UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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)
JANUARY 18, 2007
RAPTOR NETWORKS TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
COLORADO 84-1573852
(State or other (IRS Employer
jurisdiction of incorporation) Identification Number)
333-74846
(Commission File Number)
1241 E. DYER ROAD, SUITE 150
SANTA ANA, CA 92705
(Address of Principal Executive Offices)
(949) 623-9305
(Registrant's Telephone Number, Including Area Code)
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.
As previously disclosed in Raptor Networks Technology, Inc.'s (referred
to herein as the "Company") Current Report on Form 8-K filed with the Securities
and Exchange Commission ("SEC") on July 31, 2006, on July 30, 2006 the Company
entered into a Securities Purchase Agreement ("Original Purchase Agreement")
with three institutional accredited investors (the "Investors"), and, on July
31, 2006, a series of related agreements, including a Registration Rights
Agreement ("Original Registration Rights Agreement") and the issuance by the
Company of Senior Convertible Notes ("Original Notes"), Series L Warrants
("Original Series L Warrants") and Series M Warrants ("Original Series M
Warrants") to the Investors. The Original Notes were modified on October 11,
2006, as previously disclosed in the Company's Current Report on Form 8-K filed
with the SEC on October 12, 2006.
The Company entered into an Amendment and Exchange Agreement, dated as
of January 18, 2007, with each of the Investors (the "Amendment Agreements"),
providing for, among other things:
o Certain amendments to the terms of the Original Purchase
Agreement, the Original Notes, the Original Series L Warrants,
the Original Series M Warrants and the Original Registration
Rights Agreement, as described in more detail below. The
Company did not receive any additional cash consideration for
these amendments.
o The issuance by the Company of a new Senior Convertible Note
("New Note") in the aggregate principal amount of $1.6
million, a new Series L Warrant ("Series L-2 Warrant") and a
new Series M Warrant ("Series M-2 Warrant") to one of the
Investors as described in more detail below. The Company
received aggregate gross proceeds from the Investor of $1.6
million for the issuance of the New Note, the Series L-2
Warrant and the Series M-2 Warrant.
AMENDMENTS TO EXISTING AGREEMENTS
- ---------------------------------
Pursuant to the January 19, 2007 closing of the Amendment Agreements,
the terms of the Original Purchase Agreement, the Original Notes, the Original
Series L Warrants, the Original Series M Warrants and the Original Registration
Rights Agreement were amended as follows:
AMENDMENT AGREEMENTS
--------------------
The Amendment Agreements provide for, among other things:
o The Company to obtain stockholder approval on or before April
30, 2007 to increase the Company's authorized level of Common
Stock from 110,000,000 shares to 200,000,000 shares. The
Original Purchase Agreement had previously required an
increase to 150,000,000 shares. Failure to obtain the required
stockholder approval by April 30, 2007 will, among other
things, result in an event of default under the Original Notes
and the New Note.
-2-
o A waiver by the Investors of any defaults, fees or penalties
that the Investors may have otherwise been entitled to as a
result of the Company's failure to have a registration
statement declared effective by the SEC in accordance with the
Original Registration Rights Agreement or as a result of the
Company's failure to make certain principal and interest
payments under the Original Notes prior to the effectiveness
of the Amendment Agreements.
ORIGINAL NOTES
--------------
The Original Notes were amended and restated to, among other things:
o Increase the aggregate principal amount of the Original Notes
from $5 million to an aggregate principal amount of
approximately $7.2 million. This increase was a result of
certain fees and costs agreed upon by the Company and the
Investors and added to the original principal amount of the
Original Notes. This amended principal amount may be reduced
by an aggregate of up to $621,825 if the Company is able to
have a registration statement covering at least 15,267,292
shares of Common Stock underlying the Original Notes and the
New Note declared effective by the SEC on or before February
11, 2007.
o Extend the first principal payment date from November 30, 2006
to the earlier of (i) the first day of the month following the
month a registration statement covering at least 15,267,292
shares of Common Stock underlying the Original Notes and New
Note is declared effective by the SEC and (ii) May 1, 2007.
