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: MAY 19, 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 May 19, 2006, we entered into a Note Purchase Agreement (the
"PURCHASE AGREEMENT") with eleven "accredited investors" (the "PURCHASERS"),
pursuant to which we issued and sold unsecured convertible term notes (the
"CONVERTIBLE NOTES") in the aggregate principal amount of nine hundred sixty
thousand dollars ($960,000) in connection with the offering by our company of up
to four million dollars ($4,000,000) aggregate principal amount of such
Convertible Notes. The Convertible Notes are convertible, at the option of the
Purchasers, into shares our common stock, par value $0.001 per share (the
"COMMON STOCK"), at a conversion price of $1.40 per share (as adjusted for stock
splits, stock dividends and the like, the "Conversion Price"). Of the $960,000
aggregate principal amount purchased by investors in this offering on May 19,
2006, $675,000 aggregate principal amount was purchased by certain officers and
directors of our company, including Mr. James Wolfinger, a member of our board
of directors, Mr. Thomas Sweeney, our Chief Executive Officer and Chairman of
the Board, Mr. Shawn O'Grady, our President and Chief Operating Officer, Mr.
Paul McKnight, our Chief Financial Officer, Mr. Michel Knaisch, President of our
Front Porch Digital division, Mr. Walter Hinton, our Chief Technology Officer
and Mr. Matthew Richman, our Senior Vice President of Corporate Development. The
remaining $285,000 aggregate principal amount of the Convertible Notes was
purchased by certain employees or consultants of our company. We also issued to
the Purchasers five-year warrants (the "WARRANTS") to purchase an aggregate of
227,368 shares of our Common Stock, at an exercise price $1.40 per share (as
adjusted for stock splits, stock dividends and the like, the "EXERCISE PRICE").
Absent earlier redemption by our company, or conversion by such
Purchaser, the Convertible Notes mature on May 19, 2007 (the "MATURITY DATE").
Interest will accrue on the unpaid principal and interest on the Convertible
Notes at a rate of 12% per annum (subject to certain adjustments). Any
outstanding principal amount together with any accrued and unpaid interest,
along with any amounts due to Purchasers under the Convertible Notes, shall be
due and payable on the Maturity Date.
Subject to a prepayment penalty payable to Purchaser (ranging from 11%
to zero depending on the month during the term in which such prepayment is
made), we may prepay the Convertible Notes at any time by paying to Purchaser
all sums due and payable under the Convertible Note, the Purchase Agreement and
any Related Agreement. Commencing with the first month following the date of
issuance of such Convertible Note, the prepayment penalty shall be eleven
percent (11%) of the outstanding principal amount, including accrued but unpaid
interest, of such Convertible Note; and for each month thereafter, such
prepayment penalty shall decrease by one percentage point on the monthly
anniversary date of the date of issuance of the Convertible Note until the
thirty-day period preceding the Maturity Date, when such prepayment penalty
shall be zero. In addition, each Purchaser may convert any portion or all of the
issued and outstanding principal amount and/or accrued interest and fees due and
payable under such Convertible Note into fully paid and nonassessable shares of
our Common Stock at the Conversion Price. Subject to the payment of the
prepayment penalty referenced above, we also have the right to convert any
amounts due to a Purchaser under the Convertible Note, Purchase Agreement or any
Related Agreement into fully paid and nonassessable shares of our Common Stock
at the Conversion Price.
If an event of default occurs under the Convertible Note, each
Purchaser has the option to declare immediately due and payable all obligations
and liabilities owed by the Company to such Purchaser under the Convertible
Note, the Purchase Agreement and each Related Agreement. Each Purchaser 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 under the Convertible Note, the Purchase
Agreement and each Related Agreement. Such events of default include, without
limitation, the following:
o a failure to make payments of principal, interest and fees under the
Convertible Note within five (5) days of when due;
o a breach by us of any covenant of the Convertible Note which
continues for fifteen (15) days without cure, or breach by us of a
material representation, warranty or statement contained in any of
the Convertible Note, Purchase Agreement or Related Agreement (that
is not cured within the stated cure period); and
o if trading of our Common Stock is suspended for five (5) consecutive
days or for five (5) days during a ten (10) day consecutive period
from a principal market or pursuant to a stop order issued by the
Securities and Exchange Commission.
