U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Schedule 14C Information
Amendment No. 1 to
Information Statement Pursuant to
Section 14(c) of the
Securities Exchange Act of 1934
Check the appropriate box:
[X] Preliminary Information Statement
[ ] Definitive Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14c-5(d)(2))
WARP TECHNOLOGY HOLDINGS, INC.
------------------------------
(Name of Registrant As Specified In Its Charter)
Payment of Filing Fee (Check the Appropriate Box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which the transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials
[ ] check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
WARP TECHNOLOGY HOLDINGS, INC.
151 Railroad Avenue
Greenwich, CT 06830
NOTICE OF ACTION BY THE WRITTEN CONSENT OF STOCKHOLDERS
To Our Stockholders:
On January 17, 2005, the board of directors of WARP Technology
Holdings, Inc. (the "Company") unanimously approved the adoption of a proposed
Amendment to the Articles of Incorporation of the Company (the "Amendment") to
increase the number of authorized shares of common stock, par value $.00001 per
share (the "Common Stock"), of the Company from 5,000,000 shares to 150,000,000
shares, subject to approval by a majority of the Company's stockholders.
On January 31, 2005, the holders of a majority of the outstanding
shares of our Common Stock approved the Amendment to the Articles of
Incorporation by written consent.
On January 31, 2005, the Company also completed the acquisition of
Gupta Technologies, LLC ("Gupta"). In order to raise funds to pay the purchase
price for Gupta, the Company entered into certain financing agreements,
including Bridge Notes, a Series C Subscription Agreement, a Senior Note
Agreement and a Subordinated Note Agreement, as more fully described in the
Information Statement accompanying this notice. Under the financing agreements,
the Company has committed to issue Series C preferred stock convertible into an
aggregate of 10,991,604 shares of Common Stock and Subordinated Notes
convertible into an aggregate of 2,500,000 shares of Common Stock. In addition,
the Company has committed to issue an aggregate of 17,064,854 shares of Common
Stock upon exercise of warrants to acquire Common Stock issued in connection
with these financing agreements. The Company must increase its authorized shares
of Common Stock in order to have sufficient shares of common stock available for
issuance upon conversion of the Subordinated Notes and shares of Series C stock
issuable pursuant to the financing agreements and upon exercise of warrants
issued pursuant to the same financing agreements. An aggregate of 30,556,459
shares of authorized but unissued Common Stock will need to be reserved. The
Company currently has 1,889,345 shares that are authorized but unissued.
The authorization of the Amendment to the Articles of Incorporation by
the board of directors and the stockholders shall not become effective until at
least 20 days after the mailing of the enclosed Information Statement. The
Amendment to the Articles of Incorporation has been approved by the written
consent of a majority of our stockholders and there is no need for any action to
be taken by you.
Your consent is not required and is not being solicited in connection
with this action. Pursuant to Section 78.370 of the Nevada Revised Statutes, you
are hereby being provided with notice of the approval by written consent of a
majority of the eligible voting stockholders of the Company. Pursuant to the
Securities Exchange Act of 1934, you are being furnished with an Information
Statement relating to this action.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
THE ATTACHED INFORMATION STATEMENT IS BEING SENT TO YOU FOR INFORMATION PURPOSES
ONLY.
The attached Information Statement is being provided to you pursuant to
Rule 14c-2 under the Securities Exchange Act of 1934. The Information Statement
contains a more detailed description of the Amendment to the Articles of
Incorporation and the financing agreements. I encourage you to read the
Information Statement thoroughly.
BY ORDER OF THE BOARD OF DIRECTORS,
March ___, 2005 Rodney A. Bienvenu, Jr.
Chairman of the Board and
Chief Executive Officer
INFORMATION STATEMENT PURSUANT TO SECTION 14
OF THE SECURITIES EXCHANGE ACT OF 1934
AND REGULATION 14C AND SCHEDULE 14C THEREUNDER
We Are Not Asking You for a Proxy and You Are
Requested Not To Send Us a Proxy
This Information Statement is furnished by the board of directors of
WARP Technology Holdings, Inc., a Nevada corporation ("Company"), to the holders
of record at the close of business on January 31, 2005 (the "Record Date") of
the Company's outstanding common stock, par value $0.00001 per share ("Common
Stock"), pursuant to Rule 14c-2 promulgated under the Securities Exchange Act of
1934, as amended ("Exchange Act").
The Company's board of directors have unanimously approved resolutions
to increase the number of authorized shares of Common Stock, par value $.00001
per share, of the Company from 5,000,000 shares to 150,000,000 shares.
The Company has received the consent of a majority of the outstanding
shares of Common Stock of the Company for the foregoing actions. The filing of a
Certificate of Amendment of Articles of Incorporation with the Nevada Secretary
of State, which will effect the foregoing actions, will not be done until a date
that is at least twenty (20) days after the mailing of this Information
Statement.
This Information Statement will be sent on or about March ___, 2005 to
the Company's stockholders of record who have not been solicited for their
consent of this corporate action.
OUTSTANDING SHARES AND VOTING RIGHTS
As of the Record Date, the Company's authorized capitalization
consisted of 5,000,000 shares of Common Stock, par value $.00001 per share, of
which 3,110,655 were issued and outstanding as of such Record Date. Holders of
Common Stock of the Company have no preemptive rights to acquire or subscribe to
any of the additional shares of Common Stock authorized by the Amendment to the
Articles of Incorporation.
Each share of Common Stock entitles its holder to one vote on each
matter submitted to the stockholders. However, because stockholders holding at
least a majority of the voting rights of all outstanding shares of capital stock
as at the Record Date have voted in favor of the foregoing proposals by
resolution dated January 31, 2005; and having sufficient voting power to approve
such proposals through their ownership of capital stock, no other
stockholder consents will be solicited in connection with this Information
Statement.
Pursuant to Rule 14c-2 under the Securities Exchange Act of 1934, as
amended, the proposals will not be adopted until a date at least 20 days after
the date on which this Information Statement has been mailed to the
stockholders. The Company anticipates that the actions contemplated herein will
be effected on or about the close of business on April ___, 2005.
The Company has asked brokers and other custodians, nominees and
fiduciaries to forward this Information Statement to the beneficial owners of
the Common Stock held of record by such persons and will reimburse such persons
for out-of-pocket expenses incurred in forwarding such material.
This Information Statement will serve as written notice to stockholders
pursuant to Section 78.370 of the Nevada Revised Statutes.
STOCK OWNERSHIP
The following table sets forth as of the Record Date, certain
information regarding the beneficial ownership (1) of the Company's common stock
outstanding by (i) each person who is known to the Company to own 5% or more of
its Common Stock, (ii) each director of the Company, (iii) certain executive
officers of the Company and (iv) all executive officers and directors of the
Company as a group. Unless otherwise indicated, each of the stockholders shown
in the table below has sole voting and investment power with respect to the
shares beneficially owned. Unless otherwise indicated, the address of each
person named in the table below is c/o WARP Technology Holdings, Inc., 151
Railroad Avenue, Greenwich, CT 06830. As of the Record Date, the Company had
3,110,655 shares of Common Stock issued and outstanding.
