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): April 6, 2005
ELECTRONIC GAME CARD, INC.
(Exact Name of Registrant as Specified in Charter)
Nevada 0-25853 87-0570975
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
712 Fifth Avenue, 19th Floor, New York, N Y 10019
(Address of principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (646) 723-8936
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))
SECTION 1. REGISTRANT'S BUSINESS AND OPERATIONS
ITEM 1.01 Entry into a Material Definitive Agreement.
(a) On April 6, 2005, the Registrant completed a second and final closing of its
offering of convertible promissory notes (the "Convertible Promissory Notes") to
accredited investors in a private placement of securities (the "Private
Placement") previously reported on the Registrant's Current Report on Form 8-K
filed on March 31, 2005 (the "March 31, 2005 8-K"). The Registrant sold an
additional $248,000 Convertible Promissory Notes in the final closing on April
6, 2005, making a total of $8,666,000 Convertible Promissory Notes sold, in the
aggregate in the Private Placement. The March 31, 2005 8-K, including the
Exhibits filed with it, is specifically incorporated herein by reference. The
Registrant reasonably believes that the securities were sold only to "accredited
investors," as such term is defined under Rule 501(e) under Regulation D
promulgated pursuant to the Securities Act of 1933, as amended (the "Act"). Each
$48,000 principal amount of a Convertible Promissory Note will automatically
convert into 32,000 shares of the Registrant's Series A Convertible Preferred
Stock, par value $0.001 per share (the "Series A Preferred Stock"), upon the
effectiveness of actions by the Registrant's shareholders to authorize the
Series A Preferred Stock. Each share of the Series A Preferred Stock is
initially convertible into one (1) share of the Registrant's common stock, par
value $0.001 per share (the "Common Stock"), which equates to an initial
conversion price of $1.50 per share of Common Stock. The Convertible Promissory
Notes may be converted, at the purchaser's discretion, directly into Common
Stock on an as-converted-into-Series-A-Preferred-Stock basis, whether or not the
Series A Preferred Stock is authorized and issued, and are immediately
convertible for such purpose. Consequently, each Convertible Promissory Note is
convertible ultimately into an aggregate of 32,000 shares of Common Stock. Also,
the Registrant issued one (1) warrant (a "Warrant") to acquire one (1) share of
Series A Preferred Stock for every two shares of Series A Preferred into which
the Convertible Promissory Notes are initially convertible. The Warrants shall
be exercisable to acquire shares of Series A Preferred Stock upon the
effectiveness of actions by the Registrant's shareholders to authorize the
Series A Preferred Stock. The Warrants shall be exercisable initially at $1.85
per share of Series A Preferred Stock, subject to adjustment, and shall be
exercisable for a period of 5 years. In addition, at the option of the holder,
each Warrant is also immediately exercisable directly to acquire, instead of
shares of Series A Preferred
Stock, shares of Common Stock on an as-converted-from-Series-A-Preferred-Stock
basis, whether or not the Series A Preferred Stock is ever authorized or issued.
Unexercised Warrants shall expire earlier upon notice by the Company to the
holders of the Warrants following any consecutive 30-day trading period during
which the Common Stock trades on its principal market at a price at or above
three (3) times the then applicable exercise price with average daily volume of
at least 100,000 shares (subject to adjustment of such trading volume threshold
in the event of stock splits, reverse stock splits, stock dividends,
recapitalizations or similar events). The terms and conditions of the Warrant
are set forth in Exhibit 10.8 to the March 31, 2005 8-K, and specifically
incorporated herein by reference.
Upon the effectiveness of actions by the Registrant's shareholders to authorize
the Series A Preferred Stock, the Registrant will issue to investors an
aggregate of approximately 165,333 Series A Preferred Stock in exchange for
their Convertible Promissory Notes purchased in the closing on April 6, 2005. In
addition, the Registrant has issued to investors Warrants which shall be
exercisable to purchase approximately 82,667 shares of Series A Preferred Stock,
upon the effectiveness of actions by the Registrant's shareholders to authorize
the Series A Preferred Stock, and which Warrants are immediately exercisable to
acquire, instead of shares of Series A Preferred Stock, shares of Common Stock
on an as-converted-from-Series-A-Preferred-Stock basis (initially, an aggregate
of 82,667 shares of Common Stock). The Convertible Promissory Notes and Warrants
were sold by the Registrant to the investors on the terms and conditions set
forth in the Securities Purchase Agreement (the "Agreement") filed as Exhibit
10.5 to the March 31, 2005 8-K, which Agreement is specifically incorporated
herein by reference.
