SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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DATE OF REPORT: FEBRUARY 6, 2006
(Date of earliest event reported)
INCENTRA SOLUTIONS, INC.
(Exact name of Registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation)
333-16031 86-0793960
(Commission File No.) (I.R.S. Employer
Identification No.)
1140 PEARL STREET
BOULDER, COLORADO 80302
(Address of principal executive offices; zip code)
(303) 440-7930
(Registrant's telephone number, including area code)
N/A
(Former Name or Former Address, if changed Since Last Report)
SECTION 1 - REGISTRANT'S BUSINESS AND OPERATIONS
ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
On February 6, 2006, we, together with our wholly owned subsidiaries, PWI
Technologies, Inc., a Washington corporation, Incentra Solutions of California,
Inc., a Delaware corporation, ManagedStorage International, Inc., a Delaware
corporation, and Incentra Solutions International, Inc., a Delaware corporation
(collectively, the "SUBSIDIARIES"), entered into a Security Agreement (the
"SECURITY AGREEMENT") with Laurus Master Fund, Ltd., a Cayman Islands
corporation ("LAURUS"), pursuant to which Laurus agreed to provide us with a
non-convertible revolving credit facility of up to $10 million (the "2006
FACILITY"). The term of the 2006 Facility is three (3) years and borrowings
under the 2006 Facility shall accrue interest on the unpaid principal and
interest at a rate per annum equal to the "prime rate" published in THE WALL
STREET JOURNAL from time to time, plus one percent (1%), subject to a floor of
seven percent (7%). In connection with the 2006 Facility, we executed in favor
of Laurus a secured non-convertible revolving note in the principal amount of
$10 million (the "NOTE"). Interest on borrowings under the Note is payable
monthly on the first day of each month during the term of the Note, commencing
on March 1, 2006. All outstanding principal amounts are due and payable on
February 6, 2009.
We entered into the Security Agreement to pay off our existing $9 million
convertible revolving credit facility with Laurus (the "EXISTING FACILITY"), of
which approximately $6 million was outstanding as of February 6, 2006. Prior to
such date, the outstanding principal amount under the Existing Facility was
potentially convertible into approximately 3.6 million shares of our common
stock, par value $.01 per share (the "COMMON STOCK"). In connection with the
2006 facility, we issued to Laurus the Option (as further described herein) to
purchase 1,071,428 shares of Common Stock. We also entered into an Amendment and
Deferral Agreement (the "AMENDMENT AND DEFERRAL AGREEMENT") with Laurus amending
the Amended and Restated Secured Convertible Term Note (the "2004 NOTE") we
issued to Laurus on May 13, 2004 in the aggregate original principal amount of
$5,000,000, that is payable in full on May 13, 2007 (the "MATURITY DATE").
Pursuant to the Amendment and Deferral Agreement, the monthly principal amount
due Laurus under the 2004 Note for each of January, February, March, April, May
and June 2006, equal to an aggregate of $952,494.66, is deferred until the
Maturity Date. The Security Agreement increased the minimum initial amount
available to us and the Subsidiaries from $6 million under the Existing Facility
to $6.48 million under the 2006 Facility until April 30, 2006. Thereafter, the
maximum principal amount of all borrowings under the 2006 Facility cannot exceed
ninety percent (90%) of the eligible accounts receivable of each Subsidiary,
minus such reserves that Laurus may in good faith deem necessary and
appropriate.
On February 6, 2006, we requested and Laurus agreed to lend an initial
draw under the 2006 Facility of $6.38 million, of which (i) approximately $5.9
million was used to satisfy in full our indebtedness to Laurus under the
Existing Facility, (ii) $375,000 was paid to Laurus as an early termination fee
for the Existing Facility, and (iii) $107,500 was applied towards expenses of
the 2006 Facility.
All loans and obligations owed by the Company and the Subsidiaries to
Laurus arising under the Security Agreement, the Securities Purchase Agreement,
dated as of May 13, 2004, between the Company and Laurus (the "2004 SECURITIES
PURCHASE AGREEMENT"), the Note, the
Option (as defined herein), the Registration Rights Agreement (as herein
defined), the Stock Pledge Agreement (as defined herein), or any other
agreements or documents relating to the relationship between the Company and
Laurus (collectively, the "ANCILLARY DOCUMENTS") or otherwise are secured by a
security interest in substantially all of the assets of our company and the
Subsidiaries pursuant to the terms of the Security Agreement.