Common Stock (1)
----------------
Amount and Nature
of Beneficial Percent of
Name and Address of Beneficial Owner Company Position Ownership Class
------------------------------------ ------------------------------- ----------------- ----------
Rodney A. Bienvenu, Jr. (2) Director, Chairman, Chief 764,589 19.73%
Executive Officer
Gus Bottazzi (3) Director, President, Principal 2,000 *
Financial Officer
Ernest C. Mysogland (4) Executive Vice President, Chief 764,589 19.73%
Legal Officer and Secretary
Michael D. Liss (5) Chief Operating Officer 9,048 *
All directors and executive
officers as a group (4 persons) 775,637 20.08%
Amount and Nature
of Beneficial Percent of
Name and Address of Beneficial Owner Company Position Ownership Class
------------------------------------ ------------------------------- ----------------- ----------
Malcolm Coster (6) 79,556 2.54%
Carnegie Entities (7) 225,222 6.81%
Mai N. Pogue (8) 382,839 12.12%
Pogue Management (9) 382,839 12.12%
Pogue Shareholders (10) 382,839 12.12%
Pogue Capital Intl. Ltd. (11) 81,380 2.55%
MCP Global Corp. Ltd. (12) 81,380 2.55%
ISIS Capital Management, LLC (13) 764,589 19.73%
ISIS Acquisition Partners II LLC (14) 764,589 19.73%
Emma Teta (15) 268,158 8.00%
Mirco Teta (16) 195,000 5.90%
* Indicates less than one percent.
(1) As used in this table, a beneficial owner of a security includes any person
who, directly or indirectly, through contract, arrangement, understanding,
relationship or otherwise has or shares (a) the power to vote, or direct the
voting of, such security or (b) investment power which includes the power to
dispose, or to direct the disposition of, such security. In addition, a person
is deemed to be the beneficial owner of a security if that person has the right
to acquire beneficial ownership of such security within 60 days.
(2) Rodney A. Bienvenu, Jr. Amount includes the securities or rights to acquire
securities held by ISIS Acquisition Partners II LLC ("IAP II") or deemed to be
held by ISIS Capital Management, LLC ("ISIS") as described in footnotes 13 and
14 below. Mr. Bienvenu is a managing member of ISIS. Mr. Bienvenu may be deemed
to have voting and investment power with respect to shares beneficially owned by
IAP II and/or ISIS and disclaims beneficial ownership of such shares, except to
the extent of his respective proportionate pecuniary interest therein.
(3) Gus Bottazzi. Amount includes vested options to acquire 2,000 shares of
common stock at an exercise price of $25.00 per share.
(4) Ernest C. Mysogland. Amount includes the securities or rights to acquire
securities held by ISIS Acquisition Partners II LLC ("IAP II") or deemed to be
held by ISIS Capital Management, LLC ("ISIS") as described in footnotes 13 and
14 below. Mr. Mysogland is a managing member of ISIS. Mr. Mysogland may be
deemed to have voting and investment power with respect to shares beneficially
owned by IAP II and/or ISIS and disclaims beneficial ownership of such shares,
except to the extent of his respective proportionate pecuniary interest therein.
(5) Michael D. Liss. Amount includes options to acquire 8,969 shares of common
stock at an exercise price of $13.00 per share, such options having vested or
which will vest with 60 days.
(6) Malcolm Coster is a citizen of the United Kingdom whose principle
residential address is 46 Golf Side, Sutton, Surry, SM27EZ, UK. Amount includes
warrants to acquire 20,000 shares of common stock, at an exercise price of
$18.00 per share.
(7) Carnegie Entities. The "Carnegie Entities" are the Carnegie Fund, and the
Carnegie Worldwide/Emerging Growth fund. The address for the Carnegie Entities
is 5 Place de la Gare, PO Box 1141, L 1001, Luxembourg. Amount includes warrants
to acquire 8,000 shares of Common Stock at an exercise price of $1.25 per share.
(8) Mai N. Pogue. Ms. Pogue, jointly with her husband, Gerald A. Pogue, owns
25,140 shares of Common Stock, and warrants to acquire 2,095 shares of Common
Stock at an exercise price of $1.25 per share. In addition, the amount includes
securities held by the Pogue Shareholders as described in footnote 9 and 10
below.
(9) Pogue Management. Pogue Capital Management, Inc. ("Pogue Management")
directly holds warrants to acquire 630 shares of Common Stock at an exercise
price of $1.25 per share. In addition, the amount includes securities held by
the Pogue Shareholders as described in footnote 10 below. Pogue Management
manages or advises the Pogue Shareholders. Mai N. Pogue is the President of
Pogue Management. Pogue Management's address is 7851 Fisher Island Drive, Fisher
Island, Florida, 33109. Due to Pogue Management's management of the Pogue
Shareholders, Pogue Management and Mai N. Pogue may be deemed to have voting and
investment power with respect to shares beneficially owned by the Pogue
Shareholders. Pogue Management and Ms. Pogue disclaim beneficial ownership of
such shares, except to the extent of their respective proportionate pecuniary
interest therein.
(10) Pogue Shareholders. The "Pogue Shareholders" are defined as follows: (i)
Mai N. and Gerald A. Pogue; (ii) Pogue Management; (iii) Pogue Capital Intl.
Ltd.; (iv) MCP Global Corp. Ltd.; (v) Pam Investments; (vi) Pogue Capital FBO
Susan Rho: (vii) OXA Trade and Finance, Inc.; (ix) Chahram Pahlavi; (x) Charles
Kleinow; and (xi) Domencio Schinella. The amount includes amounts held by all
the Pogue Shareholders, as follows: (i) the amounts held by Mai N. and Gerald A.
Pogue as described in footnote 8 above; (ii) the amounts held by Pogue
Management as described in footnote 9 above; (iii) the amounts held by Pogue
Capital Intl. Ltd. as described in footnote 131 below; (iv) the amounts held by
MCP Global Corp. Ltd. as described in footnote 12 below; (v) 25,140 shares of
Common Stock, and warrants to acquire 2,095 shares of Common Stock at an
exercise price of $1.25 per share, held by Pam Investments; (vi) 8,260 shares of
Common Stock, held by Pogue Capital FBO Susan Rho; (vii) 52,466 shares of Common
Stock and warrants to acquire 100,000 shares of Common Stock, at an exercise
price of $1.00 per share, held by OXA Trade and Finance, Inc. (ix) 25,140 shares
of Common Stock, and warrants to acquire 2,095 shares of Common Stock at an
exercise price of $1.25 per share held by Chahram Pahlavi; (x) 25,140 shares of
Common Stock, and warrants to acquire 2,095 shares of Common Stock at an
exercise price of $1.25 per share held by Charles Kleinow; and (xi) 25,140
shares of Common Stock, and warrants to acquire 700 shares of Common Stock at an
exercise price of $1.25 per share held by Domencio Schinella.
(11) Pogue Capital Intl. Ltd. holds 75,120 shares of Common Stock, and warrants
to acquire 6,260 shares of Common Stock at an exercise price of $1.25 per share.
(12) MCP Global Corp. Ltd. Holds 75,120 shares of Common Stock, and warrants to
acquire 6,260 shares of Common Stock at an exercise price of $1.25 per share.
