As Filed with the Securities and Exchange Commission on February 25, 2000***
Registration No. ___________
United States Securities and Exchange Commission
Washington, D.C. 20549
Form SB-2
Registration Statement
Under the Securities Act of 1933
Hyperdynamics Corporation
(Exact Name of Registrant as Specified in its Charter)
Delaware 7373 87-0400335
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification Number)
Incorporation or
Organization)
2656 South Loop West, Suite 103
Houston, Texas 77054
Voice: (713) 660-9771 Fax: (713) 660-9775
(Address and Telephone Number of Principal Executive Offices Principal Place of
Business)
Kent Watts
c/o Hyperdynamics Corporation
2656 South Loop West, Suite 103
Houston, Texas 77054
(Name and Address of Agent for Service of Process)
With Copy To:
Robert D. Axelrod, Esq.
Axelrod, Smith & Kirshbaum
5300 Memorial Drive, Suite 700
Houston, Texas 77007
Voice: (713) 861-1996 Fax (713) 552-0202
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Amount maximum maximum
to be offering aggregate Exercise Proceeds
Title of each class of registered price offering price to the Amount of
securities to be registered per share(*) price (*) per share Company registration fee
- -------------------------------- ---------- ------------ ------------- --------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Common Stock, par value
0.001 underlying Series A
Preferred Stock 1,728,113 $ 5.22 $ 9,020,750.00 -- -- $ 2,382.00
- -------------------------------- ---------- ------------ ------------- --------- ----------------- ----------------
Common Stock, par value $0.001
underlying Investor Warrants
300,000 -- -- $ 5.9125 $ 1,773,750.00 $ 469.00
- -------------------------------- ---------- ------------ ------------- --------- ----------------- ----------------
Common Stock, par value $0.001
underlying Placement Warrants
and Consultant Warrants 300,000 -- -- $ 7.095 $ 2,128,500.00 $ 562.00
- -------------------------------- ---------- ------------ ------------- --------- ----------------- ----------------
Total $ 3,413.00
- -------------------------------- ---------- ------------ ------------- --------- ----------------- ----------------
<FN>
*Estimated solely for the purpose of calculating the registration fee. Calculated pursuant to Rule 457(g) and based on the
average of the high and low bid on our common stock on February 24, 2000.
</TABLE>
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effectiveness 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 of 1933, as amended, or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said section 8(a), may determine.
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
<PAGE>
The information in this prospectus in not complete and may be changed. The
selling security holders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes 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.
Subject to completion, dated February 25, 2000
HYPERDYNAMICS CORPORATION
2,328,113 SHARES OF COMMON STOCK
This prospectus relates to the resale of our common stock by selling
stockholders listed on page 40.
Our common stock trades on the Over-the Counter Bulletin Board, also called
the OTCBB, under the trading symbol "HYPD". On February 24, 2000, the closing
bid for our common stock as reported on the OTCBB was $5.00 per share.
RISK FACTORS. OUR COMMON STOCK IS SPECULATIVE AND INVOLVES A HIGH DEGREE
---------------------------------------------------------------------------
OF RISK. YOU SHOULD CAREFULLY READ AND CONSIDER OUR RISK FACTORS SECTION ON
- --------------------------------------------------------------------------------
PAGE 4 BEFORE MAKING AN INVESTMENT DECISION.
-------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of the prospectus. Any representation to the contrary is a
criminal offense.
THE DATE OF THIS PROSPECTUS IS _________ ___ , 2000
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. The selling security holders are offering to
sell, and seeking offers to buy, shares of common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of common stock.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Summary of Information in the Prospectus. . . . . . . . . . . . 1
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . 13
Price Range of Common Stock . . . . . . . . . . . . . . . . . . 13
Our Dividend Policy . . . . . . . . . . . . . . . . . . . . . . 14
Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . 14
Our Business. . . . . . . . . . . . . . . . . . . . . . . . . . 18
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Executive Compensation. . . . . . . . . . . . . . . . . . . . . 33
Certain Relationships and Related Transactions. . . . . . . . . 35
Principal Stockholders. . . . . . . . . . . . . . . . . . . . . 36
Description of Securities . . . . . . . . . . . . . . . . . . . 37
Selling Stockholders. . . . . . . . . . . . . . . . . . . . . . 40
Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . 41
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 42
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . 43
Other Available Information . . . . . . . . . . . . . . . . . . 43
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 44
Financial Statements. . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
<PAGE>
SUMMARY OF INFORMATION IN THE PROSPECTUS
This prospectus summary highlights selected information contained in this
prospectus. To understand this offering fully, you should read the entire
prospectus carefully, including the risk factors beginning on page 4 and the
financial statements beginning on page F-1. Unless otherwise indicated, this
prospectus assumes that none of our outstanding options or warrants are
exercised into shares of our common stock, nor any shares of our Series A
Preferred Stock are converted into shares of our common stock.
HYPERDYNAMICS CORPORATION
We are an Information Technology Service Provider ("ITSP"). The services
we provide are ITHosting services, conventional information technology services
and e-Business services. We provide our customers with fully-hosted information
technology hosting solutions which we can scale to meet the customer's needs.
We provide these information technology hosting solutions at our location on our
servers with our staff of information technology experts. The customer uses
our solutions and facilities instead of the customer's own computer system and
staff. From the customer's location, the customer accesses its information
from us via the Internet. We began our information technology hosting business
in 1999. We have also been in the conventional information technology solutions
business since 1988, and we have also been in the e-Business solutions business
since 1996.
We have the capability to host all or a portion of a customer's information
technology requirements. Our solutions allow the customer to use our
information technology skills and computer systems, instead of the customer
purchasing more computer hardware and software and hiring more computer staff.
Our mission is to be a premier ITSP. The information technology ("IT")
industry is one of the most dynamic and rapidly growing industries. Through our
initial roll up strategy, Hyperdynamics will build our core IT knowledge base to
position us as a leader in the e-Business economy of the future.
In August, 1996, we acquired MicroData Systems, Inc., which changed its
name to ITHost.net Corporation in 1999. We obtained our core business plan from
MicroData. Since 1988, MicroData has provided conventional IT services to help
our clients plan, design, implement, and manage their IT infrastructures. The
acquisition of MicroData set the stage for our initial goal of acquiring
technically competent IT service companies in roll up transactions.
Our strategy targets technically competent IT service companies with
specialties in all areas of IT. We look for debt free IT service companies with
substantial technical expertise and key people with an entrepreneurial spirit.
1
<PAGE>
IThost.net Corporation is a full service IT services company. We provide
three categories of IT services:
- - We have been in the conventional information technology solutions business
since 1988.
- - We have been in the e-Business solutions business since 1996. - We began
our information technology hosting business in 1999.
CONVENTIONAL IT SERVICES
Conventional IT Services are provided to help companies with existing IT
infrastructures to plan, design, implement, and manage their own
telecommunications, wide area networking, server and workstation systems,
operating systems, and integrated software applications. Our clients decide the
extent of our involvement in any or all of these areas of IT.
E-BUSINESS SERVICES
e-Business Services are provided to specifically address the evolution of
our clients' IT systems to support the new ways of doing business such as
business to business and business to consumer e-Business and Internet marketing.
ITHOSTING SERVICES
IThosting Services are provided to handle a client's complete IT
requirements and we literally become our clients IT department by contract. We
are continuing to develop our IThost.net infrastructure to allow us to
professionally manage our clients centralized servers in a true data center
environment.
We maintain a flexible service model as more clients are brought on-line.
We have the capability to host all or a portion of a customer's information
technology requirements. Our solutions allow the customer to use our
information technology skills and computer systems, instead of the customer
purchasing more computer hardware and software and hiring more computer staff.
We provide our customers with:
- - A complete off-site information technology resource for real time business
operations solutions, e-Business transactional solutions and business data
solutions.
- - Application software and e-Business transaction software which resides on
our servers. In providing this service, we are sometimes referred to as
being an Applications Service Provider ("ASP"). However, the scope of our
service is much greater than typical ASP's. Therefore we call ourselves an
ITSP.
- - Broad bandwidth, high speed Internet service.
2
<PAGE>
- - Data access, manipulation, mining, warehousing and storage.
Our Information technology hosting solutions enhance a customer's:
- - Internet strategies
- - E-Business solutions
- - Enterprise asset and operational functionality and control
- - Marketing Management
- - General Business Operations
- - Data Base Management
We provide our customers with:
- - Our state-of-the-art computer servers, facilities and staff.
- - Our 24/7 customer service.
- - Integration of our hosting solutions with the customer's existing computer
system.
- - Training.
We also provide conventional information technology solutions for a
customer's own computer network. We also enable a customers' e-Business web
presence by migrating the customer's conventional business methods to the
e-Business model through web site design, maintenance and hosting.
Our information technology hosting solutions, conventional information
technology solutions and e-Business solutions are provided through our
wholly-owned subsidiary, ITHost.net Corporation.
Our web site is www.hyd.net, however, the information contained on our web
site is not part of this prospectus. Our principal executive offices are
located at Hyperdynamics Corporation, 2656 South Loop West, Suite 103, Houston,
Texas 77054, tel. (713) 660-9771.
RECENT EVENTS
In January, 2000, we sold 3,000 shares of our new issue Series A Preferred
Stock for a total of $3,000,000 in cash to three accredited investors. As part
of this transaction, we also issued to the three investors a total of 300,000
Investor Warrants to purchase shares of our common stock at a price of $5.9125
per share which are immediately exercisable and expire on January 6, 2005. The
Investor Warrant provides that in no event shall the holder exercise the Warrant
if upon exercise of the Warrant, the holder would benefically own more than 4.9%
of our outstanding common stock. As part of this transaction, we issued 180,000
Placement Warrants to the placement agent to purchase shares of our common stock
at a price of $7.095 per share which are immediately exercisable and expire on
January 6, 2005 and 120,000 Consultant Warrants to one individual to purchase
shares of our common stock at a price of $7.095 per share which are immediately
exercisable and expire on January 6, 2005. This was a private placement offering
of securities.
In September, 1999, we sold our formerly wholly-owned subsidiary, Wired and
Wireless Corporation because it no longer fit into our business plan.
3
<PAGE>
THE OFFERING
Common stock outstanding......12,726,503 shares of common stock
Common stock to be
offered by our
selling
stockholders.......2,328,113 shares, which includes 1,728,113 shares underlying
Series A Preferred Stock and 600,000 shares underlying
Investor Warrants, Placement Warrants and Consultant
Warrants.
Market for our
common stock.......Our common stock trades on the Over-the Counter Bulletin
Board, also called the OTCBB, under the trading symbol
"HYPD". The market for our common stock is highly volatile.
We can provide no assurance that there will be a market in
the future for our common stock.
RISK FACTORS
Any investment in shares of our common stock involves a high degree of
risk. You should carefully consider the following information about these
risks, together with the other information contained in this prospectus, before
you decide to buy our common stock. If any of the following risks actually
occur, our business would likely suffer. In these circumstances, the market
price of our common stock could decline, and you may lose all or part of the
money you paid to buy our common stock.
OUR INFORMATION TECHNOLOGY HOSTING BUSINESS IS NEW AND SUBJECT TO THE RISKS OF A
NEW BUSINESS
We began our information technology hosting business in 1999 and we have
one information technology hosting customer at this time, although we have
several customers for our conventional information technology business and our
e-Business solutions business. We only have just begun to market our
information technology hosting business. This business is extremely
competitive and we may not be able to increase our customer base at a sufficient
rate to fund operations.
WE HAVE HAD AND COULD HAVE LOSSES, DEFICITS, AND DEFICIENCIES IN LIQUIDITY WHICH
COULD IMPAIR OUR ABILITY TO GROW
4
<PAGE>
Our ability to achieve profitability depends on our ability to successfully
develop and market our information technology hosting solutions. There is no
assurance that we will be able to accomplish this in a profitable manner. We
are subject to all of the risks inherent in a growing venture, including the
need to develop marketing expertise and produce significant revenue. We may
incur losses, deficits and deficiencies in liquidity for the foreseeable future
due to the significant costs associated with providing our customers with
information technology hosting solutions.
For fiscal 1998, we had a net loss of $(558,324), a deficit of $(1,201,191)
and positive stockholders' equity of $378,517. For fiscal 1999, we had a net
loss of $(184,546), a deficit of $1,385,737 and positive stockholders' equity of
$336,597. For the first six months of fiscal 2000, we had net income of
$231,910, a deficit of $(1,153,827) and positive stockholders' equity of
$646,007.
WE WILL NEED MORE FINANCING FOR GROWTH
We have limited financial resources. Until our operating results improve,
we must obtain outside financing to fund the expansion of our business and to
meet our obligations as they become due. Any additional debt or equity
financing may be dilutive to our shareholders. Financing must be provided from
our operations, or from the sale of equity securities, borrowing, or other
sources of third party financing. The sale of equity securities could dilute
our existing stockholders' interest, and borrowings from third parties could
result in our assets being pledged as collateral and loan terms which would
increase our debt service requirements and could restrict our operations. There
is no assurance that capital will be available from any of these sources, or, if
available, upon terms and conditions acceptable to us.
YOU HAVE A RISK OF DILUTION. THE ISSUANCE OF THESE SHARES WILL HAVE A DILUTIVE
EFFECT ON OUR COMMON STOCK AND MAY LOWER OUR STOCK PRICE. WE HAVE RESERVED A
SIGNIFICANT NUMBER OF SHARES OF OUR COMMON STOCK FOR ISSUANCE UPON THE
CONVERSION OF SERIES A PREFERRED STOCK, AND THE EXERCISE OF OUR WARRANTS AND
OPTIONS.
As of February 22, 2000, we had outstanding 3,000 shares of our Series A
Preferred Stock that can be converted into shares of our common stock. The
number of shares we will issue upon the conversion of our Series A Preferred
Stock fluctuates with our common stock market price, cannot be determined until
the day of conversion and is calculated by a formula set forth in the
designation certificate of the Series A Preferred Stock. There is no limit on
the number of shares of our common stock that may be issued upon the conversion
of Series A Preferred Stock. The Series A Preferred Stock could have conversion
prices that are below our current market price. If conversions of the Series A
Preferred Stock option occur, shareholders may be subject to an immediate
dilution in the per share net tangible book value. The Series A Preferred Stock
may be converted into common stock at any time prior to January 30, 2002, when
it automatically converts into common stock.
As of February 22, 2000, we had outstanding a total of 2,258,648 options
and warrants to purchase our common stock at exercise prices ranging from $.50
to $7.095 per share, which are near or below market prices. Of these, 1,658,648
options and warrants expire at various times through the year 2002, and 600,000
warrants expire in January, 2005. If the exercise of warrants or options occur
at below market prices, shareholders will be subject to an immediate dilution in
the per share net tangible book value.
5
<PAGE>
We have reserved a large number of shares to be issued on the conversion of
Series A Preferred Stock, and upon the exercise of all outstanding options and
warrants. The issuance of these shares will dilute our common stock per share
net tangible book value and may hurt our stock price.
As of February 22, 2000, we have reserved:
- - 2,000,000 shares of our authorized and unissued common stock in connection
with the future conversion our Series A Preferred Stock and the future
exercise of the Investor Warrants, Placement Warrants and Consultant
Warrants. The Series A Preferred Stock may be converted into common stock
at any time prior to January 30, 2002, when it automatically converts into
common stock; and
- - 1,658,648 shares of our authorized and unissued common stock in connection
with the future exercise of other outstanding options and warrants.
These reserve amounts are our good faith estimate of the number of shares
that we believe we need to reserve. Of the total of 2,328,113 shares of our
common stock that we are registering in this offering, 1,728,113 shares are in
connection with the future conversion of Series A Preferred Stock. We can
provide no assurance as to how many shares we will ultimately need to issue upon
the conversion of Series A Preferred Stock. If we are required to issue
additional shares we will be required to file an additional registration
statement for those shares, a process which will be costly and time consuming.
THE SALE OF OUTSTANDING SHARES COULD RESULT IN A LOW MARKET PRICE FOR YOUR
COMMON STOCK. THERE IS A LIMITED PUBLIC FLOAT FOR OUR COMMON STOCK AND YOU MAY
NOT BE ABLE TO SELL YOUR SHARES AT THE PRICE OR IN THE VOLUME YOU DESIRE
As of February 22, 2000, we had outstanding 12,726,503 shares of common
stock, out of which approximately 8,139,095 shares are restricted securities.
Approximately 6,815,000 shares of our restricted common stock has been held by
our shareholders for more than two years, of which 1,015,000 could be sold into
the market immediately without volume limits pursuant to Rule 144 because they
are held by non-affiliates. The balance, 5,800,000 shares, are held by
affiliates and could be sold into the market immediately subject to volume
limits pursuant to Rule 144.
Approximately 200,000 shares of our restricted common stock has been held
by our shareholders for more than one year and less than two years and could be
sold into the market immediately with volume limits pursuant to Rule 144. By
January, 2001, substantially all of our restricted shares of common stock will
be freely tradeable subject to Rule 144. As the restrictions on resale end and
these shares are sold into the market, the price of our common stock could drop
significantly if the holders of these restricted shares sell them or are
perceived by the market as intending to sell them.
6
<PAGE>
The possibility that a substantial amount of the shares registered in this
offering may be sold in the public market could have an adverse impact on the
market price of our common stock. There is no assurance that stockholders will
be able to sell the shares for any particular price. No prediction can be made
as to the effect that sales of shares of our common stock or even the mere
availability of such shares for sale, will have on the market prices. The
possibility that substantial amounts of common stock may be sold in the public
market by the holders of these shares, or the perception by the market of an
intention by the holders to sell these shares, would likely have an adverse
effect on prevailing market prices for the common stock and could impair our
ability to raise capital through the sale of our equity securities.
WE ARE DEPENDENT ON OUR PRESENT MANAGERS AND OUR ABILITY TO GROW COULD BE
IMPAIRED IF WE LOST THEIR SERVICES
Our success is substantially dependent upon the time, talent, and
experience of Kent Watts, our President and Chief Executive Officer. We have an
employment agreement with Mr. Watts. However, we have no key man insurance on
Mr. Watts. The loss of the services of Mr. Watts would have a material adverse
impact on us. No assurance can be given that a replacement for Mr. Watts could
be located in the event of his unavailability. In order for us to expand, we
must continue to improve and expand the level of expertise of our personnel and
we must attract, train and manage qualified managers and employees to oversee
and manage the expanded operations. Demand for computer industry personnel is
high. There is no assurance that we will be in a position to offer competitive
compensation to attract or retain such personnel. You should not invest unless
you are willing to entrust all aspects of our management to our directors and
officers.
WE MAY NOT BE ABLE TO MANAGE GROWTH AND THIS COULD RESULT IN A WEAKENING OF OUR
FINANCIAL AND COMPETITIVE POSITION
Our intention is to expand business operations by acquiring companies and
starting new businesses. This expansion will subject us to a variety of risks
associated with rapidly growing companies. In particular, our plans may place a
significant strain on our day-to-day operations. There can be no assurance that
our systems, controls or personnel will be sufficient to meet these demands.
Inadequacies in these areas could have a material adverse effect on our
business, financial condition and results of operations.
OUR CUSTOMER CONTRACTS REQUIRE US TO MEET SPECIFIED PERFORMANCE LEVELS AND WE
MAY MISJUDGE THE LEVEL OF PERFORMANCE THAT WE ARE ABLE TO PROVIDE
If we misjudge the time or the constraints in which we provide solutions or
are unable to maintain any agreed upon performance levels for customers, our
customers may become dissatisfied. We do not know if we can consistently
achieve the service levels we agree on with our customers.
WE HAVE NEVER PAID A CASH DIVIDEND AND IT IS LIKELY THAT THE ONLY WAY YOU WILL
REALIZE A RETURN ON YOUR INVESTMENT IS BY SELLING YOUR SHARES
7
<PAGE>
We have never paid cash dividends on any of our securities. Our Board of
Directors does not anticipate paying cash dividends in the foreseeable future.
We currently intend to retain future earnings to finance our growth. As a
result, your return on an investment in our stock will likely depend on your
ability to sell our stock at a profit.
THERE IS LIMITED MARKET LIQUIDITY FOR OUR SECURITIES AND THERE ARE PENNY STOCK
SECURITIES LAW CONSIDERATIONS THAT COULD LIMIT YOUR ABILITY TO SELL YOUR SHARES
At February 22, 2000, the closing price of our stock was near or above
$5.00 per share. If our closing stock price were fall below $5.00, our stock
would be considered "penny stock", and the sale of our stock would be subject to
the "penny stock rules" of the Securities and Exchange Commission. The penny
stock rules require broker-dealers to take steps before making any penny stock
trades in customer accounts. The penny stock rules require a broker-dealer to:
- - Advise a customer of the lowest offer and highest bid for our stock
- - Advise a customer of the broker dealer's compensation
- - Make a special written suitability determination for the customer and
receive the customer's prior written agreement
If we were to become subject to the penny stock rules, there could be delays in
the trading of our stock. The market liquidity of our stock could be adversely
affected.
THE MARKET PRICE OF YOUR SHARES WILL BE VOLATILE
The stock market price of technology companies like us has been volatile.
Securities markets may experience price and volume volatility. The market price
of our stock may experience wide fluctuations as it has in the recent past which
could be unrelated to our financial and operating results.
WE COULD ISSUE PREFERRED STOCK AND THIS COULD HARM YOUR INTERESTS
We presently have authorized 20,000,000 shares of preferred stock, par value
$.001 per share, from which 5,000 shares have been designated as Series A
Preferred Stock, of which 3,000 shares of Series A Preferred Stock are presently
outstanding. Other shares of preferred stock, if issued, would be entitled to
preferences over the common stock. The shares of preferred stock, when and if
issued, could adversely affect the rights of the holders of common stock, and
could prevent holders of common stock from receiving a premium for their common
stock. An issuance of preferred stock could result in a class of securities
outstanding that would have preferences with respect to voting rights and
dividends and in liquidation over the common stock, and could (upon conversion
or otherwise) enjoy all of the rights of holders of common stock. The Board's
authority to issue preferred stock could discourage potential takeover attempts
and could delay or prevent a change in control of us through merger, tender
offer, proxy contest or otherwise by making such attempts more difficult to
achieve or more costly.
8
<PAGE>
WE MAY SEEK BUSINESS COMBINATIONS WITH OTHER FIRMS AND ISSUE MORE
SECURITIES WHICH COULD DILUTE YOUR INTERESTS AND PUT MORE OF OUR SHARES INTO THE
MARKET
We may enter into business combinations with other firms by exchanging
stock. This would enable us to acquire additional assets without spending cash.
However, it may result in dilution in per share net tangible book value to
existing shareholders, and put more of our shares into the market.
WE MAY NOT BE ABLE TO COMPETE FOR BUSINESS AND THIS WOULD SUBSTANTIALLY IMPAIR
OUR GROWTH
There are other companies which are engaged in the same business as us.
Many of our competitors are more established companies with substantially
greater capital resources and substantially greater marketing capabilities. No
assurances can be given that we will be able to successfully compete with such
companies. We anticipate that the number of competitors will increase in the
future.
IF WE WERE UNSUCCESSFUL IN PREVENTING OTHERS FROM USING OUR INTELLECTUAL
PROPERTY, WE WOULD LOSE A COMPETITIVE ADVANTAGE
We have common law rights to the service marks "Hyperdynamics", "ITHost"
and ITHost.net" based upon our substantial and continuous use of these
trademarks in interstate commerce. However, we have not registered these
service marks. There can be no assurance that the steps we have taken to
protect our service marks will be adequate to deter misappropriation. Any
attempts by us that we make to defend our intellectual property would be
expensive and time consuming.
WE DEPEND ON THIRD PARTY TELECOMMUNICATIONS VENDORS OVER WHOM WE HAVE NO CONTROL
AND THIS COULD IMPAIR OUR REVENUES
Our information technology hosting business and our e-Business solutions
business is dependent upon other companies to supply telecommunications services
and computer equipment which we use to provide our information technology
hosting solutions. Any failure to obtain needed services in a timely fashion
and at an acceptable cost could have a material adverse effect on our business.
Moreover, a disruption in telecommunications capacity, which is provided by
third parties, could prevent us from providing our services. Although we have
not been affected by a network outage, major network outages have occurred in
the past. Were such an outage to affect us, we may not be able to deliver an
adequate level of service to our customers.
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<PAGE>
WE DEPEND ON THIRD PARTY SOFTWARE VENDORS OVER WHOM WE HAVE NO CONTROL AND THIS
COULD IMPAIR OUR REVENUES
We depend on other companies to supply the software which we use to provide
our information technology hosting solutions. Any failure to obtain needed
software or services in a timely fashion and at an acceptable cost could have a
material adverse effect on our business. Our ability to provide cost efficient
and reliable information technology hosting solutions to our clients is key to
our business strategy. We will derive revenues from projects in which we
customize, implement, or host applications developed by a variety of software
vendors. We have software license agreements with these software vendors. All
the agreements may be terminated upon a breach of the agreement. We cannot be
sure that any of our agreements with software vendors will be renewed in the
future. If any of these agreements are terminated, not renewed, or we cannot
continue to use the software for any reason, we may have to discontinue services
or delay their introduction unless we can find, license, and package comparable
software. In addition, we can provide no assurance that if we were able to
obtain similar software products, that the terms of the licensing agreement
would be favorable, or that our clients would accept comparable software
products as substitutes.
Not only is our success dependent upon the continued popularity of the
product offerings of our current vendors, it is also dependent on our ability
to establish relationships with new vendors in the future. As new software
applications are released, if we are unable to enter into agreements with these
software vendors, we may be unable to compete.
WE FACE SECURITY RISKS IN CONNECTION WITH OUR ABILITY TO PROTECT OUR HARDWARE
FROM DAMAGE, COMPUTER HACKERS OR COMPUTER VIRUSES
Our success largely depends on the efficient and uninterrupted operation of
our computer and communications hardware systems. All of our computer and
communications hardware is currently located at a leased facility in Houston,
Texas. Our hardware is vulnerable to:
- - computer viruses
- - physical or electronic break-ins
- - physical vulnerability to damage
- - interruption from fire, flood, long-term power loss, and
telecommunications failures
These events could lead to delays, loss of data, or interruptions in
service which could subject us to liability and harm our reputation. We
believe that we have sufficient internal disaster recovery resources to
implement and establish a full and rapid recovery from disasters of these types.
We currently do not carry any business interruption insurance to compensate us
for losses that may occur. We currently do not have any business liability
insurance to compensate for any losses or claims that may arise from our
business operations, such as claims by our customers.
10
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A significant barrier to online business and communications is the secure
transmission of confidential information over public networks. We rely on
technology to provide the security to secure the transmission of confidential
information. However, we can provide no assurance that advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments will not result in a compromise or breach of the methods used to
protect customer data. If any compromise of our security were to occur, our
reputation and business would suffer. A party who is able to circumvent our
security measures could misappropriate proprietary information or cause
interruptions in our operations or the operations of our customers. We may be
required to expend significant capital and other resources to protect against
security breaches or to alleviate problems caused by security breaches.
IN THE FUTURE, OUR INABILITY TO MEET CUSTOMER NEEDS FOR ERROR-FREE HOSTING
SERVICES COULD RESULT IN LOSSES AND SUBSTANTIAL LIABILITY
The hosting solutions we provide our clients are critical to their
businesses. Any defects or errors in our services or any failure to meet
clients' expectations could result in:
- - delayed or lost revenues due to adverse client reaction
- - requirements to provide additional services to a client at no charge
- - claims for substantial damages against us, regardless of our
responsibility for such failure, which may not be limited by the
contractual terms of our engagement
We currently do not have any business liability insurance to compensate for
any losses or claims that may arise from our business operations.
WE ARE DEPENDENT ON THE GROWTH IN DEMAND FOR INFORMATION TECHNOLOGY HOSTING
SOLUTIONS
Our ability to increase revenues and achieve profitability depends, in
part, on the growth in demand for and the acceptance of information technology
hosting solutions by small and medium-sized businesses. The market for these
solutions has only begun to develop and is evolving rapidly. We believe that
many potential clients are not currently aware of the advantages of outsourcing
information technology solutions. However, it is possible that these solutions
may never achieve market acceptance. If the market for our solutions does not
grow, or grows less rapidly than we currently anticipate, our revenues will
suffer.
OUR BUSINESS IS DEPENDENT ON THE INTERNET, WHICH WE DO NOT CONTROL
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Our success will depend, in large part, upon the maintenance of the
Internet infrastructure, as a reliable network backbone with the necessary
speed, data capacity, and security. To the extent that the Internet continues
to experience increased numbers of users and increased requirements of users, we
can provide no assurance that the Internet infrastructure will continue to be
able to support the demands placed on it or that the performance or reliability
of the Internet will not be adversely affected. Furthermore, the Internet has
experienced a variety of outages and other delays as a result of damage to
portions of its infrastructure, and these outages and delays could hinder our
ability to provide solutions.
WE INDEMNIFY OUR DIRECTORS AND OFFICERS AND THIS REDUCES THE LIKELIHOOD OF
SHAREHOLDER LITIGATION
Delaware General Corporation Law permits a corporation organized under
Delaware law to indemnify directors and officers with respect to any matter in
which the director or officer acted in good faith and in a manner he reasonably
believed to be not opposed to our best interests, and, with respect to any
criminal action, had reasonable cause to believe his conduct was lawful.
Our Bylaws provide that our directors and officers are indemnified by us if
that person is a party to a matter by reason of being a director or officer.
These provisions may discourage stockholders from bringing suit against a
director for breach of fiduciary duty and may reduce the likelihood of
derivative litigation brought by our stockholders on our behalf against a
director.
WE ARE SUBJECT TO THE DELAWARE ANTI-TAKEOVER LAW AND THIS COULD PREVENT A
TAKEOVER AND ANY POSSIBLE PREMIUM PRICE FOR YOUR SHARES
We are subject to the General Corporation Law of the State of Delaware,
including the anti-takeover law. The law restricts the ability of a public
Delaware corporation from engaging in a business combination with an interested
stockholder for a three year period that begins on the date of the transaction
in which the person became an interested stockholder. As a result, persons who
may desire to acquire us may find it difficult to effect an acquisition with us.
This could deprive our shareholders of certain opportunities to sell or
otherwise dispose of their stock at above-market prices pursuant to such
transactions.
INFORMATION ABOUT FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements about our future.
Forward-looking statements include statements about our:
- - plans
- - objectives
- - goals
- - strategies
- - expectations for the future
- - future performance and events
- - underlying assumptions for all of the above
- - other statements which are not statements of historical facts
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These forward-looking statements involve risks and uncertainties which
could cause our actual results to materially differ from our forward-looking
statements. We make these forward-looking statements based on our analysis of
internal and external historical trends, but there can be no assurance that we
will achieve the results set forth in these forward-looking statements. Our
forward-looking statements are expressed in good faith and we believe that there
is a reasonable basis for us to make them.
In addition to other factors discussed in this prospectus, the following
are important factors that could cause our actual results to materially differ
from our forward-looking statements:
- - our ability to respond to changes in the information technology
marketplace
- - competitive factors
- - the availability of financing on terms and conditions acceptable to us
- - the availability of personnel with information technology skills
We have no obligation to update or revise these forward looking statements to
reflect future events.
USE OF PROCEEDS
We will not receive any proceeds upon the sale of the common stock issuable
upon the conversion of our Series A Preferred Stock by the selling stockholders.
If all the warrants in this offering are exercised, the net proceeds to us from
the exercise of the warrants, after the deduction of offering expenses, will be
approximately $3,833,200. We intend to use the net proceeds for working capital
and general corporate purposes. We will pay for the cost of registering the
shares of common stock in this offering.
PRICE RANGE OF COMMON STOCK
Our common stock trades on the Over-the Counter Bulletin Board, also called
the OTCBB, under the trading symbol "HYPD". This table states the quarterly
high and low bid prices per share for our common stock. The bid prices reflect
inter-dealer prices, without retail markup, markdown, or commission and may not
represent actual transactions.
<TABLE>
<CAPTION>
(Our fiscal year ends on June 30) High Bid Low Bid
--------- --------
<S> <C> <C>
Fiscal 1998:
- ---------------------------------------
First Quarter $ 2.125 $ 1.00
Second Quarter 1.75 0.51
Third Quarter 1.375 0.156
Fourth Quarter 0.875 0.25
Fiscal 1999:
- ---------------------------------------
First Quarter $ 1.25 $ 0.25
Second Quarter 2.25 0.78125
Third Quarter 3.50 0.28125
Fourth Quarter 1.375 0.46875
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Fiscal 2000 (through February 18, 2000)
First Quarter $ 1.125 $ .625
Second Quarter 5.0625 .625
Third Quarter 7.75 4.00
</TABLE>
On February 22, 2000, the closing bid on our common stock as reported on
the OTCBB was $5.00 per share. On February 22, 2000, we had approximately 107
record stockholders and approximately 1,600 beneficial stockholders of our
common stock. On February 22, 2000, we had 12,726,503 shares of our common
stock outstanding.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Fidelity Transfer
Company, 1800 South West Temple, Suite 301, Salt Lake City, Utah 84115,
tel.(801) 484-7222.
