UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 31, 2005
SILVERSTAR HOLDINGS, LTD.
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(Exact Name of Registrant as Specified in Charter)
Bermuda 0-27494 N/A
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File No.) Identification No.)
Clarendon House, Church Street, Hamilton, HM CX, Bermuda
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (441) 295-1422
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule
14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
On October 31, 2005, Silverstar Holdings, Ltd. (the "Company")
consummated a transaction pursuant to a Securities Purchase Agreement, dated
October 21, 2005 (the "Purchase Agreement"), with DKR SoundShore Oasis Holding
Fund Ltd. (the "Purchaser"). Pursuant to the Purchase Agreement, the Company
issued to the Purchaser (i) $5,000,000 principal amount Variable Rate Secured
Convertible Debenture due October 31, 2008 (the "Debenture") and (ii) a warrant
to purchase 791,139 shares of the Company's Common Stock at an exercise price of
$1.896 per share (the "Warrant").
Description of the Debenture
The Debenture is convertible at any time, at the option of the
Purchaser, into up to 2,876,870 shares of the Company's common stock, par value
$0.01per share (the "Common Stock"), at a conversion price of $1.738. Pursuant
to the Purchase Agreement, the Company agreed to hold a special meeting of
shareholders (which may also be at the annual meeting of shareholders) at the
earliest practical date following the closing date, and in any event within 60
calendar days following the closing date, for the purpose of obtaining approval
as may be required by the applicable rules and regulations of the Nasdaq
SmallCap Market from the shareholders of the Company with respect to the
foregoing transactions, including the issuance of the shares of Common Stock
issuable upon exercise of the Warrant and conversion of the Debenture in excess
of 19.99% of the issued and outstanding Common Stock of the Registrant on the
closing date (the "Shareholder Approval"). Until such Shareholder Approval is
obtained, the Company may not issue upon conversion of the Debenture a number of
shares of Common Stock, which, when aggregated with any shares of Common Stock
issued upon exercise of the Warrant would exceed 19.999% of outstanding Common
Stock of the Company. In addition, the Company may not effect any conversion of
the Debenture and the Purchaser of the Debenture is not permitted to convert the
Debenture into shares of Common Stock if such conversion would give the
Purchaser a beneficial ownership of more than 4.99% of the outstanding shares of
Common Stock of the Company. This 4.99% limitation may be waived by the
Purchaser upon not less than 61 days prior notice to the Company.
The Company shall pay monthly interest on the outstanding principal
amount of the Debenture at a rate per annum equal to the prime rate for the
applicable interest period plus 1.5%. The interest rate for any interest period
shall be decreased by 2% to the extent that the volume weighted average trading
price of the Common Stock for five (5) consecutive trading days immediately
prior to such interest period (the "Trigger Price") exceeds the conversion price
by 25% (and shall be decreased by an additional 2% for every successive 25% that
the Trigger Price exceeds the then applicable conversion price but in no event
shall the interest rate be less than 0%). All overdue accrued and unpaid
interest to be paid under the Debenture shall entail a late fee at a rate of 18%
per annum.
The principal amount of the Debenture is redeemable at the rate of
$185,185.19 per month, plus accrued and unpaid interest and liquidated damages,
commencing on July 6, 2006 and may be paid, at the Company's option (i) in cash
or (ii) in shares of the Company's Common Stock in an amount not to exceed 10%
of the total dollar trading volume of the Common Stock during the 10 trading
days immediately prior to the applicable monthly redemption date based on
a conversion price equal to 85% of the average of the lowest three volume
weighted average price during the 10 trading days immediately prior to the
applicable monthly redemption date. The Company has the option, at any time, to
redeem some or all of the outstanding Debenture, in cash, in an amount equal to
the sum of (i) 115% of the principal amount of the Debenture outstanding, plus
accrued and unpaid interest and liquidated damages (the "Optional Redemption
Amount") (provided, however, that the Company may pay up to 15% of the principal
amount comprising of a portion of the Optional Redemption Amount in shares of
the Company's Common Stock if certain conditions are satisfied). If, by December
31, 2005, the Company does not use the proceeds from the issuance of the
Debenture and warrant to consummate the acquisition of securities or assets of a
business to be identified by the Company, it may redeem all (but not less than
all) of the outstanding Debenture, for an amount, in cash, equal to 102.5% of
the principal amount of the Debenture then outstanding, plus accrued and unpaid
interest and liquidating damages.
The conversion price of the Debenture will be adjusted and the number
of shares of Common Stock to be issued upon conversion of the Debenture will be
adjusted upon the occurrence of, among other things, the payment of stock
dividend, a stock split, the merger or sale of the Company, or reclassification
of the Company's capital. In addition, the Debenture includes certain
anti-dilution provisions in connection with future issuances by the Company of
securities which would entitle the holder to acquire Common Stock below the then
applicable conversion price.