(13) ISIS Capital Management, LLC. The amount includes the securities or rights
to acquire securities held by ISIS Acquisition Partners, LLC as described in
footnote 14 below. ISIS is the managing member of IAP II. ISIS may be deemed to
have voting and investment power with respect to shares beneficially owned by
IAP II and disclaims beneficial ownership of such shares, except to the extent
of its respective proportionate pecuniary interest therein.
(14) ISIS Acquisition Partners, LLC ("IAP II") holds the following securities or
rights to acquire securities: (i) 389,589 shares of Common Stock; and (ii)
warrants to acquire 375,000 shares of Common stock, at an exercise price of
$1.00 per share.
(15) Emma Teta. Mrs. Teta holds 118,158 shares of Common Stock and warrants to
acquire 150,000 shares of Common Stock at an exercise price of $1.00 per share.
Mrs. Teta's address is 35-01 92nd Street, Jackson Heights, NY 10570.
(16) Mirco Teta. Mr. Teta holds 65,000 shares of Common Stock, and warrants to
acquire 130,000 shares of Common Stock, at an exercise price of $1.00 per share.
Mr. Teta's address is 99 South Park Avenue #31, Rockville Centre, NY 11570.
AMENDMENT TO THE ARTICLES OF INCORPORATION
The Company's board of directors and a majority of the stockholders of
the Company eligible to vote on the matter have approved an Amendment to the
Articles of Incorporation of the Company to increase the number of authorized
shares of Common Stock from 5,000,000 to 150,000,000. On the Record Date, the
Company had authorized capital stock of 5,000,000 shares of Common Stock and
approximately 3,110,655 of those shares were issued and outstanding.
Increase In Authorized Common Stock.
The terms of the additional shares of Common Stock will be identical to
those of the currently outstanding shares of Common Stock. This amendment will
not alter the current number of issued and outstanding shares of Common Stock or
the percentage ownership of that Common Stock by our current stockholders and
the relative rights and limitations of the shares of Common Stock will remain
unchanged under this proposal. However, because holders of Common Stock have no
preemptive rights to purchase or subscribe for any unissued stock of the
Company, any issuance of additional shares of Common Stock by the Company will
reduce the current stockholders' percentage ownership interest in the total
outstanding shares of Common Stock and could have a dilutive effect on the
earnings per share and book value per share of the Company. If the Company were
to issue all of the shares of Common Stock authorized by the Amendment, the
current holders of Common Stock would then own approximately 2.1% of the
Company.
As of the Record Date, a total of 3,110,655 shares of the Company's
currently authorized shares of Common Stock were issued and outstanding. Of the
5,000,000 shares of Common Stock currently authorized, 1,889,345 were authorized
but unissued as of the Record Date. The increase in the number of authorized but
unissued shares of Common Stock resulting from the Amendment to the Company's
Articles of Incorporation will enable the Company to reserve sufficient shares
for issuance upon conversion or exercise of securities issued pursuant to the
financing agreements entered into in connection with the acquisition of Gupta
Technologies, LLC and, without further stockholder approval, to issue shares
from time to time as may be required for proper business purposes, such as
raising additional capital for ongoing operations, business and asset
acquisitions, stock splits and dividends, present and future employee benefit
programs and other corporate purposes.
The Company sought shareholder approval of the Amendment at this
time because the Amendment is necessary to enable the Company to comply with the
requirements of the financing agreements it entered into in connection with the
acquisition of Gupta Technologies, LLC.
Gupta Acquisition.
On January 31, 2005, the Company completed the acquisition of Gupta
Technologies, LLC ("Gupta"). The acquisition of Gupta (the "Acquisition") was
made pursuant to a Membership Interest Purchase Agreement (as amended, the
"Purchase Agreement") between the Company and Gupta Holdings, LLC (the
"Seller").
The Company's Board of Directors determined that acquiring Gupta
would be in the best interests of the Company and its stockholders. Part of the
Company's business strategy is to acquire well-managed, profitable, enterprise
software companies. Gupta has these characteristics, and was available to be
acquired at a price that the board determined to be fair and reasonable.
Under the Purchase Agreement, the total purchase price was
$21,000,000, of which the Company delivered $15,750,000 in cash on or before the
closing. The remainder of the purchase price was paid in equity and debt
securities issued or provided by the Company with the terms described below.
In order to raise funds to pay the cash portion of the purchase
price for Gupta, and in order to provide the non-cash portion of the purchase
price, the Company entered into certain financing agreements described herein.
The Amendment to the Articles of Incorporation is necessary to allow the Company
to reserve for issuance sufficient shares of Common Stock to be issued upon
conversion or exercise of the securities sold by the Company pursuant to the
financing agreements.
Financing Agreements.
The financing agreements include the Subscription Agreement, the
Bridge Notes, the Senior Note Agreement, the Subordinated Note Agreement, the
Broker Warrants and the Assignment, as such terms are defined below.
Series C Subscription Agreement.
On January 31, 2005, the Company entered into certain Series C
Subscription Agreements (collectively, the "Subscription Agreement"), with the
Investors (as identified therein). The Subscription Agreement has the following
material terms:
o Under the Subscription Agreement, the Company agreed to sell
certain Series C Convertible Notes (the "Series C Notes") to
the Investors, and the Investors agreed to purchase the Series
C Notes.
o An aggregate of $8,475,000 of Series C Notes were sold to
Investors under the Subscription Agreement.
o The Subscription Agreement contained customary representations
and warranties concerning the Company and its assets and
liabilities, and required the Investors to make customary
investment representations.
o Most of the proceeds of the sale of the Series C Notes were
used to fund a portion of the purchase price in the Gupta
acquisition and the remainder of the proceeds were used for
working capital purposes.
o The Series C Notes are unsecured and bear interest at the rate
of 6% per annum.
o The Series C Notes are convertible into a new series of
Preferred Stock, the "Series C Stock" with a par value of
$.00001 per share, and Warrants to acquire Common Stock.
o Upon the effectiveness of the Amendment to the Articles of
Incorporation, the Company will file a Certificate of
Designation (the "Certificate"), designating the rights,
preferences and other terms of the Series C Stock. Upon the
effectiveness of the Certificate, which the Company
anticipates on approximately April 1, 2005, all amounts due
under the Series C Notes (principal and interest) will
automatically convert into (i) 8,558,589 shares of Series C
Stock, and (ii) Warrants (the "Warrants") to acquire 8,558,589
shares of Common Stock. These amounts include interest through
April 1, 2005. Prior to filing the Amendment, the Company has
1,889,345 shares of Common Stock authorized but unissued. This
number is insufficient to allow the Company to reserve
sufficient shares for issuance upon conversion of the Series C
Stock and exercise of the Warrants and thereby to satisfy the
Company's contractual obligations under the Series C Notes.
o In the event that the Series C Notes are not converted by the
maturity date (March 17, 2005), the Company will be required
to pay to the Investors on such Maturity Date a penalty in
cash equal to ten percent (10%) of the principal amount of the
Series C Notes. The Company anticipates that it will need to
obtain a waiver of this penalty or amend the Series C Notes.
The Company intends to work with the Investors to obtain such
waiver or amendment but there can be no assurance that the
Company will be able to do so.
Once the Series C Notes are converted, the Investors under the
Subscription Agreements will hold shares of the Company's Series C and Warrants
to acquire Common Stock. The Company will reserve for issuance 17,117,178 shares
of Common stock to cover those shares of Common Stock issuable upon conversion
of the Series C Stock and exercise of the Warrants.
