Small portion of 8-K filed 01/16/09 (way too big to post all).
Item 1.01. Entry into a Material Definitive Agreement
SEI Transaction
On December 31, 2008, we entered into a definitive agreement to acquire, and completed the acquisition of, the software development and managed network support services business of System Evolution, Inc. (“SEI”). The transaction was structured as an asset acquisition including 100% of the capital stock of Systems Evolution Incorporated (a subsidiary of SEI) in exchange for the assumption by us of approximately (a) $2,381,000 of obligations under certain of SEI’s secured convertible notes and (b) other obligations and liabilities in the amount of approximately $504,000.
The secured convertible notes assumed by us in the SEI transaction are secured by all of our assets and bear interest at annual interest rates ranging from 2-8% payable quarterly. The notes are convertible into shares of our Common Stock at a conversion price determined at the time of conversion as the lower of (i) the variable conversion price and (ii) fixed conversion prices ranging from $0.0014 to $0.13 per share. The variable conversion price is defined as the average of the three lowest trading prices of our Common Stock during the 20 trading day period ending one trading day before the date that a holder sends notice of conversion to us, multiplied by 35% or 50% depending on the note. The conversion price is subject to adjustment for stock splits and combinations; certain dividends and distributions; reclassification, exchange or substitution; reorganization, merger, consolidation or sales of assets; issuances of additional shares of common stock; and issuances of common stock equivalents. We may call the notes at a premium upon certain conditions.
Upon the occurrence of an event of default under the secured convertible notes, and in the event the holders give us a written notice of default, an amount equal to 130% of the amount of the outstanding notes and interest thereon shall become immediately due and payable or another amount as otherwise provided in the note. Events of default under the notes include: failure to pay any amount of principal or interest when due; failure to issue shares to the holders upon conversion of the notes in a timely manner; failure to meet any registration rights obligations in a timely manner; the breach of any of our covenants contained in the notes; the breach of any of our representations and; we appoint a receiver or trustee or make an assignment for the benefit of creditors; any judgment is filed against us for more than $50,000; bankruptcy proceedings are brought against us and such proceedings are not stayed within sixty days of such proceedings being brought; or if our Common Stock is delisted from the OTCBB or equivalent replacement exchange.
A total of $1,472,368 of secured convertible notes assumed by us in the SEI transaction have reached their maturity date, are due and payable and our subject to other claims for default, penalties and damages by the holders. This exposes us to the risk that the note holders could seek to exercise prepayment or other remedies under the notes. We do not currently have the cash on hand to repay amounts due under the secured convertible notes or our other outstanding obligations if the note holders or other creditors elect to exercise their repayment or other remedies. If the note holders or other creditors elect to exercise their repayment or other remedies, and if our efforts to restructure or otherwise satisfy our obligations under the notes or other obligations are unsuccessful, we may be forced to restructure, file for bankruptcy, or cease operations.
