-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AleKMWLzqasGemDtuRu9KtqCT1K4X8+ZU21lj1n0juKqKze3vn1jPm00MJctudkY JDBt5KtfawE42vm5nnc5wQ== 0000950120-04-000601.txt : 20040922 0000950120-04-000601.hdr.sgml : 20040922 20040922170013 ACCESSION NUMBER: 0000950120-04-000601 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20040922 DATE AS OF CHANGE: 20040922 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ANALEX CORP CENTRAL INDEX KEY: 0000044800 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 112120726 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-32462 FILM NUMBER: 041041549 BUSINESS ADDRESS: STREET 1: 5904 RICHMOND HIGHWAY STREET 2: SUITE 300 CITY: ALEXANDRIA STATE: VA ZIP: 22303 BUSINESS PHONE: 703-329-9400 MAIL ADDRESS: STREET 1: 5904 RICHMOND HIGHWAY STREET 2: SUITE 300 CITY: ALEXANDRIA STATE: VA ZIP: 22303 FORMER COMPANY: FORMER CONFORMED NAME: HADRON INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: BIORAD INC DATE OF NAME CHANGE: 19710304 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PEQUOT CAPITAL MANAGEMENT INC CENTRAL INDEX KEY: 0001071955 IRS NUMBER: 061524885 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 500 NYALA FARM ROAD CITY: WESTPORT STATE: CT ZIP: 06880 BUSINESS PHONE: 2034292200 MAIL ADDRESS: STREET 1: 500 NYALA FARM ROAD CITY: WESTPORT STATE: CT ZIP: 06880 FORMER COMPANY: FORMER CONFORMED NAME: PEQUOT CAPITAL MANAGEMENT INC/CT/ DATE OF NAME CHANGE: 19981118 SC 13D/A 1 peq13d.txt SCHEDULE 13DA UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D/A Under the Securities Exchange Act of 1934 (Amendment No. 3)* ANALEX CORPORATION ------------------ (Name of Issuer) Common Stock, par value $0.02 per share --------------------------------------- (Title of Class of Securities) 032653107 --------- (CUSIP Number) Aryeh Davis, General Counsel Pequot Capital Management, Inc. 500 Nyala Farm Road, Westport, CT 06880 (203) 429-2200 ---------------------------------------- (Name, Address, and Telephone Number of Person Authorized to Receive Notices and Communications) September 15, 2004 ------------------ (Date of Event which Requires Filing of This Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box. /_/ Note. Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). CUSIP No. 032653107 1 NAME OF REPORTING PERSONS I.R.S. Pequot Capital Management, Inc. IDENTIFICATION NO. OF ABOVE PERSON 06-1524885 - --------- ----------------------------------------------------- ---------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) n/a (b) * - --------- ---------------------------------------------------------------------- 3 SEC USE ONLY - --------- ---------------------------------------------------------------------- 4 SOURCE OF FUNDS OO - --------- ---------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) n/a - --------- ---------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Connecticut - --------- ---------------------------------------------------------------------- NUMBER OF SHARES 7 SOLE VOTING POWER 13,564,460* BENEFICIALLY OWNED BY ------------------------------------------------ THE REPORTING PERSON 8 SHARED VOTING POWER 0* WITH ------------------------------------------------ 9 SOLE DISPOSITIVE POWER 13,564,460*/** ------------------------------------------------ 10 SHARED DISPOSITIVE POWER 0* 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY THE REPORTING PERSON 13,564,460* - ---------- --------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES n/a - ---------- --------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 47.0%* - ---------- --------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON IA - ---------- --------------------------------------------------------------------- *The Reporting Person may be deemed to be part of a group with the Stockholder Parties (as defined herein) pursuant to certain terms of the Amended and Restated Stockholders' Voting Agreement described in Item 4. The Reporting Person does not affirm to be part of a group and expressly disclaims beneficial ownership of the 22,562,004 shares of Common Stock (as defined herein), in the aggregate, beneficially owned by the Stockholder Parties. Accordingly, such shares of Common Stock are not included in the amounts specified by the Reporting Person above. ** The power of the Reporting Person to dispose of any of the securities purchased under the Series B Purchase Agreement are subject to certain limitations and restrictions on transfer as set forth in the Co-Sale Agreement described in Item 4. This Amendment No. 3 is filed by Pequot Capital Management, Inc., a Connecticut corporation (the "Reporting Person"), and amends Items 4, 5, 6 and 7 of the Statement on Schedule 13D filed by the Reporting Person on July 28, 2003, as amended on December 9, 2003 and June 7, 2004 (the "Schedule 13D," together with this Amendment No. 3, the "Statement"). This Amendment No. 3 relates to the Common Stock, par value $0.02 per share (the "Common Stock"), of Analex Corporation, a Delaware corporation (the "Issuer"). Capitalized terms used below and not otherwise defined herein shall have the meaning set forth in the Schedule 13D. Item 4. Purpose of Transaction Item 4 of the Statement is amended to include the following information: The Reporting Person acquired the Senior Subordinated Notes and the Common Stock Warrants pursuant to the terms of the Series B Purchase Agreement. The Reporting Person considers the shares of Common Stock that it beneficially owns as an investment made in the ordinary course of its business. The Reporting Person intends to review on a continuing basis its investment in the Issuer, including the Issuer's business, financial condition