ORIGINAL SERIES L WARRANTS AND ORIGINAL SERIES M WARRANTS
---------------------------------------------------------
The Original Series L Warrants and the Original Series M Warrants were
amended and restated to, among other things:
o Increase the aggregate number of shares of Common Stock
issuable under the Original Series L Warrants by 3,413,125,
from 17,065,623 shares to 20,478,748 shares.
o Reduce the exercise price of both the Original Series L
Warrants and the Original Series M Warrants from $0.5054 per
share to $0.43948 per share.
o Extend the expiration date of both the Original Series L
Warrants and the Original Series M Warrants from 60 months
after their original issuance date to 84 months after the
date a registration statement covering shares of Common Stock
underlying the respective warrant is declared effective by
the SEC.
ORIGINAL REGISTRATION RIGHTS AGREEMENT
--------------------------------------
The Original Registration Rights Agreement was amended and restated to,
among other things:
o Reduce the number of shares of Common Stock to initially be
registered with the SEC for resale by the Investors from
34,078,554 shares to 15,267,292 shares.
-3-
o Eliminate the requirement that the Company register 130% of
the shares of Common Stock underlying the Original Notes, the
Original Series L Warrants and the Original Series M Warrant,
as was previously required pursuant to the Original
Registration Rights Agreement once the Company obtained
stockholder approval for an increase in the Company's
authorized level of Common Stock.
o Require that the Company file and have declared effective by
the SEC additional registration statements, which are to be
filed within 30 days of the request of an Investor. Investor
requests may be made at any time on or after the five month
anniversary of the effective date of the most recent
registration statement covering shares of Common Stock
underlying securities held by the Investors. Each additional
registration statement shall cover the maximum number of
shares permitted by the SEC. Each additional registration
statement must be declared effective by the SEC within 60 days
of the applicable Investor request (or 90 days if there is a
full review by the SEC of the applicable additional
registration statement). The Company's obligation to file
additional registration statements shall continue until either
all of the shares underlying the notes and warrants held by
the Investors have been covered by a registration statement or
all of the shares underlying the notes and warrants may be
sold by the Investors without restriction under Rule 144(k)
promulgated under the 1933 Act.
ISSUANCE OF NEW SECURITIES
- --------------------------
In addition to the amendments described above, the Amendment Agreements
provided for the issuance of additional securities to one of the Investors in
exchange for an additional $1.6 million in aggregate gross proceeds to the
Company as follows:
o A New Note in the aggregate principal amount of $1.6 million.
o A Series L-2 Warrant to purchase up to 7,281,332 shares of
Common Stock.
o A Series M-2 Warrant to purchase up to 2,366,433 shares of
Common Stock.
SUMMARY OF ORIGINAL PURCHASE AGREEMENT AS AMENDED BY THE AMENDMENT AGREEMENTS
- -----------------------------------------------------------------------------
The following is intended to provide a brief summary of the terms of
the agreements and securities described above after taking into account the
effect of Amendment Agreements. This summary is not complete, and is qualified
in its entirety by reference to the full text of the agreements, each of which
is attached as an exhibit to this Current Report on Form 8-K. Readers should
review those agreements for a complete understanding of the terms and conditions
associated with these transactions. For purposes of this summary: (i) the
Original Purchase Agreement as amended by the Amendment Agreements is referred
to as the "Amended Purchase Agreement"; (ii) the Original Notes as amended and
restated pursuant to the Amendment Agreements are referred to as the "Amended
Notes" and the New Note and the Amended Notes are together referred to as the
"Notes"; (iii) the Original Series L Warrants and the Original Series M
Warrants, each as amended and restated pursuant to the Amendment Agreements, are
referred to as the "Series L-1 Warrants" and the "Series M-1 Warrants,"
respectively; (iv) the Series L-1 Warrants and the Series L-2 Warrant are
collectively referred to as the "Series L Warrants"; (v) the Series M-1 Warrants
and the Series M-2 Warrant are collectively referred to as the "Series M
Warrants"; (vi) the Series L Warrants and the Series M Warrants are together
referred to as the "Warrants"; and (vii) and the Original Registration Rights
Agreement as amended and restated pursuant to the Amendment Agreements is
referred to as the "Amended Registration Rights Agreement."
