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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">UNITED
      STATES</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">SECURITIES
      AND EXCHANGE COMMISSION</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Washington,
      D.C. 20549</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">FORM
      8-K</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">CURRENT
      REPORT</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Pursuant
      to Section 13 or 15(d) of the Securities Exchange Act of 1934</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Date
      of
      Report: March 2, 2006</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">SAN
      Holdings, Inc.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center">
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        <hr style="COLOR: black" align="center" noshade size="1" width="40%">
      </div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Exact
      name of registrant as specified in its charter) </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
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              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Colorado</font></div>
            </td>
            <td valign="top" width="8%">&#160;</td>
            <td valign="top" width="16%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">0-16423</font></div>
            </td>
            <td valign="top" width="8%">&#160;</td>
            <td valign="top" width="23%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">84-0907969
                </font></div>
            </td>
          </tr>
          <tr>
            <td valign="top" width="24%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(State
                or other jurisdiction </font></div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">of
                incorporation)</font></div>
            </td>
            <td valign="top" width="8%">&#160;</td>
            <td valign="top" width="16%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Commission
                </font></div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">File
                Number)</font></div>
            </td>
            <td valign="top" width="8%">&#160;</td>
            <td valign="top" width="23%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(IRS
                Employer</font></div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Identification
                Number)</font></div>
            </td>
          </tr>

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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">9800
      Pyramid Court, Suite 130, Englewood, CO 80112</font></div>
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      of Principal Executive Offices) (Zip Code)</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(303)
      660-3933</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Registrant&#8217;s
      telephone number, including area code</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 72pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">None</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Former
      name or former address, if changed since last report)</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">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:</font></div>
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Written
      communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="FONT-FAMILY: Wingdings">o</font>&#160;
Soliciting
      material pursuant to
      Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="FONT-FAMILY: Wingdings">o</font>&#160;
Pre-commencement
      communications
      pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="FONT-FAMILY: Wingdings">o</font>&#160;
Pre-commencement
      communications
      pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
      240.13e-4(c))</font></div><br>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Item
      1.01 Entry into a Material Definitive Agreement</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      March
      2, 2006 (the &#8220;Closing Date&#8221;), SAN Holdings, Inc. (the &#8220;Company&#8221;) entered into a
      Securities Purchase Agreement, dated and effective as of February 28, 2006
      (the
&#8220;Securities Purchase Agreement&#8221;), by and among the Company and the purchasers
      that executed a signature page thereto (the &#8220;Purchasers&#8221;). The Purchasers
      included, among other persons, Sun Solunet, LLC (&#8220;Sun Solunet&#8221;) and certain
      executive officers and employees of the Company. Pursuant to the Securities
      Purchase Agreement, the Company issued the securities described in Item 3.02
      to
      this Report, the description of which is incorporated herein by reference,
      and
      entered into a number of ancillary agreements described later in this
      Item.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      the
      Closing Date, the Company entered into the Registration Rights Agreement, dated
      and effective as of February 28, 2006 (the &#8220;Registration Rights Agreement&#8221;),
      among the Company and the Purchasers. Pursuant to the Registration Rights
      Agreement, the Company granted registration rights to the Purchasers with
      respect to some of the securities purchased under the Securities Purchase
      Agreement as set forth therein. The Registration Rights Agreement is filed
      as an
      exhibit to this Report. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      consideration paid to the Company by Sun Solunet for securities it purchased
      from the Company pursuant to the Securities Purchase Agreement consisted of
      the
      exchange of $8 million of debt owed by the Company to Sun Solunet under credit
      facility (the &#8220;Credit Facility&#8221;) that the Company maintains with Sun Solunet, as
      assignee of Harris N.A. (formerly known as Harris Trust and Savings Bank).
