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UNITED STATES
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
Date of Report (Date of earliest event reported): September 9, 2004
Commission File Number 000-31090
SYSTEMS EVOLUTION INC.
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(Exact name of registrant)
IDAHO 82-0291029
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(State of incorporation) (I.R.S. Employer Identification No.)
10707 Corporate Drive, Suite 156, Stafford, Texas 77477
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(Address of principal executive offices and zip code)
(281) 265-7075
(Registrant's telephone number)
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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 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))
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ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
On August 31, 2004, Systems Evolution Inc. (we or the "Corporation")
executed an agreement (the "Purchase Agreement") with certain institutional and
accredited investors (the "Purchasers") under which the Corporation agreed to
sell and the Purchasers agreed to purchase convertible promissory notes due
August 31, 2007 (each, a "Note") in the aggregate principal amount of up to
$2,500,000 bearing interest at the rate of 8% per annum and convertible into
shares of the Corporation's Common Stock at a conversion price (the "Conversion
Price") of $0.05 per share. Reference is made to Item 2.03 below in this report
for a description of the terms of the Notes and the Purchase Agreement.
On September 9, 2004 (the "Closing Date"), we completed the sale of an
aggregate of $1,825,000 in Notes and accompanying Warrants under the Purchase
Agreement which resulted in net proceeds to the Corporation of $1,542,417. The
Notes are initially convertible into 36,500,000 shares of Common Stock. The
September 15, 2004 press release is attached as Exhibit 99.1 to this report.
The Notes were issued together with warrants, denominated Series A, B,
C and D warrants (each, a "Warrant"), to purchase in the aggregate 36,500,000
shares of our Common Stock. Each investor received Warrants to purchase shares
of Common Stock equal to the number of shares of Common Stock that are issuable
upon full conversion of that investor's Note, each investor receiving an equal
number of each of the four series of Warrants. The Series A Warrants are
exercisable at $.06 per share commencing on the Closing Date and expire 90 days
after the registration statement that we are required to file under the
registration rights agreement referred to below has been declared effective by
the Securities and Exchange Commission (the "Commission"). The Series B Warrants
are exercisable at $.07 per share commencing on the Closing Date and expire 180
days after such registration statement is declared effective. The Series C
Warrants are exercisable at $.08 per share commencing on the Closing Date and
expire 270 days after such registration statement is declared effective. The
Series D Warrants are exercisable at $.15 per share commencing on the Closing
Date and expire five years from the Closing Date. In addition, the Corporation
and the Purchasers executed a Registration Rights Agreement (the "Registration
Rights Agreement") under which we have agreed to register the shares (the
"Shares") underlying the Notes and Warrants with the Commission under the
Securities Act of 1933, as amended.
On August 31, 2004, the we entered into a Lock-Up Agreement with the
following of our shareholders: Robert C. Rhodes, Richard N. Hartmann, Willie A.
Jackson, Jr. and Patrick L. Anderson (the "Shareholders"). In this Agreement,
the Shareholders agreed with us not to sell or otherwise dispose of any of the
shares of Common Stock of the Corporation owned by them for a period of two (2)
years following the date of this Agreement.
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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.
Convertible Notes due 2007
On September 9, 2004, we completed the sale of an aggregate of
$1,825,000 principal amount of Notes, initially convertible into an aggregate of
36,500,000 shares of Common Stock, together with Warrants to purchase an
additional 36,500,000 shares of Common Stock. The Notes have been executed and
delivered pursuant to the Note and Warrant Purchase Agreement, dated as of
August 31, 2004 (the "Purchase Agreement"), by and among the Corporation and the
purchasers listed therein (the "Holders"). Reference is made to Item 1.01 above
in this report for a description of the transactions in connection with the
Purchase Agreement.
Maturity. The Notes are due August 31, 2007, unless prepayment of the
Notes is required in certain events, as described below.
Conversion. The Notes are convertible at five ($.05) cents per share,
subject to proportionate adjustment for stock splits, stock combinations, and
stock dividends and distributions (the "Conversion Price"). In addition, the
Notes provide for adjustments for dividends payable other than in shares of
Common Stock, for reclassification, exchange or substitution of the Common Stock
for another security or securities of the Corporation or pursuant to a
reorganization, merger, consolidation, or sale of assets, where there is a
change in control of the Corporation.