In connection with the closing, the Registrant paid a cash fee to the placement
agents of $24,800, which is equal to ten percent (10%) of $248,000 in
Convertible Promissory Notes sold to investors that the placement agents
introduced to the Registrant. In addition, the Registrant reimbursed the
placement agent for $1,000 of legal fees.
Upon the conclusion of the offering completed on April 6, 2005, the Registrant
issued placement agent warrants (the "Placement Agent
Warrant") to the placement agents granting the right to purchase 16,533 shares
of the Registrant's Common Stock. The Placement Agent Warrants represent ten
percent (10%) of the shares of Common Stock initially issuable upon exercise of
the Series A Preferred Stock initially issuable upon conversion of the
Convertible Promissory Notes sold to investors introduced to the Registrant by
the placement agents. The placement agents did not and will not receive
Placement Agent Warrant with respect to the Warrants or the shares underlying
Warrants. The Registrant has agreed to indemnify its placement agents against
certain liabilities. The Registrant also agreed to pay its own costs of the
Private Placement.
The Placement Agent Warrants shall initially be exercisable at $1.85 per share
of Common Stock, subject to adjustment, commencing upon the date of issuance and
continuing for five (5) years after issuance or until the date which is ten (10)
days after the Registrant furnishes written notice to the Placement Agent
Warrant holder that the market price of the Common Stock has been at least 300%
of the then applicable exercise price of the Warrant for a period of at least
thirty (30) days, and the average trading volume of the Common Stock has been at
least 100,000 shares per day during the preceding thirty (30) days (subject to
adjustment of such trading volume threshold in the event of stock splits,
reverse stock splits, stock dividends, recapitalizations or similar events). The
Placement Agent Warrants shall be transferable by the placement agent only to
its officers, directors, shareholders and employees, as well as by such persons
to their immediate family affiliates in connection with estate planning,
provided that no such transfer or disposition may be made other than in
compliance with applicable securities laws and furnishing satisfactory evidence
of such compliance to the Registrant. The Placement Agent Warrant includes a
"cashless exercise" provision.
Shares of Common Stock underlying Convertible Promissory Notes and Warrants,
whether initially converted into Series A Preferred Stock or converted to Common
Stock directly, as well as Common Stock underlying Placement Agent Warrants are
"restricted securities" and, therefore, may be transferred, to the extent
permissible, only pursuant to registration or qualification under federal and
state securities laws or pursuant to an exemption from registration or
qualification.
In addition, upon the conclusion of the offering, the Registrant issued to the
placement agents, placement agent warrants (the "Placement Agent Warrant") in
connection with the closing completed on April 6, 2005 granting the right to
purchase 16,533 shares of the Registrant's Common Stock, which represent ten
percent (10%) of the shares of Common Stock initially issuable upon exercise of
the Series A Preferred Stock initially issuable upon conversion of the
Convertible Promissory Notes sold to investors that the placement agents
introduced to the Registrant. The placement agents did not and will not receive
Placement Agent Warrants with respect to the Warrants or the shares underlying
Warrants. The Registrant has agreed to indemnify its placement agents against
certain liabilities. The Registrant also agreed to pay its own costs of the
Private Placement.
In connection with the closing, the Registrant entered into a Registration
Rights Agreement, which is filed as Exhibit 10.6 to the March 31, 2005 8-K, and
which is specifically incorporated herein by reference. The Registration Rights
Agreement imposes certain registration obligations upon the Registrant with
respect to the shares of Common Stock underlying the Convertible Promissory
Notes ("Common Shares") acquired in the Private Placement by each investor who
executes and delivers to the Registrant the Securities Purchase Agreement. The
Registration Rights Agreement also grants registration rights in favor of such
investors with respect to the shares of Common Stock underlying Warrants
("Warrant Shares") received by them in the Private Placement. Placement agents
who execute and deliver the Registration Rights Agreement to the Registrant
shall have similar rights with respect to the shares of Common Stock underlying
Placement Agent Warrants ("Placement Agent Warrant Shares"). The shares with
respect to which the Registration Rights Agreement grants such rights are
referred to as "Registrable Securities", and shall continue to be Registrable
Securities until those shares have either been effectively registered under the
Act and disposed of in accordance with a registration statement covering them,
(y) have been sold to the public pursuant to Rule 144 or by similar provision
under the Act, or (z) are eligible for resale under Rule 144(k) or by similar
provision under the Act without any limitation on the amount of securities that
may be sold under paragraph (e) thereof.
