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):
November 2,
2009
BIOSTAR
PHARMACEUTICALS, INC.
(Exact
name of registrant as specified in its charter)
Maryland
(State
or other jurisdiction of incorporation)
|
333-147363
(Commission
File
Number)
|
20-5101287
(IRS
Employer
Identification
No.)
|
|
|
No.
588 Shiji Avenue, Xiangyang City, Shaanxi
Province, The People’s Republic of
China
(Address
of principal executive offices)
|
712046
(Zip
Code)
|
Registrant’s
telephone number, including area code:
86-029-33686638
Copies
to:
Marc J.
Ross, Esq.
Benjamin
Tan, Esq.
Sichenzia
Ross Friedman Ference LLP
61
Broadway, 32 Floor
New York,
New York 10006
Phone:
(212) 930-9700
Fax:
(212) 930-9725
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):
r
Written communications pursuant to Rule
425 under the Securities Act (17 CFR 230.425)
r
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
r
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
r
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.
Item
3.02. Unregistered
Sales of Equity Securities.
Securities Purchase
Agreement
On
November 2, 2009 (the “Closing Date”), Biostar Pharmaceuticals, Inc. (the
“Company”) entered into and closed on a securities purchase agreement (the
“Purchase Agreement”) with certain accredited investors (the “Investors”)
pursuant to which the Investors purchased 2,060,000 shares of our series B
convertible preferred stock (“Series B Preferred Stock”) with attached warrants
to purchase a total of 500,000 shares of our common stock (the “Warrants”) for
an aggregate purchase price of $3,605,000 (the “Purchase Price”). The
Series B Preferred Stock is convertible into 2,060,000 shares of our common
stock. The Series B Preferred Stock does not pay annual
dividends and shall not have any voting rights except as required by
law.
The
Warrants are exercisable for a period of five years from the date of issuance at
an initial exercise price of $3.00. The Investors may exercise the
Warrants on a cashless basis if the shares of common stock underlying the
Warrants are not then registered pursuant to an effective registration
statement. In the event the Investors exercise the Warrants on a
cashless basis, then we will not receive any proceeds. The Company
shall have the right at any time, on at least forty-five (45) day written
notice, to redeem the outstanding Warrants at a price of one cent ($.01) per
share provided the market price of the Company’s Common Stock shall equal or
exceed $4.50 on each trading day for the consecutive twenty (20) trading days in
the period ending on the trading day prior to the date that the Company intends
to redeem the Warrants. The Series B Preferred Stock and the Warrants
are collectively referred to herein as the “Securities”.
The
Series B Preferred Stock is subject to full ratchet and anti-dilution adjustment
for subsequent lower price issuances by the Company and both the conversion
price of the Series B Preferred Stock and the exercise price of the Warrants are
subject to customary adjustments provisions for stock splits, stock dividends,
recapitalizations and the like. The full ratchet and anti-dilution
protection provided for in the Series B Preferred Stock for subsequent lower
price issuances shall be null and void and shall have no further force or effect
if EITF 07-5, as such may amended, supplemented or modified by any accounting
guidance and/or announcement(s) issued by the Financial Accounting Standards
Board, the Emerging Issues Task Force or any other regulatory authority, will
adversely effect the Company’s financial condition as a result of such
provision.
The
Company has agreed that if its common stock is not listed on a national
securities exchange within one hundred and forty-five (145) days of the Closing
Date, the Company shall pay the Investors as liquidated damages and not as a
penalty, an amount equal to twelve percent (12%) per annum, based on the lesser
of (i) the Purchase Price or (ii) that percentage of the Purchase Price which
the shares of common stock issuable upon conversion of the Series B Preferred
Stock and issuable upon exercise of the Warrants (the “Underlying Shares”) bears
to the number of shares of common stock initially issuable upon conversion of
the Series B Preferred Stock,
provided, however
,
such payment of liquidated damages shall not accrue until the Company fulfills
all of its requirements for listing on a national securities
exchange.