Adjustments to Conversion Price. If we issue or sell any shares of
additional shares of common stock or issues options or other convertible
securities ("Common Stock Equivalents") at a price per share less than the
Conversion Price then in effect or without consideration (or, in the case of a
Common Stock Equivalent where the aggregate of the price per share for which
additional shares of Common Stock may be issuable thereafter pursuant to such
Common Stock Equivalent, plus the consideration received by the Corporation for
issuance of such Common Stock equivalent divided by the number of shares of
Common Stock issuable pursuant to such Common Stock Equivalent is less than the
applicable Conversion Price then in effect), then the Conversion Price upon each
such issuance shall be reduced to a price equal to the consideration per share
paid (or deemed to be paid, in the case of a Common Stock Equivalent) for such
additional shares of Common Stock. In the case of a Common Stock Equivalent, the
adjustment is recalculated if the particular option or conversion right expires
unexercised or the exercise or conversion price is increased. The above
adjustment for additional shares of Common Stock or Common Stock Equivalents do
not apply to: any transaction involving (i) the Corporation's issuance of any
securities (other than for cash) in connection with a merger, acquisition or
consolidation of the Corporation, (ii) the Corporation's issuance of securities
in connection with strategic license agreements and other partnering
arrangements so long as such issuances are not for the purpose of raising
capital, (iii) the Corporation's issuance of securities in connection with bona
fide firm underwritten public offerings of its securities, (iv) the
Corporation's issuance of Common Stock or the issuance or grants of options to
purchase Common Stock pursuant to the Corporation's stock option plans and
employee stock purchase plans as they exist at the date of the Purchase
Agreement, (v) as a result of the exercise of options or warrants or conversion
of convertible notes or preferred stock which are granted or issued as of the
date of the Purchase Agreement, (vi) any Warrants issued to the Holders and any
warrants issued to the placement agent for the transactions contemplated by the
Purchase Agreement, or (vii) the payment of any interest on the Notes.
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Limit on Ownership. The Notes provide that, unless waived by the
Holder, at no time may a Holder convert all or a portion of its Note if the
number of shares of Common Stock to be issued pursuant to such conversion would
exceed, when aggregated with all other shares of Common Stock owned by the
Holder at such time, the number of shares of Common Stock which would result in
the Holder beneficially owning (as determined in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended, and the rules thereunder)
more than 4.9% of all of the Common Stock outstanding at such time.
Interest. The outstanding principal balance of each Note bears
interest, in arrears, at eight percent (8%) per annum, payable semi-annually at
the option of the Corporation in cash or in registered shares of the
Corporation's Common Stock. The number of shares of Common Stock to be issued as
payment of accrued and unpaid interest is determined by dividing (a) the total
amount of accrued and unpaid interest to be converted into Common Stock by (b)
the Conversion Price. Interest is computed on the basis of a 360-day year of
twelve (12) 30-day months and accrues commencing August 31, 2004. Upon the
occurrence of an Event of Default (as defined below), then to the extent
permitted by law, the Corporation is required to pay interest to the holder of
each outstanding Note ("Holder" or "Holders"), on demand, on the outstanding
principal balance of the Note from the date of the Event of Default until such
Event of Default is cured at the rate of the lesser of twelve percent (12%) and
the maximum applicable legal rate per annum.