OUR DIVIDEND POLICY
We have not paid and do not intend to pay cash dividends on our common
stock in the foreseeable future. Our current dividend policy is to retain all
earnings, if any, to provide funds for operation and expansion of our business.
Our declaration of dividends, if any, will be subject to the discretion of our
Board of Directors, who may consider such factors as our results of
operations, financial condition, capital needs, acquisition strategy, among
others. We cannot pay dividends on our common stock until all dividends due on
our Series A Preferred Stock have been paid.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Hyperdynamics Corporation is an information technology service provider
("ITSP"). We maximize our client's return on their investment in technology.
Our strategy provides flexible technology solutions so that our customers may
transition and migrate to the fully-hosted e-business model. We presently have
approximately 20 customers for our services. Our fiscal year ends on June 30.
IT HOSTING
In fiscal 1999, we began concentrating our efforts on providing
fully-hosted information technology hosting solutions to our customers through
our wholly-owned subsidiary, ITHost.net Corporation. We also continue to
provide our customers with conventional information technology solutions, and
e-Business solutions such as web site design, web site maintenance and web site
hosting. Our goal is to become the out-source IT department for our clients.
We expect our revenues from IThosting to increase in the coming quarters.
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E-BUSINESS PROJECTS
E-Business Hosting. We now have underway a major project with The Mattress
------------------
Venture, LP to supply a complete new point-of-sale system for over 130 "Mattress
Firm" retail stores nationwide. This project involves the use of customized,
retail point-of-sale software, based on applications from Great Plains Software.
We are an eEnterprise strategic partner of Great Plains Software. This retail
point-of-sale software will be rolled out over the next few months. During
1999, we installed Great Plains Software financial system applications at The
Mattress Firm, LP and this solution is in use for accounting and financial
reporting. We have received approximately $1 million in revenue from this
project since April, 1999. Our goal is to ultimately host, at our facility, the
retail point-of-sale solution and the accounting solution.
E-Business Migration. During 1999, we started a project with Drydiaper.com,
- ---------------------
Inc. to develop a complete e-Business web-site for them called Drybabies.com,
which is scheduled for launch this Spring. We believe that this project could
become a fully-hosted, fully integrated enterprise e-solutions project covering
manufacturing, retail store point-of-sale and delivery. The Web-site will
ultimately allow orders to be taken through the web site and be shipped without
"hands-on product" until shipment. This project can our customer with greater
managerial control because it will integrate inventory control with the
manufacturing process.
CONVENTIONAL IT SERVICES
During 1999 we continued to provide hardware and software for networks,
systems and servers to our customers. We intend to continue providing these
services while we educate our customers on the our new information technology
solutions. Approximately one-fourth of our revenue in 1999 came from network
and system integration customers. Our goal is to transition and migrate all of
our customers to the e-business model and the IThosting model.
RESULTS OF OPERATIONS
The Three Months Ended December 31, 1999 Compared To
The Three Months Ended December 31, 1998
Our sales increased to $712,422 for the three months ended December 31,
1999 compared to $177,265 for the same period in 1998. The increase in revenue
is a result of the continuation of large projects started in 1999 while
successfully closing new business in addition to these large projects.
Our cost of revenues increased correspondingly to $444,294 for the three
months ended December 31, 1999 compared to $91,878 for the same period in 1998.
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For the three month period ended December 31, 1999, our gross margin
decreased to 37.70% compared to 48.2% for the same period in 1998. The decrease
was due to a portion of the our service revenue that was contracted out to a
third party, thereby reducing our gross margin percentage for the quarter.
Our selling, general and administrative expenses increased to $159,879 in
the three month period ended December 31, 1999 compared to $150,046 for the same
period in 1998. The increase was primarily due to the addition of personnel to
our sales staff.
Our net income was $101,460 for the three month period ended December 31,
1999. This compares to a net loss of $(85,019) for the same period in 1998.
The positive results are due to the continuing policy to control overhead while
maintaining a flexible approach to providing our information technology services
while closing an increasing number of longer term, more lucrative e-business
based contracts. Additionally, the staff that we have added have either
directly been added to our sales force or have allowed other persons in our
organization to focus more heavily on developing our Company's revenues.
The Six Months Ended December 31, 1999 Compared To
The Six Months Ended December 31, 1998
Our sales increased to $955,811 for the six months ended December 31, 1999
compared $334,168 for the same period in 1998. The increase in revenue is a
result of the continuation of large projects started in 1999 while successfully
closing new business in addition to these large projects.
Our cost of revenues increased correspondingly to $542,547 for the six
months ended December 31, 1999. This compared to $202,055 for the same period
in 1998.
For the six months period ended December 31, 1999, our gross margin
increased to 43.24% compared to 39.5% for the same period in 1998. The increase
overall for the six months is due to increasing efficiencies overall within the
organization to provide more cost effective services.
Our selling, general and administrative expenses increased to $295,379 in
the six month period ending December 31, 1999 compared to $269,545 for the same
period in 1998. The increase was primarily due to the addition of personnel to
sales staff.
Our net income was $231,910 for the six months ended December 31, 1999.
This compares to a net loss of $(163,830) for the same period in 1998. The
positive results are due to the continuing policy to control overhead while
maintaining a flexible approach to providing our information technology services
while closing an increasing number of longer term, more lucrative e-business
based contracts. Additionally, the staff that we have added have either
directly been added to our sales force or have allowed other persons in our
organization to focus more heavily on developing our Company's revenues.
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The Fiscal Year Ended June 30, 1999 Compared To
The Fiscal Year Ended June 30, 1998
Revenues increased to $1,498,124 for the fiscal year ended 1999, from
$820,535 for 1998. The 83% increase was primarily due to the major emphasis
and focus on the information technology services and e-business related sales
compared to a divided focus with equipment sales in 1998.
Cost of revenues increased to $870,151 (58% of revenue) for the fiscal year
ended 1999, from $702,164 (86% of revenue) for 1998.
Selling, General and Administrative expenses increased to $774,378 (52% of
revenue) for the fiscal year ended 1999, as compared to $693,001 (84% of
revenue) for 1998. The increase was primarily due to increased labor costs
associated with establishing the e-business programs and information technology
hosting services.
Our net loss was $(184,546) for the fiscal year ended 1999, or ($0.02) per
share, compared to $(558,324) or ($0.07) per share for 1998.
During the first two quarters of fiscal 1999, we had profits of $2,565 and
$22,304. This improvement was a result of the culmination of core projects for
e-business and information technology hosting services.
LIQUIDITY AND CAPITAL RESOURCES
In January, 2000, we raised $3,000,000 in cash through the sale of our
securities in a private placement of our securities. We could receive
additional capital upon the exercise of warrants and options. As of February
22, 2000, we had no long-term debt and we have no plans to incur long term debt.
As of February 22, 2000, we had cash on hand in the amount of approximately $2.5
million. At December 31, 1999, our current ratio of current assets to current
liabilities was 3.01. This improvement compares to a current ratio of .92 at
December 31, 1998.
We continue to seek a buyer for our interest in a revenue sharing
agreement related to SierraNet, Inc, which is an Internet service provider,
because it no longer fits into our business plan. We have received an average
of $3,000 per month as our share of SierraNet's revenue. Our interest in
SierraNet is 4% of its gross revenue and 19% of gross sale proceeds of the sale
of any significant sale of the assets or stock of Sierra-Net.
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<PAGE>
In September, 1999, we sold our formerly wholly-owned subsidiary, Wired and
Wireless Corporation because it no longer fit into our business plan. The
consideration we received for this transaction was a revenue sharing agreement
that provides that we will receive, after the effective date of the sale, 7% of
the gross revenues of Wired & Wireless for the first $714,286 of its revenue, 5%
of its next $1,000,000 in revenue, and 3% of its revenues thereafter. The
revenue sharing agreement provides that we will receive 10% of the proceeds
related to a third party acquiring or merging with Wired and Wireless. Our
interest in this revenue sharing agreement is vested.
We are now realizing increased sales and profits. Our success to date has
been accomplished with limited capital resources. We believe that we can attain
further success since we have completed raising a significant amount of capital.
We are now in a position to finance our internal growth and to evaluate business
acquisition candidates.
We continue to revise and update our ITSP business plan. We are reviewing
financing strategies for our next round of capital raising.
As of June 30, 1999, we had approximately $1,300,000 in unused net
operating tax loss carry-forwards of which $640,000 expire in 2012, $550,000
expire in 2013 and $110,000 expire in 2019. We are restricted in our ability to
use these tax loss carry-forwards because we had a change in stock ownership in
1998 that exceeded 50% of our then outstanding stock. As a result of this
change in stock ownership, the carry-forward of our net operating loss of
$940,000 at January, 1998 is limited to $151,000 per year. Our operating losses
after January, 1998, are not restricted. We may not be able to use all our net
operating loss carry-forwards before they expire.
YEAR 2000
We have not had any Year 2000 deficiencies internally or externally. We do
not expect to have any Year 2000 deficiencies internally or externally. Our
internet activities are hosted at our offices and we currently use the services
of Concentric Network for our primary Internet access circuits. Concentric is a
large national tier-1 Internet backbone provider. If a Year 2000 deficiency
occurs internally or externally, we will shift our internal and external
resources to fix the deficiency. We do not expect any Year 2000 deficiency to
require an expenditure of more than $10,000.
OUR BUSINESS
INTRODUCTION
We are an Information Technology Service Provider ("ITSP"). We can
maximize our client's return on their investment in technology. The services we
provide are ITHosting services, conventional information technology services and
e-Business services. We provide our customers with fully-hosted information
technology hosting solutions which we can scale to meet the customer's needs.
We provide these information technology hosting solutions at our location on our
servers with our staff of information technology experts. The customer uses
our services, solutions and facilities instead of the customer's own computer
system and staff. From the customer's location, the customer can access its
information from us via the Internet. We began our information technology
hosting business in 1999. We have also been in the conventional information
technology solutions business since 1988, and we have also been in the
e-Business solutions business since 1996. Our goal is to become the premier
ITSP.
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Our web site is www.hyd.net, however, the information contained on our web
site is not part of this prospectus. Our principal executive offices are
located at Hyperdynamics Corporation, 2656 South Loop West, Suite 103, Houston,
Texas 77054, tel. (713) 660-9771.
THE INTERNET CREATES OPPORTUNITIES FOR US
We believe that the number of Internet users, uses and usages is increasing
rapidly. We are strategically positioned in the Internet market. We believe
that there are not enough trained IT professionals capable of handling the
increase in Internet usage. Companies will find it increasingly difficult to
hire competent information technology ("IT") professionals. The solution for
these companies is to outsource their information technology needs to firms like
us. We believe that many companies will want to realize the cost savings and
manpower savings that outsourcing their IT needs can provide. This new approach
to e-Business has created a new market niche that we anticipated and now seek to
exploit.
OUR BUSINESS MODEL
Our market is small to medium size businesses. Our sales effort is made
using our own web site, our direct sales force, trade shows, and, of course,
word of mouth from our current customer base.
Although our business model concentrates primarily upon serving the
sometimes neglected small and medium sized business markets, we also have the
skills necessary to service large clients with superior solutions, at
competitive costs. Our goal is to become the market leader in complete IT
hosting as a low cost alternative for small to medium size businesses developing
their own internal information technology department. Our conventional IT
services, and e-commerce solutions, though currently profitable, will become
less important to our revenue growth, as the outsourcing of IT services become a
necessity to small business. We look to expand our Internet point of presence
(POP) to allow for a national presence for our IT hosting services. We are
presently developing our first IT hosting service and processing center that
will provide facilities for the expansion of our marketing campaign to a
national level.
While the Company has previously been serving a regional market centered in
Houston, Texas, we believe that we can have a national market reach in the near
future. In the past, a significant portion of our marketing effort has been at
trade shows. We are planning a marketing and advertising campaign in the near
future.
We are actively seeking candidates for acquisition that will fit our
business model. We have a three-stage acquisition and investment strategy that
we believe will allow us to grow quickly but that we believe will not adversely
affect our financial resources. First, we plan to acquire the best of the IT
providers in major domestic markets. We will analyze the top 25 percent of
these companies nationally. We will try to acquire those that are the most
profitable while also fulfilling our expansion needs.
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Next, we plan to acquire e-commerce related businesses that will be linked
together by their common focus on technology. This will include both technology
companies, such as Microsoft Solution Providers, and e-commerce companies.
While most of this expansion will be horizontal within their market niche, we
will begin to vertically integrate e-commerce businesses if they are profitable
and promising. We plan to develop custom designed IT hosting centers in major
markets. These centers will provide both regional hosting capabilities and
increased marketing possibilities as we move from being a regional provider to a
national provider.
INFORMATION TECHNOLOGY SERVICES
Information technology services are defined as the functions of planning,
designing, implementing, and managing:
- - Telecommunications including wide area networking and the Internet
- - Local area networking
- - Server and workstation computer systems
- - Operating systems
- - Integrated software applications
All of the above collectively provide for the effective management and the
distribution of transactional and decision support data.
The information technology ("IT") services and solutions that we provide
are:
- - Conventional IT services and solutions
- - e-Business IT services and solutions
- - IT hosting services and solutions
We provide our IT hosting solutions, conventional IT solutions and
e-Business IT solutions through our wholly-owned subsidiary, ITHost.net
Corporation (formerly, MicroData Systems, Inc.).
We provide comprehensive, integrated, end-to-end, full service information
technology solutions to small and medium-sized businesses. We provide our
solutions in our data center with 24-hour monitoring and customer service. Our
information technology hosting business model enables our customers to lower
their overall cost of information technology and use our state-of-the-art
information technology infrastructure and software, without the customer having
to make a large up-front investment in computers or personnel.
The visible costs of a business operating its own information technology
("IT") system includes the cost of network bandwidth, system administration,
hardware, software and personnel. We believe that the shortage in technical
professionals has resulted in the inability of small and medium-sized businesses
to compete with larger corporations for adequately trained and experienced
personnel. The cost of buying or upgrading a system can be costly. The
invisible cost of a business installing and operating its own system is the cost
of management being distracted from its core business activities.
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Our information technology hosting solutions relieve the customer of the
burden of:
- - Installing and maintaining hardware and software
- - Managing and operating a computer network
- - Recruiting, training and retaining personnel
Our hosting solutions are suitable for a customer's business operations and
web site e-commerce activities. A customer, including, for example, a pure
e-commerce customer, can utilize our solutions to completely avoid establishing
their own system infrastructure because we provide our:
- - Physical facility, server hardware, software and staff.
- - Internet connections
- - Security measures, such as firewalls, virus scanning intrusion detection
and 24 hour monitoring
- - Administration and management
- - Backup of data.
- - Disaster recovery
- - Physical site security
- - Off-site data storage
Our IT solutions give our clients the ability to decide how much of their
Information Technology infrastructure they want to internalize, and how much
they want to outsource to us. We offer a substantial suite of independent
services providing conventional IT services, e-Business migration services, and
complete IT hosting services. We also derive significant benefits from our
model as a comprehensive solutions provider in various different IT segments.
Other companies provide conventional Information Technology services, including
design, installation, and service. We plan to be the market leader in
comprehensive end-to-end Information Technology hosting services, in addition to
providing traditional services. Complete hosting services allow our clients to
concentrate on their core business functions, while not having to worry about
any on-site hardware and its upkeep, while reducing their personnel and
equipment costs. Clients will be provided with a virtual IT department located
at our facility, and staffed by our IT professionals. Our IT solutions will
also maintain external connections in such a way that our clients will receive
all of the tangible benefits of an on-site IT department.
OUR STRATEGIC VISION
In 1996, we acquired MicroData Systems Inc., which has provided
conventional IT services to their clients since 1988. We obtained our core
business plan from MicroData Systems and we continue to serve its conventional
IT clients. In 1999, we renamed our MicroData Systems subsidiary "IThost.net
Corporation" because of our focus on providing IT hosting services. We had been
positioning ourselves as an Information Technology Services Provider (ITSP)
prior to the emergence of the ITSP sub-category called Application Service
Provider ("ASP"). We have developed a comprehensive services package allowing
our clients to obtain full Information Technology support and assistance from
our IT hosting services.
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In the early 1990's, we realized the implications that the growth of the
Internet would have on Information Technology. The number of trained and
capable IT professionals available to businesses desiring to build an Internet
presence has not kept pace with demand . This shortage of professionals
ultimately led to the market niche that IThost.net is seeking to exploit. We
are implementing an aggressive growth-oriented business model of acquiring
IT-based companies, with an emphasis on internal talent and experience. We
believe that we can increase our effectiveness in providing clients with a
significant cost savings and superior results as an alternative to their having
a complete internal IT department. We are also seeking strategic partnering
with other IT firms.
We currently have a concentration of customers in the Houston, Texas area
market. We are negotiating with a planned, major technology center in Houston
as well as with three tier 1 Internet access providers. We have plans to
implement a high bandwidth, nationally accessible ITHost.net network, and we are
developing our first IT hosting service and processing center that we believe
will expand our scope of operations from a local provider to having a
significant national market presence.
We will not follow what we perceive to be the ".com" financial statement
model, which appears to emphasize the value of losses and deficits. Instead,
we plan to grow our business more conservatively, by acquiring companies that
fit into our business plan while we retain what we consider to be a sound
balance sheet in preparation for future rounds of financing. Our long range
objective is to begin the vertical integration of the IT industry.
The present revenue stream from our conventional IT services currently is
our largest segment. We believe that our e-Business IT services and IT hosting
services will be more important segments in the future. We anticipate
significant near term growth of our comprehensive IT hosting services. We are
in a unique position to expand our IT hosting services, given the nationwide
shortage of IT professionals. We have concluded that IT hosting will be our
flagship service and that it will have the highest gross margin and be most
significant revenue stream by 2003. This is based on our internal assessment of
our IT hosting as a strategic market, our innovative industry-superior, services
at a reasonable cost, and our debt-free and liquid financial position
OUR IT HOSTING SOLUTIONS
We provide our customers with information technology hosting solutions that
we can scale to meet the customer's needs. We provide the information
technology solutions at our location on our servers, with our staff of
information technology experts. The customer uses our solutions and facilities
instead of the customer's own IT infrastructure and staff. From the customer's
location, the customer accesses its information from us via the Internet. We
have the capability to host all or a portion of a customer's information
technology requirements. Our solutions allow the customer to use our
information technology skills and IT infrastructure, instead of the customer
purchasing more infrastructure such as costly hardware and software and hiring
more computer staff.
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We provide our customers with:
- - A complete off-site information technology resource for real time business
operations solutions, e-commerce transactional solutions and business
data solutions.
- - Application software and e-commerce transaction software which resides on
our servers.
- - Broad bandwidth Internet service.
- - Data: access, manipulation, mining, warehousing and storage.
Our Information technology hosting solutions enhance a customer's:
- - Internet strategies
- - E-commerce solutions
- - Enterprise asset and operational functionality and control
- - Marketing Management
- - General Business Operations
- - Data Base Management
We provide our customers with:
- - Our state-of-the-art computer servers, facilities and staff.
- - Our 24/7 customer service.
- - Integration of our hosting solutions with the customer's existing computer
system.
- - Training.
OUR E-BUSINESS IT SOLUTIONS
We enable a customers' e-Business and e-Commerce web presence by migrating the
customer's conventional business methods to the e-Business model of e-Business
IT and sales through web site design, maintenance and hosting. We provide
wholly integrated IT services, coupled with high-speed Internet access for
businesses. By providing remote network and system administration services
over the same high-speed connection, costs are significantly reduced and the
consumer benefits greatly improved. We will provide complete electronic based
sales for our clients, enabling them to completely outsource their e-Business
Internet connections to us. This outsourcing allows the client to simply and
easily receive sales orders, rather than worry about often inefficient and
costly internal systems management and decision-making. At the same time, we
encourage our clients to provide us with input about the design and
implementation of their e-commerce activities.
OUR CONVENTIONAL IT SOLUTIONS
23
<PAGE>
We provide conventional information technology solutions for a customer's
own computer network. Our conventional IT services play interconnected roles
in helping clients internalize their own IT infrastructure. We advise our
clients about developing an IT management plan and creating a technology vision
for the future. We help our clients implement their IT strategy. Our
conventional IT services include customized research, specialized system design,
and assistance in finding the most appropriate and cost effective IT solutions.
Our IT professionals install and integrate our clients' new systems. We
provide application training on the new system, ongoing network management,
operating system software support and provide high-end technical competence to
keep the new IT system current and efficient. Our conventional IT services
provide our clients with complete system coordination, from the blueprint design
period, through installation and training, with continuing system upkeep and
maintenance.
OUR CAPABILITIES
Information Technology Management
Every organization should have a technology vision. Our IT professionals
implement and maintain that vision for our customers. Unless an organization
makes a decision to invest in the internal development of its own information
technology department (and in doing so are able to find qualified staff) it will
lack the technology leadership vision that can determine success or failure for
any organization. We have the ability to provide information technology
management for our customers.
Technology Research and System Design Services
Prior to implementation, a network diagram, including network addressing,
domain naming, user name conventions, security scheming, etc., must be created.
Many configuration decisions must be made with the various aspects of
information technology systems before any implementation work is started. We
can provide these types of research and design services as part of our
integrated product sales. Our products are fully tested to minimize problems
for the customer upon installation. These services are also made available as
free standing consulting services for custom integration jobs.
Installation and Implementation Services
Once the designs for telecommunications, wide area network, local area
network, workstation and server systems, and integrated software applications is
complete, we perform installation and configuration of equipment and software
based on the design. We have a policy of completely pre-configuring and testing
before we deliver to the customer's site.
Application Training.
We provide substantial application training to our clients as new
applications are installed across a client's organization. We provide training
services for all new systems, desktop applications, group applications, and
mission critical software applications. One criteria we have set for regarding
our own acquisition strategy is the acquisition candidate's own training
capabilities.
24
<PAGE>
Ongoing Network Management, System Administration, and Support
We provide network management and operating system administration services.
PC integration and support is also available, as well as the development of an
application help desk with on-line network assistance. The technical talents
to provide these services are found in companies like us that are certified by
software and hardware vendors such as Microsoft. We are a certified Microsoft
Solution Provider.
Internet Server, FaxServer, Citrix Server and SQL Server Administration
Certain high-end components of an information system require an IT
department that has significant experience and training. These areas can be
handled only by top-level technical administrators. In addition to our
acquisition strategy, we must maintain a strong continuing education program to
keep up with the evolution of server technology. These high level services are
the corner stone that allow us to provide the most valuable integrated
application technology that ultimately provides our customers with increased
productivity. Our customers don't have to develop and maintain this expensive
internal expertise because we provide it to them.
Mission Critical Software Applications, Software Integration, and
Development Services
We provide design, research, evaluation, and testing services to determine
and recommended the purchase of certain mission critical applications. The
purchase of any mission critical software application will be based on the
current market quote provided by us or the selected vendor. Any installation,
implementation, and configuration services performed beyond the specific quote
are performed as additional services. Our ability to provide services to
implement enterprise-wide applications gives us enhanced revenue potential.
These implementations take the most experienced professionals and provide the
best long-term benefits to the customer. They are relatively expensive and can
provide significant revenue to us.
Operating System and Application Software Support
We provide support services for our customers on a nation-wide toll free
number. We have a corporate policy and procedure whereby we use what we sell.
This enables us to handle a substantial amount of problem resolutions over the
phone. Any time a customer installs or upgrades, they run the risk of having
problems that they cannot resolve. We would like to be the company responsible
for making these changes in a controlled manner, but we can also help the
customer when they do it themselves and encounter difficulties.
IT Hosting
25
<PAGE>
We believe that the most significant part of our growth will be
attributable to our subsidiary, IThost.net Corporation, which provides complete
Information Technology hosting for businesses that desire to completely
outsource their information technology needs. This covers more significant and
beneficial services than merely hosting a static e-commerce web site. Complete
IT hosting provided by us involves providing total Information Technology
services as a virtual IT department that is not physically located at the
client's location. Since the client's virtual IT department will be located at
our location, we and our clients will have reduced expenses associated with IT
maintenance. With the virtual IT department based at our location, the client's
e-Business and IT systems will receive our continuous attention. We believe
that companies are coming to the conclusion that there is a better cost/benefit
to using the existing infrastructure and technical talents of professional
information technology service providers like us. The concept of professional
ITSP's providing complete end-to-end IT services is what we refer to as
Information Technology Hosting. A major difference in IT Hosting versus
outsourcing is the "virtual" component. Because of the rapid expansion of the
Internet these services can be provided irrespective of geographic location.
We provide our full service customers with high-bandwidth, high-speed
Internet connections. This provides our clients with their own private,
wide-area network. The option of complete IT hosting provides small and medium
sized businesses with a realistic alternative to their developing a complete IT
department and e-commerce site, without the risks and difficulties associated
with hiring IT professionals and purchasing expensive hardware.
IT Hosting is a way for companies to avoid the cost, risk, and management
burden of implementing their own in-house information technology department. Our
clients can concentrate on their core business and let us provide them with the
latest and best technology available to help them compete. Our clients are able
to obtain these superior capabilities at a lower cost compared to implementing
and staffing their own IT department. Our client's capabilities and speed to
migrate their conventional business methods to the e-commerce model is greatly
enhanced.
We support and continually develop and expand our "www.hyd.net" point of
presence ("POP") on the Internet. We provide integrated IT services coupled
with high-speed Internet access for business. By providing remote network and
system administration services over the same high-speed connection, the
cost/benefit to the customer is leveraged. In effect, our customers receive a
private wide area network connection to their IT service provider. We have now
coined the phrase, "Information Technology Service Provider", or "ITSP" versus
the more limited concept of a "Internet Service Provider" (ISP) or an
Application Service Provider ("ASP").
We are initiating our"ITHOST.NET" national point of presence (POP) on the
Internet whereby we will be the virtual IT department for our expanding IT
Hosting customers.
To explain the concept of Information Technology Hosting (IT Hosting), it
is necessary to look at the increasing standards and requirements of providing
IT services as the scope of the services increases from static web-site hosting
to real-time e-commerce, e-Business and data base transaction hosting. There is
a parallel increase in the level of fault tolerance, and in the need for highly
trained technical staff. There is also a need for physical access to system
components, and cost levels associated with handling the increased levels of
hosting services.
26
<PAGE>
The reason for a client to select full service IT Hosting is the cost
savings and the superior results, when compared to the client keeping their IT
in-house. Our goal to provide the best cost/benefit solution that is customized
for the customer. A customer that uses our services to process transactions
cannot afford to have their system go down. This customer will normally pay
more than a customer that only needs static information that is not highly time
sensitive. We target our ITHOST.NET solutions toward the customer that needs
highly reliable systems, but may not be able or willing to invest in their own
infrastructure. These customers learn quickly that they can leverage our
ITHOST.NET infrastructure and obtain a better level of service at a lower cost
compared to doing it themselves.
Our IT HOSTING Center provides our customers with:
- - Clean power
- - FM200 or similar fire suppression
- - Key card security with palm print
- - Scalability of resources
- - Scalability of bandwidth starting with a Burstable DS-3 up to
a direct OC-xxx
- - Redundant primary Internet circuits with a goal to be attached to multiple
backbone providers in the design of a multi-homed gateway
- - Capability to eventually implement redundant server farms
that can ultimately be setup in a fail-over mode
- - Centralized network monitoring and management capability
- - Full physical access to all central site components on a 24/7 basis
by adequately cross trained IT Hosting center technicians
- - Network operating center to monitor complete network
- - Dedicated air conditioning for adequate continued cooling of equipment
- - Engineered electrical requirements including battery backup and backup
generator
- - Professional IT Hosting Center Staffing and Management
- - Full time monitoring of systems 24/7 by cross trained IT Hosting center
technicians that are trained in Windows NT Server administration,
Hardware troubleshooting, Network troubleshooting, Citrix Administration,
and MSSQLserver 7.0 administration
- - Scheduled and scripted system administration by certified Windows NT
Server operating system administrator, certified MSSQL 7.0
administrator, Certified Citrix Administrator, Certified Hardware
specialists, Certified network administrators, and certified application
specialists
- - Immediate access to Certified technical resources during regular business
hours
- - On-call services available upon monitored events so that system
automaticallynotifies on-call certified technicians by alarm and pager
The geographical dispersion of remote sites creates an interesting problem
to determine the optimum cost/benefit solution for connectivity of remote sites
to the Internet so that they each have the best performance in terms of
availability and minimum latency. Before the Internet, the only answer was to
develop expensive private wide area networks on a custom design basis.
27
<PAGE>
Using the Internet as the primary wide area network backbone is interesting
to look at. One approach is to determine the optimum connectivity with the most
reliable connection and the most efficient route path across the United States
to the central IT Hosting site. Sometimes, but not always, the path spanning
the fewest nationwide backbone providers will normally provide the most
efficient routes and use the fewest router hops. This approach would require
finding one nationwide Internet backbone provider to provide local connectivity
to all the remote sites. It would normally be optimal for this provider to be
the same provider as the central site backbone provider. One additional benefit
from this approach could be bargaining power due to an increase in economies of
scale. Coupled with all of the other services that ITHOST.NET can provide to
our customers, even greater economies can be reached. We believe that in this
manner our customers could achieve the best IT performance and reliability,
while having a low cost. This approach supports our customers' use of
ITHOST.NET as their exclusive IT source.
Another approach to determining the optimum remote site connectivity would
be to evaluate each and every single location independently for the optimum
carrier in the area. This approach could take considerably more time and
effort, but might result in a cost savings. However, the money saved versus
the total value in having a nationwide single source with an optimal solution
may not provide justification for this approach. Depending on the national
provider, there will most likely be some remote sites that would have to use a
different ISP because of the lack of POP of the nationwide carrier in certain
rural areas.
Depending on the approach and the connectivity products available from
nationwide backbone providers, a client should establish standards so that some
conformity and similarity can be maintained across the organization. Different
regions have different services available. For example, DSL is not available
everywhere and where it is available, a client may not be able to get DSL
service, depending on the region's infrastructure development. Some standards
for low cost remote access to consider are:
- - DSL where available and reasonably priced
- - ISDN as an alternative to DSL
- - Dial-up phone line with standardized modem
Each client site will have either a DSL, ISDN, or Frame Relay supported
router and a Dialup modem for backup. Based on the rare situation where primary
Internet access could not be connected, a modem should be configured at each
site to be able to dial the backdoor login through a 1-800 dialup to our
ITHOST.NET backdoor. ITHOST.NET is creating a large frame relay based network
that rides on an already extensive Internet backbones. This is a virtual
private WAN across the Internet.
By using IT Hosting, a customer can:
- - Establish a high quality redundant central-site access for its mission
critical applications
- - Have its servers professionally managed in a professionally designed data
center environment
- - Expand its physical presence around the world and have a cost effective
way for the best possible connectivity (world-wide) at a cost
substantially less than conventional wide area networks
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<PAGE>
- - Have a single source for problem reporting, determination, and resolution
for any component of its IT system
OUR VENDOR RELATIONSHIPS
Microsoft. We have embraced the Microsoft software technology platform as
---------
our primary operating system for over 3 years. In 1999, we became certified as
a Microsoft Solutions Provider through our subsidiary, IThost.net Corporation.
We rely heavily on the support given by Microsoft and use their operating system
software, Web server software platform, database platform and many other
applications.
Great Plains Software, Inc. In 1999, we received the eEnterprise and
-----------------------------
Dynamics certifications and authorizations from Great Plains Software, which
establishes our capabilities for Great Plains as:
- - eEnterprise Partner
- - Dynamics Partner
- - International Partner Authorization
- - Service Management Series
- - Great Plains Siebel Front Office
- - Project Accounting Series
- - Enterprise Reporting
We use the Great Plains platform to develop many of our applications such
as the point of sale for our client, The Mattress Firm, and the new
Drybabies.com. We intend to continue to enhance this strategic relationship and
become a designated ASP.
Citrix Systems, Inc. In 1999, we received the highest level Citrix Gold
----------------------
authorization and certification, which establishes our capabilities to
administer Citrix's software for high end application servers. Citrix Metaframe
technology, and the Microsoft NT Terminal Server technology (originally
developed by Citrix) are significant resources that enable our IThosting
strategy.
Cognos. We are an authorized Partner with Cognos. Cognos provides leading
------
edge business intelligence software.
Intel. In 1999, we made substantial progress towards a certification as an
-----
Intel Authorized Service Provider. This is Intel's highest certification. We
embrace the idea of providing the best cost/benefit solution for high-end
rack-mounted servers by using the Intel brands because of Intel's processing
power and scalability.
