UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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): May 16, 2005
Broadcast International, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Utah
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(State or Other Jurisdiction of Incorporation)
0-13316 87-0395567
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(Commission File Number) (IRS Employer Identification No.)
7050 Union Park Center Avenue, Suite 600
Midvale, Utah 84047
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(Address of principal executive offices, including zip code)
(801) 562-2252
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(Registrant's Telephone Number, Including Area Code)
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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 (17CFR 240.13e-4(c))
Item 3.02. Unregistered Sales of Equity Securities
On May 16, 2005, the Company entered into (and simultaneously completed
the transaction contemplated by) a Securities Purchase Agreement with the
entities listed below pursuant to which the Company issued $3,000,000
principal amount of 6% Senior Secured Convertible Notes and related
securities.
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Principal
Amount
of Notes Dollar
Number of Number of Representing Amount of
Names and Addresses Principal Amount Series A Warrants Series B Warrants AIR's Initial
of Purchasers of Notes Purchased Purchased Purchased Purchased Investment
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Gryphon Master Fund, $ 1,000,000 200,000 200,000 $ 1,000,000 $ 1,000,000
L.P.
100 Crescent Court
Suite 490
Dallas, Texas 75201
Fax No.:(214)871-6711
Attn: Ryan R. Wolters
With a copy to:
Warren W. Garden, P.C.
100 Crescent Court,
Suite 490
Dallas, Texas 75201
Fax No.:(214)871-6711
Attn: Warren W. Garden, Esq.
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GSSF Master Fund, LP $ 500,000 100,000 100,000 $ 500,000 $ 500,000
100 Crescent Court
Suite 475
Dallas, Texas 75201
Fax No.:(214)871-6711
Attn: Timothy M. Stobaugh
With a copy to:
Warren W. Garden, P.C.
100 Crescent Court,
Suite 490
Dallas, Texas 75201
Fax No.:(214)871-6711
Attn: Warren W. Garden, Esq.
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Bushido Capital Master $ 750,000 150,000 150,000 $ 750,000 $ 750,000
Fund, LP
275 Seventh Avenue,
Suite 2000
New York, New York 10001
Fax:(646)486-6885
Attn.: Christopher Rossman
With a copy to:
Feldman Weinstein LLP
420 Lexington Avenue,
Suite 2620
New York, New York 10170
Fax No.:(212)997-4242
Attn: Joseph A. Smith, Esq.
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Gamma Opportunity
Capital Partners LP $ 750,000 150,000 150,000 $ 750,000 $ 750,000
Partners, LP
605 Crescent Executive
Court, Suite 416
Lake Mary, Florida 32746
Fax: (407) 771-4419
Attn.: Jonathan P. Knight, PhD
With a copy to:
Feldman Weinstein LLP
420 Lexington Avenue,
Suite 2620
New York, New York 10170
Fax No.: (212) 997-4242
Attn: Joseph A. Smith, Esq.
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Totals $ 3,000,000 600,000 600,000 $ 3,000,000 $ 3,000,000
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The following summarizes the principal terms of the transaction:
6% Senior Secured Convertible Notes
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Pursuant to the Securities Purchase Agreement, the Company sold to the
investors listed above a total of $3.0 million principal amount of 6% senior
secured convertible notes ("Notes"), together with warrants to purchase an
aggregate of 975,000 shares of the Company's common stock, and an additional
investment right entitling the holders to purchase from the Company up to an
additional $3.0 million of 6% senior secured convertible notes and warrants to
purchase an aggregate of 975,000 shares of our common stock. This transaction
was structured as a private transaction exempt from registration under the
Securities Act of 1933 in reliance on an exemption under Section 4 (2) and
Regulation D thereof. The transaction will result initially in gross proceeds
to the Company of $3.0 million. If the additional investment right is
exercised in full and all warrants and conversion privileges are exercised
without change in exercise or conversion price, the Company would issue
4,350,000 shares of common stock and receive gross proceeds of $13,800,000.
These notes will be senior to all the Company's current and future
indebtedness and the Company will pledge all of its assets as collateral for
the notes. Additional terms of the 6% senior secured convertible notes
include:
1. unless converted or redeemed as described below, the Notes are due on
May 16, 2008.