Events of Default. The occurrence of any of the following events shall
be an event of default under the Notes ("Events of Default"):
(1) our failure to make the payment of any amount of principal
outstanding on the date such payment is due;
(2) our failure to make any payment of interest in cash or shares of
Common Stock for a period of five (5) days after the date such interest is due;
(3) with certain exceptions, failure of the Registration Statement
filed with the Commission (the "Registration Statement") to register the shares
of Common Stock issuable upon conversion of the Notes or exercise of the
Warrants to be declared effective by the Commission on or prior to the date
which is one hundred fifty (150) days after the closing date;
(4) the suspension from listing, without subsequent listing on any one
of, or the failure of our Common Stock to be listed on at least one of the OTC
Bulletin Board, Nasdaq National Market, Nasdaq SmallCap Market, The New York
Stock Exchange, Inc. or The American Stock Exchange, Inc. for a period of five
(5) consecutive trading days;
(5) our notice to the Holder, including by way of public announcement,
at any time, of our inability to comply or our intention not to comply with
proper requests for conversion of a Note or Notes into shares of Common Stock;
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(6) our failure to (i) timely deliver the shares of Common Stock upon
conversion of the Notes or any interest accrued and unpaid, (ii) timely file the
Registration Statement or (iii) make the payment of any fees and/or liquidated
damages under the Notes, the Purchase Agreement or the Registration Rights
Agreement, which failure in the case of items (i) and (iii) is not remedied
within three (3) business days after the incurrence thereof;
(7) while the Registration Statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of the Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the
Holders for sale of the Registrable Securities (as defined in the Registration
Rights Agreement) in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of ten (10)
consecutive Trading Days, provided that the cause of such lapse or
unavailability is not due to factors primarily within the control of the
Holders;
(8) we default in the performance or observance of (i) any material
covenant, condition or agreement contained in the Notes, with certain
exceptions, and such default is not fully cured within five (5) business days
after the occurrence thereof or (ii) any material covenant, condition or
agreement contained in the Purchase Agreement, the Notes or the Registration
Rights Agreement not covered by the above-listed Events of Default, and such
default is not fully cured within five (5) business days after the occurrence
thereof;
(9) any material representation or warranty made by the Corporation in
the Notes or in the Purchase Agreement, the Registration Rights Agreement shall
prove to have been false or incorrect or breached in a material respect on the
date as of which made;
(10) we (i) default in any payment of any amount or amounts of
principal of or interest on any Indebtedness (as defined in the Notes and other
than the Indebtedness represented by the Notes) the aggregate principal amount
of which Indebtedness is in excess of $100,000 or (ii) default in the observance
or performance of any other agreement or condition relating to any Indebtedness
or contained in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist, the effect of which
default or other event or condition is to cause, or to permit the holder or
holders or beneficiary or beneficiaries of such Indebtedness to cause with the
giving of notice if required, such Indebtedness to become due prior to its
stated maturity;
(11) we (i) apply for or consent to the appointment of, or the taking
of possession by, a receiver, custodian, trustee or liquidator of the
Corporation or of all or a substantial part of our property or assets, (ii) make
a general assignment for the benefit of its creditors, (iii) commence a
voluntary case under the United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic),
(iv) file a petition seeking to take advantage of any bankruptcy, insolvency,
moratorium, reorganization or other similar law affecting the enforcement of
creditors' rights generally, (v) acquiesce in writing to any petition filed
against us in an involuntary case under United States Bankruptcy Code (as now or
hereafter in effect) or under the comparable laws of any jurisdiction (foreign
or domestic), (vi) issue a notice of bankruptcy or winding down of our
operations or issue a press release regarding same, or (vii) take any action
under the laws of any jurisdiction (foreign or domestic) analogous to any of the
foregoing; or
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(12) a proceeding or case shall be commenced in respect of the
Corporation, without our application or consent, in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization, moratorium,
dissolution, winding up, or composition or readjustment of our debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like of the
Corporation or of all or any substantial part of our assets in connection with
the liquidation or dissolution of the Corporation or (iii) similar relief in
respect of it under any law providing for the relief of debtors, and such
proceeding or case described in clause (i), (ii) or (iii) shall continue
undismissed, or unstayed and in effect, for a period of sixty (60) days or any
order for relief shall be entered in an involuntary case under United States
Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of
any jurisdiction (foreign or domestic) against the Corporation or action under
the laws of any jurisdiction (foreign or domestic) analogous to any of the
foregoing shall be taken with respect to the Corporation and shall continue
undismissed, or unstayed and in effect for a period of sixty (60) days;
(13) our failure to instruct our transfer agent to remove any legends
from shares of Common Stock eligible to be sold under Rule 144 of the Securities
Act of 1933, as amended (the "Securities Act"), and issue such unlegended
certificates to the Holder within three (3) business days of the Holder's
request so long as the Holder has provided the standard representations
regarding the Rule 144 sale and, in our reasonable judgment, all requirements
relative to sales of securities under Rule 144 have been or will be complied
with in such sale;
(14) our failure to pay any amounts due to the Holder under the Notes
or the Purchase Agreement or the Registration Rights Agreement within three (3)
business days of receipt of notice to the Corporation; or
(15) the occurrence of an Event of Default under the Notes held by
other Holders.