      In
      addition, the Company paid down approximately $1 million of the outstanding
      debt
      owed to Sun Solunet as of the Closing Date so that the total outstanding debt
      owed by the Company to Sun Solunet under the Credit Facility was an amount
      equal
      to or less than $5 million in principal plus outstanding accrued interest from
      November 23, 2005 to the Closing Date. As a result thereof, on the Closing
      Date,
      the Company and Sun Capital Partners II, LP, a Delaware limited partnership
      (the
&#8220;Fund&#8221;), acknowledged and agreed to by Sun Solunet, entered into a termination
      letter (the &#8220;Credit Support Termination Agreement&#8221;) to the letter agreement,
      dated as of March 31, 2003, as amended on November 23, 2005, by and between
      the
      Fund and the Company, acknowledged and agreed to by Sun Solunet (the &#8220;Credit
      Support Agreement&#8221;). The Credit Support Termination Agreement is filed as
      Exhibit 10.04 to this Report and includes the following provisions, among
      others: </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(a)&#160;&#160;&#160;&#160;&#160;
      The Company and Sun Solunet agreed to decrease the Company&#8217;s borrowing
      availability under the Credit Facility from $14 million to $5 million (in
      principal amount), to modify the Credit Facility from a revolving line of credit
      to a term loan that does not permit reborrowings by the Company and to extend
      the maturity date to a date three years from the Closing Date (March 2, 2009).
      </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(b)&#160;&#160;&#160;&#160;&#160;
      The parties agreed that Sun Solunet and the Fund have no additional lending
      obligation to the Company. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(c)&#160;&#160;&#160;&#160;&#160;
      The parties terminated the Credit Support Agreement and the obligations of
      all
      parties thereunder in their entirety effective as of the Closing Date.
</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Item
      1.02 Termination of a Material Definitive Agreement</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      description of the Credit Support Termination Agreement in Item 1.01 of this
      Report is incorporated herein by reference. Pursuant to the Credit Support
      Termination Agreement, the Credit Support Agreement, and the obligations of
      all
      parties thereunder were terminated, cancelled, released and discharged in their
      entirety effective as of the Closing Date.</font></div>
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        <div style="WIDTH: 100%; TEXT-ALIGN: center">
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Pursuant
      to the Credit Support Agreement, in partial consideration for the Credit
      Facility, the Company was required to periodically issue to Sun Solunet on
      November 16 and May 16 of each year, a warrant to purchase shares of the
      Company&#8217;s Common Stock (&#8220;Guaranty Warrants&#8221;), exercisable for a number of shares
      of the Company&#8217;s Common Stock calculated pursuant to a formula set forth in the
      Credit Support Agreement, for so long as there remained an aggregate principal
      amount owed to Sun Solunet under the Credit Facility in an amount in excess
      of
      $3,000,000, as disclosed in the Company&#8217;s Amended Annual Report on Form 10-K/A
      for the fiscal year ended December 31, 2004. Pursuant to the Credit Support
      Termination Agreement, the obligation of the Company to periodically issue
      Guaranty Warrants to Sun Solunet thereunder was terminated (with Sun Solunet
      retaining any Guaranty Warrants previously issued to it and all of its rights
      thereunder). </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Item
      3.02 Unregistered Sales of Equity Securities</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      the
      Closing Date, in a private placement transaction exempt from registration under
      the Securities Act of 1933, as amended (the &#8220;1933 Act&#8221;) pursuant to Section 4(2)
      of the 1933 Act and Regulation D promulgated thereunder (the &#8220;Private
      Placement&#8221;), the Company issued to the Purchasers a total of 236.8 units
      (&#8220;Units&#8221;), each Unit consisting of: </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(a)&#160;&#160;&#160;&#160;&#160;&#160;&#160;one
      share of the Company&#8217;s newly designated convertible series A preferred stock, no
      par value per share (&#8220;Series A Preferred Stock&#8221;) initially convertible into
      333,333 shares of the Company&#8217;s common stock, no par value per share (&#8220;Common
      Stock&#8221;); </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
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      &#160;&#160;&#160;&#160;&#160;&#160;&#160;a warrant to purchase 166,667 shares
      of Common Stock exercisable for five years from the Closing Date at an initial
      exercise price of $0.30 per share expiring five years from the Closing Date;
      and</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(c)
      &#160;&#160;&#160;&#160;&#160;&#160;&#160;a warrant to purchase 166,667 shares
      of Common Stock exercisable for five years from the Closing Date at an initial
      exercise price of $0.50 per share (together with the warrants described in
      clause (b) above, the &#8220;Warrants&#8221;) expiring five years from the Closing Date.
