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
earliest event reported)
December
17, 2008
DIGITALFX
INTERNATIONAL, INC.
(Exact
name of registrant as specified in charter)
Florida
(State or
other Jurisdiction of Incorporation or Organization)
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001-33667
(Commission
File Number)
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65-0358792
(IRS
Employer Identification No.)
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3035
East Patrick Lane
Suite
#9
Las
Vegas, NV 89120
(Address
of Principal Executive Offices and zip code)
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702-938-9300
(Registrant’s
telephone
number,
including area code)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of registrant under any of the following
provisions:
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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o
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Soliciting
material pursuant to Rule 14a-12(b) under the Exchange Act (17 CFR
240.14a-12(b))
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Safe Harbor Statement under
the Private Securities Litigation Reform Act of 1995
Information
included in this Form 8-K may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). This information may involve known and
unknown risks, uncertainties and other factors which may cause DigitalFX
International, Inc.’s (the “Registrant,” “we,” “our” or “us”) actual results,
performance or achievements to be materially different from future results,
performance or achievements expressed or implied by any forward-looking
statements. Forward-looking statements, which involve assumptions and
describe our future plans, strategies and expectations, are generally
identifiable by use of the words “may,” “will,” “should,” “expect,”
“anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of
these words or other variations on these words or comparable
terminology. Forward-looking statements are based on assumptions that
may be incorrect, and there can be no assurance that any projections or other
expectations included in any forward-looking statements will come to
pass. Our actual results could differ materially from those expressed
or implied by the forward-looking statements as a result of various
factors. Except as required by applicable laws, we undertake no
obligation to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur in the
future.
Item
1.01 Entry into a Material Definitive Agreement.
Item
5.03 Amendment to Articles of Incorporation or Bylaws; Change in
Fiscal Year.
Authorization
and Issuance of New Class of Shares
On
December 18, 2008, the Registrant filed Articles of Amendment of its Articles of
Incorporation (the “Articles of Amendment”) with the Florida Secretary of State
designating a new series of preferred stock consisting of 3,000,000 shares and
known as Series A 12% Cumulative Convertible Preferred Stock (“Series A
Preferred Stock”). Each share of Series A Preferred Stock accrues
dividends at the rate of 12% per annum, paid quarterly, on the original purchase
price of $1.00, is convertible into 5 shares of Common Stock (subject to
adjustment as provided in the Articles of Amendment and the conversion cap),
votes on all matters with the shares of Common Stock on an as-converted basis
(subject to the voting cap), has an initial liquidation preference equal to the
original purchase price plus accrued dividends, participates with the Common
Stock on an as-converted basis in the event that the initial liquidation
preference for the Series A Preferred Stock is fully paid, and is entitled to
vote as a separate class on certain significant matters.
Prior to
approval by the Registrant’s shareholders of the issuance of more than 19.9% of
outstanding shares of Common Stock on December 19, 2008, the Series A Preferred
Stock is not permitted to convert into (the “conversion cap”), nor permitted to
vote shares representing (the “voting cap”), more than 19.9% of the outstanding
shares of Common Stock on December 19, 2008.
The
Richard Kall Investment
On
December 22, 2008, the Registrant entered into a Series A 12% Cumulative
Convertible Preferred Stock Purchase Agreement (the “Purchase Agreement”) with
Richard Kall, the Registrant’s Chairman of the Board and Chief Executive
Officer, and manager of the Registrant’s majority shareholder, pursuant to which
Mr. Kall agreed to purchase from the Registrant, for an aggregate purchase price
of $2,000,000, 2,000,000 shares of Series A Preferred Stock and a warrant to
purchase 1,000,000 shares of Series A Preferred Stock (“Series A Warrant”), with
a term of 5 years and an exercise price of $1.00 per share. Mr. Kall paid the
aggregate purchase price through an advance on November 14, 2008 of $500,000 to
the Registrant, an advance on December 18, 2008 of $200,000 to the Registrant,
and a cash payment of $1,300,000 on December 22, 2008.