-4-
AMENDED PURCHASE AGREEMENT
--------------------------
The Original Purchase Agreement provided for the purchase by the
Investors of the Original Notes, the Original Series L Warrants and the Original
Series M Warrants. The Company received aggregate gross proceeds of $5 million
from the Investors under the Original Purchase Agreement. The Original Notes,
the Original Series L Warrants and the Original Series M Warrants were
subsequently amended and restated pursuant to the Amendment Agreements in the
form of the Amended Notes, the Series L-1 Warrants and Series M-1 Warrants. The
Amended Agreements also provide for the purchase by one of the Investors of the
New Note, the Series L-2 Warrant and the Series M-2 Warrant, for which the
Company received an additional $1.6 million in gross proceeds from the Investor.
The Amended Purchase Agreement contains representations and warranties
of the Company and the Investors which are typical for transactions of this
type. The representations and warranties made by the Company in the Amended
Purchase Agreement are qualified by reference to certain exceptions contained in
disclosure schedules delivered to the Investors. Accordingly, the
representations and warranties contained in the Amended Purchase Agreement
should not be relied upon by others who have not reviewed those disclosure
schedules and the documentation surrounding the transaction as a whole.
The Amended Purchase Agreement contains covenants on the part of the
Company that are typical for transactions of this type, as well as the following
covenants:
o The Company will use the estimated $6.2 million in net
proceeds approximately as follows:
Pay down of debt $ 1,200,000
Funding of operations $ 3,500,000
Capital expenditures $ 500,000
Working capital $ 1,000,000
o The Company will not, while the Notes are outstanding,
directly or indirectly redeem or pay any cash dividend or
distribution on the Company's Common Stock, without the
consent of the holders of the Notes.
o The Company will not issue any additional Notes or any form of
convertible, exchangeable or exercisable securities with a
price that varies or may vary with the market price of the
Common Stock, and the Company will not conduct any securities
offerings until:
-5-
o its stockholders approve an increase in the Company's
authorized level of Common Stock from 110,000,000
shares to at least 200,000,000 shares; and
o the Initial Registration Statement (as defined
below) and all Additional Registration Statements
(as defined below) are declared effective by the SEC.
o The Company will not file any registration statements, other
than the Initial Registration Statement and the Additional
Registration Statements, with the SEC within 120 business days
following the date the Initial Registration Statement or any
Additional Registration Statement is declared effective by the
SEC.
o The Company will not conduct any other securities offerings or
be party to any solicitations, negotiations or discussion
regarding any other securities offering within 120 business
days following the date the Initial Registration Statement or
any Additional Registration Statement is declared effective by
the SEC.
o The Company will offer to the Investors, until the later to
occur of (i) July 31, 2008 or (ii) the date on which none of
the Notes are outstanding, the opportunity to participate in
any subsequent securities offerings by the Company.
o The Company will seek stockholder approval to increase the
Company's authorized level of Common Stock from 110,000,000
shares to at least 200,000,000 shares and if, despite the
Company's best efforts, stockholder approval is not obtained
on or before April 30, 2007, to continue to seek stockholder
approval every six months thereafter until such stockholder
approval is obtained; provided that if the Company's Board of
Directors does not recommend that its stockholders approve the
increase in authorized Common Stock and stockholder approval
is not obtained, then the Company shall continue to seek
stockholder approval every three months until the Notes are no
longer outstanding or until stockholder approval is obtained.
o If the Common Stock is listed on a market other than the OTC
Bulletin Board and the issuance of the shares underlying the
Notes and Warrants would exceed the number of shares of Common
Stock the Company may issue under the rules and regulation of
such other market, then the Company will seek stockholder
approval as required by such other market to permit the
listing of all of the shares underlying the Notes and Warrants
within 75 days of the Company's Common Stock being listed on
the exchange or market and if, despite the Company's best
efforts, stockholder approval is not obtained, continue to
seek stockholder approval every six months thereafter until
such stockholder approval is obtained or the Notes are no
longer outstanding.
-6-
The Amended Purchase Agreement also obligates the Company to indemnify
the Investors, subsequent holders of the Notes and Warrants and various related
parties for certain losses including those resulting from (1) any
misrepresentation or breach of any representation or warranty made by the
Company, (2) any breach of any obligation of the Company, and (3) certain claims
by third parties.
