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: APRIL 13, 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)
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):
|_| 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 14-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13-4(e) under the
Exchange Act (17 CFR 240.13e-4(c))
SECTION 1 - REGISTRANT'S BUSINESS AND OPERATIONS
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
(a) In connection with the closing of our acquisition of all of the
outstanding capital stock of Network System Technologies, Inc., an Illinois
corporation ("NST"), as discussed in Item 2.01 below, on April 13, 2006, we
entered into several material agreements. The material agreements include a
stock purchase agreement, a promissory note, two registration rights agreements,
a lock-up agreement and a consulting and subcontractor agreement. The
descriptions of such agreements contained in Item 2.01 below are incorporated
herein by reference.
(b) On April 13, 2006, NST executed a Joinder Agreement to the
following financing agreements in connection with our existing revolving line of
credit and term note facilities from Laurus Master Fund, Ltd. ("Laurus"): (i) a
Securities Purchase Agreement, dated as of May 13, 2004, (ii) a Security
Agreement, dated as of February 6, 2006 and (iii) a Securities Purchase
Agreement, dated as of March 31, 2006. Pursuant to the Joinder Agreement,
NST was made a co-borrower thereunder, agreed to guarantee our obligations
agreement thereunder and granted in favor of Laurus a security interest in
all of its assets.
The above descriptions of the material agreements is not a complete
description of all of the terms of such material agreements and are qualified in
their entirety by reference to the actual agreements, copies of which are
included as exhibits to this Current Report on Form 8-K.
SECTION 2 - FINANCIAL INFORMATION
ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.
On April 13, 2006 (the "Closing Date"), we acquired all of the
outstanding capital stock (the "NST Stock") of Network System Technologies,
Inc., an Illinois corporation ("NST"). The acquisition was effected pursuant to
a Stock Purchase Agreement, dated as of the Closing Date (the "Stock Purchase
Agreement"), by and between our company and Joseph J. Graziano ("Graziano"), the
sole stockholder of NST.
The consideration paid for the NST Stock on the Closing Date was
approximately $8.2 million, which consisted of $5.5 million in cash, the
issuance of 1,034,483 shares of our common stock and the issuance of an
unsecured promissory note in the amount of $1.5 million (the "Note"). In
addition, the Stock Purchase Agreement contains an earn-out provision pursuant
to which Transitional Management Consultants, Inc. ("TMC"), a newly-formed
corporation owned by Graziano, may receive additional unregistered shares of our
common stock based upon certain levels of EBITDA (as defined in the Stock
Purchase Agreement) achieved by NST during the twenty-four month period ended
March 31, 2008. The maximum number of shares issuable under the earn-out is
1,120,690 shares (subject to customary adjustments for stock splits, stock
dividends and similar transactions) if NST's EBITDA is $4 million or greater
during such period and provided certain other conditions are met. In addition,
TMC's right to receive the earn-out described above is subject to the continued
provision of consulting services by Graziano through TMC to us through March 31,
2008, with certain exceptions. If the services terminate prior to such date, TMC
may under certain circumstances receive a pro rated portion of the earn-out
amount.
The cash amounts paid on the Closing Date were provided pursuant to our existing
line of credit and term note from Laurus Master Fund, Ltd., which was amended on
the Closing Date to make NST a co-borrower thereunder.
The Note accrues interest at an annual rate of one-half percent (1/2%).
We are required to make eight equal payments of principal and interest in the
amount of One Hundred Ninety Thousand One Hundred Ninety and 38/100 Dollars
($190,190.38), the first payment of which is due on July 15, 2006, and the seven
remaining payments being due on the first day of September , December, March and
June during the period beginning on September 1, 2006 and ending on March 1,
2008. The Note further provides that all unpaid principal and accrued interest
shall become immediately due and payable upon the occurrence of an event of
default (as defined in the Note). Such events of default include, among others,
the occurrence either of the following events: (i) our failure to make payment
when due, subject to a five (5) notice and cure period or (ii) our failure to
observe, keep or comply with any provision or requirement contained in the Stock
Purchase Agreement.
Concurrently with the consummation of the acquisition, we granted
registration rights to Graziano with respect to the shares of our common stock
issued in the acquisition and we granted registration rights to TMC with respect
to the shares issuable under the earn-out provision contained in the Stock
Purchase Agreement. Pursuant to each registration rights agreement executed on
the Closing Date, at any time after April 13, 2008, the holders of such rights
shall have the right to cause us to register under the Securities Act of 1933,
as amended, the shares of our common stock issued on the Closing Date and the
shares of common stock issuable pursuant to the earn-out described above. The
agreements also provide that, after April 13, 2008, the holders shall have
`piggy-back' registration rights with respect to such shares.
We also entered into a lock-up agreement with Graziano dated as of the
Closing Date. Under such agreement, Graziano agreed not to sell or transfer the
shares he received pursuant to the Stock Purchase Agreement until after April
13, 2008, with certain exceptions.