The
Debt Restructuring
The Debt Reduction:
On December 22, 2008, the Registrant entered into an Amendment and Exchange
Agreement with each of the institutional investors (“Investors”) holding Amended
and Restated Senior Secured Convertible Notes (the “Existing Investor Notes”),
pursuant to which, among other things, the parties agreed to reduce the exercise
price of outstanding Amended and Restated Warrants held by the Investors to
$0.24 (subject to adjustment as provided in the Amended and Restated Warrants,
including pursuant to economic anti-dilution adjustments), the Registrant agreed
to redeem in cash from the Investors an aggregate principal amount of $650,000,
and the Investors agreed to exchange their Existing Notes for a combination of
(1) an aggregate of 5,520,000 shares of the common stock of WoozyFly Inc. owned
by the Registrant and (2) subject to the earlier of the AMEX’s approval of the
listing of the Exchange Shares (as defined below) and the shares underlying the
Amended and Restated Notes (as defined below) issued to the Investors, and the
Common Stock being listed on the OTC Bulletin Board (only if AMEX does not
approve the additional listing application by January 30, 2009), (A) Second
Amended and Restated Senior Secured Convertible Notes (“Amended and Restated
Notes”) and (B) an aggregate of up to 5,167,046 shares of Common Stock (subject
to adjustment based on the date on which such shares are issued) (the “Exchange
Shares”). The Amended and Restated Notes issued to the Investors will
have an aggregate principal amount of up to $605,750.08 (subject to adjustment
based on the date on which such Amended and Restated Notes are
issued). The Amendment and Exchange Agreements also provide that the
Registrant shall have the right, for the one-year period commencing on the date
the Exchange Shares are issued, to repurchase the Exchange Shares for an
aggregate payment of $900,000 (subject to adjustment in the event Exchange
Shares are sold by the Investors).
The Forbearance:
Each
of the Investors covenanted that until the close of business (PST) on February
13, 2009, such party shall forbear from taking, or causing any other person to
take, any action to enforce any rights that they may have, individually or
together with other holders of the Amended and Restated Senior Secured
Convertible Notes, as a result of any event of default that has occurred or may
occur prior to such date with respect to the Registrant’s failure to satisfy one
or more financial covenants set forth in such notes. As a result, the
Registrant agreed not issue or commit to issue any shares of Common Stock or
securities convertible into or exchangeable for shares of Common Stock (other
than those set forth in the disclosure schedules to the Amendment and Exchange
Agreements) to any third party until after the issuance of the Amended and
Restated Notes and the Exchange Shares.
The Richard Kall
Note
: On December 22, 2008 the Registrant also entered into an Agreement
(the “Framework Agreement”) with Mr. Kall pursuant to which Mr. Kall agreed,
subject to the earlier of the AMEX’s approval of the listing of the shares of
Common Stock underlying the Amended and Restated Note to be issued to Mr. Kall
and the Common Stock being listed on the OTC Bulletin Board (only if AMEX does
not approve the additional listing application by January 30, 2009), to exchange
his existing Amended and Restated Senior Secured Convertible Notes for an
Amended and Restated Note in the principal amount of up to$362,524.55 (subject
to adjustment based on the date on which such Amended and Restated Note is
issued).
Terms of the New
Notes
: The Amended and Restated Notes will have a term expiring November
30, 2010, will carry interest at 7.50% per annum on the unpaid/unconverted
principal balance, payable quarterly in arrears in cash beginning April 1, 2009,
and will be secured on a senior basis against all of the assets of the
Registrant. The Registrant will also be required to make aggregate monthly
principal payments of $25,000, plus accrued interest thereon, beginning July 1,
2009. The Amended and Restated Notes will be convertible at the
option of the holders thereof prior to their maturity into approximately
4,034,479 shares of Common Stock, based on a conversion price equal to $0.24 per
share (subject to adjustment as provided in the Amended and Restated Notes,
including pursuant to economic anti-dilution adjustments).
Additionally,
if at any time after the date the Amended and Restated Notes are issued, the
closing sale price of Common Stock equals or exceeds $0.288 for ten consecutive
trading days (as adjusted for any stock splits, stock dividends,
recapitalizations, combinations, reverse stock splits or other similar events
during such period) and provided that the Registrant has complied with certain
equity conditions, the Registrant will be able to require the holders to convert
50% of the remaining principal and accrued but unpaid interest of the Amended
and Restated Notes into Common Stock. If at any time beginning at
least 5 trading days from the date of the initial mandatory conversion, the
closing sale price of Common Stock equals or exceeds $0.312 for ten consecutive
trading days (as adjusted for any stock splits, stock dividends,
recapitalizations, combinations, reverse stock splits or other similar events
during such period) and provided that the Registrant has complied with certain
equity conditions, the Registrant will be able to require the holders to convert
the remaining principal and accrued but unpaid interest of the Amended and
Restated Notes into Common Stock.