Computer Associates. We are a VIP Partner with Computer Associates, a
--------------------
leader in pro-active based network management software to facilitate remote
monitoring and the administration of networked systems. We will use significant
portions of their management software platform.
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<PAGE>
Cisco Systems. We are an authorized reseller for Cisco products. Cisco is
--------------
the leader in enterprise networking products. We have decided to standardize our
router equipment around Cisco products.
Extreme Networks. We are an authorized reseller for Extreme Networks, a
-----------------
leader in gigabit ethernet based high speed switch technology.
COMPETITION
Our competitors include:
- - Other full service information technology hosting providers. We are not yet
aware of any companies that have the same strategy as ours to grow, develop
and provide IT hosting services. However, there are companies that provide
turn-key IT hosting like us.
- - Specialized hosting providers, such as application service providers or
e-commerce transaction hosting providers.
- - The Application Service Provider ("ASP") market, which is increasingly
competitive. Becoming a general ASP is a natural progression for many types
of segmented IT services companies including ISP's. The tremendous growth
and potential size of the ASP market is attracting many start-ups as well
as extensions of existing businesses from different industries.
- - Systems integrators that provide planning, design, implementation, and
maintenance of IT systems remain our competitors, while we believe that
they will experience an increasing disadvantage with respect to pricing and
other benefits provided by IT hosting like ours.
- - Internet service providers that provide the on-ramp access portion of what
we do as an ITSP. They may evolve into ASPs.
INTELLECTUAL PROPERTY
Our intellectual property is important to our success. We have unique
standards for our business strategy and our approach to providing IT services.
We rely on our trademarks and service marks, trade secrets and confidentiality
agreements to protect our competitive interests. We have common law rights to
the service marks "Hyperdynamics", IThost", "IThost.net", "HYPD", "HYP.NET",
"HYPD.COM", "ITSP", and "MicroData Systems" based upon our substantial and
continuous use of these service marks in interstate commerce. However, although
we plan to register each of these marks, we have not done so yet.
EMPLOYEES
30
<PAGE>
Our employees are our most precious resource. We are implementing a
strategy to develop and maintain the most talented cross-trained IT
professionals in the IT services industry. As of February 22, 2000, we employed
twelve persons on a full-time basis, all of whom are in management, technical,
sales or administrative positions. The growth in the number of our technical
employees is expected to continue on fast pace. We expect to retain the
technical employees of companies that we may acquire. No employees are covered
by a collective bargaining agreement. We consider relations with our employees
to be satisfactory.
INSURANCE
We carry hazard and general liability insurance. We do not carry flood
insurance, business interruption, business liability insurance, or key man life
insurance.
FACILITIES
Our offices are located at 2656 South Loop West, Suite 103, Houston, Texas
77054 where we lease approximately 3,000 square feet of commercial office space.
We pay $3,065 per month as rent for this office space. This lease is a month to
month lease. We believe that our offices are adequate for our present needs and
that suitable space will be available to accommodate our future needs.
RECENT EVENTS
In January, 2000, we sold 3,000 shares of our new issue Series A Preferred
Stock for a total of $3,000,000 in cash to three accredited investors. As part
of this transaction, we also issued to the three investors a total of 300,000
Investor Warrants to purchase shares of our common stock at a price of $5.9125
per share which are immediately exercisable and expire on January 6, 2005.The
Investor Warrant provides that in no event shall the holder exercise the Warrant
if upon exercise of the Warrant, the holder would benefically own more than 4.9%
of our outstanding common stock. As part of this transaction, we issued 180,000
Placement Warrants to the placement agent to purchase shares of our common stock
at a price of $7.095 per share which are immediately exercisable and expire on
January 6, 2005 and 120,000 Consultant Warrants to one individual to purchase
shares of our common stock at a price of $7.095 per share which are immediately
exercisable and expire on January 6, 2005. This was a private placement offering
of securities.
We are in negotiations for additional space at an information technology
service center that is presently under development by others. We have proposed
that we initially lease 15,000 square feet. We are also in negotiations with
three, tier-1 Internet backbone providers and related fiber access companies to
customize a multi-homed backbone design for this information technology service
center. We anticipate a resolution to all of these negotiations by June, 2000.
In September, 1999, we sold our formerly wholly-owned subsidiary, Wired and
Wireless Corporation because it no longer fit into our business plan. The
consideration we received for this transaction was a revenue sharing agreement
that provides that we will receive, after the effective date of the sale, 7% of
the gross revenues of Wired & Wireless for the first $714,286 of its revenue, 5%
of its next $1,000,000 in revenue, and 3% of its revenues thereafter. The
revenue sharing agreement provides that we will receive 10% of the proceeds
related to a third party acquiring or merging with Wired and Wireless. Our
interest in this revenue sharing agreement is vested.
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<PAGE>
Other
Prior to January, 1997 our name was Ram-Z Enterprises, Inc.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the name, age and position of each of our
executive officers and directors.
<TABLE>
<CAPTION>
Name Age Position
- ------------------------ --- ------------------------------------------------
<S> <C> <C>
Kent Watts 41 Director, Chief Executive Officer, President and
Chief Accounting Officer
Robert J. Hill 46 Director and Vice President
Lewis Ball 69 Secretary
</TABLE>
Our Directors are elected annually and hold office until the next annual
meeting of our stockholders or until their successors are elected and qualified.
Officers are elected annually and serve at the discretion of the Board of
Directors. There is no family relationship between any of our directors and
executive officers. Board vacancies are filled by a majority vote of the Board.
BIOGRAPHIES OF OUR EXECUTIVE OFFICERS AND DIRECTORS
Kent Watts became Chairman of the Board of Directors and our CEO in 1997.
He has served as our Director, CEO and Chief Financial Officer since then. Mr.
Watts assumed the position of President in 1997. Mr. Watts has been a certified
public accountant in Texas since 1985 and a licensed Real Estate broker in Texas
since 1979. He received a Bachelor of Business Administration Degree from the
University of Houston in 1983. Mr. Watts founded our ITHost.net Corporation
subsidiary (formerly, MicroData Systems, Inc.), in 1988. He has extensive
experience working with management information systems. Mr. Watts has been
involved in the design, implementation and management of heterogeneous,
multi-protocol networks. He has substantial technical experience with a variety
of operating systems, relational databases, and client-server based software
applications.
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<PAGE>
Robert J. Hill has served as our Chief Operating Officer and Director since
1996. In 1997, Mr. Hill assumed the position of Vice President. Before joining
us, Mr. Hill served for two years as vice president of Hudson-Trinity
Incorporated, a privately-held Internet service provider and network engineering
company that was an outsourcing service provider of senior network engineers to
Loral Space Systems, Inc., the principal civilian contractor for the design,
development and installation of NASA's new manned space flight control center.
Previously, Mr. Hill served for three years as Acquisition Manager for Loral
Space Systems, Inc. Mr. Hill has an MBA degree from the South Eastern Institute
of Technology and a BA degree from the State University of New York at Potsdam.
Lewis E. Ball has served as our Secretary since 1997 and as the Chief
Financial Officer from June 1996 to January 1997. He has been a financial
consultant to a number of companies since 1993. Mr. Ball has served as a
director of JVWeb, Inc. since 1997 and as secretary and treasurer of JVWeb, Inc.
since 1998. Mr. Ball has many years of industry experience as a chief Financial
Officer with Stevenson Services, Inc. and Richmond Tank Car Company (from 1983
to 1993). Mr. Ball is a Certified Public Accountant and a Certified Management
Accountant. Mr. Ball has a B.B.A. in Finance from the University of Texas, and
he did post-graduate work in accounting at the University of Houston.
INFORMATION CONCERNING OUR BOARD OF DIRECTORS AND ITS COMMITTEES
We have no compensation committee, no audit committee and no nominating
committee. Decisions concerning executive officer compensation for 1999 were
made by the full Board of Directors. Messrs. Watts and Hill are also our
officers. There is no family relationship between any of our directors and
executive officers.
EXECUTIVE COMPENSATION
The following sets forth all forms of compensation we paid our executive
officers for our fiscal years ended June 30, 1999, 1998 and 1997. No executive
officer of ours received compensation that exceeded $100,000 during 1999.
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Annual Compensation Long Term Compensation
-------------------- ------------------------
Awards Payouts
----------------------- ----------------
Other Securities
Name and Annual Restricted Underlying
Principal Fiscal Compen- Stock Options/ LTIP All
Position Year Salary Bonus Sation Awards SARs Payouts Other
- --------------- ------ ------- -------- ----------- ----------- ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kent
Watts (1) 1999 $84,000 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
CEO, President 1998 84,000 -0- -0- -0- -0- -0- -0-
and CFO 1997 60,000 -0- -0- -0- -0- -0- -0-
Robert J. (1) 1999 72,000 -0- -0- -0- -0- -0- -0-
Hill 1998 72,000 -0- -0- -0- -0- -0- -0-
V.P. 1997 72,000 -0- -0- -0- 130,000 -0- -0-
<FN>
(1) We provide executive officers with other personal benefits which do not
exceed the lesser of $50,000 or 10% of annual compensation. These amounts
are omitted.
</TABLE>
33
<PAGE>
CHIEF EXECUTIVE OFFICER COMPENSATION
On July 21, 1999, we gave Mr. Watts an employment agreement which provides
for a base salary of $100,000 annually and a performance-based incentive of 5%
of our adjusted net income, up to an additional $100,000 in salary. The maximum
salary under this agreement is $200,000 annually. Mr. Watts will receive
options to purchase up to 7,000 shares of common stock at an exercise price of
$1.00 per share for each $1,000,000 of revenue generated during our fiscal year
ending June 30, 2000 that is in excess of the revenues reported for the fiscal
year ended June 30, 1999.
DIRECTOR COMPENSATION
We do not currently pay any cash fees to our Directors, but we pay Directors'
expenses in attending board meetings. There have been no director meeting
expense reimbursements for 1999 and 1998.
EMPLOYEE STOCK OPTION PLAN
We have been successful in attracting and retaining qualified personnel.
We believe that our future success will depend in part on our continued ability
to attract and retain highly qualified personnel. We pay wages and salaries
that we believe are competitive. We believe that equity ownership is an
important factor in our ability to attract and retain skilled personnel,
including consultants. We have adopted an employee stock option plan. This is
not a written plan. Up to 1,620,000 options to purchase common stock may be
granted pursuant to this plan. These options will vest over a five-year or
other negotiated period. These options will have an exercise price to be
determined at the time of each grant. based on the then current market value of
the stock. Our President has the authority to negotiate stock option agreements
with our employees and our consultants. The purpose of the stock option plan
will be to further our interests by providing incentives in the form of stock
options to key employees, consultants, and directors who contribute materially
to our success and profitability. The grants will recognize and reward
outstanding individual performances and contributions and will give the
recipients a proprietary interest in us, thus enhancing their personal interest
in the our continued success and progress. This plan will assist us in
attracting and retaining key employees and directors. As of February 22, 2000,
options to purchase 1,517,060 shares have been granted under this plan of which
646,581 options have already been exercised.
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<PAGE>
As of February 22, 2000, we had outstanding 870,479 unexercised options
granted under other employment or consulting agreements. As of February 22,
2000, we had 102,940 shares of common stock that we could issue pursuant to
other employment or consulting agreements. As of February 22, 2000, there were
69,212 shares of common stock that we previously registered on Form S-8 in
connection with compensation agreements, but have not yet issued.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our Board of Directors has adopted a policy that all of our affairs will be
conducted by standards applicable to publicly-held corporations and that we will
not enter into any transactions or loans between us and our officers, directors
and 5% shareholders, unless the terms are no less favorable than we could obtain
from independent, third parties, and that these types of transactions must be
approved by our disinterested directors.
Michael Watts, the brother of Kent Watts, was retained by us in April, 1996
as a consultant for acquisition strategy. We granted 275,000 stock options to
Michael Watts. Our Board of Directors renewed the consulting agreement with
Michael Watts through March, 2000. In December, 1997, we amended the original
consulting agreement to include a total of 375,000 currently exercisable options
which are exercisable as follows: 1/3 of which are exercisable at a strike price
of $.625 per share; 1/3 of which are exercisable at a strike price of $1.00 per
share; and 1/3 of which are exercisable at a strike price of $1.375 per share.
All of these options expire on June 30, 2000. In April, 1999, we granted
Michael Watts an additional 350,000 options exercisable at a strike price of
$.50 per share that expire in March, 2001, pursuant to the consulting agreement.
Of these, Michael Watts has previously exercised 381,181 options, and currently
holds 343,819 options exercisable at a strike price of $.50 per share.
During 1997, we sold a convertible promissory note to Emerald Bay Interests
LTD for $350,000. The interest rate on the note was 10% and had a maturity date
in November, 1997. At that time we were unable to pay off the note. In
January, 1998, Emerald Bay Interests LTD agreed to convert the note into
5,833,333 shares of our common stock. This resulted in Emerald Bay Interests
LTD becoming a control person of us.
In December, 1998, Kent Watts purchased a convertible promissory note of
ours from a note holder. This note in the original principal amount of $25,000
had an interest rate of 9% per annum and matured in May, 1998. We had not made
any payments of principal or interest on the note. In May, 1999, we paid off
this promissory note to Kent Watts at a 50% discount to the principal balance
remaining without any accrued interest, or $12,500. This transaction
extinguished our debt under this promissory note.
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<PAGE>
In September, 1999, we sold 100% of the equity of our then wholly-owned
subsidiary, Wired and Wireless Corporation, to Ted W. Tarver, one of our
then-directors who resigned as our director in connection with the sale of Wired
& Wireless to him. We had concluded that Wired & Wireless no longer fit into
our business strategy. The consideration we received for this transaction was a
revenue sharing agreement that provides that we will receive, after the
effective date of the sale, 7% of the gross revenues of Wired & Wireless for
the first $714,286 of its revenue, 5% of its next $1,000,000 in revenue, and 3%
of its revenues thereafter. The revenue sharing agreement further provides that
in the event a third party acquires or merges with Wired and Wireless we will
receive 10% of the proceeds from such a transaction. The Wired and Wireless
subsidiary=s asset value represented approximately 17.9% of the our consolidated
assets at September 30, 1999. We had a loss of $184,546 for fiscal year end
June 30, 1999 of which approximately 15%, or $27,625, was attributable Wired and
Wireless. The terms of the sale of Wired and Wireless Corporation to Mr. Tarver
were the result of negotiations between the parties, however no appraisal was
done. All of the disinterested directors voted in favor of the sale.
PRINCIPAL STOCKHOLDERS
The following describes as of February 22, 2000, the beneficial ownership
of our outstanding common stock of :
- - each person known to us who beneficially owns more than 5% of the common
stock
- - each of our Directors
- - each of our executive officers
- - all of our executive officers and directors as a group
Each of these principal stockholders has sole voting and investment power
for the shares each owns.
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percent of
Beneficial Owner Beneficially Owned Common Stock
- ------------------------------------------ ------------------- -------------
<S> <C> <C>
Kent Watts
2656 South Loop West, Suite 103
Houston, Texas 77054 1,015,000 8.0%
Robert J. Hill
2656 South Loop West, Suite 103
Houston, Texas 77054 127,600 (1) 1.0%
Lewis E. Ball
2656 South Loop West
Suite 103
Houston, Texas 77054 54,560 (2) 0.4%
Emerald Bay Interests LTD 5,833,333 46.7%
3rd Floor, Genesis Bldg.
Georgetown, Grand Cayman, BWI
All directors and executive officers as a
group (3 persons) 1,209,160 9.4%
_______________________________
<FN>
(1) This amount includes options to purchase up to 127,600 shares of our common
stock at a strike price of $1.25 per share.
(2) This amount includes options to purchase up to 8,760 shares of our common
stock at an exercise price of $.75 per share and options to purchase up to
33,300 shares of our common stock at an exercise price of $1.25 per share,
and warrants to purchase up to 12,500 shares of our common stock at an
exercise price of $.51 price share.
</TABLE>
36
<PAGE>
Mr. Hill has options purchase up to 127,600 shares of our common stock at a
strike price of $1.25 per share which expire on July 23, 2000. These options
were not in the money at the end of fiscal 1999.
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of:
- - 50,000,000 shares of common stock, par value $.001 per share
- - 20,000,000 share of preferred stock, par value $.001 per share.
As of February 22, 2000, we had outstanding:
- - 12,726, 503 shares of common stock
- - 3,000 shares of Series A Preferred Stock
37
<PAGE>
COMMON STOCK
The holders of our common stock are entitled to one vote per share with
respect to all matters required by law to be submitted to our stockholders for
approval. The holders of common stock have the sole right to vote, except as
otherwise provided by law or by our Articles of Incorporation, including
provisions governing our preferred stock. Our common stock does not have any
cumulative voting, preemptive, subscription or conversion rights. Election of
directors and other general stockholder action requires the affirmative vote of
a majority of shares of our common stock represented at a meeting in which a
quorum is represented. The outstanding shares of common stock are validly
issued, fully paid and non-assessable. Upon the conversion of our Series A
Preferred Stock or the exercise of our warrants, the shares of common stock that
are being offered in this prospectus will be validly issued, fully paid and
non-assessable.
38
<PAGE>
Subject to the rights of any outstanding shares of preferred stock, the
holders of our common stock are entitled to receive dividends when, as and if
declared by our Board of Directors out of funds legally available for dividends.
Dividends may not be paid on our common stock until all dividends due on our
Series A Preferred Stock have been paid. In the event of our liquidation,
dissolution or winding up of the affairs, the holders of our common stock are
entitled to share ratably in all or our assets remaining available for
distribution to them after payment or provision for all liabilities and any
preferential liquidation rights of any preferred stock.
PREFERRED STOCK
Our board of directors has the authority, without action by our
stockholders, to designate and issue preferred stock in one or more series. Our
board of directors may also designate the rights, preferences, and privileges of
each series of preferred stock, any or all of which may be greater than the
rights of the common stock. It is not possible to state the actual effect of
the issuance of any shares of preferred stock on the rights of holders of the
common stock until the board of directors determines the specific rights of the
holders of the preferred stock. However, these effects might include:
- - restricting dividends on the common stock
- - diluting the voting power of the common stock
- - impairing the liquidation rights of the common stock
- - delaying or preventing a change in control of us without further action by
the stockholders.
SERIES A PREFERRED STOCK
Our Series A Preferred Stock is convertible into our common stock upon the
earlier of the effective date of a registration statement covering the shares of
common stock underlying Series A Preferred Stock, or the ninetieth day after the
issuance of each such share of Series A Preferred Stock. Each share of Series A
Preferred Stock outstanding on January 30, 2002 is converted automatically into
common stock.
The Series A Preferred Stock is convertible into our common stock in
accordance with the conversion formula which is:
$1,000.00 divided by the conversion price, where
- - The conversion price is the lessor of (i) $5.9125 or (ii) the "average
price at conversion".
- - The average price at conversion is defined to equal 80% of the five 5 day
average closing bid price for the our common stock immediately before the
conversion date.
There is no limit on the number of shares issuable upon conversion of the
Series A Preferred Stock. The conversion of Series A Preferred Stock may have a
severe dilutive effect.
39
<PAGE>
The following table sets forth the approximate number of shares of common
stock that the 3,000 shares of Series A Preferred Stock may be converted into,
if the average price at conversion is:
- - $7.3906 or more per share, resulting in a conversion price of $5.9125 per
share of common stock (which is a conversion price equal to the lessor of
$5.9125 or 80% of the "average price at conversion").
- - $5.9125 per share, resulting in a conversion price of $4.73 per share of
common stock.
- - 25% below $5.9125, or $4.4343 per share, resulting in a conversion price
of $3.5474 per share of common stock.
- - 50% below $5.9125, or $2.9562 per share, resulting in a conversion price
of $2.3649 per share of common stock.
- - 75% below $5.9125, or $1.4781 per share, resulting in a conversion price
of $1.1824 per share of common stock.
<TABLE>
<CAPTION>
Percentage of Our Shares
Outstanding At
Number of Shares February 22, 2000
Conversion Price Issuable on Conversion Issuable on Conversion
- ------------------------- ---------------------- -----------------------
<S> <C> <C>
5.9125 507,399 4.0%
4.73 634,249 5.0%
3.5474 845,689 6.7%
2.3649 1,268,552 10.0%
1.1824 2,537,212 20.0%
</TABLE>
If the shares issued upon the conversion of the Series A Preferred Stock
are sold, the price of our common stock may decrease due to these additional
shares being sold into the market. If the price of our common stock decreases,
the holders of the Series A Preferred Stock will receive a greater number of
shares upon the conversion of their Series A Preferred Stock. In addition, if
our stock price decreases, it could encourage short sales by the holders of the
Series A Preferred Stock. or others, which could cause our stock price to
further decrease.
Each share of Series A Preferred Stock has a stated value of $1,000.00.
Series A Preferred Stock is entitled to receive dividends at the rate of 4% per
annum of the stated value. Dividends are payable at the time these shares are
converted. The dividends may be paid in cash or in shares of common stock as
determined by us. The number of shares issued as a payment-in-kind for
dividends is determined by the market value of a share of common stock as of the
last day of the period for such stock dividend. Dividends are cumulative. Any
accumulations of dividends do not bear interest. In the event of our
liquidation, dissolution or winding-up, the holders of shares of the Series A
Preferred Stock are entitled to be paid out of our assets that are available for
distribution before any payment is made to the holders of common stock. Shares
of Series A Preferred Stock do not vote. The Series A Preferred Stock may be
converted into common stock at any time prior to January 30, 2002, when it
automatically converts into common stock.
WARRANTS AND OPTIONS
As of February 22, 2000, we had outstanding a total of 2,258,648 options
and warrants to purchase our common stock at exercise prices ranging from $.50
to $7.095 per share, which are near or below market prices. Of these, 1,658,648
options and warrants expire at various times through the year 2002, and 600,000
warrants expire in January, 2005.
In January, 2000, we issued a total of 300,000 Investor Warrants to
purchase shares of our common stock at a price of $5.9125 per share which are
immediately exercisable and expire on January 6, 2005. The Investor Warrant
provides that in no event shall the holder exercise the Warrant if upon exercise
of the Warrant, the holder would benefically own more than 4.9% of our
outstanding common stock. We also issued 180,000 Placement Warrants to the
placement agent to purchase shares of our common stock at a price of $7.095 per
share which are immediately exercisable and expire on January 6, 2005 and
120,000 Consultant Warrants to one individual to purchase shares of our common
stock at a price of $7.095 per share which are immediately exercisable and
expire on January 6, 2005.
SELLING STOCKHOLDERS
This prospectus relates to the resale of our common stock issuable upon
conversion of our Series A Preferred Stock and the exercise of Investor
Warrants, Placement Warrants and Consultant Warrants.
40
<PAGE>
This prospectus relates to the resale of up to 2,328,113 shares of common
stock by the selling stockholders. The number of shares of common stock that
will be issuable upon the conversion of the Series A Preferred Stock is based
upon fluctuations in the market price of our common stock, cannot be determined
until the day of conversion, and is calculated by a formula in the designation
certificate of the Series A Preferred Stock. There is no limit on the number of
shares issuable upon conversion of the Series A Preferred Stock. The actual
number of shares of our common stock that will be issuable and beneficially
owned upon conversion of the Series A Preferred Stock cannot be determined at
this time. The number of shares of our common stock underlying our Series A
Preferred Stock that we are registering in this offering is based upon two and
one-half (2.5) times the lessor of a common stock price of $5.9125 or the
average closing bid price on our common stock for the five days preceding the
filing of this registration statement. The actual number of shares issuable upon
conversion of the Series A Preferred Stock could be much greater.
The table below sets forth information concerning the resale of shares of
common stock by the selling stockholders. The table reflects: (i) the number of
shares issuable upon the conversion of all Series A Perferred Stock calculated
as if the conversion took place on February 24, 2000 and (ii) the number of
shares issuable upon exercise of all of the Investor, Placement and Consultant
Warrants. We will not receive any proceeds from the resale of common stock by
the selling stockholders. We will receive proceeds from the exercise of the
Investor Warrants, Placement Warrants and Consultant Warrants. Assuming all of
the shares registered below are sold by the selling stockholders, none of the
selling stockholders will continue to own any shares of our common stock.
<TABLE>
<CAPTION>
Shares Shares Shares Owned Percentage
Owned Offered After Offering Owned after
Selling Before For If All Offered Offering If All
Stockholder (1) Offering (2) Sale (3) Shares Are Sold (3) Shares Sold (3)
- --------------------------- ------------ -------- ------------------- ---------------
<S> <C> <C> <C> <C>
Cache Capital 315,418 315,418 -0- 0%
USA, L.P.
Carpe Diem, Ltd. 16,600 16,600 -0- 0%
41
<PAGE>
Wellington, LLC. 664,038 664,038 -0- 0%
J. P. Carey 180,000 180,000 -0- 0%
Securities, Inc.
Andrew Baum 120,000 120,000 -0- 0%
__________________________
<FN>
(1) No selling stockholder has held any position or office, or has had any
material relationship with us or any of our affiliates within the past
three years.
(2) Assumes that all Investor Warrants, Placement Warrants and Consultant
Warrants have been exercised and all Series A Preferred Stock has been
converted into common stock.
(3) Assumes no sales are effected by the Selling Stockholders during the
offering period other than pursuant to this offering.
</TABLE>
PLAN OF DISTRIBUTION
The selling stockholders and any of their pledgees, assignees, and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market, or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. There is no assurance that the selling stockholders will
sell any or all of the common stock in this offering. The selling stockholders
may use any one or more of the following methods when selling shares:
41
<PAGE>
- - Ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers
- - Block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction
- - Purchases by a broker-dealer as principal and resale by the broker-dealer
for its own account
- - An exchange distribution following the rules of the applicable exchange
- - Privately negotiated transactions
- - Short sales or sales of shares not previously owned by the seller
- - Broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share
- - A combination of any such methods of sale
- - Any other lawful method
The selling stockholders may also engage in:
- - Short selling against the box, which is making a short sale when the
seller already owns the shares
- - Buying puts, which is a contract whereby the person buying the contract
may sell shares at a specified price by a specified date
- - Selling calls, which is a contract giving the person buying the contract
the right to buy shares at a specified price by a specified date
- - Selling under Rule 144 under the Securities Act, if available, rather than
under this prospectus
- - Other transactions in our securities or in derivatives of our securities
and the subsequent sale or delivery of shares by the stock holder
- - Pledging shares to their brokers under the margin provisions of customer
agreements. If a selling stockholder defaults on a margin loan, the broker
may, from time to time, offer and sell the pledged shares.
Broker-dealers engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders in amounts to be negotiated. If any
broker-dealer acts as agent for the purchaser of shares, the broker-dealer may
receive commission from the purchaser in amounts to be negotiated. The selling
stockholders do not expect these commissions and discounts to exceed what is
customary in the types of transactions involved.
The selling stockholders and any broker-dealers or agents that are involved
in selling the shares may be considered to be "underwriters" within the meaning
of the Securities Act for such sales. An underwriter is a person who has
purchased shares from an issuer with a view towards distributing the shares to
the public. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
considered to be underwriting commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration
of the shares in this offering. However, we will not pay any commissions or any
other fees in connection with the resale of the common stock in this offering.
We have agreed to indemnify the selling shareholders and their officers,
directors, employees and agents, and each person who controls any selling
shareholder, in certain circumstances against certain liabilities, including
liabilities arising under the Securities Act. Each selling shareholder has
agreed to indemnify the Company and its directors and officers in certain
circumstances against certain liabilities, including liabilities arising under
the Securities Act.
If we are notified by a selling stockholder that they have a material that
arrangement with a broker-dealer for the resale of the common stock, then we
would be required to amend the registration statement of which this prospectus
is a part, and file a prospectus supplement to describe the agreements between
the selling stockholder and the broker-dealer.
LEGAL PROCEEDINGS
In 1984, we failed to file financial statements as required by Utah law
within thirteen months after our public offering in 1983. On June 17, 1987 the
Division of Securities of the Department of Commerce (formerly known as the
Securities Division of the Department of Business Regulation) of the State of
Utah issued an order by which any offering exemptions available under Utah law,
which would be otherwise applicable and available to us by reason of Section
61-1- 14 of the Utah Code, were revoked by the Utah order until such time as we
filed financial statements as required by Rule 10.2-1(b)(7) of the Division. We
can not offer unregistered securities in Utah, except that under the federal
National Securities Markets Improvement Act of 1996, we may offer for sale
unregistered securities in Utah if the offerings comply with Rule 506 of
Regulation D of the Securities Act. Rule 506 offerings are exempt from state
regulation other than state notice and fee requirements.
42
<PAGE>
In the future, we may seek to vacate the Utah Order. However, we have thus
far been unsuccessful in locating records related to the financial information
that we failed to file in 1983 and 1984. Our present management joined us in
1996 and has been unable to locate or obtain the financial information from 1983
and 1984. We believe that our previous attempts to vacate the Order were
unsuccessful because we were a shell company at the time we previously attempted
to vacate the Order. We believe that since we are now an operating company with
assets and revenues related to operations, as opposed to assets related only to
fund raising and no revenues, we may be in a better position to petition Utah to
vacate the Order.
EXPERTS
Our annual financial statements in the prospectus of this Form SB-2
registration statement have been audited by John B. Evans II, Certified Public
Accountant, our independent auditor, as disclosed in his report appearing
elsewhere in this registration statement and are included in reliance on the
report given on the authority of John B. Evans II, Certified Public Accountant,
as an expert in accounting and auditing.
LEGAL MATTERS
Legal matters concerning the issuance of shares of common stock offered in
this registration statement will be passed upon by Axelrod, Smith & Kirshbaum.
Robert D. Axelrod beneficially own 4,000 shares of our common stock.
OTHER AVAILABLE INFORMATION
We are subject to the reporting requirements of the Securities and Exchange
Commission (the "Commission"). We file periodic reports, proxy statements and
other information with the Commission under the Securities Exchange Act of 1934.
We will provide without charge to each person who receives a copy of this
prospectus, upon written or oral request, a copy of any information that is
incorporated by reference in this prospectus (not including exhibits to the
information that is incorporated by reference unless the exhibits are themselves
specifically incorporated by reference). Requests should be directed to
Hyperdynamics Corporation, Attn. Kent Watts, 2656 South Loop West, Suite 103,
Houston, Texas 77054, Voice: (713) 660-9771, Fax: (713) 660-9775. Our Internet
address is www.hyd.net
43
<PAGE>
We have filed a Registration Statement on Form SB-2 under the Securities
Act of 1993 Act with the Commission in connection with the securities offered by
this prospectus. This prospectus does not contain all of the information that is
in the registration statement. For further information with respect to us and
the registration statement, you may inspect without charge, and copy our
filings, at the public reference room maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies of this material may also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Information about
the public reference room is available from the Commission by calling
1-800-SEC-0330.
The Commission maintains a web site on the Internet that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the Commission. The address of the site is
www.sec.gov. Visitors to the site may access such information by searching the
EDGAR archives on this web site.
INDEMNIFICATION
Delaware General Corporation Law permits a corporation organized under
Delaware law to indemnify directors and officers with respect to any matter in
which the director or officer acted in good faith and in a manner he reasonably
believed to be not opposed to our best interests, and, with respect to any
criminal action, had reasonable cause to believe his conduct was lawful.
Our Bylaws provide that our directors and officers are indemnified by us if
that person is a party to a matter by reason of being a director or officer.
These provisions may discourage stockholders from bringing suit against a
director for breach of fiduciary duty and may reduce the likelihood of
derivative litigation brought by our stockholders on our behalf against a
director.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "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.
FINANCIAL STATEMENTS
Our financial statements begin on page F-1.
44
<PAGE>
<TABLE>
<CAPTION>
HYPERDYNAMICS CORPORATION
Audited Financial Statements
Index To Audited Financial Statements
<S> <C>
Independent Auditor's Report F-2
Balance Sheets as of June 30, 1999 and 1998 F-3
Statements of Income for the years ended June 30, 1999 and 1998 F-5
Statements of Changes in Stockholders' Equity for the years
ended June 30, 1999 and1998 F-7
Statements of Cash Flows for the years ended June 30, 1999 and 1998 F-8
Notes to Financial Statements F-10
</TABLE>
F - 1
<PAGE>
Independent Auditor's Report
JOHN B. EVANS II
CERTIFIED PUBLIC ACCOUNTANT
Three Riverway, Suite 120
Houston, Texas 77056-1909
Voice (713) 623-2898
Fax (713) 960-8128
September 24, 1999
To the Board of Directors
HyperDynamics Corporation
Houston, Texas
I have audited the accompanying consolidated balance sheets of
HyperDynamics Corporation (a Delaware corporation) and subsidiaries as of June
30, 1999 and June 30, 1998, and the related consolidated statements of income,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. I believe that my audits provide a reasonable basis for our
opinion.
