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): May 26, 2005
NEW VISUAL CORPORATION
(Exact name of registrant as specified in its charter)
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Utah 0-21875 95-4545704
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
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305 NE 102ND AVE, SUITE 105, PORTLAND, OR 97220
(Address of principal executive offices, including Zip Code)
(503) 257-6700
(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT;
The information set forth under Item 3.02 of this current report on Form 8-K is
hereby incorporated by reference into this Item 1.01.
ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN
OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT;
The information set forth under Item 3.02 of this current report on Form 8-K is
hereby incorporated by reference into this Item 2.03.
ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES
New Visual Corporation (the "Company") raised gross proceeds of $3.5 million
from the private placement to institutional and individual investors of its
three-year 7% Senior Secured Convertible Debentures (the "Debentures"). In
connection with the issuance of the Debentures, the Company issued to the
purchasers of the Debentures warrants (the "Investor Warrants") to purchase
shares of the Company's common stock, par value $0.001 (the "Common Stock"),
with warrants for 11,312,220 shares being exercisable through the last day of
the month in which the first anniversary of the effective date of the
Registration Statement (as defined below) occurs at a per share exercise price
of $0.1547, and warrants for 22,624,430 of these shares being exercisable
through the last day of the month in which the third anniversary of the
effective date of the Registration Statement occurs at a per share exercise
price of $0.3094. The Company received net proceeds of approximately $3.11
million from the proceeds of the Debentures, after the payment of offering
related fees and expenses. The Company used a portion of those funds to repay in
full the principal and accrued interest on working capital loans incurred in the
past 12 months in the aggregate principal amount of $550,000.
The Debentures, issued as of May 26, 2005, have a term of three years and are
convertible into shares of Common Stock at the holder's option at any time on or
after the earlier of the (i) 65th day following issuance or (ii) the effective
date of the Registration Statement (as defined below) at a conversion price
equal to equal to the lower of (x) 70% of the 5 day volume weighted average
price of the Company's Common Stock immediately prior to conversion or (y) if
the Company enters into certain financing transactions subsequent to the closing
date and through the Final Lockup Period (as defined below), the lowest purchase
price or conversion price applicable to that transaction. Interest accrues at
the rate of 7% per annum and is payable on a bi-annual basis, commencing
December 31, 2005, or on conversion and may be paid, at the option of the
Company, either in cash or in shares of Common Stock. The Company may prepay the
amounts outstanding on the Debentures by giving advance notice and paying an
amount equal to 120% of the sum of (x) the principal being prepaid plus (y) the
accrued interest thereon. Holders will continue to have the right to convert
their Debentures prior to the actual prepayment. If the Company fails to deliver
stock certificates upon the conversion of these Debentures at the time and in
the manner specified in the agreements, the Company may be required to make
substantial payments to the holders of the Debentures.
Holders of the Debentures may require the Company to redeem any or all of the
outstanding Debentures upon the occurrence of any one or more of the following
events of default: (i) the Company's failure to pay principal and interest when
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due (subject to a 5 day grace period), (ii) the Company's material breach of any
of the representations or warranties made in the agreement pursuant to which the
Debentures were sold, (iii) the Company's failure to have stock certificates
delivered with seven trading days from delivery of a conversion notice if such
failure continues for ten trading days after notice thereof, (4) the Company's
failure to observe any undertaking contained in the Debentures or the other
transaction documents in a material respect if such failure continues for 30
calendar days after notice, (5) the Company's insolvency or liquidation or a
bankruptcy event, (6) the entry of money judgment or similar process in excess
of $500,000 if such judgment remains unvacated for 60 days or (7) the suspension
of the Common Stock from trading on the Over the Counter Bulletin Board if such
suspension continues for fifteen consecutive trading days. The redemption amount
is equal to the (i) (x) principal and accrued interest of the Debenture being
redeemed, divided by (y) the applicable conversion price, multiplied by (ii) the
highest closing sale price of the Company's Common Stock from the date of the
redemption notice through the payment date.
The Investor Warrants, issued as of May 26, 2005, become first exercisable on
the earlier of the (i) 65th day after issuance or (ii) the effective date of the
Registration Statement. The exercise prices of the Investor Warrants are also
subject to adjustment in the event of certain capital adjustments or similar
transactions, such as a stock split or merger. Holders of the Investor Warrants
are entitled to exercise their warrants on a cashless basis following the first
anniversary of issuance if the Registration Statement is not in effect at the
time of exercise.
Holders of Debentures are subject to certain limitations on their rights to
convert the Debentures. The principal limitation is that the holder may not,
with certain limited exceptions, convert into a number of shares that would,
together with other shares held by the holder, exceed 4.99% of the then
outstanding shares of the Company after such conversion. The exercise of the
Warrants is subject to a similar limitation.