and operating results and general market and industry conditions and, based upon such review, may acquire additional shares of Common Stock or dispose of shares of Common Stock in the open market, in privately negotiated transactions or in any other lawful manner. Series B Purchase Agreement Pursuant to a Purchase Agreement (the "Series B Purchase Agreement") dated May 28, 2004 (the "Senior Subordinated Notes Closing Date") with the Funds, General Electric Pension Trust ("GEPT") and New York Life Capital Partners II, L.P. ("NYL" and, together with the Funds and GEPT, collectively, the "Series B Investors"), the Issuer: (i) issued and sold to the Funds $3,500,000 in aggregate principal amount of the Issuer's Secured Senior Subordinated Convertible Promissory Notes (the "Senior Subordinated Notes"), the principal and accrued interest on which are convertible in accordance with their terms into shares of the Issuer's Series B Convertible Preferred Stock, par value $0.02 per share (the "Series B Preferred Stock") at a conversion price of $3.50 per share of Series B Preferred Stock (the "Series B Original Issue Price") and (ii) in connection with the issuance and sale of the Senior Subordinated Notes, issued warrants to each of the Funds (the "Common Stock Warrants") exercisable to purchase Common Stock at a ratio of one share of Common Stock for every five shares of Common Stock issued or issuable on conversion of Series B Preferred Stock issued or issuable upon conversion of the Senior Subordinated Notes. Capitalized terms used but not defined in this Item 4 or elsewhere in the Statement shall have the meanings assigned to such terms in the Series B Purchase Agreement. The funds for the purchase and the issuance of the Common Stock Warrants and the Senior Subordinated Notes held by the Accounts were obtained from the contributions of the Accounts' partners/shareholders. Voting Agreement Concurrently with, and as a condition to, the Funds' execution of the Series B Purchase Agreement, certain stockholders of the Issuer, consisting of Sterling E. Phillips, Jr., J. Richard Knop, C.W. Gilluly, Peter Belford, Sr., Arthur A. Hutchins, Joseph H. Saul, Gerald McNichols, DRG Irrevocable Trust and the Series A Investors (collectively, the "Voting Parties"), entered into a Voting Agreement (the "Voting Agreement"). Under the Voting Agreement, the Voting Parties agreed that, at any meeting of the stockholders of the Issuer, or in connection with any action proposed to be taken by the stockholders of the Issuer, the Voting Parties would vote in favor of the transactions contemplated by the Series B Purchase Agreement, including without limitation, the conversion of the Senior Subordinated Notes into Series B Preferred Stock (the "Stockholder Approval"). The Stockholder Approval was received at the Annual Stockholders' Meeeting on September 15, 2004. Pursuant to the terms of the Voting Agreement, each stockholder party thereto also agreed that until the transactions contemplated by the Series B Purchase Agreement were consummated or the Series B Purchase Agreement was terminated, such stockholder would not: (i) sell, transfer, pledge, assign, or otherwise dispose of such stockholder's shares of the Issuer, except as provided in the Voting Agreement; (ii) enter into any voting arrangement with respect to such shares; or (iii) take any other action that would in any way restrict, limit, or interfere with, the performance of such stockholder's obligations under the Voting Agreement. Upon Stockholder Approval, the oustanding principal on the Senior Subordinated Notes was automatically converted into shares of Series B Preferred Stock at the Series B Original Issue Price. The Series B Preferred Stock is convertible into such number of shares of Common Stock as is obtained by multiplying the number of shares of Series B Convertible Preferred Stock to be converted by $3.50 (the Series B Original Issue Price) and dividing such result by $2.80 (such price, as adjusted for certain dilutive equity issuances and for stock splits and similar events as provided in Certificate of Designations, Powers, Preferences and Rights of the Series B Convertible Preferred Stock of the Issuer filed with the Secretary of State of Delaware on May 27, 2004, the "Conversion Price"). Also upon Stockholder Approval, the Common Stock Warrants became exercisable for one share of Common Stock for every five shares of Common Stock issued or issuable upon conversion of the shares of Series B Preferred Stock that were issued upon the conversion of the principal amount of the Senior Subordinated Notes. The exercise price of the Common Stock Warrants is $4.32 per share (representing a 25% premium to the trailing average closing price of the Common Stock for the twenty trading days immediately preceding the Senior Subordinated Notes Closing Date), subject to adjustments for stock splits, stock dividends and similar events. Amended and Restated Stockholders' Voting Agreement On the Senior Subordinated Notes Closing Date, the Series B Investors, the Series A Investors, the Issuer, and Joseph H. Saul, Arthur A. Hutchins, DRG Irrevocable Trust, Peter Belford, J. Richard Knop, and C.W. Gilluly (Mr. Saul, Mr. Knop, Mr. Gilluly, Mr. Belford, Mr. Hutchins, DRG Irrevocable Trust, who, together with the Series A and Series B Investors will own a majority of the Common Stock of the Issuer upon the Senior Subordinated Notes Closing Date, are collectively referred to as the "Stockholder Parties") entered into a Amended and Restated Stockholders' Voting Agreement ("Amended and Restated Stockholders Agreement") pursuant to which the Series A Investors, the Series B Investors