Pursuant to the Registration Rights Agreement, the Registrant is required to use
its reasonable best efforts to accomplish the following:
(x) prepare and file a registration statement covering the Common Shares, the
Warrant Shares, and the Placement Agent Warrant Shares (a "Required Registration
Statement") with the U.S. Securities and Exchange Commission (the "SEC") by the
date (the "Required Filing Date") which is not more than sixty (60) days after
the first date to occur (the "Commencement Date") of the following dates: the
Final Closing Date (as such term is defined in the Securities Purchase
Agreement) or the termination of the Offering, if there is no Final Closing
Date; and
(y) cause either of the following (the "Effectiveness Actions") to occur by a
date (the "Required Effectiveness Date") which is not more than one hundred and
twenty (120) days after the Commencement Date: (A) cause the SEC to declare the
Required Registration Statement to be effective or (B) cause the SEC to
communicate to the Registrant, orally or in writing, that the Required
Registration Statement will not be reviewed or that the Commission has no
further comments thereupon, whereupon the Registrant shall cause the Required
Registration Statement to be effective.
Pursuant to the Registration Rights Agreement, the failure to file or become
effective within the applicable time period shall be deemed to be a
"Non-Registration Event". For each thirty (30) day period during the pendency of
any such Non-Registration Event, the Registrant shall deliver to each investor
in the Private Placement, as liquidated damages, an amount equal to one percent
(1.0%) of the aggregate purchase price paid by such investor for Convertible
Promissory Notes in the Offering, with such payment being pro-rated for any
Non-Registration Event of less than thirty (30) days, subject to the maximum
penalty of 18.5% of the gross proceeds. Each such payment is hereinafter
referred to as a "Non-Registration Event Penalty Payment". Notwithstanding the
foregoing, in no event shall the Registrant be obligated to pay more than one
Non-Registration Event Penalty Payment to the same Purchaser in respect of a
substantively concurrent failure to perform. The Registrant, at its sole
discretion, shall pay the Non-Registration Event Penalty Payment to all holders
in cash or in shares of its Common Stock.
The Registrant agreed to use its reasonable best efforts to keep such Required
Registration Statement continuously effective (the "Effective Period") for a
period of two years after the Required Registration Statement first becomes
effective plus whatever period of time as shall equal any period, if any, during
such two year period in which the Registrant was not current with its reporting
requirements under the Exchange Act.
To the extent the Registrable Securities are not sold under the Required
Registration Statement, the investors in the Private Placement shall have the
following registration rights pursuant to the Registration Rights Agreement:
If the Registrant is eligible to use Form S-3 under the Act (or any similar
successor form) and shall receive from the holders of the Common Shares and any
permitted transferees (the "S-3 Initiating Holders") a written request that the
Registrant effect a registration on such Form S-3 pursuant to Rule 415 of the
Act and any related qualification or compliance with respect to all or part of
the Registrable Securities owned by the S-3 Initiating Holders (provided, that
the S-3 Initiating Holders registering Registrable Securities in such
registration (together with all other holders of Registrable Securities to be
included in such registration) propose to sell their Registrable Securities at
an aggregate price (calculated based upon the Market Price of the Registrable
Securities on the date of filing of the Form S-3 with respect to such
Registrable Securities) to the public of no less than $500,000), the Registrant
shall (i) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other holders of Registrable
Securities; and (ii) as soon as practicable, use reasonable best efforts to file
and effect such registration and all such qualifications and compliances as may
be so reasonably requested and as would permit or facilitate the sale and
distribution of all or such portion of the Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any other holder in the group of holders joining in such request
as is specified in a written request given within fifteen (15) days after the
holder's receipt of such written notice from the Registrant.