SENIOR CONVERTIBLE NOTES
------------------------
The Notes have an aggregate principal amount of approximately $8.8
million and are convertible into shares of the Company's Common Stock at an
initial conversion price of $0.43948 per share, subject to adjustment as
described below (the "Conversion Price"). The principal amount of the Amended
Notes may be reduced by an aggregate of up to $621,825 if the Company is able to
have the Initial Registration Statement declared effective by the SEC on or
before February 11, 2007. The Notes mature on July 31, 2008 (the "Maturity
Date"), subject to the right of the Investors to extend the date for the payment
of any installment of principal (as described below). The Notes bear interest at
the rate of 9.25% per annum, which rate may be adjusted to 7.0% per annum at the
beginning of each calendar quarter if certain conditions are satisfied. The
interest rate is increased to 15% upon the occurrence of an event of default (as
described below).
REPAYMENT OF PRINCIPAL
The principal amount of the Notes is to be repaid beginning on the
earlier of (i) the first day of the month following the month the Initial
Registration Statement is declared effective by the SEC and (ii) May 1, 2007,
and, thereafter, the first day of each calendar month. The amount of each
payment shall be equal to the quotient of (a) the aggregate outstanding
principal of the Notes divided by (b) the number of months until the Maturity
Date. Such principal payments shall be paid in shares of the Company's Common
Stock (subject to the satisfaction of the conditions listed below) or, at the
option of the Company, in cash or a combination of cash and shares of Common
Stock.
In order for principal payments to be paid in shares of Common Stock,
all of the following conditions must be satisfied at the time of such payment:
o Either:
o The shares of Common Stock used to make the principal
payment are covered by a registration statement that
has been effective for a certain continuous period of
time (up to six months), subject to certain grace
periods; or
o All shares of Common Stock issuable upon conversion
in full of the Notes and exercise in full of the
Warrants shall be eligible for sale without
restriction and without the need for registration
under any applicable federal or state securities
laws;
o During the entire six-month period immediately preceding the
principal payment date, the Company's Common Stock shall have
been designated for quotation on the OTC Bulletin Board, or
any other eligible exchange or market permitted by the Notes,
and shall not have been suspended from trading on such
exchange or market (other than suspensions of not more than
two days due to business announcements by the Company) nor
shall delisting or suspension by such exchange or market been
threatened or pending either in writing by such exchange or
market or due to the Company falling below the minimum listing
maintenance requirements of such exchange or market;
-7-
o During the entire one-year period immediately preceding the
principal payment date, the Company shall have delivered
shares of Common Stock upon conversion of the Notes and upon
exercise of the Warrants on a timely basis;
o The Common Stock used to make the principal payment may be
issued without violating the ownership limitations described
in more detail below prohibiting an Investor from owning in
excess of 4.99% of the Company's outstanding shares of Common
Stock (which limit may be raised or lowered to an amount not
to exceed 9.99% at the option of the holder upon 61-days prior
notice to the Company) and without violating the regulations
of the OTC Bulletin Board or other eligible exchange or market
on which the Company's Common Stock may then trade;
o The Company has not failed to timely make any payments due
under the Amended Purchase Agreement, the Notes, the Warrants
or the Amended Registration Rights Agreement, within ten
business days of when such payment is due;
o During the entire six-month period immediately preceding the
principal payment date, the Company shall not have publicly
announced that certain types of transactions involving a
change of control are pending, proposed or intended that have
not been abandoned, terminated or consummated;
o During the entire six-month period immediately preceding the
principal payment date, no event shall have occurred that
constitutes, or with the passage of time or giving of notice
would constitute, an event of default under the Notes;
o The Company shall have no knowledge of any fact that would
cause:
o The registration statement covering the shares of
Common Stock used to make the principal payment not
to be effective and available for the resale of such
shares of Common Stock, or
o Any shares of Common Stock issuable upon conversion
of the Notes or upon exercise of the Warrants not to
be eligible for sale without restriction pursuant to
Rule 144(k) of the 1933 Act and any applicable state
securities laws;
o If the principal payment to be made in shares of Common Stock
occurs after April 30, 2007, the Company must have obtained
stockholder approval to increase its authorized level of
Common Stock from 110,000,000 shares to at least 200,000,000
shares;
-8-
o If the Company's Common Stock is listed on an exchange or
market other than the OTC Bulletin Board and the issuance of
the shares of Common Stock underlying the Notes and the
Warrants would exceed the number of shares of Common Stock the
Company may issue under the rules and regulations of such
exchange or market, then the Company must have obtained
stockholder approval, within 75 days of the Company's Common
Stock being listed on the exchange or market, to permit the
listing of all of the shares of Common Stock underlying the
Notes and the Warrants; and
o The Company must be in compliance with, and must not have
breached any provision, covenant, representation or warranty
of, the Amended Purchase Agreement, the Notes, the Warrants or
the Amended Registration Rights Agreement.
