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):
March 4, 2010
STRATOS
RENEWABLES CORPORATION
(Exact
Name of Registrant as Specified in Charter)
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Nevada
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000-1321517
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20-1699126
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(State
or
other
jurisdiction
of
incorporation)
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(Commission
File
Number)
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(IRS
Employer
Identification
No.)
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9440
Santa Monica Blvd., Suite 401
Beverly
Hills, California
(Address
of principal executive offices)(Zip Code)
(310)
402-5901
(Registrant’s
telephone number, including area code)
N/A
(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
240.14-12)
¨
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 13-e-4(c) under the Exchange
Act (17 CFR 240.1 3e-4(c))
Item1.01
Entry into a Material Definitive Agreement.
A Note
Facility Purchase Agreement (the “Agreement”) was entered into on March 4, 2010,
by and among Stratos Renewables Corporation, a Nevada corporation (the
“Company”), I2BF Biodiesel, Ltd. (“I2BF”) and Blue Day Limited, a
British Virgin Island company (“BlueDay”) (each, an “Investor” and collectively,
the “Investors”). I2BF and BlueDay each were existing stockholders of the
Company prior to the transaction, holding approximately 21% and 24%,
respectively, of the Company’s outstanding fully diluted Common
Stock.
Pursuant
to the Agreement, the Investors agreed to invest in the Company up to an
aggregate amount of $1,850,000, with $885,077 of such amount invested at the
Initial Closing of the transaction (as defined below), and with up to the
remaining amount of $964,923 invested in subsequent monthly closings
(“Subsequent Closings”), including upon the achievement by the Company of
certain operational and financial milestones as described in the
Agreement. In exchange for such investment in the Company, the
Company agreed to issue to the Investors (i) Secured Promissory Notes (“Notes”)
representing the principal amount borrowed from the Investors time to time under
the Agreement and (ii) shares of Common Stock that would increase the aggregate
combined ownership of the Investors from approximately forty-five percent (45%)
of the fully diluted Common Stock of the Company to approximately seventy-five
percent (75%) of the fully diluted Common Stock of the Company (provided that
the Company was only required, at the Initial Closing, to issue that number of
shares of Common Stock as is currently permitted under the Company’s Amended and
Restated Articles of Incorporation).
The Notes
bear an interest rate of 15% per annum and are payable in full on the earliest
to occur of (a) December 31, 2012; (b) a change of control of the Company; or
(c) when, upon or after the occurrence of an event of default such amounts are
declared payable by the Investors.
The
Initial Closing on March 4, 2010 (the “Initial Closing”) was for the sale of
Notes in the aggregate principal amount of $885,077 and an aggregate of
111,429,453 shares of the Common Stock of the Company, which increased the
Investors’ aggregate ownership in the Company to approximately seventy-one
percent (71%) on a fully diluted basis. The Company has agreed to
issue additional shares of Common Stock to the Investors in June 2010, as
necessary, to increase the Investors aggregate ownership in the Company to
approximately seventy-five percent (75%) on a fully diluted basis.
The
Agreement will terminate on the earliest to occur of (i) the maturity date of
any Note, (ii) 20 days following the proposed date of a Subsequent Closing if
the operating budget for the Company and its subsidiaries for the succeeding
month has not been approved by a newly created Special Finance Committee (as
discussed below), (iii) the closing of the PAC Financing (as defined in the
Agreement) or (iii) the date on which the balance of the Investors’ commitments
have been disbursed in accordance with the terms of the Agreement.
The
Agreement contains certain operational covenants, including that the Company
continue in good faith negotiations with Banco Internacional del Perú S.A.A.
(“Interbank”) to obtain a credit facility of not less than $24,000,000 (the
“Interbank Financing”). The Company is also not allowed, without the
consent of the Investors: to incur indebtedness for borrowed money or
financed equipment in excess of $10,000 in the aggregate; to pledge, encumber or
grant any security interest in any assets of the Company or any of its
subsidiaries to any third party; to increase the compensation or benefits to any
employee or contractor; or to undertake any future equity or debt financing
other than the closing of the Interbank Financing or the PAC
Financing.
The
Agreement contains certain other covenants and agreements, including that the
Company initiate the deregistration of its Common Stock. See
disclosure under Item 3.01 of this Report, which is incorporated by reference in
this Item 1.01.
