Dunvegan is a company of which the Company's current President and CEO (since June 1998) is an officer and director, but at the time of the transaction there was no affiliation.
Under the terms of the Loan and Security Agreement, the lender was issued Common Stock Purchase Warrants which guaranteed the lender could maintain a 51% ownership interest in the Company so long as the debt was outstanding.Under the Loan and Security Agreement, Dunvegan
loaned the Company $2,500,000 and received a 10% Convertible Senior Secured Promissory Note as evidence thereof.
In late 1997 it was noted that if all outstanding convertible securities were converted and all outstanding common stock purchase warrants were exercised the total number of shares issued and outstanding would exceed the then authorized 100,000,000 shares of Common Stock.Accordingly, on December 15, 1997 the Company's Board of Directors approved a capital-restructuring plan whereby preferred stock warrants would be issued in lieu of certain common stock warrants.So far, only the Dunvegan portion of the capital-restructuring plan has been implemented.On September 14, 1998 the Company designated the Series B Convertible Preferred Stock and authorized the Series B Convertible Preferred Stock Purchase Warrants.Thereupon, the total number of Common Stock Purchase Warrants held by Dunvegan
was reduced by the Common Stock equivalent of the Preferred Stock Purchase Warrants issued.
That same day, Dunvegan
elected to exercise a portion of its common stock and preferred stock warrants and used $1,575,166 of the $2,500,000 indebtedness in payment of the warrant exercise prices.At that time, based on a calculation of 51% of the Company's equity ownership, Dunvegan
exercised 33,530,973 Common Stock Purchase Warrants and 154,163 Preferred Stock Purchase Warrants and received 33,530,973 shares of the Company's Common Stock and 154,163 shares of the Company's Series B Preferred Stock.Since the 154,163 shares of the Company's Series B Preferred Stock are convertible into 3,089,449 shares of the Company's Common Stock, the calculated exercise price per share of Common Stock was $.043.The remaining loan balance of $924,834 was assigned to another lender.
At the Annual Meeting of Stockholders held November 6, 1998 the number of shares of Common Stock authorized was increased from 100,000,000 to 200,000,000.
retained 20,610,551 shares of the Common Stock and distributed the balance to its loan syndicate participants.
...Series B. Dunvegan