4
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): September 30, 2005
SECURAC CORP.
(Exact name of registrant as specified in its charter)
Nevada 033-07456-LA 88-0210214
(State or other jurisdiction Commission File Number (I.R.S. Employer
of incorporation) Identification No.)
2500, 520 - 5th Avenue S.W., Calgary, Alberta Canada T2P 3R7
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (403) 225-0403
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.
On September 30, 2005, we entered into a series of definitive agreements
with two affiliated funds, under which the funds provided us with $300,000 in
principal amount of short-term convertible debt and agreed to provide us with an
additional $200,000 principal amount of such debt and established what is
commonly referred to as an equity line of credit in our favor. The terms of
these transactions are summarized below. The summaries are qualified in their
entirety by reference to the definitive agreements, all of which are dated
September 30, 2005 (the "Closing Date"), which are attached hereto as exhibits
(see "Item. 9.01-Financial Statements and Exhibits").
Convertible Debt
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Pursuant to the terms of a subscription agreement and related debenture
agreement, Dutchess Private Equities Fund II, L.P. purchased $300,000 principal
amount of our newly issued short-term convertible debentures and agreed to
purchase an additional $200,000 in principal amount of such debentures upon our
filing of a contemplated resale registration statement with the Securities and
Exchange Commission (as described below; the "Registration Statement"). After
fees and expenses, we received $252,925 in net proceeds from the initial
funding. The debentures bear interest at 10% per annum, are subject to a 25%
redemption premium . Principal, interest and the redemption premium are payable
monthly during the first year. We have the right to redeem the debentures prior
to maturity, and are required to redeem the debentures if and to the extent we
receive proceeds from any subsequent financing in excess of $500,000. If the
debentures are not repaid in full or converted prior thereto, the debentures
mature on the fifth anniversary of the Closing Date, at which time any amounts
outstanding thereunder will automatically convert into our common stock.
The conversion price of the debentures will be fixed at the time we file
the Registration Statement with the SEC. The conversion price is calculated as
the lower of $0.55 per share and the lowest closing bid price of our common
stock during the fifteen days trading days prior to the filing of the
Registration Statement. If the Registration Statement is not declared effective
within 12 months of the Closing Date, the holder may elect for the conversion
price to become variable, calculated at 30% discount from the market price at
the time of conversion. To facilitate issuance of shares upon conversion and to
provide additional comfort to the investor that the shares will be so issued, we
placed 909,090 newly issued shares of common stock in escrow with a third party
pending conversion of the debentures. To the extent we repay the debentures
prior to conversion, these shares are to be returned to us for cancellation.
The debentures are repayable in twelve consecutive monthly installments
each in the amount of $54,345.18, commencing on November 1, 2005. An initial
$4,125.96 installment, consisting of interest only, was due and paid on October
1, 2005. Any excess monthly payment will be applied to principal.
Upon an event of default (as defined in the debenture agreement), we may be
subject to an initial penalty equal to 10% of the face amount of the debentures,
and an additional penalty equal to 2.5% of the face amount for each month
(prorated for partial periods) that the event of default continues. We are
entitled to notice and an opportunity to redeem the debentures prior to
triggering any such penalties.
Our obligations under the debentures are secured by a general security
interest in all of our assets, as well as a pledge of shares (valued at 150% of
the funding amount) owned by certain of our trust stockholders, the
beneficiaries of whom include certain of our directors and management. The
security agreement contains, among other things, restrictions on our ability to
incur additional indebtedness, declare dividends and grant security interests in
our assets.
In connection with the investment, and as contemplated by the subscription
agreement, we also issued to the investor a warrant to purchase 181,819 shares
of our common stock at an exercise price of $0.55 per share (subject to
adjustment for stock splits and the like, as well as below market issuances).
The warrant is exercisable at any time until September 30, 2010, five years from
the Closing Date. The warrant includes a cashless exercise provision which is
triggered in the event the Registration Statement is not declared effective
within 12 months from the Closing Date.
Pursuant to a debenture registration rights agreement, we have agreed to
file the Registration Statement with the SEC within 30 days of the Closing Date,
and to use our best efforts to cause the same to be declared effective within 90
days of the filing date. The Registration Statement must cover the shares
underlying the debenture, as well as the shares underlying the warrant. We may
also include in the Registration Statement shares held by our existing
stockholders, provided such stockholders agree to restrictions on resale
acceptable to the investor.
