<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: SEPTEMBER 30, 1997
COMMISSION FILE NO. 333-06121
COMPRESSENT CORPORATION
(FORMERLY CABLE-SAT SYSTEMS, INC.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
FLORIDA 65-0581474
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
2105 HAMILTON AVENUE, SUITE 140 SAN JOSE, CA 95125
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NO. (408) 879-6600
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK
REDEEMABLE STOCK PURCHASE WARRANTS
Check whether the Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or such shorter period that the Registrant was required to file such
reports); and, (2) has been subject to such filing requirements for the past 90
days. Yes [ ] No[X]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant at December 1, 1997 was approximately $33,400,000.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. 5,042,202 shares of common
stock, as of December 1, 1997.
DOCUMENTS
INCORPORATED BY REFERENCE
REGISTRATION STATEMENT ON FORM S-1, FILE NUMBER 333-06121 ARE INCORPORATED
BY REFERENCE.
================================================================================
<PAGE> 2
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act
of 1934. All forward-looking statements involve risks and uncertainties. Actual
results could differ materially from those discussed in the forward-looking
statements as a result of many factors. Readers should pay particular attention
to the risk factors set forth in the section of this report entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Risk Factors."
PART I
ITEM 1. BUSINESS
Compressent Corporation (the "Company") develops digital image coding and
data compression software products that will enable the facsimile transmission
of color images from computers equipped with the Company's software programs.
Facsimile transmission, better known as "fax", has become a major means of
communication in today's business community. A fax machine can be found in
almost every organization and is a standard office tool.
Facsimile machines convert text or graphics into digital form that can be
electronically transmitted and received across telephone lines. When sending
images, fax machines operate as scanners, converting images into a series of
dots that are then digitally encoded. The digital signal is then converted to a
voiceband ("audio") signal for transmission over the telephone network. When
receiving images, the machines affix images to paper through a variety of means.
The image is converted to a series of dots (either by scanning, in the case of a
fax machine, or electronically, in the case of a computer). Many technologies
employed in facsimile imaging are similar to those used in computer printers and
photocopiers.
Individual personal computers can be utilized as fax machines by the
addition of special circuitry known as a modem with fax capabilities. This
allows the computer to send and receive faxes directly without utilizing a
free-standing fax machine. Using a computer as a fax machine requires that a
telephone line be available during fax transmission and receiving. A fax
received directly by a computer can be immediately viewed on screen or stored
for later viewing. If the computer is connected to a printer, the fax
transmission can be printed.
A communications software program controls the exchange of information
between the computer and the remote computer or facsimile machine at the other
end of the phone line. Current communications software packages do not allow a
computer generated fax to be sent other than in black and white.
The communications software operates in accordance with international
standards adopted by an international telecommunications standard-making
organization. These standards assure that faxes can be sent and received all
over the world regardless of the fax machine manufacturer or publisher of the
fax software.
The Company believes that the demand for color fax capabilities will be
substantial for the following reasons:
1. The price of color printers is declining rapidly. The Company believes
this will result in color printers becoming the standard for printers
used with stand alone or single user personal computers rather than a
high priced luxury.
2. The price of color scanners is declining, making them reasonably
available to users of personal computers.
3. The Windows 95 operating system has built-in color management
capabilities, making color easier to use in applications.
4. The latest computers are generally equipped with faster processors and
larger storage devices. This makes it more practical to work with
image-intensive applications.
5. Significant growth in the small office/home office sector and personal
home use.
The Company believes that the above trends will result in demand for color
technology, including faxes.
2
<PAGE> 3
The Company's Color Fax Products
CHROMAFAX, is a communications software program designed to allow facsimile
transmission of color images. It incorporates the new international standard for
color faxing established by the International Telecommunications Union (ITU) and
includes the Joint Photographic Experts Group (JPEG) standard for image
compression. It enables users to send and receive color faxes to and from their
personal computer.
To the Company's knowledge, CHROMAFAX is the first commercially available
fax product that is compliant with the international color fax standard
recommended in 1995 by the ITU. The standard ensures compatibility with future
standards-based fax applications and machines, regardless of their manufacturer.
Thus, users can be assured that their fax software package will continue to work
for both color and black and white images.
A color page, when scanned into a color fax program, results in a very
large amount of raw data unless it is compressed. Sizes upwards of 10 megabytes
are not uncommon. To manage this data within a computer's memory and to transmit
it in a reasonable amount of time, images are usually compressed, and
uncompressed by the receiver. The ITU color fax standard specifies how this data
is to be managed, transmitted and decoded. This specification imposes certain
limitations on color fax software and hardware. The standard requires the use of
JPEG compression. This JPEG compression algorithm specified in the standard has
a large inherent overhead, and may result in upwards of 8 minutes to transmit a
single color page using V.17 (14.4 kb/s) transmission protocols. Implementing
this standard assures compatibility with all other standards-based products that
are issued in the future, whether by the Company or other vendors.
To make color faxing even more desirable, CHROMAFAX contains several
transmission modes. In addition to complying with the JPEG standard, CHROMAFAX
incorporates a proprietary compression process. This compression process reduces
the size of large color files resulting in image file sizes that make
transmission and storage more efficient and of higher quality. When
communicating with a remote CHROMAFAX system, the proprietary compression
process and fastest fax transmission protocols are automatically utilized. The
Company's compression process and the communications protocol are more efficient
and will result in faster transmission for a typical high resolution (200 dpi),
24-bit, full-color page.
The CHROMAFAX version will use one of three modes, all transparent to the
user:
(1) ITU Color Standard. This enables operation with any fax color
machine or software that is compliant with the international standard;
(2) Company Proprietary. For fast color transmission that works with
only the Company fax software package; or
(3) Black and White. Compliant with the black and white faxes that
operate under the current international standards for black and white fax
operation.
CHROMAFAX includes a color scanner and digital camera interface that allows
a variety of color scanners and digital cameras to be used for input. The
software also supports Windows 95-compatible color printers.
Research and Development
The Company is continuously engaged in the development of new products as
well as the development and enhancement of its existing products. Research and
development expenditures were approximately $201,000 in the period from
inception (August 26, 1994) to September 30, 1995, and approximately $903,000
and $1,305,000 in the fiscal years ended September 30, 1996 and 1997,
respectively.
Marketing and Distribution
The Company initially is marketing CHROMAFAX to people working at home or
in small office environment, and to computer hobbyists. The Company's marketing
strategy, as currently formulated, emphasizes the rapid introduction of its
CHROMAFAX software via all practical channels of distribution in
3
<PAGE> 4
order to maximize public awareness of the product and to encourage usage. The
Company also offers a "light" version of the product, CHROMAFAX LITE that has
limited functionality to manufacturers of color printers, scanners, computers,
modems and other software applications to distribute with their products. The
Company will have a version of the product available for downloading from its
Internet Web site.
In order to establish a large base of users, this initial marketing
strategy includes distribution of software for little or no revenue to the
Company. In other cases, a free trial version of the software, with reduced
functionality, will be bundled with products such as color peripherals from
other suppliers for little or no revenue to the Company. One of the free trial
versions is able to send only a limited number of faxes (e.g. five) before
converting to the receive-only version. If the customer desires to continue to
use the product to send color faxes after the limited usage has expired, a fee
would be paid to the Company. Also, the Company distributes a receive-only
version of its program to ensure the more widespread use of color fax. This
version is provided free of charge and is currently downloadable from the
Internet. The Company will attempt to continually improve the product and
introduce upgrades and other versions of the full and "light" versions of its
software.