The
Investors have contractually agreed to restrict their ability to convert the
Series B Preferred Stock and exercise the Warrants and receive shares of our
common stock such that the number of shares of the Company common stock held by
them and their affiliates after such conversion or exercise does not exceed 9.9%
of the Company’s then issued and outstanding shares of common
stock.
The
Investors have also agreed that they shall convert the Series B Preferred Stock
or exercise the Warrants so that at all times after the Closing Date they shall
collectively own 9.9% of the Company’s outstanding voting securities,
provided
, that the
Investors will not be required to comply with such provision if, in the
aggregate, they collectively hold less that 9.9% of the Company’s outstanding
voting securities after conversion of all the Series B Preferred Stock and upon
exercise of the Warrants.
Within
sixty (60) days after the Closing Date, the Company shall retain a top 10 audit
firm that is mutually acceptable to the Company and the Investors.
The
Company will use the net proceeds from the sale of the Series B Preferred Stock
and the exercise of the Warrants, after payment of legal fees and other closing
costs, for the purchase of assets through its wholly-owned subsidiary, Shaanxi
Biostar Biotech Ltd. The Company has also agreed to allocate $350,000
which will be retained in escrow pursuant to that certain closing escrow
agreement entered into between the Company, the Investors and the Escrow Agent,
for the payment of professional fees, including audit, legal, investor relations
and expenses related to the listing on a national securities exchange, which are
payable after the Closing Date.
The
securities were offered and sold to the Investors in a private placement
transaction made in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933 and Rule 506 promulgated under
Regulation D thereunder. The Investors are accredited investors as defined in
Rule 501 of Regulation D promulgated under the Securities Act of
1933.
Make Good Securities Escrow
Agreement
As an
inducement for the Investors to enter into the Purchase Agreement, on November
2, 2009, the Company entered into a Make Good Securities Escrow
Agreement with the Investors and Sichenzia Ross Friedman Ference LLP (the
“Escrow Agent”) whereby the Company has agreed to deliver to the Escrow Agent
(i) resolutions executed by the Board of Directors of the Company and (ii)
irrevocable instructions of the transfer agent executed by the Company for the
issuance of up to an additional 2,000,000 shares of common stock and/or Series B
Preferred Stock (the “Make Good Shares”), at the option of the Investors, in the
event the Company fails to achieve certain financial performance thresholds for
the 12-month periods ended December 31, 2009 and December 31, 2010 as described
below:
(a)
For
purposes thereof, (i) “Income from Operations” shall mean income from operations
determined in accordance with generally accepted accounting principles plus any
charges relating to the transaction, including the issuance of the Series B
Preferred Stock, Warrants and any other securities issuable pursuant to the
Purchase Agreement, (ii) “2009 Target Number” shall mean the Company’s Income
from Operations for the year ended December 31, 2009 is less than $15,900,000.00
and (iii) “2010 Target Number” shall mean the Company’s Income from Operations
for the year ended December 31, 2010 is less than $21,100,000.00.
(b)
If the
percentage shortfall for the 2009 Target Number is between one percent (1%) and
ten percent (10%), then for every one percent (1%) of shortfall, the Company
shall instruct the Escrow Agent to deliver such number of Make Good Shares which
is equal to the percentage shortfall multiplied by the total number of Make Good
Shares in the ratio of their initial purchase of Securities. If the
percentage shortfall for the 2009 Target Number is between ten percent (10%) and
twenty-five percent (25%), then for every one percent (1%) of shortfall between
one percent (1%) and ten percent (10%), the Company shall deliver to the
Investors or the Company shall instruct the Escrow Agent to deliver such number
of Make Good Shares to the Investors which is equal to the percentage shortfall
multiplied by the total number of Make Good Shares in the ratio of their initial
purchase of Securities and for every one percent (1%) of shortfall between ten
percent (10%) and twenty-five percent (25%), the Company shall deliver to the
Investors or the Company shall instruct the Escrow Agent to deliver such number
of Make Good Shares to the Investors which is equal to the two times the
percentage shortfall multiplied by the total number of Make Good Shares in the
ratio of their initial purchase of Securities. If the percentage
shortfall for the 2009 Target Number is equal to or greater than twenty-five
percent (25%), then the Escrow Agent shall deliver all of the Make Good Shares
then held by the Escrow Agent to the Investors in the ratio of their initial
purchase of Securities.