and the other Stockholder Parties agreed to vote, or cause to be voted, all securities of the Issuer they own or over which they have voting control so that the number of directors of the Issuer will be nine, consisting of: (i) the Issuer's chief executive officer ("CEO"), currently Sterling E. Phillips, Jr.; (ii) two directors designated by the Funds (as the Series A Investors and as Series B Investors) ; (iii) one non-employee director designated by the Issuer's CEO and acceptable to the Series A Investors and Series B Investors, who shall initially be Peter Belford; and (iv) five independent directors nominated by the nominating committee of the Board of Directors of the Issuer (the "Board"), which shall be comprised solely of the independent directors then serving on the Board. Under certain circumstances where the Funds hold less than certain specified percentages of the securities the Funds originally purchased on the Series A Closing Date and on the Senior Subordinated Notes Closing Date, the right to designate two directors in (ii) above will be reduced to one or no directors and the above voting provisions will be adjusted in the manner described in the Amended and Restated Stockholders Agreement. In certain circumstances, including the Issuer's failure to redeem the Series B Preferred Stock as required or failure to pay certain amounts due under the Senior Subordinated Notes, the Series B Investors or certain of their transferees may designate additional directors so that the Funds' directors comprise a majority of the Board. This right will terminate if the Issuer redeems the Series B Preferred Stock and repays the amounts then due under the Senior Subordinated Notes. In addition, the right to designate additional directors under similar circumstances granted to the Series A Investors shall be subject to the rights granted to the holders of the Series B Preferred Stock in the immediately preceding sentence. Registration Rights Agreement In connection with the transactions contemplated by the Series B Purchase Agreement, the Issuer and the Series B Investors entered into a Registration Rights Agreement (the "Registration Rights Agreement"), as of the Senior Subordinated Notes Closing Date. Pursuant to the Registration Rights Agreement, within 30 days following the Senior Subordinated Notes Closing Date, the Issuer will be required to file a registration statement on Form S-3 registering the resale of any Common Stock issuable upon conversion or exercise of the Senior Subordinated Notes and Common Stock Warrants or issuable upon conversion of the Series B Preferred Stock issued or issuable on conversion of the Senior Subordinated Notes. The Issuer will be required to keep such registration statement effective until all the Common Stock registered thereunder is sold or the holders are entitled to sell such Common Stock under Rule 144(k) under the Securities Act of 1933, as amended. The Registration Rights Agreement also provides the Reporting Person with piggyback registration rights with respect to certain underwritten offerings initiated by the Issuer. Co-Sale Agreement (a) In connection with the Series B Purchase Agreement, the Issuer and the Series B Investors entered into that certain Co-Sale Agreement, as of the Senior Subordinated Notes Closing Date (the "Co-Sale Agreement"), pursuant to which each Series B Investor agreed to provide the other Series B Investors with notice of, and the option to participate in, certain transfers of Senior Subordinated Notes, Series B Preferred Stock, Common Stock Warrants or Common Stock issued or issuable upon the conversion or exercise of any of the foregoing or issued with respect to any such securities by way of stock dividend, stock split or any reorganization affecting the Issuer's capital stock (collectively, the "Co-Sale Securities"). (b) Specifically, the Co-Sale Agreement provides that for so long as any Series B Investor holds any Co-Sale Securities, each such Series B Investor desiring to transfer any Co-Sale Securities (each such Series B Investor, a "Transferring Investor") other than in connection with transfers to the Issuer, transfers pursuant to a public sale or transfers to certain affiliates must give each other Series B Investor (the "Other Investors") and the Issuer written notice of the terms and conditions of any proposed bona fide and arm's length sale at least twenty (20) days prior to any proposed transfer. The Other Investors may elect to participate in the proposed transfer within ten (10) business days of receiving notice of the transfer (such Other Investors so electing, the "Electing Other Investors"), who then have the right and obligation to sell to the proposed transferee(s), at the same price and on the same terms and conditions as are specified in the notice, the same type and up to the same percentage of Co-Sale Securities (on an as converted basis including shares of Common Stock issuable upon conversion of Series B Preferred Stock) owned by such Electing Other Investors as the Co-Sale Securities represents with respect to the capital stock of the Issuer owned by the Transferring Investor. The Transferring Investor is not permitted to transfer any Co-Sale Securities to prospective transferee(s) unless (x) such prospective transferee(s) allow(s) the participation of the Electing Other Investors on the terms specified in the transfer notice or (y) if such Transferring Investor does not receive notice that the Other Investors intend to participate within the ten-day period and transfers its Co-Sale Securities within sixty (60) days after the expiration of the ten (10) business day period at a price and on the terms no