Remedies Upon An Event of Default. If an Event of Default shall have
occurred and shall be continuing, the Holders may at any time at their option,
(1) declare the entire unpaid principal balance of the Notes, together with all
interest accrued thereon, to be accelerated and due and payable; provided,
however, that upon the occurrence of an Event of Default described in clauses
(11) or (12) of the preceding paragraph, the outstanding principal balance and
accrued interest of the Notes shall be automatically due and payable and (ii)
that upon the occurrence of an Event of Default described in clauses (3) through
(10) of the preceding paragraph, demand the prepayment of the Notes; (2) demand
that the principal amount of the Notes then outstanding and all accrued and
unpaid interest thereon shall be converted into shares of Common Stock at the
then effective Conversion Price per share; or (3) exercise or otherwise enforce
any one or more of the Holders' rights, powers, privileges, remedies and
interests under the Notes, the Purchase Agreement, the Registration Rights
Agreement or applicable law. The Notes provide further that no course of delay
on the part of the Holders shall operate as a waiver of an Event of Default or
otherwise prejudice the rights of the Holder.
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Prepayments Upon an Event of Default or Certain Other Events. Upon the
occurrence of an Event of Default described in clauses (3) through (13) set
forth above in the paragraph listing the Events of Default, the Holder have the
right, at their option, to require the Corporation to prepay in cash all or a
portion of the Notes at a price equal to one hundred ten percent (110%) of the
aggregate principal amount of the Note plus all accrued and unpaid interest.
Upon the occurrence of a Major Transaction (as defined below), the
Holders have the right, at the their option, to require us to prepay in cash all
or a portion of the Holders' Notes at a price equal to one hundred percent
(100%) of the aggregate principal amount of the Notes plus all accrued and
unpaid interest. A Major Transaction is defined in the Notes to include (i) the
consolidation, merger or other business combination of the Corporation with or
into another Person (as defined in the Notes), other than (A) pursuant to a
migratory merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Corporation or (B) a consolidation, merger or other
business combination in which holders of the Corporation's voting power
immediately prior to the transaction continue after the transaction to hold,
directly or indirectly, the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of directors (or their
equivalent if other than a corporation) of such entity or entities); (ii) the
sale or transfer of more than fifty percent (50%) of the Corporation's assets
(based on the fair market value as determined in good faith by the Corporation's
Board of Directors) other than inventory in the ordinary course of business in
one or a related series of transactions; or (iii) closing of a purchase, tender
or exchange offer made to the holders of more than fifty percent (50%) of the
outstanding shares of Common Stock in which more than fifty percent (50%) of the
outstanding shares of Common Stock were tendered and accepted.
In addition, after a Triggering Event (as defined below), the Holders
have the right, at their option, to require us to prepay all or a portion of the
Holders' Notes in cash at a price equal to one hundred twenty percent (120%) of
the aggregate principal amount of the Notes plus all accrued and unpaid
interest. A Triggering Event is deemed to occur if, with certain exceptions (i)
so long as any Notes are outstanding, the effectiveness of the Registration
Statement, after it becomes effective, (A) lapses for any reason (including,
without limitation, the issuance of a stop order) or (B) is unavailable to the
Holder for sale of the shares of Common Stock, and such lapse or unavailability
continues for a period of twenty (20) consecutive trading days, and the shares
of Common Stock into which the Holder's Notes can be converted cannot be sold in
the public securities market pursuant to Rule 144(k) under the Securities Act,
provided that the cause of such lapse or unavailability is not due to factors
primarily within the control of the Holder of the Notes; (ii) the suspension
from listing, without subsequent listing on any one of, or the failure of the
Common Stock to be listed on at least one of the OTC Bulletin Board, Nasdaq
National Market, Nasdaq SmallCap Market, The New York Stock Exchange, Inc. or
The American Stock Exchange, Inc., for a period of five (5) consecutive Trading
Days; (iii) our notice to any Holder of the Notes, including by way of public
announcement, at any time, of our inability to comply (including for reasons of
insufficient shares of Common Stock available for conversion) or our intention
not to comply with proper requests for conversion of any Notes into shares of
Common Stock; or (iv) our failure to comply with a Conversion Notice tendered in
accordance with the provisions of the Notes within ten (10) business days after
the receipt by us of the Conversion Notice.
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Prepayment if Holders are Unable to Convert. If we are unable to fully
convert a Note or Notes presented for conversion, due to our not having a
sufficient number of shares available for the conversion request or not having
such shares covered by an effective Registration Statement, we may be required
to prepay the portion of the Note or Notes so presented for conversion at the
Triggering Event prepayment price described above.
