Item
3.02.
Unregistered
Sales of Equity Securities
.
On
February 21, 2008, Geeks On Call Holdings, Inc. (the “Company”) accepted
subscriptions for 65 units (the “Units”), consisting of an aggregate of 650,000
shares of the Company’s common stock and five-year warrants to purchase an
aggregate of 325,000 shares of the Company’s common stock at an exercise price
of $1.50 per share. The shares and warrants were sold in connection with the
Company’s private placement (the “Private Placement”) conducted pursuant to the
terms of a Confidential Private Placement Memorandum, dated October 22, 2007,
as
supplemented by Supplement No. 1 dated December 21, 2007, Supplement No. 2
dated
January 16, 2008 and Supplement No. 3 dated January 31, 2008 (the “Memorandum”).
The Company received gross proceeds from the second closing of the Private
Placement of $650,000. On February 8, 2008, the Company had sold 300 Units,
consisting of an aggregate of 3,000,000 shares of the Company’s common stock and
five-year warrants to purchase an aggregate of 1,500,000 shares of the Company’s
common stock at an exercise price of $1.50 per share, in its initial closing
of
the private placement for aggregate gross proceeds of $3,000,000 pursuant to
such Memorandum, as reported in the Company’s Current Report on Form 8-K filed
with the Securities and Exchange Commission (the “SEC”) on February 13, 2008.
Net proceeds received from the Private Placement are expected to be used for
general corporate purposes.
The
Private Placement was made solely to “accredited investors,” as that term is
defined in Regulation D under the Securities Act of 1933, as amended (the
“Securities Act”). The securities sold in the Private Placement were not
registered under the Securities Act, or the securities laws of any state, and
were offered and sold in reliance on the exemption from registration afforded
by
Section 4(2) and Regulation D (Rule 506) under the Securities Act and
corresponding provisions of state securities laws, which exempt transactions
by
an issuer not involving any public offering.
First
Montauk Securities Corp. acted as the exclusive placement agent in the Private
Placement (the “Placement Agent”). In connection with the second closing, the
Company paid the Placement Agent: (i) a cash commission of $40,000 (reflecting
a
commission of 5% of the aggregate purchase price for $500,000 of the $650,000
of
subscriptions and a commission of 10% for the remainder paid by each purchaser
of Units at such closing); and (ii) five-year warrants to purchase 52,000 shares
of the Company’s common stock (equal to 8% of the number of shares of the
Company’s common stock on which the cash fee is payable for Units sold in such
closing), at an exercise price of $1.50 per share, with mandatory registration
rights covering the shares of common stock underlying the warrants. The
Placement Agent shall also be entitled to receive a cash fee in the amount
of 5%
of the aggregate proceeds from the exercise of warrants issued to the investors
in the Private Placement.
Common
Stock
The
holders of the Company’s common stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders, including the election of
directors. Generally, all matters to be voted on by stockholders must be
approved by a majority of the votes entitled to be cast by all shares of common
stock that are present in person or represented by proxy, subject to any voting
rights granted to holders of any preferred stock. Except as otherwise provided
by law, and subject to any voting rights granted to holders of any preferred
stock, amendments to the Company’s Certificate of Incorporation generally must
be approved by a majority of the votes entitled to be cast by all outstanding
shares of common stock. The Company’s Certificate of Incorporation does not
provide for cumulative voting in the election of directors. Subject to any
preferential rights of any outstanding series of preferred stock created by
the
board of directors from time to time, the holders of common stock will be
entitled to such cash dividends as may be declared, if any, by the board of
directors from funds available. Subject to any preferential rights of any
outstanding series of preferred stock, upon the Company’s liquidation,
dissolution or winding up, the holders of common stock will be entitled to
receive pro rata all assets available for distribution to such
holders.
For
a
period of 12 months from the effectiveness of a registration statement
registering the shares of common stock included in the Units and the shares
of
common stock underlying the warrants included in the Units, the investors will
have a right to participate on any future financings contemplated by the
Company, subject to customary exceptions.
Description
of Warrants
In
the
event that the Company is not in material compliance with its registration
obligations set forth on Exhibit A to the Subscription Agreement entered into
with the investors in the Private Placement, then the investors have a cashless
exercise option upon exercising their warrants. A “cashless exercise” means that
in lieu of paying the aggregate purchase price for the shares being purchased
upon exercise of the warrants in cash, the holder will forfeit a number of
shares underlying the warrants with a “fair market value” equal to such
aggregate exercise price. The Company will not receive additional proceeds
to
the extent that warrants are exercised by cashless exercise.
