OFFERING STATEMENT
FOR
SERIES C PREFERRED STOCK
ADVANCED REMOTE COMMUNICATION SOLUTIONS, INC.
A California Corporation
10675 Sorrento Valley Road, Suite 200
San Diego, CA 92121
June 27, 2002
THE OFFERING IS LIMITED TO ACCREDITED INVESTORS.
THE SECURITIES OFFERED HEREBY HAVE NEITHER BEEN REGISTERED WITH NOR APPROVED OR
DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR BY THE
SECURITIES REGULATORY AUTHORITY OF ANY STATE, NOR HAS ANY COMMISSION OR
AUTHORITY PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR
ADEQUACY OF THIS OFFERING STATEMENT AND OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER EITHER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR REGISTERED, QUALIFIED OR
FILED UNDER APPLICABLE SECURITIES LAWS OF ANY STATE.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER EITHER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR REGISTERED, QUALIFIED OR
FILED UNDER APPLICABLE SECURITIES LAWS OF ANY STATE. THIS OFFERING IS MADE IN
RELIANCE UPON THE EXEMPTION SET FORTH IN SECTION 4(2) OF THE ACT AND/OR UPON THE
EXEMPTION SET FORTH IN RULE 506 OF REGULATION D PROMULGATED UNDER THE ACT, AND
UPON CERTAIN EXEMPTIONS UNDER APPLICABLE STATE SECURITIES LAWS.
WE URGE YOU TO READ THIS DOCUMENT IN ITS ENTIRETY, INCLUDING THE DOCUMENTS
INCORPORATED IN THIS DOCUMENT BY REFERENCE. IN PARTICULAR, WE DIRECT YOUR
ATTENTION TO THE SECTION TITLED "RISK FACTORS" CONTAINED IN OUR FORM 10-KSB
FILED WITH THE SEC ON MAY 15, 2002.
The following discussion is intended to describe the terms under which shares of
Series C Preferred Stock will be offered to certain existing stockholders of
Advanced Remote Communication Solutions, Inc., the principal executive office of
which is located at 10675 Sorrento Valley Road, San Diego, California 92121;
(858) 450-7600. (the "Company").
SUMMARY OF TERMS
QUESTIONS AND ANSWERS
WHAT SECURITIES ARE BEING EXCHANGED AND OFFERED IN THE EXCHANGE OFFERING, AND
WHAT IS THE FORM OF PAYMENT?
The Company is offering to exchange all of the outstanding shares of Series B
Preferred Stock for shares of Series C-3 Preferred Stock. In exchange for each
share of Series B Preferred Stock tendered, the Company will issue the number of
shares of Series C-3 Preferred Stock equal to the quotient of (a) 75% of the
accumulated balance for such share of Series B Preferred Stock as of May 31,
2002 divided by (b) the Original Issue Price for the Series C-3 Preferred Stock,
which is $3,000. The Company is also offering to sell for cash an aggregate
maximum of 412.69 shares of Series C-1 Preferred Stock and Series C-2 Preferred
Stock to holders who tender all of their shares of Series B Preferred Stock in
the exchange offer.
HOW LONG DO I HAVE TO DECIDE WHETHER TO EXCHANGE MY SHARES AND CAN THE COMPANY
EXTEND THE EXCHANGE OFFER PAST THE INITIAL EXPIRATION DATE?
The Company's offer to exchange your shares expires at 5:00 p.m., Eastern time,
on July 26, 2002 (the "Expiration Date").
The Company can extend the Exchange Offer in its sole discretion. If the Company
chooses to do so, you will be able to tender your shares until 5:00 p.m.,
Eastern time on the day selected as the new expiration date.
HOW DO I EXCHANGE MY SHARES?
To exchange your shares, you must deliver your share certificates, together with
a completed Exchange and Subscription Agreement, to the Company on or before the
Expiration Date.
HOW LONG DO I HAVE TO WITHDRAW MY PREVIOUSLY TENDERED SHARES?
You can withdraw your tendered shares at any time on or before the Expiration
Date. After the Exchange Offer expires, the tender is irrevocable unless we have
not accepted your shares for exchange within 40 days of the Expiration Date. In
that case, you may withdraw your tendered shares until we accept them for
exchange.