The Company distributes its products through the following channels: PC
software distributors, retail PC software stores, PC software mail-order
catalogs, direct to customers via telephone orders, and through OEMs (Original
Equipment Manufacturers).
Distributors. The Company markets CHROMAFAX through independent,
non-exclusive distributor arrangements. The Company entered into distribution
agreements with both Ingram Micro Inc. and Micro Central during October 1997.
CHROMAFAX was initially made available to customers through retail outlets
during October 1997. Retail outlets include CompUSA, Egghead, Computer City,
Electronic Boutique, J&R Music World, and Software City.
End users. The Company promotes CHROMAFAX through several mail-order
catalogs such as Micro Warehouse, PC Zone, and PC Mall. Commencing in October
1997, individuals can purchase CHROMAFAX directly from retail outlets or by
contacting the Company's third party fulfillment house directly.
Original Equipment Manufacturers. Commencing June 1997, the Company markets
CHROMAFAX LITE to certain OEMs under agreements that grant the OEMs the right to
distribute copies of the Company's products with the OEM's equipment, typically
personal computers, modems, printers and scanners.
OEM DISTRIBUTION AGREEMENTS
Set 1 Distribution Agreement. In January 1997, based on a preliminary
agreement reached in December 1996, the Company finalized a five-year agreement
with Set 1, to distribute CHROMAFAX LITE software with modems developed and
marketed worldwide by Set 1. The agreement between the companies stipulates that
Compressent will provide technology, support and basic documentation to Set 1.
The agreement provides Set 1 with exclusivity for CHROMAFAX LITE bundled with
modems based upon minimum shipments per year. The agreement further allows Set 1
to non-exclusively market the retail version of the product through its own
channels and distribution partners.
The Media Farm Software Licensing Agreement. In August 1997, the Company
entered into a Software Licensing Agreement with The Media Farm, Inc. (TMF).
Pursuant to this agreement, TMF will solicit manufacturers of personal
computers, hardware and related products to provide various consulting and
marketing services, which may include the bundling of the Company's CHROMAFAX
LITE software with OEM modems from Hayes Microcomputer Products (Hayes). The
agreement between the companies stipulates that Compressent will provide
technology, support and basic documentation to TMF. The initial term of the
agreement shall be for the earlier of six months, or until certain unit shipment
volume has occurred. Since the finalization of this agreement, there have been
substantial changes in ownership and management at Hayes. The Company believes
that these changes may have a negative impact on the Company's ability to bundle
CHROMAFAX LITE software with OEM Modems from Hayes.
The Media Farm Aftermarket and Direct Distribution Agreement. In August
1997, the Company entered into a Distribution Agreement with The Media Farm,
Inc. (TMF). Pursuant to this agreement, TMF
4
<PAGE> 5
may include the Company's CHROMAFAX software in CD-ROM software solutions
bundled with computer equipment from leading PC vendors and peripheral
manufacturers in North America. TMF will distribute CHROMAFAX via online sites
and will offer the product in electronic catalogs distributed through a variety
of channels. The initial term of the agreement shall be for one year.
Manufacturing
The Company assembles products in the United States. The principal
materials and components used include CDs, user manuals, other printed material
and packaging. The Company outsources all of its manufacturing to third parties,
including CD duplication and product assembly. The Company does not currently
anticipate difficulty in securing the raw material and services required in
connection with its operations.
Product Support
The Company offers technical support for its customers through telephone
support. Technical support for the Company's products is provided free to
customers. Technical support business hours are from 6:00 a.m. to 6:00 p.m.
Pacific Standard Time, Monday through Friday. The Company generally outsources
product support activities to independent, third-party service providers.
Guarantees
The Company provides a 30 day money back guarantee on its products.
Patents; Proprietary Information
The Company has filed U.S. patent and/or copyright applications on certain
aspects of its technology and plans to file corresponding applications in
certain industrial countries worldwide. In addition to general legal protection
for its technologies and products, the Company's strategy is designed to make it
difficult for competitors to assess the specifics of the Company's technology.
The Company also intends to gain additional protection for its technology and
products through the addition of improvement Patents and/or Copyrights.
To the extent the Company determines to keep certain aspects of its
technology as trade secrets rather than as patents, the Company intends to
protect these developments by programming techniques that make it more difficult
to reverse-engineer the Company's software.
Competition
The market that the Company has entered is characterized by intense
competition. Most successful software products are eventually subject to
competing products from other developers. The markets for the technology and
products being developed by the Company are characterized by rapid changes and
evolving industry standards often resulting in product obsolescence or short
product life cycles. As a result, certain companies may be developing
technologies or products of which the Company is unaware which may be
functionally similar, or superior, to some or all of those being developed by
the Company. Such companies may have substantially greater financial, technical,
personnel and other resources than the Company and have established reputations
for success in the development, licensing, sale and service of their products
and technology. Certain of these potential competitors dominate their industries
and have the financial resources necessary to enable them to withstand
substantial price competition or downturns in the market for fax products.
The ability of the Company to compete successfully will depend on its
ability to obtain market acceptance of its initial color fax products and
technology, to continually enhance and improve such products and technology, and
to successfully develop and market new products and technology. There can be no
assurance that the Company will be able to compete successfully, that its
competitors or future competitors will not develop technologies or products that
render the Company's products and technology obsolete or less
5
<PAGE> 6
marketable or that the Company will be able to successfully enhance its proposed
products or technology or adapt them satisfactorily.
See "Risk Factors" in Management's Discussion and Analysis of Financial
Condition and Results of Operations in Item 7.
Employees
As of September 30, 1997, the Company had twenty full-time employees, seven
of whom are in management and administration, ten in product development and
three in sales and marketing. In addition, the President's services are retained
by the Company through a consulting contract. The Company uses the services of a
variety of contractors as needed to perform various services. None of the
Company's employees are subject to a collective bargaining agreement. The
Company's continued success is dependent in part upon its ability to attract and
retain qualified employees. The Company believes that its relations with its
employees are good.
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------- --- -------------------------------------------
<S> <C> <C>
Won-Gil Choe........ 65 President and Chief Executive Officer
John McCracken...... 34 Vice President -- OEM Sales
</TABLE>
Won-Gil Choe, President and Chief Executive Officer. Mr. Choe was appointed
as President and Chief Executive Officer in December 1997. He has served as
President and Chief Executive Officer of Sofex, Inc., a software outsourcing
company since 1996. From 1993 to 1996 he was the Chairman, President and Chief
Executive Officer of Omni Media Technology, Inc., a multimedia technology
company. He has held senior financial and engineering management positions with
companies such as Memorex, Philips-Signetics, Applied Materials, Mass
Miscrosystems, and Vacu-Blast. Mr. Choe received a BS in Engineering from
Arizona State University and a MS in Industrial Engineering from Stanford
University.
John McCracken, Vice President, OEM Sales. Mr. McCracken was appointed as
Vice President, OEM Sales in December 1997. He founded First Step Consulting, an
OEM consulting firm, in December 1996. From August 1995 to November 1996 he was
Chief Executive Officer of WitchDesk Corporation. From June 1992 to July 1995 he
was the Director of New Business Development for AWARD Software.
ITEM 2. PROPERTIES
The Company has established its headquarters in San Jose, California.
Pursuant to the lease relating to such facility, the Company is obligated to
make monthly rental payments of approximately $10,000. The lease expires
December 1998. The Company's facility is approximately 5,000 square feet.