The
exercise price and number of shares of common stock issuable on exercise of
the
warrants may be adjusted in certain circumstances, including in the event of
a
stock dividend, or the Company’s recapitalization, reorganization, merger or
consolidation. These warrants also provide the holders with full ratchet
anti-dilution price protection.
No
fractional shares will be issued upon exercise of the warrants. If, upon
exercise of the warrants, a holder would be entitled to receive a fractional
interest in a share, the Company may, in its discretion, upon exercise, round
up
to the nearest whole number the number of shares of the Company’s common stock
to be issued to the warrant holder or otherwise equitably adjust the exercise
and exercise price per share.
Registration
Rights
The
Company has agreed to file a “resale” registration statement with the SEC (the
date of such filing, the “SEC Filing Date”) covering all shares of common stock
included within the Units sold in the Private Placement and all shares of common
stock underlying the warrants included in the Units, on or before the date
which
is 60 days after the final closing of the Private Placement (the “Closing
Date”). The Company will maintain the effectiveness of the “resale” registration
statement unless all securities have been sold or are otherwise able to be
sold
without volume limitation pursuant to Rule 144, at which time exempt sales
may
be permitted for purchasers of the Units. The Company has agreed to use its
best
efforts to have such “resale” registration statement declared effective by the
SEC as soon as possible and, in any event, within 150 days after the Closing
Date or the date of termination of the Private Placement, whichever occurs
later
(the “Trigger Date”).
If
the
registration statement is not filed within 60 days of the Closing Date and
timely declared effective by the Trigger Date, then the Company is obligated
to
pay to investors a fee of 1% of the subscription price per Unit being registered
per month of the investors’ investment, payable in cash, up to a maximum of 9%;
provided, however, that the Company shall not be obligated to pay any such
liquidated damages if (x) the Company is unable to fulfill its registration
obligations as a result of rules, regulations, positions or releases issued
or
actions taken by the SEC pursuant to its authority with respect to “Rule 415”,
provided the Company register at such time the maximum number of shares of
common stock permissible upon consultation with the staff of the SEC or (y)
all
securities have been sold or are otherwise able to be sold without volume
limitation pursuant to Rule 144. The Company may register other shares of its
presently outstanding common stock beginning 150 days after the “resale”
registration statement is declared effective, provided the Company, prior or
contemporaneous with such registration, registers any shares of common stock
excluded in accordance with the immediately preceding sentence.
In
addition, the Company has granted piggyback registration rights to the Placement
Agent with respect to the shares of common stock underlying the Placement
Agent’s warrants.
Future
Stock Issuances
Pursuant
to the Subscription Agreement from the Private Placement, until the 12 month
anniversary of the date that the SEC declared a registration statement effective
that registers the resale of the common stock issued in the Private Placement
and the common stock underlying the warrants issued in the Private Placement,
should the Company issue or sell any shares of any class of common stock or
any
warrants or other convertible security pursuant to which shares of any class
of
the Company’s common stock may be acquired at a price less than $1.00 per share,
subject to certain exemptions, the Company shall promptly issue additional
shares to each investor in the Private Placement in an amount sufficient that
the subscription price paid in the Private Placement, when divided by the total
number of shares issued, will result in an actual price paid by each investor
per share equal to such lower price.
Lock-up
Agreements
Substantially
all of the Company’s shares of common stock issued in exchange for shares
of common stock of Geeks On Call America, Inc. in the merger transaction between
the Company, Geeks On Call Acquisition Corp., and Geeks On Call America, Inc.
(the “Merger”), are subject to lock-up agreements. These lock-up agreements
provide that such persons may not sell or transfer any of their shares for
a
period of 6 months following the date the Company files a “resale” registration
statement with the SEC that covers all of the common stock included within
the
Units sold in the Private Placement (including the shares of common stock
underlying the warrants) without the consent of the Placement Agent, with the
exception of contributions made to non-profit organizations qualified as
charitable organizations under Section 501(c)(3) of the Internal Revenue Code
or
in privately negotiated sales to persons who agree, in writing, to be bound
to
the terms of the lock-up agreements.
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