HOW DO I WITHDRAW PREVIOUSLY TENDERED SHARES?
For a withdrawal to be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by the Company at
10675 Sorrento Valley Road, #200, San Diego, CA 92121, Attention: Chief
Executive Officer. Any such notice of withdrawal must specify the name of the
person who tendered the shares of Series B Preferred Stock to be withdrawn and
the number of shares of Series B Preferred stock to be withdrawn.
WHO CAN I TALK TO IF I HAVE QUESTIONS ABOUT THE EXCHANGE OFFER?
You can contact Brandon Nixon, the Chairman of the Board, President and Chief
Executive Officer of the Company, if you have any questions regarding the tender
offer. Mr. Nixon may be reached at 858-450-7600.
SUMMARY TERM SHEET
The Company recently raised $4,000,000 through the offering and sale of
Series C-1 Preferred Stock and Series C-2 Preferred Stock (the "Financing") to
Housatonic Micro Fund SBIC, L.P., a Delaware Limited Partnership ("Housatonic")
and Lexington Funding LLC, a California limited liability company ("Lexington")
pursuant to a Stock Purchase Agreement among the Company, Housatonic and
Lexington, a copy of which is attached hereto as Exhibit A and incorporated
herein by reference. Pursuant to the Stock Purchase Agreement, the Company
agreed (a) to offer to all holders of Series B Preferred Stock of the Company
who are accredited investors, as defined in Rule 501(a) of Regulation D
promulgated under the Act ("Accredited Investors"), the opportunity to exchange
the shares of Series B Preferred Stock then held by such holder for the number
of shares of the Company's Series C-3 Preferred Stock set forth below on the
terms and conditions of the Exchange Offer (as defined in the Stock Purchase
Agreement) and (b) to offer to the holders of Series B Preferred Stock
(excluding Lexington) who exchange all of their shares of Series B Preferred
Stock for shares of Series C-3 Preferred Stock the opportunity to purchase (the
"Purchase Offer" and collectively with the Exchange Offer, the "Offering") the
number of shares of the Company's Series C-1 Preferred Stock and shares of
Series C-2 Preferred Stock set forth below on the terms and conditions contained
in the Stock Purchase Agreement. In this regard, please note that if you elect
to subscribe to shares of Series C-1 Preferred Stock and C-2 Preferred Stock,
you must invest substantially equal dollar amounts in each series.
The Offering
- ---------------------- -------------- ------------------ ------------------- ------------------------------------------
The Exchange Offer The Purchase Offer
- ---------------------- -------------- ------------------ ------------------- -------------------- ---------------------
Shares of Accumulated Shares of Series Shares of Series Shares of Series
Series B Balance for C-3 Preferred C-1 Preferred C-2 Preferred Stock
Preferred shares of Series Stock for which Stock which may be which may be
Stock B Preferred Series B purchased (and purchased (and
Originally Stock as of May Preferred Stock aggregate purchase aggregate purchase
Purchased 31, 2002 may be exchanged price) if all price) if all
Series B Preferred Series B Preferred
Stock is exchanged Stock is exchanged
- ---------------------- -------------- ------------------ ------------------- -------------------- ---------------------
Lexington Commercial 300.00 $3,996,085.86 999.02 1,667 (already 1,000 (already
Holdings purchased pursuant purchased pursuant
to the Financing) to the Financing)
- ---------------------- -------------- ------------------ ------------------- -------------------- ---------------------
Stanley E. Foster & 15.00 $ 181,439.07 45.36 75.69 for $22,707 45.40 for $22,700
Pauline M. Foster as
Trustees UTD 7-31-81
- ---------------------- -------------- ------------------ ------------------- -------------------- ---------------------
Mr. Philip L. Elkus 5.00 $ 60,479.69 15.12 25.23 for $7,569 15.13 for $7,565
- ---------------------- -------------- ------------------ ------------------- -------------------- ---------------------
Stanley & Maxine N. 5.00 $ 59,977.78 14.99 25.02 for $7,506 15.01 for $7,505
