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): August 21, 2009
CHINANET
ONLINE HOLDINGS, INC.
(Exact
name of registrant as specified in charter)
Nevada
(State or
other jurisdiction of incorporation)
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333-138111
(Commission
File Number)
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20-4672080
(IRS
Employer Identification No.)
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No.3 Min
Zhuang Road, Building 6,
Yu
Quan Hui Gu Tuspark, Haidian District, Beijing, PRC 100195
(Address
of principal executive offices and zip code)
+86-10-51600828
(Registrant’s
telephone number including area code)
(Former
Name and Former Address)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of registrant under any of the following
provisions:
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Written
communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
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Soliciting
material pursuant to Rule 14a-12(b) under the Exchange Act (17 CFR
240.14a-12(b))
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item
1.01
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Entry
into a Material Definitive
Agreement.
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On August
21, 2009 (the “Closing
Date”), we entered into a securities purchase agreement (the “Purchase Agreement”),
with several investors, including institutional, accredited and non-US persons
and entities (the “Investors”), pursuant
to which we sold units, comprised of 10% Series A Convertible Preferred Stock,
par value $0.001 per share (the “Series A Preferred
Stock”), and two series of warrants, for a purchase price of $2.50 per
unit and gross proceeds of approximately $10.3 million (the “Financing”). Net
proceeds from the Financing were approximately $9.5 million. We sold
4,121,600 units in the aggregate, which included (i) 4,121,600 shares of our
Series A Preferred Stock, (ii) a Series A-1 Warrant to purchase 2,060,800 shares
of our common stock, par value $0.001 per share (the “Common Stock”), at an
exercise price of $3.00 per share with a three-year term, and (ii) a Series A-2
Warrant to purchase 2,060,800 shares of Common Stock at an exercise price of
$3.75 with a five-year term.
Registration
Rights Agreement
In
connection with the Financing, we entered into a registration rights agreement
(the “RRA”)
with the Investors in which we agreed to file a registration statement (the
“Registration
Statement”) with the Securities and Exchange Commission (the “SEC”) to register the
shares of Common Stock underlying the Series A Preferred Stock (the “Conversion Shares”)
and the Warrants (the “Warrant Shares”),
thirty (30) days after the closing of the Financing. We have agreed
to use our best efforts to have the Registration Statement declared effective
within 150 calendar days after filing, or 180 calendar days after filing in the
event the Registration Statement is subject to a “full review” by the
SEC.
We are
required to keep the Registration Statement continuously effective under the
Securities Act until such date as is the earlier of the date when all of the
securities covered by that registration statement have been sold or the date on
which such securities may be sold without any restriction pursuant to Rule 144
(the “Financing
Effectiveness Period”). We will pay liquidated damages of 2%
of each holder’s initial investment in the Units sold in the Financing per
month, payable in cash, up to a maximum of 10%, if the Registration Statement is
not filed or declared effective within the foregoing time periods or ceases to
be effective prior to the expiration of the Financing Effectiveness
Period. However, no liquidated damages shall be paid with respect to
any securities being registered that we are not permitted to include in the
Financing Registration Statement due to the SEC’s application of Rule
415.
Securities
Escrow Agreement
We entered
into a securities escrow agreement with the Investors (the “Escrow Agreement”),
pursuant to which Rise King Investment Limited, a British Virgin Islands company
(the “Principal
Stockholder”), initially placed 2,558,160 shares of Common Stock (the
“Escrow
Shares”) into an escrow account. Of the Escrow Shares,
1,279,080 shares (equivalent to 50% of the Escrow Shares) are being held as
security for the achievement
of audited net income equal to or greater than $7.7 million for the fiscal year
2009 (the “2009
Performance Threshold”) and the remaining 1,279,080 of the Esrow Shares
are being held as security for the achievement of audited net income equal to or
greater than $14 million for the fiscal year 2010 (the “2010 Performance
Threshold”).
If we
achieve at least 95% of the applicable Performance Threshold, all of the Escrow
Shares for the corresponding fiscal year shall be returned to the Principal
Stockholder. If we achieve less than 95% of the applicable Performance
Threshold, the Investors shall receive in the aggregate, on a pro rata basis
(based upon the number of shares of Series A Preferred Stock or Conversion
Shares owned by each such Investor as of the date of distribution of the Escrow
Shares), 63,954 shares of the Escrow Shares for each percentage by which the
applicable Performance Threshold was not achieved up to the total number of
Escrow Shares for the applicable fiscal year. Any Escrow Shares not
delivered to any Investor because such Investor no longer holds shares of Series
A Preferred Stock or Conversion Shares shall be returned to the Principal
Stockholder.