more favorable than those specified in the original transfer notice. A copy of the Purchase Agreement, the Voting Agreement, the Amended and Restated Stockholders Agreement, the Registration Rights Agreement and the Co-Sale Agreement are attached hereto as Exhibits 11, 12, 13, 14 and 15, respectively, and are incorporated herein by reference, and the description herein of such agreements are qualified in their respective entireties by reference to such agreements. Item 5. Interest in Securities of the Issuer Item 5 of the Statement is amended and restated in its entirety as follows: (a) The Reporting Person beneficially owns 13,564,460 shares of Common Stock, representing 47.0% of shares of Common Stock outstanding as of September 15, 2004 (giving effect to the issuance of (i) 12,057,796 shares of Common Stock issuable upon conversion of the Series A Preferred Stock, the conversion of the Convertible Notes and the exercise of the Series A Warrants, (ii) 1,500,000 shares of Common Stock issuable upon conversion of the Series B Preferred Stock issued on conversion of the Senior Subordinated Notes and the exercise of the Common Stock Warrants, (iii) 3,332 shares of Common Stock issuable upon exercise of the Initial Directors Options (as defined below) and (iv) 3,332 shares of Common Stock issuable upon exercise of the New Directors Options (as defined below)). In addition, by virtue of the Amended and Restated Stockholders Agreement, it could be alleged that a "group," within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or Rule 13d-5(b)(1) thereunder, has been formed that includes the Stockholder Parties and the Reporting Person. While the Reporting Person does not concede that such a "group" has been formed, this filing is being made to ensure compliance with the Exchange Act. Such group would be deemed to beneficially own, in the aggregate, 22,562,004 shares of Common Stock (including shares underlying options exercisable within 60 days of the date hereof), representing 69.5% of the Common Stock outstanding as of September 15, 2004 (giving effect to the issuance of (i) 12,057,796 shares of Common Stock issuable upon conversion of the Series A Preferred Stock, the conversion of the Convertible Notes and the exercise of the Series A Warrants, (ii) 1,500,000 shares of Common Stock issuable upon conversion of the Series B Preferred Stock issued on conversion of the Senior Subordinated Notes and the exercise of the Common Stock Warrants, (iii) 3,332 shares of Common Stock issuable upon exercise of the Initial Directors Options (as defined below) and (iv) 3,332 shares of Common Stock issuable upon exercise of the New Directors Options (as defined below)). The Reporting Person expressly disclaims beneficial ownership of Common Stock beneficially owned by the Stockholder Parties and does not affirm that such a "group" exists. Pursuant to the Series B Purchase Agreement, the Company has an option to require the Series B Investors to purchase up to an additional $25 million of Senior Subordinated Notes or Series B Preferred Stock, and be issued additional Common Stock Warrants, at any one or more times on or prior to May 27, 2005, for the purpose of paying the cost of acquisition of the stock or assets of one or more other companies, in each case with an acquisition value (not including transaction expenses) of at least $10 million. Pursuant to the Series B Purchase Agreement, the Pequot Funds may be required to purchase up to an additional $7.5 million of Senior Subordinated Notes or Series B Preferred Stock in the aggregate. (b) The Reporting Person has the sole power to vote, direct the vote, dispose and direct the disposition of the 13,564,460 shares of Common Stock (giving effect to the issuance of (i) 12,057,796 shares of Common Stock issuable upon conversion of the Series A Preferred Stock, the conversion of the Convertible Notes and the exercise of the Series A Warrants, (ii) 1,500,000 shares of Common Stock issuable upon conversion of the Series B Preferred Stock issued on conversion of the Senior Subordinated Notes and the exercise of the Common Stock Warrants, (iii) 3,332 shares of Common Stock issuable upon exercise of the Initial Directors Options (as defined below) and (iv) 3,332 shares of Common Stock issuable upon exercise of the New Directors Options (as defined below)). Pursuant to, and to the extent set forth in, the Amended and Restated Stockholders Agreement, it could be alleged that the Reporting Person shares voting and dispositive power with respect to the shares of Common Stock beneficially owned by the Stockholder Parties. To the knowledge of the Reporting Person and based on documents publicly filed by the Stockholder Parties, (i) the name, address and principal occupation of each of the Stockholder Parties is set forth on Exhibit 16 hereto and is incorporated herein by reference and (ii) each of the Stockholder Parties is a citizen of the United States. To the knowledge of the Reporting Person and based on documents publicly filed by the Stockholder Parties, during the last five years, none of the Stockholder Parties has been: (i) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors), or (ii) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to Federal or State securities laws or finding any violation with respect to such laws. (c) Except for the information set forth, or incorporated by reference, in Items 3 and 4, which is incorporated herein by reference, none of the Reporting Persons has effected any transaction relating to the Common Stock during the past 60 days. (d) Not applicable. (e) Not applicable. Item 6. Contracts, Agreements, Understandings or Relationships with