In
connection with the transactions contemplated by the Agreement, the Company will
also establish an equity incentive plan in order to retain the services of, and
provide incentives for, its employees, consultants, officers and
directors. An equity incentive plan has not yet been formally
adopted, and no option grants have yet been made, but the Company has agreed to
reserve approximately 19% (on a fully-diluted basis) of its Common Stock for
option grants to be made under such equity incentive plan to members of
management and the board of directors. Any options granted under such
plan will vest (i) 50% upon the closing and initial funding of a the Interbank
Financing and (ii) 50% upon the Company’s first commercial shipment of ethanol
yielding gross revenue to the Company of at least $100,000. The
allocations of options to be made to the Company’s to the named executive
officers and directors of the Company, are further described in Item 5.02 of
this Report.
Furthermore,
the Company has agreed to modify its compensation structure with respect to
employees, consultants, officers and directors of the Company and its
subsidiaries, such that current compensation levels of such persons will be
decreased and such persons will instead be eligible to receive payments in the
future upon the occurrence of certain events (including the closing and initial
funding of the Interbank Financing, if any). The changes to the
Company’s compensation arrangements, as they relate to the named executive
officers and directors of the Company, are further described in Item 5.02 of
this Report.
The
Company simultaneously amended a Security Agreement, dated July 15, 2009, among
the Company, I2BF and Blue Day SC Ventures, in order to extend the existing
first priority security interests under the Security Agreement to the Notes
issued to the Investors.
Additionally,
in connection with the transactions contemplated by the Agreement, certain
changes were made to the composition of the Company’s board of directors (the
“Board”), and a Special Finance Committee of the Board was established to review
and approve operating and financial budgets, indebtedness and compensation
arrangements of the Company and its subsidiaries. See disclosure
under Items 5.01 and 5.02 of this Report, which are incorporated by reference in
this Item 1.01.
The
Agreement and the Notes and related documents and agreements are filed as
exhibits to this report and should be referred to in their entirety for a
complete description thereof.
Item 2.03.
Creation of a Direct Financial Obligation or an Obligation under an Off-Balance
Sheet Arrangement of a Registrant.
In
connection with the Agreement, at the Initial Closing, the Company signed two
Secured Promissory Notes (“Notes”):
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to
BlueDay in the principal amount of Three Hundred Thousand Dollars
(US$300,000); and
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·
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to
I2BF in the principal amount of Five Hundred Eighty-Five Thousand
Seventy-Seven Dollars (US$585,077).
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The Notes
bear interest at fifteen percent (15%) per annum.
All
unpaid principal, together with any then unpaid and accrued interest and other
amounts payable under the Notes, are be due and payable on the earliest to occur
of (i) December 31, 2012, (ii) a change of control of the Company
(iii) when, upon or after the occurrence of an event of default, such
amounts are declared payable by the Investors.
The Notes
may be prepaid by the Company, but, subject to certain exceptions, prepayment
may be made only with the consent of the noteholder.
The Notes
provide for certain events of default including the voluntary filing of
bankruptcy proceeding by the Company or the Company’s breach of any
representations, warranties or covenants in the Note or the
Agreement. The Note provides for various remedies upon the occurrence
of an event of default, including acceleration.
From and
after December 31, 2012, the Company is required to direct 90% of the monthly
Excess Cash Flow (as defined in the Agreement) of the Company’s ethanol projects
in Peru toward the repayment of the Notes and certain other promissory notes
previously issued to the Investors in the original principal amount of
$500,000.
The Notes
are secured by all of the assets of the Company and its subsidiaries; provided
that the Investors agreed to subordinate their security interests to Interbank
if and when the Interbank Financing closes.
Item
3.01. Notice of Delisting.
On March
19, 2010, the Company intends to file a Form 15 with the Securities Exchange
Commission (the “SEC”) to voluntarily effect the deregistration of its Common
Stock. The Company is eligible to deregister by filing a Form 15 because it has
fewer than 300 holders of record of its Common Stock. Upon the filing of a Form
15, the Company’s obligations to file certain reports with the SEC, including
Forms 10-K, 10-Q and 8-K will immediately be suspended. The Company
expects the deregistration to become effective ninety (90) days after filing the
Form 15 with the SEC.