When the Company uses Common Stock to make a principal payment, the
Company shall deliver shares to the Investors the day after the principal
payment due date in an amount equal to the principal payment amount divided by
the lower of the Conversion Price or a 10.0% discount to the volume weighted
average price of the Company's Common Stock for the five days preceding the
payment date; provided that the discount will be reduced to 7.5% if the volume
weighted average price for the 20 previous trading days is above $1.00 per share
("First Calculation"). After 20 trading days has elapsed from the principal due
date, the amount of principal paid in Common Stock will then again be divided by
the lower of the Conversion Price or a 10.0% discount to the volume weighted
average price of the Company's Common Stock for the 20 days after the principal
payment date; provided that the discount will be reduced to 7.5% if the volume
weighted average price for the 20 previous trading days is above $1.00 per share
("Second Calculation"). If the Second Calculation results in a larger number
than the First Calculation, the Investors shall be issued additional shares to
cover the difference between the Second Calculation and the First Calculation.
If the Second Calculation is less than the First Calculation, the outstanding
principal amount of the Note will be reduced.
Subject to the Company's right to require the Investors to convert all
or a portion of the Notes, which is discussed below, the Investor may, upon
notice to the Company, elect to defer payments for a period of up to two years
from the date such installment was originally due.
PAYMENT OF INTEREST
Interest on the Notes is payable quarterly beginning on April 1, 2007.
The portion of each interest payment that relates to principal amounts paid by
the Company in shares of Common Stock may, at the option of the Company if
certain conditions are satisfied, be paid by the issuance of Common Stock. The
other portion of each interest payment must be paid in cash. Any shares of
Common Stock used to pay interest will be valued at 90.0% of the arithmetic
average of the weighted average price of the Common Stock for the five trading
days preceding the interest payment date; provided that the shares of Common
Stock used to pay interest will be valued at 92.5% if the volume weighted
average price for the 20 previous trading days is above $1.00 per share.
-9-
CONVERSION
The Notes are convertible at the option of the holders into shares of
the Company's Common Stock at an initial Conversion Price of $0.43948 per share,
subject to adjustment for stock splits, combinations or similar events. The
Conversion Price is also subject to a "full ratchet" anti-dilution adjustment
which, in the event that the Company issues or is deemed to have issued certain
securities at a price lower than the then applicable Conversion Price,
immediately reduces the Conversion Price to equal the price at which the Company
issues or is deemed to have issued its Common Stock.
Subject to certain conditions, the Company may require the Investors to
convert up to 50%, subject to certain limitations, or 100%, of the Notes after
the SEC has declared effective the Initial Registration Statement at any time
when the shares of the Company's Common Stock are trading at or above 150% of
the initial Conversion Price in the case of a conversion of up to 50% of the
Notes or at or above 175% of the initial Conversion Price in the case of a
conversion of up to 100% of the Notes (a "Mandatory Conversion"). The Notes
contain certain limitations on optional and mandatory conversion. For example,
they provide that no conversion may be made if, after giving effect to the
conversion, the Investor would own in excess of 4.99% of the Company's
outstanding shares of Common Stock. This percentage may, however, be raised or
lowered to an amount not to exceed 9.99% at the option of the Investor upon
61-days prior notice to the Company.
The Notes impose penalties on the Company for any failure to deliver
any shares of its Common Stock issuable upon conversion.
EVENTS OF DEFAULT
The Notes contain a variety of events of default which are typical for
transactions of this type, as well as the following events:
o The failure of any registration statement required by the
Amended Registration Rights Agreement to be declared effective
by the SEC within 60 days after the date required by the
Amended Registration Rights Agreement or the lapse or
unavailability of such registration statement for more than 10
consecutive days or more than an aggregate of 30 days in any
365-day period (other than certain allowable grace periods).
o The suspension from trading or failure of the Common Stock to
be listed for trading on the OTC Bulletin Board or another
eligible market for more than 5 consecutive trading days or
more than an aggregate of 10 trading days in any 365-day
period.