ITEM 3. LEGAL MATTERS
On February 14, 1997, the Company instituted a lawsuit in Santa Clara
County Superior Court against former consultants and a company they had formed
known as Color Communication Corporation. The lawsuit asserts claims for breach
of contract, breach of confidence, unfair competition and unjust enrichment,
alleging that the former consultants misappropriated the Company's confidential
information. On April 30, 1997, the Superior Court entered a preliminary
injunction, prohibiting the defendants from using the Company's confidential
information in any products, literature or advertising. The Superior Court also
enjoined the defendants from advertising, marketing, selling or otherwise
distributing any facsimile or color imaging software product for a period of
nine months beginning April 21, 1997. On December 10, 1997, the parties entered
into a settlement agreement which continued the prohibitions of the preliminary
injunction through January 15, 1998 and permanently prohibited the defendants
from using the Company's confidential information. The agreement further
prohibits the defendants from communicating with six specific companies through
April 15, 1998. As part of the settlement, the Company dismissed its claims
against the defendants
6
<PAGE> 7
and received a release of claims from them. A total of approximately $249,000 in
legal expenses has been incurred in connection with this lawsuit through
September 30, 1997.
In December 1997, the Board of Directors replaced several members of
management with a new and smaller management team. On February 18, 1998, the
Company received a letter from one member of the former management alleging
wrongful termination and racial discrimination and seeking unspecified damages.
The Company believes the claims are without merit and intends to contest the
matter vigorously. management does not believe that resolution of the matter
will have a material adverse effect on the Company. However, litigation is
inherently costly and uncertain and there can be no assurance that the matter
will be resolved in the Company's favor or without material cost.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
There were no matters submitted to the Company's security holders during
the fourth quarter ended September 30, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Commencing on September 24, 1997 the Company has been trading as a NASDAQ
SmallCap issue under the symbol CSNT. Prior to that, the Company's Common Stock
had been included for quotation on the OTC Bulletin Board under the symbol CSSA
since the Company's initial public offering in September 1996. In connection
with the Company's name change from CableSat Systems, Inc. to Compressent
Corporation, the Company's stock symbol was changed from CSSA to CSNT on March
11, 1997. As of February 4, 1998, the Company has been trading as a NASDAQ
SmallCap issue under the symbol CSNTE as the Company has not met certain NASDAQ
SmallCap listing requirements. However, the Company anticipates that it will be
in full compliance with the NASDAQ listing requirements subsequent to the
Company's filing of its Quarterly Report on Form 10-Q for the period ending
December 31, 1997.
The following table sets forth the high and low sale and bid prices of the
Company's stock:
<TABLE>
<CAPTION>
SALE BID
------------------ ------------------
QUARTER ENDED HIGH SALE HIGH SALE
------------------------------------------ ------- ------ ------- ------
<S> <C> <C> <C> <C>
December 31, 1996......................... $ 6.750 $5.875 $ 6.500 $6.000
March 31, 1997............................ $18.625 $5.875 $18.625 $6.375
June 30, 1997............................. $14.750 $8.000 $13.500 $8.750
September 30, 1997........................ $14.250 $8.000 $14.125 $8.625
</TABLE>
Only four quarters are presented above, as prior to the initial public
offering in September 1996, there was no established public trading market for
the Company's common stock.
The closing sales stock price of the Company's common stock on September
30, 1997 was $10.25. The Company reported approximately 1,463 stockholders of
record on December 1, 1997.
In the fourth quarter, the Company issued $1,000,000 in convertible
subordinated promissory notes to twenty-six accredited purchasers through Rickel
& Associates, Inc., a placement agent. The Notes were sold in multiples of
$1,000, and the Notes are convertible into such number of shares as the
Company's common stock, $0.001 par value ("Common Stock") as shall be determined
by dividing the purchase price of the Notes by the lesser of $10.00 per share or
the closing price, Common Stock on the day prior to conversion (but in no event
less than $7.00 per share), as adjusted for stock splits, stock dividends, and
similar events. The Notes bear interest at 10% per year, payable semi-annually
on June 15th and December 15th of each year, commencing December 15, 1997. The
principal of the Notes is due in September 2002, but may be redeemed at the
option of the Company if the average trading price for the Notes has been
greater than or equal to $20 per share, as adjusted for stock splits, stock
dividends, and similar events, for thirty (30)
7
<PAGE> 8
consecutive trading days. The Notes have certain demand registration rights as
defined in the Registration Rights Agreement entered into between the Company
and each holder of the Notes.
The net proceeds to the Company for the first closing of the Offering was
$904,000, which the Company anticipates using for working capital purposes. In
connection with the Offering, the placement agent has received a selling
commission of 8% of all Notes sold, and warrants equal to 10% of the number of
shares issuable upon conversion of the Notes at $10 per share, as adjusted for
stock splits, stock dividends, and similar events. In addition, the Company paid
other Offering expenses incurred by the placement agent in the amount of
$15,000. The Company also indemnified the placement agent against certain
liabilities in connection with the Offering under the Securities Act of 1933
(the "Securities Act"). The Notes have not been registered under the Securities
Act or other securities laws and were sold without any such registration in
reliance upon Section 4(2) of the Securities Act and/or similar available
exemptions under other securities laws. Pursuant to the Registration Rights
Agreement, the Company has agreed to file on or before February 28, 1998, with
the Securities and Exchange Commission and use reasonable efforts to cause to
become effective, registration with respect the resale of the restricted Notes
and the sale of the shares of Common Stock issuable upon conversion thereof, and
to keep such Registration Statement effective for a period of eighteen (18)
months.
Equity-Based Line of Credit
On December 3, 1997, the Company secured a $10,000,000 equity-based line of
credit from Kingsbridge Capital Limited, a company organized and existing under
the laws of the British Virgin Islands ("KCL"). Under the privately-placed
financing, the Company has the right to draw up to $10,000,000 in cash in
exchange for the Company's Common stock. Each draw must be for an amount greater
than $300,000, but no more than $1,000,000. There must be a minimum of 20
business days between each draw. The number of shares to which KCL is entitled
pursuant to a draw shall be determined by dividing the dollar value of the draw
by the purchase price. The purchase price is defined as 88% of the lowest
closing bid price of the Company's Common Stock over the five trading days
beginning two trading days prior to the date of the draw. No more than 1,008,000
shares may be sold pursuant to the equity line. No draws may be made under the
line of credit until the Company registers for resale shares issued pursuant to
the equity line of credit and the shares issuable on exercise of the warrant,
has been declared effective by the Securities and Exchange Commission. No draws
may be made during any 20 trading day period in which the average daily trading
volume of the Company's Common Stock is less than 22,500 shares per day. The
market price of the Company's common stock must equal or exceed $6 per share for
the previous 3 trading days prior to a draw. No draws may be made without KCL's
consent to the extent the draw would cause KCL to hold more than 9.9% of the
Company's Common Stock. The Company's common stock must be qualified for
continued listing on the NASDAQ SmallCap Market, for which the Company must,
among other requirements, maintain net assets in excess of $2,000,000 or have a
total market capitalization greater than $35,000,000. The line of credit will
remain in effect for a period of eighteen months. In connection with the
agreement, the Company issued KCL a warrant to purchase up to 45,000 shares of
the Company's Common Stock at a price of $10.64 per share. The Warrant expires
on December 3, 2000. The common stock has not been registered under the
Securities Act or other securities laws and were sold without any such
registration in reliance upon Section 4(2) of the Securities Act and/or similar
available exemptions under other securities laws. Pursuant to the Registration
Rights Agreement, the Company has agreed to file within forty-five (45) days
following the subscription date, with the Securities and Exchange Commission and
use reasonable efforts to cause to become effective no later than ninety (90)
days after the subscription date, registration with respect to the resale of the
shares of the Registrable Securities, and to keep such Registration Statement
effective for a period of eighteen (18) months.