</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      voting powers, designation, conversion rights, preferences, limitations,
      restrictions and relative rights of the Series A Preferred Stock and the holders
      thereof are set forth in the Certificate (as defined in Item 5.03) which is
      included as Exhibit 4.01 to this Report, which is incorporated herein by
      reference. The terms of the Warrants, including but not limited to their rights
      and preferences and the exercise features are set forth in the form of Warrant
      included as Exhibit 10.03 of this Report, which is incorporated herein by
      reference.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      consideration received by the Company from the Purchasers other than Sun Solunet
      for the purchase of the Units was $3,015,000 cash, less approximately $306,000
      in fees and expenses paid to the placement agent pursuant to an agreement with
      the Company in connection with the Private Placement. The consideration paid
      by
      Sun Solunet consisted of the exchange of $8,000,000 of the outstanding debt
      the
      Company owed to Sun Solunet. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Item
      5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal
      Year</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      connection with the Private Placement described in Item 3.02 of this Report,
      pursuant to the authority granted to the Board of Directors of the Company
      by
      the Second Amended and Restated Articles of Incorporation of the Company, the
      Company designated 400 shares of previously undesignated authorized preferred
      stock as a new series of Series A Preferred Stock. On the Closing Date the
      Company filed Articles of Amendment that included the Designation of Series
      A
      Preferred Stock (the &#8220;Certificate&#8221;) with the Secretary of State of the State of
      Colorado. The Articles of Amendment are included as Exhibit 3.01 of this Report.
      Upon filing, the Certificate became a part of the Company&#8217;s Articles of
      Incorporation, as amended. The Certificate sets forth the voting powers,
      designation, conversion rights, preferences, limitations, restrictions and
      relative rights of the Series A Preferred Stock and the holders thereof and
      is
      included as Exhibit 3.01 of this Report. </font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Item
      7.01 Regulation FD Disclosure</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      information in this Item 7.01, including the exhibit attached hereto, is
      furnished pursuant to Item 7.01 and shall not be deemed &#8220;filed&#8221; for any purpose,
      including for the purposes of Section 18 of the Securities Exchange Act of
      1934,
      as amended (the &#8220;Exchange Act&#8221;), or otherwise subject to the liabilities of that
      Section. The information in this Item 7.01 of this Current Report on Form 8-K
      shall not be deemed incorporated by reference into any filing under the 1933
      Act
      or the Exchange Act regardless of any general incorporation language in such
      filing. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      March
      7, 2006, the Company issued a press release announcing the completion of the
      Private Placement. The text of the press release is attached hereto as Exhibit
      99.01, and is incorporated by reference herein.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Item
      8.01 Other Events</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      connection with the Private Placement and the execution of the Securities
      Purchase Agreement, on the Closing Date in a letter addressed to the Company
      included as Exhibit 9.01 to this Report, Sun Solunet agreed for the benefit
      of
      the Purchasers other than itself to:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(a)
      cause
      each of the directors of the Company who is employed by or who is an officer
      of
      Sun Solunet (the &#8220;Sun Directors&#8221;) to, as soon as reasonably practicable after
      the Company files its Annual Report on Form 10-K for the fiscal year ended
      December 31, 2005, take steps reasonably necessary to call a shareholder meeting
      to vote on the measures described in clause (b) below; </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(b)
      to
      vote all of its shares of the Company&#8217;s common stock, no par value (&#8220;Common
      Stock&#8221;) entitled to vote at the meeting in favor of a reverse stock split of the
      Company&#8217;s Common Stock on whatever basis is determined by the Board of Directors
      of the Company and an increase in the Company&#8217;s authorized capital in an amount
      determined by the Board of Directors, to increase the authorized capital of
      the
      Company in an amount sufficient to provide for the issuance of all of the shares
      of the Company&#8217;s Common Stock that is issuable upon exercise of the Warrants and
      conversion of the Series A Preferred Stock;</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(c)
      cause
      the Sun Directors to take steps reasonably necessary to cause certain governance
      changes to the Company, including but not limited to (i) reducing the size
      of
      the Board of Directors of the Company to a number equal to or less than 9
      directors; (ii) increasing the size of the Audit Committee to include at least
      three members that must all be independent (but permitting an additional member
      that is not independent); (iii) to require that future decisions relating to
      the
      compensation of the executive officers of the Company be recommended to the
      Board of Directors for determination by either a majority of the independent
      directors of the Company, or a compensation committee comprised solely of
      independent directors. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Sun
      Solunet&#8217;s obligations under the letter terminate on the earliest to occur of (a)
      a written agreement of at least 66% of Purchasers other than Sun Solunet, (b)
      the five year anniversary of the letter, (c) the date on which the Purchasers
      other than Sun Solunet collectively own less than 25% of the securities they
      purchased on the Closing Date and (d) the date on which the Sun Directors no
      longer constitute a majority of the directors of the Company. </font></div>
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        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">4</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
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        </div>