In addition, for so long as the Registration Rights Agreement shall be
applicable, whenever the Registrant proposes to register any of its securities
under the Act (other than pursuant to any of the registration rights described
above, or a registration on Form S-4 or S-8 or any successor or similar forms)
and the registration form to be used may be used for the registration of
Registrable Securities, whether or not for sale for its own account, the
Registrant will give prompt written notice (but in no event less than fifteen
(15) days before the anticipated filing date) to all holders of Registrable
Securities, and such notice shall describe the proposed registration and
distribution and offer to all holders of Registrable Securities the opportunity
to register the number of Registrable Securities as each such holder may
request. The Registrant will include in such registration all Registrable
Securities with respect to which the Registrant has received written requests
for inclusion therein within ten (10) days after the holders' receipt of the
Registrant's notice. The Registrant shall use all reasonable efforts to cause
the managing underwriter of a proposed underwritten offering to permit the
Registrable Securities requested to be included in a Piggyback Registration to
be included on the same terms and conditions as any similar securities of any
other security holder included therein and to permit the sale or other
disposition of such Registrable Securities in accordance with the intended
method of distribution thereof.
The performance of these registration rights is subject to customary investor
representations and warranties, customary indemnifications by investors,
customary allocations of fees and expenses and, where applicable, customary
cutback and blackout provisions.
The terms of the Series A Preferred Stock shall be set forth in the Certificate
of Designations, Preferences and Rights of Series A Convertible Preferred Stock
of the Registrant, which will be filed in Nevada upon the effectiveness of
actions by the Registrant's shareholders to authorize the Series A Preferred
Stock. The form of the Certificate of Designations, Preferences and Rights of
Series A Convertible Preferred Stock is filed as Exhibit 10.9 to the March 31,
2005 8-K, and is specifically incorporated herein by reference.
In addition to the description of terms of the Series A Preferred Stock
elsewhere in this Current Report on Form 8-K, which is qualified in its entirety
by reference to the Certificate of Designations, the holders of the Series A
Preferred Stock have certain other rights as set forth in the Certificate of
Designations.
The holders of the Series A Preferred Stock shall be entitled to receive
cumulative dividends in preference to any dividend on the Common Stock at the
rate of 6% per annum of the original issue price per share ($1.50 per share) of
the Series A Preferred Stock as adjusted for stock splits, dividends,
combinations or other recapitalization of the Series A Preferred Stock, payable
in cash or in Series A Preferred Stock, at the Registrant's sole discretion, out
of funds legally available therefor. The holders of Series A Preferred also
shall be entitled to participate pro rata in any dividends paid on the Common
Stock on an as-converted basis. The Holders of the outstanding Convertible
Promissory Notes will receive payments of interest at the same times, and in the
same manner, as dividends would have been paid on the Series A Preferred Stock,
on an as-converted-into-Series-A-Preferred-Stock basis, whether or not the
Series A Preferred Stock is authorized and issued.
In the event of any liquidation or winding up of the Company, the holders of the
Series A Preferred Stock shall be entitled to receive, prior and in preference
to the holders of Common Stock, a per share amount equal to the original issue
price per share of the Series A Preferred Stock ($1.50 per share), as adjusted
for stock splits, dividends, combinations or other recapitalization of the
Series A Preferred Stock, plus any accrued but unpaid dividends (the "Series A
Liquidation Preference"). Notwithstanding the foregoing, if the holders of the
Series A Preferred Stock would be entitled to receive on an as-converted basis
an amount greater than the Series A Preferred Stock liquidation preference, the
holders of the Series A Preferred Stock shall be entitled to receive such
greater amount. The holders of the Convertible Promissory Notes will have
liquidation rights on an as-converted-into-Series-A-Preferred-Stock basis until
the unpaid principal amount and interest is paid in full, whether or not the
Series A Preferred Stock is authorized and issued.
Each holder of Series A Preferred Stock will have the right to convert such
shares, at any time, into shares of Common Stock. The initial conversion price
for the Series A Preferred will be original issue price per share of the Series
A Preferred Stock ($1.50 per share). The conversion price shall be subject to
adjustment as described below.