On March
15, 2010, the Company issued a press release with respect to its intent to
deregister it shares. A copy of the press release is attached hereto as
Exhibit 99.1 to this report and is incorporated by reference
herein.
Item
3.02. Unregistered Sales of Equity Securities.
See
disclosure under Items 1.01 and 2.03 of this Report, which is incorporated by
reference in this Item 3.02.
We relied
upon Section 4(2) of the Securities Act of 1933, as amended, for the above
issuances of securities.
We
believed that Section 4(2) of the Securities Act was available
because:
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The
issuance did not involve underwriters, underwriting discounts or
commissions.
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Restrictive
legends were placed on the securities issued as described
above.
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The
issuance did not involve general solicitation or
advertising.
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·
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The
issuance was made solely to Accredited Investors (as defined in Rule
501(a) promulgated under the Securities Act of 1933, as
amended).
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Item
5.01 Changes in Control of Registrant
As
discussed above under Item 1.01, on March 4, 2010, at the Initial Closing, the
Company issued an aggregate of 111,429,453 shares of the Common Stock to the
Investors, which increased the Investors’ aggregate ownership in the Company to
approximately seventy-one percent (71%) on a fully diluted
basis. While neither I2BF nor BlueDay, individually, owns more than
50% of the voting securities of the Company, collectively, they own more than
50% of the voting securities of the Company. I2BF and BlueDay are not
affiliates of one another.
Additionally,
effective as of the Initial Closing, the Board established a Special Finance
Committee, consisting of Tom Snyder (the President and Chief Executive Officer
of the Company), Alexander Nevinsky (a representative of I2BF) and Foo Katan (a
representative of BlueDay). The purpose of the Special Finance
Committee is to review and approve operating and financial budgets, indebtedness
of the Company and its subsidiaries and all compensation to be provided to the
Company’s and its subsidiaries’ directors, officers, employees and
consultants. The Special Finance Committee’s responsibilities will
include reviewing, making recommendations to management and ultimately approving
on behalf of the Board, budgets, operational, financial and business plans for
the Company and the amounts and types of indebtedness that the Company and its
subsidiaries may incur.
Item
5.02 Election of Directors; Compensatory Arrangements of Certain
Officers
Election
of Directors; Special Finance Committee
Effective
as of March 4, 2010, each of Alexander Nevinsky and Foo Katan were appointed to
the Board. Mr. Nevinsky is a representative of I2BF and Mr. Katan is
a representative of BlueDay.
As
described in Item 1.01 above, I2BF and BlueDay entered into a Note Purchase
Facility Agreement with the Company on March 4, 2010, pursuant to which they
agreed to invest an aggregate of $1,850,000 to the Company, subject to certain
conditions, in exchange for Secured Promissory Notes and shares of Common Stock
in the Company. Additionally, I2BF and Blue Day SC Ventures (an
affiliate of BlueDay) entered into a Secured Note and Common Stock Purchase
Agreement, dated as of July 15, 2009, pursuant to which the Company sold to I2BF
and Blue Day SC Ventures secured promissory notes in an aggregate principal
amount of $15,382,271 and an aggregate of 55,586,157 shares of the Common Stock
of the Company.
Additionally,
as discussed in Item 5.01 above, effective as of March 4, 2010, the Board
established a Special Finance Committee consisting of Tom Snyder, Alexander
Nevinsky and Foo Katan. Disclosure of such committee under Item 5.01
of this Report is incorporated by reference in this Item
5.02.
Compensatory
Arrangement of Certain Officers
The
Company intends to establish an equity incentive plan for, its employees,
consultants, officers and directors. No plan has been formally
adopted, and no option grants have yet been made, but pursuant to the Agreement,
the Company has agreed to reserve approximately 19% (on a fully-diluted basis)
of its Common Stock for option grants to be made under such equity incentive
plan. Of such 19%, the following approximate amounts will be
allocated among the Company’s directors and named executive officers: 5.1% to
Steve Magami (Chairman of the Board), 2.4% to Thomas Snyder (President and Chief
Executive Officer), 2.0% to Mark Beychok (Head of Business Affairs), 4.5% to
Steve Norris (Director), 2.3% to Sanjay Pai (Chief Strategy Officer) and 1.3% to
Leonard Brooks (Director).