Warrant Issued to Member of Board of Directors
On December 30, 1997, in connection with assistance to be provided with the
Company's management changes and financing needs, the Company granted a member
of the Board of Directors warrants to purchase 700,000 shares of the Company's
Common Stock. The Warrants have an exercise price of $6.25 per share and
8
<PAGE> 9
expire three years from the date of grant. The warrants have not been registered
under the Securities Act or other securities laws and were sold without any such
registration in reliance upon Section 4(2) of the Securities Act and/or similar
available exemptions under other securities laws.
Agreement to Acquire Softlink, Inc.
On December 31, 1997, the Company entered into an agreement to acquire all
of the issued and outstanding shares of Softlink, Inc. (Softlink), a California
corporation, pursuant to a Stock Purchase Agreement dated December 31, 1997
between the Company and the shareholders of Softlink. Under the agreement, the
purchase price is 450,000 shares of the Company's $.001 par value common stock.
The closing of the acquisition is subject to a number of contingencies which
have not yet been satisfied. The Stock Purchase Agreement provides that the
Company will register one-third of the shares acquired by the Softlink
shareholders in the Company's next registered offering.
Loan From Shareholder
On January 15, 1998 the Company issued a promissory note to a certain
shareholder for $425,000. The note bears interest at 15% per year and is payable
on demand or within thirty (30) days of issuance. The Company also issued a
warrant to purchase up to 100,000 shares of the Company's common stock at an
exercise price of $6.25 per share. The warrants expire in January 15, 2001. The
warrants have not been registered under the Securities Act or other securities
laws and were sold without any such registration in reliance upon Section 4(2)
of the Securities Act and/or similar available exemptions under other securities
laws.
Sale of Preferred Stock
On February 3, 1998, the Company signed an agreement to sell 56,000 shares
of its redeemable convertible Series A Preferred Stock to Call Now, Inc. (Call
Now), a related party, for $62.50 per share which was paid to the Company on
February 20, 1998 in the form of municipal bonds with a total aggregate face
value of $3,500,000. The bonds are 1997 Series A, Retama Park Racetrack Project,
Special Facilities Revenue Refunding Bonds. The Retama Park Racetrack is a horse
racing facility in Selma, Texas that is managed by Retama Entertainment Group,
an 80 percent owned subsidiary of Call Now. The 1997 Series A Bonds pay interest
at a 7 percent annualized rate and are secured by the racetrack facility. The
bonds are not currently traded in the open market and prior to the transfer of
the bonds to the Company, all such bonds were owned by Call Now. The Company
believes that the fair value of the 1997 Series A Bonds approximates the face
value. The Company may use the 1997 Series A Bonds as loan collateral to provide
operating cash. The Preferred Stock is initially convertible into common stock
on a ten to one basis, subject to future adjustments for stock splits, stock
dividends or other similar events. The holders of the Preferred Stock have no
voting rights, except as required under any applicable state laws. The Preferred
Stock has mandatory cumulative dividends of $7.50 per share per annum. The
Preferred Stock has an aggregate liquidation preference over the common stock of
$62.50 per share plus cumulative unpaid dividends. The Preferred Stock may be
redeemed by the Company any time subsequent to 90 days from the date of issuance
for $100 per share plus unpaid dividends.
In connection with the issuance of the Series A Preferred Stock to Call
Now, Inc., for nominal proceeds of $500, the Company sold a warrant to Call Now,
Inc. to purchase up to 500,000 shares of the Company's common stock with an
exercise price of $6.25 per share. After one year, the exercise price is reduced
to the lower of $6.25 per share or the average bid and ask price of the common
stock for the three days prior to exercise. The warrant expires three years
after the date of grant. The warrants have not been registered under the
Securities Act or other securities laws and were sold without any such
registration in reliance upon Section 4(2) of the Securities Act and/or similar
available exemptions under other securities laws.
Line of Credit
On February 3, 1998, the Company secured a $10,000,000 line of credit to
Call Now, Inc. Under the agreement, the Company has the right to draw up to
$10,000,000 on or before September 30, 1998. Proceeds
9
<PAGE> 10
paid to the Company upon making draws under the line may be in the form of bonds
similar to the proceeds received on the Sale of Preferred Stock (see above). The
Company will be required to issue a Promissory Note bearing interest at 15% per
year, payable quarterly, for any amounts drawn against the line of credit. The
Company is required to pay Call Now, Inc. a commitment fee of $400,000 within
thirty (30) days after the first draw pursuant to the line of credit.
In connection with the line of credit agreement, the Company issued 500,000
warrants (the "underlying warrants") to Call Now exercisable for $2.00 per
warrant. Each underlying warrant may be exercised by Call Now to purchase the
Company's common stock at an exercise price of $6.25 per share. The underlying
warrants expire three years after the date of grant. The warrants have not been
registered under the Securities Act or other securities laws and were sold
without any such registration in reliance upon Section 4(2) of the Securities
Act and/or similar available exemptions under other securities laws.
Dividend Policy
The Company has never paid cash dividends on its Common Stock. The Company
intends to retain its cash for use in the operation of the Company's business
and does not anticipate paying any dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the period from inception (August
26, 1994) to September 30, 1995, the fiscal year ended September 30, 1996, the
fiscal year ended September 30, 1997 and the period from inception (August 26,
1994) to September 30, 1997 are qualified by reference to, and should be read in
conjunction with, the Company's Financial Statements, the Notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained elsewhere herein. The selected financial data have been
derived from Company's audited financial statements.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
YEAR ENDED YEAR ENDED (AUGUST 26, 1994) (AUGUST 26, 1994)
SEPTEMBER 30, SEPTEMBER 30, TO SEPTEMBER 30, TO SEPTEMBER 30,
1997 1996 1995 1997
------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total operating costs and expenses.... $ 5,045,717 $ 2,204,249 $ 256,554 $ 7,506,520
Loss from operations.................. $ (5,045,717) $ (2,204,249) $ (256,554) $(7,506,520)
Interest income and other, net........ $ 195,005 $ 11,246 $ 1,789 $ 208,040
Net loss.............................. $ (4,874,969) $ (2,193,003) $ (254,765) $(7,322,737)
Net loss applicable to common
shareholders........................ $ (4,874,969) $ (3,093,003) $ (254,765) $(8,222,737)
Net loss per share applicable to
common shareholders................. $ (0.97) $ (0.76) $ (0.06)
Shares used in computing net loss per
share applicable to common
shareholders........................ 5,007,446 4,044,708 4,101,833
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets........................................................ $2,070,500 $5,705,106
Working capital....................................................... 1,490,466 4,941,100
Total assets.......................................................... 2,865,145 5,959,105
Current liabilities................................................... 580,034 764,006
Shareholders' equity.................................................. 1,285,111 5,195,099
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements and notes thereto appearing elsewhere herein.
10
<PAGE> 11
Overview
The Company was incorporated in the state of Florida on August 26, 1994,
but did not commence formal operations until April 1995. The Company's primary
activities since inception have been devoted to developing its initial color
facsimile products and related technologies, preparation for marketing, the
recruitment of key management and technical personnel, including outside
consultants, and raising capital to fund operations. As a result, the financial
statements are presented in accordance with Statement of Financial Accounting
Standards No. 7 (SFAS 7), "Accounting and Reporting by Development Stage
Enterprises."