The Series A Preferred Stock shall be automatically converted into Common Stock,
at the then applicable conversion price, upon the earlier of (i) immediately
prior to the closing of an underwritten public offering of shares of Common
Stock of the Registrant with an aggregate value of not less than $15 million for
a price per share of not less than three (3) times the original issue price per
share of the Series A Preferred Stock ($1.50 per share), as adjusted for stock
splits, etc., in each case before deduction of underwriters commissions and
expenses (a "Qualified IPO"); (ii) upon ten (10) business days written notice by
the Company to the holders of the Series A Preferred Stock that during any prior
consecutive 30-day trading period the closing market price of the Common Stock
on its principal market was at a price at or above three (3) times the then
applicable conversion price, with average daily volume of at least 100,000
shares (subject to adjustment in the event of stock splits, reverse stock
splits, stock dividends, recapitalizations or similar events); or (iii) upon the
affirmative vote of the holders of a majority of the then outstanding shares of
Series A Preferred Stock.
The conversion price of the Series A Preferred Stock shall be appropriately
adjusted in the event of stock splits, reverse stock splits, stock dividends,
recapitalizations or similar events. In addition, the conversion price shall be
subject to appropriate adjustment, on a weighted average basis, in the event
that the Registrant issues, or is deemed to issue, additional shares of Common
Stock at a purchase price less than the then-effective conversion price, except
for certain issuances excluded from any such calculation. The Series A Preferred
Stock will vote together with the Common Stock and not as a separate class
except as specifically provided in the Certificate of Designations or as
otherwise required by law. Each share of Series A Preferred Stock shall have a
number of votes equal to the number of shares of Common Stock then issuable upon
conversion of such share of Series A Preferred Stock. Except as set forth below,
the holders of the Convertible Promissory Notes will have no voting rights.
Without the consent of at least a majority in interest of the Series A Preferred
Stock, so long as the Series A Preferred Stock is outstanding the Registrant
will not (a) authorize, issue or agree to authorize or issue any new class or
series of senior equity securities or parity equity securities or securities or
rights of any kind convertible into or exercisable or exchangeable for any such
senior equity securities or parity equity securities, or offer, sell or issue
any senior equity securities or parity equity securities or securities or rights
of any kind convertible into or exercisable or exchangeable for any such senior
equity securities or parity equity securities; (b) purchase, repurchase or
redeem shares of (i) Common Stock, (ii) securities or rights of any kind
convertible into or exercisable or exchangeable for Common Stock or (iii) other
securities of the Company, (except in the case of a termination of an employee,
at which the Company may repurchase or redeem such shares of Common Stock at
cost and pursuant to any agreement under which such shares of Common Stock were
issued); (c) increase the authorized number of shares of Series A Preferred
Stock (other than for the payment of dividends on the Series A Preferred
Stock);or (d) amend the Certificate of Incorporation or Bylaws of the Registrant
or alter or change the rights, preferences or privileges of the Series A
Preferred Stock or any parity equity securities or senior equity securities in
each case so as to affect adversely the rights, preferences or privileges of the
Series A Preferred Stock. So long as the Convertible Promissory Notes are
outstanding, the Company will not do any of the foregoing without the consent of
a majority in interest of the then outstanding Convertible Promissory Notes.
SECTION 3 - SECURITIES AND TRADING MARKETS
ITEM 3.02 Unregistered Sales of Equity Securities.
(a) On April 6, 2005, the Registrant completed a second and final closing of its
offering of convertible promissory notes (the "Convertible Promissory Notes") to
accredited investors in a private placement of securities (the "Private
Placement") previously reported on the Registrant's Current Report on Form 8-K
filed on March 31, 2005 (the "March 31, 2005 8-K"). The Registrant sold an
additional $248,000 Convertible Promissory Notes in the final closing on April
6, 2005, making a total of $8,666,000 Convertible Promissory Notes sold, in the
aggregate, in the Private Placement. The March 31, 2005 8-K, including the
Exhibits filed with it, is specifically incorporated herein by reference.
