UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of
Report (Date of Event Earliest Reported): January 16, 2009 (December 31,
2008)
(Exact
name of registrant as specified in its charter)
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Delaware
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333-142911
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35-2065470
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(State
or other jurisdiction of incorporation)
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(Commission
File Number)
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(I.R.S.
Employer Identification No.)
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30950
Rancho Viejo Rd #120,
(Address
of principal executive offices)
(Registrant's
telephone number)
(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 Instructions 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))
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.
December 2008 Private
Placement
On
December 31, 2008, 2005, we entered into a Securities Purchase Agreement with
four accredited investors to sell up to $150,000 of our convertible
debentures. The Securities Purchase Agreement also provides for the
issuance of warrants to purchase an aggregate of up to 20,000,000 shares of our
Common Stock, with an exercise price of $0.03 per share. To date, we
have received $100,000 (gross proceeds) from the sale of the convertible
debentures and had issued warrants to purchase 20,000,000 shares of Common Stock
to the investors.
The
convertible debentures are secured by all of our assets, are due December 31,
2011, and bear interest at a 12% annual interest rate payable
quarterly. The debentures are convertible into shares of our
Common Stock at a conversion price determined at the time of conversion 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%. 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 debentures at a premium upon certain conditions.
Upon the
occurrence of an event of default under the convertible debentures, and in the
event the holders give us a written notice of default, an amount equal to 140%
of the amount of the outstanding convertible debentures and interest thereon
shall become immediately due and payable or another amount as otherwise provided
in the convertible debentures. Events of default under the
convertible debentures include: failure to pay any amount of
principal or interest when due; failure to issue shares to the holders upon
conversion of the convertible debentures in a timely manner; failure to meet our
registration rights obligations in a timely manner; the breach any of our
covenants contained in the convertible debentures; the breach of any of our
representations and warranties made in the Securities Purchase Agreement or
related documents; 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 thirty days of such proceedings being brought;
or if our Common Stock is delisted from the OTCBB or equivalent replacement
exchange.
The
warrants expire seven years from their date of issuance. The exercise
price of the warrants 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. The warrants also contain a cashless exercise, whereby
if a registration statement covering the warrants is not effective, the holder
may convert the warrants into shares of our restricted Common
Stock. In the event of a cashless exercise under the warrants, in
lieu of paying the exercise price in cash, the holders can surrender the warrant
for the number of shares of Common Stock determined by multiplying the number of
warrant shares to which it would otherwise be entitled by a fraction, the
numerator of which is the difference between the market price of our Common
stock (defined as the average of the last reported sale prices for the our
Common Stock on the OTCBB for the five trading days preceding such date of
exercise) and the exercise price, and the denominator of which is the
then current market price per share of Common Stock. For example, if
the holder is exercising 100,000 warrants with a per warrant exercise price of
$0.03 per share through a cashless exercise when the market price of our Common
Stock is $0.50 per share, then upon such cashless exercise the holder will
receive 94,000 shares of the our Common Stock.
In
connection with the Securities Purchase Agreement, we granted the investors
certain demand and piggyback registration rights with respect to the shares of
our Common Stock underlying the convertible debentures and
warrants. We will be subject to the payment of certain damages
in the event that we do not satisfy our registration obligations in a timely
manner.
Monarch
Bay Associates, LLC, a FINRA member firm, acted as the sole placement agent in
the private placement. In connection with the private placement, we will pay to
Monarch Bay Associates consideration consisting of (a) a cash sales commission
of $11,000 (representing 11% of the gross proceeds raised in the private
placement), and (b) warrants to purchase 40,371,429 shares of common stock
(representing 9% of the aggregate number of shares of common stock issuable upon
conversion of the notes sold in the private placement), with each warrant having
an exercise price of $0.03 per share and being exercisable for seven
years.
Item
2.01. Completion of Acquisition or Disposition of Assets
On
December 31, 2008, we closed on the SEI transaction described in Item 1.01
above.
Item
2.03 Creation of a Direct Financial Obligation or an Obligation
under an Off-Balance Sheet Arrangement of a Registrant
On
December 31, 2008, we became directly obligated on the financial obligations
represented by the convertible notes and other obligations assumed pursuant to
the SEI transaction described in Item 1.01 above.
A portion
of the 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
form 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.
On
January 15, 2009, we became directly obligated on the financial obligations
represented by the convertible debentures issued pursuant to the
Securities Purchase Agreement described in Item 1.01 above.
Item
3.02. Unregistered Sales of Equity Securities
On
January 15, 2009, we closed on $100,000 in gross proceeds in the initial closing
under the Securities Purchase Agreement described in Item 1.01
above. The private placement of debentures and warrants was
offered and sold solely to accredited investors in reliance on the exemption
from registration provided by Section 4(2) of the Securities Act of 1933, as
amended since the issuances did not involve a public offering, the recipients
took the shares for investment and not resale and we took appropriate measures
to restrict transfer.
Item
9.01. Financial Statements and Exhibits
The
financial statements required in respect of the SEI transaction described in
Item 1.01 above, if any, will be filed by amendment not later than 71 days
following the date that this initial report must be filed.
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Exhibit
No.
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Description
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10.1
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Purchase
Agreement with Systems Evolution, Inc. dated December 31,
2008
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10.2
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Form
of Convertible Note of SEI
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10.3
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Securities
Purchase Agreement dated December 31, 2008
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10.4
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Form
of Convertible Debenture
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10.5
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Form
of Stock Purchase Warrant
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10.6
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Registration
Rights Agreement
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10.7
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Intellectual
Property Security Agreement
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10.8
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Security
Agreement
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10.9
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Form
of Subsidiary Guaranty
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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.
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Date:
January 16, 2009
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STI
Group, Inc.
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a
Delaware corporation
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By:
/s/ David Walters
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Name:
David Walters
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Title:
Chairman and Chief Executive
Officer
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STI (CE) (USOTC:STUO)
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