Firestone Trust
- ---------------------- -------------- ------------------ ------------------- -------------------- ---------------------
Ian M. Firestone 2.50 $ 29,988.89 7.50 12.51 for $3,753 7.51 for $3,755
Gallo Trust
- ---------------------- -------------- ------------------ ------------------- -------------------- ---------------------
Drew A. Firestone 2.50 $ 29,988.89 7.50 12.51 for $3,753 7.51 for $3,755
Gallo Trust
- ---------------------- -------------- ------------------ ------------------- -------------------- ---------------------
Rod C. Firestone 2.50 $ 29,988.89 7.50 12.51 for $3,753 7.51 for $3,755
- ---------------------- -------------- ------------------ ------------------- -------------------- ---------------------
Clay G. Firestone 1.25 $ 14,994.45 3.75 6.26 for $1,878 3.75 for $1,875
Gallo Trust
- ---------------------- -------------- ------------------ ------------------- -------------------- ---------------------
Hillcrest Urological 2.50 $ 30,239.84 7.56 12.61 for $3,783 7.57 for $3,785
Medical Group
Pension Benefit Plan
E/M Kessler
- -
- ---------------------- -------------- ------------------ ------------------- -------------------- ---------------------
Mr. and Mrs. Henry 2.50 $ 30,239.84 7.56 12.61 for $3,783 7.57 for $3,785
Oseran
- -
- ---------------------- -------------- ------------------ ------------------- -------------------- ---------------------
Mr. Charles Cono 10.00 $ 120,959.38 30.24 50.46 for $15,138 30.27 for $15,135
- ---------------------- -------------- ------------------ ------------------- -------------------- ---------------------
Robert L. Shapiro, 2.50 $ 30,059.47 7.52 12.54 for $3,762 7.52 for $3,760
Trustee Dardick
Trust B DTD 9/7/92
- ---------------------- -------------- ------------------ ------------------- -------------------- ---------------------
This Offering Statement for Series C Preferred Stock (the "Offering
Statement") is being distributed by the Company for the purposes of the
Offering, as described below and in the Stock Purchase Agreement. The Board of
Directors of the Company (the "Board") has approved the foregoing matters, and
no other approvals or consents on behalf of the Company are required to
consummate the transactions described herein.
All holders of Series B Preferred Stock who wish to participate in the
Exchange Offer and the Purchase Offer are advised that prior to the closing of
the Exchange Offer and the Purchase Offer, they will be required to become
parties to the Stock Purchase Agreement for purposes of certain obligations
created and representations and warranties made thereunder by executing and
delivering the Exchange and Subscription Agreement (the "Subscription
Agreement"), a copy of which is attached hereto as Exhibit B and incorporated
herein by reference.
The following discussion summarizes certain documents described in the
Stock Purchase Agreement and is qualified in its entirety by reference to the
actual documents described, some of which are attached as Exhibits to this
Offering Statement and incorporated herein by reference. In addition, the
Company's Current Report on Form 8-K filed with the SEC on June 17, 2002, the
Company's Annual Report on Form 10-KSB filed with the SEC on May 15, 2002 and
the Company's Quarterly Report on Form 10-QSB filed with the SEC on June 18,
2002 are incorporated herein by reference.
RECOMMENDATION OF THE BOARD
On May 28, 2002, the Board determined that it was in the best interests
of the Company and its shareholders to approve the transactions described in the
Stock Purchase Agreement (the "Transactions") in order to provide the Company
with readily available funds with which to continue its operations.
The Board makes no recommendation concerning whether to acquire any
shares of any class of Series C Preferred Stock. The Board recommends only that
each holder of Series B Preferred Stock consider his own personal circumstances
in reviewing the terms of the Offering with his own investment, tax, legal and
other advisors prior to making any investment decision regarding any shares of
any class of Series C Preferred Stock.