In my opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
HyperDynamics Corporation as of June 30, 1999 and June 30, 1998, and the results
of its operations and its cash flows for the years then ended, in conformity
with generally accepted accounting principles.
/s/ JOHN B. EVANS, II
F - 2
<PAGE>
<TABLE>
<CAPTION>
HYPERDYNAMICS CORPORATION
CONSOLIDATED BALANCE SHEETS
As of June 30, 1999 and 1998
ASSETS
Current Assets 1999 1998
<S> <C> <C>
Cash $ 67,483 $ 4,908
Certificate of deposit (restricted) 94,000
Accounts receivable - trade 86,386 149,249
other 5,001 30,013
Inventory 96,960 65,508
Revenue interest - current portion 35,970 35,970
Pre-paid Expenses 40,000
Other
-------- --------
TOTAL CURRENT ASSETS 291,800 419,648
-------- --------
Property and Equipment 108,435 83,153
Other Assets
Revenue Interest net of current portion 58,658 104,458
Intangible assets - net 59,592 51,000
Other Assets - deposits 5,048 4,348
------------ ------------
TOTAL OTHER ASSETS 123,298 159,806
-------- --------
TOTAL ASSETS $523,533 $662,607
======== ========
</TABLE>
F - 3
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Accounts payable $ 171,037 $ 271,212
Accrued expenses 11,200 525
Accrued taxes 4,699 12,353
------------ ------------
TOTAL CURRENT LIABILITIES 186,936 284,090
------------ ------------
TOTAL LIABILITIES 186,936 284,090
------------ ------------
Stockholders' Equity
Common stock, par value $0.001;
50,000,000 shares 12,409 12,208
authorized; 12,409,503 and 12,208,321shares
issued and outstanding.
Additional paid-in capital 1,709,925 1,567,500
Retained (deficit) (1,385,737) (1,201,191)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 336,597 378,517
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $ 523,533 $ 662,607
============ ============
</TABLE>
See accompanying notes.
F - 4
<PAGE>
<TABLE>
<CAPTION>
HYPERDYNAMICS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended June 30, 1999 and 1998
1999 1998
<S> <C> <C>
Revenues $ 1,498,124 $ 820,535
Cost of Revenues 870,151 702,164
------------ -----------
GROSS MARGIN 627,973 118,371
------------ -----------
Operating Expenses
Selling 49,298 39,988
General and
Administrative 725,080 653,013
Depreciation and
Amortization 25,761 14,293
------------ -----------
TOTAL OPERATING
EXPENSES 800,139 707,294
------------ -----------
OPERATING LOSS (172,166) (588,923)
Other Income (Expense)
Other income / expenses (1,166) 3,750
Gain on sale of securities 29,980
Loss on disposal of asset (7,972)
Interest income 1,461 297
Interest expense (4,703) (3,428)
------------ -----------
TOTAL OTHER
INCOME (EXPENSE) (12,380) 30,599
------------ -----------
LOSS FROM
CONTINUING
OPERATIONS (184,546) (558,324)
------------ -----------
NET LOSS $ (184,546) $ (558,324)
============ ===========
F - 5
<PAGE>
Loss per Common Share
Continuing operations (0.02) (0.07)
Discontinued operations N/A N/A
NET LOSS PER
COMMON SHARE $ (0.02) $ (0.07)
Weighted average shares
outstanding 12,264,945 8,362,335
</TABLE>
See accompanying notes.
F - 6
<PAGE>
<TABLE>
<CAPTION>
HYPERDYNAMICS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For The Years Ended June 30, 1999 and 1998
COMMON STOCK RETAINED
SHARES AMOUNT PAID IN CAPITAL (DEFICIT) TOTALS
<S> <C> <C> <C> <C> <C>
BALANCES - JUNE 30, 1997 5,596,989 $ 5,597 $ 696,111 $ (642,867) $ 58,841
Common stock issued for cash 6,411,332 6,411 769,589 776,000
Common stock issued to purchase 100,000 100 50,900 51,000
certain assets of Wireless cable
connection
Common stock issued to purchase 100,000 100 50,900 51,000
interest in customer list of Perfect
Solutions, Inc.
Net (loss) (558,324) (558,324)
------------- ---------- ---------------- ------------ ---------
BALANCES - JUNE 30,1998 12,208,321 $ 12,208 $ 1,567,500 $(1,201,191) $378,517
Common stock issued for cash 201,182 201 142,424 142,625
Net (loss) (184,546) (184,546)
------------- ---------- ---------------- ------------ ---------
BALANCES - JUNE 30, 1999 12,409,503 $ 12,409 $ 1,709,924 $(1,385,737) $336,597
============= ========== ================ ============ =========
</TABLE>
See accompanying notes.
F - 7
<PAGE>
<TABLE>
<CAPTION>
HYPERDYNAMICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended June 30, 1999 and 1998
1999 1998
Cash flows from operating activities
<S> <C> <C>
Net (loss) $(184,546) $(558,324)
Adjustments to reconcile net income
to cash provided from operating activities
Depreciation and amortization 25,761 14,293
Loss on disposal of assets 7,972
Gain on sale of securities (29,980)
Changes in:
Certificates of deposit 94,000 (24,000)
Accounts receivable - Trade 62,863 (105,349)
Other 25,012 (29,275)
Inventory (31,452) (38,771)
Prepaid expenses 40,000 (23,759)
Revenue sharing 45,800 36,572
Deposits and other (700) (1,000)
Net increase (decrease) accruals / payables
Accounts payable - trade (100,175) 79,550
Accrued expenses 10,675 (30,437)
Accrued taxes (7,653) 12,353
Other 1 1
---------- ----------
NET CASH PROVIDED (USED)
FROM OPERATING ACTIVITIES (12,442) (698,126)
Cash flows from investing activities
Purchases of property, equipment, and intangibles (67,608) (25,514)
Proceeds on sale of securities 29,980
----------
NET CASH USED BY
INVESTING ACTIVITIES (67,608) 4,466
Cash flows from financing activities
Net increase (decrease) in bank line of credit (70,000)
Short-term convertible notes (37,500)
Reduction in notes payable
Sales of common stock 142,625 776,000
---------- ----------
NET CASH PROVIDED (USED)
FROM FINANCING ACTIVITIES 142,625 668,500
F - 8
<PAGE>
Net increase (decrease)in cash 62,575 (25,160)
CASH AT BEGINNING OF PERIOD 4,908 30,068
---------- ----------
CASH AT END OF PERIOD 67,483 $ 4,908
========== ==========
Supplemental Information
Interest paid 4,703 3,428
</TABLE>
See accompanying notes.
F - 9
<PAGE>
HYPERDYNAMICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Business. Hyperdynamics Corporation (the "Company"), was a Texas corporation
formed in March 1996 to acquire and operate information systems service
companies. In August, 1996, the Company completed a "reverse merger" with Ram-Z
Enterprises, Inc., a Delaware corporation and a publicly-traded shell, whereby
the Company's shareholders acquired the Delaware corporation shell, which was
renamed Hyperdynamics Corporation, in exchange for stock. A business acquired
in May 1996 was MicroData Corporation ("MicroData").
During the past year, the Company began operations through a wholly-owned
subsidiary, Wired and Wireless Corporation ("Wireless"). MicroData is a
complete information systems service company including its legacy as a computer
hardware reseller. Wireless plans, designs and implements wireless information
systems. The fiscal year-end is June 30.
Basis of Presentation. The consolidated financial statements include the
accounts of MicroData and Wireless. Significant inter-company accounts and
transactions have been eliminated.
Use of Estimates. Preparing financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses. Actual results could differ from those
estimates.
Cash includes demand deposit bank accounts. Company policy includes any highly
liquid investments with original maturities of three months or less.
Restricted cash is cash on deposit at a bank to back an international letter of
credit for ongoing foreign purchases of computer components.
Receivables are written down, where appropriate, to the estimated collectible
amount in the opinion of management.
Inventory is stated at the lower of cost or market using the first-in first-out
basis (FIFO).
Inventory at June 30, by major classification, were as follows:
F - 10
<PAGE>
<TABLE>
<CAPTION>
- - Year Ended - -
1999 1998
-------- -------
<S> <C> <C>
Hardware and Software $ 51,960 $39,508
Electronic Wireless Equipment 45,000 26,000
-------- -------
$ 96,960 $65,508
======== =======
</TABLE>
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Leasehold Improvements, Machinery and Equipment, and Depreciation is calculated
using the straight-line method over the useful lives of property and equipment.
Depreciation expense for was $19,890 for 1999 and $14,293 for 1998. A summary of
property and equipment is as follows:
<TABLE>
<CAPTION>
- - Year Ended - -
1999 1998
--------- ---------
<S> <C> <C> <C>
Computer equipment 3 years $193,313 $149,689
Other 5 years 20,303 18,755
--------- ---------
Total cost 213,616 168,444
Less: accumulated depreciation (105,181) (85,291)
--------- ---------
Net carrying value $108,435 $ 83,153
========= =========
</TABLE>
F - 11
<PAGE>
Intangible Property and Amortization is calculated using the straight-line
method over 10 years. Amortization expense for 1999 was $5,871. A Summary of
Intangible Property is as follows:
<TABLE>
<CAPTION>
- - Year Ended - -
1999 1998
-------- -------
<S> <C> <C>
Intangible Property - Perfect Solutions $51,000 $51,000
Web-site Development and Other 14,463 0
-------- -------
Total cost 65,463 51,000
Less: accumulated amortization (5,871) 0
-------- -------
Net carrying value 59,592 51,000
-------- -------
</TABLE>
Earnings (Loss) Per Share calculations are presented in accordance with
Financial Accounting Standards Statement 128, and are calculated on the basis of
the weighted average number of common shares outstanding during the year. They
include the dilutive effect of common stock equivalents, principally stock
options, in years with net income.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes are not due since the Company has had losses since inception. The
Company has filed its annual tax returns for 1998 and 1997 and reported a net
operating losses (NOLs) of :
- - Year Ended - -
1998 1997
------- ---------
556,089 662,607
This is a total potential NOL currently reported on the Company's last two 1120
federal tax returns of $1,218,696. These potential NOL carry forwards with the
addition of the 1999 loss of about $184,546 may be utilized to reduce future
taxable income. These amounts expire at various dates beginning in year 2012.
The Company is currently in the process of preparing its current 1120 tax return
for fiscal year end June 30, 1999.
Reclassifications of certain prior year amounts were made to conform with the
current year presentation.
F - 12
<PAGE>
NOTE 2 - GOING CONCERN REMOVED IN 1999
In 1998 the following footnote was presented with Auditor's appropriate
Qualification:
Since inception, the Company has incurred substantial recurring operating losses
resulting in cash flow problems.
The Company has in the past relied almost entirely upon cash proceeds from stock
sales for working capital requirements. There can be no assurance that present
or future conditions will be conducive to funding current working capital needs
from proceeds from stock sales. Absent stock sales, the Company is uncertain
how it is going to fund working capital requirements. The financial statements
do not include any adjustments that might be necessary if the Company is unable
to continue as a going concern.
In 1999 the "Going Concern Qualification" has been removed based on the
following:
1. The Company's loss for 1999 was from the first two quarters of the fiscal
year and was considerably less than prior years.
2. The Company generated positive results of operations in the last two quarters
of 1999.
3. The Company was able to generate $142,625 of new capital from Financing
Activities according to the Statement of Cash Flows. This is only $41,921 short
of the entire loss for the year. It appears that the Company maintains the
ability to obtain more capital through its "Financing Activities".
4. The Company has no debt.
5. The sales of the Company increased substantially for the year and
management's forecast for sales in fiscal year 2000 continues to grow. The
Company has a Contract with The Mattress Ventures, LP which will generate at
least another $700,000 in sales in fiscal year 2000.
On October 8, 1999 management reported an improved current Ratio (Current Assets
/ Current Liabilities) as of September 30, 1999 of 2.12 compared to 1.56 as of
June 30, 1999. The Quick Ratio (Current Assets - Inventory + Prepaid Expenses /
Current Liabilities) was reported to improve to 1.20 as of September 30, 1999
compared to .66 as of June 30, 1999.
In summary, the Company's sales forecast, potential gross profits, and ability
to raise additional capital are substantially enhanced over the prior year.
NOTE 3 - REVENUE SHARING INTEREST
In May 1997, the Company purchased a revenue interest in the Sierra-Net
subsidiary of Internet Finance & Equipment, Inc. by issuing 177,000 shares of
stock. Sierra-Net is an internet service provider in Nevada. The Company
valued this transaction at $177,000. Collections have been averaging $3,000 per
month since. The interest is 4% of gross revenue and 19% of gross sale proceeds
if any significant assets or stock of Sierra-Net are sold.
F - 13
<PAGE>
NOTE 3 - REVENUE SHARING INTEREST (continued)
The current portion of this interest represents management's estimate of cash
receipts over the next 12 months.
NOTE 4 - MERGERS AND DIVESTITURE
In October 1997, the Company formed a new subsidiary, Wired and Wireless
Corporation, to plan, design and implement wireless information systems. The
Company purchased the equipment and inventory and hired the sole stockholder of
Wireless Cable Connection, Inc. in exchange for 100,000 shares of stock to the
stockholder.
In June 1998, the Company purchased the customer list and hired the sole owner
of Perfect Solutions in exchange for 100,000 shares of stock to the stockholder.
The equipment, inventory, and customer lists were valued at their fair market
values which approximated the fair market value of the stock at those times.
All of the assets were capitalized and valued at $102,000.
In October 1997, purchased the customer list and accounts receivable and hired
the sole stockholder of Barris Communications, Inc. for $40,000 cash. The
payment was charged to operations.
Employment agreements were signed with all three key persons involved, with
expiration dates ranging from June 1998 to May 1999.
NOTE 5 - STOCK OPTIONS AND WARRANTS
Beginning with fiscal 1997, the Company adopted the disclosure requirements of
FASB Statement 123, Accounting for Stock Based Compensation Plans. The
Company's Stock Option Plan provides for the grant of non-qualified options to
directors, employees and consultants of the Company, and opportunities for
directors, officers, employees and consultants of the Company to make purchases
of stock in the Company. In addition, the Company issues stock warrants from
time to time to employees, consultants, stockholders and creditors as additional
financial incentives. The plans and warrants issuance are administered by the
Board of Directors of the Company, who have substantial discretion to determine
which persons, amounts, time, price, exercise terms, and restrictions, if any.
Options differ from warrants in that the options awards are immediately
exercisable and are assignable. In contrast, warrants have employment
termination restrictions, vesting periods and are non-transferable.
F - 14
<PAGE>
The Company uses the intrinsic value method of calculating compensation expense,
as described and recommended by APB Opinion 25, and allowed by FASB Statement
123. During the years ended June 30, 1999 and 1998, no compensation expense was
recognized for the issuance of these options and warrants, because no option
prices were below market prices at the date of grant. In addition, 78,182 and
577,999 options were exercised in 1999 and 1998 respectively. As of June 30,
1999, almost all outstanding warrants are payments for consulting and
professional services. Summary information on each are as follows:
<TABLE>
<CAPTION>
Weighted Weighted
average average
Options Share Price Warrants Share Price
--------- ------------- --------- ------------
<S> <C> <C> <C> <C>
Year ended June 30, 1999:
Outstanding at
June 30, 1997 710,660 1.02 605,000 1.25
Granted 711,000 1.26 70,850 1.00
Exercised (577,999) (.96)
Canceled (375,000) (1.25) (600,000) 1.25
--------- ------------- --------- ------------
Outstanding at
June 30, 1998 468,661 $ 1.27 75,850 $ 1.02
Granted 480,000 .50 350,000 0.50
Exercised (78,182) .70
--------- ------------- --------- ------------
Canceled
Outstanding at
June 30, 1999 870,479 .90 425,850 0.59
--------- ------------- --------- ------------
</TABLE>
F - 15
<PAGE>
NOTE 5 - STOCK OPTIONS AND WARRANTS (Continued)
Additional disclosures as of June 30, 1999 are:
<TABLE>
<CAPTION>
Options
<S> <C>
$.50 - $1.375
-------------
Total options
Number of shares 870,479
Weighted average exercise price $ 0.90
Remaining life 2-4 years
All are currently exercisable options.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Warrants Warrants Warrants
$ 0.50 $ 1.00 $ 1.25
---------- --------- ---------
Total warrants
Number of shares 350,000 70,850 5,000
Weighted average
exercise price $ 0.50 $ 1.00 $ 1.25
Remaining life 2-3 years 1 year 1 year
All are currently exercisable warrants.
</TABLE>
Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant dates for awards under those
plans consistent with the Black-Scholes option-pricing model suggested by FASB
Statement 123, the Company's net losses and loss per share would have been
increased to the pro forma amount indicated below:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Net loss -As reported $ (184,546) $ (558,324)
-Pro forma (640,323) (1,105,031)
Net loss per share -As reported (0.02) (0.07)
-Pro forma (0.05) (0.13)
</TABLE>
F - 16
<PAGE>
Variables used in the Black-Scholes option-pricing model include (1) 6.0%
risk-free interest rate, (2) expected option life is the actual remaining life
of the options as of each year end, (3) expected volatility is the actual
historical stock price fluctuation volatility and (4) zero expected dividends.
NOTE 6 - BANK CREDIT FACILITIES, SHAREHOLDER NOTES PAYABLE, AND OTHER FINANCING
In May of FYE 1998 the Company issued a letter of credit from Frost National
Bank to secure a vendor purchase for wireless equipment purchased from Hexawave,
Inc. The LOC was secured by a $94,000 Certificate of Deposit. The CD was
released and the vendor was paid on August 24, 1998.
During 1997, the company received $350,000 from Emerald Bay, LTD (EBLTD)an
offshore investor for a convertible note at 10% that had matured on November 15,
1997. The Company attempted to find additional investors to pay the loan off,
but was not able to do so in the time frame required. EBLTD converted its note
plus accrued interest to 5,833,333 shares on January 12, 1998 after a negotiated
reduction to the conversion rights from 3 cents per share to 6 cents per share.
NOTE 7 - MAJOR CUSTOMERS AND VENDORS
A summary of significant customers and vendors for the years ended June 30, 1999
and 1998, together with their respective size as a percent of total sales and
purchases for the years then ended is as follows:
F - 17
<PAGE>
<TABLE>
<CAPTION>
Percent of Percent of
Totals 1999 Totals 1998
- -------------------------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Sales
Comband, S.A. de C.V. (Mexico) 31% $ 460,890 42% $345,000
ADC Telecommunications 11% $ 163,500
The Mattress Ventures, LP 22% $ 329,276
Purchases
Hexawave, Inc. 50% 314,000
ATI 7% $ 59,163
CCW 17% $ 147,500
<PAGE>
Great Plains Software 18% $ 159,362
</TABLE>
<PAGE>
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company is liable on an office lease for $3,065 per month on a
month-to-month lease.
The predecessor shell company, RAM-Z Enterprises, has an order restricting
certain exemptions on sales of securities by it in the State of Utah, based on
actions of former owners in the mid-1980's.
The Company has no lawsuits pending or threatened against it.
F - 18
<PAGE>
<TABLE>
<CAPTION>
HYPERDYNAMICS CORPORATION
Interim Unaudited Financial Statements
Index To Interim Unaudited Financial Statements
<S> <C>
Unaudited Consolidated Balance Sheet
at December 31, 1999 (unaudited) F-20
Unaudited Consolidated Statements of Income
for the three
and six months ended December 31, 1999
and 1998 (both unaudited) F-22
Unaudited Consolidated Statements of
Cash Flows for the six
months ended December 31, 1998
and 1998 (both unaudited) F-23
Notes to Unaudited Consolidated Financial Statements F-24
</TABLE>
F - 19
<PAGE>
<TABLE>
<CAPTION>
HYPERDYNAMICS CORPORATION
Interim Unaudited Financial Statements
HYPERDYNAMICS CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1999
<S> <C>
ASSETS
Current Assets
Cash - Operating $ 3,583
Other 2,351
Accounts Receivable - trade 306,239
other 28,001
Inventory 88,148
Revenue interest current portion 85,970
Prepaid expenses 65,212
----------
TOTAL CURRENT ASSETS 579,504
PROPERTY AND EQUIPMENT
Computers, communication &
IS infrastructure 159,359
Office furniture and equipment 10,152
Leasehold improvements 11,188
----------
Total property and equipment 180,699
Accumulated depreciation (111,231)
----------
TOTAL NET PROPERTY AND
EQUIPMENT 69,468
OTHER ASSETS
Investment in revenue sharing - long term 106,827
Intangible assets - net (PS customer list) 45,900
----------
Other 101,598
----------
TOTAL OTHER ASSETS 254,325
----------
TOTAL ASSETS $ 903,297
==========
</TABLE>
See notes to unaudited financial statements.
F - 20
<PAGE>
<TABLE>
<CAPTION>
HYPERDYNAMICS CORPORATION
Interim Unaudited Financial Statements
HYPERDYNAMICS CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1999
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 168,576
Accrued payroll taxes 2,459
Sales taxes payable 21,255
------------
TOTAL CURRENT LIABILITIES 192,290
OTHER LIABILITIES AND
DEFERRED INCOME
Deferred Revenue 65,000
------------
TOTAL LIABILITIES AND
DEFERRED INCOME 65,000
STOCKHOLDERS' EQUITY
Common stock, par value $0.001; 12,564
50,000,000 shares authorized;
12,564,503 shares issued and outstanding.
Additional paid-in capital 1,787,270
Retained (deficit) (1,153,827)
------------
TOTAL STOCKHOLDERS'
EQUITY 646,007
------------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $ 903,297
============
</TABLE>
See notes to unaudited financial statements.
F - 21
<PAGE>
<TABLE>
<CAPTION>
HYPERDYNAMICS CORPORATION
Interim Unaudited Financial Statements
HYPERDYNAMICS CORPORATION
AND SUBSIDIARIES
Consolidated Income Statements
3 Months and 6 Months Ended December 31, 1999 and 1998
3 MONTHS ENDED 6 MONTHS ENDED
DECEMBER 31 DECEMBER 31
------------------- --------------------
1999 1998 1999 1998
-------- --------- -------- ----------
<S> <C> <C> <C> <C>
Revenues $712,422 $177,265 $955,811 $ 334,168
Cost of Revenues 444,294 91,878 542,547 202,055
-------- --------- -------- ----------
GROSS MARGIN 268,128 85,387 413,264 132,113
Operating Expenses
Selling 36,901 2,298 41,215 7,969
General and
Administrative 122,978 147,748 254,164 261,576
Interest 0 3,277 0 3,277
Depreciation 6,250 8,340 12,500 15,149
-------- --------- -------- ----------
TOTAL OPERATING
EXPENSES 166,129 161,663 307,879 287,971
-------- --------- -------- ----------
OPERATING
INCOME/(LOSS) 101,999 (76,276) 105,385 (155,858)
</TABLE>
See notes to unaudited financial statements.
<TABLE>
<CAPTION>
HYPERDYNAMICS CORPORATION
Interim Unaudited Financial Statements
<S> <C> <C> <C> <C>
Other Income (Expense)
Gain on Sale of
Discontinued Operations (568) 0 127,065 0
Loss from Discontinued
Operations 0 654 (568) 0
Other 29 (9,397) 28 (7,972)
------------ ------------ ------------ ------------
NET INCOME/(LOSS)
BEFORE
INCOME TAXES 101,460 (85,019) 231,910 (163,830)
------------ ------------ ------------ ------------
Income Tax (Benefit) 0 0 0 0
NET INCOME/(LOSS) $ 101,460 ($85,019) $ 231,910 ($163,830)
NET INCOME/(LOSS)
PER COMMON SHARE $ .01 $ (.01) $ .02 $ (.02)
Weighted average
shares outstanding 12,437,329 12,208,321 12,437,329 12,208,321
</TABLE>
See notes to unaudited financial statements.
F - 22
<PAGE>
<TABLE>
<CAPTION>
HYPERDYNAMICS CORPORATION
Interim Unaudited Financial Statements
HYPERDYNAMICS CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
6 Months Ended December 31, 1999 and 1998
1999 1998
--------- ----------
<S> <C> <C>
Cash flows from operating activities
Net Income/(Loss) 105,414 $(163,830)
Adjustments to reconcile net income to
cash provided from operating activities
Depreciation and amortization 12,500 15,149
Sale of Discontinued Operations 127,633 0
Loss from Discontinued Operations (568) 0
Note conversion 0 7,972
Decrease in equipment from discontinued operations 26,468 0
Net (increase) decrease receivables and other
Certificate of deposit - restricted 0 94,000
Accounts receivable - trade (219,853) (44,912)
Other (23,000) 30,000
Due from officers 0 0
Inventory (16,664) (33,946)
Prepaid expenses (60,164) 0
Revenue sharing (50,000) 20,037
Deposits and Other assets (111,169) 0
Net increase (decrease) accruals / payables
Accounts payable - trade 7,659 60,754
Accrued expenses (10,120) 9,436
Accrued taxes 19,015 (5,890)
Other 53,800 (5,950)
--------- ----------
</TABLE>
See notes to unaudited financial statements.
<TABLE>
<CAPTION>
HYPERDYNAMICS CORPORATION
Interim Unaudited Financial Statements
<S> <C> <C>
NET CASH (USED) BY
OPERATING ACTIVITIES (139,049) (17,180)
Cash flows from investing activities
Purchase of property and equipment 0 (13,911)
--------- --------
</TABLE>
<TABLE>
<CAPTION>
HYPERDYNAMICS CORPORATION
Interim Unaudited Financial Statements
<S> <C> <C>
NET CASH PROVIDED (USED)
FOR INVESTING ACTIVITIES 0 (13,911)
Cash flows from financing activities
Sale of common stock - related party 50,000 0
Sale of common stock 27,500 0
Increase in short-term convertible notes 0 27,680
--------- ---------
NET CASH PROVIDED FROM
FINANCING ACTIVITIES 77,500 27,680
--------- ---------
NET DECREASE IN CASH (61,549) (3,411)
CASH AT BEGINNING OF PERIOD 67,483 4,908
--------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 5,934 $ 1,549
Supplemental Information
Interest paid $ 0 $ 0
</TABLE>
See notes to unaudited financial statements.
F - 23
<PAGE>
HYPERDYNAMICS CORPORATION
Interim Unaudited Financial Statements
HYPERDYNAMICS CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. The unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. The financial statements contained herein should be read
in conjunction with the audited financial statements of the Company.
Accordingly, footnote disclosures which would substantially duplicate the
disclosure in those statements has been omitted. Certain reclassifications were
made to financials as of December 31, 1998 in order to conform to the current
presentation.
2. During the quarter and six months ended December 31, 1999, warrants for
275,000 unregistered common stock with a strike price of $2.00 per share were
granted to Robert Gleckman pursuant to a consulting agreement. During the same
period 57,500 options with a strike price of $2.00 per share for registered
common stock under S-8 registration were granted to employees.
3. During the second quarter ending December 31, 1999,100,000 options were
exercised at $.50 per share by Michael E. Watts, brother of Kent Watts,
President for the Company and 100,000 shares were issued as a result. During the
same period 55,000 options were exercised at $.50 per share by others and the
55,000 shares were issued. This is a total of 155,000 options exercised for the
period ended December 31, 1999 for a total of $77,500.
See notes to unaudited financial statements.
F - 24
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
45
<PAGE>
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware General Corporation Law permits a corporation organized under
Delaware law to indemnify directors and officers with respect to any matter in
which the director or officer acted in good faith and in a manner he reasonably
believed to be not opposed to our best interests, and, with respect to any
criminal action, had reasonable cause to believe his conduct was lawful.
Our Bylaws provide that our directors and officers are indemnified by us if
that person is a party to a matter by reason of being a director or officer.
These provisions may discourage stockholders from bringing suit against a
director for breach of fiduciary duty and may reduce the likelihood of
derivative litigation brought by our stockholders on our behalf against a
director.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the distribution of the securities being registered. The
expenses shall be paid by the Registrant.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee $ 2,050.00
Printing and Engraving Expenses $ 2,000.00
Legal Fees and Expenses $50,000.00
Accounting Fees and Expenses $ 5,000.00
Transfer Agent Fees $ 2,000.00
Blue Sky Fees $ 3,000.00
__________________ *
__________________ *
Miscellaneous $ 5,000.00
__________
Total $69,050.00
==========
<FN>
* To be provided by amendment.
</TABLE>
ITEM 26. RECENT SALE OF UNREGISTERED SECURITIES
During the past three years, the following transactions were effected by us
in reliance upon exemptions from registration under the Securities Act of 1933
as amended (the "Act").
Unless stated otherwise, we believe that:
46
<PAGE>
- - Each of the persons who received these unregistered securities had
knowledge and experience in financial and business matters which allowed
them to evaluate the merits and risk of the receipt of these securities,
and that they were knowledgeable about our operations and financial
condition.
- - No underwriter participated in, nor did we pay any commissions or fees to
any underwriter in connection with the transactions.
- - This transactions did not involve a public offerings
- - Each certificate issued for these unregistered securities contained a
legend stating that the securities have not been registered under the Act
and setting forth the restrictions on the transferability and the sale of
the securities.
1. In February, 1997, we issued 20,000 shares of common stock to our legal
counsel as payment in kind for legal services rendered. This was a private
placement made in reliance on Section 4(2) of the Act. The value we set for
this transaction was $36,000.
2. In February, 1997, we issued a total of 30,000 shares of common stock to
two investors for a total of $37,500 in cash. This was a private placement made
in reliance on Section 4(2) of the Act.
3. In March, 1997, we issued 700,000 shares of common stock to Kent Watts as
a price adjustment to a 1996 transaction whereby Mr. Watts sold us all of the
equity in ITHost.net Corporation (formerly, MicroData Systems, Inc.). The 1996
transaction and the March 1997 price adjustment were reported in our annual
report on Form 10-KSB for the fiscal year ended June 30, 1997. This was a
private placement made in reliance on Section 4(2) of the Act.
4. In March, 1997, we issued a total of 5,000 options to purchase shares of
common stock to one employee as payment in kind for employment. These options
were immediately exercisable at an exercise price of $1.25 per share. The
expiration date of these options is March, 2000. This was a private placement
made in reliance on Section 4(2) of the Act.
5. In April, 1997, we issued 20,000 shares of common stock to one investor
for $25,000 in cash. This was a private placement made in reliance on Section
4(2) of the Act.
6. In May, 1997, we issued a total of 177,000 shares of common stock to
three persons as payment for our acquisition of a revenue sharing agreement
related to SierraNet, Inc. We valued this transaction at $177,000. This was a
private placement made in reliance on Section 4(2) of the Act.
47
<PAGE>
7. In June, 1997, we issued a total of 326,060 options to purchase shares of
common stock to four vendors and employees as payment in kind for employment,
accounting and business services rendered. These options were immediately
exercisable at exercise prices of $.001 per share for services rendered prior to
June 30, 1997 (125,000 of these options), to $.75 to $1.25 per share for then
current services rendered (201,060 of these options). The expiration date of
275,000 of these options was June, 1998, and the expiration date of the
remaining 51,060 was June, 2000. This was a private placement made in reliance
on Section 4(2) of the Act. The value we set for this transaction was $4,380.
8. In June, 1997, we issued a total of 300,000 options to purchase shares of
common stock to one vendor as payment in kind for business services rendered.
These options were immediately exercisable at exercises prices ranging from $.62
to $1.37 per share. The expiration dates of these options was December, 1998.
This was a private placement made in reliance on Section 4(2) of the Act.
9. In July, 1997, we issued a total of 200,000 options to purchase shares of
common stock to one employee as payment in kind for business services rendered.
These options were immediately exercisable at exercises prices ranging from $.50
to $1.25 per share. These options expire in July, 2002. This was a private
placement made in reliance on Section 4(2) of the Act.
10. In July, 1997, we issued a total of 21,431 shares of common stock to
three persons as payment in kind for business, marketing, accounting and legal
services rendered. This was a private placement made in reliance on Section
4(2) of the Act. The value we set for this transaction was $37,707.
11. In July, 1997, we issued a total of 136,000 options to purchase shares
of common stock to three vendors and employees as payment in kind for employment
and business services rendered. These options were immediately exercisable at
an exercise price of $1.25 per share. The expiration dates of these options is
July, 2000 (6,000 of these options) or July, 2002 (130,000 of these options).
This was a private placement made in reliance on Section 4(2) of the Act.
12. In December, 1997, we issued 5,000 shares of common stock to one vendor
as payment in kind for financing services rendered. This was a private
placement made in reliance on Section 4(2) of the Act. The value we set for
this transaction was $5,000.