For the period from inception (August 26, 1994) through September 30, 1997,
the Company incurred a cumulative net loss of approximately $7,323,000 and has
used approximately $6,002,000 in cash for operating activities. The Company
expects to continue to incur losses during the year September 30, 1998 until the
Company is able to attain revenues from sales, licensing or other arrangements
sufficient to support its operations. The Company believes that the sale of
preferred stock and warrants to purchase common stock in exchange for municipal
bonds with an aggregate total face value of $3,500,000 secured in February 1998
from Call Now, Inc. (Call Now), a related party, and the $10,000,000 line of
credit also obtained from Call Now in February 1998, are sufficient to provide
the Company with working capital to support planned operating activities through
September 30, 1998 (see Note 10 --Subsequent Events). Call Now is a publicly
held real estate investment company. Call Now's major asset is ownership of the
Retama Park Racetrack Project Special Facility Revenue Refunding Bonds. The
Retama Park Racetrack is a horseracing facility in Selma, Texas that is managed
by the Retama Entertainment Group, an 80 percent owned subsidiary of Call Now. A
member of the Company's Board of Directors is the Chairman and President of Call
Now and owns over 50 percent of Call Now stock. Another member of the Company's
Board of Directors is also a shareholder of Call Now. In addition, Call Now has
been involved in several sales of equity and debt financings with the Company in
the past and Call Now currently owns common stock of the Company.
Risk Factors
The Company's risk factors include, but are not limited to, the following:
Development Stage Company; Absence of Operating History. The Company has
been engaged primarily in the design and development of CHROMAFAX and CHROMAFAX
LITE and related technology. The Company's first product release commenced in
June 1997. The risks, expenses and difficulties often encountered in a shift
from the research and development of products to the commercialization of new
products based on innovative technology must be considered. The prospects for
the Company's success must be considered in relation to the risks, expenses and
difficulties often encountered in establishing of a new business in a
competitive industry subject to rapid technological and price changes, and
characterized by an increasing number of competitors.
No Revenues; Anticipated Future Losses. From inception (August 26, 1994) to
September 30, 1997, the Company has had no revenue. The Company anticipates
incurring significant costs in connection with the development of its future
products and technologies and there can be no assurance that the Company will
achieve sufficient revenues to offset anticipated operating costs in the future.
Need for Additional Financing. The Company requires additional financing in
the future to acquire technologies that compliment its core products. The
Company believes that additional debt or equity financing, if required, will be
available from existing and future investors. However, there can be no assurance
as to the terms and conditions of any such financing and no certainty that funds
would be available when needed. The inability to obtain additional financing,
when needed, would likely curtail any technology acquisition efforts and may
have a material adverse effect on the Company. To the extent that any future
financing involves the sale of the Company's equity securities, the Company's
then existing shareholders could be substantially diluted.
Dependence on Lines of Credit. On December 3, 1997, the Company secured a
$10,000,000 equity-based line of credit to Kingsbridge Capital Limited, a
company organized and existing under the laws of the British Virgin Islands.
Under the privately-placed financing, the Company has the right to draw up to
$10,000,000 in cash in exchange for the Company's Common Stock, subject to
certain conditions. The line of
11
<PAGE> 12
credit will remain in effect for a period of eighteen months. The Company's
ability to make draws on the equity line of credit is subject to a number of
conditions which are not currently satisfied. Accordingly, funds may not be
available under the equity line of credit.
On February 3, 1998, the Company secured a $10,000,000 line of credit to
Call Now, Inc., a publicly held real estate investment company. Under the
agreement, the Company has the right to draw up to $10,000,000 on or before
September 30, 1998. The Company will be required to issue a Promissory Note
bearing interest at 15% per year, payable quarterly, for any funds drawn against
the line of credit.
The Company believes that the funds under the above Agreements are
sufficient to finance the Company's planned operating activities during fiscal
1998. However, should the Company be unable to meet the required terms and
conditions, funds under the Agreements may not be available when necessary to
finance the Company's planned activities and the Company's operations may be
adversely impacted.
Limited Sales and Marketing Experience. The Company markets and sells its
products through key manufacturers and distributors. Such companies could
develop competitive products to the Company's. As a result, demand and market
acceptance for the Company's technologies and products are subject to a high
level of uncertainty. The Company relies in part on the manufacturers of
personal computers, fax modems, color printers and scanners for initial
distribution of its Initial Color Fax Products as a software package included
with such hardware purchase. The Company is therefore dependent upon such firms
to distribute its color fax products.
Rapid Technological Change. Research and development efforts are subject to
the risks inherent in the development of new technology and products including,
but not limited to, unanticipated delays, technical problems or difficulties,
and insufficiency of funding to complete development. There can be no assurance
that such development projects will be successfully completed. The markets for
the Company's products are characterized by rapid changes and evolving industry
standards often resulting in product obsolescence or short product life cycles.
The Company's future operating results will depend upon its ability to obtain
market acceptance of its initial color fax products and technology, to
continually enhance and improve such products and technology, to adapt its
proposed products to be compatible with specific products manufactured by
others, and to successfully develop and market new products and technology.
Substantial Competition. Other companies may be developing technologies or
products of which the Company is unaware which may be functionally similar, or
superior, to some or all of those being developed by the Company. These
companies may have substantially greater, technical, personnel and other
resources than the Company and may have established reputations for success in
developing, licensing and sales of their products. There is no assurance that
the Company will be able to compete successfully, that its competitors or future
competitors will not develop technologies or products that render the Company's
products and technology obsolete or less marketable or that the Company will be
able to successfully enhance its proposed products or technology or adapt them
satisfactorily.
Dependence Upon Qualified and Key Personnel. The success of the Company
will be largely dependent on its ability to hire and retain qualified executive,
scientific and marketing personnel. There is no assurance that the Company will
be able to attract or retain such necessary personnel, particularly in light of
the currently high demand for software engineers and other personnel in Silicon
Valley. The loss of key personnel or the failure to recruit additional personnel
could have a material adverse effect on the Company's business.
Protection of Proprietary Information. Competitors in both the United
States and foreign countries, many of which have substantially greater resources
and have made substantial investments in competing technologies, may have
applied for or obtained, or may in the future apply for and obtain, patents that
will prevent, limit or otherwise interfere with the Company's ability to make
and sell its products. The Company has not conducted an independent review of
patents issued to third parties. In addition, because of the developmental stage
of the Company, claims that the Company's products infringe on the proprietary
rights of others are more likely to be asserted after commencement of commercial
sales incorporating the Company's technology. There can be no assurance that
other third parties will not assert infringement claims against the Company or
that such claims will not be successful. The Company has applied for 6 patents
and is in the process of applying for additional patents.
There can also be no assurance that competitors will not infringe the
Company's patents if any such patents are granted to the Company in the future.
Defense and prosecution of patent suits, even if successful,
12
<PAGE> 13
are both costly and time consuming. An adverse outcome in the defense of a
patent suit could subject the Company to significant liabilities to third
parties, require disputed rights to be licensed from third parties or require
the Company to cease selling its products.
The Company is in the process of applying for copyrights relating to
certain products and is also applying for patent protection. There is no
assurance that any patents will be obtained. If obtained, there is no assurance
that any patents or copyrights will afford the Company commercially significant
protection of its technologies or that the Company will have adequate resources
to enforce its patents and copyrights. The Company also intends to seek foreign
patent and copyright protection. With respect to foreign patents and copyrights,
the laws of other countries may differ significantly from those of the United
States as to the patentabiliity of the Company's products or technology.