The Series C Stock which the Investors will receive upon conversion
of their Series C Notes, has the following material terms:
o The Series C Stock will be convertible into Common Stock, at
the option of the holder, at a conversion price (the
"Applicable Conversion Price") that will initially be equal to
$1.00. Accordingly, the Series C Stock is convertible into
Common Stock at a one to one (1:1) ratio. However, the ratio
is subject to adjustment pursuant to the anti-dilution
protections extended to the holders of Series C Stock. Under
the anti-dilution provisions, in the event the Company issues,
at any time while shares of Series C Stock are still
outstanding, shares of Common Stock or any type of securities
convertible or exchangeable for, or otherwise giving a right
to acquire, shares of Common Stock, at a price below the
Applicable Conversion Price, then the Applicable Conversion
Price will be adjusted to the price per share equal to the
price per share paid for such Common Stock in such subsequent
financing. This full-ratchet anti-dilution protection on the
Series C Stock will also be extended to any warrants received
in connection with the Subscription Agreement that are
outstanding at such time. In addition to the full-ratchet
protection, the Applicable Conversion
Price will be equitably adjusted in the event of any stock
split, stock dividend or similar change in the Company's
capital structure.
o If the Company's market capitalization based on the shares of
Common Stock outstanding (including all shares of Common Stock
underlying the Shares of Series C Stock on an as converted
basis) exceeds $50,000,000, the shares of Common Stock
underlying the Series C Stock are registered, and the Company
has an average daily trading volume for 20 consecutive trading
days of 100,000 shares per day, then the Company may require
the holders of Series C Stock to convert the Series C Stock
into Common Stock at the then Applicable Conversion Price.
o The holders of shares of Series C Stock will be entitled to
receive dividends, at a 6% annual rate, payable quarterly in
arrears, either in cash, or at the election of the Company, in
shares of Common Stock. The dividends are preferred dividends,
payable in preference to any dividends which may be declared
on the Common Stock. Common Stock delivered in payment of
dividends will be valued at 90% of the average of the volume
weighted average price for the 20 trading day period ending on
the trading day immediately prior to the date set for payment
of the dividend.
o Any unconverted and non-redeemed Shares of Series C Stock
outstanding on the third anniversary of the initial issuance
of the Series C Stock, will be automatically redeemed on that
date, in cash, at $1.00 per share, plus all accrued but unpaid
dividends thereon (subject to equitable adjustment for all
stock splits, stock dividends, or similar events involving a
change in the capital structure of the Company).
The Warrants that will be issued to the Investors upon conversion of
their Series C Notes, will allow the Investors to purchase a number of shares of
Common Stock equal to the number of shares of Series C Stock issuable upon
conversion of the Series C Notes. Accordingly, warrants to acquire an aggregate
of 8,558,589 shares of Common Stock will be issued upon conversion of the Series
C Notes. The Warrants will have an exercise price of $1.25 per share. The
Warrants will be exercisable over a five-year term.
An aggregate of 17,117,178 shares of Common Stock must be authorized
and reserved for issuance upon conversion of the Series C Stock and upon
exercise of the Warrants issued in connection with the Subscription Agreement.
The Company currently only has 1,889,345 authorized but unissued shares of
Common Stock. The Amendment to the Articles of Incorporation will allow the
Company to reserve sufficient shares of Common Stock for these purposes.
The potential dilutive effect of the Subscription Agreement
(separate from the other financing agreements) is as follows:
o As of January 31, 2005, the Company's outstanding shares of
Common Stock totaled 3,110,655. After the Amendment is
effective, Series C Notes will be converted into (i) 8,558,589
shares of Series C Stock which in turn will be convertible
into 8,558,589 shares of Common Stock and (ii) Warrants to
acquire an additional 8,558,589 shares of Common Stock.
o The effect of the issuance of the Series C stock upon
conversion of the Series C Notes will be to reduce the
percentage of the Company held by the common shareholders of
record on January 31, 2005 by 73% so that these shareholders
would have 27% of the total equity interests in the Company.
o If the Company elects to pay the dividends on such shares of
Series C Stock in cash, or if the Investors elect to
immediately convert the Series C Stock into Common Stock so
that no dividends accrue, and if the Investors do not exercise
any of the Warrants, then there would be no further dilution
to common shareholders.
o If the Company elects to pay all of the 6% dividends on the
Series C Stock issued to the Investors in shares of Common
Stock rather than in cash, and such shares of Series C Stock
are not converted until immediately prior to the redemption
date (which is three years after issuance), then the existing
common shareholders of record on January 31, 2005 would be
further diluted by 3% so that the shareholders of record on
January 31, 2005 would thereafter hold approximately 24% of
the total equity interests in the Company.
o If the Company elects to pay the dividends on such shares of
Series C Stock in cash, or if the Investors elect to
immediately convert the Series C Stock into Common Stock so
that no dividends accrue, and the Investors were to exercise
all of the Warrants, the potential dilutive effect of the
issuance of the Series C Stock and the exercise of the
Warrants would be to reduce the percentage of the Company held
by the existing common shareholders of record on January 31 by
85% so that the shareholders of record on January 31, 2005
would thereafter hold approximately 15% of the total equity
interests in the Company.
o If the Company elects to pay all of the 6% dividends on the
Series C Stock issued to the Investors in shares of Common
Stock rather than in cash, and such shares of Series C Stock
are not converted until immediately prior to the redemption
date (which is three years after issuance), and if the
Investors exercise all of Warrants, then the potential
dilutive effect of the issuance of the Series C Stock, the
payment of the dividends in stock, and the exercise of the
Warrants would be to reduce the percentage of the Company held
by the existing common shareholders of record on January 31 by
86% so that the shareholders of record on January 31, 2005
would thereafter hold approximately 14% of the total equity
interests in the Company.
Bridge Notes.
In October, 2004, December, 2004 and January 2005, the Company raised
funds from investors in order to make certain payments, totaling $2,250,000 to
the Seller, toward the purchase price of Gupta. In exchange for such investment
the Company issued certain promissory notes (the "Bridge Notes") in the
aggregate principal amount of $2,250,000.
The Bridge Notes had the following material terms:
o Interest accrues at the annual rate of 12%.
o Contemporaneously with the closing of the Gupta Purchase Agreement,
the Bridge Notes were automatically converted into Series C Notes.
o An aggregate of $2,409,253 of Series C Notes were issued upon the
conversion.
o Accordingly, upon the effectiveness of the Amendment and the
Certificate, assuming the effective date is April 1, 2005, and
including interest accruing through such date the Series C Notes
will convert into 2,433,015 shares of Series C Preferred Stock and
Warrants to acquire 2,433,015 shares of Common Stock. These warrants
(the "Bridge Warrants") have an exercise price of $1.25 per share
and are exercisable for a period of five years from the date of
issuance.
The Amendment to the Articles of Incorporation will allow the Company
to reserve sufficient shares of Common Stock for issuance upon conversion of the
Series C Stock, and upon exercise of the Bridge Warrants, to be issued to the
Bridge note investors.
