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): June 30, 2005
SmarTire Systems Inc.
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(Exact name of registration as specified in its charter)
Yukon Territory,
Canada 0-29248 N/A
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
#150 - 13151 Vanier Place
Richmond, British Columbia, Canada V6V 2J1
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (604) 276-9884
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
|_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement
On June 30, 2005, we closed a $160.0 million Standby Equity Distribution
Agreement with Cornell Capital Partners, LP for the future issuance and purchase
of shares of our common stock. This Standby Equity Distribution Agreement
establishes what is sometimes termed an equity line of credit or an equity draw
down facility and replaces our previous $30.0 million Standby Equity
Distribution Agreement, which was terminated by the parties on June 23, 2005.
Cornell Capital Partners is a private limited partnership whose business
operations are conducted through its general partner, Yorkville Advisors, LLC.
In general, the draw down facility operates like this: Cornell Capital
Partners committed to provide us up to $160.0 million as we request it over a
24-month period (or a five-year period if we file either an amendment to the
then effective registration statement or a new registration statement is
declared effective after the 24th and 48th month after June 23, 2005), in return
for common stock that we will issue to Cornell Capital Partners. In addition, we
engaged Newbridge Securities Corporation, a registered broker-dealer, to advise
us in connection with the equity line of credit. For its services, Newbridge
Securities Corporation received 75,188 shares of our common stock. As of July 6,
2005 we have $160.0 million available under this facility. We may request an
advance every seven trading days. The amount of each advance is subject to a
maximum amount of $3.0 million every seven trading days. A closing will be held
six trading days after such written notice at which time we will deliver shares
of common stock and Cornell Capital Partners will pay the advance amount. For
each share of common stock purchased under the equity line of credit, Cornell
Capital Partners will pay 98% of the lowest closing bid price on the OTC
Bulletin Board or other principal market on which our common stock is traded for
the five days immediately following the notice date.
We have agreed to pay to Cornell Capital Partners a cash fee of $16.0
million in connection with the Standby Equity Distribution Agreement, and
Cornell Capital Partners will retain 5% of each advance under the equity line of
credit. The issuance of these shares is conditioned upon us registering these
shares with the Securities and Exchange Commission. We may request advances
under the equity line of credit once the underlying shares are registered with
the Securities and Exchange Commission. We may continue to request advances
until Cornell Capital Partners has advanced $160.0 million or two years (or 5
years if we file either an amendment to the then effective registration
statement or a new registration statement is declared effective after the 24th
and 48th month after June 23, 2005) after the effective date of the accompanying
registration statement, whichever occurs first.
The amount of capital available under the equity line of credit is not
dependent on the price or volume of our common stock. Cornell Capital Partners
may not own more than 9.9% of our outstanding common stock at any time. Because
Cornell Capital Partners can repeatedly acquire and sell shares, this limitation
does not limit the potential dilutive effect or the total number of shares that
Cornell Capital Partners may receive under the equity line of credit.
We cannot predict the actual number of shares of common stock that will be
issued pursuant to the equity line of credit, in part, because the purchase
price of the shares will fluctuate based on prevailing market conditions and we
have not determined the total amount of advances we intend to draw. Nonetheless,
we can estimate the number of shares of our common stock that will be issued
using certain assumptions. For example, we would need to issue 1,000,000,000
shares of common stock in order to raise the maximum amount under the equity
line of credit at a net purchase price of $0.16.
In connection with the execution of the Standby Equity Distribution
Agreement, on June 23, 2005, we entered into a Registration Rights Agreement
with Cornell Capital Partners pursuant to which we agreed to prepare and file
with the Securities and Exchange Commission a registration statement on Form
S-1, SB-2 or on such other form as is available under the Securities Act of
1933, as amended. We must cause such registration statement to be declared
effective by the Securities and Exchange Commission prior to our first draw down
on our new $160.0 million equity line of credit and the first sale to Cornell
Capital Partners of our common stock pursuant to the Standby Equity Distribution
Agreement.
On June 30, 2005, we closed on a $30.0 million Securities Purchase
Agreement with Cornell Capital Partners and Highgate House Funds, Ltd. In
accordance with the Securities Purchase Agreement, we issued, pursuant to Rule
506 of Regulation D under the Securities Act, for a purchase price of $30.0
million, (i) a 10% convertible debenture due June 23, 2008, with a principal
balance of $20.0 million, to Cornell Capital Partners, with principal and
interest payments commencing on November 1, 2005, (ii) a 10% convertible
debenture due June 23, 2008, with a principal balance of $8.0 million, to
Cornell Capital Partners, with principal and interest payments commencing on
June 1, 2006 and (iii) a 10% convertible debenture due June 23, 2008, with a
principal balance of $2.0 million, to Highgate House Funds, with principal and
interest payments commencing on June 1, 2006. The outstanding principal under
the convertible debentures bears interest at the rate of 10% per annum,
calculated on the basis of a 360-day year.
With respect to the $20.0 million convertible debenture issued to Cornell
Capital Partners, principal will be due and payable in 32 equal installments.
The installments of principal will be due and payable commencing on November 1,
2005 and subsequent installments will be due and payable on the first day of
each calendar month thereafter until the outstanding principal balance is paid
in full or the $20.0 million convertible debenture is converted in full.
Interest on the outstanding principal balance will accrue as of June 23, 2005
and be due and payable monthly, in arrears, commencing on November 1, 2005, and
will continue to be payable on the first day of each calendar month thereafter
that any amounts under the convertible debenture remain payable. In lieu of
making an interest payment in cash we may elect to make interest payments in
shares of our common stock, the value of which would be the closing bid price of
our common stock on the date the interest payment is due. Upon any full
conversion by Cornell Capital Partners of all of the principal and interest due
under the convertible debenture, all of our payment obligations will terminate.