13. In December, 1997, we issued a total of 3,350 warrants to purchase
shares of common stock to one consultant as payment in kind for business
acquisition services rendered. These warrants were immediately exercisable at
an exercise price of $1.00 per share. The expiration date of these warrants is
December, 2000. This was a private placement made in reliance on Section 4(2)
of the Act.
14. In January, 1998, we issued 5,833,333 shares of common stock to one
creditor upon conversion of $350,000 of our debt. We believe that this creditor
was knowledgeable about our operations and financial condition. This was a
private placement made in reliance on Section 4(2) of the Act.
48
<PAGE>
15. In June, 1998, we issued a total of 200,000 shares of common stock to
two persons in exchange for businesses they each owned. This was a private
placement made in reliance on Section 4(2) of the Act. The value we set for
this transaction was $200,000.
16. In June, 1998, we issued a total of 67,500 warrants to purchase shares
of common stock to three employees as compensation (bonuses). These warrants
were immediately exercisable at an exercise price of $1.00 per share. The
expiration date of these warrants is June, 2000. This was a private placement
made in reliance on Section 4(2) of the Act.
17. In March, 1999, we issued 123,000 shares of common stock to one investor
for $50,000 in cash. This was a private placement made in reliance on Section
4(2) of the Act.
18. In April, 1999, we issued a total of 480,000 options to purchase shares
of common stock to three employees and vendors as payment in kind for business
services rendered. These options were immediately exercisable at an exercise
price of $.50 per share. The expiration date of these options is March, 2001.
This was a private placement made in reliance on Section 4(2) of the Act.
19. In April, 1999, we issued a total of 350,000 warrants to purchase shares
of common stock to two vendors as payment in kind for services rendered. These
warrants were immediately exercisable at an exercise price of $0.50 per share.
The expiration date of these warrants is March, 2002. This was a private
placement made in reliance on Section 4(2) of the Act.
20. In June, 1999 we issued a total of 100,000 warrants to purchase shares
of common stock to one employee as compensation (bonus). These warrants were
immediately exercisable at an exercise price of $0.51 per share. The expiration
date of these warrants is June, 2001. This was a private placement made in
reliance on Section 4(2) of the Act.
21. In October, 1999 we issued a total of 275,000 warrants to purchase
shares of common stock to one vendor as payment in kind for business and
financing services rendered. These warrants are immediately exercisable at an
exercise price of $1.50 per share. The expiration date of these warrants is
September, 2002. This was a private placement made in reliance on Section 4(2)
of the Act.
22. In December, 1999, we issued a total of 57,500 options to purchase
shares of common stock to 18 employees as payment in kind for employment
(bonuses and incentive compensation). These options are immediately exercisable
at an exercise price of $2.00 per share. The expiration date of these options
is November, 2001. This was a private placement made in reliance on Section
4(2) of the Act.
49
<PAGE>
23.
(A) In January, 2000, we sold 3,000 shares of our new issue Series A
Preferred Stock for a total of $3,000,000 in cash to three accredited
investors. As part of this transaction, we also issued to the three
investors a total of 300,000 warrants to purchase shares of our common
stock at an exercise price of $5.9125 per share which are immediately
exercisable and expire in January , 2005. This was a private placement
that was exempt from registration pursuant to Section 4(2) of the Act
and Rule 506 of Regulation D of the Act.
(B) J. P. Carey Securities, Inc. was our placement agent for the
transactions in paragraph 23(A) above. We paid J. P. Carey $180,000 in
commissions, $30,000 in expense allocation and 180,000 Placement
Warrants that have an exercise price of $ 7.095 per share that expire
in January, 2005. The Placement Warrants issued to J. P Carey was a
private placement that was exempt from registration pursuant to
Section 4(2) of the Act .
24. In January, 2000 we issued 120,000 Consultant Warrants to purchase
common stock at an exercise price of $7.095 to one individual as payment in
kind for business financing services rendered. These warrants expire in January
, 2005. This was a private placement that was exempt from registration pursuant
to Section 4(2) of the Act .
50
<PAGE>
<TABLE>
<CAPTION>
ITEM 27. EXHIBITS
<C> <S>
3.1.1 Articles of Incorporation
3.1.2 Amendment Number 1 to Articles of Incorporation
3.1.3 Amendment Number 2 to Articles of Incorporation
3.2 Bylaws
4.1 Form of Common Stock Certificate
4.2 Form of Preferred Stock Certificate
4.3 Certificate of Designation of Series A Preferred Stock
4.4 Form of Investor Warrant Agreement with Form of Warrant Certificate
4.5 Form of Placement/Consultant Warrant Agreement with Form of Warrant
Certificate
5.1 Opinion re: Legality
10.1 Employment Agreement with Kent Watts
10.2 Form of Registration Rights Agreement
21.1 Subsidiaries
23.1 Consent of Counsel, Axelrod, Smith & Kirshbaum, is contained in their opinion
filed as Exhibit 5.1 to this Registration Statement.
23.2 Consent of Independent Auditor
27.1 Financial Data Schedule for the fiscal year ended June 30, 1999 which is
incorporated by reference to our Annual Report on Form 10-KSB for the fiscal
year ended June 30, 1999.
27.2 Financial Data Schedule for the fiscal year ended June 30, 1998 which is
incorporated by reference to our Annual Report on Form 10-KSB for the fiscal
year ended June 30, 1998.
27.3 Financial Data Schedule for the quarter ended December 31, 1999 which is
incorporated by reference to our Quarterly Report on Form 10-QSB for the
quarter ended December 31, 1999.
</TABLE>
51
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes that it will:
Undertaking (a)
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
52
<PAGE>
(i) Include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information set forth
in the registration statement; and arising after the effective date of
the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) ('230.424(b) of this chapter) if, in the
aggregate, the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(iii)Include any additional or changed material information on the plan of
distribution
(2) For determining any liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Undertaking (e)
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "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.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
53
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Houston,
County of Harris, State of Texas, on February 24, 2000.
HYPERDYNAMICS CORPORATION
By: /s/ Kent Watts
Kent Watts
Director, Chief Executive Officer,
President and Chief Accounting Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates indicated:
/s/ Kent Watts Director, Chief Executive Officer, February 24, 2000
Kent Watts President and Chief Accounting Officer
/s/ Robert J. Hill Director and Vice President February 24, 2000
Robert J. Hill
54
<PAGE>
<TABLE>
<CAPTION>
ITEM 27. EXHIBITS
<C> <S>
3.1.1 Articles of Incorporation
3.1.2 Amendment Number 1 to Articles of Incorporation
3.1.3 Amendment Number 2 to Articles of Incorporation
3.2 Bylaws
4.1 Form of Common Stock Certificate
4.2 Form of Preferred Stock Certificate
4.3 Certificate of Designation of Series A Preferred Stock
4.4 Form of Investor Warrant Agreement with Form of Warrant Certificate
4.5 Form of Placement/Consultant Warrant Agreement with Form of Warrant
Certificate
5.1 Opinion re: Legality
10.1 Employment Agreement with Kent Watts
10.2 Form of Registration Rights Agreement
21.1 Subsidiaries
23.1 Consent of Counsel, Axelrod, Smith & Kirshbaum, is contained in their opinion
filed as Exhibit 5.1 to this Registration Statement.
23.2 Consent of Independent Auditor
27.1 Financial Data Schedule for the fiscal year ended June 30, 1999 which is
incorporated by reference to our Annual Report on Form 10-KSB for the fiscal
year ended June 30, 1999.
27.2 Financial Data Schedule for the fiscal year ended June 30, 1998 which is
incorporated by reference to our Annual Report on Form 10-KSB for the fiscal
year ended June 30, 1998.
27.3 Financial Data Schedule for the quarter ended December 31, 1999 which is
incorporated by reference to our Quarterly Report on Form 10-QSB for the
quarter ended December 31, 1999.
</TABLE>
<PAGE>
CERTIFICATE OF INCORPORATION
OF
RAM-Z ENTERPRISES, INC
We the undersigned natural persons of the age of twenty -one (21) years or
more, acting as incorporators of a corporation under the General Corporation Law
of Delaware, adopt the following Articles of Incorporation for such corporation.
ARTICLE I
NAME
The name of this corporation is,
RAM_Z ENTERPRISES, INC. [NAME OF CORPORATION]
ARTICLE II
DURATION
The duration of this corporation is perpetual.
ARTICLE III
The purpose or purposses for which this corporation is organized are:
(a) To engage in the general practice of purchasing, selling, licensing,
manufacturing or marketing of products of any kind whatsoever; to purchase ,
acquire, own, hold, lease, mortgage, encumber, sell, and dispose of any and all
kinds and character of property, real and personal and mixed (the foregoing
particular enumeration in no sense used by way of exclusion or limitation) and
while the owner thereof, to exercise all the rights to vote thereon.
(b) To invest in high technology products, whether it be without limitation as
to the foregoing computer technology, medical devices and any and all other
manner of high technology products.
(c) To borrow and lend money with or without security, and to endorse or
otherwise guarantee the obligations of others.
(d) To act as principal or agent for others and receive compensation for all
services which it may render in the performance of the duties of an agency
character.
(e) To acquire by purchase, exchange, gift, bequest, subscription or otherwise,
and o hold, own, mortgage, pledge, hypothecate, sell, assign, transfer, exchange
or otherwise dispose of or deal in or with its own corporate securities of
stock, or other securities, including without limitations, any shares of stock,
bonds, debentures, notes, mortgages, or other obligations, and any certificates,
receipts of other instruments representing rights or interests therein or any
property or assets created or issued by any person, firm, association, or
corporation, or any government or subdivision, agencies or instrumentalities
thereof; to make payment therefore in any lawful manner or to issue in exchange
therefore its own securities or to use its unrestricted and unreserved earned
surplus for the purchase of its own shares, and to exercise as owner or holder
of any securities, any and all rights, powers and privileges in respect thereof.
(f) To do each and every thing necessary, suitable or proper for the
accomplishment of any of the purposes or the attainment of any one or more of
the subjects herein enumerated, or which may at any time appear conductive to or
expedient for protection or benefit of this corporation, and to do said acts as
fully and to the same extent as natural persons might, or could do, in any part
of the world as principals agents, partners trustees or otherwise, either alone
or in conjunction with any other person, association or corporation.
<PAGE>
(g) The foregoing clauses shall be construed both as purpose and powers and
shall not be held to limit or restrict in any manner the general powers of the
corporation, and the enjoyment and exercise thereof, as conferred by the laws of
the State of Delaware; and it is the intention that the purposes and powers
specified in each of the paragraphs of this Article III shall be regarded as
independent purposes and powers specified in each of the paragraphs of this
Article III shall be regarded as independent purposes and powers.
ARTICLE IV
STOCK
The aggregate number of shares which this corporation shall have authority
to issue is fifty million (50,000,000) shares of par value stock at $.001 per
share. All stock of the corporation shall be or the same rights and
preferences. Fully-paid stock of this corporation shall not be liable to any
further call or assessment.
ARTICLE V
AMENDMENT
These Articles of Incorporation may be amended by the affirmative vote of a
majority of the shares entitled to vote on each such amendment.
ARTICLE VI
SHAREHOLDER RIGHTS
The authorized and treasury stock of this corporation may be issued at such
time, upon such terms and conditions and for such consideration as the Board of
Directors shall determine. Shareholders shall not have pre-emptive rights to
acquire unissued shares of the stock of this corporation and cumulative voting
is denied.
ARTICLE VII
CAPITALIZATION
This corporation will not commence business until consideration of a value
of at least ONE THOUSAND DOLLARS ($1,000) has been received for issuance of
shares.
ARTICLE VIII
INITIAL OFFICE AND AGENT
The address of this corporation's initial registered office and the name of
its original registered agent as such address is.
THE COMPANY CORPORATION
THREE CHRISTINA CENTRE
201 N. Walnut Street
Wilmington, DE 19801
County of New Castle
<PAGE>
ARTICLE IX
DIRECTORS
The number of Directors constituting the initial Board of Directors of this
corporation is three (3). The names and addresses of persons who are to serve
as directors until the first annual meeting of stockholders, or until their
successors are elected and qualified are:
GREGORY AURRE
155 E. 34th St.
NY, NY 10016
AMERIKA AURRE
155 E. 29th St.
NY, NY 10016
EDWARD GREENBAUM
300 E. 57th St.
NY, NY 10021
ARTICLE X
INCORPORATORS
The name and address of each incorporator is:
REGINA CEPHAS
THREE CHRISTINA CENTRE
201 N. WALNUT STREET
WILMINGTON, DE 19801
COMMON DIRECTORS - TRANSACTIONS BETWEEN CORPORATIONS
No contact or other transaction between this corporation, firm, association
or entity in which one or more of its directors are directors or officers or are
financially interested, shall be either void or voidable because of such
relation or interest, or because such director or directors are present at the
meeting of the Board of Directors, or a committee thereof which authorizes,
approves or ratifies such contract or transaction, or because his or their votes
are counted for such purpose if:
(a) the fact of such relationship or interest is disclosed or known to the Board
of Directors or committee which authorizes, approves, or ratifies this contract
or transaction by vote or consent sufficient for the purpose without counting
the votes or consents of such interested directors or;
(b) the fact of such relationship or interest is disclosed or known to the
shareholders entitled to vote and they authorize, approve, or ratify such
contract or transaction by vote or by written consent; or
(c) the contract or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or committee thereof
which authorizes approves or ratifies such contractor transaction.
DATED this 17thday of May. 1994
------- ------
/s/ Regina Cephas
-------------------
Regina Cephas
<PAGE>
EXHIBIT 3.1.2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM
01/21/1997 971020662 - 2402791
STATE OF DELAWARE CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
RAM-Z ENTERPRISES, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the board of Directors of RAM-Z ENTERPRISES, INC.
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment is
as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be amended
by changing the Article thereof numbered "Article I" so that, as amended, said
Article shall be and read as follows:
The name of the corporation is HyperDynamics Corporation.
SECOND: that thereafter, pursuant to resolution of its Board of Directors, a
meeting of the stockholders of said corporation was duly called and held upon
notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware at which meeting the necessary number of shares as required by
statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or by
reason of said amendment.
<PAGE>
IN WITNESS WHEREOF, said RAM-Z ENTERPRISES, INC. has caused this certificate to
be signed by GREGORY J. MICEK, an authorized Officer, this 18th day of January,
1997.
By: /s/ GREGORY J. MICEK
- ------------------------------------
Gregory J. Micek, President
Attested By: /s/ LEWIS E. BALL
- ---------------------------
Lewis E. Ball, Secretary
ACKNOWLEDGMENT
- --------------
THE STATE OF TEXAS Section
Section
COUNTY OF HARRIS Section
BEFORE ME, the undersigned authority, on this day personally appeared GREGORY J.
MICEK, President of RAM-Z ENTERPRISES, INC. known to me to be the person whose
name is prescribed to the foregoing instrument and acknowledged to me that he
executed the same in the capacity and for the purposes and consideration therein
expressed.
Given under my hand and seal of office on this the 18th day of January, 1997.
/s/ JOHN C. GOSS
- ----------------------------------
Notary Public in and for
the State of TEXAS
My Commission Expires: 09-30-2000
- ------------
- ------------------------------------
[NOTARY SEAL] JOHN C. GOSS
Notary Public in and
for the State of Texas
My Commission Expires
September 30, 2000
<PAGE>
- -------------------------------------
THE STATE OF TEXAS Section
Section
COUNTY OF HARRIS Section
BEFORE ME, the undersigned authority, on this day personally appeared LEWIS E.
BALL, Secretary of RAM-Z ENTERPRISES, INC. known to me to be the person whose
name is subscribed to the foregoing instrument and acknowledged to me that he
executed the same in the capacity and for the purposes and consideration therein
expressed.
Given under my hand and seal of office on this the 18th day of January, 1997.
/s/ JOHN C. GOSS
- ----------------------------------
Notary Public in and for
the State of TEXAS
My Commission Expires: 09-30-2000
- ------------------------------------------
[NOTARY SEAL] JOHN C. GOSS
Notary Public in and
for the State of Texas
My Commission Expires
September 30, 2000
- -------------------------------------
<PAGE>
EXHIBIT 3.1.3
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 09/20/1999
991395456 - 2402791
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
HYPERDYNAMICS CORPORATION
Hyperdynamics Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation by the unanimous written
consent of its members, filed with the minutes of the Board, adopted resolutions
proposing and declaring advisable the following amendments to the Certificate of
Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of Hyperdynamics Corporation be
amended by adding the following to the Fourth Article thereof:
Article IV of the Company's Articles of Incorporation is amended to add new
sections (b) and (c) as follows:
ARTICLE IV
"(b) The aggregate number of shares of preferred stock which the corporation
shall have authority to issue is twenty million (20,000,000) shares of preferred
stock, par value of $0.001. No share of preferred stock shall be issued until
it has been paid for and it shall thereafter be non-assessable
(c) The Preferred Stock may be divided into and issued in one or more series.
The preferences, limitations, and relative rights of the Preferred Stock may
vary between series in any and all respects, but shall not vary within a series.
The Board of Directors may establish one or more series of unissued shares of
the Preferred Stock and fix and determine the preferences, limitations, and
relative rights of any series to the fullest extent set forth herein and
permitted by Delaware law, as now or hereafter in force. The Board of Directors
may increase or decrease the number of shares within each such
<PAGE>
series; provided, however, that the Board of Directors may not decrease the
number of shares within a series below the number of shares within such series
that is then issued. The preferences, limitations, and relative rights of any
Preferred Stock to be issued shall be fixed by the Board of Directors adopting a
resolution or resolutions to such effect and filing a statement with respect
thereto as required by Delaware law."
SECOND: That at a meeting and vote of stockholders on August 26, 1999, these
amendments were duly adopted in accordance with S222 and S242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Hyperdynamics Corporation has caused this certificate
to be signed by Kent Watts, its President and attested by Ted Tarver, its
Assistant Secretary, this 20th day of September 1999.
Hyperdynamics Corporation
By: /s/ Kent Watts
- ----------------
Kent Watts, President
ATTEST:
By: /s/ Ted Tarver
- ----------------
Ted Tarver, Assistant Secretary
THE STATE OF TEXAS |
COUNTY OF HARRIS |
BEFORE ME, the undersigned authority, on this day personally appeared Kent
Watts, known to me to be the person whose name is subscribed to the foregoing
instrument and acknowledged to me that the executed the same for the purposes
and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL of office this 2nd day of Sept. 1999.
/s/ Esther Ruiz
- -----------------
NOTARY PUBLIC IN AND FOR
THE STATE OF TEXAS
[STAMP OF ESTHER RUIZ NOTARY PUBLIC SATE OF TEXAS]
THE STATE OF TEXAS |
<PAGE>
COUNTY OF HARRIS |
BEFORE ME, the undersigned authority, on this day personally appeared Ted
Tarver, known to me to be the person whose name is subscribed to the foregoing
instrument and acknowledged to me that the executed the same for the purposes
and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL of office this 2nd day of Sept. 1999.
/s/ Esther Ruiz
- -----------------
NOTARY PUBLIC IN AND FOR
THE STATE OF TEXAS
[STAMP OF ESTHER RUIZ NOTARY PUBLIC SATE OF TEXAS]
<PAGE>
BYLAWS
HYPERDYNAMICS CORPORATION
FORMERLY, RAM-Z ENTERPRISES, INC.
(a Delaware corporation)
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing
stock in the corporation shall be signed by, or in the name of. the corporation
by (a) the Chairman or Vice- Chairman of the Board of Directors, if any, or by
the President or a VicePresident and (b) by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the corporation. Any or
all the signatures on any such certificate may be a facsimile. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the, certificate representing such shares.
The corporation may Issue a new certificate of stock or uncertificated
shares in place of any certificate theretofore issued by it, alleged to have
been lost, stolen, or destroyed, and the Board of Directors may require the
owner of the lost, stolen, or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such new certificate or uncertificated shares.
2. UNCERTLFICATED SHARES. Subject to any conditions imposed by the
General Corporation Law, the Board of Directors of the corporation may provide
by resolution or resolutions that some or all of any or all classes or series of
the stock of the corporation shall be uncertificated shares. Within a reasonable
time after the issuance or transfer of any uncertificated shares, the
corporation shall send to the registered owner thereof any written notice
prescribed by the General Corporation Law.
<PAGE>
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not
be required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by a
certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share or an uncertificated fractional share shall, but scrip or
warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing the
full shares or uncertificated full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting
the transfer or registration of transfer of shares of stock, if any, transfers
or registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix, a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of Directors, and
which record date shall not be more than sixty nor less than ten days before the
date of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting. In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. if no record date has been fixed by the Board of Directors, the
record date for determining the stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is required by the General Corporation Law, shall be the first daze on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the corporation by delivery to its registered office In
the State of Delaware, its principal place of business, or an officer or agent
of the corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the corporation's registered
office
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shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by the General Corporation Law, the record
date for determining stockholders entitled to consent to corporate action in
writing without a meeting shall be at the close of business on the day on which
the Board of Directors adopts the resolution taking such prior action. In order
that the corporation may determine the stockholders entitled to receive payment
of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing die record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the
right to notice of a meeting of stockholders or a waiver thereof or to
participate or vote thereat or to consent or dissent in writing in lieu of a
meeting, as the case may be, the term "share" or "shares" or "share of stock" or
"shares of stock" or "stockholder" or "stockholders" refers to an outstanding
share or shares of stock and to a holder or holders of record of outstanding
shares of stock when the corporation is authorized to issue only one class of
shares of stock, and said reference is also intended to include any outstanding
share or shares of stock and any holder or holders of record of outstanding
shares of stock of any class upon which or upon whom the certificate of
incorporation confers such rights where there are two or more classes or series
of shares of stock or upon which or upon whom the General Corporation Law
confers such rights notwithstanding that the certificate of incorporation may
provide for more than one class or series of shares of stock, one or more of
which are limited or denied such rights thereunder; provided, however, that no
such right shall vest in the event of an increase or a decrease in the
authorized number of shares of stock of any class or series which is otherwise
denied voting rights under the provisions of the certificate of incorporation,
except as any provision of law may otherwise require.
7. STOCKHOLDER MEETINGS.
-TIME. The annual meeting shall be held on the date and at the time
fixed, from time to time, by the directors, provided, that the first annual
meeting shall be held on a date within thirteen months after the organization of
the corporation, and each successive annual meeting shall be held on a date
within thirteen months after the date of the preceding annual meeting. A special
meeting shall be held on the date and at the time fixed by the directors.
-PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the directors may, from time
to time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
-CALL. Annual meetings and special meetings may be called by the
directors or by any officer instructed by the directors to call the meeting.
Special meetings must also be called upon the instruction of one or more
stockholders holding singly or collectively at least 20% of the outstanding
common stock in the corporation.
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-NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given. stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
or by mail, not less than ten days nor more than sixty days before the date
of the meeting, unless the lapse of the prescribed period of time shall have
been waived, and directed to each stockholder at his record address or at such
other address which he may have furnished by request in writing to the Secretary
of the corporation. Notice by mail shall be deemed to be given when deposited,
with postage thereon prepaid, in the United States Mail. If a meeting is
adjourned to another time, not more than thirty days hence, and/or to another
place, and if an announcement of the adjourned time and/or place is made at the
meeting, it shall not be necessary to give notice of the adjourned meeting
unless the directors, after adjournment, fix a new record date for the adjourned
meeting. Notice need not be given to any stockholder who submits a written
waiver of notice signed by him before or after the time stated therein.
Attendance of a stockholder at a meeting of stockholders shall constitute a
waiver of notice of such meeting, except when the stockholder attends the
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called
or convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any
written waiver of notice.
-STOCKHOLDER LIST. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city or other municipality or community where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
-CONDUCT OF MEETING. Meetings of the stockholders shall be presided
over by one of the following officers in the order of seniority and If present
and acting -- the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, a Vice-President, or. if none of the foregoing is in
office and present and acting, by a chairman to be chosen by the stockholders.
The Secretary of the corporation, or in his absence, an Assistant Secretary,
shall act as secretary of every meeting, but if neither the Secretary nor an
Assistant Secretary is present the Chairman of the meeting shall appoint a
secretary of the meeting.
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-PROXY REPRESENTATION. Every stockholder may authorize another person
or persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
-INSPECTORS. The directors, in advance of any meeting. may, but need
not, appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath faithfully to execute the duties of inspectors at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots, or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots, or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting, the inspector or inspectors, if any, shall make a report in writing
of any challenge, question, or matter determined by him or them and execute a
certificate of any fact found by him or them. Except as otherwise required by
subsection (e) of Section 231 of the General Corporation Law, the provisions of
that Section shall not apply to the corporation.
-QUORUM. The holders of a majority of the outstanding shares of stock
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
-VOTING. Each share of stock shall entitle the holders thereof to one
vote. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. Any other action shall be authorized by a majority of
the votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power. and except as
may be otherwise prescribed by the provisions of the certificate of
incorporation and these Bylaws. In the election of directors, and for any other
action, voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present
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and voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. Action taken pursuant to this paragraph shall be
subject to the provisions of Section 228 of the General Corporation Law.
9. STOCKHOLDER PROPOSALS. At an annual or a special meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual or special
meeting business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Chairman of the Board,
the President, or the Board of Directors, (b) otherwise properly brought before
the meeting by or at the direction of the Chairman of the Board, the President,
or the Board of Directors, or (c) otherwise properly brought before the meeting
by a stockholder.
No proposal by a stockholder shall be presented at an annual or a special
meeting of stockholders unless such stockholder shall provide the Board of
Directors or the Secretary of the corporation with timely written notice of
intention to present a proposal for action at the forthcoming meeting of
stockholders, which notice shall include (a) the name and address of such
stockholder, (b) the number of voting securities he or she holds of record and
which he or she holds beneficially, (C) the text of the proposal to be presented
at the meeting, (d) a statement in support of the proposal, and (e) any material
interest of the stockholder in such proposal. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the corporation, not less than 60 days nor more than 90 days prior to
the meeting; provided. however, that in the event that less than 70 days' notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the fifth (5th) day following the day on
which such notice of the date of the annual meeting was mailed or such public
disclosure was made. Any stockholder may make any other proposal at an annual or
special meeting of stockholders and the same may be discussed and considered,
but unless stated in writing and filed with the Board of Directors or the
Secretary prior to the date set forth above, no action with respect to such
proposal shall be taken at such meeting and such proposal shall be laid over for
action at an adjourned, special, or annual meeting of the stockholders taking
place no earlier than 60 days after such meeting.
This provision shall not prevent the consideration and approval or
disapproval at an annual meeting of reports of officers, directors, and
committees; but in connection with such reports, no new business shall be acted
upon at such annual meeting unless stated and filed as provided in these Bylaws.
Notwithstanding anything in the Bylaws to the contrary, no business shall be
conducted at any annual or special meeting except in accordance with the
procedures set forth in this these Bylaws. The chairman of the annual meeting
shall, if the facts warrant, determine and declare to the meeting that business
was not properly brought before the meeting and in accordance with the
provisions of these Bylaws, and if he should so determine, he shall so declare
to the meeting and any such business not properly brought before the meeting
shall not be transacted.
Notwithstanding any other provision of these Bylaws, the corporation shall
be under no obligation to include any stockholder proposal in its proxy
statement materials or otherwise present any such proposal to stockholders at a
special or annual meeting of stockholders if the Board of Directors reasonably
believes the proponents thereof have not complied with Sections 13 and 14 of the
Securities Exchange Act of 1934. as amended, and the rules and regulations
promulgated
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thereunder, and the corporation shall not be required to include in its proxy
statement material to stockholders any stockholder proposal not required to be
included in its proxy material to stockholders in accordance with such Act,
rules, or regulations.
10. NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the procedures of these Bylaws shall be eligible for election as
directors. Subject to the rights of holders of any class or series of stock
having a preference over the common stock as to dividends or upon liquidation,
nominations for the election of directors may be made by the Board of Directors
or by any stockholder entitled to vote in the election of directors generally
who complies with the notice procedures set forth in this these Bylaws. Any
stockholder entitled to vote in the election of directors generally may nominate
one or more persons for election as a director at a meeting only if timely
written notice of such stockholder's intent to make such nomination or
nominations has been given, either by personal delivery or by U.S. mail, first
class postage prepaid, return receipt requested, to the Secretary of the
corporation.
To be timely, a stockholder's notice shall be delivered to or mailed and
received at the principal executive offices of the corporation not less than 60
days nor more than 90 days prior to the meeting; provided, however, that in the
event that less than 70 days' notice or prior public disclosure of the date of
the meeting is give or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the fifth
(5th) day following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made. Each such notice shall set forth: (a)
the name and address of the stockholder who intends to make the nomination, (b)
the name, age, business address, and home address of the person or persons to be
nominated; (c) the principal occupation of the person or persons nominated; (d)
a representation that the stockholder is a holder of record of stock of the
corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting and intends to appear at the meeting to nominate the
person or persons specified in the notice; (e) a description of all arrangements
or understandings between the stockholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (f) such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the rules of the Securities and
Exchange Commission, had the nominee been nominated, or intended to be
nominated, by the Board of Directors; and (g) the consent of each nominee to
serve as a director of the corporation if so elected. At the request of the
Board of Directors any person nominated by the Board of Directors for election
as a Director shall furnish to the Secretary of the corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee.
No person shall be eligible for election as a Director of the corporation
unless nominated in accordance with the procedures set forth in these Bylaws.
The chairman of the meeting shall, if the facts warrant, determine and declare
to the meeting that a nomination was not made in accordance with the procedures
prescribed by the Bylaws, and if he should so determine, he shall so declare to
the meeting and the defective nomination shall be disregarded.
ARTICLE II
DIRECTORS
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1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by or under the direction of the Board of Directors
of the corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase 'whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a
stockholder, a citizen of the United States, or resident of the State of
Delaware. The initial Board of Directors shall consist of three persons.
Thereafter the number of directors constituting the whole board shall be at
least one. Subject to the foregoing limitation and except for the first Board of
Directors, such number may be fixed from time to time by action of the
stockholders or of the directors, or, if the number is not fixed, the number
shall be three. The number of directors may be increased or decreased by action
of the stockholders or of the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the
members thereof shall have been named in the certificate of incorporation, shall
be elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. Thereafter, directors who
are elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualified or until their earlier resignation or removal. Except
as the General Corporation Law may otherwise require, in the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of directors and/or for the removal of one or more directors
and for the filling of any vacancy in that connection, newly created
directorships and any vacancies In the Board of Directors, including unfilled
vacancies resulting from the removal of directors for cause or without cause,
may be filled by the vote of a majority of the remaining directors then in
office, although less than a quorum, or by the sole remaining director.
4. MEETINGS.
-TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
-PLACE. Meetings shall be held at such place within or without the
State of Delaware as shall be fixed by the Board.
-CALL. No call shall be required for regular meetings for which the
time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, of the President, or of a majority of the directors in office.
-NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required
for regular meetings for which the time and place have been fixed. Written,
oral, or any other mode of notice of the time and place shall be given for
special meetings in sufficient time for the convenient
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assembly of the directors thereat. Notice need not be given to any director or
to any member of a committee of directors who submits a written waiver of notice
signed by him before or after the time stated therein. Attendance of any such
person at a meeting shall constitute a waiver of notice of such meeting, except
when be attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the directors need be specified in
any written waiver of notice.
-QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum. provided, that
such majority shall constitute at least one-third of the whole Board. A majority
of the directors present, whether or not a quorum is present may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the General Corporation Law, the vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board. The quorum and voting provisions herein stated
shall not be construed as conflicting with any provisions of the General
Corporation Law and these Bylaws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
-CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman
of the Board, if any and if present and acting, or the President, if present
and acting, or any other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by
the General Corporation Law, any director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors In the
management of the business and affairs of the corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
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7. WRITTEN ACTION. Any action required or permitted to be taken at
any meeting of the Board of Directors or any committee thereof may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
8. COMPENSATION. Unless otherwise restricted by the certificate of
incorporation, the Board of Directors shall have the authority to fix the
compensation of directors. No provision of these Bylaws shall be construed to
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor.
9. RELIANCE. Each director and each member of any committee designated
by the Board of Directors shall, in the performance of his duties, be fully
protected in relying in good faith upon the books of account or reports made to
the corporation by any of its officers, or by an independent certified public
accountant, or by an appraiser selected with reasonable care by the Board of
Directors or by any such committee, or in relying in good faith upon other
records of the corporation.
ARTICLE III
OFFICERS
1. OFFICES AND QUALIFICATIONS. The officers of the corporation shall
consist of a President, a Secretary, a Treasurer, and, if deemed necessary,
expedient, or desirable by the Board of Directors, a Chairman of the Board, a
Vice-Chairman of the Board, an Executive Vice- President, one or more other
Vice-Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers with such titles as the resolution of the
Board of Directors choosing them shall designate. Except as may otherwise be
provided in the resolution of the Board of Directors choosing him, no officer
other than the Chairman or Vice-Chairman of the Board, if any, need be a
director. Any number of offices may be held by the same person, as the directors
may determine.
