SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
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CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO.: 0-32143
Date of Report: November 9, 2009
ECOSYSTEM CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 20-3148296
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(State of other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
One Penn Plaza, Suite 1612, New York, NY 10019
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(Address of principal executive offices) (Zip Code)
(212) 994-5374
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(Registrant's telephone number including area code)
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:
__ 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))
ITEM 1.01 ENTRY INTO MATERIAL DEFINITIVE AGREEMENT
ITEM 3.02 UNREGISTERED SALE OF EQUITY SECURITIES
Effective October 30, 2009, EcoSystem Corporation (the "Company") entered into a
Unit Subscription Agreement (the "USA") with RND Company, Ltd. ("Lead Junior
Investor"), Rooftop Holdings, Ltd., and Sequence Investments, Ltd.
(collectively, the "Junior Investors"), pursuant to which the Junior Investors
agreed to purchase 30,000 shares of the Company's Series E Preferred Stock (the
"Series E Shares"), and 3,575,754 warrants to purchase additional Company common
shares (the "Junior Warrants") (the Series E Shares and the Junior Warrants
shall be collectively referred to herein as the "Junior Units") for $13,178,000
(the "Junior Purchase Price"), subject to certain conditions discussed below.
RELEASE SCHEDULE
The USA provides that the Junior Purchase Price shall be deposited at the
closing of the USA (which occurred on November 9, 2009) into a restricted
account opened in the name of the Company (the "Restricted Account") at Elco
Securities, Ltd. (the "Escrow Agent"). The conditions of the release of the
Junior Purchase Price to the Company from the Restricted Account are set forth
in an Account Management Agreement dated October 30, 2009 (the "Junior AMA") by
and between the Escrow Agent, the Junior Investors, the Company, and Viridis
Capital, LLC ("Viridis"), the Company's majority shareholder (the USA and the
Junior AMA shall be collectively referred to herein as the "Agreements").
The Junior AMA provides that the Junior Purchase Price shall be released to the
Company after either (1) the Company shall have filed and made effective a
registration statement pertaining to that portion of the Company common shares
issuable upon the conversion of the Series E Shares, or (2) such Company common
shares shall have become eligible for public resale pursuant to applicable SEC
rules. Thereafter, the Junior Purchase Price shall be released from the
Restricted Account to the Company in monthly instalments at a rate equal to the
greater of (1) the scheduled monthly rate stated in Table 1 below, or (2) an
amount equal to 20% of the average 30 day closing bid price for the Company's
common stock (the "Market Price"), multiplied by the total number of shares of
Company common stock traded during the 30 calendar days prior to each monthly
release (the "Trailing Volume").
The Junior AMA also provides that Series E Shares shall be deposited at the
Closing in restricted accounts at the Escrow Agent in the name of each Junior
Investor. The Series E Shares shall be converted into Company common shares and
released to each Junior Investor, on a pro rated basis, at a rate equal to the
rate at which the Junior Purchase Price proceeds are released from the
Restricted Account to the Company divided by the Fixed Price per common share
stated in Table 1 below; provided, however, that if the Market Price is less
than the Target Price per common share stated in Table 1 below at the time of
conversion, then the amount of common shares issuable upon conversion of the
Series E Shares shall be equal to the amount of Junior Purchase Price proceeds
released from the Restricted Account to the Company divided by 60% of the Market
Price.
JUNIOR WARRANTS
The Junior Warrants shall be exercisable for a period of three years from the
Closing in the amounts and at the exercise prices set forth in Table 2 below.
The Company is required to use its best efforts to file a registration of the
common shares underlying the Junior Warrants within three months of the Closing.
TRANSACTION COSTS
The Company is required to pay to Catwalk Capital, LLC fees equal to 10% of the
gross Junior Purchase Price and Junior Warrant exercise proceeds (collectively,
the "Gross Proceeds") received from the Junior Investors, plus an additional
1.6% of the Gross Proceeds to the Lead Junior Investor (collectively, the
"Fees"). All Fees shall be payable on a pro rated basis at the time that the
Junior Purchase Price or Junior Warrant exercise proceeds are released to the
Company. This corresponds to a total of $1,528,648 in Fees upon full payment of
the Junior Purchase Price, and $1,317,215 in additional Fees upon full exercise
of the Junior Warrants. After accounting for the Fees, the net Junior Purchase
Price proceeds to be released to the Company are $11,649,352 (less account
management fees paid to the Escrow Agent of $9,000 per year), and the net
proceeds to be paid to the Company upon exercise of the Junior Warrants are
$10,038,090.