-10-
o The failure to issue shares upon conversion of a Note for more
than 10 business days after the relevant conversion date or a
notice of the Company's intention not to comply with a request
for conversion.
o The failure for 10 consecutive business days to have reserved
for issuance the full number of shares issuable upon
conversion in accordance to the terms of the Notes.
o The failure to obtain stockholder approval to increase the
Company's authorized level of Common Stock from 110,000,000
shares to at least 200,000,000 shares on or before April 30,
2007.
If there is an event of default, then the Investors have the right to
redeem all or any portion of the Notes, at the greater of (i) up to 125% of the
sum of the outstanding principal, interest and late fees, depending on the
nature of the default, and (ii) the product of (a) the greater of (1) the
closing sale price for the Company's Common Stock on the date immediately
preceding the event of default, (2) the closing sale price for the Company's
Common Stock on the date immediately after the event of default and (3) the
closing sale price for the Company's Common Stock on the date an Investor
delivers its redemption notice for such event of default, multiplied by (b) 130%
of the number of shares into which the Notes (including all principal, interest
and late fees) may be converted.
FUNDAMENTAL TRANSACTIONS
The Notes prohibit the Company from entering into certain transactions
involving a change of control, unless the successor entity is a publicly traded
corporation, whose common stock is quoted on or listed on one of the exchanges
specified in the Notes, and the successor assumes in writing all of the
obligations of the Company under the Notes and the other transaction documents.
In the event of such a transaction, the Investors have the right to
force redemption of the Notes, at the greater of (i) 150% of the sum of the
principal and interest and late fees, and (ii) the product of (x) 130% of the
sum of the amount of principal, interest and late fees to be redeemed and (y)
the quotient determined by dividing (A) the closing sale price of the Company's
Common Stock after the announcement of a change of control by (B) the conversion
price; provided, however, that if the change in control consideration exceeds
200% of the conversion price then in effect, then the 130% premium will be
reduced to 120%.
CONVERSION AND REDEMPTION
The Investors may accelerate the partial payment of the Notes by
requiring that the Company convert, or at the option of the Company, redeem in
cash, up to an amount equal to 20% of the aggregate dollar trading volume of the
Company's Common Stock over the prior 20 trading day period. When the Company
uses Common Stock to make the acceleration payment, the Company shall deliver
shares to the Investors in an amount equal to the principal amount divided by
the lower of the Conversion Price or a 10.0% discount to the volume weighted
average price of the Company's Common Stock for the five days preceding the
payment date; provided that the discount will be reduced to 7.5% if the volume
weighted average price for the 20 previous trading days is above $1.00 per
share.
-11-
COVENANTS
The Notes contain a variety of obligations on the part of the Company
not to engage in certain activities, which are typical for transactions of this
type, as well as the following covenants:
o The Company will initially reserve out of the Company's
authorized and unissued Common Stock an aggregate of
34,078,554 shares for the conversion of the Notes and exercise
of the Warrants; provided, however, that if and after its
stockholders approve an increase in the Company's authorized
level of Common Stock from 110,000,000 shares to at least
200,000,000 shares, the Company will reserve a number of
shares equal to 130% of the number of shares of Common Stock
issuable upon conversion of the Notes and exercise of the
Warrants.
o The Company will not incur other indebtedness, except for
certain permitted indebtedness.
o The Company will not incur any liens, except for certain
permitted liens.
o The Company will not, directly or indirectly, redeem or repay
all or any portion of any permitted indebtedness if at the
time such payment is due or is made or, after giving effect to
such payment, an event constituting, or that with the passage
of time and without being cured would constitute, an event of
default has occurred and is continuing.
o The Company will not redeem, repurchase or pay any dividend or
distribution on its capital stock without the consent of the
Investors holding a majority of the aggregate outstanding
principal of the Notes.
PARTICIPATION RIGHTS
The holders of the Notes are entitled to receive any dividends paid or
distributions made to the holders of the Company's Common Stock on an "as if
converted to Common Stock" basis.
LIMITATIONS ON TRANSFER
The Notes may be sold, assigned or transferred by the Investors without
the Company's consent but subject to certain customary limitations on transfer
which are typical for transactions of this type.