Note and Warrant Purchase Agreement
The Notes and Warrants have been issued under the Purchase Agreement,
which is dated August 31, 2004. Certain of the covenants we have made under the
Purchase Agreement are described below.
Right of First Refusal. The Purchase Agreement provides for a right of
first refusal in favor of the Holders for subsequent financings in capital
raising transactions. The following transactions, however, are excepted from
this right of first refusal: (1) our issuance of any securities (other than for
cash) in connection with a merger, acquisition or consolidation of the Company,
(2) our issuance of securities in connection with strategic license agreements
and other partnering arrangements so long as such issuances are not for the
purpose of raising capital, (3) our issuance of securities in connection with
bona fide firm underwritten public offerings of our securities, (4) our issuance
of Common Stock or the issuance or grants of options to purchase Common Stock
pursuant to our stock option plans and employee stock purchase plans as they now
exist, (5) issuances of Common Stock as a result of the exercise of options or
warrants or conversion of convertible notes or preferred stock which are granted
or issued as of the date of the Purchase Agreement, (6) any Warrants issued to
the Holders and any warrants issued in the placement of the Notes and Warrants,
or (7) Common Stock issued for the payment of any interest on the Notes.
No Sale of Assets Without Holders Consent. So long as the Notes remain
outstanding, we have agreed that we will not sell, transfer or otherwise dispose
of any of our properties, assets and rights including, without limitation, our
software and intellectual property, to any person except for sales to customers
in the ordinary course of business or with the prior written consent of the
Holders of a majority of the principal amount of the Notes then outstanding.
Registration Rights Agreement
We have entered into a Registration Rights Agreement, dated as of
August 31, 2004 ("Registration Rights Agreement"), with the Holders of the
Notes. The Registration Rights Agreement requires that, on or prior to October
9, 2004, we prepare and file with the Commission a "resale" registration
statement covering all of the shares of Common Stock issuable upon conversion of
the Notes and exercise of the Warrants for an offering to be made on a
continuous basis pursuant to Rule 415 under the Securities Act. We are required
to use our best efforts to cause the registration statement to be declared
effective under the Securities Act as promptly as possible after the filing
thereof, but in any event prior to the date that is 150 days from the September
9, 2004 Closing Date and to keep such registration statement continuously
effective under the Securities Act until such date as is the earlier of (1) the
date when all securities covered by such registration statement have been sold
or (2) the date on which the securities may be sold without any restriction
pursuant to Rule 144 under the Securities Act.
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We will be in default under the Notes if we do not file the
Registration Statement on or prior to October 9, 2004, or if the registration
statement is not declared effective by the Commission on or prior to February 7,
2004 (150 days from the September 9, 2004 Closing Date).
Description of Warrants
In connection with the issuance and sale of the Notes, we issued Series
A, B, C, and D Warrants to purchase in the aggregate 36,500,000 shares of our
Common Stock. Each investor received Warrants to purchase shares of Common Stock
equal to the number of shares of Common Stock that are issuable upon full
conversion of that investor's Note, each investor receiving an equal number of
each of the four series of Warrants. The Series A Warrants are exercisable at
$.06 per share commencing on the September 9, 2004 Closing Date and expire 90
days after the registration statement that we are required to file under the
Registration Rights Agreement referred to below has been declared effective by
the Commission. The Series B Warrants are exercisable at $.07 per share
commencing on the Closing Date and expire 180 days after such registration
statement is declared effective. The Series C Warrants are exercisable at $.08
per share commencing on the Closing Date and expire 270 days after such
registration statement is declared effective. The Series D Warrants are
exercisable at $.15 per share commencing on the Closing Date and expire five
years from the Closing Date.
The Warrants provide for corresponding adjustments to the exercise
price then in effect ("Exercise Price") to reflect stock dividends, subdivisions
and combinations. The Warrants also provide for adjustments for dividends
payable other than in shares of Common Stock, for reclassification, exchange or
substitution of the Common Stock for another security or securities of the
Corporation or pursuant to a reorganization, merger, consolidation, or sale of
assets, where there is a change in control of the Corporation.