Respect to Securities of the Issuer Item 6 of the Statement is amended and restated in its entirety as follows: Reference is made to the Series B Purchase Agreement, the Voting Agreement, the Amended and Restated Stockholders Agreement, the Registration Rights Agreement described in Items 3, and 4, which are included as Exhibits 11, 12, 13, and 14, respectively, and are incorporated by reference herein. Reference is also made to that certain (i) Amendment to Certificate of Designations, Powers, Preferences and Rights of the Series A Convertible Preferred Stock, dated as of May 27, 2004 and (ii) Certificate of Designations, Powers, Preferences and Rights of the Series B Convertible Preferred Stock, dated as of May 27, 2004, which are included as Exhibits 18 and 19, respectively, and are incorporated by reference herein. In connection with the transactions contemplated by the Series A Purchase Agreement, on December 9, 2003, the Issuer issued to the Funds the Series A Preferred Stock, the Series A Warrants and the Convertible Notes. In connection with the transactions contemplated by the Series B Purchase Agreement, on May 28, 2004, the Issuer issued to the Series B Investors the Senior Subordinated Notes and the Common Stock Warrants. Series A Preferred Stock The 6,726,457 shares of Series A Preferred Stock are convertible into Common Stock at any time at the election of its holders, initially at a ratio of one share of Common Stock for every share of Series A Preferred Stock and subject to adjustments for certain dilutive equity issuances and for stock splits, stock dividends and similar events. The Series A Preferred Stock will automatically convert into Common Stock if, any time following 18 months after the Series A Closing, the average closing price of the Common Stock over a 20 consecutive trading day period exceeds 2.5 times the conversion price then in effect for the Series A Preferred Stock. In addition, the Series A Preferred Stock held by holders that do not accept an offer by the Issuer to purchase the Series A Preferred Stock for at least 2.5 times the conversion price then in effect also will automatically convert into Common Stock. In addition, the Series A Preferred Stock will automatically convert into Common Stock upon the agreement of the holders of a majority of the Series A Preferred Stock. Holders of Series A Preferred Stock are entitled to vote on actions to be taken by the stockholders together with all other classes and series of voting stock of the Issuer as a single class, except as otherwise provided by applicable law or as described below. Each share of Series A Preferred Stock is entitled to the number of votes equal to the number of shares of Common Stock into which such share of Series A Preferred Stock is convertible. Initially, each share of Series A Preferred Stock is entitled to one vote. As long as 50% of the shares of Series A Preferred Stock issued on December 9, 2003 remain outstanding, or, if the Issuer has failed to comply with its redemption obligations, as long as any shares of Series A Preferred Stock issued at December 9, 2003 remain outstanding, the Issuer will not be allowed to take certain actions without the prior written consent of the holders of a majority of the Series A Preferred Stock outstanding. The holders of Series A Preferred Stock are entitled to customary preemptive rights and liquidation and dissolution preferences. Dividend Rights Holders of the Series A Preferred Stock are entitled to receive cumulative dividends on the Series A Preferred Stock each quarter beginning on September 30, 2003 at the per annum rate of 6% of the Series A Purchase Price. The dividends are payable in cash; provided, however, that if at any time after initial issuance of the Series A Preferred Stock: (i) the Issuer's available cash for operations for the following twelve month period is less than $1,000,000 in excess of business projections approved by the Issuer's board of directors for such twelve month period, or (ii) the Issuer's payment of the dividend in cash will result in an event of default under the Issuer's senior indebtedness, then the dividend, at the option of the Issuer, may be paid in shares of Series A Preferred Stock valued at the Series A Purchase Price. Holders of the Series A Preferred Stock are entitled to receive such dividends immediately after the payment of any dividends to the Series B Preferred Stock, prior to any payment of dividends to junior securities and the Common Stock and at the same time as the payment of dividends to parity securities. Holders of the Series B Preferred Stock are entitled to receive cumulative dividends on the Series B Preferred Stock each quarter beginning on June 30, 2004 at the per annum rate of 6% of the Series B Original Issue Price (as adjusted for any stock splits, combinations, recapitalizations involving equity securities of the Issuer, reclassifications of other similar events involving a change with respect to the Series B Preferred Stock). The dividends are payable in cash; provided, however, that if at any time after initial issuance of the Series B Preferred Stock: (i) the Issuer's available cash for operations for the following twelve month period is less than $1,000,000 in excess of business projections approved by the Issuer's board of directors for such twelve month period, or (ii) the Issuer's payment of the dividend in cash will result in an event of default under the Issuer's senior indebtedness, then the dividend, at the option of the Issuer, may be paid in shares of Series B Preferred Stock valued at the Series B Original Issue Price (as adjusted for any stock splits, combinations, recapitalizations