We will incur significant penalties in the form of liquidated damages and
otherwise for breaches and failure to comply with the commitments contained in
the various agreements, including, without limitation, our failure to file the
Registration Statement and to cause the same to be declared effective and remain
effective within the agreed upon time periods.
Until the earlier to occur of one year from the effective date of the
Registration Statement and repayment of the debentures, we have agreed not to
engage in certain equity-based financings without the consent of the holder of
the debentures. We have also granted the holder of the debentures a right of
first refusal with respect to certain financings during the 12 months following
the Closing Date or such longer period, if any, as the debentures remain
outstanding.
We were introduced to Dutchess through an agent who is a registered
broker-dealer. We have agreed to pay that agent 3% in respect of the convertible
debt financing and an additional 4% in respect of the Equity Line described
below, in each case upon funding.
Equity Line
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We also entered into an investment agreement with Dutchess Private Equities
Fund, L.P., pursuant to which the investor committed to purchase, under certain
conditions, up to $10,000,000 in aggregate purchase price of our common stock
from time to time over a 36-month period beginning on the date of effectiveness
of a resale registration statement covering the underlying shares (the "Equity
Line Registration"). Under the agreement, provided the Equity Line Registration
is effective, we are entitled to put shares of our common stock to the investor
from time to time, subject to a maximum dollar amount for each put, at our
election, of (i) $200,000 or (ii)200% of the average daily dollar volume prior
to the put date (calculated in accordance with the agreement); subject to a
maximum put amount of $1,000,000. The purchase price for each put is equal to
95% of the lowest closing bid price of the common stock during the five trading
days immediately following the put notice. Notwithstanding the foregoing, the
investor shall not be required to purchase pursuant to any put more than an
amount equal to the average daily dollar volume during the five trading-day
pricing period following the put date (calculated in accordance with the
agreement). We are not be entitled to deliver a put notice under the agreement
more frequently than once every seven trading days. If the market price of the
common stock over the pricing period immediately following the put notice drops
by more than 25% from the pre put notice level (during the 10 trading days prior
to the put notice), we may withdraw the put notice.
As noted above, our ability to draw down on the Equity Line is subject to
achieving and maintaining an effective Equity Line Registration for the
requisite number of shares. The number of shares issuable under the Equity Line
is not presently known, as it is based upon the trading price of our common
stock at the time of each draw down. Our ability to draw down on the Equity
Line will be limited to the extent the trading volume in our common stock is low
and to the extent the market price of our common stock is low.
So long as the Equity Line is in effect, we have granted the investor a
right of first refusal on certain subsequent financings during the 12 months
following the effective date of the Equity Line Registration. The Equity Line
is generally terminable by the Company at any time provided there is no
outstanding balance under the convertible debentures.
We have agreed to file the Equity Line Registration with the SEC within 30
days of the Closing Date, and to use our best efforts to cause the same to be
declared effective within 90 days of the filing date. The agreement does not
contain liquidated damages for failure to comply with the registration
commitments.
Section 2 Financial Information
Item. 2.03 Creation of a Direct Financial Obligation or an Obligation under
an Off-Balance Sheet Arrangement of a Registrant.
The disclosure under Convertible Debentures in Item 1.01 above is
incorporated by reference herein.
Section 3 Securities and Trading Markets
Item. 3.02 Unregistered Sales of Equity Securities.
The disclosure under Item 1.01 above is incorporated by reference herein.
The number of shares of our common stock issuable upon conversion of the
convertible debentures and pursuant to draw downs under the Equity Line is not
presently known, as the number of shares will depend on the market price of our
common stock after the date hereof. We relied on the exemption from
registration under the Securities Act of 1933 (the "Securities Act") provided by
Section 4(2) thereof. Each of the investors has represented that it is an
accredited investor within the meaning of the Securities Act and the rules and
regulations promulgated thereunder, the offering was limited to two affiliated
investors and no general solicitation was made by or on behalf of our company.
Section 9 Financial Statements and Exhibits
Item. 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit No. Description
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10.1 Debenture Agreement
10.2 Security Agreement
10.3 Debenture Registrations Rights Agreement
10.4 Subscription Agreement
10.5 Warrant Agreement
10.6 Investment Agreement
10.7 Registration Rights Agreement
10.8 Escrow Agreement
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned hereunto duly
authorized.
Securac Corp.
Dated: October 6, 2005
By: /s/ Paul James Hookham
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Paul James Hookham
Chief Financial Officer,
Treasurer and Secretary