THE TRANSACTIONS
General Description
In connection with the Financing, the Company (a) executed and delivered the
Stock Purchase Agreement pursuant to which it (i) sold 5,000 shares of Series
C-1 Preferred Stock to Housatonic, constituting 75% of the issued and
outstanding shares of Series C-1 Preferred Stock, at $300.00 per share, (ii)
sold 1,667 shares of Series C-1 Preferred Stock to Lexington, constituting 25%
of the issued and outstanding shares of Series C-1 Preferred Stock, at $300.00
per share, (iii) sold 3,000 shares of Series C-2 Preferred Stock to Housatonic,
constituting 75% of the issued and outstanding shares of Series C-2 Preferred
Stock, at $500.00 per share, (iv) sold 1,000 shares of Series C-2 Preferred
Stock to Lexington, constituting 25% of the issued and outstanding shares of
Series C-2 Preferred Stock, at $500.00 per share, (v) granted certain
registration rights, (vi) granted certain rights of first refusal and (vii)
granted Housatonic the exclusive right during the period from August 2, 2002
through June 1, 2003 to purchase the assets of the Company's Boatracs division
at a purchase price equal to the twelve month trailing net income less (A) the
sum of any agreed upon additional payments to Qualcomm Incorporated in
connection with the Company's agreement with Qualcomm Incorporated as to, among
other things, the minimum number of "units" required to be purchased by the
Company to retain the Company's exclusive agreement with Qualcomm Incorporated
(that has not already been taken into account in the computation of net income)
not to exceed $250,000 and interest income; plus (B) the sum of income tax
provision, interest expense, amortization expense and depreciation expense as
set forth in the Company's statement of operations and statement of cash flows
attributable to the Boatracs division, multiplied by 5, subject to the right of
those who become holders of Series C-3 Preferred Stock pursuant to the Exchange
Offer to participate in such purchase of the Boatracs division; (b) filed a
Certificate of Determination setting forth the rights, preferences and
privileges of the Series C-1 Preferred Stock, the Series C-2 Preferred Stock and
the Series C-3 Preferred Stock with the California Secretary of State, a copy of
which is attached hereto as Exhibit C (the "Series C Certificate of
Determination") and incorporated herein by reference; (c) agreed to make the
Offering; and (d) concurrently with the closing of Financing, converted an
outstanding loan in the aggregate principal amount of $500,000 from Lexington to
Series C-1 Preferred Stock and Series C-2 Preferred Stock.
The Company does not believe the federal income tax consequences or
accounting consequences of the Exchange Offer to be material. Notwithstanding
the foregoing, the Company recommends that each holder of Series B Preferred
Stock consider his own personal circumstances in reviewing the terms of the
Offering with his own investment, tax, legal and other advisors prior to making
any investment decision regarding any shares of any class of Series C Preferred
Stock.
Sale of Series C-1 Preferred Stock and Series C-2 Preferred Stock to Housatonic
and Lexington
Pursuant to the Stock Purchase Agreement, (a) Housatonic purchased
5,000 shares of Series C-1 Preferred Stock, at $300.00 per share, and 3,000
shares of Series C-2 Preferred Stock, at $500.00 per share, for an aggregate
purchase price of $3,000,000 paid for in readily available funds and (b)
Lexington purchased 1,667 shares of Series C-1 Preferred Stock, at $300.00 per
share, and 1,000 shares of Series C-2 Preferred Stock, at $500.00 per share, for
an aggregate purchase price of $1,000,000 paid for through
cancellation/conversion of $500,000 of indebtedness issued by the Company in
favor of Lexington and the remainder paid for in readily available funds.
THE OFFERING
Summary of the Offering
The Company is making (1) the Exchange Offer to each holder of its
Series B Preferred Stock as of May 31, 2002 (each a "Series B Holder"), who is
an Accredited Investor, under the terms described herein, and (2) the Purchase
Offer to each Series B Holder, other than Lexington, who is an Accredited
Investor, under the terms described herein.
Exchange Offer
Each Series B Holder, of which there were 351.25 shares issued and
outstanding as of May 31, 2002 and June 27, 2002 and for which there is no
established trading market, may elect to exchange its shares of Series B
Preferred Stock for shares of Series C-3 Preferred Stock pursuant to the terms
of the Exchange Offer until 5:00 pm Eastern time on Thursday July 26, 2002 (the
"Expiration Date") by timely completing and executing the Subscription
Agreement, specifying the number of shares it wishes to exchange and delivering
the Subscription Agreement, together with the shares of Series B Preferred Stock
being exchanged, duly executed for cancellation. The Exchange Offer is scheduled
to expire on the Expiration Date. The Company can extend, from time to time, the
Exchange Offer past the Expiration Date in its sole discretion. The Company is
seeking to acquire all of the outstanding shares of Series B Preferred Stock
pursuant to the Exchange Offer.