Moreover, the degree of protection afforded by foreign patents or copyrights may
be different from that in the United States. Patent applications in the United
States are maintained in secrecy until patents issue, and since publication of
discoveries in the scientific or patent literature tends to lag behind actual
discoveries by several months, the Company cannot be certain that it will be the
first creator of inventions covered by any patent applications it makes or the
first to file patent applications on such inventions. Furthermore, in the
desktop computer application market today, patents and copyrights cannot give
substantial protection against competitors determined to introduce competing
products since it is likely that such competitors will be able to develop
similar technology which does not infringe on the Company's proprietary
technology.
The Company also relies on unpatented proprietary technology, and there can
be no assurance that others may not independently develop the same or similar
technology or otherwise obtain access to the Company's unpatented technology. To
protect its trade secrets and other proprietary information, the Company
requires employees, consultants, advisors and collaborators to enter into
confidentiality agreements. There can be no assurance that these agreements will
provide meaningful protection for the Company's trade secrets, know-how or other
proprietary information in the event of any unauthorized use, misappropriation
or disclosure of such trade secrets, know-how or other proprietary information.
If the Company is unable to maintain the proprietary nature of its technologies,
the Company could be adversely affected.
Results of Operations
THE YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1996
Research and Development
During the fiscal years ended September 30, 1997 and September 30, 1996, a
substantial part of the Company's activities related to research and
development. The Company's research and development expenses were approximately
$1,305,000 for the fiscal year ended September 30, 1997 compared to
approximately $903,000 for the fiscal year ended September 30, 1996. The
increase is primarily due to increased staffing, including consultants, and
increased supplies and associated costs related to increased development and
testing activities of the software functions and features. The Company believes
that significant investments in research and development will be necessary for
both new products and continuing enhancements to existing products. Therefore,
the Company expects to incur increased research and development expenditures in
the future.
During March 1997, the Company began capitalizing software development
costs pursuant to Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed." The Company capitalizes certain software development cost incurred
after technological feasibility is achieved. These costs are amortized,
beginning when the products are available for general release to customers, over
the estimated economic life of the products, generally 24 months. Amortization
of capitalized software development costs will be included in cost of revenues.
A total of approximately $369,000 and $0 in capitalized software development
costs and amortization, respectively, have been recorded for the year ended
September 30, 1997. No software development costs were capitalized or amortized
for the year ended September 30, 1996.
13
<PAGE> 14
Sales and Marketing
Sales and marketing expenses were approximately $1,588,000 for the fiscal
year ended September 30, 1997, compared to approximately $279,000 for sales and
marketing expense for the fiscal year ended September 30, 1996. The increase is
primarily due to costs associated with developing and implementing a marketing
strategy, the costs associated with staffing employees and consultants, and
participation in trade shows and other events.
In addition, in December 1996, the Company granted a stock option to Set 1
Communications, NSW, Australia ("Set 1"), to purchase up to 248,600 shares of
the Company's common stock. The option vested immediately and expires two years
from the date of grant. Pursuant to the provisions of SFAS 123, the fair value
of the option was estimated to be $351,000, which was recorded as sales and
marketing expense during December 1996.
Achieving significant market acceptance and commercialization of the
Company's products requires substantial marketing efforts and expenditures to
establish market share. The Company expects significant sales and marketing
expenses in the future as it attempts to increase its market share.
In January 1997, the Company finalized a five-year agreement with Set 1 to
bundle CHROMAFAX LITE software with modems developed and marketed worldwide by
Set 1. The "light" version is a version of CHROMAFAX with selected
functionality. The agreement between the companies stipulates that the Company
will provide technology, support and basic documentation to Set 1. The agreement
provides Set 1 with exclusivity for CHROMAFAX LITE bundled with modems based
upon minimum shipments per year. The agreement further allows Set 1 to
non-exclusively market the retail version of the product through its own
channels and distribution partners.
In August 1997, the Company entered into a Software Licensing Agreement
with The Media Farm, Inc. (TMF). Pursuant to this agreement, TMF will solicit
manufacturers of personal computers, hardware and related products to provide
various consulting and marketing services, which may include the bundling of the
Company's CHROMAFAX LITE software with OEM modems from Hayes Microcomputer
Products (Hayes). The agreement between the companies stipulates that
Compressent will provide technology, support and basic documentation to TMF.
Since the finalization of this agreement, there have been substantial changes in
ownership and management at Hayes. The Company believes that these changes may
have a negative impact on the Company's ability to bundle CHROMAFAX LITE
software with OEM Modems from Hayes.
In August 1997, the Company entered into a Distribution Agreement with The
Media Farm, Inc. (TMF). Pursuant to this agreement, TMF may include the
Company's CHROMAFAX software in CD-ROM software solutions bundled with computer
equipment from leading PC vendors and peripheral manufacturers in North America.
TMF will distribute CHROMAFAX via online sites and will offer the product in
electronic catalogs distributed through a variety of channels.
General and Administrative
General and administrative expenses were approximately $2,153,000 for the
fiscal year ended September 30, 1997, compared to approximately $1,022,000 for
the fiscal year ended September 30, 1996. The increase in general and
administrative expenses was primarily attributable to increased staffing, fees
for professional services, and legal expenses in connection with the lawsuit
against Color Communications Corporation. Also, in December 1996, the Company's
Board of Directors approved the issuance of stock options to certain outside
service providers to purchase up to 145,000 shares of the Company's common
stock. The options vest one-half in year one and one-half in year two, and
expire three years from the date of grant. Pursuant to the provisions of SFAS
123, the fair value for these options was estimated to be approximately $216,000
and will be recognized as compensation expense over the vesting period.
Compensation expense relating to these options for the year ended September 30,
1997 was approximately $125,000.
Interest Income
Interest income was approximately $195,000 for the fiscal year ended
September 30, 1997, compared to approximately $11,000 for the fiscal year ended
September 30, 1996. The increase in interest income is due to
14
<PAGE> 15
the investment of the Company's proceeds from its initial public offering of
common stock that closed on October 1, 1996.
Taxes
The Company has had net losses since inception and has not provided for
federal or state taxes to date. The Company had federal and state net operating
loss carryforwards of $6,870,000 for the fiscal year ended September 30, 1997
compared to $2,300,000 for the fiscal year ended September 30, 1996. The net
operating loss carryforwards will expire beginning September 30, 2010 (federal)
and September 30, 2003 (state), if not utilized. Utilization of the net
operating losses may be subject to a substantial annual limitation due to the
ownership change limitations provided by the Internal Revenue Code of 1986 and
similar state provisions. The annual limitation may result in the expiration of
net operating loss carryforwards before utilization.
THE YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO THE PERIOD FROM INCEPTION (AUGUST
26, 1994) TO SEPTEMBER 30, 1995
Research and Development
From inception through September 30, 1996, a substantial part of the
Company's activities related to research and development. The Company's research
and development expenses were approximately $903,000 and $201,000 for the fiscal
year ended September 30, 1996 and the period from inception (August 26, 1994) to
September 30, 1995, respectively. The increase in expenses in fiscal 1996 as
compared with the period from inception (August 26, 1994) to September 30, 1995,
is primarily related to costs associated with the addition of personnel,
increased use of consultants and temporary help, and increased supplies, all
incurred to support increased development and testing activities.
Marketing
Marketing expenses were approximately $279,000 and $0 for the fiscal year
ended September 30, 1996 and the period from inception (August 26, 1994) to
September 30, 1995, respectively. Marketing expenses incurred during fiscal 1996
are primarily related to costs associated with staffing employees and
consultants to start the Company's marketing efforts and costs associated with
developing a marketing strategy and logo.