The potential dilutive effect of the Bridge Notes (separate from the
other financing agreements) is as follows:
o As of January 31, 2005, the Company's outstanding shares of Common
Stock totaled 3,110,655. After the Amendment becomes effective, the
Series C Notes issued upon conversion of the Bridge Notes will be
converted into (i) 2,433,015 shares of Series C Stock which in turn
will be convertible into 2,433,015 shares of Common Stock and (ii)
Bridge Warrants to acquire an additional 2,433,015 shares of Common
Stock.
o The effect of the issuance of the Series C Stock upon conversion of
these Series C Notes will reduce the percentage of the Company's
equity held by the common shareholders of record on January 31, 2005
by 44% to 56% of the total equity interests in the Company.
o If the Company elects to pay the dividends on such shares of Series
C Stock in cash, or if the holders thereof elect to immediately
convert the Series C Stock into Common Stock so that no dividends
accrue, and if the holders do not exercise any of the Bridge
Warrants, then there would be no further dilution to common
shareholders.
o If the Company elects to pay all of the 6% dividends on such shares
of Series C Stock issued to the Bridge Note holders in shares of
Common Stock rather than in cash, and if such shares of Series C
Stock are not converted prior to the redemption date (which is three
years after issuance), then the existing common shareholders of
record on January 31, 2005 would be further diluted by 4% so that
the shareholders of record on January 31, 2005 would thereafter hold
approximately 52% of the total equity interests in the Company.
o If the Company elects to pay the dividends on such shares of Series
C Stock in cash, or if the holders elect to immediately convert the
Series C Stock into Common Stock so that no dividends accrue, and if
the holders thereof were to exercise all of the Bridge Warrants, the
potential dilutive effect of the issuance of the Series C Stock and
the exercise of the Bridge Warrants would be to reduce the
percentage of the Company held by the existing common shareholders
of record on January 31 by 61% so that the shareholders of record on
January 31, 2005 would thereafter hold approximately 39% of the
total equity interests in the Company.
o If the Company elects to pay all of the 6% dividends on the Series C
Stock issued to the Bridge Note holders in shares of Common Stock
rather than in cash, and such shares of Series C Stock are not
converted until immediately prior to the redemption date (which is
three years after issuance), and if the holders exercise all of
Bridge Warrants, then the potential dilutive effect of the issuance
of the Series C Stock, the payment of the dividends in stock, and
the exercise of the Bridge Warrants would be to reduce the
percentage of the Company held by the existing common shareholders
of record on January 31 by 63% so that the shareholders of record on
January 31, 2005 would thereafter hold approximately 37% of the
total equity interests in the Company.
Senior Note and Warrant Purchase Agreement.
On January 31, 2005, the Company entered into that certain Senior Note
and Warrant Purchase Agreement (the "Senior Note Agreement"), by and among the
Company and the Purchasers (the "Senior Noteholders") identified therein.
The Senior Note Agreement has the following material terms:
o Under the Senior Note Agreement, the Company agreed to sell Senior
Secured Promissory Notes (the "Senior Notes") and the Senior
Noteholders agreed to purchase the Senior Notes.
o Senior Notes with an aggregate principal amount of $6,850,000 were
sold.
o The Senior Note Agreement contained customary representations and
warranties concerning the Company and its assets and liabilities,
and required the Senior Note Holders to make customary investment
representations.
o Most of the proceeds of the sale of the Senior Notes was used to
fund a portion of the purchase price in the Gupta acquisition and
the remainder of the proceeds was used for working capital purposes.
o The Senior Notes bear interest at an annual rate of 10%, with
interest payments due quarterly in arrears.
o The Senior Notes are due on July 31, 2005. The Senior Notes are not
convertible.
o The Senior Notes are secured by a first priority security interest
in the assets of the Company, including the equity interests of the
Company in Gupta and the Company's other subsidiaries.
o Under the Senior Note Agreement, subject to the filing of the
Amendment to the Articles of Incorporation, the Senior Noteholders
received warrants to purchase an aggregate of 2,670,000 shares of
the Company's Common Stock (the "Senior Lender Warrants"). These
warrants will have an exercise price of $1.25, and will be
exercisable for a period of five years from the date of issuance.
Without the Amendment, the Company does not have sufficient shares
of Common Stock to reserve 2,670,000 shares for issuance upon exercise of the
Senior Lender Warrants.
The potential dilutive effect of the Senior Note Agreement (separate
from the other financing agreements) is as follows:
o As of January 31, 2005, the Company's outstanding shares of Common
Stock totaled 3,110,655.
o Under the Senior Note Agreement, the Senior Noteholders received
Senior Lender Warrants to acquire up to 2,670,000 shares of Common
Stock.
o After the Amendment is effective, if the Senior Noteholders were to
exercise all of the Senior Lender Warrants, the effect would be to
reduce the percentage of the Company held by the common stockholders
of record on January 31 by 46% so that these shareholders would hold
approximately 54% of the total equity interests in the Company.
Subordinated Note and Warrant Purchase Agreement.
On January 31, 2005, the Company entered into that certain Subordinated
Note and Warrant Purchase Agreement (the "Subordinated Note Agreement") by and
among the Company and the Purchasers (the "Subordinated Noteholders") identified
therein.
The Subordinated Note Agreement has the following material terms:
o Under the Subordinated Note Agreement, the Company agreed to sell
Subordinated Secured Promissory Notes (the "Subordinated Notes") and
the Subordinated Noteholders agreed to purchase the Subordinated
Notes.
o Subordinated Notes with an aggregate principal amount of $4,000,000
were sold, including the $1,500,000 subordinated note issued to the
Seller under the Purchase Agreement (the "Gupta Note").
o The Subordinated Note Agreement contained customary representations
and warranties concerning the Company and its assets and
liabilities, and required the Subordinated Note Holders to make
customary investment representations.
o Most of the proceeds of the sale of the Subordinated Notes was used
to fund a portion of the purchase price in the Gupta acquisition and
the remainder of the proceeds was used for working capital purposes.
o The Subordinated Notes bear interest at an annual rate of 10%, with
interest payments due quarterly in arrears. Interest is payable in
registered shares of Common Stock of the Company, provided that
until such shares are registered, interest shall be payable in cash.
o The Subordinated Notes are due on January 31, 2007, other than the
Gupta Note, which is due on January 31, 2006.
o The Subordinated Notes are secured by a security interest in the
assets of the Company, including the equity interests of the Company
in Gupta and the Company's other subsidiaries, subordinated only to
the security interest granted to secure the Senior Notes.
o Subject to the effectiveness of the Amendment, the Subordinated
Noteholders have the right to convert all principal amounts due
under the Subordinated Notes - other than the Gupta Note which is
not convertible - into such number of Shares of Common Stock equal
to the principal amount due under the Subordinated Notes divided by
$1.00. Accordingly, an aggregate of 2,500,000 shares of Common Stock
is issuable upon conversion of the Subordinated Notes.
o Under the Subordinated Note Agreement, subject to the filing of the
Amendment to the Articles of Incorporation, the Subordinated
Noteholders - other than the holder of the Gupta Note - will also
receive warrants to purchase 2,500,000 shares of the Company's
Common Stock (the "Subordinated Lender Warrants"). The Warrants will
have an exercise price of $1.25, and will be exercisable for a
period of five years from the date of issuance.
Without the Amendment, the Company does not have sufficient shares of
Common Stock to reserve an aggregate of 5,000,000 shares for issuance upon
conversion of the Subordinated Notes, and upon exercise of the Subordinated
Lender Warrants.
