Item 1.01 Entry into a Material Definitive Agreement
In a transaction concluded on November 19, 2008 and effective as of November 18, 2008, the Company, Frederick DeLuca (“DeLuca”) and Galaxy Partners, L.L.C., a Minnesota limited liability company (“Galaxy Partners”) entered into a Stock Purchase Agreement (the “Purchase Agreement”). Pursuant to the Purchase Agreement, in exchange for the sum of $5 million, DeLuca sold 3,869,842 of his shares of the Company’s common stock and assigned all of his right, title and interest in and to a promissory note dated July 19, 2006, as amended, in the principal amount of $2,685,104.17 (the “Convertible Note”). The Convertible Note had accrued interest at 12.5% per annum. Principal, together with any accrued and unpaid interest, on the Convertible Note was convertible at any time prior to payment into shares of the Company's common stock at a conversion price of $0.35 per share. In connection with the Purchase Agreement, Galaxy Partners converted all of the outstanding principal and accrued interest under the Convertible Note into 9,941,278 shares of common stock of the Company (the “Shares”). In consideration of the conversion of the Convertible Note, the Company agreed to expand the size of the Board from 4 to 7 members and elected three designees of Galaxy Partners to the Board, Messrs. Timothy S. Krieger, David B. Johnson and Michael D. Slyce. As more particularly described in Item 5.01, a “change in control” of the Company has occurred as a result of the transactions effected by the Purchase Agreement.
Effective with the signing of the Purchase Agreement, Michael Broll, the Chief Executive Officer of the Company (“Broll”), entered into an amendment to his employment agreement with the Company, whereby Broll would continue as Chief Executive Officer and Board Member of the Company through March 31, 2009. It is the present intent of the Company and Broll to negotiate a new employment arrangement prior to March 31, 2009. In the event the parties are unable to agree on a new employment arrangement, then upon receipt of Broll’s resignation from the Company and its Board of Directors on March 31, 2009, in consideration of Broll’s staying with Galaxy during the transition period subsequent to the change of control in Galaxy and in recognition of Broll’s waiver of his rights under the Company’s 2007 Stay Bonus, Severance
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Bonus and Sales Bonus Plan, Galaxy will pay Broll compensation of $20,000 per month for 25 consecutive months beginning on April 1, 2009 less any applicable federal and/or state taxes.
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