General and Administrative
General and administrative expenses were approximately $1,022,000 and
$56,000 for the fiscal year ended September 30, 1996 and the period from
inception (August 26, 1994) to September 30, 1995, respectively. The increase is
due primarily to increased administrative staffing to support growing operations
and increases in business development efforts.
Taxes
The Company has had net losses since inception and has not provided for
federal or state taxes through September 30, 1996. As of September 30, 1996, the
Company had federal and state net operating loss carryforwards of approximately
$2,300,000.
Liquidity and Capital Resources
Since inception, the Company has primarily relied on sales of its equity
securities and borrowings to fund its operations. Between May 1995 and May 1996
the Company received approximately $1,952,000 in cash from sales of its equity
securities. In September 1996, the Company's initial public offering of common
stock and Redeemable Common Stock Purchase Warrants became effective. The
Company received net proceeds of approximately $5,387,614 from this initial
public offering, less $108,000 for advisory services to be provided over three
years by the Underwriter, Barron Chase Securities, Inc. The Company's
outstanding Redeemable Common Stock Purchase Warrants are exercisable at $6.00
per share and could result in the gross receipt of up to an additional
$6,900,000. However, there can be no assurance that such warrants will be
exercised. Through September 30, 1997, redeemable stock purchase warrants to
purchase 64,752 shares of common stock had been exercised for approximately
$389,000.
15
<PAGE> 16
During June 1997, the Company borrowed $1,250,000 from a bank payable in 30
days, at an interest rate of 6.6% per annum. The loan was secured by a time
deposit of equal amount. The Company repaid the loan during September 1997.
During September 1997, the Company issued $1,000,000 of convertible
subordinated debentures which bear interest at a rate of 10% per annum, payable
semi-annually, and matures in September 2002. The notes are convertible at the
option of the holder into the Company's Common Stock. The conversion price shall
be determined by dividing the purchase price of the notes by the lesser of
$10.00 per share or the closing price of the Common Stock on the day prior to
conversion, but no lower than $7.00 per share. The notes are redeemable at the
option of the Company at any time on or after the two year anniversary of the
issuance at the original issue price plus accrued interest to the redemption
date, provided that the average trading price of the Common Stock is greater
than or equal to $20 per share, as adjusted for stock splits, stock dividends
and similar events for 30 consecutive trading days prior to the date of the
redemption notice.
Cash used in operating activities has increased from approximately
$1,662,000 in fiscal 1996 to approximately $4,013,000 in fiscal 1997, reflecting
increased net losses. The Company's cash requirements may increase for the
upcoming fiscal year due to expected increases in expenses related to further
research and development of its technologies and increased, manufacturing, sales
and technical support expenses associated with the introduction of it's initial
color fax products.
Management believes that the sale of preferred stock and warrants to
purchase common stock in exchange for municipal bonds with an aggregate total
face value of $3,500,000 secured in February 1998 from Call Now, a related
party, and the $10,000,000 line of credit also obtained from Call Now during
February 1998 (see Note 10 of the Company's audited financial statements), will
be sufficient to provide the Company with working capital support the Company's
planned operating activities through the fiscal year ended September 30, 1998.
As part of its business strategy, the Company has investigated, and will
continue to investigate, potential acquisitions of businesses, products and
technologies. Such potential acquisitions may require substantial capital
resources, which may require the Company to seek additional debt or equity
financing.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 (SFAS 128), "Earnings per Share," which is required for all financial
statements issued for periods ending after December 15, 1997, including interim
periods. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
The new requirements will include a calculation of basic earnings per share,
from which the dilutive effect of stock options, warrants and convertible debt
will be excluded. The basic earnings per share calculation will not change the
primary earnings per share previously reported for the years ended September
1997, 1996 and for the period from inception (August 26, 1994) to September 30,
1995. A calculation of diluted earnings per share will also be required;
however, this is not expected to differ materially from the Company's reported
primary earnings per share because the Company had net losses for all prior
periods reported and therefore, the dilutive effect of stock options, warrants,
and convertible debt will be excluded. Accordingly, diluted earnings per share
will be the same as basic earnings per share until the Company has net income.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income," which establishes standards for reporting and displaying comprehensive
income and its components in a full set of general-purpose financial statements
and is required to be adopted by the Company beginning in fiscal 1999. The
Company's management is currently evaluating the impact of this statement on
operations.
Additionally, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments
of an Enterprise and Related Information," which established standards for the
way the public business enterprises report information in annual statements and
interim financial reports regarding operating segments, products, and services,
geographic areas and major customers. SFAS 131 will first be reflected in the
Company's annual financial statements beginning in fiscal 1999. The Company's
management is currently evaluating the impact of this statement on operations.
16
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
YEAR ENDED YEAR ENDED (AUGUST 26,1994) TO (AUGUST 26,1994) TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1995 1997
--------------- --------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
OPERATING COSTS AND
EXPENSES:
Research and
development.......... $ 1,304,884 $ 903,225 $ 200,734 $ 2,408,843
Sales and marketing..... 1,588,162 278,690 -- 1,866,852
General and
administrative....... 2,152,671 1,022,334 55,820 3,230,825
----------- ----------- ---------- -----------
Total operating costs
and expenses....... 5,045,717 2,204,249 256,554 7,506,520
----------- ----------- ---------- -----------
Loss from operations...... (5,045,717) (2,204,249) (256,554) (7,506,520)
Interest expense........ (24,257) -- -- (24,257)
Interest income and
other, net........... 195,005 11,246 1,789 208,040
----------- ----------- ---------- -----------
Net loss........ (4,874,969) (2,193,003) (254,765) (7,322,737)
Less: Accretion on
preferred stock......... -- (900,000) -- (900,000)
----------- ----------- ---------- -----------
Net loss applicable to
common shareholders..... $(4,874,969) $(3,093,003) $ (254,765) $ (8,222,737)
=========== =========== ========== ===========
Net loss per share
applicable to common
shareholders............ $ (0.97) $ (0.76) $ (0.06)
=========== =========== ==========
Shares used in computing
net loss per share
applicable to common
shareholders............ 5,007,446 4,044,708 4,101,833
=========== =========== ==========
</TABLE>
See accompanying notes.
17
<PAGE> 18
COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents....................................... $ 1,900,171 $ 155,533
Other receivable from underwriter in connection with the
Company's initial public offering............................ -- 5,549,573
Inventory....................................................... 55,620 --
Prepaids and other current assets............................... 114,709 --
---------- ----------
Total current assets.................................... 2,070,500 5,705,106
Property and equipment
Office furniture and equipment.................................. 97,331 17,785
Computer equipment.............................................. 249,009 158,504
---------- ----------
346,340 176,289
Less accumulated depreciation................................... 128,684 40,237
---------- ----------
Net property and equipment.............................. 217,656 136,052
Capitalized software development costs, net....................... 369,324 --
Other assets...................................................... 207,665 117,947
---------- ----------
Total assets............................................ $ 2,865,145 $ 5,959,105
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable................................................ $ 474,292 $ 168,266
Accrued registration costs...................................... -- 55,052
Preferred stock redemption payable.............................. -- 450,000
Accrued payroll and related..................................... 40,316 16,068
Other accrued liabilities....................................... 65,426 74,620
---------- ----------
Total current liabilities............................... 580,034 764,006
Long-term debt.................................................... 1,000,000 --
Commitments and contingencies
Redeemable preferred stock, par value $.001 per share:
150,000 shares authorized in 1997 and 1996, none issued and
outstanding.................................................. -- --
Shareholders' equity
Common stock, par value $.001 per share: authorized 50,000,000
shares; Issued and outstanding 5,036,752 and 4,972,000 shares
in 1997 and 1996, respectively............................... 5,037 4,972
Additional paid in capital...................................... 8,650,811 7,781,895
Deficit accumulated during development stage.................... (7,322,737) (2,447,768)
Deferred compensation........................................... (48,000) (144,000)
---------- ----------
Total shareholders' equity.............................. 1,285,111 5,195,099
---------- ----------
Total liabilities and shareholders' equity.............. $ 2,865,145 $ 5,959,105
========== ==========
</TABLE>
See accompanying notes.