RESTRICTIONS APPLICABLE TO JUNIOR INVESTORS
The Agreements provide that the Escrow Agent shall not release Company common
shares to the Junior Investors upon conversion of the Series E Shares, either
individually or in the aggregate, at a rate greater than 20% of the Trailing
Volume; and that no Junior Investor shall convert Series E Shares or exercise
the Junior Warrants or receive shares of Company common stock to the extent that
after giving effect to such conversion or exercise, any Junior Investor,
together with any affiliate thereof, would beneficially own (as determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
and the rules promulgated thereunder) in excess of 9.99% of the number of shares
of common stock outstanding immediately after giving effect to such conversion
or exercise.
RESTRICTIONS APPLICABLE TO MANAGEMENT
Minimum Ownership and Lock-Up
The Agreements provide that Viridis and the Company's management (collectively,
"Management") shall beneficially own in the aggregate no less than 51% of the
outstanding Company common stock (the "Minimum Ownership") until such time as
the Junior Purchase Price has been fully released to the Company (the "Full
Release Date"). Neither Viridis nor the Company's management shall sell or
otherwise transfer shares of Company common stock in an amount that would cause
Management to beneficially own less than 51% of the outstanding Company common
stock until the Full Release Date.
Forfeiture of Management Shares
Effective July 24, 2009, the Company and Management entered into an agreement
pursuant to which the parties agreed that all shares of Company stock held by
Management in excess of 30% of the Company's outstanding common stock shall be
surrendered to the Company on a pro rated basis for cancellation in the event
that the Company shall have failed to achieve an annualized renewable fuel
production rate of 500,000,000 gallons per year prior to one year after the Full
Release Date (the "Performance Hurdle").
PRO FORMA SHARE STRUCTURE
The Agreements require the Company to file and make effective an amendment to
its certificate of incorporation to give effect to a 1-for-1,000 reverse stock
split prior to the initial release of the Junior Purchase Price proceeds.
Immediately thereafter, the Company shall have no less than about 25,000,000
shares of common stock outstanding on a post-split basis prior to conversion of
the Series E Shares and/or exercise of the Junior Warrants.
The following Table 3 is to provide the Company's pro forma share structure on
the assumptions (1) that the 1-for-1,000 reverse stock split has been
implemented, (2) that no Junior Warrants have been exercised, (3) that all
shares of common stock issued upon conversion of the Series E Shares are issued
at the Fixed Price (meaning that the Company's Target Prices have been achieved
as stated in Table 1), and (4) that Management's ownership remains at 51% at the
Full Release Date (meaning that the Performance Hurdle has been achieved):
Table 1 - Release Schedule
Scheduled Release of
Month Junior Purchase Price Series E Shares Fixed Price Target Price
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1 $ 101,201 230 $ 2.00 $ 3.33
2 $ 101,201 230 $ 2.06 $ 3.43
3 $ 101,201 230 $ 2.12 $ 3.54
4 $ 101,201 230 $ 2.19 $ 3.65
5 $ 101,201 230 $ 2.26 $ 3.76
6 $ 101,201 230 $ 2.33 $ 3.89
7 $ 370,888 844 $ 2.41 $ 4.01
8 $ 409,414 931 $ 2.49 $ 4.15
9 $ 447,941 1,019 $ 2.57 $ 4.29
10 $ 486,468 1,107 $ 2.66 $ 4.44
11 $ 524,994 1,194 $ 2.75 $ 4.59
12 $ 563,521 1,282 $ 2.85 $ 4.75
13 $ 602,065 1,370 $ 2.96 $ 4.93
14 $ 640,591 1,457 $ 3.06 $ 5.10
15 $ 679,118 1,545 $ 3.18 $ 5.29
16 $ 717,645 1,633 $ 3.29 $ 5.49
17 $ 756,171 1,720 $ 3.42 $ 5.70
18 $ 794,698 1,808 $ 3.55 $ 5.92
19 $ 833,224 1,895 $ 3.69 $ 6.15
20 $ 871,751 1,983 $ 3.83 $ 6.39
21 $ 910,278 2,071 $ 3.98 $ 6.64
22 $ 948,804 2,158 $ 4.14 $ 6.91
23 $ 987,348 2,257 $ 4.31 $ 7.18
24 $ 1,025,875 2,346 $ 4.49 $ 7.48
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Total $ 13,178,000 30,000