PURCHASE RIGHTS
If the Company issues options, convertible securities, warrants or
similar securities to holders of its Common Stock, the holders of the Notes
shall have the right to acquire the same as if it had converted its Note into
Common Stock.
-12-
SERIES L WARRANTS AND SERIES M WARRANTS
---------------------------------------
The Series L Warrants are immediately exercisable and, in the
aggregate, entitle the holders thereof to purchase up to 27,760,080 shares of
the Company's Common Stock. The Series M Warrants become exercisable only upon a
Mandatory Conversion, if any, and, in the aggregate, entitle the holders thereof
to purchase up to 9,761,536 shares of the Company's Common Stock. Both the
Series L Warrants and the Series M Warrants have an exercise price of $0.43948
per share and expire 84 months after a registration statement covering the
shares underlying the respective Series L Warrant or Series M Warrant is
declared effective by the SEC.
Similar to the Notes, the Warrants require payments to be made by the
Company for failure to deliver the shares of Common Stock issuable upon
exercise. The Warrants also contain similar limitations on exercise, including
the limitation that the Investors may not own in excess of 4.99% of the
Company's outstanding shares of Common Stock (subject to an increase or
decrease, upon at least 61-days notice by an Investor to the Company, of up to
9.99%).
ANTI-DILUTION PROTECTION
The exercise price of the Warrants and the number of shares issuable
upon exercise of the Warrants are subject to adjustments for stock splits,
combinations or similar events. In addition, the exercise price of the Warrants
and the number of shares issuable upon exercise of the Warrants are subject to a
"full ratchet" anti-dilution adjustment which, in the event that the Company
issues or is deemed to have issued certain securities at a price lower than the
then applicable exercise price, immediately reduces the exercise price of the
Warrants to equal the price at which the Company issues or is deemed to have
issued its Common Stock and increases the number of shares exercisable under the
Warrants by a ratio equal to the old exercise price divided by the new reduced
exercise price.
FUNDAMENTAL TRANSACTIONS
The Company may not enter into a transaction involving a change of
control unless the successor entity assumes the obligations of the Company under
the Warrants and the successor entity is a publicly traded corporation whose
common stock is quoted on or listed on one of the exchanges specified in the
Warrants. Upon the occurrence of a transaction involving a permitted change of
control, the holders of the Warrants will have the right, among others, to have
the Warrants repurchased for a purchase price in cash equal to the Black Scholes
value (as calculated pursuant to the Warrants) of the then unexercised portion
of the Warrants.
PURCHASE RIGHTS
If the Company issues options, convertible securities, warrants, stock,
or similar securities to holders of its Common Stock, the holders of the
Warrants shall have the right to acquire the same as if it had exercised its
Warrants.
REGISTRATION RIGHTS AGREEMENT
-----------------------------
The Amended Registration Rights Agreement requires that the Company
file a registration statement with the SEC on or before January 23, 2007 (the
"Initial Registration Statement") for the resale by the Investors of at least
15,267,292 shares of Common Stock underlying the Notes. The Initial Registration
Statement must be declared effective by the SEC on or before April 15, 2007.
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The Company is also required to file additional registration statements
(each an "Additional Registration Statement") for the resale of Common Stock
underlying the Notes and Warrants, which are to be filed with the SEC within 30
days of the request of an Investor. Investor requests may be made at any time on
or after the five month anniversary of the effective date of the most recent
registration statement covering shares underlying the Notes or Warrants. Each
Additional Registration Statement shall cover the maximum number of shares
permitted by the SEC. Each Additional Registration Statement must be declared
effective by the SEC within 60 days of the applicable Investor request (or 90
days if there is a full review by the SEC of the applicable Additional
Registration Statement). The Company's obligation to file Additional
Registration Statements shall continue until either all of the shares underlying
the Notes and Warrants have been covered by a registration statement or all of
the shares underlying the Notes and Warrants may be sold by the Investors
without restriction under Rule 144(k) promulgated under the 1933 Act.
Subject to certain grace periods, the Initial Registration Statement
and each Additional Registration Statement must remain effective and available
for use until the earlier of the date the Investors can sell all of the
securities covered by the registration statement without restriction pursuant to
Rule 144(k) and the date all such securities have been sold pursuant to the
registration statement. If the Company fails to meet the filing or effectiveness
requirements of the Initial Registration Statement or any Additional
Registration Statement, subject to certain grace periods, the Company is
required to pay liquidated damages of $132,000 on the date of such failure and
on every 30th day thereafter until such failure is cured. The total penalties
payable by the Company for its failure to meet these filing and effectiveness
requirements are capped at $825,000. The Amended Registration Rights Agreement
provides for customary indemnification for the Company and the Investors.