involving equity securities of the Issuer, reclassifications of other similar events involving a change with respect to the Series B Preferred Stock). Holders of the Series B Preferred Stock are entitled to receive such dividends immediately after the payment of any dividends to senior securities required by the Issuer's certificate of incorporation, as amended or amended and restated and in effect, including for this purpose any certificate(s) of designation, prior and in preference to any dividends paid to the Series A Preferred Stock, any other junior securities and the Common Stock and at the same time as the payment of dividends to parity securities. Redemption The Series A Preferred Stock shall be subject to redemption, at the option of the holders of a majority of the then outstanding shares of Series A Preferred Stock at any time after the Series B Redemption Date (as defined below), in four equal quarterly installments, with the first installment being made within sixty (60) days of the date of exercise of such option and the last installment on the date that is 9 months thereafter, in whole or in part, at a per share redemption price equal to the Series A Purchase Price (as adjusted for any stock splits, stock dividends, combinations, recapitalizations involving equity securities of the Issuer, reclassifications of other similar events involving a change with respect to the Series A Preferred Stock) per share plus any accrued but unpaid dividends, payable in immediately available funds. If the Issuer is unable to effect any required quarterly redemption of Series A Preferred Stock for a period of nine consecutive months after such redemption was required, the holders of the Series A Preferred Stock will have the right to designate additional directors so that directors designated by the holders comprise a majority of the Issuer's board of directors. Notwithstanding anything contained in the immediately preceding paragraph to the contrary, the Issuer shall not be required to use such funds to pay the redemption price of Series A Preferred Stock nor shall the holders of the Series A Preferred Stock be entitled to any such designation rights unless the Issuer has paid, or reserved funds sufficient to pay, the entire redemption price of Series B Preferred Stock. The Series B Preferred Stock shall be subject to redemption, at the option of the holders of 66 2/3% of the then outstanding shares of Series B Preferred Stock at any time after the fourth anniversary of the earlier of (x) the date of the initial conversion of any Senior Convertible Note or (y) the date of the initial issuance of the Series B Preferred Stock (the earlier of (x) or (y), the "Issue Date" such fourth anniversary of such Issue Date, the "Series B Redemption Date"), in four equal quarterly installments, with the first installment being made within sixty (60) days of the date of exercise of such option and the last installment on the date that is 9 months thereafter, in whole or in part, at a per share redemption price equal to the Series B Original Issue Price (as adjusted for any stock splits, combinations, recapitalizations involving equity securities of the Issuer, reclassifications of other similar events involving a change with respect to the Series B Preferred Stock) per share plus any accrued but unpaid dividends, payable in immediately available funds. Convertible Notes Pursuant to the terms of the Convertible Notes, at any time and from time to time, the Reporting Person may, at its sole option, convert the outstanding principal and accrued and unpaid interest on the Convertible Notes in whole or in part into Series A Preferred Stock. The Convertible Notes may be converted in the number of Series A Preferred Stock determined by dividing (i) the sum of the aggregate principal amount and the accrued and unpaid interest, by (ii) an amount equal to 135% of the Series A Purchase Price (subject to adjustments for stock splits, stock dividends and similar events). Initially, the Convertible Notes are convertible into an aggregate of 3,321,707 shares of Series A Preferred Stock, which are convertible into shares of Common Stock initially at a ratio of one share for every Series A Preferred Stock and are subject to adjustments for certain dilutive equity issuances and for stock splits, stock dividends and similar events. The Issuer may cause the automatic conversion of the Convertible Notes into Common Stock if, any time following 18 months after the Series A Closing, the average closing price for the Common Stock over the 20 consecutive trading day period prior to the date of conversion exceeds 2.5 times the Series A Purchase Price, as adjusted for dilutive equity issuances, stock splits, stock dividends and similar events. The Convertible Notes are subject to certain events of default specified in the Convertible Notes. Subject to the rights of the holders of the Senior Subordinated Notes, following an event of default due to the nonpayment of principal, interest or other payments due under the Convertible Notes that continues for a period of twelve consecutive months, the holders of a majority of the Common Stock underlying the securities issued to the Funds at the Series A Closing will have the right to designate a majority of the Issuer's board of directors. This right will terminate upon the payment of the amounts due under the Convertible Notes. Interest on Convertible Notes Interest on the Convertible Notes is payable at a rate of 7% per annum. Interest is payable in cash quarterly in arrears; provided, that, at the Issuer's option, interest will accrue and will be added to principal if: (i) the Issuer's available