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Item
3.02.
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Unregistered
Sales of Equity
Securities.
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On
October 26, 2007, we completed a private placement to five accredited investors
(the “Investors”), pursuant to the terms of a Subscription Agreement (the
“Subscription Agreement”). The securities were offered and sold
in
units
,
with
each unit
consisting
of $100,000 principal amount of 10%
senior
secured convertible debentures
(“Debentures”) and warrants to purchase shares of
common
stock at an exercise price of $.75 per share
(“Warrants”).
The
Debentures
bear
interest
at
10%
per year, payable quarterly in cash or freely-tradable
common
stock, at our option, and mature on the earlier of 18 months after the original
issuance date or the completion by us of one or a series of related debt or
equity financing transactions for minimum gross proceeds of $5,000,000,
exclusive of any financing transaction by a factor or commercial bank (a
“Subsequent Financing”). The Warrants
are
exercisable at any time and expire three years from issuance
.
Pursuant
to Subscription Agreements with the Investors, we sold Debentures with an
aggregate face value of $3,200,000 and received gross proceeds of $3,200,000.
The Debentures rank senior to all other indebtedness of ours. Pursuant to the
terms of a Security Agreement (the “Security Agreement”), the Debentures are
secured by the grant by us and our subsidiary to a collateral agent of
collateral that consists of a first priority security interest in all of our
and
our subsidiary’s assets. The outstanding balance of the Debentures may be
converted, at the option of the holder, in whole or in part, at the earlier
of
12 months after the original issuance date, into shares of our common stock
at a
conversion price equal to 70% of the then market price per share of common
stock, or upon the completion by us of a Subsequent Financing, into the
securities being sold in such Subsequent Financing at an effective conversion
price equal to 80% of the purchase price of those securities. Notwithstanding
the foregoing, the minimum conversion price will be no less than $.25 per share.
Partial conversions by the Investors are permitted.
As
part
of the transaction, we issued to the Investors Warrants to purchase an aggregate
of up to 4,266,667 shares of our common stock at an exercise price of $.75
per
share. The Warrants are exercisable for three years, contain customary change
of
control buy-out provisions and are not redeemable. The Warrants also contain
anti-dilution provisions (including “full-ratchet” price protection from the
future issuance of stock, exclusive of the conversion of the Debentures and
certain other excluded stock issuances, or securities convertible or exercisable
for shares of common stock below $.75 per share), provided that the exercise
price of the Warrants may not be adjusted to less than $.25 per share as a
result of the full-ratchet price protection.
The
net
proceeds from the private placement will be used by us to fund our working
capital and capital expenditure requirements.
Matrix
U.S.A., LLC acted as placement agent in the transaction.
Pursuant
to the terms of a Registration Rights Agreement (the “Registration Rights
Agreement”), we agreed to file a registration statement with the U.S. Securities
and Exchange Commission as soon as possible for purposes of registering the
resale of the shares of our common stock issuable upon the conversion of the
Debentures and exercise of the Warrants sold in the private placement. In the
event the registration statement is not filed within 60 calendar days following
the closing, we will pay the Investors 2% in cash or stock of the face amount
of
the Debentures for every 30-day period, or portion thereof, that the
registration statement is not filed. In the event the registration statement
is
not declared effective within 120 calendar days following the closing, we will
pay the Investors 2% in cash or stock of the face amount of the Debentures
for
every 30-day period, or portion thereof, that the registration statement is
not
declared effective for a maximum of six months, subject to the ability of the
Investors to sell the underlying shares pursuant to Rule 144. The liquidated
damages can be paid in cash or freely-tradable
common
stock, at our option. We have also agreed that we will not file a registration
statement for any additional shares of common stock until 75 days after the
effective date of the registration statement.
The
securities sold in the private placement have not been registered under the
Securities Act of 1933, as amended (the “Securities Act”), and were issued and
sold in reliance upon the exemption from registration contained in Section
4(2)
of the Securities Act and Regulation D promulgated thereunder. These securities
may not be offered or sold in the United States in the absence of an effective
registration statement or exemption from the registration requirements under
the
Securities Act.
The
foregoing descriptions of the Subscription Agreement, Security Agreement,
Registration Rights Agreement, Debentures and Warrants are qualified in their
entirety by reference to the full text of such documents, a copy of each of
which is attached as an exhibit hereto and each of which is incorporated herein
in its entirety by reference.
We
announced the closing of the private placement in a press release issued on
October 29, 2007, a copy of which is attached as Exhibit 99.1 hereto and is
incorporated in its entirety by reference.