Each $48,000 principal amount of a Convertible Promissory Note will
automatically convert into 32,000 shares of the Registrant's Series A
Convertible Preferred Stock, par value $0.001 per share (the "Series A
Preferred"), upon the effectiveness of actions by the Registrant's shareholders
to authorize the Series A Preferred. Each share of the Series A Preferred Stock
is initially convertible into one (1) share of the Registrant's common stock,
par value $0.001 per share (the "Common Stock"), which equates to an initial
conversion price of $1.50 per share of Common Stock. The Convertible Promissory
Notes may be converted, at the purchaser's discretion, directly into Common
Stock on an as-converted-into-Series-A-Preferred-Stock basis, whether or not the
Series A Preferred Stock is authorized and issued, and are immediately
convertible for such purpose. Consequently, each Convertible Promissory Note is
convertible ultimately into an aggregate of 32,000 shares of Common Stock. Also,
the Registrant issued one (1) warrant (a "Warrant") to acquire one (1) share of
Series A Preferred Stock for every two shares of Series A Preferred into which
the Convertible Promissory Notes are initially convertible.
The Registrant will issue to investors an aggregate of approximately 165,333
Series A Preferred Stock, upon the effectiveness of actions by the Registrant's
shareholders to authorize the Series A Preferred Stock. In addition, the
Registrant has issued to investors Warrants which shall be exercisable to
purchase approximately 82,667 shares of Series A Preferred Stock , upon the
effectiveness of actions by the Registrant's shareholders to authorize the
Series A Preferred Stock, and which Warrants are immediately exercisable to
acquire, instead of shares of Series A Preferred Stock, shares of Common Stock
on an as-converted-from-Series-A-Preferred-Stock basis (initially, an aggregate
of approximately 82,667 shares of Common Stock). The Convertible Promissory
Notes and Warrants were sold by the Registrant to the investors on the terms and
conditions set forth in the Securities Purchase Agreement (the "Agreement")
filed as Exhibit 10.5 to the March 31, 2005 8-K, which Agreement is specifically
incorporated herein by reference.
(c) On April 6, 2005, the Registrant completed a second and final closing of its
convertible promissory notes (the "Convertible Promissory Notes") to accredited
investors in a private placement of securities (the "Private Placement")
previously reported on the Registrant's Current Report on Form 8-K filed on
March 31, 2005 (the "March 31, 2005 8-K"). The Registrant sold an additional
$248,000 Convertible Promissory Notes in the final closing on April 6, 2005, and
a total of $8,666,000 Convertible Promissory Notes in the aggregate in the
Private Placement. The March 31, 2005 8-K, including the Exhibits filed with it,
is specifically incorporated herein by reference.
Each $48,000 principal amount of a Convertible Promissory Note will
automatically convert into 32,000 shares of the Registrant's Series A
Convertible Preferred Stock, par value $0.001 per share (the "Series A
Preferred"), upon the effectiveness of actions by the Registrant's shareholders
to authorize the Series A Preferred. Each share of the Series A Preferred Stock
is initially convertible into one (1) share of the Registrant's common stock,
par value $0.001 per share (the "Common Stock"), which equates to an initial
conversion price of $1.50 per share of Common Stock. The Convertible Promissory
Notes may be converted, at the purchaser's discretion, directly into Common
Stock on an as-converted-into-Series-A-Preferred-Stock basis, whether or not the
Series A Preferred Stock is authorized and issued, and is immediately
exercisable for such purpose. Consequently, each Convertible Promissory Note is
convertible ultimately into an aggregate of 32,000 shares of Common Stock. Also,
the Registrant issued one (1) warrant (a "Warrant") to acquire one (1) share of
Series A Preferred Stock for every two shares of Series A Preferred into which
the Convertible Promissory Notes are initially convertible.
Upon the effectiveness of actions by the Registrant's shareholders to authorize
the Series A Preferred Stock, the Registrant will issue to investors an
aggregate of approximately 165,333 Series A Preferred Stock in exchange for
their Convertible Promissory Notes purchased in the closing on April 6, 2005. In
addition, the Registrant has issued to investors Warrants which shall be
exercisable to purchase approximately 82,667 shares of Series A Preferred Stock,
upon the effectiveness of actions by the Registrant's shareholders to
authorize the Series A Preferred Stock, and which Warrants are immediately
exercisable to acquire, instead of shares of Series A Preferred Stock, shares of
Common Stock on an as-converted-from-Series-A-Preferred-Stock basis (initially,
an aggregate of 82,667 shares of Common Stock). The Convertible Promissory Notes
and Warrants were sold by the Registrant to the investors on the terms and
conditions set forth in the Securities Purchase Agreement (the "Agreement")
filed as Exhibit 10.5 to the March 31, 2005 8-K, which Agreement is specifically
incorporated herein by reference.