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      <div id="HDR">
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Item
      9.01 Financial Statements and Exhibits</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>(c)
      Exhibits</strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      The
      following is a complete list of exhibits filed as part of this Report. Exhibit
      numbers correspond to the numbers in the exhibit table of Item 601 of Regulation
      S-K.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
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          <tr>
            <td valign="top" width="12%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Exhibit
                No.</strong></font></div>
            </td>
            <td width="5%">&#160;</td>
            <td valign="top" width="83%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Description</strong></font></div>
            </td>
          </tr>
          <tr>
            <td valign="top" width="12%">&#160;</td>
            <td width="5%">&#160;</td>
            <td valign="top" width="83%">&#160;</td>
          </tr>
          <tr>
            <td align="right" valign="top" width="12%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 21.6pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">3.01</font></div>
            </td>
            <td width="5%">&#160;</td>
            <td align="justify" valign="top" width="83%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Articles
                of Amendment to the Company&#8217;s Second Amended and Restated Articles of
                Incorporation, as filed with the Colorado Secretary of State on March
                2,
                2006</font></div>
            </td>
          </tr>
          <tr>
            <td align="right" valign="top" width="12%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 21.6pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">4.01</font></div>
            </td>
            <td width="5%">&#160;</td>
            <td align="justify" valign="top" width="83%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Designation
                of Series A Preferred Stock (Included in Exhibit 3.01)</font></div>
            </td>
          </tr>
          <tr>
            <td align="right" valign="top" width="12%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 21.6pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">9.01</font></div>
            </td>
            <td width="5%">&#160;</td>
            <td align="justify" valign="top" width="83%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Letter
                from Sun Solunet, LLC dated March 2, 2006</font></div>
            </td>
          </tr>
          <tr>
            <td align="right" valign="top" width="12%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 21.6pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.01</font></div>
            </td>
            <td width="5%">&#160;</td>
            <td align="justify" valign="top" width="83%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Securities
                Purchase Agreement, dated as of March 2, 2006, by and among the Company
                and the purchasers that executed a signature page
                thereto</font></div>
            </td>
          </tr>
          <tr>
            <td align="right" valign="top" width="12%">
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            </td>
            <td width="5%">&#160;</td>
            <td align="justify" valign="top" width="83%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Registration
                Rights Agreement, dated as of March 2, 2006, by and among the Company
                and
                the purchasers that executed a signature page thereto (Included in
                Exhibit
                C of Exhibit 10.01)</font></div>
            </td>
          </tr>
          <tr>
            <td align="right" valign="top" width="12%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 21.6pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.03</font></div>
            </td>
            <td width="5%">&#160;</td>
            <td align="justify" valign="top" width="83%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Form
                of the Company Common Stock Purchase Warrants issued on March 2,
                2006
                (Included in Exhibits D and E of Exhibit 10.01)</font></div>
            </td>
          </tr>
          <tr>
            <td align="right" valign="top" width="12%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 21.6pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.04</font></div>
            </td>
            <td width="5%">&#160;</td>
            <td align="justify" valign="top" width="83%">
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                Support Termination Agreement, dated as of March 2, 2006, to the
                letter
                agreement dated as of March 31, 2003, as amended on November 23,
                2005, by
                and between Sun Capital Partners II, LP and the Company, acknowledged
                and
                agreed to by Sun Solunet, LLC (Included in Exhibit G of Exhibit
                10.01)</font></div>
            </td>
          </tr>
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              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 21.6pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">99.01</font></div>
            </td>
            <td width="5%">&#160;</td>
            <td align="justify" valign="top" width="83%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Press
                Release of SAN Holdings, Inc. dated March 7,
                2006</font></div>
            </td>
          </tr>

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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><br>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">5</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
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        </div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">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.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 252pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">SAN
      HOLDINGS, INC.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
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      /s/
      Robert C. Ogden<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;</font></u></font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 27pt">&#160;</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 27pt">&#160;</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 27pt">&#160;</font></div>
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      C.
