall automatically be converted on the second anniversary
of the date the Series A Preferred Stock was issued as if the holder
voluntarily elected such conversion in accordance with the procedure, terms
and conditions as set forth in this Certificate of Designation.
h) CONVERSION LIMITS. Each holder agrees that it shall not
convert any portion of the Series A Preferred Stock, which would result in
any holder holding, at any time, more than 4.99% of the then outstanding
shares of Common Stock. The preceding sentence shall not interfere with any
holders right to convert any portion of the Series A Preferred Stock into
more than 4.99% of the then outstanding shares of Common Stock in the
aggregate, over time, and is not intended to mean that each holder is
limited in its conversion to an aggregate total of no more than 4.99% of
then outstanding shares of Common Stock. This restriction shall not apply
in the event of an automatic conversion pursuant to Section 5 g) above.
6. ADJUSTMENTS.
a) If the Company shall, at any time or from time to time,
declare and pay to the holders of Common Stock a dividend in shares of
Common Stock, or the Company shall subdivide the outstanding shares of
Common Stock into a greater number of shares of Common Stock, or combine
the outstanding shares of Common Stock into a smaller number of shares of
Common Stock the Conversion Price shall be adjusted to equal the price
determined by multiplying the Conversion Price by a fraction, the numerator
of which shall be the number of shares of Common Stock issued and
outstanding immediately prior to the happening of such event and the
denominator of which shall be the number of shares of Common Stock issued
and outstanding immediately after the happening of such event. Such
adjustment shall become effective immediately after the opening of business
on the day immediately following the record date, in the event of a stock
dividend, or the day upon which the subdivision or combination becomes
effective, as the case may be.
b) If the Company shall, at any time or from time to time
after the date on which the Series A Preferred Stock was first issued by
the Company, make or issue, or fix a record date for the determination of
holders of shares of Common Stock entitled to receive a dividend or other
distribution payable in securities of the Company, including a distribution
of evidence of indebtedness of the Company, other than shares of Common
Stock, then, and in each such event, provision shall be made by the Company
so that the holders of shares of Series A Preferred Stock shall receive
upon conversion thereof, in addition to the shares of Common Stock
receivable upon conversion, the amount of those securities of the Company
that such holders would have received had their shares of Series A
Preferred Stock been converted on the date of such event and had they
thereafter, during the period from the date of such event to and including
the date of conversion, retained such securities receivable by them as
aforesaid during such period.
-6-
<PAGE>
c) If the shares of Common Stock issuable upon the conversion
of shares of Series A Preferred Stock shall be changed into the same or any
different number of shares of any class or any series of any class of
capital stock, whether by capital reorganization, reclassification or
otherwise, then, and in each such event, the holder of shares of Series A
Preferred Stock shall have the right thereafter to convert such shares of
Series A Preferred Stock into the kind and amount of shares of stock and
other securities and property receivable upon such reorganization,
reclassification or other change by holders of the number of shares of
Common Stock into which such shares of Series A Preferred Stock might have
been converted immediately prior to such reorganization, reclassification
or change.
d) Upon any conversion of Series A Preferred Stock pursuant to
Section 5 above, the shares of Series A Preferred Stock which are converted
shall not be reissued. Upon conversion of all of the then outstanding
Series A Preferred Stock pursuant to Section 5 above and upon the taking of
any action required by law, all matters set forth in this Certificate of
Designation shall be eliminated from the Certificate of Incorporation,
shares of Series A Preferred Stock shall not be deemed outstanding for any
purpose whatsoever and all such shares shall revert to the status of
authorized and unissued shares of Preferred Stock.
7. VOTING RIGHTS. The holders of record of shares of Series A
Preferred Stock shall not be entitled to vote on any matters presented to the
stockholders of the Company for approval, except as required by law.
8. NO IMPAIRMENT. This Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Certificate of Designation and in
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of Series A Preferred Stock against
impairment.
9. GENERAL PROVISIONS.
a) "OUTSTANDING" SECURITIES. The term "outstanding", when used
with reference to shares of stock, shall mean issued shares, excluding
shares held by the Corporation, or a subsidiary thereof.
b) HEADINGS. The headings of the paragraphs, subparagraphs,
clauses, and sub-clauses of this Certificate of Designation are for
convenience of reference only and shall not define, limit, or affect any of
the provisions hereof.
-7-
<PAGE>
IN WITNESS WHEREOF, IJNT International, Inc. has caused this
certificate to be signed by its Chairman and Secretary, respectively, this 1st
day of December, 1998.