In connection with the closing, the Registrant paid a cash fee to the placement
agents of $24,800, which is equal to ten percent (10%) of $248,000 in
Convertible Promissory Notes sold to investors that the placement agents
introduced to the Registrant. In addition, the Registrant reimbursed the
placement agents for $1,000 of legal fees.
Upon the conclusion of the offering completed on April 6, 2005, the Registrant
issued placement agent warrants (the "Placement Agent
Warrant") to the placement agents granting the right to purchase 16,533 shares
of the Registrant's Common Stock. The Placement Agent Warrants represent ten
percent (10%) of the shares of Common Stock initially issuable upon exercise of
the Series A Preferred Stock initially issuable upon conversion of the
Convertible Promissory Notes sold to investors introduced to the Registrant by
the placement agents. The placement agents did not and will not receive
Placement Agent Warrant with respect to the Warrants or the shares underlying
Warrants. The Registrant has agreed to indemnify its placement agents against
certain liabilities. The Registrant also agreed to pay its own costs of the
Private Placement.
(d) The sales of securities at the closing were made by the Registrant in
reliance upon exemptions from registration under the Securities Act of 1933, as
amended (the "Act"), including Section 4(2) of the Act and/or Rule 506 under
Regulation D promulgated pursuant to the Act. The Registrant reasonably believes
that the securities were sold only to "accredited investors", as such term is
defined under Rule 501(e) under Regulation D promulgated pursuant to the Act,
without general solicitation or general advertising, and with limitations on
resale in accordance with Rule 502(d) under Regulation D promulgated pursuant to
the Act, and intends to file the necessary notice of sales pursuant to Rule 503
under Regulation D promulgated pursuant to the Act within the time period
required thereby. In any case, the Registrant reasonably believes that the
securities were sold to no more than thirty-five (35) purchasers of securities
from the Registrant, as such number of purchasers is calculated pursuant to Rule
501(e) under Regulation D promulgated pursuant to the Act (excluding, among
other things, accredited investors, as such term is defined under Rule 501(e)
under Regulation D promulgated pursuant to the Act).
(e) The Warrants shall be exercisable initially at $1.85 per share of Series A
Preferred Stock, subject to adjustment, and shall be exercisable for a period of
5 years. In addition, at the option of the holder, each Warrant is also
immediately exercisable directly to acquire, instead of shares of Series A
Preferred Stock, shares of Common Stock on an as-converted-from-Series-A-
Preferred-Stock basis, whether or not the Series A Preferred Stock is ever
authorized or issued. Unexercised Warrants shall expire earlier upon notice by
the Company to the holders of the Warrants following any consecutive 30-day
trading period during which the Common Stock trades on its principal market at a
price at or above three (3) times the then applicable exercise price with
average daily volume of at least 100,000 shares (subject to adjustment of such
trading
volume threshold in the event of stock splits, reverse stock splits, stock
dividends, recapitalizations or similar events). The terms and conditions of the
Warrants are set forth in Exhibit 10.8 to the March 31, 2005 8-K, and are
specifically incorporated herein by reference. The Placement Agent Warrants
shall initially be exercisable at $1.85 per share of Common Stock, subject to
adjustment, commencing upon the date of issuance and continuing for five (5)
years after issuance or until the date which is ten (10) days after the
Registrant furnishes written notice to the Placement Agent Warrant holder that
the market price of the Common Stock has been at least 300% of the then
applicable exercise price of the Warrant for a period of at least thirty (30)
days, and the average trading volume of the Common Stock has been at least
100,000 shares per day during the preceding thirty (30) days (subject to
adjustment of such trading volume threshold in the event of stock splits,
reverse stock splits, stock dividends, recapitalizations or similar events). The
Placement Agent Warrants shall be transferable by the Placement Agents only to
its officers, directors, shareholders and employees, as well as by such persons
to their immediate family affiliates in connection with estate planning,
provided that no such transfer or disposition may be made other than in
compliance with applicable securities laws and furnishing satisfactory evidence
of such compliance to the Registrant. The Placement Agent Warrant shall include
a "cashless exercise" provision.
[Signature on following page.]
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.
Electronic Game Card, Inc.
By: /s/ John Bentley
---------------------------------
John Bentley
Chief Executive Officer
Date: April 11, 2005