      Ogden, Vice President, </font></div>
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      Financial Officer and Secretary</font></div>
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      March 7, 2006</font></div>
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{"company-data": {"conformed-name": "SAN HOLDINGS INC", "cik": "0000799097", "assigned-sic": "3572", "irs-number": "840907969", "state-of-incorporation": "CO", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "000-16423", "film-number": "06671361"}, "business-address": {"street1": "9800 MT PYRAMID COURT", "street2": "SUITE 130", "city": "ENGLEWOOD", "state": "CO", "zip": "80112", "phone": "3036603933"}, "mail-address": {"street1": "9800 MT PYRAMID COURT", "street2": "SUITE 130", "city": "ENGLEWOOD", "state": "CO", "zip": "80112"}, "former-company": [{"former-conformed-name": "CITADEL ENVIRONMENTAL GROUP INC", "date-changed": "19961129"}, {"former-conformed-name": "CITADEL ASSET MANAGEMENT LTD", "date-changed": "19920703"}]}
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: March 2, 2006
SAN
      Holdings, Inc.
(Exact
      name of registrant as specified in its charter)
Colorado
0-16423
84-0907969
(State
                or other jurisdiction
of
                incorporation)
(Commission
File
                Number)
(IRS
                Employer
Identification
                Number)
9800
      Pyramid Court, Suite 130, Englewood, CO 80112
(Address
      of Principal Executive Offices) (Zip Code)
(303)
      660-3933
Registrant's
      telephone number, including area code
None
(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:
o
Written
      communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting
      material pursuant to
      Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement
      communications
      pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
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
On
      March
      2, 2006 (the "Closing Date"), SAN Holdings, Inc. (the "Company") entered into a
      Securities Purchase Agreement, dated and effective as of February 28, 2006
      (the
"Securities Purchase Agreement"), by and among the Company and the purchasers
      that executed a signature page thereto (the "Purchasers"). The Purchasers
      included, among other persons, Sun Solunet, LLC ("Sun Solunet") and certain
      executive officers and employees of the Company. Pursuant to the Securities
      Purchase Agreement, the Company issued the securities described in Item 3.02
      to
      this Report, the description of which is incorporated herein by reference,
      and
      entered into a number of ancillary agreements described later in this
      Item.
On
      the
      Closing Date, the Company entered into the Registration Rights Agreement, dated
      and effective as of February 28, 2006 (the "Registration Rights Agreement"),
      among the Company and the Purchasers. Pursuant to the Registration Rights
      Agreement, the Company granted registration rights to the Purchasers with
      respect to some of the securities purchased under the Securities Purchase
      Agreement as set forth therein. The Registration Rights Agreement is filed
      as an
      exhibit to this Report.
The
      consideration paid to the Company by Sun Solunet for securities it purchased
      from the Company pursuant to the Securities Purchase Agreement consisted of
      the
      exchange of $8 million of debt owed by the Company to Sun Solunet under credit
      facility (the "Credit Facility") that the Company maintains with Sun Solunet, as
      assignee of Harris N.A. (formerly known as Harris Trust and Savings Bank).
      In
      addition, the Company paid down approximately $1 million of the outstanding
      debt
      owed to Sun Solunet as of the Closing Date so that the total outstanding debt
      owed by the Company to Sun Solunet under the Credit Facility was an amount
      equal
      to or less than $5 million in principal plus outstanding accrued interest from
      November 23, 2005 to the Closing Date. As a result thereof, on the Closing
      Date,
      the Company and Sun Capital Partners II, LP, a Delaware limited partnership
      (the
"Fund"), acknowledged and agreed to by Sun Solunet, entered into a termination
      letter (the "Credit Support Termination Agreement") to the letter agreement,
      dated as of March 31, 2003, as amended on November 23, 2005, by and between
      the
      Fund and the Company, acknowledged and agreed to by Sun Solunet (the "Credit
      Support Agreement"). The Credit Support Termination Agreement is filed as
      Exhibit 10.04 to this Report and includes the following provisions, among
      others:
(a)     
      The Company and Sun Solunet agreed to decrease the Company's borrowing
      availability under the Credit Facility from $14 million to $5 million (in
      principal amount), to modify the Credit Facility from a revolving line of credit
      to a term loan that does not permit reborrowings by the Company and to extend
      the maturity date to a date three years from the Closing Date (March 2, 2009).
(b)     
      The parties agreed that Sun Solunet and the Fund have no additional lending
      obligation to the Company.
(c)     
      The parties terminated the Credit Support Agreement and the obligations of
      all
      parties thereunder in their entirety effective as of the Closing Date.