To secure the Company's obligations under the Debentures, the Company has
granted a security interest in substantially all of its assets, including
without limitation, its intellectual property, in favor of the investors under
the terms and conditions of a Security Interest Agreement dated as of the date
of the Debentures. The security interest terminates upon the earlier of (i) the
date on which less than one-third of the original principal amount of the
Debentures issued on the closing date are outstanding or (ii) payment or
satisfaction of all of the Company's obligations under the Loan Agreement.
The Company has undertaken to file within 45 days of closing a registration
statement (the "Registration Statement") covering the Common Stock underlying
the Debentures and the Investor Warrants.
Under the agreements with the holders of the Debentures, the Company agreed that
if it made certain offers or sales of its Common Stock (or securities
convertible into Common Stock) with any third party during the period from the
closing date through the date on which more than one third of the aggregate
principal amount of the Debentures issued on the closing date remain unconverted
(the "Final Lockup Period"), adjustments would be made to the conversion price
of the then unexercised debentures and to the number of shares and exercise
price of the then unexercised warrants. The Company also agreed that during such
period, without the prior written consent of a majority in interest of the then
outstanding Debentures, it will not enter into any transaction for the offer or
sale of the Company's securities where such transaction provides for a variable
conversion price or a variable exercise price. The Company also agreed that
until the effective date of the Registration Statement it will not enter into
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any transaction whatsoever for the offer or sale of any of its securities and,
commencing on the effective date and continuing through the end of the sixth
month thereafter, it will not enter into any such transaction granting the
investors therein registration rights. In addition, under certain circumstances,
the Company will be obligated to pay liquidated damages to the holders of the
Convertible Debentures if the Registration Statement is not filed by July 10,
2005 or is not declared effective by August 24, 2005 or if the effectiveness of
such registration statement is subsequently suspended for more than certain
specified permitted periods. Under certain circumstances, these liquidated
damages may be paid in shares of Common Stock. The amount of liquidated damages
that may become payable may be substantial. Notwithstanding the foregoing, if
the Registration Statement is declared effective on or before September 23,
2005, then the Company will not be required to pay any liquidated damages in
respect of the delay in the filing of such registration statement or
effectiveness thereof.
Each of the Company's officers and directors agreed in writing that he would
not, without the prior written consent of the holders of a majority of the then
outstanding principal amount of the Debentures, sell any shares of Company
Common Stock he holds during the period from the Closing Date through the date
which is 180 days after the effective date of the Registration Statement.
Thereafter, without such consent, he will not sell more than 10% of his shares
in each subsequent 30 day period; this limitation will expire when the
outstanding principal amount of the Debentures is less than one-third of the
Debentures originally issued on the Closing Date.
In connection with the placement of the Debentures, the Company issued to a
finder warrants to purchase up to 5,656,108 shares of Common Stock, with
warrants for 2,262,443 shares being exercisable through the last day of the
month in which the third anniversary of the closing occurs at a per share
exercise price of $0.3094; warrants for 2,262,443 shares being exercisable
through the last day of the month in which the third anniversary of the
effective date of the Registration Statement occurs at a per share exercise
price of $0.3094; and warrants for 1,131,222 shares being exercisable through
the last day of the month in which the first anniversary of the effective date
of the Registration Statement occurs at a per share exercise price of $0.1547.
The finder's warrants are otherwise exercisable on substantially the same terms
and conditions as the Investor Warrants and the Common Stock underlying these
warrants will be also included in the Registration Statement.
The offering was made only to accredited investors in accordance with Section
4(2) under the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
Copies of the agreements and the other instruments relating to the Debentures
and the Investor Warrants are attached hereto.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements.
None.
(b) Pro Forma Financial Information
None.
(c) Exhibits:
4.1 Form of 7% Three Year Convertible Senior Convertible Debenture issued by New
Visual Corporation.
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4.2 Form of Common Stock Purchase Warrant issued by New Visual Corporation to
certain investors.
10.1 Form of Securities Purchase Agreement dated as of May 26, 2005, among New
Visual Corporation and certain investors.
10.2 Form of Registration Rights Agreement dated as of May 26, 2005, among New
Visual Corporation and certain investors.
10.3 Security Interest Agreement dated as of May 26, 2005 among the Company,
certain specified investors, as secured parties, and Krieger and Prager, as
agent for the secured parties.
99.1 Press Release issued dated June 1, 2005
DATED: JUNE 1, 2005
BY: /S/ BRAD KETCH
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BRAD KETCH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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