The Debenture contains certain events of default that are customarily
included in financings of this nature. If an event of default occurs, the
Purchaser may make all sums of principal, interest and other amounts owed at
such time payable in cash. In the event of such acceleration, the amount payable
to the Purchaser shall equal the sum of: (i) the greater of: (A) 115% of the
principal amount of the Debenture (plus accrued and unpaid interest) or (B) the
principal amount of the Debenture to be prepaid (plus accrued and unpaid
interest), divided by the applicable conversion price; and (ii) all other
amounts, costs, expenses and liquated damages due in respect of the Debenture.
The Company's obligations under the Debenture are secured by a lien on
all assets of the Company in favor of the Purchaser pursuant to a Security
Agreement, dated October 31, 2005, among the Company, all of the subsidiaries of
the Company and the Purchaser, and guaranteed by all the subsidiaries of the
Company pursuant to a Subsidiary Guarantee, dated October 31, 2005, made by the
Company's subsidiaries in favor of the Purchaser. In addition, the obligations
of the Company under the Debenture are personally guaranteed by Mr. George
Karfunkel pursuant to a Personal Guarantee, dated October 31, 2005, between Mr.
Karfunkel and the Purchaser.
Description of the Warrant
The Warrant has an exercise period of five years from the date of
issuance. The exercise price of the Warrant will be adjusted and the number of
shares of Common Stock to be issued upon exercise of the Warrant will be
adjusted upon the occurrence of, among other things, the payment of stock
dividend, a stock split, the merger or sale of the Company, or reclassification
of the Company's capital. In addition, the Warrant includes certain
anti-dilution provisions in
connection with future issuances by the Company of securities which would
entitle the holder to acquire Common Stock below the then applicable exercise
price.
Until the Shareholder Approval is obtained, the Company may not issue
upon exercise of the Warrant a number of shares of Common Stock, which, when
aggregated with any shares of Common Stock issued upon conversion of or as
payment of interest on the Debenture would exceed 19.999% of outstanding Common
Stock of the Company. In addition, the Company may not effect any exercise of
the Warrant and the Purchaser of a Warrant is not permitted to exercise the
Warrant into shares of Common Stock if such exercise would give the Purchaser a
beneficial ownership of more than 4.99% of the outstanding shares of Common
Stock of the Company. This 4.99% limitation may be waived by the Purchaser upon
not less than 61 days prior notice to the Company.
Registration Rights Agreement
Pursuant to the Purchase Agreement, the Company entered into a
Registration Rights Agreement, dated December 31, 2005, with the Purchaser,
pursuant to which the Company agreed to prepare and file with the Securities and
Exchange Commission (the "Commission") within 30 days after the closing of the
transactions, a shelf registration statement for the purpose of registering for
resale 130% of all the shares of Common Stock issuable upon conversion of the
Debenture and the exercise of the Warrant and cause such registration statement
to become effective under the Securities Act of 1933 (the "Securities Act")
within 90 days of the closing of the transactions(120 days in the event of a
full review by the Commission).
If the registration statement is not filed within 30 days after the
closing date or declared effective within the specified time, then the Company
shall pay to the Purchaser an amount in cash, as partial liquidated damages,
equal to 1.5% of the aggregate purchase price paid by the Purchaser for the
Debenture and Warrant. If the Company fails to pay any partial liquidated
damages in full within seven days after the date payable, the Company will pay
interest at a rate of 18% per annum to the Purchaser, accruing daily from the
date such partial liquidated damages are due until such amounts, plus all such
interest, are paid in full.
ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN
OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT.
The information set forth in Item 1.01 of this Current Report on Form
8-K is hereby incorporated by reference.
ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES
The information set forth in Item 1.01 of this Current Report on Form
8-K is hereby incorporated by reference.
The offering and sale of the Debenture and Warrant were made in a
private sale in reliance on the exemption from registration provided by Section
4(2) and Rule 506 of Regulation D promulgated under the Securities Act.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
4.1 Variable Rate Secured Convertible Debenture due
October 31, 2008.
4.2 Warrant, dated October 31, 2005.
4.3 Registration Rights Agreement, dated October 31, 2005,
between the Company and the Purchaser.
4.4 Security Agreement, dated October 31, 2005, between the
Company, all of the subsidiaries of the Company and the
Purchaser.
4.5 Subsidiary Guarantee, dated October 31, 2005.
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: November 4, 2005 SILVERSTAR HOLDINGS, LTD.
By: /s/ Clive Kabatznik
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Name: Clive Kabatznik
Title: Chief Executive Officer