/S/ JOHN H. MARPLE
--------------------------------------------
Name: John H. Marple
Title: Chairman
/S/ MARY BLAKE
--------------------------------------------
Name: Mary Blake
Title: Secretary
-8-
<PAGE>
IJNT.NET, INC.
Incorporated under the Laws of Delaware
NUMBER SHARES
========== ==========
THIS CERTIFIES THAT:
IS THE REGISTERED HOLDER OF
FULLY PAID AND NON-ASSESSABLE SERIES A PREFERRED SHARES,
$.01 PAR VALUE,
OF
IJNT.NET
1. Each Series A Preferred Share evidenced by this Certificate is
transferable on the books of the Corporation by the Holder hereof, in
person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.
2. A statement of the rights, preferences, privileges and restrictions
granted or imposed on the respective classes and series of shares of
the Corporation, the holders of those shares, and the authority of the
Board of Directors to determine variations for any existing or future
class or series is contained in the Corporation's Articles Filed with
the office of the Delaware Secretary of State on January 17, 1997, a
copy of which may be obtained by any shareholder, on request and
without charge from the secretary of the Corporation at 2800 Lafayette,
Suite D, Newport Beach, CA 92663.
3. Series A Preferred Shares have no voting rights.
4. Series A Preferred Shares and the Common Stock into which they are
convertible with, upon issuance, be fully pain and non-assessable.
5. THE SERIES A PREFERRED SHARE(S) REPRESENTED BY THIS CERTIFICATE AND THE
COMMON STOCK INTO WHICH THEY ARE CONVERTIBLE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THE SHARE(S) HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE
SECURITIES ACT OF 1933, OR PRIOR OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER, THAT REGISTRATION IS NOT REQUIRED UNDER THAT ACT.
IN WITNESS WHEREOF THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE SIGNED
BY ITS DULY AUTHORIZED OFFICERS AND ITS CORPORATION SEAL TO BE AFFIXED HERETO
THIS ______ OF _______________ 1999.
_______________________________ ________________________
CHAIRMAN OF THE BOARD SECRETARY
<PAGE>
The following abbreviations, when used in the Inscription on the fact
of this certificate, shall be construed as though they were out in full
applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,________________hereby sell, assign and transfer unto
Please insert Social Security or other
Identifying number of assignee
==============================
________________________________________________________________________________
(Please print or typewrite name and address, including zip code, of assignee)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint.
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
DATED:______________________
________________________________________________________________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the certificate in every particular, without alteration
or enlargement or any change whatsoever.
<PAGE>
EXHIBIT 5.1
[Pillsbury
Madison & Attorneys At Law
Sutro LLP 650 Town Center Drive
Logo Here] 7th Floor
Costa Mesa, CA 92626-7122
Telephone: (714) 436-6800 Fax: (714) 436-6800
http://pillsburylaw.com
July 30, 1999
IJNT.net, Inc.
2800 Lafayette, Suite D
Newport Beach, California 92663
Attention: Brandon Powell
Re: Registration Statement on Form S-3
Dear Mr. Powell:
With reference to the Registration Statement on Form S-3 relating to
the sale of 4,150,000 shares of common stock of IJNT.net, Inc., a Delaware
corporation (the "Company"), which is filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, it is our opinion that
such shares of Common Stock of the Company, when issued and sold in accordance
with the terms described in the Registration Statement, will be legally issued,
fully paid and nonassessable.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as Exhibit 5.1 to the Registration Statement
Very truly yours,
/s/ Pillsbury, Madison & Sutro LLP
--------------------------------------
PILLSBURY MADISON & SUTRO LLP
Los Angeles New York Sacramento San Diego San Francisco Silicon Valley
Washington, D.C. Tokyo
<PAGE>
EXHIBIT 23.1
Smith
&
Company
A Professional Corporation of Certified Public Accountants
July 30, 1999
Board of Directors
IJNT.net, Inc.
Houston, Texas
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants for IJNT.net, Inc., we hereby consent to the
use of our report included in the annual report of such Company on Form 10-KSB
for the year ended March 31, 1999 and dated July 7, 1999, as an exhibit to the
Company's S-3 Registration Statement dated January 6, 1999, and amended July 30,
1999.
/s/ Smith & Company
Certified Public Accountants
10 West 100 South, Suite 700 o Salt Lake City, Utah 84101-1554
Telephone: (801) 575-8297 o Facsimile: (801) 575-8306
E-mail: [email protected]
Members: American Institute of Certified Public Accountants o
Utah Association of Certified Public Accountants