If we issue or sell any shares of additional shares of common stock or
issues options or other convertible securities ("Common Stock Equivalents") at a
price per share less than the Exercise Price or without consideration (or, in
the case of a Common Stock Equivalent where the aggregate of the price per share
for which additional shares of Common Stock may be issuable thereafter pursuant
to such Common Stock Equivalent, plus the consideration received by the
Corporation for issuance of such Common Stock Equivalent divided by the number
of shares of Common Stock issuable pursuant to such Common Stock Equivalent is
less than the applicable Exercise Price then in effect), then the Exercise Price
upon each such issuance shall be reduced to a price equal to the consideration
per share paid (or deemed to be paid, in the case of a Common Stock Equivalent)
for such additional shares of Common Stock. In the case of a Common Stock
Equivalent, the adjustment is recalculated if the particular option or
conversion right expires unexercised or the exercise or conversion price is
increased. The above adjustment for additional shares of Common Stock or Common
Stock Equivalents do not apply to: any transaction involving (1) securities
issued pursuant to a bona fide firm underwritten public offering of the our
securities, (2) securities issued pursuant to the conversion or exercise of
convertible or excercisable securities issued or outstanding on or prior to the
Closing Date or issued pursuant to the Purchase Agreement, (3) securities issued
in connection with strategic license agreements or other partnering arrangements
so long as such issuances are not for the purpose of raising capital, (4) the
issuance of shares of Common Stock or the issuance or grants of options to
purchase shares of Common Stock pursuant to our stock option plans and employee
stock purchase plans as they now exist, (5) the Common
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Stock issuable upon exercise of the Warrants, (6) the payment of any interest on
the Notes, (7) securities issued (other than for cash) in connection with a
merger, acquisition or consolidation of the Corporation, and (8) any warrants
issued to placement agents for the transactions contemplated by the Purchase
Agreement.
Commencing ninety (90) days following the date of effectiveness of the
registration statement covering the shares of Common Stock issuable upon
conversion of the Notes and exercise of the Warrants, we may, at our option,
call up to one hundred percent (100%) of the Warrants where the market value of
the Common Stock has been greater than two hundred fifty percent (250%) of the
particular Warrant's Exercise Price for a period of ten (10) consecutive trading
days immediately prior to the date of delivery of the call notice. In the event
the Warrants so called are not exercised, we would pay One Cent ($.01) per
called Warrant share.
Placement Agent Warrants. In connection with the Note Purchase Agreement, on
August 31, 2004 we issued five-year warrants to two financial consulting firms
to purchase an aggregate of 21,600,000 shares of Common Stock, exercisable at
$.05 per share. We had previously in August, 2004, issued warrants to purchase
an aggregate of 2,250,000 shares of Common Stock, exercisable at $.001 per share
to these firms, which warrants were fully exercised in August, 2004.
Lock-Up Agreement
On August 31, 2004, the we entered into a Lock-Up Agreement with the
following of our shareholders: Robert C. Rhodes, Richard N. Hartmann, Willie A.
Jackson, Jr. and Patrick L. Anderson (the "Shareholders"). In this Agreement,
the Shareholders agreed with the Corporation that the Shareholders will not
offer, sell, contract to sell, assign, transfer, hypothecate, pledge or grant a
security interest in, or otherwise dispose of, or enter into any transaction
which is designed to, or might reasonably be expected to, result in the
disposition of (whether by actual disposition or effective economic disposition
due to cash settlement or otherwise by the Corporation or any affiliate of the
Corporation or any person in privity with the Corporation or any affiliate of
the Corporation), directly or indirectly, any of the shares of Common Stock of
the Corporation owned by them for a period of two (2) years following the date
of this Agreement.
THE ABOVE DESCRIPTIONS OF THE TERMS OF THE NOTES, NOTE PURCHASE AGREEMENT,
REGISTRATION RIGHTS AGREEMENT, WARRANTS AND LOCK-UP AGREEMENT SUMMARIZE ONLY
CERTAIN MATERIAL TERMS OF THOSE AGREEMENTS OR INSTRUMENTS. FOR THE COMPLETE
TERMS OF SUCH DOCUMENTS OR INSTRUMENTS, REFERENCE IS HEREBY MADE TO THE FULL
TEXTS THEREOF FILED AS EXHIBITS TO THIS REPORT.
ITEM 3.02. UNREGISTERED SALES OF EQUITY SECURITIES.
(a) The following table sets forth the sales of unregistered securities
since the Corporation's last report filed under this item or its last periodic
report.