Table 2 - Junior Warrant Exercise Price Schedule
Junior Warrant Amount Exercise Price Proceeds
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Warrant A 102,903 $ 2.40 $ 246,967
Warrant B 99,906 $ 2.47 $ 246,967
Warrant C 96,941 $ 2.55 $ 246,967
Warrant D 94,012 $ 2.63 $ 246,969
Warrant E 91,121 $ 2.71 $ 246,964
Warrant F 88,271 $ 2.80 $ 246,963
Warrant G 313,219 $ 2.89 $ 905,108
Warrant H 334,584 $ 2.99 $ 999,134
Warrant I 354,057 $ 3.09 $ 1,093,151
Warrant J 371,702 $ 3.19 $ 1,187,180
Warrant K 387,586 $ 3.31 $ 1,281,204
Warrant L 401,774 $ 3.42 $ 1,375,234
Warrant M 414,352 $ 3.55 $ 1,469,291
Warrant N 425,327 $ 3.68 $ 1,563,203
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Total 3,575,754 $ 11,355,305
Table 3 - Pro Forma Share Structure
Pro Forma Common Shares Pro Forma Common Shares
at Completion of Reverse Split at the Full Release Date
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Month Common Shares Percentage Common Shares Percentage
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Public Float 5,000,000 20.00% 5,000,000 6.67%
Management (1) 20,000,000 80.00% 33,957,207 51.00%
Copperbottom Investments, Ltd. (2) - 0.00% 4,655,479 6.99%
Absentia Holdings, Ltd. (2) - 0.00% 4,655,479 6. 99%
Britannia Securities International, Ltd. (2) - 0.00% 4,655,479 6. 99%
Agri-Technologies International, Ltd. (2) - 0.00% 4,655,479 6. 99%
On Time Investments, Ltd. (2) - 0.00% 4,655,479 6. 99%
RND Company, Ltd. (2) - 0.00% 1,449,385 2.18%
Sequence Investments, Ltd. (2) - 0.00% 1,449,385 2.18%
Rooftop Holdings, Ltd. (2) - 0.00% 1,449,385 2.18%
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Total 25,000,000 100.00% 66,582,759 100.00%
(1) The shares of Common Stock initially held by Management are subject to the
conditions noted above, and are subject to upward modification to maintain
the 51% Minimum Ownership requirement, and downward modification to 30% in
the event that the Performance Hurdle is not met. Viridis and Corn 2.0, LLC
collectively hold 637,500 shares of Company Series D Preferred Stock, which
shares are convertible at all times into 51% of the outstanding Common
Stock (when taken with each holder's then-current Common Stock holdings)
until the Full Release Date. An additional 302,103 shares of Series D
Preferred Stock are beneficially owned by Viridis and are subject to the
Restrictions Applicable to Management noted above.
(2) The shares of common stock shown for the Junior Investors are estimated
based on the assumed conversion of the Series E Shares at the Fixed Prices
shown in Table 1 above, which prices were established based on the
assumption that the Company successfully achieves a weighted average Target
Price of $5.49 (the "WA Price") between the initial payment of the Junior
Purchase Price and the Full Release Date. This WA Price corresponds to a
Company market capitalization of about $365,539,000 at the Performance
Hurdle. The shares of Common Stock issuable to the Junior Investors (and
the five Senior Investors) upon Conversion of the Series E Shares shall be
subject to upward modification in the event that the Company fails to
achieve the Target Prices set forth in Table 1 above. Any such increase
would be offset by downward modification given the operation of the 51%
Management Minimum Ownership requirement if the Performance Hurdle is not
met.
Item 9.01 Financial Statements and Exhibits
Exhibits
10-a Unit Subscription Agreement dated October 30, 2009 among EcoSystem
Corporation, RND Company, Ltd., Rooftop Holdings, Ltd., and Sequence
Investments, Ltd.- to be filed by amendment
10-b Account Management Agreement dated July 24, 2009 among EcoSystem
Corporation, RND Company, Ltd., Rooftop Holdings, Ltd., Sequence
Investments, Ltd., Viridis Capital, LLC, and Elco Securities, Ltd. - to be
filed by amendment
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.
Dated: November 13, 2009 ECOSYSTEM CORPORATION
By: /s/ Kevin Kreisler
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Kevin Kreisler
Chairman