2. TERM. Unless otherwise provided in the resolution choosing him,
each officer shall be chosen for a term which shall continue until the meeting
of the Board of Directors following the next annual meeting of stockholders and
until his successor shall have been chosen and qualified. Any officer may resign
at any time upon written notice to the corporation. Any officer may be removed,
with or without cause, by the Board of Directors. Any vacancy in any office may
be filled by the Board of Directors.
3. COMPENSATION. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors or pursuant to its
direction; no officer shall be prevented from receiving such salary by reason of
his also being a director.
4. AUTHORITY AND DUTIES. All officers of the corporation shall
have such authority and perform such duties in the management and operation of
the corporation as shall be prescribed in the resolutions of the Board of
Directors designating and choosing such officers and prescribing their authority
and duties, and shall have such additional authority and duties as are Incident
to their office except to the extent that such resolutions may be inconsistent
therewith. In addition to thc preceding, the officers of the corporation
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shall have the following authority and duties:
-CHAIRMAN OF THE BOARD. The Chairman of the Board (if such office
is created by the Board) shall preside at all meetings of the Board of Directors
or of the stockholders of the corporation. In the Chairman's absence, such
duties shall be attended to by the Vice Chairman of the Board (if any, but if
there is more than one, the Vice Chairman who is senior in terms of time as
such) or (if there is no Vice Chairman) by the President. The Chairman shall
formulate and submit to the Board of Directors or the executive committee (if
any) matters of general policy of the corporation and shall perform such other
duties as usually appertain to the office or as may be prescribed by the Board
of Directors or the executive committee.
-VICE CHAIRMEN OF THE BOARD, in the absence of the Chairman of the
Board, or in the event of his inability or refusal to act, the Vice Chairman
(if any, but if there is more than one, the Vice Chairman who is senior in terms
of time as such) shall perform the duties and exercise the powers of the
Chairman of the Board, and when acting shall have all the powers of and be
subject to all the restriction upon the Chairman of the Board. In the absence
of the Chairman of the Board, such Vice Chairman shall preside at all meetings
of the Board of Directors or of the stockholders of the corporation. In the
Chairman's and Vice Chairmen's absence, such duties shall be attended to by the
President. The Vice Chairmen shall perform such other duties, and shall have
such other powers, as from time to time may be assigned to them by the Board
of Directors or the executive committee (if any).
-PRESIDENT. The President shall be the chief executive officer of the
corporation and, subject to the control of the Board of Directors, shall in
general manage, supervise and control the properties, business and affairs of
the corporation with all such powers as may be reasonably incident to such
responsibilities. Unless the Board of Directors otherwise determines, the
President shall have the authority to agree upon and execute all leases,
contracts, evidences of indebtedness and other obligations in the name of the
corporation. In the absence of the Chairman of the Board, the President shall
preside at all meetings of the Stockholders and (should he be a director) of the
Board of Directors. He may also preside at any such meeting attended by the
Chairman of the Board if he is so designated by the Chairman. He shall have the
power to appoint and remove subordinate officers, agents and employees, except
those elected or appointed by the Board of Directors. The President shall keep
the Board of Directors and the Executive Committee fully informed and shall
consult them concerning the business of the corporation. He may sign with the
Secretary or any other officer of the corporation thereunto authorized by the
Board of Directors, certificates for shares of the corporation and any deeds,
bonds, mortgages, contracts, checks, notes, drafts or other instruments which
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof has been expressly delegated by these by-laws or
by the Board of Directors to some other officer or agent of the corporation, or
shall be required by law to be otherwise executed. He shall vote, or give a
proxy to any other officer of the corporation to vote all shares of stock of any
other corporation standing in the name of the corporation and shall exercise any
and all rights and powers which this corporation may possess by reason of its
ownership of securities in such other corporation and in general he shall
perform all other duties normally incident to the office of President and such
other duties, and shall have such other powers, as may be prescribed by the
stockholders, the Board of Directors or the Executive Committee (if any) from
time to time.
11
<PAGE>
-VICE PRESIDENTS. In the absence of the President, or in the event of
his inability or refusal to act, the Executive Vice President (or in the event
there shall be no Vice President designated Executive Vice President, any Vice
President designated by the Board) shall perform the duties and exercise the
powers of the President, and when so acting shall have all the powers of and be
subject to all the restrictions upon the President. In the absence of a
designation by the Board of Directors of a Vice President to perform the duties
of the President, or in the event of his absence or inability or refusal to act,
the Vice President who is present and who is senior in terms of time as a Vice
President of the corporation shall so act. Any Vice President may sign, with the
Secretary or Assistant Secretary, certificates for shares of the corporation.
The Vice Presidents shall perform such other duties, and shall have such other
powers, as from time to time may be assigned to them by the President, the Board
of Directors or the executive committee (if any).
-SECRETARY. The Secretary shall (a) keep the minutes of the meetings
of the stockholders, the Board of Directors and committees of directors; (b) see
that all notices are duly given in accordance with the provisions of these
by-laws and as required by law; (c) be custodian of the corporate records and
of the seal of the corporation, and see that the seal of the corporation or a
facsimile thereof is affixed to all certificates for shares prior to the issue
thereof and to all documents, the execution of which on behalf of the
corporation under its seal is duly authorized in accordance with the provisions
of these by-laws and attest the affixation of the seal of the corporation
thereto; (d) keep or cause to be kept a register of the post office address of
each stockholder which shall be furnished by such stockholder; (e) sign with the
President, or an Executive Vice President or Vice President, certificates for
shares of the corporation, the issue of which shall have been authorized by
resolution of the Board of Directors; (f) have general charge of the stock
transfer books of the corporation, which may be kept (subject to any provision
contained in the General Corporation Law) outside the State of Delaware at such
place or places as may be designated from time to time by the Board of
Directors; and (g) in general, perform all duties normally incident to the
office of Secretary and such other duties, and shall have such other powers, as
from time to time may be assigned to him by the President, the Board of
Directors or the executive committee (if any).
-TREASURER. If required by the Board of Directors, the Treasurer shall
give a bond for the faithful discharge of his duties in such sum and with such
surety or sureties as the Board of Directors shall determine. He shall (a) have
charge and custody of and be responsible for all funds and securities of the
corporation; receive and give receipts for moneys due and payable to the
corporation from any source whatsoever and deposit all such moneys in the name
of the corporation in such banks, trust companies or other depositories as shall
be selected in accordance with the provisions of these Bylaws; (b) prepare, or
cause to be prepared, for submission at each regular meeting of the Board of
Directors, at each annual meeting of the stockholders, and at such other times
as may be required by the Board of Directors, the President or the executive
committee (if any), a statement of financial condition of the corporation in
such detail as may be required; and (c) in general, perform all the duties
incident to the office of Treasurer and such other duties, and shall have such
other powers, as from time to time may be assigned to him by the President, the
Board of Directors or the executive committee (if any).
-ASSISTANT SECRETARY OR TREASURER The Assistant Secretaries and
Assistant Treasures shall, in general, perform such duties and have such powers
as shall be assigned to them by the Secretary or the Treasurer, respectively, or
by the President, the Board of Directors or the
12
<PAGE>
Executive Committee. The Assistant Secretaries and Assistant Treasurers shall,
in the absence or inability or refusal to act of the Secretary or Treasurer,
respectively, perform all functions and duties which such absent officers may
delegate, but such delegation shall not relieve the absent officer from the
responsibilities and liabilities of his office. The Assistant Secretaries may
sign, with the President or a Vice President, certificates for shares of the
corporation, the issue of which shall have been authorized by a resolution of
the Board of Directors. The Assistant
Treasurers shall respectively, if required by the Board of Directors, give bonds
for the faithful discharge of their duties in such sums and with such sureties
as the Board of Directors shall determine.
ARTICLE IV
INDEMNIFICATION
1. INDEMIFICATION. This corporation shall, to the maximum extent
permitted from time to time under the law of the State of Delaware, indemnify
and upon request shall advance expenses to any person who is or was a party or
is threatened to be made a party to any threatened, pending or completed action,
suit, proceeding or claim, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was or has agreed to
be a director or officer of this corporation or any of its direct or indirect
subsidiaries or while such a director or officer is or was serving at the
request of this corporation as a director, officer, partner, trustee, employee
or agent of any corporation, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, against
expenses (including attorney's fees and expenses), judgments, fines, penalties
and amounts paid in settlement incurred in connection with the investigation,
preparation to defend or defense of such action, suit, proceeding or claim:
provided, however, that the foregoing shall not require this corporation to
indemnify or advance expenses to any person in connection with any action, suit,
proceeding, claim or counterclaim initiated by or on behalf of such person. Such
indemnification shall not be exclusive of other indemnification rights arising
under any bylaws, agreement, vote of directors or stockholders or otherwise and
shall inure to the benefit of the heirs and legal representatives of such
person. Any person seeking indemnification under this Article IV shall be deemed
to have met the standard of conduct required for such indemnification unless the
contrary shall be established.
2. INSURANCE. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article IV of the by-laws.
3. DEFINITIONS. For purposes of this Article IV, reference to the
"corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence has continued, would
have had power and authority to indemnify its directors, officers and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
13
<PAGE>
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article IV with
respect to the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had continued.
For purposes of this Article IV, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan;
and references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on. or involves services by. such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Article
IV.
ARTICLE V
DIVIDENDS
1. DECLARATION. Dividends upon the capital stock of the
corporation, subject to applicable provisions of the certificate of
incorporation, if any, may be declared by the Board of Directors at any regular
or special meeting, pursuant to applicable law. Dividends may be paid in cash,
in property or in shares of capital stock, subject to applicable provisions of
the certificate of incorporation.
2. RESERVE. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
Board of Directors from time to time, in its absolute discretion, shall think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, o4 for repairing or maintaining any property of the corporation, or
for such other purpose as the Board of Directors shall think conducive to the
interest of the corporation, and the Directors may modify or abolish any such
reserve in the manner in which it was created.
ARTICLE VI
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors shall
prescribe.
14
<PAGE>
ARTICLE VII
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject to
change, by the Board of Directors.
ARTICLE VIII
CONTROL OVER BYLAWS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend. alter, or repeal
these Bylaws and to adopt new Bylaws may be exercised by the Board of Directors
or by the stockholders.
15
<PAGE>
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
NUMBER SHARES
CUSIP NO. 448954 107
HYPERDYNAMICS CORPORATION
50,000,000 AUTHORIZED SHARES $.01 PAR VALUE NON-ASSESSABLE
This Certifies that is the
registered holder of Shares
HYPERDYNAMICS CORPORATION
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed.
This day of A.D. 19
SECRETARY HYPERDYNAMICS CORPORATION PRESIDENT
CORPORATE
Seal
DELAWARE
<PAGE>
NUMBER SHARES
PRA-001 800
HYPERDYNAMICS CORPORATION, a Delaware corporation
Series A Preferred Stock
This Certifies that Cache Capital USA, L.P. is the owner of Eight Hundred
---------------------------- -------------
(800)-------------- fully paid and non-assessable Shares of Series A Preferred
- -------------------
Stock, $0.001 par value per share transferable only on the books of the
Corporation by the holder hereof in person or by duly authorized Attorney upon
surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated January 12, 2000
------------------
/s/ Kent Watts Lewis B. Ball
- ------------------------- -------------------------
President Secretary
<PAGE>
EXHIBIT 4.3
[Time and Date Stamp of
State of Delaware
Secretary of State
Division of Corporations
Filed 09:00 AM 01/12/2000
001018278-2402791]
HYPERDYNAMICS CORPORATION
CERTIFICATE OF DESIGNATION, NUMBER, POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL, AND OTHER SPECIAL RIGHTS AND THE
QUALIFICATIONS, LIMITATIONS, RESTRICTIONS,
AND OTHER DISTINGUISHING CHARACTERISTICS OF
SERIES A PREFERRED STOCK
The undersigned President and Secretary of this Corporation hereby certify
that the Board of Directors of the Corporation, pursuant to the authority
expressly vested in it has adopted the following resolutions creating a Series A
issue of Preferred Stock:
RESOLVED, that five thousand (5,000) of the twenty million (20,000,000)
authorized shares of Preferred Stock of the Corporation shall be designated
Series A Preferred Stock (the "Series A Preferred Stock") and shall possess the
rights and privileges set forth below:
A. Par Value, Stated Value, Accretion Rate, Purchase Price and
------------------------------------------------------------------
Certificates.
- -------------
1. Each share of Series A Preferred Stock shall have $.001 par value
and a stated value (face amount) of One Thousand Dollars ($1,000.00) (the
"Stated Value").
2. The Series A Preferred Stock shall be offered at a purchase
price of One Thousand Dollars ($1,000.00) per share.
<PAGE>
3. Certificates representing the shares of Series A Preferred Stock
purchased shall be issued by the Corporation to the purchasers immediately upon
acceptance of the subscriptions to purchase such shares and receipt by the
Corporation of the purchase price for such shares.
b. Dividends.
---------
1. Amount and Payment of Dividend. Subject to the limitations
----------------------------------
hereinafter set forth, the holders of Series A Preferred Stock shall be entitled
to receive dividends at the rate of four percent (4%) per annum of the original
issue price thereof of One Thousand and No/100 Dollars ($1,000.00) per share,
and no more, payable only at the time such shares are converted pursuant to
Section D hereof. Such dividends may be paid in cash or in shares of Common
Stock of the Corporation as determined by the Corporation in its sole
discretion; provided, however, no fractional shares of either security may be
issued for dividends, any fractional shares will be rounded to the nearest whole
share, and provided further that if any such dividend is paid in whole or in
part by shares of Common Stock, the number of shares of such security to be
issued as a stock dividend shall be determined by the Market Value (as defined
in Section I below) of a share of Common Stock as of the last day of the period
for such stock dividend. Any shares of Series A Preferred Stock issued after
the date hereof shall accrue dividends from the later of the date of full
payment therefor by the purchaser of such shares or issuance thereof by the
Corporation.
2. Cumulative Rights. To the extent, if any, that dividends at the rate set
-----------------
forth in Section B(1) above shall not be paid or set apart in full for the
Series A Preferred Stock, the aggregate deficiency shall be cumulated and must
be fully paid or set apart for payment before any dividends may be paid upon or
set apart for the Common Stock of the Corporation or before the Corporation may
purchase any of its Common Stock or otherwise make any distribution on account
of its Common Stock or any other class of capital stock now or hereafter
authorized or issued by the Corporation which ranks on a parity with or junior
to the Series A Preferred Stock (other than (i) a dividend payable in Common
Stock, or (ii) by conversion into or exchange for capital stock of the
Corporation ranking junior to the Series A Preferred Stock as to dividends).
3. No Interest on Accrued Dividends. Any accumulations of dividends on the
---------------------------------
Series A Preferred Stock shall not bear interest.
C. Liquidation Preference.
-----------------------
<PAGE>
1. In the event of any liquidation, dissolution or winding-up of the
Corporation, either voluntary or involuntary (a "Liquidation"), the holders of
shares of the Series A Preferred Stock then issued and outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its shareholders, whether from capital, surplus or earnings,
before any payment shall be made to the holders of shares of the Common Stock or
upon any other series of Preferred Stock of the Corporation with a liquidation
preference subordinate to the liquidation preference of the Series A Preferred
Stock, an amount per share equal to the Stated Value. If, upon any Liquidation
of the Corporation, the assets of the Corporation available for distribution to
its shareholders shall be insufficient to pay the holders of shares of the
Series A Preferred Stock and the holders of any other series of Preferred Stock
with a liquidation preference equal to the liquidation preference of the Series
A Preferred Stock the full amounts to which they shall respectively be entitled,
the holders of shares of the Series A Preferred Stock and the holders of any
other series of Preferred Stock with liquidation preference equal to the
liquidation preference of the Series A Preferred Stock shall receive all of the
assets of the Corporation available for distribution and each such holder of
shares of the Series A Preferred Stock and the holders of any other series of
Preferred Stock with a liquidation preference equal to the liquidation
preference of the Series A Preferred Stock shall share ratably in any
distribution in accordance with the amounts due such shareholders. After
payment shall have been made to the holders of shares of the Series A Preferred
Stock of the full amount to which they shall be entitled, as aforesaid, the
holders of shares of the Series A Preferred Stock shall be entitled to no
further distributions thereon and the holders of shares of the Common Stock and
of shares of any other series of stock of the Corporation shall be entitled to
share, according to their respective rights and preferences, in all remaining
assets of the Corporation available for distribution to its shareholders.
2. A merger or consolidation of the Corporation with or into any other
corporation, or a sale, lease, exchange, or transfer of all or any part of the
assets of the Corporation which shall not in fact result in the liquidation (in
whole or in part) of the Corporation and the distribution of its assets to its
shareholders shall not be deemed to be a voluntary or involuntary liquidation
(in whole or in part), dissolution, or winding-up of the Corporation.
D. Conversion of Series A Preferred Stock.
-------------------------------------------
The holders of Series A Preferred Stock shall have the following conversion
rights:
1. Right to Convert. When such shares become convertible in
------------------
accordance with Section D(1) hereof, each share of Series A Preferred Stock
shall be convertible at the Conversion Prices set forth below into fully paid
and nonassessable shares of Common Stock (sometimes referred to herein as
"Conversion Shares").
<PAGE>
2. Mechanics of Conversion. Each holder of Series A Preferred Stock
-----------------------
who desires to convert the same into shares of Common Stock shall provide notice
("Conversion Notice") via facsimile to the Corporation. The original Conversion
Notice and the certificate or certificates representing the Series A Preferred
Stock for which conversion is elected shall be delivered to the Corporation by
international courier, duly endorsed. The date upon which a Conversion Notice
is received by the Corporation shall be a "Notice Date." Upon receipt by the
Corporation of a facsimile copy of a Conversion Notice, the Corporation shall
immediately send to the holder, via facsimile, a confirmation of receipt of the
Conversion notice which shall specify that the Conversion Notice has been
received and the name and telephone number of a contact person at the
Corporation whom the holder should contact regarding information related to the
conversion. The Corporation shall use all reasonable efforts to issue and
deliver within three (3) business days after the Notice Date, to such holder of
Series A Preferred Stock at the address of the holder on the stock books of the
Corporation, a certificate or certificates for the number of shares of Common
Stock to which the holder shall be entitled as aforesaid; provided that the
original shares of Series A Preferred Stock to be converted are received by the
transfer agent or the Corporation within three (3) business days after the
Notice Date and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date. If the
original certificate(s) representing the shares of Series A Preferred Stock to
be converted are not received by the transfer agent or the Corporation within
three (3) business days after the Notice Date, the Conversion Notice shall
become null and void.
3. Lost or Stolen Certificates. Upon receipt by the Corporation of
------------------------------
evidence of the loss, destruction, theft or mutilation of any Series A Preferred
Stock certificates (the "Certificates") and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the
Corporation, and upon surrender and cancellation of the Certificates, if
mutilated, the Corporation shall execute and deliver new Series A Preferred
Stock Certificates of like tenor and date. However, the Corporation shall not
be obligated to re-issue such lost or stolen Series A Preferred Stock
Certificates if the holder thereof contemporaneously requests the Corporation to
convert such Series A Preferred Stock into Common Stock, in which event the
Corporation shall be entitled to rely on an affidavit of loss, destruction or
theft of the Series A Preferred Stock Certificate or, in the case of mutilation,
tender of the mutilated certificate, and shall issue the Conversion Shares.
4. Conversion Dates. The shares of Series A Preferred Stock shall become
----------------
convertible into shares of Common Stock upon the earlier of (i) the effective
date of a registration statement covering the Conversion Shares, or (ii) the
ninetieth (90th) day after the issuance of each such share of Series A Preferred
Stock (referred to as a "Conversion Date").
5. Conversion Formula/Conversion Price. Each share of Series A Preferred
-----------------------------------
Stock shall be convertible into the number of shares of Common Stock in
accordance with the following formula (the "Conversion Formula"):
$1,000.00
---------
Conversion Price
where,
Conversion Price = Average Price at Closing or the Average Price at
Conversion, whichever is less.
Average Price at Closing = The five (5)-day average Closing Bid Price for
the Corporation's Common Stock on the trading date
immediately before the date such Series A Preferred
Stock was issued.
Average Price at Conversion = Eighty percent (80%) of (that is, a 20%
discount to) the five (5)-day average Closing
Bid Price for the Corporation's Common Stock
immediately before the Conversion Date.
For purposes hereof, the term "Closing Bid Price" shall mean the closing bid
price for the Corporation's Common Stock on the NASD Electronic Bulletin Board,
or if no longer traded thereon, the closing bid price on the principal national
securities exchange on which the Common Stock is so traded.
<PAGE>
6 . Automatic Conversion. Each share of Series A Preferred Stock
---------------------
outstanding on January 30, 2002 shall be converted automatically into Common
Stock on such date in accordance with the Conversion Formula and the Conversion
Price then in effect, and January 30, 2002 shall be deemed to be the Notice Date
with respect to such conversion.
7. No Fractional Shares. If any conversion of the Series A Preferred
----------------------
Stock would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon conversion, if the aggregate,
shall be the next higher number of shares.
8. Reservation of Stock Issuable Upon Conversion. The Corporation shall
----------------------------------------------
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
then outstanding shares of the Series A Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock, the Corporation 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.
9. Adjustment to Conversion Price.
---------------------------------
(a) If, prior to the conversion of all shares of Series A Preferred
Stock, the number of outstanding shares of Common Stock is increased by a stock
split, stock dividend, or other similar event, the Conversion Price shall be
proportionately reduced, or if the number of outstanding shares of Common Stock
is decreased by a combination or reclassification of shares, or other similar
event, the Conversion Price shall be proportionately increased.
<PAGE>
(b) If, prior to the conversion of all shares of Series A Preferred
Stock, there shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event, as a result of which
shares of Common Stock of the Corporation shall be changed into the same or a
different number of shares of the same or another class or classes of stock or
securities of the Corporation or another entity, then the holders of Series A
Preferred Stock shall thereafter have the right to purchase and receive upon
conversion of shares of Series A Preferred Stock, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such shares of stock and/or
securities as may be issued or payable with respect to or in exchange for the
number of shares of Common Stock immediately theretofore purchasable and
receivable upon the conversion of shares of Series A Preferred Stock held by
such holders had such merger, consolidation, exchange of shares,
recapitalization or reorganization not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the holders of the Series A Preferred Stock to the end that the provisions
hereof (including, without limitation, provisions for adjustment of the
Conversion Price and of the number of shares issuable upon conversion of the
Series A Preferred Stock) shall thereafter be applicable, as nearly as may be
practicable in relation to any shares of stock or securities thereafter
deliverable upon the exercise hereof. The Corporation shall not effect any
transaction described in this subsection unless the resulting successor or
acquiring entity (if not the Corporation) assumes by written instrument the
obligation to deliver to the holders of the Series A Preferred Stock such shares
of stock and/or securities as, in accordance with the foregoing provisions, the
holders of the Series A Preferred Stock may be entitled to purchase.
(c) If any adjustment under this subsection would create a fractional
share of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares of Common
Stock issuable upon conversion shall be the next higher number of shares.
E. Voting. Except as otherwise provided below or by the Delaware
------
General Corporation Law, the holders of the Series A Preferred Stock shall have
no voting power whatsoever, and no holder of Series A Preferred Stock shall vote
or otherwise participate in any proceeding in which actions shall be taken by
the Corporation or the shareholders thereof or be entitled to notification as to
any meeting of the Board of Directors or the shareholders.
Notwithstanding the above, Corporation shall provide holders of the Series
A Preferred Stock ("Holders") with notification of any meeting of the
shareholders regarding any major corporate events affecting the Corporation. In
the event of any taking by the Corporation of a record of its shareholders for
the purpose of determining shareholders who are entitled to receive payment of
any dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire any share of any class or any other securities or property
(including by way of merger, consolidation or reorganization), or to receive any
other right, or for the purpose of determining shareholders who are entitled to
vote in connection with any proposed sale, lease or conveyance of all or
substantially all of the assets of the Corporation, or any proposed liquidation,
dissolution or winding up of the Corporation, the Corporation shall mail a
notice to the Holders, at least ten (10) days prior to the record date specified
therein, of the date on which any such record is to be taken for the purpose of
such dividend, distribution, right or other event, and a brief statement
regarding the amount and character of such dividend, distribution, right or
other event to the extent known at such time.
To the extent that, under Delaware law, the vote of the Holders, voting
separately as a class, is required to authorize a given action of the
Corporation, the affirmative vote or consent of the Holders of at least a
majority of the shares of the Series A Preferred Stock represented at a duly
held meeting at which a quorum is present or by written consent of a majority of
the shares of Series A Preferred Stock (except as otherwise may be required
under Delaware law) shall constitute the approval of such action by the class.
To the extent that under Delaware law the Holders are entitled to vote on a
matter with holders of Common Stock, voting together as one (1) class, each
share of Series A Preferred Stock shall be entitled to a number of votes equal
to the number of shares of Common Stock into which it is then convertible using
the record date for the taking of such vote of stockholders as the date as of
which the Conversion Price is calculated. The Holders also shall be entitled to
notice of all shareholder meetings or written consents with respect to which
they would be entitled to vote, which notice would be provided pursuant to the
Corporation's by-laws and applicable statutes.
F. Protective Provisions. So long as shares of Series A Preferred
----------------------
Stock are outstanding, the Corporation shall not, without first obtaining the
approval (by vote or written consent, as provided by law) of the Holders of at
least seventy-five percent (75%) of the then outstanding shares of Series A
Preferred Stock:
<PAGE>
(a) alter or change the rights, preferences or privileges of the
Series A Preferred Stock so as to affect adversely the Series A Preferred Stock;
(b) create any new class or series of stock or issue any capital stock
senior to or having a preference over or parity with the Series A Preferred
Stock with respect to dividends, payments upon Liquidation (as provided for in
Section B of this Designation) or redemption, or increase the number of
authorized shares of Series A Preferred Stock or change the Stated Value
thereof;
(c) do any act or thing not authorized or contemplated by this
Designation which would result in taxation of the holders of shares of the
Series A Preferred Stock under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended); or
(d) enter into a merger in which the Corporation is not the surviving
corporation; provided, however, that the provisions of this subparagraph (d)
shall not be applicable to any such merger if the authorized capital stock of
the surviving corporation immediately after such merger shall include only
classes or series of stock for which no such consent or vote would have been
required pursuant to this section if such class or series had been authorized by
the Corporation immediately prior to such merger or which have the same rights,
preferences and limitations and authorized amount as a class or series of stock
of the Corporation authorized (with such consent or vote of the Series A
Preferred Stock) prior to such merger and continuing as an authorized class or
series at the time thereof.
G. Status of Converted Stock. In the event any shares of Series A
----------------------------
Preferred Stock shall be converted as contemplated by this Designation, the
shares so converted shall be canceled, shall return to the status of authorized
but unissued Preferred Stock of no designated class or series, and shall not be
issuable by the Corporation as Series A Preferred Stock.
H. Taxes. All shares of Common Stock issued upon conversion of Series A
-----
Preferred Stock will be validly issued, fully paid and nonassessable. The
Corporation shall pay any and all documentary stamp or similar issue or transfer
taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Series A Preferred Stock pursuant hereto. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the Series A Preferred Stock so
converted were registered, and no such issue or delivery shall be made unless
and until the person requesting such transfer has paid to the Corporation the
amount of any such tax or has established to the satisfaction of the Corporation
that such tax has been paid or that no such tax is payable. The Corporation
shall adjust the amount of dividends paid or accrued so as to indemnify the
holders of Preferred Stock against any withholding or similar tax in respect of
such dividends.
<PAGE>
I. Determination of Market Value of Capital Stock of Corporation.
-----------------------------------------------------------------
The determination of the per share "Market Value" of Common Stock as set forth
in previous Sections shall be determined using the previous five day average
closing bid price for the day or, where no sale is made on that day, the average
of the closing bid and asked prices for that day on the NASDAQ Stock Market or
the OTC Bulletin Board if the securities are at the time listed or quoted
thereon, respectively, or, if it is not so listed or quoted, on any other
national securities exchange selected by the Corporation on which it is at the
time listed. If at the applicable time the Common Stock is quoted on the OTC
Bulletin Board, the foregoing calculations shall be based on a Trade and Quote
Summary Report from the OTC Bulletin Board Research Service if available, and if
not, on any other publicly available data reasonably deemed reliable by the
Corporation.
FURTHER RESOLVED, that the statements contained in the foregoing
resolutions creating and designating the said Series A Preferred Stock and
fixing the number, powers, preferences and relative, optional, participating,
and other special rights and the qualifications, limitations, restrictions, and
other distinguishing characteristics thereof shall, upon the effective date of
said series, be deemed to be included in and be a part of the Certificate of
Incorporation of the Corporation pursuant to the provisions the Delaware General
Corporation Law.
Signed on December 30, 1999
HYPERDYNAMICS CORPORATION
By: /s/ Kent Watts
Title: President
Attest:
By: /s/ Lewis Ball
Title: Secretary
[CORPORATE SEAL]
THE STATE OF TEXAS |
COUNTY OF HARRIS |
BEFORE ME, the undersigned authority, on this day personally appeared Kent
Watts, known to me to be the person whose name is subscribed to the foregoing
instrument and acknowledged to me that he executed the same for the purposes and
consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL of office this 30th day of December 1999.
[Notary Seal] /s/ Osmeyda G. Canales
NOTARY PUBLIC IN AND FOR
THE STATE OF TEXAS
THE STATE OF TEXAS |
COUNTY OF HARRIS |
BEFORE ME, the undersigned authority, on this day personally appeared Lewis
Ball, known to me to be the person whose name is subscribed to the foregoing
instrument and acknowledged to me that he executed the same for the purposes and
consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL of office this 30th day of December 1999.
[Notary Seal] /s/ R. Pulpan
NOTARY PUBLIC IN AND FOR
THE STATE OF TEXAS
<PAGE>
WARRANT AGREEMENT
-----------------
WARRANT AGREEMENT dated as of January 12, 2000, between HYPERDYNAMICS
CORPORATION, a Delaware corporation (the "Company"), and the undersigned
purchaser ("Purchaser") of shares of the Company's Series A Preferred Stock (the
"Preferred Stock").
WITNESSETH:
WHEREAS, the Company has agreed to issue to Purchaser warrants ("Warrants")
to purchase up to 10,000 shares (the "Shares") of common stock of the Company,
$.001 par value per share (the "Common Stock") for each $100,000.00 of Series A
Preferred Stock subscribed for by the Purchaser pursuant to that certain
Regulation D Subscription Agreement executed by the Company and Purchaser (the
"Subscription Agreement"); and
WHEREAS, the Warrants issued pursuant to this Agreement are being issued by
the Company to Purchaser and/or its designees, in consideration of the purchase
by Purchaser of Shares of Preferred Stock;
NOW, THEREFORE, in consideration of the premises, the agreements herein set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. GRANT.
------
Purchaser and/or its designees are hereby granted the right to purchase, at
any time from the date of this Agreement until 5:00 P.M., Atlanta, Georgia time,
on January 6, 2005 (the "Warrant Exercise Term"), up to 80,000 shares at an
initial Exercise Price (subject to adjustment as provided in Article 7 hereof)
of $5.9125, being an amount equal to the Market Price (as defined in Section
7.1(vi)) measured from the date of Closing of the purchase of the Series A
Preferred Stock in accordance with the Subscription Agreement.
2. WARRANT CERTIFICATES.
----------------------
The warrant certificates (the "Warrant Certificates") delivered and to be
delivered pursuant to this Agreement shall be in the form set forth as Exhibit
A, attached hereto and made a part hereof, with such appropriate insertions,
omissions, substitutions and other variations as required or permitted by this
Agreement.
3. EXERCISE OF WARRANTS.
-----------------------
The Exercise Price may be paid in cash or by check to the order of the
Company, or any combination of cash or check, subject to adjustment as provided
in Article 7 hereof. Upon surrender of the Warrant Certificate with the annexed
Form of Election to Purchase duly executed, together with payment of the
Exercise Price (as hereinafter defined) for the Shares purchased, at the
Company's executive offices (currently located at 2656 South Loop West, Suite
103, Houston, TX 77054), the registered holder of a Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the Shares so purchased. The purchase rights represented by
<PAGE>
each Warrant Certificate are exercisable at the option of the Holder hereof, in
whole or in part (but not as to fractional shares of the Common Stock). In the
case of the purchase of less than all the Shares purchasable under any Warrant
Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the Shares to be purchased thereunder.