Item
      1.02 Termination of a Material Definitive Agreement
The
      description of the Credit Support Termination Agreement in Item 1.01 of this
      Report is incorporated herein by reference. Pursuant to the Credit Support
      Termination Agreement, the Credit Support Agreement, and the obligations of
      all
      parties thereunder were terminated, cancelled, released and discharged in their
      entirety effective as of the Closing Date.
2
Pursuant
      to the Credit Support Agreement, in partial consideration for the Credit
      Facility, the Company was required to periodically issue to Sun Solunet on
      November 16 and May 16 of each year, a warrant to purchase shares of the
      Company's Common Stock ("Guaranty Warrants"), exercisable for a number of shares
      of the Company's Common Stock calculated pursuant to a formula set forth in the
      Credit Support Agreement, for so long as there remained an aggregate principal
      amount owed to Sun Solunet under the Credit Facility in an amount in excess
      of
      $3,000,000, as disclosed in the Company's Amended Annual Report on Form 10-K/A
      for the fiscal year ended December 31, 2004. Pursuant to the Credit Support
      Termination Agreement, the obligation of the Company to periodically issue
      Guaranty Warrants to Sun Solunet thereunder was terminated (with Sun Solunet
      retaining any Guaranty Warrants previously issued to it and all of its rights
      thereunder).
Item
      3.02 Unregistered Sales of Equity Securities
On
      the
      Closing Date, in a private placement transaction exempt from registration under
      the Securities Act of 1933, as amended (the "1933 Act") pursuant to Section 4(2)
      of the 1933 Act and Regulation D promulgated thereunder (the "Private
      Placement"), the Company issued to the Purchasers a total of 236.8 units
      ("Units"), each Unit consisting of:
(a)       one
      share of the Company's newly designated convertible series A preferred stock, no
      par value per share ("Series A Preferred Stock") initially convertible into
      333,333 shares of the Company's common stock, no par value per share ("Common
      Stock");
(b)
             a warrant to purchase 166,667 shares
      of Common Stock exercisable for five years from the Closing Date at an initial
      exercise price of $0.30 per share expiring five years from the Closing Date;
      and
(c)
             a warrant to purchase 166,667 shares
      of Common Stock exercisable for five years from the Closing Date at an initial
      exercise price of $0.50 per share (together with the warrants described in
      clause (b) above, the "Warrants") expiring five years from the Closing Date.
The
      voting powers, designation, conversion rights, preferences, limitations,
      restrictions and relative rights of the Series A Preferred Stock and the holders
      thereof are set forth in the Certificate (as defined in Item 5.03) which is
      included as Exhibit 4.01 to this Report, which is incorporated herein by
      reference. The terms of the Warrants, including but not limited to their rights
      and preferences and the exercise features are set forth in the form of Warrant
      included as Exhibit 10.03 of this Report, which is incorporated herein by
      reference.
The
      consideration received by the Company from the Purchasers other than Sun Solunet
      for the purchase of the Units was $3,015,000 cash, less approximately $306,000
      in fees and expenses paid to the placement agent pursuant to an agreement with
      the Company in connection with the Private Placement. The consideration paid
      by
      Sun Solunet consisted of the exchange of $8,000,000 of the outstanding debt
      the
      Company owed to Sun Solunet.
Item
      5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal
      Year
In
      connection with the Private Placement described in Item 3.02 of this Report,
      pursuant to the authority granted to the Board of Directors of the Company
      by
      the Second Amended and Restated Articles of Incorporation of the Company, the
      Company designated 400 shares of previously undesignated authorized preferred
      stock as a new series of Series A Preferred Stock. On the Closing Date the
      Company filed Articles of Amendment that included the Designation of Series
      A
      Preferred Stock (the "Certificate") with the Secretary of State of the State of
      Colorado. The Articles of Amendment are included as Exhibit 3.01 of this Report.
      Upon filing, the Certificate became a part of the Company's Articles of
      Incorporation, as amended. The Certificate sets forth the voting powers,
      designation, conversion rights, preferences, limitations, restrictions and
      relative rights of the Series A Preferred Stock and the holders thereof and
      is
      included as Exhibit 3.01 of this Report.
3
Item
      7.01 Regulation FD Disclosure
The
      information in this Item 7.01, including the exhibit attached hereto, is
      furnished pursuant to Item 7.01 and shall not be deemed "filed" for any purpose,
      including for the purposes of Section 18 of the Securities Exchange Act of
      1934,
      as amended (the "Exchange Act"), or otherwise subject to the liabilities of that
      Section. The information in this Item 7.01 of this Current Report on Form 8-K
      shall not be deemed incorporated by reference into any filing under the 1933
      Act
      or the Exchange Act regardless of any general incorporation language in such
      filing.