In addition, we pledged to Laurus all of the outstanding capital stock of
the Subsidiaries pursuant to a Stock Pledge Agreement (the "STOCK PLEDGE
AGREEMENT") executed by us in favor of Laurus, and each of the Subsidiaries
executed a Subsidiary Guaranty, dated February 6, 2006 (the "SUBSIDIARY
GUARANTEE"), in favor of Laurus, guaranteeing all of our present and future
obligations to Laurus, whether arising under the 2004 Securities Purchase
Agreement and the Related Documents (referred to therein), or under any other
obligations now existing or hereafter arising.
Under the terms of the Security Agreement, if an event of default occurs
under the any of the Ancillary Documents, Laurus has the right to accelerate
payments under the Note and, in addition to any other remedies available to it,
to foreclose upon the assets securing the Note. If an event of default occurs
under any of the Ancillary Documents, within five days after written notice to
us, Laurus may require a payment of one hundred twenty-five percent (125%) of
the unpaid principal balance of the Note, plus accrued interest and fees, which
will become immediately due and payable. Laurus shall also be entitled to
payment of a default interest rate of one and a half percent (1.5%) per month on
all amounts due and such other remedies specified in the Ancillary Documents and
under the Uniform Commercial Code. Such events of default include, without
limitation, the following:
o a failure to make payments of principal and interest under the
Note within three (3) days of when due;
o a material breach by us of any provision contained in any of the
Ancillary Documents (that is not cured within the stated cure
period);
o the filing of any money judgment or similar final process
against us for more than $100,000, which remains unvacated,
unstayed or unbonded for a period of thirty (30) days;
o if we make an assignment for the benefit of our creditors, or a
receiver or trustee is appointed for us, or any form of
bankruptcy or insolvency proceeding is instituted by us, or any
involuntary proceeding is instituted against us if not vacated
within thirty (30) days;
o if our Common Stock is suspended for five (5) consecutive days
or for five (5) days during a ten (10) consecutive day period
from a principal market or pursuant to a stop order issued by
the Securities and Exchange Commission (the "SEC") (provided
that we shall not have been able to cure such trading suspension
within thirty (30) days of our receipt of notice thereof or list
our Common Stock on another principal market within sixty (60)
days of such notice); and
o a failure by us to timely deliver shares of our Common Stock to
Laurus when due upon exercise of the Option.
The Security Agreement contains certain negative covenants that require us
to obtain the prior written consent or other actions of Laurus in order for us
to take certain actions at any time
when borrowings remain outstanding under the 2006 Facility. These negative
covenants include, without limitation, restrictions on our ability to:
o incur or assume indebtedness (exclusive of trade debt) in excess
of $100,000;
o guarantee or assume any liability in connection with any
obligations of another person or entity (except on behalf of the
Subsidiaries in the ordinary course of business);
o pay or make any dividend or distribution on any class of our
capital stock or the capital stock of the Subsidiary or issue
any preferred stock; or
o enter into any merger, consolidation or reorganization, with
limited exceptions.
OPTION. We issued to Laurus a common stock purchase option (the "OPTION"),
entitling Laurus to purchase up to 1,071,428 shares of our Common Stock at an
exercise price of $.001 per share (subject to applicable adjustments) (the
"EXERCISE PRICE"). The Option expires on February 26, 2026. Pursuant to the
Security Agreement, Laurus may not sell any shares of Common Stock it receives
through the exercise of the Option (the "OPTION SHARES") prior to January 31,
2007. Additionally, Laurus agreed not to sell an amount of Option Shares that
would exceed thirty-five percent (35%) of the aggregate dollar trading volume of
our Common Stock for the twenty-two (22) trading day period immediately
preceding such sale.
Laurus may not exercise the Option in connection with a number of shares
of Common Stock which would exceed the difference between (i) 4.99% of the
issued and outstanding shares of Common Stock and (ii) the number of shares of
Common Stock beneficially owned by Laurus except upon (i) seventy-five (75)
days' prior notice from Laurus to us or (ii) upon the occurrence and continuance
of an event of default under the Security Agreement.
REGISTRATION RIGHTS AGREEMENT. Pursuant to the terms of an Amended and
Restated Registration Rights Agreement between Laurus and our company (the
"REGISTRATION RIGHTS AGREEMENT"), which amends and restates in its entirety that
certain Registration Rights Agreement between Laurus and our company dated May
13, 2004, we are obligated to file a post-effective amendment to our existing
Registration Statement on Form SB-2 originally filed on June 29, 2004 to include
the shares of Common Stock issuable (i) upon exercise of the Option, (ii) as a
result of adjustments made to the Exercise Price pursuant to the Option, (iii)
upon exercise of the warrant issued pursuant to the June 30, 2005 Security
Agreement, and (iv) as a result of adjustments made to the Exercise Price
pursuant to such warrant.