The Original Purchase Agreement, a form of Amendment and Exchange
Agreement, a form of Amended Note, a form of New Note, a form of Series L-1
Warrant, a form of Series M-1 Warrant, a form of Series L-2 Warrant, a form of
Series M-2 Warrant and the Amended Registration Rights Agreement are attached as
Exhibits 10.1, 10.2, 10.3, 10.4, 10.5, 10.6, 10.7, 10.8 and 10.9, respectively,
to this Current Report on Form 8-K. The above descriptions are qualified by
reference to the complete text of the documents and agreements described.
However, those documents and agreements, including without limitation the
representations and warranties contained in those documents, are not intended as
documents for investors and the public to obtain factual information about the
current state of affairs of the parties to those documents and agreements.
Rather, investors and the public should look to other disclosures contained in
the Company's reports under the Securities Exchange Act of 1934, as amended.
ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN
OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT
On January 19, 2007, the Company amended the Original Notes and issued
the New Note as described in Item 1.01 of this Current Report on Form 8-K. The
details of these debt financings are described in Item 1.01, which is
incorporated in its entirety by this reference into this Item 2.03.
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ITEM 3.02. UNREGISTERED SALES OF EQUITY SECURITIES
On January 19, 2007, the Company amended the Original Notes, the
Original Series L Warrants and the Original Series M Warrants and issued the New
Note, the Series L-2 Warrants and the Series M-2 Warrants as described in Item
1.01 of this Current Report on Form 8-K. The Company received gross proceeds of
$5 million on July 31, 2006 and additional gross proceeds of $1.6 million on
January 19, 2007 in connection with the issuance of these securities. The $8.8
aggregate principal amount of the Notes is convertible into 20,034,834 shares of
the Company's Common Stock, based upon an initial Conversion Price of $0.43948
per share, which is subject to adjustment pursuant to the terms of the Notes.
The Series L Warrants entitle the holders thereof to purchase up to an aggregate
of 27,760,080 shares of the Company's Common Stock and the Series M Warrants
entitle the holders thereof to purchase up to an aggregate of 9,761,536 shares
of the Company's Common Stock. The details of these transactions are described
in Item 1.01, which is incorporated in its entirety by this reference into this
Item 3.02.
In connection with these transactions, the Company paid aggregate
placement agent fees of $396,000 ($300,000 associated with the July 31, 2006
transactions and $96,000 associated with the January 19, 2007 transactions) and
issued warrants to the placement agent to purchase an aggregate of 600,710
shares of the Company's Common Stock (455,084 warrants associated with the July
31, 2006 transactions and 145,626 warrants associated with the January 19, 2007
transactions). The placement agent warrants have an exercise price of $0.43948
per share and expire 5 years from the date of issuance.
The Notes, the Warrants and the placement agent warrants were issued in
reliance upon the exemption from registration provided by Section 4(2) of the
1933 Act and Rule 506 promulgated by the SEC thereunder.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
10.1 Securities Purchase Agreement, dated July 30, 2006
(incorporated herein by reference to Exhibit 10.1 to
the Company's Form 8-K filed with the SEC on July
31, 2006).
10.2 Form of Amendment and Exchange Agreement, dated
January 18, 2007.
10.3 Form of Amended and Restated Senior Convertible
Note, dated July 31, 2006.
10.4 Senior Convertible Note, dated January 19, 2007.
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10.5 Form of Series L-1 Warrant, dated July 31, 2006.
10.6 Form of Series M-1 Warrant, dated July 31, 2006.
10.7 Series L-2 Warrant, dated January 19, 2007.
10.8 Series M-2 Warrant, dated January 19, 2007.
10.9 Amended and Restated Registration Rights Agreement,
dated January 18, 2007.
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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.
Date: January 22, 2007 RAPTOR NETWORKS TECHNOLOGY, INC.
By:/S/ BOB VAN LEYEN
-------------------------------------
Bob van Leyen
Chief Financial Officer and Secretary
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