For the
purposes of the Escrow Agreement, net income is defined in accordance with US
GAAP and reported by us in our audited financial statements for each of the
fiscal years ended 2009 and 2010; provided, however, that net
income for each of fiscal years ended 2009 and 2010 shall be increased by any
non-cash charges incurred (i) as a result of the Financing , including without
limitation, as a result of the issuance and/or conversion of the Series A
Preferred Stock, and the issuance and/or exercise of the Warrants, (ii) as a
result of the release of the Escrow Shares to the Principal Stockholder and/or
the Investors, as applicable, pursuant to the terms of the Escrow Agreement,
(iii) as a result of the issuance of ordinary shares of the Principal
Stockholder to Messrs. Handong Cheng and Xuanfu Liu and Ms. Li Sun (the “PRC Shareholders”),
upon the exercise of options granted to the PRC Shareholders by the Principal
Stockholder, (iv) as a result of the issuance of warrants to any placement agent
and its designees in connection with the Financing, (v) the exercise of any
warrants to purchase Common Stock outstanding and (vi) the issuance
under any performance based equity incentive plan that we adopt.
Lock-Up
Agreement
We are a
party to a Lock-Up Agreement with each of our executive officers and directors
(the “Affiliates”), under
which the Affiliates have agreed with not to offer, sell, contract to sell,
assign, transfer, hypothecate gift, pledge or grant a securitiy interest in, or
other wise dispose of any shares of our common stock that such
Affiliates presently own or may acquire after the Closing Date during the period
commencing on the Closing Date and expiring on the date that is six months
following the effective date of the Registration Statement (the
“Lock-up
Period”). Each Affiliate further agreed that during the
12-month period following the Lock-up Period, such Affiliate shall not transfer
more than one-tenth (1/12) of such Affiliate’s holding of Common Stock during
any one calendar month.
A copy of
the the Purchase Agreement, the Forms of Warrants, the Registration Rights
Agreement, the Escrow Agreement, the Certificate of Designation setting forth
the terms of the Series A Preferred Stock and the Lock-up Agreement are filed as
exhibits hereto. The
description of the transactions pursuant to the Purchase Agreement, and our
obligations under the Certificate of Designation, the Registration Rights
Agreement, the Escrow Agreement and the Warrants set forth herein do
not purport to be complete and is qualified in its entirety by reference to the
full text of the exhibits filed herewith and incorporated by reference into this
Current Report on Form 8-K.
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Item
3.02
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Unregistered
Sales of Equity Securities
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As more
fully described in Item 1.01 above, on August 21, 2009, we consummated a private
placement of units to several investors, including institutional, accredited and
non-US persons and entities. We sold 4,121,600 units in the
aggregate, which included (i) 4,121,600 shares of our Series A Preferred Stock,
(ii) a Series A-1 Warrant to purchase 2,060,800 shares of our Common Stock at an
exercise price of $3.00 per share with a three-year term, and (ii) a Series A-2
Warrant to purchase 2,060,800 shares of Common Stock at an exercise price of
$3.75 with a five-year term. The units were sold for $2.50 per
share. Gross proceeds from the Financing were approximately $10.3
million. Net proceeds from the Financing were approximately $9.5
million.
The
holders of the Series A Preferred Stock have a beneficial ownership limitation
on conversion, such that no holder may convert its shares of Series A Preferred
Stock if after such conversion the holder would beneficially own, together with
its affiliates, more than 9.99% of the then issued and outstanding shares of or
Common Stock (the “Maximum
Amount”). Each share of Series A Preferred Stock is
convertible into such number of fully paid and nonassessable shares of our
Common Stock equal to the quotient of the liquidation preference amount per
share of Series A Preferred Stock (equal to $2.50, plus any accrued but unpaid
dividends thereon, whether or not declared, together with any other dividends
declared but unpaid thereon) divided by the conversion price, which initially is
$2.50 per share, subject to adjustments for stock splits and combinations,
issuance of additional shares of Common Stock and other events as set forth in
the terms therein (the “Conversion
Price”). The Series A Preferred Stock automatically converts
into shares of Common Stock up to the Maximum Amount, upon the earlier to occur
of (x) the 24-month anniversary after the Closing Date, and (y) such time that
the volume weighted average price of the Common Stock is no less than $5.00 for
a period of ten consecutive trading days with the daily volume of at least
50,000 shares per day.