The above discussion describes certain of the material terms of the
financing transaction with Laurus, is not a complete description of the material
terms of the transaction and is qualified in its entirety by reference to the
agreements entered into in connection with the transaction, copies of which are
included as exhibits to this Current Report on Form 8-K and the text of which is
incorporated herein by reference.
SECTION 2 - FINANCIAL INFORMATION
ITEM 2.03. CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION
UNDER AN OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT.
The disclosures contained in Item 1.01 are incorporated herein by
reference.
SECTION 3 - SECURITIES AND TRADING MARKETS
ITEM 3.02. UNREGISTERED SALES OF EQUITY SECURITIES.
In connection with the transactions described in Item 1.01, we issued to
Laurus the Note and Option described therein. The Note and Option were issued in
reliance on the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, on the basis that their issuance did not involve a
public offering, no underwriting fees or commissions were paid by us in
connection with such sale and Laurus represented to us that it is an "accredited
investor", as defined in the Securities Act of 1933.
SECTION 9 - FINANCIAL STATEMENT AND EXHIBITS
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
Number Documents
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10.1 Security Agreement, dated as of February 6, 2006, by and among
our company, PWI Technologies, Inc., Incentra Solutions of
California, Inc., ManagedStorage International, Inc., and
Incentra Solutions International, Inc. and of Laurus Master
Fund, Ltd.
10.2 Secured Non-Convertible Revolving Note, dated as of February
6, 2006, executed by our company, PWI Technologies, Inc.,
Incentra Solutions of California, Inc., ManagedStorage
International, Inc., and Incentra Solutions International,
Inc. in favor of Laurus Master Fund, Ltd.
10.3 Stock Pledge Agreement, dated as of February 6, 2006, executed
by our company and ManagedStorage International, Inc. in favor
of Laurus Master Fund, Ltd.
10.4 Subsidiary Guaranty, dated as of February 6, 2006, executed by
PWI Technologies, Inc., Incentra Solutions of California,
Inc., ManagedStorage International, Inc., and Incentra
Solutions International, Inc. in favor of Laurus Master Fund,
Ltd.
10.5 Registration Rights Agreement, dated as of February 6, 2006,
by and between our company and Laurus Master Fund, Ltd.
10.6 Common Stock Purchase Option, dated as of February 6, 2006,
executed by our company in favor of Laurus Master Fund, Ltd.
10.7 Grant of Security Interest in Patents and Trademarks, dated as
of February 6, 2006, executed by our company and
ManagedStorage International, Inc. in favor of Laurus Master
Fund, Ltd.
10.8 Amendment and Deferral Agreement, dated as of February 6,
2006, by and between our company and Laurus Master Fund, Ltd.
SIGNATURES
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.
INCENTRA SOLUTIONS, INC.
Date: February 10, 2006 By: /s/ Thomas P. Sweeney III
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Thomas P. Sweeney III
Chief Executive Officer
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EXHIBIT INDEX
Number Documents
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10.1 Security Agreement, dated as of February 6, 2006, by and among
our company, PWI Technologies, Inc., Incentra Solutions of
California, Inc., ManagedStorage International, Inc., and
Incentra Solutions International, Inc. and of Laurus Master
Fund, Ltd.
10.2 Secured Non-Convertible Revolving Note, dated as of February
6, 2006, executed by our company, PWI Technologies, Inc.,
Incentra Solutions of California, Inc., ManagedStorage
International, Inc., and Incentra Solutions International,
Inc. in favor of Laurus Master Fund, Ltd.
10.3 Stock Pledge Agreement, dated as of February 6, 2006, executed
by our company and ManagedStorage International, Inc. in favor
of Laurus Master Fund, Ltd.
10.4 Subsidiary Guaranty, dated as of February 6, 2006, executed by
PWI Technologies, Inc., Incentra Solutions of California,
Inc., ManagedStorage International, Inc., and Incentra
Solutions International, Inc. in favor of Laurus Master Fund,
Ltd.
10.5 Registration Rights Agreement, dated as of February 6, 2006,
by and between our company and Laurus Master Fund, Ltd.
10.6 Common Stock Purchase Option, dated as of February 6, 2006,
executed by our company in favor of Laurus Master Fund, Ltd.
10.7 Grant of Security Interest in Patents and Trademarks, dated as
of February 6, 2006, executed by our company and
ManagedStorage International, Inc. in favor of Laurus Master
Fund, Ltd.
10.8 Amendment and Deferral Agreement, dated as of February 6,
2006, by and between our company and Laurus Master Fund, Ltd.
7