In connection with the consummation of the acquisition, we entered into a
consulting and subcontractor agreement (the "Consulting Agreement") dated as of
the Closing Date with TMC that provides that TMC will provide consulting
services to us relating to the business of NST and will receive a monthly fee
of $24,251. The agreement has a two year term and provides that TMC may
terminate the agreement for any reason upon thirty (30) days prior written
notice and that we may terminate the agreement, for cause (as defined in the
Consulting Agreement), at any time upon written notice to TMC. In addition, TMC
has the right to earn an annual cash bonus based upon certain levels of EBITDA
(as defined in the Consulting Agreement) achieved by NST during the twelve
(12) months ended March 31, 2007 and 2008. The maximum bonus amount is equal
to $150,000 plus twenty-five percent (25%) of the amount by which EBITDA
exceeds $2 million during the relevant annual period. TMC's right to receive
the earn-out described above is subject to the continued provision of consulting
services by TMC to us through end of each such period, with certain exceptions.
Pagemill Partners LLC acted as our exclusive mergers and acquisitions
advisor in the acquisition and in consideration of its services we paid Pagemill
Partners LLC the sum of $475,000.
The above description of the acquisition and the material agreements is
not a complete description of all of the terms of the transaction or the
material agreements 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.
ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER
AN OFF-BALANCE SHEET ARRANGEMENT OF REGISTRANT.
The description of the Note and the earn-out provision in Item 2.01
hereof is incorporated herein by reference.
SECTION 3 - SECURITIES AND TRADING MARKETS
ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES.
On April 13, 2006, in connection with the closing of the transactions
discussed in Item 2.01 above, we issued to the sole stockholder of NST, or his
designees, the Note and an aggregate of 1,034,483 shares of common stock. Such
securities were issued in reliance on the exemption from registration provided
by Section 4(2) of the Securities Act, on the basis that their issuance did not
involve a public offering, no underwriting fees or sales commissions were paid
by us in connection with such sale and the recipient of the securities
represented to us that he was an "accredited investor," as defined in the
Securities Act of 1933, as amended.
SECTION 7 - REGULATION FD
ITEM 7.01. REGULATION FD DISCLOSURE
On April 13, 2006, we issued a press release (the "Press Release") in
connection with the transactions set forth in Item 2.01 above, a copy of which
is attached hereto as Exhibit 99.1.
The information contained in the accompanying Press Release is being
furnished pursuant to "Item 7.01 Regulation FD." The information contained in
the accompanying Press Release shall not be incorporated by reference into any
filing of our company, whether made before or after the date hereof, regardless
of any general incorporation language in such filing, unless expressly
incorporated by specific reference to such filing. The information in the Press
Release attached hereto, shall not be deemed to be "filed" for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise
subject to the liabilities of that section or Sections 11 and 12(a)(2) of the
Act.
SECTION 9 - FINANCIAL STATEMENTS AND EXHIBITS
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Financial statements, if any, required by this item will be filed
by within the time period prescribed by this item.
(b) PRO FORMA FINANCIAL INFORMATION.
Pro forma financial information, if any, required by this item
will be filed by within the time period prescribed by this item.
(c) EXHIBITS.
Number Documents
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2.1 Stock Purchase Agreement, dated as of April 13, 2006, by and between
our company and Network System Technologies, Inc.
10.1 Promissory Note, dated April 13, 2006, by our company in favor of
Joseph J. Graziano.
10.2 Registration Rights Agreement, dated as of April 13, 2006, by and
between our company and Joseph J. Graziano.
10.3 Registration Rights Agreement, dated as of April 13, 2006, by and
between our company and Transitional Management Consultants, Inc.
10.4 Consulting and Subcontractor Agreement, dated as of April 13, 2006,
by and between our company, Network System Technologies, Inc. and
Transitional Management Consultants, Inc.
10.5 Lock-Up Agreement, dated as of April 13, 2006, by and between our
company and Joseph J. Graziano.
10.6 Joinder Agreement, dated as of April 13, 2006, by Network System
Technologies, Inc. in favor of Laurus Master Fund Ltd.
99.1 Press Release, dated April 17, 2006, announcing our acquisition of
Network System Technologies, Inc.
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: April 17, 2005 By: /s/ Thomas P. Sweeney III
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Thomas P. Sweeney III
Chief Executive Officer
EXHIBIT INDEX
Number Documents
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2.1 Stock Purchase Agreement, dated as of April 13, 2006, by and between
our company and Network System Technologies, Inc.
10.1 Promissory Note, dated April 13, 2006, by our company in favor of
Joseph J. Graziano.
10.2 Registration Rights Agreement, dated as of April 13, 2006, by and
between our company and Joseph J. Graziano.
10.3 Registration Rights Agreement, dated as of April 13, 2006, by and
between our company and Transitional Management Consultants, Inc.
10.4 Consulting and Subcontractor Agreement, dated as of April 13, 2006,
by and between our company, Network System Technologies, Inc. and
Transitional Management Consultants, Inc.
10.5 Lock-Up Agreement, dated as of April 13, 2006, by and between our
company and Joseph J. Graziano.
10.6 Joinder Agreement, dated as of April 13, 2006, by Network System
Technologies, Inc. in favor of Laurus Master Fund Ltd.
99.1 Press Release, dated April 17, 2006, announcing our acquisition of
Network System Technologies, Inc.