2. 6% annual interest, payable semi-annually in arrears beginning November
16, 2005. The interest is payable either in cash or, at the Company's
option, (subject to the satisfaction of certain conditions), or in
shares of Company common stock valued at 85% of the daily volume
weighted average price of Company common stock for the 10 trading days
prior to the payment date.
3. subject to certain exceptions, while the Notes are outstanding, if the
Company issues equity or equity linked securities at a price lower than
the conversion price, then the conversion price of the Notes will be
reduced to the lower price. If the Company issues any variable priced
equity securities or variable price equity linked securities, then the
conversion price of the Notes will be reduced to the lowest issue price
applied to those securities.
4. the Notes are convertible at any time at the option of the holder into
shares of Company common stock at a conversion price of $2.50 per share.
5. the conversion price and the exercise price of the A warrants and the B
warrants are subject to a one-time reset on the date which is the
earlier of (i) the later of (A) the Effectiveness Date (as defined in
the Registration Rights Agreement), and (B) the nine-month anniversary
of the Closing Date, or (ii) the one-year anniversary of the Closing
Date. The conversion price and the exercise price of the Warrants will
be reset if the 30 day moving average closing price of the Company's
common stock is less than the conversion price in effect immediately
prior to the Reset Date. Provided, however, the reset price shall not
be any lower than $.50 per share.
6. the number of shares of common stock acquired by any holder upon
conversation of the notes is limited to the extent necessary to ensure
that following the conversion the total number of shares of common stock
beneficially owned by the holder does not exceed 4.99% (in certain
instances) or 9.99% of the Company's issued and outstanding common
stock.
7. the Company can prepay all or any portion of the principal amount of the
Notes, plus any accrued but unpaid interest at 125% of face amount. In
addition, for the Company to repay the Notes there must be a
registration statement then in effect and the average daily trading
volume of the Company's stock for the preceding 20 trading days must
exceed 200,000 shares. If the Company should elect to prepay the notes,
the holder will have ten (10) trading days to convert the notes into
shares of Company's common stock. If the Company elects to prepay the
Notes, it must do so pro-rata among the holders.
Warrants to Purchase Common Stock
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The Company also issued A warrants to purchase up to 600,000 shares of its
common stock and B warrants to purchase up to 375,000 shares of its common
stock. The warrants are exercisable for five years from the date of issuance
at an exercise price of $2.50 per share for A warrants and $4.00 per share for
B warrants.
The exercise price is also subject to adjustment upon the occurrence of
certain specified events, including stock dividends and stock splits, pro rata
distributions of equity securities, evidences of indebtedness, rights or
warrants to purchase common stock or cash or any other asset, mergers or
consolidations, or certain issuances of common stock at a price below the
initial exercise price of $2.50 per share, subject to adjustments as set forth
above
The warrants include a "cashless exercise" feature, which permits the holder
to exercise the warrants by surrender of a portion of the warrants. The
cashless exercise feature is available to the holder, if at the time of
exercise, there is not in effect a registration statement covering the shares
underlying the warrants. The number of shares of common stock, which can be
issued upon the exercise of the warrants, is limited to the extent necessary
to ensure that following the exercise the total number of shares of common
stock owned by the holder does not exceed 9.999% of the issued and outstanding
common stock.
Additional Investment Rights
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The Company also issued an additional investment right, which entitles the
holders to purchase up to an additional $3.0 million principal amount of 6%
senior secured convertible notes together with A warrants exercisable at $2.50
per share to purchase up to an additional 600,000 shares of common stock and
B warrants exercisable at $4.00 per share to purchase up to an additional
375,000 shares of common stock beginning on the date of the registration of
the underlying shares of common stock and ending 90 days thereafter. The
terms and conditions of the securities contained in this additional investment
right will be identical to the initial Notes and warrants.