The
holders of the Amended and Restated Notes will be entitled to accelerate the
maturity in the event that there occurs an event of default under the Amended
and Restated Notes, including, without limitation, if the Registrant fails to
pay any amount under the Amended and Restated Notes when due, if a judgment is
rendered against the Registrant in an amount set forth in the Amended and
Restated Notes, if the Registrant breaches any representation or warranty under
that certain Securities Purchase Agreement dated November 30, 2007, as amended,
or other transaction documents, or if the Registrant fails to comply with the
specified covenants set forth in the Amended and Restated
Notes. Among other covenants, the Amended and Restated Notes contain
financial covenants whereby the Registrant will be required to achieve specified
EBITDA (earnings before interest, tax, depreciation and amortization) and
revenue targets in each of the fiscal quarters during which the Amended and
Restated Notes are outstanding. Any failure by the Registrant to
achieve an EBITDA or revenue target will be considered a breach of the financial
covenant.
Also in
connection with the Amendment and Exchange Agreements, the Registrant agreed to
reimburse the fund manager of one of the Investors for its out-of-pocket
expenses incurred in connection with the transactions contemplated by the
Amendment and Exchange Agreements, including the actual and reasonable fees and
disbursements of the fund manager’s legal counsel, up to an aggregate amount of
$5,000.
The
AttainResponse Option
On
December 17, 2008, the Registrant acquired an option (the “Option”) to purchase
up to 48% of the outstanding equity securities or other interests (the “Option
Interest”) in AttainResponse LLC, a Colorado based company (the “Company”),
which engages in the development and management of content delivery applications
to include text and video email hosting, email marketing and streaming video
hosting, currently marketed under the brand “F5.” The Option Interest
was valued at $1,050,000 on such date.
The
Option was acquired from the majority members of the Company who together own
and control over 70% of the Company. Other members of the Company may
join in the sale of their interests should the Option be
exercised. The Option, as set forth in that certain definitive term
sheet executed on December 17, 2008 (“Definitive Term Sheet”), can be exercised
by the Registrant during a period of 12 months starting December 17, 2008 (the
“Option Term”), through the Registrant’s issuance of an aggregate of 4,375,000
shares (the “Common Shares”) of the Registrant’s common stock, $0.001 par value
per share (“Common Stock”), to the Company’s members participating in the
Option. The Registrant also agreed to assume up to $118,500 of debt
owed by the Company and will conduct all necessary due diligence of the Company
and its technology as a condition to the exercise of the Option.
The
Registrant is currently conducting system wide testing of the Company’s F5
technology which may be substituted for certain of the Registrant’s products and
e-services starting the first quarter of 2009. If integration is
achievable, a licensing and service agreement will be negotiated by the
Registrant and the Company. The exercise of the Option is conditioned
upon the completion of additional research and development tasks and a seamless
integration of the Company’s technology with the Registrant’s technology, as
well as the entry into the license and service agreement. Should the
monthly revenues of the Registrant reach $1.5 million during the Option Term,
the Registrant will be obligated to exercise the Option.
Before
the Registrant can exercise the Option, it must obtain the affirmative vote of
its board of directors and the approval by the American Stock Exchange (“AMEX”)
to the issuance of the Common Shares.
Upon
exercise of the Option the Registrant will be entitled to appoint a member to
the board of directors of the Company and will have veto power over the election
of one additional member out of a board of directors consisting of three
directors.
The
Registrant or its affiliates do not have any material relationship with the
Company or its members, except that one member of the Company is an independent
distributor of VMDirect, L.L.C., one of the Registrant’s wholly-owned
subsidiaries.
The
foregoing descriptions do not purport to be a complete description of the terms
of the documents, and this description is qualified in its entirety by the terms
of the transaction documents, including the Articles of Amendment, the
Definitive Term Sheet, the Purchase Agreement, the Series A Warrant, the
Framework Agreement, the form of Amendment and Exchange Agreement and the form
of Second Amended and Restated Senior Secured Convertible Note,
respectively.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, DigitalFX
International, Inc. has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
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DigitalFX
International, Inc.
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Date: December
23, 2008
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By:
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/s/
Abraham Sofer
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Abraham
Sofer
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President
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