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
(October 27, 2005)
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VELOCITY ASSET MANAGEMENT, INC.
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(Exact name of registrant as specified in Charter)
Delaware 000-161570 65-0008442
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(State or other jurisdiction (Commission (IRS employer
of incorporation) file no.) identification no.)
48 S. Franklin Turnpike, 3rd Floor, Ramsey, NJ 07446
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (201-760-6306)
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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 (see General Instruction A.2. below:
[ ] 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 27, 2005, Velocity Asset Management, Inc. (the "Company")
and its wholly owned subsidiary, J Holder, Inc. ("JHolder"), entered into a
Securities Purchase Agreement with an institutional investor relating to a sale
of a 10% Secured Convertible Debenture, due April 27, 2007, in the aggregate
principal amount of $1.8 million (the "Debenture"), and an associated common
stock purchase warrant (the "Warrant") to purchase 200,000 shares of the
Company's common stock at an exercise price of $3.10 per share. Net proceeds
from the financing ($1,770,000.00) are to be used primarily for working capital
purposes including, but not limited to, the purchase of distressed real property
interests and distressed consumer receivable portfolios.
The Debenture was issued with an initial conversion price of $4.00 per
share and provides for full ratchet anti-dilution protection (in certain
circumstances). At the initial conversion price, the Debenture is convertible
into an aggregate of 450,000 shares of common stock. The Debenture bears
interest at 10% per annum, payable monthly on the first day of each calendar
month, beginning on November 1, 2005. Interest is payable in cash or, at the
Company's option, in shares of common stock provided certain conditions are
satisfied. On or after April 1, 2006, the Debenture will be convertible into
shares of common stock at a price equal to $2.525 per share (125% of the 5 day
average closing price immediately prior to the closing date).
Beginning on April 1, 2006, the Company is obligated to repay the
Debenture in monthly payments equal to 1/12 of the outstanding principal amount,
in cash; provided, however, that upon the satisfaction of certain conditions,
such payment may be made in shares of the Company's common stock based on a
conversion price equal to 85% of the average of the three lowest closing prices
of the Company's common stock during the ten trading days immediately prior to
the applicable monthly payment date.
At any time after the issuance date and prior to March 31, 2006, the
Debenture may be redeemed at the election of the Company at the principal
amount, plus accrued but unpaid interest, subject to the satisfaction of certain
conditions. Upon the occurrence of a change of control, a fundamental
transaction or the sale of certain specified assets as set forth in the
Debenture, the holders may require the Company to redeem the Debenture at the
principal amount, plus accrued and unpaid interest, subject to the satisfaction
of certain conditions.
The purchaser of the Debenture was granted (i) a security interest in:
the assets of the Company and the assets of the Company's subsidiaries, JHolder,
TLOP Acquisition Company, LLC, VOM, LLC and SH Sales, Inc. (the "Subsidiary
Guarantors"), and (ii) a pledge of the Company's direct and indirect ownership
of its subsidiaries, each of which are subject to the liens of holders of
existing indebtedness, permitted liens and permitted indebtedness. Additionally,
the Subsidiaries have agreed to guarantee the obligations of the Company under
the Debenture and the other transaction documents.
The Debenture is also guaranteed personally by each of John C.
Kleinert, the Company's President and Chief executive Officer, W. Peter Ragan,
Sr., the Company's Vice President and W. Peter Ragan, Jr., President of the
Company's wholly owned Velocity Investments, LLC subsidiary.
The Warrant was issued with an exercise price of $3.10 per share,
provides for full ratchet anti-dilution protection in certain circumstances and
contains a cashless exercise provision. The Warrant is exercisable for an
aggregate of 200,000 shares of common stock, and if fully exercised for cash at
the initial exercise price, the Warrant would yield approximately $620,000 of
additional proceeds to the Company.
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The Company has agreed to file a registration statement with the
Securities and Exchange Commission in order to register the resale of the shares
issuable upon conversion of the Debenture and the shares issuable upon exercise
of the Warrant.
Pursuant to the Securities Purchase Agreement, the investor has certain
rights to participate in future financings of the Company. In addition, subject
to certain exceptions, for a period of 90 days after the effective date of the
registration statement (described above), the Company may not issue shares of
common stock or common stock equivalents
The holder may not convert the Debenture or exercise the Warrant to the
extent that, after giving effect to such conversion or exercise, as the case may
be, the holder would beneficially own in excess of 4.99% of the number of shares
of common stock of the company outstanding immediately after giving effect to
such conversion, calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
The offering, sale and issuance of the Debenture and the Warrants was
effected pursuant to the exemption from registration provided by Rule 506
promulgated under the Securities Act of 1933, as amended. The Debenture and
Warrants have not been registered under the Securities Act of 1933, as amended,
and may not be offered or sold in the United States absent registration or an
applicable exemption from registration requirements.
This summary description of the securities and transaction described by
the agreements does not purport to be complete and is qualified in its entirety
by reference to the form of the agreements and other documents that are filed as
exhibits hereto.
The press release issued by the Registrant on October 31, 2005 with
respect to the transaction is filed herewith as Exhibit 99.1.
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under
an Off-Balance Sheet Arrangement of a Registrant.
See Item 1.01 of this Current Report on Form 8-K, which Item is
incorporated herein by this reference, for a description of the terms of a
financing transaction that included the issuance of the Debenture in the
aggregate principal amount of $1.8 million.
Item 3.02. Unregistered Sale of Equity Securities.
See Item 1.01 of this Current Report on Form 8-K, which Item is
incorporated herein by this reference, for a description of the terms of a
financing transaction that included the issuance of a Warrant and a Debenture,
each of which are convertible into shares of the Company's common stock.
Item 7.01. Regulation FD Disclosure.
On October 31, 2005, the Company issued a press release announcing
completion of the $1.8 million financing described in Item 1.01 above.
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The press release is attached hereto as Exhibit 99. 1 and is
incorporated herein by this reference. The press release and the information in
Item 7.01 of this Form 8-K shall not be deemed "filed" for purposes of Section
18 of the Securities Exchange Act of 1934, nor shall they be deemed incorporated
by reference in any filing under the Securities Act, except as shall be
expressly set forth by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
Exhibit No. Description
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4.1 Debenture dated October 27, 2005
4.2 Warrant dated October 27, 2005
10.1 Securities Purchase Agreement dated October 27, 2005
among the Company and the purchasers identified on
the signature pages thereto
10.2 Registration Rights Agreement dated October 27, 2005
among the Company and the purchasers signatory
thereto
10.3 Security Agreement dated October 27, 2005 among the
Company, each of the Subsidiary Guarantors and the
purchasers signatory thereto
10.4 Subsidiary Guarantee dated October 27, 2005 by each
of the Subsidiary Guarantors.
99.1 Press Release issued October 31, 2005
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
October 31, 2005
VELOCITY ASSET MANAGEMENT, INC.
/s/ JOHN C. KLEINERT
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John C. Kleinert
Chief Executive Officer
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