The Warrants contain provisions that will adjust the Exercise Price in
the event we effect a stock split, stock dividend or issue additional shares of
our Common Stock as a distribution on outstanding Common Stock or on any of our
preferred stock. The Warrants permit the holder thereof to exercise the Warrants
using a cashless exercise feature in the event that at the time of exercise, the
fair market value of one share of our common stock is less than the Exercise
Price.
Pursuant to the terms of a Registration Rights Agreement between the
Purchasers and our company (the "REGISTRATION RIGHTS AGREEMENT"), upon the
request of fifty-one percent of the Purchasers, and as soon as practicable, we
are obligated to file a "resale" registration to register the resale of shares
of our Common Stock (the "REGISTRABLE SECURITIES") issuable (i) upon conversion
of the Convertible Notes or (ii) upon exercise of the Warrant (with certain
exceptions). If, at any time after May 19, 2007, we decide to register any of
our equity securities or other securities convertible into equity securities, we
must notify each Purchaser and include any Registrable Securities as such
Purchaser may request, in such registration statement.
In connection with this financing, our senior secured lender, Laurus
Master Fund, Ltd. ("LAURUS") agreed to waive its "right of first refusal" and
its right to conversion price and exercise price adjustments under various
convertible notes and warrants currently held by Laurus pursuant to our existing
credit facilities with Laurus. In addition, holders of our Series A preferred
stock, $0.001 par value per share (the "Series A Preferred"), agreed to waive
(i) their right to adjust the conversion price contained in our Certificate of
Designation relating to the Series A Preferred and (ii) the notice of sale, the
right to purchase securities and such other rights contained in our Certificate
of Designation as they apply to the Convertible Notes and Warrants.
The above discussion describes certain of the material terms of the
financing transaction, is not a complete description of the 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 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
At 8:30 a.m. (Mountain time), on May 16, 2006, the registrant hosted an
investor conference call, broadcast live on the Internet at the registrant's
website, to discuss its results of operations for the three months ended March
31, 2006. A transcript of the conference call (the "TRANSCRIPT") is attached
hereto as Exhibit 99.2 and incorporated by reference herein.
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 each of the Purchasers a Convertible Note and Warrant described therein. The
Convertible Notes and Warrants were issued in reliance on the exemption from
registration provided by Section 4(2) of the Act, 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 that the Purchasers represented
to us that they were "accredited investors", as defined in the Act.
SECTION 7 - CORPORATE GOVERNANCE AND MAINTENANCE
ITEM 7.01. REGULATION FD DISCLOSURE
On May 23, 2006, we issued a press release (the "PRESS RELEASE") in
connection with the transactions set forth in Item 1.01 above, a copy of which
is attached hereto as Exhibit 99.1.
The description of the registrant's investor conference call set forth
in Item 2.02 above is incorporated herein by reference.
The information contained in each of the Press Release and the
Transcript is being furnished pursuant to "Item 7.01 Regulation FD." The
information contained in each of the Press Release and the Transcript 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 each of the Press Release and the Transcript 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 STATEMENT AND EXHIBITS
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
NUMBER DOCUMENTS
10.1 Note Purchase Agreement, dated as of May 19, 2006, by and
among our company and the purchasers executing a joinder
agreement thereto.
10.2 Form of Convertible Term Note, May 19, 2006, executed by our
company.
10.3 Form of Common Stock Purchase Warrant to purchase shares of
common stock, dated as of May 19, 2006.
10.4 Registration Rights Agreement, dated as of May 19, 2006,
between our company and the purchasers executing a joinder
agreement thereto.
99.1 Press Release of Incentra Solutions, Inc., dated as of
May 23, 2006.
99.2 Transcript of May 16, 2006 conference call.
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: May 23, 2006 By: /s/ Thomas P. Sweeney III
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Thomas P. Sweeney III
Chief Executive Officer
EXHIBIT INDEX
NUMBER DOCUMENTS
10.1 Note Purchase Agreement, dated as of May 19, 2006, by and
among our company and the purchasers executing a joinder
agreement thereto.
10.2 Form of Convertible Term Note, May 19, 2006, executed by our
company.
10.3 Form of Common Stock Purchase Warrant to purchase shares of
common stock, dated as of May 19, 2006.
10.4 Registration Rights Agreement, dated as of May 19, 2006,
between our company and the purchasers executing a joinder
agreement thereto.
99.1 Press Release of Incentra Solutions, Inc., dated as of
May 23, 2006.
99.2 Transcript of May 16, 2006 conference call.