North
Carolina
|
000-52092
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56-2012361
|
(State
or other jurisdiction of incorporation)
|
(Commission
File Number)
|
(I.R.S.
Employer Identification No.)
|
80
Heng Shan Road, Kun Lun Shopping Mall, Harbin, The People’s Republic of
China, 150090
|
(Address
of principal executive offices)
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Registrant’s
telephone number, including area code:
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011-86-451-8233-5794
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(a)
|
an
aggregate of (i) 6,486,486 shares of the Company’s series A convertible
preferred stock, which is convertible into one share of the Company’s
common stock, subject to adjustment, and five-year common stock purchase
warrants to purchase 6,000,000 shares of common stock at $.69 per
share,
3,000,000 shares of common stock at $.80 per share and 3,000,000
shares of
common stock at $1.00 per share, or
|
(b)
|
an
aggregate of (i) 6,486,486 shares of common stock and five-year common
stock purchase warrants to purchase 6,000,000 shares of common stock
at
$.69 per share, 3,000,000 shares of common stock at $.80 per share
and
3,000,000 shares of common stock at $1.00 per share, or
|
(c)
|
if
the Company does not amend its articles of incorporation to authorize
the
issuance of preferred stock and file a certificate of designation
setting
forth the rights of the holders of the series A preferred stock,
as
required by the securities purchase agreement pursuant to which the
notes
were issued and the terms of the notes, 18,486,486 shares of common
stock.
|
Name
|
|
Investment
|
|
Note
|
|
Shares
|
|
$.69
Warrants
|
|
$.80
Warrants
|
|
$1.00
Warrants
|
|||||||
Barron
Partners, LP
|
$
|
2,175,000
|
$
|
2,175,000
|
5,878,378
|
5,437,500
|
2,718,750
|
2,718,750
|
|||||||||||
Eos
Holdings
|
125,000
|
125,000
|
337,838
|
312,500
|
156,250
|
156,250
|
|||||||||||||
Hua-Mei
21st
Century
Partners, LP
|
100,000
|
100,000
|
270,270
|
250,000
|
125,000
|
125,000
|
|||||||||||||
Total
|
$
|
2,400,000
|
$
|
2,400,000
|
6,486,486
|
6,000,000
|
3,000,000
|
3,000,000
|
$.69
Warrant
|
|
$.80
Warrant
|
|
$1.00
Warrant
|
|
|||||
|
|
Number
of Shares
|
|
Exercise
Price
|
|
Exercise
Price
|
||||
Unadjusted
|
$
|
.69
|
$
|
.80
|
$
|
1.00
|
||||
20%
shortfall
|
$
|
.552
|
$
|
.64
|
$
|
.80
|
||||
50%
shortfall
|
$
|
.345
|
$
|
.40
|
$
|
.50
|
·
|
The
Company is required to file a proxy statement with the Securities
and
Exchange Commission seeking stockholder approval of an amendment
to the
Company’s articles of incorporation which creates a class of preferred
stock and thereafter hold a stockholders’ meeting to seek approval of the
certificate of amendment. The board of directors has approved the
amendment to the articles of
incorporation.
|
·
|
Upon
filing the articles of amendment, the Company is to file a certificate
of
designation setting forth the rights, preferences and privileges
of the
holders of the series A preferred
stock.
|
·
|
Upon
the filing of both the restated certificate of incorporation and
the
certificate of designation, the notes are automatically converted
into an
aggregate of (i) 6,486,486 shares of the Company’s series A convertible
preferred stock, which is convertible into one share of the Company’s
common stock, subject to adjustment, and five-year common stock
purchase
warrants to purchase 6,000,000 shares of common stock at $.69 per
share,
3,000,000 shares of common stock at $.80 per share and 3,000,000
shares of
common stock at $1.00 per share.
|
·
|
The
Company shall place in escrow 2,000,000 shares of common stock
and Mr.
Xiqun Yu, the Company chief executive officer and principal stockholder,
shall place in escrow 2,000,000 shares of common stock. Upon the
filing of
the certificate of amendment and the certificate of designation,
the
Company will issue a certificate for 2,000,000 shares of series
A
preferred stock in exchange for the certificate for 2,000,000 shares
of
common stock, and the Company shall cancel the returned shares
of common
stock.
|
·
|
If
the Company’s pre-tax income for 2007 is less than $0.06647 per share, on
a fully-diluted basis, the percentage shortfall shall be determined
by
dividing the amount of the shortfall by the target number. If the
percentage shortfall is equal to or greater than 33 1/3%, then
the the
2,000,000 shares of series A preferred stock shall be delivered
to the
investors and the 2,000,000 shares of common stock placed in escrow
by Mr.