The potential dilutive effect of the Subordinated Note Agreement
(separate from the other financing agreements) is as follows:
o As of January 31, 2005, the Company's outstanding shares of Common
Stock totaled 3,110,655.
o If the Company pays all of the interest due under the Subordinated
Notes (including the Gupta Note) in registered shares of Common
Stock rather than in cash, and the principal amount of such
Subordinated Notes remained outstanding until maturity, then the
existing common shareholders of record on January 31, 2005 would be
diluted by 17% so that the shareholders of record on January 31,
2005 would thereafter hold approximately 83% of the total equity
interests in the Company.
o After the Amendment is effective, the Subordinated Notes (other than
the Gupta Note) will be convertible into 2,500,000 shares of Common
Stock. If all of the Subordinated Notes were converted immediately
prior to maturity, the effect would be to further reduce the
percentage of the Company's equity held by the common shareholders
of record on January 31, 2005 by 33% so that these shareholders
would thereafter hold approximately 50% of the total equity
interests in the Company.
o Under the Subordinated Note Agreement, the Subordinated Noteholders
also received Subordinated Lender Warrants to acquire up to
2,500,000 shares of Common Stock. If the Subordinated Noteholders
were to exercise all of these warrants, but not to convert the
Subordinated Notes, the effect of such exercise, in addition to the
effect of the payment of interest in Common Stock, would be to
reduce the percentage of the Company's equity held by the existing
common shareholders of record on January 31, 2005 by 50% so that
these shareholders would thereafter hold approximately 50% of the
total equity interests in the Company.
o If the Subordinated Noteholders were to exercise all of the
Subordinated Lender Warrants and also convert all of the
Subordinated Notes, the effect of such exercise and conversions, in
addition to the effect of the payment of interest in shares of
Common Stock, would be to reduce the percentage of the Company held
by the existing common shareholders of record on January 31, 2005 by
a total of 64% so that these shareholders would thereafter hold
approximately 36% of the total equity interests in the Company.
Warrants Issued in Connection with Brokers or Finders Fees.
In connection with the various sales of the Bridge Notes, the Series C
Notes, the Senior Notes and the Subordinated Notes under the financing
agreements, the Company has incurred brokers or finders fees and commissions of
a total of $833,250. In addition, subject to the effectiveness of the Amendment,
the Company has committed to issue to such brokers and finders warrants (the
"Broker Warrants") to acquire up to an aggregate of 903,250 shares of Common
Stock. These warrants are exercisable for a period of five years and have an
exercise price of $1.25 per share.
The potential dilutive effect of the Broker Warrants (separate from the
other financing agreements) is as follows:
o As of January 31, 2005, the Company's outstanding shares of Common
Stock totaled 3,110,655.
o If the holders thereof were to exercise all of the Broker Warrants,
the effect would be to reduce the percentage of the Company's equity
held by the existing common shareholders of record on January 31,
2005 by 23% so that these shareholders would thereafter hold
approximately 77% of the total equity interests in the Company.
Series C Stock and Warrants Issuable in Connection with Assignment.
In October, 2004, the Company and ISIS Capital Management, LLC ("ISIS")
entered into that certain Purchase Agreement Assignment and Assumption (the
"Assignment"), pursuant to which the Company acquired all of the rights and
assumed all of the liabilities of the Purchaser under the Purchase Agreement to
acquire Gupta.
Under the Assignment, upon the acquisition of Gupta, in consideration
of the assignment, and services in connection with due diligence, financing
contacts and structure, for its efforts in negotiating the terms of the
acquisition (including the specific right to assign the Purchase Agreement to
the Company), undertaking the initial obligation regarding the purchase of
Gupta, and undertaking the obligation to provide the Seller with a $1,000,000
promissory note issued by ISIS, the Company agreed to pay ISIS a transaction fee
equal to $1,250,000, payable either in cash or, at the election of ISIS, in
shares of Series C Stock and warrants to acquire shares of Common Stock.
After the Amendment becomes effective, in the event ISIS elects to
receive its entire transaction fee in shares of Series C Stock and warrants to
acquire Common Stock, the Company would issued 1,250,000 shares of Series C
Stock and warrants to acquire 1,250,000 shares of Common Stock (The "Assignment
Warrants"), on the same terms as such securities were issued to the investors
under the Subscription Agreement.
In the event ISIS elects to receive its entire transaction fee in
shares of Series C Stock and warrants to acquire common stock, the potential
dilutive effect of the Assignment (separate from the other financing agreements
and the other commitments discussed above) will be as follows:
o As of January 31, 2005, the Company's outstanding shares of Common Stock
totaled 3,110,655. The 1,250,000 shares of Series C Stock issuable under
the Assignment will be convertible into 1,250,000 shares of Common Stock.
o The effect of the issuance of these shares of Series C Stock will be to
reduce the percentage of the Company's equity held by the common
shareholders of record on January 31, 2005 by 29% so that these
shareholders would thereafter hold approximately 71% of the total equity
interests in the Company.
o If the Company elects to pay the dividends on such shares of Series C Stock
in cash, or if the holders thereof elect to immediately convert the Series
C Stock into Common Stock so that no dividends accrue, and if the holders
do not exercise any of the Warrants, then there would be no further
dilution to common shareholders.
o If the Company elects to pay all of the 6% dividends on the shares of
Series C Stock which may be issued to ISIS in shares of Common Stock rather
than in cash, and such shares of Series C Stock are not converted until
immediately prior to the redemption date (which is three years after
issuance), then the percentage of the existing common shareholders of
record on January 31, 2005 would be further reduced by 3% so that these
shareholders would thereafter hold approximately 68% of the total equity
interests in the Company.
o If the Company elects to pay the dividends on such shares of Series C Stock
in cash, or if the holders elect to immediately convert the Series C Stock
into Common Stock so that no dividends accrue, and the holders were to
exercise all of the Assignment Warrants, the potential dilutive effect of
the issuance of the Series C Stock and the exercise of the Warrants would
be to reduce the percentage of the Company held by the existing common
shareholders of record on January 31 by a total of 45% so that the
shareholders of record on January 31, 2005 would thereafter hold
approximately 55% of the total equity interests in the Company.
o If the Company elects to pay all of the 6% dividends on the Series C Stock
issued to the holders in shares of Common Stock rather than in cash, and
such shares of Series C Stock are not converted until immediately prior to
the redemption date (which is three years after issuance), and if the
holders exercise all of the Assignment Warrants, then the potential
dilutive effect of the issuance of the Series C Stock, the payment of the
dividends in stock, and the exercise of the Assignment Warrants would be to
reduce the percentage of the Company held by the existing common
shareholders of record on January 31 by a total of 47% so that the
shareholders of record on January 31, 2005 would thereafter hold
approximately 53% of the total equity interests in the Company.
Potential Aggregate Dilutive Effect of the Financing Agreements and the
Amendment.
The various financings raised approximately $21,575,000 in cash and
other consideration to fund the purchase price of Gupta, and to provide for
working capital and transaction costs. As a result of the financing agreements,
the Company has committed to issue an aggregate of 12,241,604 shares of Series C
stock convertible into 12,241,604 shares of Common Stock and to issue the
Warrants, the Bridge Warrants, the Senior Lender Warrants, the Subordinated
Lender Warrants and the Broker Warrants and the Assignment Warrants which are
exercisable for an aggregate of 18,314,854 shares of Common Stock.