Registration of Common Stock
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The Company has agreed to file a registration statement with the Securities
and Exchange Commission prior to June 15, 2005, registering the shares of
common stock issuable upon the conversion of the Notes, the exercise of the
warrants, and the shares and warrants related to the additional investment
right if it is exercised in the future. If the Company fails to file the
registration statement on a timely basis, or if it is not declared effective
by the Securities and Exchange Commission within a maximum of 120 days from
the filing date, the Company is required to pay to the purchasers liquidated
damages equal to 2.0% of the amount invested and shall pay to the investors
liquidated damages equal to 1.0% of the amount invested for each subsequent
30-day period until the registration statement is effective,
Adjustment for Certain Issuances
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The conversion and the exercise price shall be adjusted in the event of
certain issuances and the exercise price of the A warrants and the B warrants:
(1) In the event the Company issues new securities at a price less than the
then current market price per share, the conversion price and the exercise
price shall be adjusted to reflect difference between the amount of new
securities purchased and the amount that would have been purchased had the new
securities been issued at the then current market price; and (2) In the event
the Company issues new securities at a price per share less than $2.50, then
the conversion price and the exercise price shall be adjusted to the price of
the new securities.
Right of First Offer
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Until the first anniversary of the closing date, the holders will have the
right of first offer to purchase all or part of any private financing, subject
to carve outs for various type of transactions, including, employee options
plans, the issuance of stock for situations involving strategic partnerships,
acquisition candidates and underwritten public offerings.
Change of Control
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In the event of a third party acquiring greater than 50% in voting rights in
one or a series of related transaction, the holders may elect to have the
Notes redeemed by the Company at 125% of face value plus all accrued interest
and unpaid interest.
Exemption from Registration
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The securities issued in the private placement financing transaction were
issued without registration with the Commission, pursuant to Section 4 (2) of
the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.
The Company determined that this exemption was available because of the nature
and limited number of the purchasers. In making this determination, the
Company relied in part upon representations made by each purchaser.
Placement Agent Fees; Other Fees
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The Company engaged Stonegate Securities, Inc. ("Stonegate") as placement
agent in connection with the Sale of the Notes. Under the agreement with
Stonegate the Company paid it a cash fee of $240,000 (8% of the gross proceeds
of the financing), 100,000 shares of Company common stock, and warrants to
purchase 120,000 shares of common stock at an exercise price of $2.50 per
share. The Company paid the purchasers $40,000 for the legal fees they
incurred in connection with this transaction. The Company also paid a
one-time finders fee to a third party of $60,000. The warrants have the same
terms as the warrants issued to the investors. In addition, the Company
agreed to pay to Stonegate, a cash fee of 8% of the aggregate consideration
received by the Company from the exercise of any warrants and the exercise of
the additional investment rights.
The full terms and conditions of the financing are set forth in the Securities
Purchase Agreement for the Notes, the forms of convertible Notes, the form of
common stock purchase warrant and the registration rights agreement, each of
which is filed as an exhibit with this current report and are incorporated
herein by reference.
We also issued a press release relating to the financing transaction on May 9,
2005, which is filed as an exhibit with this Current Report on Form 8-K and is
incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits
Exhibit No. Description
4.1 Form of 6.0% Senior Secured Convertible Note
4.2 Form of A Warrant
4.3 Form of B Warrant
10.5 Securities Purchase Agreement for 6.0% Senior
Secured Convertible Notes
10.6 Form of Additional Investment Right
10.7 Form of Registration Right Agreement
10.8 Form of Security Agreement
99.1 Press Release dated May 16, 2005, regarding private placement
financing
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.
Dated: May 16, 2005 BROADCAST INTERNATIONAL, INC.
(Registrant)
By: /s/ Rodney M. Tiede
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Name: Rodney M. Tiede
Title: President and Chief
Executive Officer
LIST OF EXHIBITS
Exhibit No. Description
4.1 Form of 6.0% Senior Secured Convertible Note
4.2 Form of A Warrant
4.3 Form of B Warrant
10.5 Securities Purchase Agreement for 6.0% Senior
Secured Convertible Notes
10.6 Form of Additional Investment Right
10.7 Form of Registration Rights Agreement
10.8 Form of Security Agreement
99.1 Press Release dated May 16, 2005, regarding private placement financing