cash for operations for the twelve month period following the date any such quarterly interest payment is due is less than $1,000,000 in excess of business projections approved by the Issuer's board of directors for such twelve month period; or (ii) the interest payment in cash will result in a default under the Issuer's senior indebtedness. The interest rate will increase to 11% if the Issuer defaults on any principal or interest payment obligation under the Convertible Notes following a five-day cure period. Senior Subordinated Notes The Senior Subordinated Notes bore interest at an annual rate of 7%, payable quarterly in cash or, if the Issuer's available cash for operations for the 12 months following the due date of an interest installment does not meet specified levels or such payment would result in a default under the Issuer's senior credit facility, accrued and added to the outstanding principal. Upon a payment default, the interest rate on the Senior Subordinated Notes was to be increased to 14% per annum during the term of the default following a five-day cure period. The outstanding principal on the Senior Subordinated Notes was automatically converted into Series B Preferred Stock upon Stockholder Approval. The per share conversion price of the Senior Subordinated Notes was $3.50, which was the closing price of the Common Stock on May 27, 2004. The accrued interest on the Senior Subordinated Notes as of September 15, 2004 will be paid to the holders in cash. Series B Preferred Stock The Senior Subordinated Notes were automatically converted into an aggregate of 3,428,571 shares of Series B Preferred Stock upon the Stockholder Approval. The Series B Preferred Stock will be convertible into Common Stock at any time at the election of its holders at the Conversion Price, provided that if Stockholder Approval for the conversion of Senior Subordinated Notes had occurred during certain uncured events of default, the Conversion Price would not have been subject to the $2.80 floor price. The Series B Preferred Stock will convert into Common Stock if (i) any time following 18 months after the Issue Date, the average closing price of the Common Stock over a 20 consecutive trading day period exceeds 2.5 times the Series B Original Issue Price (as adjusted for any stock splits, combinations, recapitalizations involving equity securities of the Issuer, reclassifications of other similar events involving a change with respect to the Series B Preferred Stock) and (ii) the Issuer elects for the shares of Series B Preferred Stock to be converted. In addition, the Series B Preferred Stock held by holders that do not accept an offer by the Issuer, within 60 days of delivery of such offer, to purchase the Series B Preferred Stock for at least 2.5 times the Series B Original Issue Price (as so adjusted) also will convert into Common Stock if the Issuer elects for such shares of Series B Preferred Stock to be converted. The Series B Preferred Stock will automatically convert into Common Stock upon the agreement of the holders of 75% of the Series B Preferred Stock. In each case, the shares of Series B Preferred Stock would convert using the Conversion Price. Holders of Series B Preferred Stock are entitled to vote together with all other classes and series of voting stock of the Issuer on all actions to be taken by the stockholders of the Issuer. Initially, each share of Series B Preferred Stock is entitled to one vote. As long as at least 25% of the shares of the Series B Preferred Stock issued pursuant to the Series B Purchase Agreement remain outstanding, the Issuer shall not take numerous specified actions (including certain changes to the Issuer's certificate of incorporation) without first obtaining the written consent of holders of at least a majority of the then outstanding shares of Series B Preferred Stock voting separately as a class. As long as 50% of the shares of the Series B Preferred Stock issued pursuant to the Series B Purchase Agreement remain outstanding, the Issuer shall not take certain other specified actions (including declaration of dividends or distributions on the capital stock other than dividends and distributions paid on the Series B Preferred Stock and the Preferred Stock) without first obtaining the written consent of holders of at least a majority of the then outstanding shares of Series B Preferred Stock voting separately as a class. The holders of Series B Preferred Stock are entitled to customary preemptive rights and liquidation and dissolution preferences. Prepayment of Convertible Notes Principal of and interest on the Convertible Notes may not be prepaid without the prior consent of the holders of a majority of the principal amount outstanding under the Convertible Notes until 18 months following the Series A Closing. At any time after 18 months following the Series A Closing, the Issuer may prepay principal and interest under the Convertible Notes by so notifying the holders of the Convertible Notes. Any prepayment will be made, at the option of the holders of a majority of the principal amount outstanding under the Convertible Notes either: (i) in cash in an amount equal to the sum of (a) the aggregate principal amount outstanding and (b) the net present value (discounted at a rate of 7% per annum) of the interest that is accrued and unpaid as of the prepayment date and the interest that would have been payable by the Issuer through the maturity date of the Convertible Notes; or (ii) by conversion of the Convertible Notes into Series A Preferred Stock at the Series A Purchase Price (subject to adjustments for stock splits, dividends and similar events) and the payment