Yu shall be delivered to the Company, and the Company shall cancel
such
shares.
|
·
|
If
the percentage shortfall is less than 33 1/3%, the escrow agent
shall:
|
§ |
(i)
deliver to the investors such number of shares of series A preferred
stock
as is determined by multiplying the percentage shortfall by 2,000,000
shares, and (ii) deliver to the balance of the 2,000,000 shares of
series
A preferred stock to the Company, and the Company shall cancel such
shares, and
|
§ |
(i)
deliver to the Company such number of shares of common stock as is
determined by multiplying the percentage shortfall by 2,000,000 shares,
and the Company shall cancel such shares, and (d) deliver to Mr.
Yu
the
balance of the 2,000,000 shares that were not transferred to the
Company.
|
·
|
The
Company agreed to have appointed such number of independent directors
that
would result in a majority of its directors being independent
directors,
that the audit committee would be composed solely of independent
directors
and the compensation committee would have a majority of independent
directors. Failure of the Company to meet these requirements
for a period
of 60 days for an excused reason, as defined in the Purchase
Agreement, or
75 days for a reason which is not an excused reason, would results
in the
imposition of liquidated damages which are payable in cash or
additional
shares of series A preferred stock.. The liquidated damages are
computed
in an amount equal to 12% per annum of the principal amount of
notes
outstanding, up to a maximum of $288,000, which is payable in
cash or
stock, at the election of the
investors.
|
·
|
The
Company and the investors entered into a registration rights
agreement
pursuant to which the Company agreed to file, within 60 days
after the
closing, a registration statement covering the common stock issuable
upon
conversion of notes and the series A preferred stock and exercise
of the
warrants. The failure of the Company to meet this schedule and
other
timetables provided in the registration rights agreement would
result in
the imposition of liquidated damages, which are payable through
the
issuance of additional shares of series A preferred stock at
the rate of
2,130 shares of series A preferred stock for each day, based
on the
proposed registration of all of the underlying shares of common
stock,
with a maximum of 900,000 shares. The registration rights agreement
also
provides for additional demand registration rights in the event
that the
investors are not able to register all of the shares in the initial
registration statement.
|
·
|
The
investors have a right of first refusal on future
financings.
|
·
|
With
certain limited exceptions, if the Company issues stock at a
purchase
price or warrants or convertible securities at an exercise or
conversion
price which is less than the conversion price of the series A
preferred
stock or the exercise price of the warrants, (a) the conversion
price of
the note and the series A preferred stock is reduced to the lower
price
and (b) exercise price will be reduced pursuant to a weighted
average
formula.
|
·
|
The
Company is restricted from issuing convertible debt or preferred
stock or
from having debt in an amount greater than twice the Company’s earnings
before interest, taxes, depreciation and
amortization.
|
·
|
The
Company’s officers and directors agreed, with certain limited exceptions,
not to publicly sell shares of common stock for 27 months or
such earlier
date as all of the convertible securities and warrants have been
converted
or exercised and the underlying shares of common stock have been
sold.
|
·
|
The
Company paid Barron Partners $50,000 for its due diligence
expenses.
|
(a)
|
Financial
Statements
|
None |
(b)
|
Exhibits
|
99.1
|
Securities
purchase agreement dated May 8, 2007, among the Company, Barron
Partners,
LP and the other investors named therein
|
99.2
|
3%
Convertible Note issued to Barron Partners, LP
|
99.3
|
3%
Convertible Note issued to Eos Holdings
|
99.4
|
3%
Convertible Note issued to Hua-Mei 21st Century Partners,
LP
|
99.5
|
Registration
rights agreement, dated May 8, 2007, among the Company, Barron
Partners,
LP and the other investors named therein
|
99.6
|
Closing
escrow agreement, dated May 8, 2007, among the Company, Barron
Partners,
LP and the other investors named therein and the escrow agent named
therein
|
99.7
|
Letter
agreement dated May 8, 2007 between the Company and SBI Advisors
LLC, and
related payment letter
|
99.8
|
Press
release
|
China Education Alliance, Inc | ||
|
|
|
Dated: May 14, 2007 | By: | /s/ Xiqun Yu |
Xiqun Yu | ||
Chief Executive Officer |