UNITED STATES 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
June 29, 2006
Date of Report (Date of earliest event reported)
KIWA BIO-TECH PRODUCTS GROUP CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 000-33167 84-0448400
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
415 WEST FOOTHILL BLVD, SUITE 206, CLAREMONT, CALIFORNIA 91711-2766
(Address of principal executive offices)
(909) 626-2358
(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:
|_| 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 AGREEMENTS.
On June 29, 2006, Kiwa Bio-Tech Products Group Corporation (the "Company")
entered into a securities purchase agreement (the "Purchase Agreement") with six
institutional investors (collectively, the "Purchasers") for the issuance and
sale of (1) 6% secured convertible notes, due three years from the date of
issue, in the aggregate principal amount of U.S. $2,450,000 (the "Notes"),
convertible into shares of the Company's common stock (the "Conversion Shares"),
and (2) warrants (the "Warrants") to purchase 12,250,000 shares of the Company's
common stock.
In conjunction with the sale and issuance of the Notes, the Company
entered into a Registration Rights Agreement with the Purchasers pursuant to
which the Company is required to file within 45 days a registration statement
under the Securities Act covering the resale of the shares issued upon
conversion of the Notes. The Registration Rights Agreement imposes financial
penalties if the Company does not timely complete the filing, or the
registration statement is not declared effective within 120 days of being filed.
The penalties are capped at 10% of the outstanding principal amount of the
Notes.
The closing for the sale of the Notes is to occur in three stages. A first
sale of Notes with a principal amount of $857,500 closed on June 29, 2006.
Additional Notes with a principal amount of $735,000 are to be issued and sold
within two days of the filing of the registration statement, and additional
Notes with a principal amount of $857,500 are to be issued and sold within two
days of the registration statement being declared effective.
The conversion price of the Notes is based on an average of the trading
price of the Company's common stock on the OTC Bulletin Board. The conversion
price is discounted 50% before the registration statement is filed, 45% after it
is filed if filed before the 45-day deadline, and 40% if the registration
statement becomes effective before the 120-day deadline. The conversion price is
also adjusted for certain subsequent issuances of any equity securities of the
Company at prices below the conversion price then in effect. The Notes contain a
volume limitation that prohibits the holder from converting further Notes if by
doing so would cause the holder and its affiliates to hold more than 4.99% of
the Company's outstanding common stock. In addition, the holder agrees that it
will not convert more than $120,000 principal amount of Notes per calendar
month.
The exercise price of the Warrants is $0.45 per share, subject to
anti-dilution adjustments pursuant to a broad-based weighted average formula for
subsequent issues of equity securities by the Company below the trading price of
the shares. The Purchase Agreement requires the Company to maintain a reserve of
authorized common stock equal to 110% of the number of shares issuable upon full
conversion of the Notes and exercise of the Warrants. The Purchase Agreement
imposes financial penalties if the authorized number of shares of common stock
is insufficient to satisfy the reserve requirements. The Notes and the Warrants
also impose financial penalties on the Company if it fails to timely deliver
common stock upon conversion of the Notes and exercise of the Warrants,
respectively.
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To enable reservation of a sufficient amount of authorized shares that may
be issued pursuant to conversion of the Notes and exercise of the Warrants, the
Company must amend its Certificate of Incorporation to increase the number of
authorized shares of common stock. The Purchase Agreement requires the Company
to file with the SEC a proxy statement to solicit shareholder approval to
increase the number of authorized shares of common stock no later than August 1,
2006, and to use its best efforts to obtain shareholder approval by November 1,
2006. The Company incurs a financial penalty if it breaches this or other
affirmative covenants in the Purchase Agreement.
The Note requires the Company to procure the Purchaser's consent to take
certain actions including to pay dividends, repurchase stock, incur debt,
guaranty obligations, merge or restructure the Company, or sell significant
assets.
The Company's obligations under the Notes and the Warrants are secured by
a first priority security interest in the Company's intellectual property
pursuant to an Intellectual Property Security Agreement with the Purchasers, and
by a first priority security interest in all of the Company's other assets
pursuant to a Security Agreement with the Purchasers. In addition, the Company's
Chief Executive Officer has pledged all of his common stock of the Company as
collateral security for the Company's obligations under the Notes and the
Warrants.
The Purchasers are accredited investors as defined under the Securities
Act and the Notes and the Warrants and the underlying common stock upon
conversion and exercise will be issued without registration under the Securities
Act in reliance on the exemption provided by Rule 506 under Regulation D under
the Securities Act.
The Purchasers of the Notes and Warrants were procured with the assistance
of an investment bank pursuant to an engagement letter agreement with the
Company. Pursuant to the engagement, the investment bank is entitled to a cash
fee equal to 8% of the aggregate proceeds raised in the financing and warrants
for 8% of the securities issued in the financing. The warrants are exercisable
for three years and will have an exercise price equal to 105% of the purchase
price of the Notes and Warrants.
The Company intends to use the proceeds from the sale of the Notes and the
Warrants for general working capital needs and research, development and sale of
the Company's bio-fertilizer and anti-viral aerosol agent products, and to pay
outstanding obligations to service providers.
A copy of the Purchase Agreement, Form of Note, Form of Warrant,
Registration Rights Agreement, Security Agreement, Intellectual Property
Security Agreement, and Pledge Agreement are filed as exhibits to this report.
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ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN
OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT
See Item 1.01 above.
ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES
See Item 1.01 above.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits
EXHIBIT NO. DESCRIPTION
10.01 Securities Purchase Agreement, dated as of June 29, 2006
between Kiwa Bio-Tech Products Group Corporation and AJW
Partners, LLC, AJW Offshore, Ltd., AJW Qualified Partners,
LLC, New Millennium Capital Partners II, LLC, Double U Master
Fund LP, and Nite Capital LP (collectively, the "Purchasers")
10.02 Registration Rights Agreement, dated as of June 29, 2006
between Kiwa Bio-Tech Products Group Corporation and the
Purchasers
10.03 Security Agreement, dated as of June 29, 2006, between Kiwa
Bio-Tech Products Group Corporation and the Purchasers
10.04 Intellectual Property Security Agreement, dated as of June 29,
2006, between Kiwa Bio-Tech Products Group Corporation and the
Purchasers
10.05 Pledge Agreement, dated as of June 29, 2006, among Kiwa
Bio-Tech Products Group Corporation, Wei Li, and the
Purchasers
10.06 Form of Callable Secured Convertible Note, dated as of June
29, 2006, issued by Kiwa Bio-Tech Products Group Corporation
to the Purchasers
10.07 Form of Stock Purchase Warrant, dated as of June 29, 2006,
issued by Kiwa Bio-Tech Products Group Corporation to the
Purchasers
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Date: July 5, 2006
By: /s/ Wei Li
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Name: Wei Li
Title: Chairman of Board of Directors and Chief Executive Officer
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