PRICE/
DATE TITLE AND AMOUNT* PURCHASER UNDERWRITER UNDERWRITING DISCOUNTS
- ---------------- --------------------------------------- ---------------- ----------------- --------------------------
September 9, $1,825,000 principal amount of 8% Private NA $1,825,000/$246,835
2004 convertible promissory notes due Investors
August 31, 2007, convertible into an
aggregate of 36,500,000 shares of
Common Stock, issued pursuant to a
Note and Warrant Purchase Agreement,
dated August 31, 2004
- ---------------- --------------------------------------- ---------------- ----------------- --------------------------
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PRICE/
DATE TITLE AND AMOUNT* PURCHASER UNDERWRITER UNDERWRITING DISCOUNTS
- ---------------- --------------------------------------- ---------------- ----------------- --------------------------
September 9, Series A Warrants to purchase an Private NA NA/NA
2004 aggregate of 9,125,000 shares of Investors
common stock issued pursuant to the
August 31, 2004 Note and Warrant
Purchase Agreement for the 8%
convertible promissory notes
- ---------------- --------------------------------------- ---------------- ----------------- --------------------------
September 9, Series B Warrants to purchase an Private NA NA/NA
2004 aggregate of 9,125,000 shares of Investors
common stock issued pursuant to the
August 31, 2004 Note and Warrant
Purchase Agreement for the 8%
convertible promissory notes
- ---------------- --------------------------------------- ---------------- ----------------- --------------------------
September 9, Series C Warrants to purchase an Private NA NA/NA
2004 aggregate of 9,125,000 shares of Investors
common stock issued pursuant to the
August 31, 2004 Note and Warrant
Purchase Agreement for the 8%
convertible promissory notes
- ---------------- --------------------------------------- ---------------- ----------------- --------------------------
September 9, Series D Warrants to purchase an Private NA NA/NA
2004 aggregate of 9,125,000 shares of Investors
common stock issued pursuant to the
August 31, 2004 Note and Warrant
Purchase Agreement for the 8%
convertible promissory notes
- ---------------- --------------------------------------- ---------------- ----------------- --------------------------
September 9, Warrants to purchase an aggregate of Financial NA NA/NA
2004 14,400,000 shares of common stock Consultant
- ---------------- --------------------------------------- ---------------- ----------------- --------------------------
September 9, Warrants to purchase an aggregate of Financial NA NA/NA
2004 7,200,000 shares of common stock consultant
- ---------------- --------------------------------------- ---------------- ----------------- --------------------------
* The Notes and Warrants listed in the table were issued to a limited number of
accredited investors and therefore the transactions were exempt from
registration under Section 4(2) of the Securities Act, as transactions not
involving any public offering.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
Exhibit No. Description
4.2 Note and Warrant Purchase Agreement dated as of August 31,
2004 by and among Systems Evolution, Inc. and the Purchasers
related to the sale of the Notes and Warrants.
4.3 Form of 8% Convertible Promissory Note due August 31, 2007
issued by Systems Evolution, Inc. to the Purchasers under
the Note and Warrant Purchase Agreement, dated August 31,
2004
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4.4 Form of Series A Warrant issued to the Purchasers under the
Note and Warrant Purchase Agreement, dated August 31, 2004.
4.5 Form of Series B Warrant issued to the Purchasers under the
Note and Warrant Purchase Agreement, dated August 31, 2004.
4.6 Form of Series C Warrant issued to the Purchasers under the
Note and Warrant Purchase Agreement, dated August 31, 2004.
4.7 Form of Series D Warrant issued to the Purchasers under the
Note and Warrant Purchase Agreement, dated August 31, 2004.
10.4 Registration Rights Agreement dated as of August 31, 2004 by
and among Systems Evolution, Inc. and the Purchasers under
the Note and Warrant Purchase Agreement, dated August 31,
2004.
10.5 Lock-Up Agreement, dated as of August 31, 2004, by and among
Systems Evolution, Inc. and Robert C. Rhodes, Richard N.
Hartmann, Willie A. Jackson, Jr. and Patrick L. Anderson.
99.1 Press Release dated September 15, 2004.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SYSTEMS EVOLUTION, INC.
Dated: September 15, 2004 By: /s/ Robert C. Rhodes
--------------------------------------
Robert C. Rhodes
Chief Executive Officer
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