With respect to the $8.0 million convertible debenture issued to Cornell
Capital Partners and the $2.0 million convertible debenture issued to Highgate
House Funds, principal will be due and payable in five equal installments. The
installments of principal will be due and payable commencing on June 23, 2006
and subsequent installments will be due and payable every six months on the 23rd
day of the calendar month until the outstanding principal balance is paid in
full or the convertible debentures are converted in full. Interest on the
outstanding principal balance will be due and payable monthly, in arrears,
commencing on June 23, 2005, and will continue to be payable on the first day of
each calendar month thereafter that any amounts under the convertible debentures
remain payable. In lieu of making an interest payment in cash we may elect to
make interest payments in shares of our common stock, the value of which would
be the closing bid price of our common stock on the date the interest payment is
due. Upon any full conversion by Cornell Capital Partners or Highgate House
Funds, as applicable, of all of the principal and interest due under the
respective convertible debenture, all of our payment obligations will terminate
with respect to such convertible debenture.
The remaining principal under the convertible debentures may be converted
by Cornell Capital Partners or Highgate House Funds, as applicable, in whole or
in part and from time to time into shares of our common stock at a conversion
price of $0.1125 per share, subject to adjustment as provided for in the
convertible debentures.
The convertible debentures contain a contractual restriction on beneficial
share ownership. They provide that neither Cornell Capital Partners nor Highgate
House Funds may convert the convertible debentures, or receive shares of our
common stock as payment of interest, to the extent that the conversion or the
receipt of the interest payment would result in either Cornell Capital Partners
or Highgate House Funds, together with their respective affiliates, beneficially
owning in excess of 4.9% of our then issued and outstanding shares of common
stock.
We have agreed to pay to Cornell Capital Partners a cash fee of $3.0
million, and a cash structuring fee of $50,000 to Yorkville Advisors Management,
in connection with the Securities Purchase Agreement out of the purchase price
paid by Cornell Capital Partners for the convertible debentures.
Under the Securities Purchase Agreement, we also issued (i) to Cornell
Capital Partners, two five-year warrants to purchase an aggregate of 58,337,500
shares of our common stock, at an exercise price of $0.16 per share and (ii) to
Highgate House Funds, a five-year warrant to purchase 4,162,500 shares of our
common stock, at an exercise price of $0.16 per share. Neither Cornell Capital
Partners nor Highgate House Funds will be entitled to exercise the warrants for
a number of shares of our common stock if such exercise would cause the
aggregate number of shares of our common stock beneficially owned by Cornell
Capital Partners or Highgate House Funds, as applicable, and their respective
affiliates, to exceed 4.99% of the outstanding shares of our common stock
following such exercise, except within 60 days of the expiration date of the
warrants. The exercise price is subject to certain anti-dilution protections as
described in the respective warrants.
In connection with the execution of the Securities Purchase Agreement, on
June 23, 2005, we entered into a Registration Rights Agreement with Cornell
Capital Partners and Highgate House Funds pursuant to which we agreed to prepare
and file, no later than 60 days after the date of the Registration Rights
Agreement, with the Securities and Exchange Commission a registration statement
on Form S-1 or SB-2 (or, if we are then eligible, on Form S-3) under the
Securities Act of 1933, as amended, for the resale by the investors of
266,666,666 shares of our common stock to be issued upon conversion of the
convertible debentures and 62.5 million shares of our common stock to be issued
upon exercise of the investors' warrants.
Item 1.02. Termination of a Material Definitive Agreement.
See Item 1.01 above for information regarding the termination of our $30.0
million equity line of credit with Cornell Capital Partners and its replacement
with our new $160.0 million equity line of credit.
Item 3.02 Unregistered Sales of Equity Securities.
See Item 3.02 above.
Item 9.01 Financial Statements and Exhibits.
(a) Financial statements of business acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable.
(c) Exhibits.
Exhibit
Number Description
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10.1 Standby Equity Distribution Agreement, dated as of June 23, 2005, between SmarTire Systems Inc.
and Cornell Capital Partners, LP
10.2 Securities Purchase Agreement, dated as of June 23, 2005, among SmarTire Systems Inc., Cornell
Capital Partners, LP and Highgate House Funds, Ltd.
10.3 Convertible Debenture, dated as of June 23, 2005, with a principal balance of $20 million,
issued by SmarTire Systems Inc. to Cornell Capital Partners, LP
10.4 Convertible Debenture, dated as of June 23, 2005, with a principal balance of $8 million,
issued by SmarTire Systems Inc. to Cornell Capital Partners, LP
10.5 Convertible Debenture, dated as of June 23, 2005, with a principal balance of $2 million,
issued by SmarTire Systems Inc. to Highgate House Funds, Ltd.
10.6 Warrant to purchase 41,668,750 shares of common stock, dated as of June 23, issued by SmarTire
Systems Inc. to Cornell Capital Partners, LP
10.7 Warrant to purchase 16,668,750 shares of common stock, dated as of June 23, issued by SmarTire
Systems Inc. to Cornell Capital Partners, LP
10.8 Warrant to purchase 4,162,500 shares of common stock, dated as of June 23, issued by SmarTire
Systems Inc. to Highgate House Funds, Ltd.
10.9 Registration Rights Agreement, dated as of June 23, 2005, between SmarTire Systems Inc. and
Cornell Capital Partners, LP
10.10 Investor Registration Rights Agreement, dated as of June 23, 2005, among SmarTire Systems Inc.,
Cornell Capital Partners, LP and Highgate House Funds, Ltd.
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 thereunto duly authorized.
SMARTIRE SYSTEMS INC.
Date: July 6, 2005 By: /s/Jeff Finkelstein
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Jeff Finkelstein
Chief Financial Officer