by the Issuer of all accrued and unpaid interest on the Convertible Notes in cash or, at the option of the holder, in shares of Series A Preferred Stock. If any Convertible Note is prepaid, each Convertible Note will be prepaid, in whole or in part, pro rata, based on the principal amount outstanding under the respective Convertible Notes. Prepayment of the Convertible Notes may only occur if the Issuer has an effective registration statement filed with the SEC covering the resale of the shares of Common Stock issuable upon the conversion of the Series A Preferred Stock and the Convertible Notes and upon the exercise of the Series A Warrants and such shares are listed on AMEX or another stock exchange approved by the holders of a majority of the Series A Preferred Stock. Prepayment of Senior Subordinated Notes Principal and interest on the Senior Subordinated Notes could not be prepaid without the prior written consent of the holders of a majority of the then outstanding aggregate principal amount of all Senior Subordinated Notes. Warrants (a) In connection with the transactions contemplated by the Series A Purchase Agreement, on December 9, 2003, the Issuer issued the Series A Preferred Warrants and the Note Warrants to the Funds. The Series A Preferred Warrants are immediately exercisable at an exercise price of $3.28 per share to purchase one share of Common Stock for every five shares of Common Stock issued or issuable upon the conversion of the Series A Preferred Stock. Initially, the Series A Preferred Warrants are convertible, in the aggregate, into 1,345,291 shares of Common Stock. The Note Warrants will be immediately exercisable at an exercise price of $3.28 to purchase one share of Common Stock for every five shares of Common Stock issued or issuable upon conversion of the Convertible Notes. Initially, the Note Warrants are convertible, in the aggregate, into 664,341 shares of Common Stock. The exercise price of the Series A Warrants will be subject to adjustment for stock splits, stock dividends and similar events. Cashless exercise will be permitted. Other than as described above, the Series A Warrants have substantially similar terms, a form of which was included in the Schedule 13D. (b) In connection with the Reporting Person's participation (through its employees) on the Issuer's Board of Directors, on December 9, 2003 (the "Initial Grant Date"), the Issuer granted options to purchase 5,000 shares of Common Stock to each of Martin M. Hale, Jr. and Gerald A. Poch (the "Original Directors Options"), which have substantially similar terms and are issued pursuant to the Issuer's 2002 Stock Option Plan, which is incorporated herein by reference as Exhibit 20. Based upon the vesting schedule, the Original Directors Options are each exercisable into 1,666 shares of Common Stock on the Initial Grant Date. An additional 1,667 shares per option vests on each of the first and second anniversary of the Initial Grant Date. The exercise price of the Original Directors Options is $4.04 per share. The Original Directors Options expire on December 9, 2013. (c) In connection with the transactions contemplated by the Series B Purchase Agreement, the Issuer issued the Common Stock Warrants to the Series B Investors. The Common Stock Warrants issued on the Senior Subordinated Notes Closing Date will expire on May 28, 2014. They were not exercisable at the time of issuance. Upon the Stockholder Approval, the Common Stock Warrants became exercisable at the option of the Series B Investors to purchase one share of Common Stock for every five shares of Common Stock issued or issuable upon conversion of the Series B Preferred Stock that is issued or issuable upon the conversion of the principal amount of the Senior Subordinated Notes. The exercise price of the Common Stock Warrants is $4.32 per share (representing a 25% premium to the trailing 20 day average closing price of the Common Stock of the Issuer immediately preceding May 28, 2004). The exercise price of the Series B Warrants will be subject to adjustment for stock splits, stock dividends and similar events. Cashless exercise will be permitted. (d) In connection with the Reporting Person's participation (through its employees) on the Issuer's Board, on March 1, 2004 (the "Subsequent Grant Date"), the Issuer granted options to purchase 5,000 shares of Common Stock to each of Martin M. Hale, Jr. and Gerald A. Poch (the "New Directors Options"), which have substantially similar terms and are issued pursuant to the Issuer's 2002 Stock Option Plan, which is incorporated herein by reference as Exhibit 19. Based upon the vesting schedule, the New Directors Options are each exercisable into 1,666 shares of Common Stock on the Subsequent Grant Date. An additional 1,667 shares per option vests on each of the first and second anniversary of the Subsequent Grant Date. The exercise price of the New Directors Options is $3.92 per share. The New Directors Options expire on March 1, 2014. A copy of the form of the Senior Subordinated Notes and the form of the Common Stock Warrants are attached hereto as Exhibits 21 and 22, respectively, and are incorporated herein by reference, and the description herein of such agreements are qualified in their respective entireties by reference to such agreements. Item 7. Materials to be Filed as Exhibits. All exhibits to Schedule 13D are hereby incorporated by reference. S I G N A T U R E After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete, and correct. Date: September 22, 2004 Pequot Capital Management, Inc. /s/ Aryeh Davis ------------------------------- Aryeh Davis, General Counsel -----END PRIVACY-ENHANCED MESSAGE-----