The following table summarizes the rights, preferences and privileges
of the Series B Preferred Stock and the Series C-3 Preferred Stock, each as more
particularly described in the Series C Certificate of Determination and the
Certificate of Determination for Series B Preferred Stock filed with the
Secretary of State of the State of California on May 25, 2000, a copy of which
is attached hereto as Exhibit D and incorporated herein by reference. The Series
B Holders should review each applicable Certificate of Determination carefully
before making any decision concerning the exchange of Series B Preferred Stock
for Series C-3 Preferred Stock.
o Securities: Series B Preferred Stock
Series C-3 Preferred Stock
o Original Issue Price: $10,000 per share of Series B Preferred Stock
$3,000 per share of Series C-3 Preferred Stock
o Dividends: The Series B Holders are entitled to receive
cumulative cash dividends
that accrue on a daily basis on the liquidation
price of each share of
Series B Preferred Stock at the rate per annum
of $1,000 per share, payable semi-annually.
The dividends are adjusted for stock splits,
stock dividends, recapitalizations,
reclassifications, reorganizations
and similar events which affect the number of
outstanding shares of the
Series B Preferred Stock.
The holders of Series C-3 Preferred
Stock are entitled to receive
cumulative dividends at the rate of
$300 per annum on each outstanding
share of Series C-3 Preferred
Stock, payable semi-annually, at
the option of the Company, in
either Series C-3 Preferred Stock
or cash. The dividends are adjusted
for stock splits, stock dividends,
recapitalizations,
reclassifications, reorganizations
and similar events which affect the
number of outstanding shares of the
Series C-3 Preferred Stock.
o Liquidation: The Series B Preferred Stock is preferred over
Common Stock to the extent of $10,000 per share
(subject to appropriate adjustment), plus
all dividends accrued on such share of Series B
Preferred Stock not yet
paid (including those which have been added to
and remain part of the liquidation price),
whether or not such unpaid dividends have been
earned or declared or there are any
unrestricted funds of the Corporation legally
available for the payment of dividends. With
respect to the payment of all preferential
amounts required to be paid to the
Series B Holders upon liquidation, the Series B
Preferred Stock ranks pari passu with the
Series A Preferred Stock.
The holders of Series C-3 Preferred
Stock are entitled to receive in
preference to the holders of Common
Stock, Series A Preferred Stock and
Series B Preferred Stock and pari
passu with the Series C-1 Preferred
Stock and Series C-2 Preferred
Stock a per share amount equal to
$3,000 (subject to appropriate
adjustment), plus any accrued
(accrued through the later of the
date of liquidation and the date
that is three years following the
original issue date so as to give a
minimum of 3 years of dividend
payments in connection with a
liquidation) but unpaid dividends
thereon. Notwithstanding the
foregoing, if a liquidation occurs
on or prior to August 1, 2002, the
holders of the Series C-3 Preferred
Stock then outstanding shall be
entitled to receive the liquidation
preference pari passu with the
Series C-1 Preferred Stock and
Series C-2 Preferred Stock and 75%
of payments which the holders of
the Series B Preferred Stock are
entitled to receive upon such
event.
o Voting: Both the Series B Preferred
Stock and the Series C-3 Preferred
Stock vote on an "as converted"
basis.
o Conversion: The Series B Preferred
Stock is convertible into Common
Stock at a 3,333.33:1 ratio,
subject to certain adjustment
mechanisms.
The Series C-3 Preferred Stock is
convertible into Common Stock at a
1,000.00:1 ratio, subject to
certain adjustment mechanisms.
o Redemption: The Company may redeem the Series B Preferred
Stock out of funds legally available therefore,
in whole, or from time to time in part, in an
amount with respect to each share of Series B
Preferred Stock equal to
$10,000 per share (subject to appropriate
adjustment) plus an amount equal to all
dividends accrued on such share of Series B
Preferred Stock not yet paid (including those
which have been added to and remain part
of the liquidation price).