TriPoint
Global Equities, LLC acted as placement agent in the Financing and received a
(i) a cash fee in the amount of $721,280, equal to 7% of the gross proceeds of
the Financing; (ii) a management fee in the amount of $51,520, equal to 0.5% of
the gross proceeds of the Financing; and (iii) warrants to purchase up to
329,728 shares of Common Stock, equal to 8% of the aggregate number of units
sold in the Financing.
The
issuance of the units was exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933, as amended (the “Securities Act”), and
Regulation D or Regulation S promulgated thereunder. We have relied
on the status of the Investors as (i) accredited investors under Regulation D,
or (ii) non-US persons under Regulation S, in claiming
the exemption from registration of the units, and the securities underlying the
units sold in the Financing.
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Item
5.03
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Amendments
to Articles of Incorporation or Bylaws; Change in Fiscal
Year.
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On August
18, 2009, in connection with the Financing, our Board of Directors adopted
resolutions to designate a series of our authorized preferred stock as, 10%
Series A Convertible Preferred Stock (the “Series A Preferred
Stock”). On August 21, 2009, we filed a Certificate
of Designations of the Series A Preferred Stock with the State of Nevada in
which 8,000,000 shares of the Company’s authorized preferred stock were
designated as the Series A Preferred.
The
Series A Preferred Stock is entitled to dividends at a rate of 10% per annum,
payable quarterly within thirty (30) days following the last business day of
each August, November, February and May of each year, until all the shares of
Series A Preferred Stock is fully converted.
The
holders of the Series A Preferred Stock have a beneficial ownership limitation
on conversion, such that no holder may convert its shares of Series A Preferred
Stock if after such conversion the holder would beneficially own, together with
its affiliates, more than 9.99% of the then issued and outstanding shares of or
Common Stock (the “Maximum
Amount”). Each share of Series A Preferred Stock is
convertible into such number of fully paid and nonassessable shares of our
Common Stock equal to the quotient of the liquidation preference amount per
share of Series A Preferred Stock (equal to $2.50, plus any accrued but unpaid
dividends thereon, whether or not declared, together with any other dividends
declared but unpaid thereon) divided by the conversion price, which initially is
$2.50 per share, subject to adjustments for stock splits and combinations,
issuance of additional shares of Common Stock and other events as set forth in
the terms therein (the “Conversion
Price”).
The
Series A Preferred Stock automatically converts into shares of Common Stock up
to the Maximum Amount, upon the earlier to occur of (x) the 24-month anniversary
after the Closing Date, and (y) such time that the volume weighted average price
of the Common Stock is no less than $5.00 for a period of ten consecutive
trading days with the daily volume of at least 50,000 shares per day. The
holders of the Series A Preferred Stock have weighted average anti-dilution
protection for a period of 12 months following the effective date of the
Registration Statement in the event that the Company issues or sells shares of
Common Stock or securities convertible or exchangeable into shares of Common
Stock in certain transactions at a price per share less than the then-applicable
Conversion Price.
For a
period of 24 months commencing on August 26, 2009, so long as there are holders
of at least 25% of the shares of Series A Preferred Stock issued and outstanding
the holders shall have a right of first refusal to participate in subsequent
financings by the Company, up to each such holders original investment about in
the Financing.
The
shares of Series A Preferred Stock have class voting rights and each holder
thereof is also permitted to vote such shares with the Common Stock and is
entitled to cast votes equal to the number of shares of Common Stock into which
such holder’s Series A Preferred Stock would then be convertible, up to the
Maximum Amount.
On August
27, 2009, the Registrant issued a press release announcing the closing of the
Financing described in Item 1.01.
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Item
9.01
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Financial
Statements and Exhibits.
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Exhibit No.
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Description
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3.1
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Certificate
of Designation.
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4.1
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Form
of Series A-1Warrant
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4.2
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Form
of Series A-2 Warrant
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4.3
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Registration
Rights Agreement, dated as of August 21, 2009.
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10.1
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Securities
Purchase Agreement, dated as of August 21, 2009.
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10.2
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Securities
Escrow Agreement, dated as of August 21, 2009.
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10.3
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Form
of Lock-Up Agreement
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99.1
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Press
Release
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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.
CHINANET
ONLINE HOLDINGS, INC.
Name:
Handong Cheng
Title:
Chief Executive Officer and Chairman
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