On
      March
      7, 2006, the Company issued a press release announcing the completion of the
      Private Placement. The text of the press release is attached hereto as Exhibit
      99.01, and is incorporated by reference herein.
Item
      8.01 Other Events
In
      connection with the Private Placement and the execution of the Securities
      Purchase Agreement, on the Closing Date in a letter addressed to the Company
      included as Exhibit 9.01 to this Report, Sun Solunet agreed for the benefit
      of
      the Purchasers other than itself to:
(a)
      cause
      each of the directors of the Company who is employed by or who is an officer
      of
      Sun Solunet (the "Sun Directors") to, as soon as reasonably practicable after
      the Company files its Annual Report on Form 10-K for the fiscal year ended
      December 31, 2005, take steps reasonably necessary to call a shareholder meeting
      to vote on the measures described in clause (b) below;
(b)
      to
      vote all of its shares of the Company's common stock, no par value ("Common
      Stock") entitled to vote at the meeting in favor of a reverse stock split of the
      Company's Common Stock on whatever basis is determined by the Board of Directors
      of the Company and an increase in the Company's authorized capital in an amount
      determined by the Board of Directors, to increase the authorized capital of
      the
      Company in an amount sufficient to provide for the issuance of all of the shares
      of the Company's Common Stock that is issuable upon exercise of the Warrants and
      conversion of the Series A Preferred Stock;
(c)
      cause
      the Sun Directors to take steps reasonably necessary to cause certain governance
      changes to the Company, including but not limited to (i) reducing the size
      of
      the Board of Directors of the Company to a number equal to or less than 9
      directors; (ii) increasing the size of the Audit Committee to include at least
      three members that must all be independent (but permitting an additional member
      that is not independent); (iii) to require that future decisions relating to
      the
      compensation of the executive officers of the Company be recommended to the
      Board of Directors for determination by either a majority of the independent
      directors of the Company, or a compensation committee comprised solely of
      independent directors.
Sun
      Solunet's obligations under the letter terminate on the earliest to occur of (a)
      a written agreement of at least 66% of Purchasers other than Sun Solunet, (b)
      the five year anniversary of the letter, (c) the date on which the Purchasers
      other than Sun Solunet collectively own less than 25% of the securities they
      purchased on the Closing Date and (d) the date on which the Sun Directors no
      longer constitute a majority of the directors of the Company.
4
Item
      9.01 Financial Statements and Exhibits
(c)
      Exhibits
The
      following is a complete list of exhibits filed as part of this Report. Exhibit
      numbers correspond to the numbers in the exhibit table of Item 601 of Regulation
      S-K.
Exhibit
                No.
Description
3.01
Articles
                of Amendment to the Company's Second Amended and Restated Articles of
                Incorporation, as filed with the Colorado Secretary of State on March
                2,
                2006
4.01
Designation
                of Series A Preferred Stock (Included in Exhibit 3.01)
9.01
Letter
                from Sun Solunet, LLC dated March 2, 2006
10.01
Securities
                Purchase Agreement, dated as of March 2, 2006, by and among the Company
                and the purchasers that executed a signature page
                thereto
10.02
Registration
                Rights Agreement, dated as of March 2, 2006, by and among the Company
                and
                the purchasers that executed a signature page thereto (Included in
                Exhibit
                C of Exhibit 10.01)
10.03
Form
                of the Company Common Stock Purchase Warrants issued on March 2,
                2006
                (Included in Exhibits D and E of Exhibit 10.01)
10.04
Credit
                Support Termination Agreement, dated as of March 2, 2006, to the
                letter
                agreement dated as of March 31, 2003, as amended on November 23,
                2005, by
                and between Sun Capital Partners II, LP and the Company, acknowledged
                and
                agreed to by Sun Solunet, LLC (Included in Exhibit G of Exhibit
                10.01)
99.01
Press
                Release of SAN Holdings, Inc. dated March 7,
                2006
5
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.
SAN
      HOLDINGS, INC.
By:
/s/
      Robert C. Ogden
Robert
      C.
      Ogden, Vice President,
Chief
      Financial Officer and Secretary
Date:
      March 7, 2006
6