Additionally, the Subordinated Notes are convertible into 2,500,000 shares of
Common Stock.
If all of the shares of Series C Stock issued in connection with the
Series C Notes were converted and the Subordinated Notes were converted,
14,741,604 shares of Common Stock would be issuable and the total stock
outstanding would then equal 17,852,259 shares. In this case, the existing
shareholders' percentage ownership stake in the Company would be reduced from
100% to approximately 17%. The following table summarizes these effects,
presenting the number of shares of Common Stock on an as if converted into
Common Stock basis.
STOCKHOLDER GROUP CLASS OF STOCK NUMBER OF SHARES PERCENTAGE
------------------------ -------------- ---------------- ----------
Common Stock Holders Common 3,110,655 17.42%
Bridge Note Investors Series C 2,433,015 13.63%
Series C Investors Series C 8,558,589 47.94%
Subordinated Noteholders Common 2,500,000 14.00%
ISIS Series C 1,250,000 7.00%
------------------------------------------------------------------------------
TOTAL 17,852,259 100.00%
If all of the shares of Series C Stock issued in connection with the
Series C Notes were converted and the Subordinated Notes were converted, and if
all the Warrants, the Bridge Warrants, the Senior Lender Warrants, the
Subordinated Lender Warrants, and the Broker Warrants and the Assignment
Warrants were exercised, 33,056,459 shares of Common Stock would be issuable and
the total shares outstanding would be 36,167,113. In this case, the existing
shareholders' percentage ownership stake in the Company would be reduced from
100% to 9%. If however, all of the options and warrants to acquire Common Stock
held by existing common shareholders as of January 31, 2005 were also exercised,
the total shares outstanding would be 37,964,806 and the common shareholders
would have their percentage ownership stake reduced from 100% to approximately
13%. The following table summarizes these effects, presenting the number of
shares of Common Stock on an as if converted into Common Stock basis and
assuming the exercise of all warrants and options.
TOTAL
NUMBER OF FULLY
WARRANTS OR DILUTED
STOCKHOLDER GROUP CLASS OF STOCK NUMBER OF SHARES OPTIONS SHARES PERCENTAGE
------------------------ -------------- ---------------- ---------- ---------- ----------
Common Stock Holders Common 3,110,655 1,797,692 3,110,655 12.93%
Bridge Note Investors Series C 2,433,015 2,433,015 4,866,030 12.82%
Series C Investors Series C 8,558,589 8,558,589 17,117,178 45.09%
Subordinated Noteholders Common 2,500,000 2,500,000 5,000,000 13.17%
Senior Noteholders Common -- 2,670,000 2,670,000 7.03%
Brokers Common -- 903,250 903,250 2.38%
ISIS Series C 1,250,000 1,250,000 2,500,000 6.59%
==============================================================================================================
TOTAL 17,852,259 20,112,546 37,964,806 100.00%
If all of the additional 145,000,000 shares of Common Stock
authorized by the Amendment were issued, there would be a total of 148,110,655
shares of Common Stock outstanding and the existing common shareholders'
percentage ownership stake in the Company would be further reduced to 2%.
Registration Rights.
Investors in the Series C Notes, as well as the Bridge Note holders,
the Senior Noteholders and the Subordinated Noteholders, will have those
registration rights set forth in that certain Investors' Agreement (the
"Investors' Agreement") entered into the 31st day of January, 2005 by and among
the Company, and the persons listed on Exhibit A thereto. The Investors'
Agreement provides that the Company will file a registration statement to
register the shares of Common Stock issuable upon conversion of the Series C
Stock, issuable upon exercise of the Warrants issued pursuant to the
Subscription Agreement, upon exercise of the Bridge Warrants, upon exercise of
the Senior Lender Warrants and upon exercise of the Subordinated Lender Warrants
(collectively, the "Conversion Shares").
The Company agreed, within forty-five (45) days after the closing of
the financing transactions, to complete all required audits and make all related
filings concerning the acquisition of Gupta. Within fifteen (15) days after the
end of such 45-day period, the Company agreed to file a registration statement
for the purpose of registering all of the Conversion Shares for resale, and to
use its best efforts to cause such registration statement to be declared
effective by the Securities and Exchange Commission (the "Commission") at the
earliest practicable date thereafter.
If (i) the registration statement has not been filed with the
Commission by the filing deadline or (ii) the registration statement has not
been declared effective by the Commission before the date that is ninety (90)
days after the filing deadline or, in the event of a review of the Registration
Statement by the Commission, one hundred and twenty (120) days after the filing
deadline, or (iii) after the registration statement is declared effective, the
registration statement or related prospectus ceases for any reason to be
available to the investors and noteholders as to all Conversion Shares the offer
and sale of which it is required to cover at any time prior to the expiration of
the effectiveness period (as defined in the Investors' Agreement) for an
aggregate of more than twenty (20) consecutive trading days or an aggregate of
forty (40) trading days (which need not be consecutive) in any twelve (12) month
period, the Company will pay to the Investors an amount in cash equal to 2% of
the face value of the Series C Stock issued under the Subscription Agreement or
upon conversion of the Bridge Notes, and 2% in cash of the principal amount of
the Senior Notes and Subordinated Notes, and will continue to pay such 2%
monthly penalties every thirty days until such registration statement if filed,
declared effective and available to the investors at the earliest practicable
date thereafter.
Other Effects of the Amendment.
The Company anticipates that it may issue additional shares of
Common Stock, either through private or public sales or upon the conversion of
as yet unissued convertible securities, to raise additional capital over the
next twelve (12) month period if necessary to finance operational needs. The
Company, however, has no current commitments, proposals or arrangements,
written or otherwise, relating to the sale of additional shares of its Common
Stock other than the following:
Commitments.
Additional Subscription for Series C Stock.
The Company has received a subscription for 1,500,000 shares of
Series C Stock, and Warrants to acquire 1,500,000 shares of Common Stock, upon
the same terms as the Subscription Agreement. The Company has accepted this
subscription and has committed to issue, on April 1, 2005 or such later date
that the Amendment and the Certificate are effective, such shares of Series C
Stock and such Warrants.
Without the Amendment, the Company does not have sufficient shares of
Common Stock to reserve an aggregate of 3,000,000 shares for issuance upon
conversion of these shares of Series C Stock and upon exercise of these
Warrants.