Notwithstanding anything in this Warrant to the contrary, in no event shall
the Holder of this Warrant be entitled to exercise this Warrant to purchase a
number of shares of Common Stock in excess of the sum of (i) the number of
shares of Common Stock beneficially owned by the Holder and its affiliates prior
to such exercise, and (ii) the number of shares of Common Stock issuable upon
exercise of the Warrants (or portions thereof) with respect to which the
determination described herein is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 4.9% of the outstanding
shares of Common Stock. For purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder.
The opinion of the Holder's legal counsel shall be conclusive in calculating the
Holder's beneficial ownership.
4. ISSUANCE OF CERTIFICATES.
---------------------------
Upon the exercise of the Warrants in accordance with the terms hereof, the
issuance of certificates for the Shares shall be made forthwith (and in any
event within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall be issued in the name of,
or in such names as may be directed by, the Holder thereof, provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificates in a name other than that of the Holder and the Company shall not
be required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to satisfaction of the Company that
such tax has been paid.
The Warrant Certificates and the certificates representing the Shares shall
be executed on behalf of the Company by the manual or facsimile signature of the
present or any future Chairman or Vice Chairman of the Board of Directors, Chief
Executive Officer or President or Vice President of the Company under its
corporate seal reproduced thereon, attested to by the manual or facsimile
signature of the present or any future Secretary or Assistant Secretary of the
Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
The Warrant Certificates and, upon exercise of the Warrants, in part or in
whole, certificates representing the Shares shall bear a legend substantially
similar to the following:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may not be
offered or sold except (i) pursuant to an effective registration statement
under the Act, or (ii) upon the delivery by the holder to the Company of an
opinion of counsel. Reasonably satisfactory to counsel to the issuer,
stating that an exemption from registration under such Act is available."
<PAGE>
5. PRICE.
------
5.1. Initial and Adjusted Exercise Price. The initial
---------------------------------------
Exercise Price of each Warrant shall be $5.9125 per Share. The adjusted Exercise
Price shall be the price which shall result from time to time from any and all
adjustments of the initial Exercise Price in accordance with the provisions of
Article 7 hereof.
5.2. Exercise Price. The term "Exercise Price" herein shall
---------------
mean the initial Exercise Price or the adjusted Exercise Price, depending upon
the context.
6. REGISTRATION RIGHTS.
---------------------
6.1. Not Registered Under the Securities Act of 1933. The
-----------------------------------------------------
Warrants and the Shares have not been registered as of the date of issuance of
the Warrants under the Securities Act of 1933, as amended ("the Act").
6.2. Registrable Securities. As used herein the term
-----------------------
"Registrable Security" means each of the Warrants, the Shares and any shares of
Common Stock issued upon any stock split or stock dividend in respect of such
Shares; provided, however, that with respect to any particular Registrable
Security, such security shall cease to be a Registrable Security when, as of the
date of determination, (i) it has been effectively registered under the
Securities Act and disposed of pursuant thereto, (ii) registration under the
Securities Act is no longer required for the immediate public distribution of
such security or (iii) it has ceased to be outstanding. The term "Registrable
Securities" means any and/or all of the securities falling within the foregoing
definition of a "Registrable Security." In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be made in the
definition of "Registrable Security" as is appropriate in order to prevent any
dilution or enlargement of the rights granted pursuant to this Article 6.
6.3. Registration Rights. Holders of Registrable Securities
--------------------
hereunder shall have the registration rights set forth in that certain
Registration Agreement by and among the Company and the purchasers of the
Preferred Stock.
7. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF SHARES.
----------------------------------------------------------
7.1. Computation of Adjusted Price. Except as hereinafter
--------------------------------
provided, in case the Company shall at any time after the date hereof issue or
sell any shares of Common Stock (other than the issuances or sales referred to
in Section 7.6 hereof), including shares held in the Company's treasury and
shares of Common Stock issued upon the exercise of any options, rights or
warrants to subscribe for shares of Common Stock (other than the issuances or
sales of Common Stock pursuant to rights to subscribe for such Common Stock
distributed to all the shareholders of the Company and Holders of Warrants
pursuant to Section 7.8 hereof) and shares of Common Stock issued upon the
direct or indirect conversion or exchange of securities for shares of Common
Stock, for a consideration per share less than either the Exercise Price in
effect immediately prior to the issuance or sale of such shares or the "Market
Price" (as defined in Section 7.1 (vi) hereof) per share of Common Stock or
without consideration, then forthwith upon such issuance or sale, the Exercise
Price shall (until another such issuance or sale) be reduced to the price
(calculated to the nearest full cent) equal to the price determined by
<PAGE>
multiplying the Exercise Price in effect immediately prior to such issuance or
sale by a fraction, the numerator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to such issuance or sale
and the number of shares of Common Stock which the amount of all consideration,
if any, received by the Company upon such issuance or sale would purchase at the
Market Price, and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such issuance or sale.
For the purposes of any computation to be made in accordance with this
Section 7.1, the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock
after the date of this Agreement for a consideration part or all of which shall
be cash, the amount of the cash consideration therefor shall be deemed to be the
amount of cash received by the Company for such shares (or, if shares of Common
Stock are offered by the Company for subscription, the subscription price, or,
if such securities shall be sold to underwriters or dealers for public offering
without a subscription offering, the initial public offering price) before
deducting therefrom any compensation paid or discount allowed in the sale,
underwriting or purchase thereof by underwriters or dealers or others performing
similar services, or any expenses incurred in connection therewith.
(ii) In case of the issuance pr sale (otherwise than as a dividend
or other distribution on any stock of the Company) of shares of Common Stock for
a consideration part or all of which shall be other than cash, the amount of the
consideration therefor other than cash shall be deemed to be the value of such
consideration as determined in good faith by the Board of Directors of the
Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(iv) The reclassification of securities of the Company other than
shares of Common Stock into securities including shares of Common Stock shall be
deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subsection (iii) of this Section 7.1.
(v) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or issuable upon
the exercise of options, rights, warrants and upon the conversion or exchange of
convertible or exchangeable securities.
(vi) As used herein, the phrase "Market Price," at any date shall
be determined using the previous five day average closing bid price for the day
or, where no sale is made on that day, the average of the closing bid and asked
prices for that day on the Nasdaq Stock Market or the OTC Bulletin Board if the
securities are at the time listed or quoted thereon, respectively, or, if it is
not so listed or quoted, on any other national securities exchange selected by
the Company on which it is at the time listed. If at the
<PAGE>
applicable time the Common Stock is quoted on the OTC Bulletin Board, the
foregoing calculations shall be based on a Trade and Quote Summary Report from
the OTC Bulletin Board Research Service if available, and if not, on any other
publicly available data reasonably deemed reliable by the Company.
7.2. Options. Rights. Warrants and Convertible and Exchangeable
-----------------------------------------------------------
Securities. Except in the case of the Company issuing rights to subscribe for
- ----------
shares of Common Stock distributed to all the shareholders of the Company and
Holders of Warrants pursuant to Section 7.8 hereof, if the Company shall at any
time after the date hereof issue options, rights or warrants to subscribe for
shares of Common Stock, or issue any securities convertible into or exchangeable
for shares of Common Stock, (i) for a consideration per share less than (a) the
Exercise Price in effect immediately prior to the issuance of such options,
rights or warrants, or such convertible or exchangeable securities, or (b) the
Market Price, or (ii) without consideration, then the Exercise Price in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities, as the case may be, shall be reduced to
a price determined by making a computation in accordance with the provisions of
Section 7.1 hereof, provided that:
(a) The aggregate maximum number of shares of Common
Stock, as the case may be, issuable under all the outstanding options, rights or
warrants shall be deemed to be issued and outstanding at the time all the
outstanding options, rights or warrants were issued, and for a consideration
equal to the minimum purchase price per share provided for in the options,
rights or warrants at the time of issuance, plus the consideration (determined
in the same manner as consideration received on the issue or sale of shares in
accordance with the terms of the Warrants), if any, received by the Company for
the options, rights or warrants, and if no minimum price is provided in the
options, rights or warrants, then the consideration shall be equal to zero;
provided, however, that upon the expiration or other termination of the options,
rights or warrants, if any thereof shall not have been exercised, the number of
shares of Common Stock deemed to be issued and outstanding pursuant to this
subsection (a) (and for the purposes of subsection (v) of Section 7.1 hereof)
shall be reduced by such number of shares as to which options, warrants and/or
rights shall have expired or terminated unexercised, and such number of shares
shall no longer be deemed to be issued and outstanding, and the Exercise Price
then in effect shall forthwith be readjusted and thereafter be the price which
it would have been had adjustment been made on the basis of the issuance only of
shares actually issued or issuable upon the exercise of those options, rights or
warrants as to which the exercise rights shall not have expired or terminated
unexercised.
(b) The aggregate maximum number of shares of Common
Stock issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of
issuance of such securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue or sale
of shares of Common Stock in accordance with the terms of the Warrants) received
by the Company for such securities, plus the minimum consideration, if any,
receivable by the Company upon the conversion or exchange thereof; provided,
however, that upon the termination of the right to convert or exchange such
convertible or exchangeable securities (whether by reason of redemption or
otherwise), the number of shares deemed to be issued and outstanding pursuant to
this subsection (b) (and for the purpose of subsection (v) of Section 7.1
hereof) shall be reduced by such number of shares as to which the conversion
or exchange rights shall have expired or temiinated unexercised, and such
number of shares shall no longer be deemed to be issued and outstanding and the
Exercise Price then in effect shall forthwith be readjusted and thereafter be
the price which it would have been had adjustment been made on the basis
of the issuance only of the shares actually issued or issuable upon the
conversion or exchange of those convertible or exchangeable securities as to
which the conversion or exchange rights shall not have expired or terminated
unexercised.
<PAGE>
(c) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in subsection
(a) of this Section 7.2, or in the price per share at which the securities
referred to in subsection (b) of this Section 7.2 are convertible or
exchangeable, the options, rights or warrants or conversion or exchange rights,
as the case may be, shall be deemed to have expired or terminated on the date
when such price change became effective in respect of shares not theretofore
issued pursuant to the exercise or conversion or exchange thereof, and the
Company shall be deemed to have issued upon such date new options, rights or
warrants or convertible or exchangeable securities at the new price in respect
of the number of shares issuable upon the exercise of such options, rights or
warrants or the conversion or exchange of such convertible or exchangeable
securities.
7.3. Subdivision and Combination. In case the Company shall at any
---------------------------
time subdivide or combine the outstanding shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
7.4. Adiustment in Number of Shares. Upon each adjustment of the
--------------------------------
Exercise Price pursuant to the provisions of this Article 7, the number of
Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest full Share by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of Shares issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
7.5. Reclassification, Consolidation. Merger. etc. In case of any
---------------------------------------------
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger in which the Company is the surviving corporation
and which does not result in any reclassification or change of the outstanding
shares of Common Stock, except a change as a result of a subdivision or
combination of such shares or a change in par value, as aforesaid), or in the
case of a sale or conveyance to another corporation of the property of the
Company as an entirety, the Holders shall thereafter have the right to purchase
the kind and number of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance as if the Holders were the owners of the shares of Common Stock
underlying the Warrants inmiediately prior to any such events at a price equal
to the product of (x) the number of shares issuable upon exercise of the
Warrants and (y) the Exercise Price in effect immediately prior to the record
date for such reclassification, change, consolidation, merger, sale or
conveyance as if such Holders had exercised the Warrants.
<PAGE>
7.6. NoAdjustment of Exercise Price in Certain Cases. No
-----------------------------------------------------
adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of shares of Common Stock
upon the exercise of the Warrants; or
(b) Upon (i) the issuance by the Company of any shares
of Common Stock pursuant to the conversion of shares of the Preferred Stock,
(II) the issuance of options pursuant to the Company's employee stock option
plans in effect on the date hereof or subsequently adopted or the issuance or
sale by the Company of any shares of Common Stock pursuant to the exercise of
any such options, or (iii) the issuance or sale by the Company of any shares of
Common Stock pursuant to the exercise of any options or warrants previously
issued and outstanding on the date hereof; or
(C) Upon the issuance of shares of Common Stock pursuant
to contractual obligations existing on the date hereof;
(d) If the amount of said adjustment shall be less than
ten cents ($.10) per Share, provided however, that in such case any adjustment
that would otherwise be required then to be made shall be carried forward and
shall be made at the time of and together with the next subsequent adjustment
which, together with any adjustment so carried forward, shall amount to at
least ten cents ($.10) per Share; or
(e) The sale or issuance of shares of Common Stock if such
Common Stock constitutes "restricted securities" under Rule 144 of the Act,
Provided that such shares are sold for a consideration per share at least as
great as the initial Exercise Price.
7.7. Dividends and Other Distributions with Respect to Outstanding
-------------------------------------------------------------
Securities. In the event that the Company shall at any time prior to the
- ----------
exercise of all Warrants declare a dividend (other than a dividend consisting
solely of shares of Common Stock or a cash dividend or distribution payable out
of current or retained earnings) or otherwise distribute to its shareholders any
monies, assets, property, rights, evidences of indebtedness, securities (other
than shares of Common Stock), whether issued by the Company or by another person
or entity, or any other thing of value, the Holder or Holders of the unexercised
Warrants shall thereafter be entitled, in addition to the shares of Common Stock
or other securities receivable upon the exercise thereof, to receive, upon the
exercise of such Warrants, the same monies, property, assets, rights, evidences
of indebtedness, securities or any other thing of value that they would have
been entitled to receive at the time of such dividend or distribution. At the
time of any such dividend or distribution, the Company shall make appropriate
reserves to ensure the timely performance of the provisions of this Subsection
7.7.
7.8. Subscription Rights for Shares of Common Stock or Other
-------------------------------------------------------------
Securities. In the case the Company or an affiliate of the Company shall at any
- ----------
time after the date hereof and prior to the exercise of all the Warrants issue
any rights to subscribe for shares of Common Stock or any other securities of
the Company or of such affiliate to all the shareholders of the Company, the
Holders of the unexercised Warrants shall be entitled, in addition to the shares
of Common Stock or any other securities of the Company or of such affilitate
to all the shareholders of the Company, the holders of the unexericised Warrants
shall be entitled, in addition to the shares of common stock or other securities
receivable upon the exercise of the Warrants, to receive such rights at the
time such rights are distributed to the other shareholders of the Company.
<PAGE>
8. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES.
------------------------------------------------------
Each Warrant Certificate is exchangeable without expense, upon the
surrender hereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of Shares in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
9. ELIMINATION OF FRACTIONAL INTERESTS.
--------------------------------------
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock and shall not be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock.
10. RESERVATION OF SECURITIES.
----------------------------
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Warrants, such number of shares of Common Stock as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock issuable upon such exercise shall be duly and validly issued,
fully paid, non- assessable and not subject to the preemptive rights of any
shareholder.
11. NOTICES TO WARRANT HOLDERS.
------------------------------
Nothing contained in this Agreement shall be construed as conferring upon
the Holder or Holders the right to vote or to consent or to receive notice as a
shareholder in respect of any meetings of shareholders for the election of
directors or any other matter, or as having any rights whatsoever as a
shareholder of the Company. If, however, at any time prior to the expiration of
the Warrants and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of
its shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
<PAGE>
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an entirely
shall be proposed; then, in any one or more of said events, the Company shall
give written notice to the Holders of such event at least fifteen (15) days
prior to the date fixed as a record date or the date of closing the transfer
books for the determination of the shareholders entitled to such dividend,
distribution, convertible or exchangeable securities or subscription rights,
options or warrants, or entitled to vote on such proposed dissolution,
liquidation, winding up or sale. Such notice shall specify such record date or
the date of closing the transfer books, as the case may be. Failure to give
such notice or any defect therein shall not affect the validity of any action
taken in connection with the declaration or payment of any such dividend or
distribution, or the issuance of any convertible or exchangeable securities or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
12. NOTICES.
--------
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been duly made when delivered, or two
days after it is mailed by registered or certified mail, return receipt
requested:
(a) If to a registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in
Section 3 of this Agreement or to such other address as the Company may
designate by notice to the Holders.
13. SUPPLEMENTS AND AMENDMENTS.
-----------------------------
The Company and Purchaser may from time to time supplement or amend this
Agreement without the approval of any Holders of Warrant Certificates in order
to cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any provisions herein, or to make
any other provisions in regard to matters or questions arising hereunder which
the Company and Purchaser may deem necessary or desirable and which the Company
and Purchaser deem not to adversely affect the interests of the Holders of
Warrant Certificates.
14. SUCCESSORS.
-----------
All the covenants and provisions of this Agreement by or for the benefit of
the Company and the Holders inure to the benefit of their respective successors
and assigns hereunder.
<PAGE>
15. TERMINATION.
------------
This Agreement shall terminate at the close of business on January 6, 2005.
Notwithstanding the foregoing, this Agreement will terminate on any earlier date
when all Warrants have been exercised and all the Shares issuable upon exercise
of the Warrants have been resold to the public; provided, however, that the
provisions of Article 6 shall survive such termination until the close of
business on January 6, 2005.
16. GOVERNING LAW.
---------------
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Delaware and for all
purposes shall be construed in accordance with the laws of said State.
17. BENEFITS OF THIS AGREEMENT.
------------------------------
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and Purchaser and any other registered holder
or holders of the Warrant Certificates, Warrants or the Shares any legal or
equitable right, remedy or claim und~r this Agreement; and this Agreement shall
be for the sole and exclusive benefit of the Compan~' and any other holder or
holders of the Warrant Certificates, Warrants or the Shares.
18. LIMITED TRANSFERABILITY.
-------------------------
The Warrants shall be transferable or assignable by Purchaser, in whole or
in part, only (i) to any successor firm or corporation of Purchaser, (ii) to any
of the directors, officers, employees, attorneys, consultants, partners, agents
or subsidiaries of Purchaser or of any such successor firm or (iii) in the case
of an individual, pursuant to such individual's last will and testament or the
laws of descent and distribution and is so transferable only upon the books of
the Company which it shall cause to be maintained for the purpose. The Company
may treat the registered holder of the Warrants as he or it appears on the
Company's books at any time as the Holder for all purposes. The Company shall
permit any holder of a Warrant or his duly authorized attorney, upon wntten
request during ordinary business hours, to inspect and copy or make extracts
from its books showing the registered holders of the Warrants.
19. COUNTERPARTS.
-------------
This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and such
counterparts shall together constitute but one and the same instrument.
(CONTINUED ON FOLLOWING PAGE)
<PAGE>
1N WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
HYPERDYNAMICS CORPORATION
By: /s/ KENT P. WATTS
----------------------
Name: KENT P. WATTS
----------------------
Title:PRESIDENT
---------------------
Attest: /s/ Robert J. Hill
---------------------
Name: Robert J. Hill
---------------------
Title: VICE PRESIDENT
----------------------
PURCHASER:
CACHE CAPITAL USA L.P.
By:
-------------------------
Name:
-----------------------
Title:
----------------------
Attest:
---------------------
Name:
-----------------------
Title:
----------------------
<PAGE>
1N WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
HYPERDYNAMICS CORPORATION
By:
-------------------------
Name:
-----------------------
Title:
----------------------
Attest:
---------------------
Name:
-----------------------
Title:
----------------------
PURCHASER:
Cache Capital USA L.P.
---------------------------
By: /s/Joseph C. Carouse
------------------------
Name: Joseph C. Carouse
---------------------
Title: Investment Manager
--------------------
Attest:
---------------------
Name:
-----------------------
Title:
----------------------
<PAGE>
EXHIBIT A
---------
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED
OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER
SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE
DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO THE
COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, STATING THAT AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., AThANTA, GEORGIA TIME, JANUARY 6,2005
No.A-l _____ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that _______________________ is the
registered holder of _________ Warrants to purchase, at any time from , 2000
until 5:00 P.M. Atlanta, Georgia time on January 6, 2005 ("Expiration Date"), up
to _________ shares ("Shares") of fully-paid and non-assessable common stock,
$.00l par value ("Common Stock"), of Hyperdynamics Corporation, a Delaware
corporation (the "Company"), at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $_____ per Share upon
surrender of this Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company, but subject to the conditions set forth herein
and in the warrant agreement dated as of ________ ____ between the Company and
____________________ (the "Warrant Agreement"). Payment of the Exercise Price
may be made in cash, or by certified or official bank check in New York Clearing
House funds payable to the order of the Company, or any combination of cash or
check.
No Warrant may be exercised after 5:00 P.M., Atlanta, Georgia time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to in a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the
<PAGE>
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain events,
the Exercise Price and/or number of the Company's securities issuable thereupon
may, subject to certain conditions, be adjusted. In such event, the Company
will, at the, request of the holder, issue a new Warrant Certificate evidencing
the adjustment in the Exercise Price and the number and/or type of securities
issuable upon the exercise of the Warrants; provided, however, that the failure
of the Company to issue such new Warrant Certificates shall not in any way
change, alter, or otherwise impair, the rights of the holder as set forth in the
Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferees) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax, or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated: HYPERDYNAMICS CORPORATION
----------------------
By:
-------------------------
Name:
-----------------------
Title:
----------------------
Attest:
---------------------
Name:
-----------------------
Title:
----------------------
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ___________ Shares and
herewith tenders in payment for such Shares cash or a certified or official bank
cheek payable to the order of ______________________________ in the amount
of $ _________ all in accordance with the terms hereof. The undersigned
requests that a certificate for such Shares be registered in the
name of __________________________________________________, whose address is
_________________________________________________________________and that such
Certificate be delivered to __________________________________, whose address is
Dated: _________________________ Signature: ____________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
- ------------------------------
- ------------------------------
(Insert Social Security or
Other Identifying Number of
Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _______________________________ hereby
sells, assigns and transfers unto_______________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ____________________________,
Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, with full power of substitution.
Dated: _________________________ Signature: ____________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
- ------------------------------
- ------------------------------
(Insert Social Security or
Other Identifying Number of
Holder)
<PAGE>
Exhibit 4.5
- ------------
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of ______________ between HYPERDYNAMICS
CORPORATION, a Delaware corporation (the "Company"), and the undersigned
purchaser ("Purchaser") of shares of the Company's Series A Preferred Stock (the
"Preferred Stock").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company has agreed to issue to Purchaser warrants ("Warrants")
to purchase up to _____________ shares (the "Shares") of common stock of the
Company, $.001 par value per share (the "Common Stock") in connection with that
certain Regulation D Subscription Agreement of the Company (the "Subscription
Agreement"); and
NOW, THEREFORE, in consideration of the premises, the agreements herein set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Grant.
-----
Purchaser and/or its designees are hereby granted the right to purchase, at
any time from the date of this Agreement until 5:00 P.M., Atlanta, Georgia time,
on January 6, 2005 (the "Warrant Exercise Term"), up to _________________shares
at an initial Exercise Price (subject to adjustment as provided in Article 7
hereof) of $7.091.
2.. Warrant Certificates.
The warrant certificates (the "Warrant Certificates") delivered and to be
delivered pursuant to this Agreement shall be in the form set forth as Exhibit
A, attached hereto and made a part hereof, with such appropriate insertions,
omissions, substitutions and other variations as required or permitted by this
Agreement.
3. Exercise of Warrants.
The Exercise Price may be paid in cash or by check to the order of the
Company, or any combination of cash or check, subject to adjustment as provided
in Article 7 hereof. Upon surrender of the Warrant Certificate with the annexed
Form of Election to Purchase duly executed, together with payment of the
Exercise Price (as hereinafter defined) for the Shares purchased, at the
Company's executive offices (currently located at 2656 South Loop West, Suite
103, Houston, TX 77054), the registered holder of a Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the Shares so purchased. The purchase rights represented by
each Warrant Certificate are exercisable at the option of the Holder hereof, in
whole or in part (but not as to fractional shares of the Common Stock). In the
case of the purchase of less than all the Shares purchasable under any Warrant
Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the Shares to be purchased thereunder.
<PAGE>
4. Issuance of Certificates.
Upon the exercise of the Warrants in accordance with the terms hereof, the
issuance of certificates for the Shares shall be made forthwith (and in any
event within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall be issued in the name of,
or in such names as may be directed by, the Holder thereof; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificates in a name other than that of the Holder and the Company shall not
be required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to satisfaction of the Company that
such tax has been paid.
The Warrant Certificates and the certificates representing the Shares shall
be executed on behalf of the Company by the manual or facsimile signature of the
present or any future Chairman or Vice Chairman of the Board of Directors, Chief
Executive Officer or President or Vice President of the Company under its
corporate seal reproduced thereon, attested to by the manual or facsimile
signature of the present or any future Secretary or Assistant Secretary of the
Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
The Warrant Certificates and, upon exercise of the Warrants, in part or in
whole, certificates representing the Shares shall bear a legend substantially
similar to the following:
"The securities represented by this certificate have not been registered under
the Securities Act of 1933, as amended (the "Act"), and may not be offered or
sold except (i) pursuant to an effective registration statement under the Act,
or (ii) upon the delivery by the holder to the Company of an opinion of counsel,
reasonably satisfactory to counsel to the issuer, stating that an exemption from
registration under such Act is available."
5. Price.
5.1 Initial and Adjusted Exercise Price. The initial Exercise Price
------------------------------------
of each Warrant shall be $7.091 per Share. The adjusted Exercise Price shall be
the price which shall result from time to time from any and all adjustments of
the initial Exercise Price in accordance with the provisions of Article 7
hereof.
5.2 Exercise Price. The term "Exercise Price" herein shall mean the
---------------
initial Exercise Price or the adjusted Exercise Price, depending upon the
context.
6. Registration Rights.
6.1 Not Registered Under the Securities Act of 1933. The Warrants
--------------------------------------------------
and the Shares have not been registered as of the date of issuance of the
Warrants under the Securities Act of 1933, as amended ("the Act").
<PAGE>
6.2 Registrable Securities. As used herein the term "Registrable
-----------------------
Security" means each of the Shares underlying the Warrants and any shares of
Common Stock issued upon any stock split or stock dividend in respect of such
Shares; provided, however, that with respect to any particular Registrable
Security, such security shall cease to be a Registrable Security when, as of the
date of determination, (i) it has been effectively registered under the
Securities Act and disposed of pursuant thereto, (ii) registration under the
Securities Act is no longer required for the immediate public distribution of
such security or (iii) it has ceased to be outstanding. The term "Registrable
Securities" means any and/or all of the securities falling within the foregoing
definition of a "Registrable Security." In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be made in the
definition of "Registrable Security" as is appropriate in order to prevent any
dilution or enlargement of the rights granted pursuant to this Article 6.
6.3 Registration Rights. Holders of Registrable Securities hereunder
--------------------
shall have the right to register the Registrable Securities at the time that the
Company registers the shares of common stock underlying the Series A Preferred
Stock issued in connection with the Subscription Agreement.
7. Adjustments of Exercise Price and Number of Shares.
----------------------------------------------------------
7.1 Adjustments. The Exercise Price and the number of shares of Common
-----------
Stock issuable upon exercise of each Warrant shall be subject to adjustment from
time to time as follows:
(i) Stock Dividends; Stock Splits; Reverse Stock Splits; Reclassifications.
-----------------------------------------------------------------------
In case the Company shall (a) pay a dividend with respect to its Common Stock in
shares of capital stock, (b) subdivide its outstanding shares of Common Stock,
(c) combine its outstanding shares of Common Stock into a smaller number of
shares of any class of Common Stock or (d) issue any shares of its capital stock
in a reclassification of the Common Stock (including any such reclassification
in connection with a consolidation or merger in which the Company is the
continuing corporation), other than elimination of par value, a change in par
value, or a change from par value to no par value (any one of which actions is
herein referred to as an "Adjustment Event"), the number of shares of Common
Stock purchasable upon exercise of each Warrant immediately prior to the record
date for such Adjustment Event shall be adjusted so that the Holder shall
thereafter be entitled to receive the number of shares of Common Stock or other
securities of the Company (such other securities thereafter enjoying the rights
of shares of Common Stock under this Warrant Certificate) that such Holder would
have owned or have been entitled to receive after the happening of such
Adjustment Event, had such Warrant been exercised immediately prior to the
happening of such Adjustment Event or any record date with respect thereto. An
adjustment made pursuant to this Section 7.1(i) shall become effective
immediately after the effective date of such Adjustment Event retroactive to the
record date, if any, for such Adjustment Event.
(ii) Adjustment of Exercise Price. Whenever the number of shares of Common
-----------------------------
Stock purchasable upon the exercise of each Warrant is adjusted pursuant to
Section 7.1(i), the Exercise Price for each share of Common Stock payable upon
exercise of each Warrant shall be adjusted to the nearest full Share by
multiplying such Exercise Price immediately prior to such adjustment by a
fraction, the numerator of which shall be the number of shares of Common Stock
purchasable upon the exercise of each Warrant immediately prior to such
adjustment, and the denominator of which shall be the number of shares of Common
Stock so purchasable immediately thereafter.
<PAGE>
(iii) De Minimis Adjustments. No adjustment in the Exercise Price and
------------------------
number of shares of Common Stock purchasable hereunder shall be required unless
such adjustment would require an increase or decrease of at least $0.15 in the
Exercise Price; provided, however, that any adjustments which by reason of this
Section 7.1(iii) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations shall be made to
the nearest full share.
7.2 Notice of Adjustment. Whenever the number of shares of Common
----------------------
Stock purchasable upon the exercise of each Warrant or the Exercise Price is
adjusted, as herein provided, the Company shall promptly notify the Holder in
writing (such writing referred to as an "Adjustment Notice") of such adjustment
or adjustments and shall deliver to such Holder a statement setting forth the
number of shares of Common Stock purchasable upon the exercise of each Warrant
and the Exercise Price after such adjustment, setting forth a brief statement of
the facts requiring such adjustment and setting forth the computation by which
such adjustment was made.
7.3 Statement on Warrant Certificates. The form of this Warrant
------------------------------------
Certificate need not be changed because of any change in the Exercise Price or
in the number or kind of shares purchasable upon the exercise of a Warrant.
However, the Company may at any time in its sole discretion make any change in
the form of the Warrant Certificate that it may deem appropriate and that does
not affect the substance thereof and any Warrant Certificate thereafter issued,
whether in exchange or substitution for any outstanding Warrant Certificate or
otherwise, may be in the form so changed.
8. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon the
surrender hereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of Shares in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
9. Elimination of Fractional Interests.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock and shall not be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock.
<PAGE>
10. Reservation of Securities.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Warrants, such number of shares of Common Stock as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock issuable upon such exercise shall be duly and validly issued,
fully paid, non-assessable and not subject to the preemptive rights of any
shareholder.
11. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as conferring upon
the Holder or Holders the right to vote or to consent or to receive notice as a
shareholder in respect of any meetings of shareholders for the election of
directors or any other matter, or as having any rights whatsoever as a
shareholder of the Company. If, however, at any time prior to the expiration of
the Warrants and their exercise, any of the following events shall occur:
(a).1.1 the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b).1.2 the Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible into
or exchangeable for shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or
(c).1.3 a dissolution, liquidation or winding up of the Company (other than
in connection with a consolidation or merger) or a sale of all or substantially
all of its property, assets and business as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
to the Holders of such event at least fifteen (15) days prior to the date fixed
as a record date or the date of closing the transfer books for the determination
of the shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or distribution, or the issuance of any convertible
or exchangeable securities or subscription rights, options or warrants, or any
proposed dissolution, liquidation, winding up or sale.
12. Notices.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been duly made when delivered, or two
days after it is mailed by registered or certified mail, return receipt
requested:
(a).1.1 If to a registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company; or
(a).1.2 If to the Company, to the address set forth in Section 3 of this
Agreement or to such other address as the Company may designate by notice to the
Holders.
<PAGE>
13. Supplements and Amendments.
The Company and Purchaser may from time to time supplement or amend this
Agreement without the approval of any Holders of Warrant Certificates in order
to cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any provisions herein, or to make
any other provisions in regard to matters or questions arising hereunder which
the Company and Purchaser may deem necessary or desirable and which the Company
and Purchaser deem not to adversely affect the interests of the Holders of
Warrant Certificates.
14. Successors.
All the covenants and provisions of this Agreement by or for the benefit of
the Company and the Holders inure to the benefit of their respective successors
and assigns hereunder.
15. Termination.
This Agreement shall terminate at the close of business on January 6, 2005.
Notwithstanding the foregoing, this Agreement will terminate on any earlier date
when all Warrants have been exercised and all the Shares issuable upon exercise
of the Warrants have been resold to the public; provided, however, that the
provisions of Article 6 shall survive such termination until the close of
business on January 6, 2005.
16. Governing Law.
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Delaware and for all
purposes shall be construed in accordance with the laws of said State.