The Company may redeem all, but not
less than all, of the outstanding
Series C-3 Preferred Stock, in an
amount with respect to each share
of Series C-3 Preferred Stock equal
to $3,000 per share (subject to
appropriate adjustment) plus an
amount equal to all dividends
accrued on such share of Series C-3
Preferred Stock not yet paid.
On or at any time after June 1,
2007, the holders of at least a
majority of the then outstanding
Series C-3 Preferred Stock, voting
as a separate class, may require
the Company, to the extent it may
lawfully do so, to redeem such
class of the Series C-3 Preferred
Stock. The Company shall redeem all
shares of Series C-3 Preferred
Stock by paying the holders thereof
cash in exchange for such shares
equal to $3,000 per share (subject
to appropriate adjustment) plus an
amount equal to all dividends
accrued on such share of Series C-3
Preferred Stock not yet paid.
Lexington, an affiliate of the Company, has informed the Company that
it intends to exchange all of its shares of Series B Preferred Stock for shares
of Series C-3 Preferred Stock pursuant to the Exchange Offer.
The purpose of the Exchange Offer is to acquire and retire all
outstanding shares of the Company's Series B Preferred Stock. All shares of
Series B Preferred Stock of the Company acquired in the Exchange Offer will be
retired.
There are no material conditions to the Exchange Offer. The Company
will not borrow funds for the purposes of the Exchange Offer. No persons are
directly or indirectly employed, retained, or to be compensated to make
solicitations or recommendations in connection with the Exchange Offer.
Purchase Offer
Each Series B Holder, other than Lexington, which has already purchased
shares of Series C-1 Preferred Stock and Series C-2 Preferred Stock, who elects
to exchange all of its shares of Series B Preferred Stock for shares of Series
C-3 Preferred Stock may subscribe for shares of Series C-1 Preferred Stock and
Series C-2 Preferred Stock until the Expiration Date by timely completing and
executing the accompanying Subscription Agreement, specifying the number of
shares subscribed and delivering the Subscription Agreement to the Company,
together with the purchase price (the "Purchase Price") for the shares of Series
C-1 Preferred Stock and Series C-2 Preferred Stock being subscribed for by check
or wire transfer.
The following table summarizes the rights, preferences and privileges
of the Series C-1 Preferred Stock and the Series C-2 Preferred Stock, each as
more particularly described in the Series C Certificate of Determination. The
Series B Holders should review the Series C Certificate of Determination
carefully before making any decision concerning the purchase of shares of Series
C-1 Preferred Stock and Series C-2 Preferred Stock.
o Securities: Series C-1 Preferred Stock
Series C-2 Preferred Stock
o Original Issue Price: $300 per share of Series C-1 Preferred Stock
$500 per share of Series C-2 Preferred Stock
o Dividends: The holders of Series C-1 Preferred Stock and
Series C-2 Preferred Stock are entitled to
receive cumulative dividends at the rate of $30
and $50,respectively, per annum on each
outstanding share of Series C-1 Preferred Stock
and Series C-2 Preferred Stock, payable
semi-annually at the option of the Company, in
either Series C-1 Preferred Stock or
Series C-2 Preferred Stock, respectively, or
cash. The dividends are adjusted for stock
splits, stock dividends, recapitalizations,
reclassifications, reorganizations and similar
events which affect the number of outstanding
shares of the Series C-1 Preferred Stock and
Series C-2 Preferred Stock.
o Liquidation: The holders of Series C-1 Preferred Stock and
Series C-2 Preferred Stock are entitled to
receive in preference to the holders of Common
Stock, Series A Preferred Stock and Series B
Preferred Stock and pari passu
with each other and the Series C-3 Preferred
Stock a per share amount equal to $300 and $500,
respectively (subject to appropriate
adjustment), plus any accrued (accrued through
the later of the date of liquidation and the
date that is three years following the original
issue date so as to give a minimum of 3 years
of dividend payments in connection with a
liquidation) but unpaid dividends thereon.