The potential dilutive effect of this additional subscription (separate
from the financing agreements discussed above and the commitments discussed
below) is as follows:
o As of January 31, 2005, the Company's outstanding shares of
Common Stock totaled 3,110,655. At the closing of the
additional subscription, the Company will issue (i) 1,500,000
shares of Series C Stock which in turn will be convertible
into 1,500,000 shares of Common Stock and (ii) Warrants to
acquire an additional 1,500,000 shares of Common Stock.
o The effect of the issuance of theses shares of Series C stock
will be to reduce the percentage of the Company held by the
common shareholders of record on January 31, 2005 by 33% so
that these shareholders would have 67% of the total equity
interests in the Company.
o If the Company elects to pay the dividends on such shares of
Series C Stock in cash, or if the subscribers elect to
immediately convert the Series C Stock into Common Stock so
that no dividends accrue, and if the subscribers do not
exercise any of the Warrants, then there would be no further
dilution to common shareholders.
o If the Company elects to pay all of the 6% dividends on the
Series C Stock issued pursuant to this additional subscription
in shares of Common Stock rather than in cash, and such shares
of Series C Stock are not converted until immediately prior to
the redemption date (which is three years after issuance),
then the existing common shareholders of record on January 31,
2005 would be further diluted by 3% so that the shareholders
of record on January 31, 2005 would thereafter hold
approximately 64% of the total equity interests in the
Company.
o If the Company elects to pay the dividends on such shares of
Series C Stock in cash, or if the holders thereof elect to
immediately convert the Series C Stock into Common Stock so
that no dividends accrue, and the holders were to exercise all
of the Warrants, the
potential dilutive effect of the issuance of the Series C
Stock and the exercise of the Warrants would be to reduce the
percentage of the Company held by the existing common
shareholders of record on January 31, 2005 by 49% so that the
shareholders of record on January 31, 2005 would thereafter
hold approximately 51% of the total equity interests in the
Company.
o If the Company elects to pay all of the 6% dividends on the
Series C Stock issued to the holders thereof in shares of
Common Stock rather than in cash, and such shares of Series C
Stock are not converted until immediately prior to the
redemption date (which is three years after issuance), and if
the holders exercise all of Warrants, then the potential
dilutive effect of the issuance of the Series C Stock, the
payment of the dividends in stock, and the exercise of the
Warrants would be to reduce the percentage of the Company held
by the existing common shareholders of record on January 31,
2005 by 51% so that the shareholders of record on January 31,
2005 would thereafter hold approximately 49% of the total
equity interests in the Company.
Separation Agreement.
On March 3, 2005, the Company entered into an agreement (the
"Separation Agreement") with Gus Bottazzi related to Mr. Bottazzi's resignation
as an officer and director of the Company. Under the Separation Agreement, the
Company committed to issue to Mr. Bottazzi 200,000 shares of the Company's
Series C Preferred Stock upon the effectiveness of the Amendment and the
Certificate.
The potential dilutive effect of this additional subscription (separate
from the financing agreements and the other commitments discussed above) is as
follows:
o As of January 31, 2005, the Company's outstanding shares of Common
Stock totaled 3,110,655. The 200,000 shares of Series C Stock
issuable under the Separation Agreement will be convertible into
200,000 shares of Common Stock.
o The effect of the issuance of these shares of Series C Stock will be
to reduce the percentage of the Company's equity held by the common
shareholders of record on January 31, 2005 by 6% so that these
shareholders would thereafter hold approximately 94% of the total
equity interests in the Company.
o If all of these shares of Series C Stock remained outstanding and
unconverted until immediately prior to the redemption date (three
years after issuance) and then were converted, and if the Company
elects to pay the dividends in shares of Common Stock, rather than
in cash, then the effect would be to reduce the percentage of the
Company's equity held by the common shareholders of record on
January 31, 2005 by 7% so that these shareholders would thereafter
hold approximately 93% of the total equity interests in the Company.
Other Commitments.
The Company has no other current plans or intent to issue additional
shares of its Common Stock through stock splits or dividends, through present or
future employee benefit programs or through other corporate programs.
Anti-Takeover Effects.
One of the effects of the Amendment may be to enable the board of
directors to render it more difficult to, or discourage an attempt to, obtain
control of the Company by means of a merger, tender offer, proxy contest or
otherwise, and thereby protect the continuity of present management. The board
of directors would, unless prohibited by applicable law, have additional shares
of Common Stock available to effect transactions (such as private placements) in
which the number of the Company's outstanding shares would be increased and
would thereby dilute the interest of any party attempting to gain control of the
Company. Such action could discourage an acquisition of the Company, which
stockholders might view as desirable.
The Company has no anti-takeover provisions in its Articles of
Incorporation, By-Laws or other corporate governance documents or in any of its
other material agreements. The Company has no current plans or proposals to
implement or adopt any anti-takeover provisions or enter into any agreements or
arrangements that have anti-takeover consequences. However, the Company's
management could use the additional shares of authorized capital stock to resist
or frustrate a proposed third-party transaction that would give shareholders an
above market premium for their shares even if that transaction were favored by a
majority of the Company's independent shareholders.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
reports and other information including annual and quarterly reports on Form
10-KSB and 10-QSB with the Securities and Exchange Commission. Reports and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained at the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, DC 20549. Copies of such material can be obtained upon
written request addressed to the Commission, Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a web site on the Internet (http://www.sec.gov) that contains the
periodic reports and other filings of companies that file electronically with
the Commission and copies of the Company's filings can be reviewed and obtained
at that web site.
The following documents as filed with the Commission by the Company are
incorporated herein by reference:
(1) Quarterly Reports on Form 10-QSB for the quarters ended September
30, 2004, and December 31, 2004; and
(2) Annual Report on Form 10-KSB for the fiscal year ended June 30,
2004.
Copies of these documents are being delivered to you with this
Information Statement. The Company will furnish a copy of any exhibit thereto or
other information upon request by a stockholder to Ernest C. Mysogland, WARP
Technology Holdings, Inc., 151 Railroad Avenue, Greenwich, Connecticut 06830,
telephone (203) 422-2950.
By Order of the Board of Directors,
/s/ Ernest C. Mysogland
--------------------------
Ernest C. Mysogland
Executive Vice President,
Chief Legal Officer and
Secretary
Greenwich, Connecticut
March __, 2005
EXHIBIT A
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
WARP TECHNOLOGY HOLDINGS, INC.
WARP Technology Holdings, Inc. (the "Corporation"), a corporation
organized and existing under and by virtue of the Nevada Revised Statutes of the
State of Nevada, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by unanimous
consent in lieu of a meeting, adopted the following resolution:
"RESOLVED that the Board of Directors hereby declares it advisable and
in the best interest of the Corporation that Article FOURTH of the Articles of
Incorporation be amended as follows, and does hereby approve, adopt and confirm
such amendment:
Upon the effectiveness of the filing of this Certificate of Amendment
to Articles of Incorporation, the total number of shares of stock of each class
which the Corporation shall have authority to issue and the par value of each
share of each class of stock are as follows:
Class Par Value Authorized Shares
------- --------- -----------------
Common $0.00001 150,000,000
Preferred $0.00001 50,000,000
Totals: 200,000,000
Prior to the effectiveness of the filing of this Certificate of
Amendment to Articles of Incorporation, the total number of shares of stock of
each class which the Corporation had authority to issue and the par value of
each share of each class of stock were as follows:
Class Par Value Authorized Shares
------- --------- -----------------
Common $0.00001 5,000,000
Preferred $0.00001 50,000,000
Totals: 55,000,000"
SECOND: That the aforesaid amendment has been consented to and
authorized by the holders of a majority of the issued and outstanding stock
entitled to vote by written consent given in accordance with the provisions of
Section 78.320 of the Nevada Revised Statutes of the State of Nevada.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed this ____ day of March 2005.
By: /s/ Rodney A. Bienvenu, Jr.
---------------------------
Name: Rodney A. Bienvenu, Jr.
Title: Chief Executive Officer