17. Benefits of This Agreement.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and Purchaser and any other registered holder
or holders of the Warrant Certificates, Warrants or the Shares any legal or
equitable right, remedy or claim under this Agreement; and this Agreement shall
be for the sole and exclusive benefit of the Company and any other holder or
holders of the Warrant Certificates, Warrants or the Shares.
18. Limited Transferability.
The Warrants shall be transferable or assignable by Purchaser, in whole or
in part, only (i) to any successor firm or corporation of Purchaser, (ii) to any
of the directors, officers, employees, attorneys, consultants, partners, agents
or subsidiaries of Purchaser or of any such successor firm or (iii) in the case
of an individual, pursuant to such individual's last will and testament or the
laws of descent and distribution and is so transferable only upon the books of
the Company which it shall cause to be maintained for the purpose. The Company
may treat the registered holder of the Warrants as he or it appears on the
Company's books at any time as the Holder for all purposes. The Company shall
permit any holder of a Warrant or his duly authorized attorney, upon written
request during ordinary business hours, to inspect and copy or make extracts
from its books showing the registered holders of the Warrants.
19. Counterparts.
This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and such
counterparts shall together constitute but one and the same instrument.
(continued on following page)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
HYPERDYNAMICS CORPORATION
By:_________________________
Name:_______________________
Title:______________________
Attest:______________________
Name:________________________
Title:_______________________
PURCHASER:
By:_________________________
Name:_______________________
Title:______________________
Attest:______________________
Name:________________________
Title________________________
<PAGE>
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., ATLANTA, GEORGIA TIME, JANUARY 6, 2005
No. A-1 _____ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that _____________________ is the
registered holder of _________ Warrants to purchase, at any time from
___________________ until 5:00 P.M. Atlanta, Georgia time on January 6, 2005
("Expiration Date"), up to _________ shares ("Shares") of fully-paid and
non-assessable common stock, $.001 par value ("Common Stock"), of Hyperdynamics
Corporation, a Delaware corporation (the "Company"), at the initial exercise
price, subject to adjustment in certain events (the "Exercise Price"), of $_____
per Share upon surrender of this Warrant Certificate and payment of the Exercise
Price at an office or agency of the Company, but subject to the conditions set
forth herein and in the warrant agreement dated as of ________ ____, ____
between the Company and _____________________ (the "Warrant Agreement").
Payment of the Exercise Price may be made in cash, or by certified or official
bank check in New York Clearing House funds payable to the order of the Company,
or any combination of cash or check.
No Warrant may be exercised after 5:00 P.M., Atlanta, Georgia time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly authorized
issue of Warrants issued pursuant to the Warrant Agreement, which Warrant
Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to in a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
<PAGE>
The Warrant Agreement provides that upon the occurrence of certain events,
the Exercise Price and/or number of the Company's securities issuable thereupon
may, subject to certain conditions, be adjusted. In such event, the Company
will, at the, request of the holder, issue a new Warrant Certificate evidencing
the adjustment in the Exercise Price and the number and/or type of securities
issuable upon the exercise of the Warrants; provided, however, that the failure
of the Company to issue such new Warrant Certificates shall not in any way
change, alter, or otherwise impair, the rights of the holder as set forth in the
Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferees) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax, or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the absolute
owner(s) of this Warrant Certificate (notwithstanding any notation of ownership
or other writing hereon made by anyone), for the purpose of any exercise hereof,
and of any distribution to the holder(s) hereof, and for all other purposes, and
the Company shall not be affected by any notice to the contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly
executed under its corporate seal.
Dated: _______________ HYPERDYNAMICS CORPORATION
By:_________________________
Name:_______________________
Title:______________________
Attest:______________________
Name:________________________
Title:_______________________
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right, represented by
this Warrant Certificate, to purchase ____________ Shares and herewith tenders
in payment for such Shares cash or a certified or official bank check payable to
the order of ______________________________. in the amount of $_______________,
all in accordance with the terms hereof. The undersigned requests that a
certificate for such Shares be registered in the name of
_____________________________________________________, whose address is
_______________________________________________________________, and that such
Certificate be delivered to ____________________________________________, whose
address is _______________________________________________________________.
Dated:_________________________ Signature:__________________________
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate.)
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _____________________________________________
hereby sells, assigns and transfers unto ______________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint
__________________________________, Attorney, to transfer the within Warrant
Certificate on the books of the within-named Company, with full power of
substitution.
Dated: Signature:
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate)
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
EXHIBIT 5.1
AXELROD, SMITH & KIRSHBAUM
An Association of Professional Corporations
ATTORNEYS AT LAW
5300 Memorial Drive, Suite 700
Houston, Texas 77007-8292
Telephone (713) 861-1996
Facsimile (713) 552-0202
Robert D. Axelrod, P.C.
February 22, 2000
Hyperdynamics Corporation
Dear Mr. Watts:
As counsel for Hyperdynamics Corporation, a Delaware corporation (the
"Company"), you have requested our firm to render this opinion in connection
with the registration statement of the Company on Form SB-2 ("Registration
Statement") under the Securities Act of 1933, as amended (the "Act"), filed with
the Securities and Exchange Commission relating to the registration of the
issuance of up to 2,328,113 shares of common stock, par value $.001 per share
(the "Common Stock"), to be issued upon the conversion of Series A Preferred
Stock and upon the exercise of the Investor Warrants and the Placement Warrants.
The Company previously sold the Series A Preferred Stock and the Investor
Warrants and the Placement Warrants (collectively, the "Warrants").
We are familiar with the Registration Statement and the registration
contemplated thereby. In giving this opinion, we have reviewed the Registration
Statement and such other documents and certificates of public officials and of
officers of the Company with respect to the accuracy of the factual matters
contained therein as we have felt necessary or appropriate in order to render
the opinions expressed herein. In making our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents presented to us
as originals, the conformity to original documents of all documents presented to
us as copies thereof, and the authenticity of the original documents from which
any such copies were made, which assumptions we have not independently verified.
Based upon the foregoing, we are of the opinion that: (i) the Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and (ii) the shares of Common Stock to be issued are
validly authorized and, when issued and delivered upon the conversion of Series
A Preferred Stock in accordance with the terms of the Certificate of Designation
or upon the exercise of the Warrants in accordance with the terms of their
respective Warrant Agreements, and against payment therefore, will be validly
issued, fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement.
<PAGE>
Very truly yours,
/s/ Axelrod, Smith & Kirshbaum
<PAGE>
EXHIBIT A
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("Agreement") is made and effective this
July 21, 1999, by and between HYPERDYNANTICS CORPORATION ("Company") and KENT P.
WATTS, ("Executive").
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT.
-----------
Company hereby agrees to employ Executive as its President and Chief Executive
Officer (CEO), and Chief Financial Officer (CEO) and Executive hereby accepts
such employment in accordance with the terms of this Agreement and the terms of
employment applicable to regular employees of Company. In the event of any
conflict or ambiguity between the terms of this Agreement and terms of
employment applicable to regular employees, the terms of this Agreement shall
control. Election or appointment of a new CFO to take on the full
responsibilities of the CFO as determined by the by-laws and/or board of
directors, shall not be a breach of this Agreement. Any action by the Company
terminating the Executive as President and CEO is a breach of this agreement
unless specifically in accordance with this agreement.
2. DUTIES OF EXECUTIVE.
----------------------
The duties of Executive shall include the performance of all of the duties
typical of the office held by Executive as described in the bylaws of the
Company and such other duties and projects as may be assigned by the board of
directors of the Company as long as adequate financial resources are provided by
the Company so that the Executive may reasonably manage such responsibilities
without unreasonably requiring ongoing long overtime hours to be worked by the
Executive regardless of whether the Executive, as recognized in the past has
worked such long overtime hours. Executive shall devote his entire productive
time, ability and attention to the business of the Company and shall perform all
duties in a professional, ethical and businesslike manner. The duties of the
Executive are described as follows:
CONTINUE TO DEVELOP AND MANAGE THE BUSINESS PLAN FOR THE COMPANY WITH
APPROPRIATE APPROVAL OF THE BOARD OF DIRECTORS TO MAXIMIZE SHAREHOLDER VALUE
FOR THE LONG TERM.
CONTINUE TO IMPROVE AND MAKE A MARKET FOR THE PUBLIC STOCK OF the COMPANY.
MARKET THE COMPANY TO THE PUBLIC WITH EMPHASIS ON THE INVESTMENT COMMUNITY.
DEVELOP, QUALIFY, AND PURSUE ACQUISITIONS OPPORTUNITIES
CONTINUE TO KEEP THE COMPANY FULLY REPORTING WITH THE SEC UNTIL SUCH TIME AS A
NEW CFO CAN BE HIRED BY THE COMPANY TO OFFLOAD THE FINANCIAL REPORTING
RESPONSIBILITY FROM EXECUTIVE ACCORDING TO THE REQUIREMENTS OF THEM 1933
SECURITIES ACT, THE 1934 SECURITIES EXCHANGE ACT, MUD OTHER APPLICABLE LAW.
-1-
<PAGE>
3. COMPENSATION.
-------------
Executive will be paid compensation during this Agreement as follows:
A. A base salary of one hundred thousand dollars ($100,000) per year,
payable semi-monthly according to the Company's regular payroll schedule. The
base salary shall be adjusted at the end of each year of employment at the
discretion of the board of directors.
B. An incentive salary equal to 5% of the adjusted net income (hereinafter
defined) of the Company on a quarterly basis beginning with the Company's
quarter ending September 30, 1999 and each subsequent quarter thereafter during
the term of this Agreement. "Adjusted net income" shall be the net income of the
Company before federal and state income taxes, determined in accordance with
generally accepted accounting principles by the Company's controller on a
quarterly basis and the Company's independent accounting firm on an annual bias,
and adjusted to exclude: (i) any incentive salary payments paid pursuant to this
Agreement; (ii) any contributions to pension and/or profit sharing plans; (iii)
any refund or deficiency of federal and state income taxes paid in a prior year;
and (iv) any provision for federal or state income taxes made in prior years
which is subsequently determined to be unnecessary. The Company's controller
shall keep the Company's books on a generally accepted accounting principles
(GAAP) basis throughout the year. The controller shall accrue the incentive
salary on a quarterly basis as part of the regular adjustments made every
quarter to comply with (GAAP. On the very next payroll after the filing of each
of the Company's quarterly or annual report with the Securities and Exchange
Commission (SEC), the controller shall add 75% of the incentive salary to the
payroll while withholding 25% for potential audit differences. The determination
of the adjusted net income will be made by the Company's independent auditor on
an annual basis upon completion of their audit. The audit which will be filed
with the SEC shall be final and binding upon Executive and Company. The balance
of the incentive salary payment shall be made on the next payroll after the
Company's independent accounting firm has concluded its audit. The final payment
for the fiscal year will include the 25% held back for the first three quarters
of operations and 100% of the incentive salary for the final quarter, all
adjusted up or down based on the final audit. The Company may not request a
refund or reduce thc base salary of Executive for a return of any of the 75%
estimated payments for the first 3 quarters which are payments based on
unaudited reports prepared on a GAAP basis by the controller. The maximum
incentive salary payable for any one year shall not exceed 100/o of the then
applicable base salary of Executive so that the total salary available to
Executive is $200,000 per year including base plus incentive salary.
4. BENEFITS.
---------
A. Holidays. Executive will be entitled to paid holidays each calendar year
--------
as is the Company's policy for such holidays. Company will notify Executive on
or about the beginning of each calendar year with respect to the holiday
schedule for the coming year. Personal holidays, if any, will be scheduled in
advance subject to requirements of Company. Such holidays must be taken during
the calendar year and cannot be carried forward into the next year. Executive is
not entitled to any personal holidays during the first six months of employment.
-2-
<PAGE>
B. Vacation. Executive shall be entitled to 10 paid vacation days each year.
--------
C. Sick Leave. Executive shall be entitled to sick leave and emergency leave
----------
according to the regular policies and procedures of Company. Additional sick
leave or emergency leave over and above paid leave provided by the Company, if
any, shall be granted at the discretion of the board of directors.
D. Medical and Group Life Insurance. Company agrees to include Executive in
---------------------------------
the group medical and hospital plan of Company and provide group life insurance
for Executive and hi. family at no charge to Executive. Executive shall be
responsible for payment of any Federal or state income tax imposed upon these
benefits.
E. Pension, Profit Sharing, and Stock Option Plans. Executive shall be
-----------------------------------------------------
entitled to participate in an pension or profit sharing plan or other type of
plan adopted by Company for the benefit of its officers and/or regular
employees. In addition to the regular Company plan, the Executive will receive
S-S stock options for unrestricted common stock of the Company with a strike
price of$1.00 (with a current market price of S.85) at a rate of seven thousand
options for each one million dollars ($1,000,000) in revenues in excess of the
total revenues reported on the Company's annual report for fiscal year end June
30, 1999. These options will be vested upon the audit for Fiscal year end June
30,2000 showing net income for the year then ended. An additional 7,000 options
with a $1.00 stock price will be earned for each one million dollars
($l, 000,000) of revenue over the total revenue reported on the annual report
for June, 30,2000. These options will vest upon the audit for the fiscal
year end June 30,2001 reflecting net income.
F. Automobile. Company will provide existing automobile (1993 Ford Crown
----------
Victoria) to Executive for his complete use and will pay all maintenance and
related flue costs. Once the Company has remained profitable for four quarters
in a row, or realized net income in any three consecutive quarters of at least
$200,000, then the Company will provide a new automobile of Executive's choice
on a capital lease or purchase basis (whichever is best). The details and price
the vehicle will be separately approved by the Board. Company agrees to replace
the automobile with a new one at Executive's request no more often than once
every two years. Company will pay all automobile operating expenses incurred by
Executive in the performance of an Executive's company duties. Company will
procure and maintain in force an automobile liability policy for the automobile
with coverage, including Executive, in the minimum amount of $l, 000,000
combined single limit on bodily injury and property damage.
G. Expense Reimbursement. Executive shall have a miscellaneous expense
----------------------
allowance of $1,000 per mouth and will be entitled to reimbursement for all
reasonable expenses in excess of such amount, including travel and
entertainment, incurred by Executive in the performance of Executive's duties.
Executive will maintain records and written receipts as required by the Company
policy and reasonably requested by the board of directors to substantiate such
expenses. Once the Company has maintained profits for four consecutive quarters
or reports net income of at least $200,000 for any three-quarter period, the
board of directors will look to
-3-
<PAGE>
determine the advantage of having a Company owned country club membership to be
used primarily for customer and investor entertainment. The approval of such
membership will be at the total descretion of the board of directors but is
intended herein that Executive shall be the initial member representative for
the Company.
5. TERM AND TERMINATION.
-----------------------
A. The Initial Term of this Agreement shall commence on July 21,1999 and it
shall continue in effect for a period of one year eleven months and 10 days
ending on June 30, 2001. Thereafter, the Agreement shall be renewed upon the
mutual agreement of Executive and Company. This Agreement and Executives
employment may be terminated at Company's discretion during the Initial Term,
provided that Company shall pay to Executive arm amount equal to Executive's
base salary for the remaining period of Initial Term, plus all incentive salary
accrued but not yet paid (whether audited or not), plus an amount equal to fifty
percent (50%) of Executive's annual base salary.
B. This Agreement and Executive's employment may be terminated by Company at
its discretion at any time after the Initial Term, provided that in such case,
Executive shall be paid fifty percent (50%) of Executive's then applicable
annual base salary plus all accrued incentive salary (whether audited or not).
C. This Agreement may be terminated by Executive at Executive's discretion
by providing at least thirty (30) days prior written notice to Company. In the
event of termination by Executive pursuant to this subsection, Company may
immediately relieve Executive of all duties and immediately terminate this
Agreement, provided that Company shall pay Executive at the then applicable base
salary rate to the termination date included in Executive's original termination
notice.
6. NOTICES.
--------
Any notice required by this Agreement or given in connection with it, shall be
in writing and shall be given to the appropriate party by personal delivery or
by certified mail, postage prepaid, or recognized overnight delivery services;
If to Company: The registered office as it may change from time to time but
is currently,
The Board of Directors of Hyperdynamics Corporation
2656 SOUTH LOOP WEST
SUITE 103
HOUSTON, TEXAS 77054
If to Executive: At the Company address or
KENT P. WATTS
3112 HERITAGE GREEN DRIVE
PEARLAND, TEXAS, 77581
-4-
<PAGE>
7. FINAL AGREEMENT.
-----------------
This Agreement terminates and supersedes all prior understandings or agreements
on the subject matter hereof. This Agreement may be modified only by a further
writing that is duly executed by both parties.
8. Governing Law.
---------------
This Agreement shall be construed and enforced in accordance with the laws of
the state of Texas.
9. HEADINGS.
--------
Headings used in this Agreement are provided for convenience only and shall not
be used to construe meaning or intent.
10. NO ASSIGNMENT.
---------------
Neither this Agreement nor any or interest in this Agreement may be assigned by
Executive without the prior express written approval of Company, which may be
withheld by Company at Company's absolute discretion.
11. SEVERABILITY.
-------------
If any term of this Agreement is held by a Court of competent jurisdiction to be
invalid or unenforceable, then this Agreement, including all of the remaining
terms, will remain in full force and effect as if such invalid or unenforceable
term had never been included.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
HYPERDYNAMLC CORPORATION (COMPANY) KENT P. WATTS (EXECUTIVE)
/s/ ROBERT J. HILL 7/22/99 /s/ KENT P. WATTS
- ------------------------------------ ----------------------------
ROBERT J. HILL, VICE PRESIDENT KENT P. WATTS
-5-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of
January 12, 2000, by and between Hyperdynamics Corporation, a Delaware
corporation (the "Company"), the subscribers (hereinafter referred to as
"Subscribers" OR "INVESTORS") and the Placement Agent (as defined in the
Subscription Agreement) to the Company's offering ("Offering") of up to Five
Thousand (5,000) shares of Series A Convertible Preferred Stock (the "Preferred
Stock"), warrants to purchase up to 500,000 shares of the Company's Common
Stock, as well as the warrants to purchase shares of Common Stock issued to the
Placement Agent (collectively referred to as the "Warrants") pursuant to the
Regulation 1) Securities Subscription Agreements between the Company and the
Subscribers (the "Subscription Agreements"), the terms of which are incorporated
herein and made a part hereof.
1. DEFINITIONS. For purposes of this Agreement:
-----------
(a) The terms "register", "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933 (the "Act") and
pursuant to Rule 411 under the Act or any successor rule, and the declaration or
ordering of effectiveness of such registration statement or document;
(b) For purposes of the Required Registration under Section 2
hereof, the term "Registrable Securities" means
(i) the shares of the Company's Common Stock into which the
shares of Series A Preferred Stock (the "Preferred Stock") sold in the Offering
(as defined in the Subscription Agreement) may be converted;
(ii) the Common Stock to be issued upon exercise of the
Warrants issued in the Offering;
(iii) the Common Stock issued to, and the Common Stock to be
issued upon exercise of the Warrants issued to, the Placement Agent in the
Offering; and
(iv) any capital stock issued in replacement of, in exchange
for or otherwise in respect of such Common Stock.
(c) The number of shares of "Registrable Securities then
outstanding" shall include the number of shares of Common Stock which have been
issued or are issuable upon conversion of the Preferred Stock and the exercise
of the Warrants at the time of such determination;
(d) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any permitted assignee thereof;
<PAGE>
(e) The terms "Offering" and "Closing" shall have the meanings
ascribed to them in the Subscription Agreement.
2. REQUIRED REGISTRATION.
-----------------------
(a) Within forty-five (45) days after the Closing of the Offering,
the Company shall file a registration statement ("Registration Statement") on
Form S-3 (or other suitable form), with the SEC covering the resale of all
shares of Registrable Securities then outstanding.
(b) If the Registration Statement is not filed with the SEC within
forty-five (45) days after the Closing of the Offering, the Company shall pay
each Investor an amount equal to three percent (3%) per month of the aggregate
amount of Preferred Stock purchased by such Investor in the Offering, compounded
monthly and accruing daily, until the Registration Statement is filed with the
SEC, payable in cash or in common stock at the sole discretion of the Holder,
which common stock shall also be deemed "Registrable Securities" for the purpose
of this Agreement.
(c) The Company shall use its best efforts to have the
Registration Statement declared effective by the SEC.
(d) If the Registration Statement is not declared effective by the
SEC, or otherwise becomes effective within the meaning of the Rules and
regulations of the SEC. within one hundred forty-five (145) calendar days after
the Closing of the Offering, then the Company shall on the one- hundred
forty-sixth day after the Closing of the Offering pay each Investor an amount
equal to two percent (2%) of the aggregate amount of Preferred Stock purchased
by such Investor in the Offering, payable in cash or in common stock at the sole
discretion of the Holder, which common stock shall also be deemed "Registrable
Securities" for the purpose of this Agreement. On every thirtieth calendar day
thereafter until the Registration Statement becomes or is declared effective,
the Company shall pay each Investor an additional amount equal to two percent
(2%) of the aggregate amount of Preferred Stock purchased by such Investor in
the Offering, payable in cash or in common stock at the sole discretion of the
Holder, which common stock shall also be deemed "Registrable Securities" for the
purpose of this Agreement. Notwithstanding anything to the contrary in this
Agreement, no additional payments shall become due under this Section 2(d) after
the three-hundred sixty-fifth (365~) day after the Closing of the Offering.
3. LIMITATION ON OBLIGATIONS TO REGISTER. Notwithstanding anything
--------------------------------------
to the contrary herein, the Company shall have the right (i) to defer the
initial filing or request for acceleration of effectiveness of the Registration
Statement or (ii) after effectiveness, to suspend effectiveness of such
registration statement, if, in the good faith judgment of the board of directors
of the Company and upon the advice of counsel to the Company, such delay in
filing or requesting acceleration of effectiveness or such suspension of
effectiveness is necessary in light of (i) the requirement by any underwriter in
a public offering by the Company that such Registration Statement be delayed or
suspended or (ii) the existence of material non-public information (financial or
otherwise) concerning the Company, disclosure of which at the time is not, in
the opinion of the board of directors of the Company upon the advice of counsel,
(A) otherwise required and (B) in the best interests of the Company.
<PAGE>
4. OBLIGATIONS TO INCREASE THE NUMBER OF AVAILABLE SHARES. In the
-------------------------------------------------------
event that the number of shares available under a registration statement
filed pursuant to Section 2 is insufficient to cover all of the Registrable
Securities then outstanding, the Company shall amend that registration
statement, or file a new registration statement, or both, so as to cover all
shares of Registrable Securities then outstanding. The Company shall effect
such amendment or new registration within sixty (60) days of the date the
registration statement filed under Section 2 is insufficient to cover all the
shares of Registrable Securities then outstanding. Any Registration Statement
filed hereunder shall, to the extent permissible by the Rules of the Securities
and Exchange Commission ("SEC"), state that, in accordance with Rule 416
under the Act, such Registration Statement also covers such indeterminate
numbers of additional shares of Common Stock as may become issuable upon
conversion of the Preferred Stock or exercise of the Warrants to prevent
dilution resulting from stock changes or by reason of changes in the conversion
price in accordance with the terms thereof.
5. OBLIGATIONS OF THE COMPANY. Whenever required under this
-----------------------------
Agreement to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC such exhibits, amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(b) With respect to any Registration Statement filed pursuant to
this Agreement, keep such registration statement effective until the earlier of
(i) the Holders of Registrable Securities covered by such registration statement
have completed the distribution described in the registration statement; or (ii)
twenty-four (24) months after the effective date of registration.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders of
the Registrable Securities covered by such registration statement, provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
<PAGE>
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing.
(g) Furnish, at the request of any Holder requesting registration
of Registrable Securities pursuant to this Agreement, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Agreement, if such securities are being
sold through underwriters, (1) an opinion, dated such date, of the outside
counsel of recognized standing (or reasonably acceptable to Holder) representing
the Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities and (ii) a letter dated such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.
(h) As promptly as practicable after becoming aware of such event,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement to correct such untrue statement or
omission, and deliver a number of copies of such supplement or amendment to each
Investor as such Investor may reasonably request.
(i) Provide Holders with written notice of the date that a
registration statement registering the resale of the Registrable Securities is
declared effective by the SEC.
(j) Provide Holders and their representatives the opportunity to
conduct a reasonable due diligence inquiry of Company's pertinent financial and
other records and make available its officers, directors and employees for
questions regarding such information as it relates to information contained in
the registration statement subject to all information received by the Holders
and their representatives being kept confidential.
(k) Provide Holders and their representatives the opportunity to
review the registration statement and all amendments thereto a reasonable period
of time prior to their filing with the SEC.
6. FURNISH INFORMATION. It shall be a condition precedent to the
--------------------
obligations of the Company to take any action pursuant to this Agreement with
regard to each selling Holder that such selling Holders shall furnish to the
Company such information regarding themselves, the Registrable Securities held
to them, and the intended method of disposition of such securities as shall be
reasonably required to effect
<PAGE>
the registration of their Registrable Securities or to determine that
registration is not required pursuant to Rule 144 or other applicable provision
of the Act.
7. EXPENSES OF REQUIRED REGISTRATION. The Company shall bear and
------------------------------------
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registration
pursuant to Section 2 for each Holder, including (without limitation) all
registration, filing, and qualification fees, printers and accounting fees
relating or apportionable thereto but excluding underwriting discounts and
commissions and fees and expenses of counsel to the selling Holders relating to
Registrable Securities.
8. INDEMNIFICATION. In the event any Registrable Securities are
---------------
included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the officers and directors of each Holder, any
underwriter (as defined in the Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Act or the
Securities Exchange Act of 1934, as amended (the "1934 Act"), against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
by the Company of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, the 1934 Act or any state securities law;
and the Company will reimburse each such Holder, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 8(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, officer, director, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder, severally
and not jointly, will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
person, if any, who controls the Company within the meaning of the Act, any
underwriter and any other Holder selling securities in such registration
statement or any of its directors or officers or any person who controls such
Holder, against any losses, claims, damages, or liabilities (joint or several)
to which the Company or any such director, officer, controlling person, or
underwriter or controlling person, or other such Holder or director, officer or
controlling person may become subject, under the Act, the 1934 Act or other
federal or state law,
<PAGE>
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will reimburse
any legal or other expenses reasonably incurred by the Company and any such
director, officer, controlling person, underwriter or controlling person, other
Holder, officer, director, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
8(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided, that,
in no event shall any indemnity under this subsection 8(b) exceed the net
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 8, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonably incurred fees and
expenses of one such counsel to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential conflicting
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
8, but the omission so to deliver written notice to the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 8.
(d) In the event that the indemnity provided in paragraph (a) or
(b) of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and each holder of Registrable
Securities agree to contribute to the aggregate claims, losses, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "Losses") to which the
Company and one or more of the holders of Registrable Securities may be subject
in such proportion as is appropriate to reflect the relative fault of the
Company and the holders in connection with the statements or omissions which
resulted in such Losses; provided, however, that in no case shall any holder be
responsible for any amount in excess of the net purchase price of securities
sold by it under the registration statement. Relative fault shall be determined
by reference to whether any alleged untrue statement or omission relates to
information provided by the Company or by the holders. The Company and the
holders agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation which does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of the Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person
<PAGE>
who controls a holder of Registrable Securities within the meaning of either the
Act or the 1934 Act and each director, officer, partner, employee and agent of a
holder shall have the same rights to contribution as such holder, and each
person who controls the Company within the meaning of either the Act or the 1934
Act and each director of the Company, and each officer of the Company who has
signed the registration statement, shall have the same rights to contribution as
the Company, subject in each case to the applicable terms and conditions of this
paragraph (d).
(e) The obligations of the Company and Holders under this Section
8 shall survive the redemption and conversion, if any, of the Preferred Stock,
the completion of any offering of Registrable Securities in a registration
statement under this Agreement, and otherwise.
9. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
-----------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration, the
Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company, if true, that it has complied with the reporting requirements of SEC
Rule 144, the Act and the 1934 Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
------------- --------------------
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities provided that the amendment treats all
Holders equally. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each Holder, each future Holder, and the
Company.
11. NOTICES. All notices required or permitted under this
-------
Agreement shall be made in writing signed by the party making the same, shall
specify the section under this Agreement pursuant to which it is given, and
shall be addressed if to (i) the Company: Hyperdynamics Corporation, Attention
Chief Financial Officer, 2656 South Loop West, Suite 103, Houston, TX 77054,
Telephone No. (713) 660-9771, Facsimile No. (713) 660-9775 and (ii) the Holders
at their respective last address as the party shall have furnished in writing as
a new address to be entered on such register. Any notice, except as otherwise
provided in this Agreement, shall be made by fax and shall be deemed given at
the time of transmission of the fax.
<PAGE>
12. TERMINATION. This Agreement shall terminate on the earlier to
-----------
occur of (a) the date that is three (3) years from the date of this Agreement or
(b) the date the distribution of all Registrable Securities described in any
registration statement filed pursuant to this Agreement is completed; but
without prejudice to (i) the parties' rights and obligations arising from
breaches of this Agreement occurring prior to such termination (ii) other
indemnification obligations under this Agreement or (iii) the Company's
obligation to maintain the effectiveness of a registration statement filed prior
thereto in accordance with the terms hereof, and to fulfill its obligation
hereunder in respect thereof until it is no longer required to maintain the
effectiveness thereof.
13. ASSIGNMENT. No assignment, transfer or delegation, whether by
----------
operation of law or otherwise, of any rights or obligations under this Agreement
by the Company or any Holder, respectively, shall be made without the prior
written consent of the majority in interest of the Holders or the Company,
respectively; provided that the rights of a Holder may be transferred to a
subsequent holder of the Holder's Registrable Securities (provided such
transferee shall provide to the Company, a writing executed by such transferee
agreeing to be bound as a Holder by the terms of this Agreement); and provided
further that the Company may transfer its rights and obligations under this
Agreement to a purchaser of all or a substantial portion of its business if the
obligations of the Company under this Agreement are assumed in connection with
such transfer, either by merger or other operation of law (which may include
without limitation a transaction whereby the Registrable Shares are converted
into securities of the successor in interest) or by specific assumption executed
by the transferee.
14. MISCELLANEOUS.
-------------
(a) Governing Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of Delaware without giving
effect to conflict of laws.
(b) Successors and Assigns. Except as otherwise provided herein,
------------------------
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
(c) Delays or Omissions. No delay or omission to exercise any
---------------------
right, power or remedy accruing to any holder of any Registrable Shares, upon
any breach or default of the Company under this Agreement, shall impair any such
right, power or remedy of such holder nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereunder occurring, nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions of
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
(d) Counterparts. This Agreement may be executed in any number of
-------------
counterparts, each of which may be executed by less than all of the Investors,
<PAGE>
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
(e) Severability. In the case any provision of this Agreement
------------
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
(CONTINUED ON FOLLOWING PAGE)
<PAGE>
The foregoing Registration Rights Agreement is hereby executed as
of the date first above written.
HYPERDYNAMICS CORPORATION
By:_/s/ Kent P. Watts
--------------------
Name: Kent P. Watts
-------------------
Title: President
-----------------
INVESTOR(S)
_____________________
Investor's Name
By:__________________
(Signature)
Name:________________
Title:_________________
Address:
______________________
______________________
______________________
<PAGE>
The foregoing Registration Rights Agreement is hereby executed as of
the date first above written.
HYPERDYNAMICS CORPORATION
By: ______________________________
Name:______________________________
Title: ___________________________
INVESTOR(S)
Cache Capital USA L.P.
- -------------------------
Investor's Name
By:/s/ Joseph C. Carouse
---------------------
(Signature)
Name: Joseph C. Carouse
-------------------
Title: Investment Manager
-------------------
Address:
3343 Peachtree Rd., Suite 500
- -----------------------------
Atlanta, GA 30326
- -----------------------------
Attn: Mike Ezzell
- -----------------------------
<PAGE>
PLACEMENT AGENT
J.P. Carey Securities, Inc.
- -----------------------------
Agent's Name
By: James P. Canouse
------------------------
(Signature)
Name: James P. Canouse
----------------------
Title: Senior Vice President
---------------------
<PAGE>
EXHIBIT 21.1
Subsidiaries of the Company:
IThost.net Corporation (Formerly MicroData Systems, Inc.), A Texas corporation
(wholly-owned)
<PAGE>
CONSENT OF COUNSEL
The consent of Axelrod, Smith & Kirshbaum, is contained in their opinion filed
as Exhibit 5.1 to this Registration Statement.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Hyperdynamics Corporation
I have issued my report dated September 24, 1999 accompanying the Consolidated
Financial Statements of Hyperdynamics Corporation and subsidiaries for the
fiscal years ended June 30, 1999 and June 30, 1998. My report was originally
included in Hyperdynamics' Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1999. I consent to the inclusion of my report in this Form SB-2.
/s/ John B. Evans II
Houston, Texas
February 24, 2000
<PAGE>