Notwithstanding the foregoing, if a liquidation
occurs on or prior to August 1, 2002, the
holders of the Series C-1 Preferred Stock and
Series C-2 Preferred Stock then outstanding
shall be entitled to receive the liquidation
preference pari passu with each other and the
Series C-3 Preferred Stock and 75% of payments
which the holders of the Series B Preferred
Stock are entitled to receive upon such event.
o Voting: Both the Series C-1
Preferred Stock and the Series C-2
Preferred Stock vote on an "as
converted" basis.
o Conversion: The Series C-1
Preferred Stock and the Series C-2
Preferred Stock are each
convertible into Common Stock at a
1,000:1 ratio, subject to certain
adjustment mechanisms.
o Redemption: On or after June 1, 2003, the Company may redeem
all, but not less than all, of the outstanding
Series C-1 Preferred Stock in an amount with
respect to each share of Series C-1 Preferred
Stock equal to $300 per share (subject to
appropriate adjustment) plus an amount equal to
all dividends accrued on such share of Series
C-1 Preferred Stock not yet paid.
On or after June 1, 2004, the
Company may redeem all, but not
less than all, of the outstanding
Series C-2 Preferred Stock in an
amount with respect to each share
of Series C-2 Preferred Stock equal
to $500 per share (subject to
appropriate adjustment) plus an
amount equal to all dividends
accrued on such share of Series C-2
Preferred Stock not yet paid.
On or at any time after June 1,
2007, the holders of at least a
majority of the then outstanding
Series C-1 Preferred Stock, voting
as a separate class, may require
the Company, to the extent it may
lawfully do so, to redeem such
class of the Series C-1 Preferred
Stock. The Company shall redeem all
shares of Series C-1 Preferred
Stock by paying the holders thereof
cash in exchange for such shares
equal to $300 per share (subject to
appropriate adjustment) plus an
amount equal to all dividends
accrued on such share of Series C-1
Preferred Stock not yet paid.
On or at any time after June 1,
2007, the holders of at least a
majority of the then outstanding
Series C-2 Preferred Stock, voting
as a separate class, may require
the Company, to the extent it may
lawfully do so, to redeem such
class of the Series C-2 Preferred
Stock. The Company shall redeem all
shares of Series C-2 Preferred
Stock by paying the holders thereof
cash in exchange for such shares
equal to $500 per share (subject to
appropriate adjustment) plus an
amount equal to all dividends
accrued on such share of Series C-2
Preferred Stock not yet paid.
Closing
The closing of the Offering shall occur on or before the Expiration
Date, unless the closing of the Offering is extended by the Company in its
absolute discretion. There is no minimum subscription level and the Company will
have access to all subscription amounts immediately upon acceptance.
Means of Subscription
In order to properly exchange shares of Series B Preferred Stock for
shares of Series C-3 Preferred Stock and subscribe to purchase Series C-1
Preferred Stock and Series C-2 Preferred Stock pursuant to the Offering, you
must execute the Subscription Agreement and, together with the shares of Series
B Preferred Stock being exchanged and the Purchase Price, timely deliver it to
the Company, at 10675 Sorrento Valley Road, #200, San Diego, CA 92121,
Attention: Chief Executive Officer.
Withdrawal
The Series B Holders may withdraw the securities they tender in the
Exchange Offer until the Expiration Date. In addition, if the Company has not
accepted for exchange shares tendered to the Company within 40 business days
after the Expiration Date, the Series B Holders may withdraw their shares at any
time thereafter.
For a withdrawal to be effective, a written, telegraphic, telex or
facsimile transmission notice of withdrawal must be timely received by the
Company at 10675 Sorrento Valley Road, #200, San Diego, CA 92121, Attention:
Chief Executive Officer.. Any such notice of withdrawal must specify the name of
the person who tendered the shares of Series B Preferred Stock to be withdrawn
and the number of shares of Series B Preferred stock to be withdrawn.
Exhibits and Accompanying Materials:
Exhibit A: Stock Purchase Agreement
Exhibit B: Exchange and Subscription Agreement
Exhibit C: Series C Certificate of Determination
Exhibit D: Series B Certificate of Determination
June 17, 2002 Form 8-K
May 15, 2002 Form 10-KSB
June 18, 2002 Form 10-QSB
EXHIBIT A
STOCK PURCHASE AGREEMENT
EXHIBIT B
EXCHANGE AND SUBSCRIPTION AGREEMENT
EXHIBIT C
SERIES C CERTIFICATE OF DETERMINATION
EXHIBIT D
SERIES B CERTIFICATE OF DETERMINATION