Any options granted
under such plan will vest (i) 50% upon the closing and initial funding of the
Interbank Financing and (ii) 50% upon the Company’s first commercial shipment of
ethanol yielding gross revenue to the Company of at least $100,000.
In
connection with the Agreement, the Company has also agreed to modify its
compensation structure with respect to employees, consultants, officers and
directors of the Company and its subsidiaries, such that current compensation
levels of such persons will be decreased and such persons will instead be
eligible to receive payments in the future upon the occurrence of certain
events. Individual agreements with such employees, consultants,
officers and directors of the Company and its subsidiaries have not yet been
executed, but the general terms thereof have been approved by the Board and,
with respect to the Company’s directors and named executive officers, are
summarized below.
Effective
as of the Initial Closing, the amount of the monthly compensation for the named
executive officers and directors of the Company will be reduced as
follows: (1) the monthly base compensation to Steve Magami will be
reduced by $6,417, (2) the monthly base compensation to Mark Beychok will be
reduced by $3,500, (3) the monthly base compensation to Steve Norris will be
reduced by $3,500, (4) the monthly base compensation to Sanjay Pai will be
reduced by $2,750 and (5) the monthly base compensation to Leonard Brooks will
be reduced by $4,000. Upon the closing of the PAC Financing or a
Financing Event (each as defined in the Agreement), the Company will make
payments to each of Steve Magami, Mark Beychok, Steve Norris, Sanjay Pai and
Leonard Brooks in an amount equal to the amount of such person’s monthly
compensation reduction for fiscal year 2010 multiplied by the number of months
elapsed from January 1, 2010 to the date of such closing of the PAC Financing or
a Financing Event, as applicable.
Additionally,
upon the closing and initial funding of the Interbank Financing, the Company
will also pay Messrs. Magami, Beychok, Norris, Pai and Brooks an aggregate
amount of up to $542,208, plus interest accruing from January 1, 2010 in an
amount equal to 7.5% simple interest, if certain conditions are
met. Such conditions include: (i) that the Company and its
subsidiaries be in sound financial condition generally to operate as a going
concern, (ii) that the Company has sufficient cash flow to finance consolidated
operations through revenue generation from sales of ethanol, (iii) that the
Company be fully funded through to operations, (iv) that the non-compensation
short term payables of the Company after the start of operations of the ethanol
facility shall not exceed $1,000,000 and (v) that the non-compensation short
term payables of the Company due before operations shall not exceed the
Company’s available cash and cash equivalents prior to
operations. Such amounts shall be payable in full upon a Change of
Control or a Financing Event (as such terms are defined in the
Agreement). The payments described in this paragraph are to be in
lieu of payments previously promised by the Company to such
persons.
Also,
upon the closing and initial funding of the Interbank Facility, Thomas Snyder
shall be entitled to receive a payment in the amount of $336,421. An additional
payment in the amount of $250,000 shall become due on May 5, 2010 and a further
payment in the amount of $8,800 shall be added monthly from January 1, 2010
until Mr. Snyder’s full salary is reinstated in accordance with his existing
employment agreement. All of such payments, from and after January 1,
2010, shall bear simple interest at the rate of 7.5% until the amounts are paid
in full. Commencing with the funding of the Interbank Financing, any
such amounts that remain unpaid shall be paid ratably over the following 16
months. Such amounts set forth above shall be payable in full upon a
Change of Control or a Financing Event (as such terms are defined in the
Agreement). The payments described in this paragraph are to be in
lieu of payments previously promised by the Company to Mr.
Snyder.
Additionally,
the Company and Mr. Snyder will enter into an agreement whereby Mr. Snyder will
be paid in fiscal year 2013 an amount of $800,000 plus accumulated interest at a
rate of 15% per annum from March 4, 2010.
Item
9.01 Financial Statements and Exhibits.
(d) Exhibits
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10.3
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Note
Facility Purchase Agreement
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10.4
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Consent
and Waiver and Amendment No. 2 to Security
Agreement
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99.1
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Press
release dated March 15, 2010.
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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.
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STRATOS
RENEWABLES CORPORATION
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Date:
March 15, 2010
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By:
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/s/
Thomas
Snyder
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Thomas
Snyder
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President
and Chief Executive
Officer
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