(c)
If the
percentage shortfall for the 2010 Target Number is between one percent (1%) and
ten percent (10%), then for every one percent (1%) of shortfall, the Company
shall deliver to the Investors or the Company shall instruct the Escrow Agent to
deliver such number of Make Good Shares to the Investors which is equal to the
percentage shortfall multiplied by the total number of Make Good Shares in the
ratio of their initial purchase of Securities. If the percentage
shortfall for the 2010 Target Number is between ten percent (10%) and
twenty-five percent (25%), then for every one percent (1%) of shortfall between
one percent (1%) and ten percent (10%), the Company shall deliver to the
Investors or the Company shall instruct the Escrow Agent to deliver such number
of Make Good Shares to the Investors which is equal to the percentage shortfall
multiplied by the total number of Make Good Shares in the ratio of their initial
purchase of Securities and for every one percent (1%) of shortfall between ten
percent (10%) and twenty-five percent (25%), the Company shall deliver to the
Investors or the Company shall instruct the Escrow Agent to deliver such number
of Make Good Shares to the Investors which is equal to the two times the
percentage shortfall multiplied by the total number of Make Good Shares in the
ratio of their initial purchase of Securities. If the percentage
shortfall for the 2010 Target Number is equal to or greater than twenty-five
percent (25%), then the Escrow Agent shall deliver all of the Make Good Shares
then held by the Escrow Agent to the Investors in the ratio of their initial
purchase of Securities.
(d)
The
distribution of Make Good Shares shall be made within five (5) business days
after the Company files its Form 10-K with the Securities and Exchange
Commission (the “SEC”) for the applicable year. In the event that the
Company does not file its Form 10-K for the year ended December 31, 2009 or 2010
with the SEC within thirty (30) days after the date that filing was required,
after giving effect to any extension pursuant to Rule 12b-25 of the Securities
Exchange Act of 1934, as amended, all of the Make Good Shares shall be delivered
to the Investors.
Closing Escrow
Agreement
On
November 2, 2009, the Company entered into a Closing Escrow Agreement with the
Investors and Sichenzia Ross Friedman Ference LLP, as the Escrow Agent (the
“Closing Escrow Agreement”). In accordance with the Closing Escrow
Agreement, prior to the disbursement of the Purchase Price, the Escrow Agent
allocated a portion of the Purchase Price and held such portion in a separate
escrow account for the payment of professional fees which are payable after the
Closing Date, including audit, legal, investor relations and expenses related to
the listing on a national securities exchange, in the aggregate amount of
$350,000.
The
escrow account was established and funded prior to the Closing Date and the said
proceeds, net of the amounts withheld, were disbursed on the Closing
Date.
The
foregoing information is a summary of the agreements involved in the
transactions described above, is not complete, and is qualified in its entirety
by reference to the full text of such agreements, a copy of which are attached
as an exhibit to this Current Report on Form 8-K. Readers should
review such agreement for a complete understanding of the terms and conditions
associated with this transaction.
Item
9.01.
Financial Statements and Exhibits.
Exhibit
Number
|
Description
|
3.1
|
|
4.1
|
|
99.1
99.2
|
|
99.3
|
|
SIGNATURE
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.
BIOSTAR
PHARMACEUTICALS, INC.
Dated:
November 2, 2009
By:
/
s/
Elaine Zhao
Name:
Elaine Zhao
Title:
Chief Financial Officer
Biostar Pharmaceuticals (CE) (USOTC:BSPM)
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