18
<PAGE> 19
COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING TOTAL
------------------ PAID IN DEVELOPMENT DEFERRED SHAREHOLDERS'
SHARES AMOUNT CAPITAL STAGE COMPENSATION EQUITY
--------- ------ ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sale of common stock for cash................. 1,276,000 $1,276 $ (1,116) $ -- $ -- $ 160
May 1995 -- $0.001/share.................... 374,000 374 199,689 -- -- 200,063
May 1995 -- $0.65/share..................... 550,000 550 499,450 -- -- 500,000
Net loss from inception (August 26, 1994) to
September 30, 1995.......................... -- -- -- (254,765) -- (254,765)
--------- ------ --------- ------------ -------- -----------
Balance -- September 30, 1995................. 2,200,000 2,200 698,023 (254,765) -- 445,458
Sale of common stock for cash
January 1996 -- $1.00/share................. 120,000 120 119,880 -- -- 120,000
April 1996 -- $0.60/share................... 350,000 350 209,650 -- -- 210,000
May 1996 -- $2.50/share..................... 372,000 372 900,658 -- -- 901,030
Common stock issued in exchange for full
recourse note payable -- March
1996 -- $0.30/share......................... 300,000 300 89,700 -- -- 90,000
Common stock exchanged for services
December 1995 -- $1.00/share................ 60,000 60 59,940 -- -- 60,000
April 1996 -- $0.60/share................... 50,000 50 29,950 -- -- 30,000
Exercise of common stock warrant in exchange
for cash and forgiveness of loans -- March
1996 -- $0.30/share......................... 320,000 320 95,680 -- -- 96,000
Accretion of preferred stock to redemption
value....................................... -- -- (900,000) -- -- (900,000)
Common stock to be issued in October 1996 upon
redemption of preferred
stock -- $6.00/share........................ 150,000 150 899,850 -- -- 900,000
Sales of common stock in initial public
offering for receivable from underwriter for
$6.00/share in September 1996, net of issue
costs of $1,056,146......................... 1,050,000 1,050 5,242,804 -- -- 5,243,854
Redeemable warrants issued in initial public
offering -- $0.125/warrant.................. -- -- 143,760 -- -- 143,760
Deferred compensation expense related to stock
options..................................... -- -- 192,000 -- (192,000) --
Amortization of deferred compensation......... -- -- -- -- 48,000 48,000
Net loss for the year ended September 30,
1996........................................ -- -- -- (2,193,003) -- (2,193,003)
--------- ------ --------- ------------ -------- -----------
Balance -- September 30, 1996................. 4,972,000 4,972 7,781,895 (2,447,768) (144,000) 5,195,099
Fair value of stock option grant to
distributor -- December
1996 -- $6.375/share........................ -- -- 351,000 -- -- 351,000
Fair value of stock options granted to outside
service providers
December 1996 -- $6.375/share............... -- -- 125,000 -- -- 125,000
August 1997 -- $10.125/share................ -- -- 4,469 -- -- 4,469
Exercise of redeemable stock purchase warrants
for common stock
March 1997 -- $6.00/share................... 50,052 50 300,262 -- -- 300,312
April 1997 -- $6.00/share................... 6,700 7 40,193 -- -- 40,200
May 1997 -- $6.00/share..................... 8,000 8 47,992 -- -- 48,000
Amortization of deferred compensation......... -- -- -- -- 96,000 96,000
Net loss for the year ended September 30,
1997........................................ -- -- -- (4,874,969) -- (4,874,969)
--------- ------ --------- ------------ -------- -----------
Balance -- September 30, 1997................. 5,036,752 $5,037 $8,650,811 $(7,322,737) $ (48,000) $ 1,285,111
========= ====== ========= ============ ======== ===========
</TABLE>
See accompanying notes.
19
<PAGE> 20
COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
YEAR ENDED YEAR ENDED (AUGUST 26, 1994) TO (AUGUST 26, 1994) TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1995 1997
------------- ------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss........................................ $(4,874,969) $(2,193,003) $ (254,765) $ (7,322,737)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation.................................. 88,447 40,352 2,815 131,614
Amortization of other assets.................. 36,000 -- -- 36,000
Amortization of deferred compensation......... 96,000 48,000 -- 144,000
Write-off of property and equipment........... -- 29,126 -- 29,126
Common stock exchanged for services........... -- 90,000 -- 90,000
Fair value of stock options granted........... 480,469 -- -- 480,469
Changes in operating assets and liabilities
(increase) decrease:
Note receivable............................... -- 109,000 (109,000) --
Inventory..................................... (55,620) -- -- (55,620)
Other current assets.......................... (114,709) -- -- (114,709)
Other assets.................................. 9,947 (1,455) (8,607) (115)
Payables and other liabilities................ 321,080 216,018 42,936 580,034
----------- ----------- --------- -----------
Net cash used in operating activities....... (4,013,355) (1,661,962) (326,621) (6,001,938)
Cash flows from investing activities
Maturities of available-for-sale investments.... 4,868,029 -- -- 4,868,029
Purchases of available-for-sale investments..... (4,868,029) -- -- (4,868,029)
Purchases of property and equipment............. (170,051) (148,707) (59,524) (378,282)
Capitalized software development costs.......... (369,324) -- -- (369,324)
----------- ----------- --------- -----------
Net cash used in investing activities....... (539,375) (148,707) (59,524) (747,606)
Cash flows from financing activities
Sale of common stock............................ -- 1,252,040 700,223 1,952,263
Receipt of proceeds from underwriter............ 5,549,573 -- -- 5,549,573
Initial public offering registration costs
paid.......................................... (55,052) (214,916) -- (269,968)
Loans from shareholder.......................... -- 75,000 -- 75,000
Repayment of full recourse note payable......... -- 90,000 -- 90,000
Sale of redeemable preferred stock.............. -- 450,000 -- 450,000
Redemption of preferred stock................... (450,000) -- -- (450,000)
Exercise of redeemable stock purchase warrants
for common stock.............................. 388,512 -- -- 388,512
Proceeds from issuance of notes payable......... 1,250,000 -- -- 1,250,000
Principal payment of notes payable.............. (1,250,000) -- -- (1,250,000)
Debt offering registration costs paid........... (135,665) -- -- (135,665)
Proceeds from issuance of subordinated long-term
debt.......................................... 1,000,000 -- -- 1,000,000
----------- ----------- --------- -----------
Net cash provided by financing activities... 6,297,368 1,652,124 700,223 8,649,715
----------- ----------- --------- -----------
Net increase (decrease) in cash and cash
equivalents.............................. 1,744,638 (158,545) 314,078 1,900,171
Cash and cash equivalents at beginning of
period.......................................... 155,533 314,078 -- --
Cash and cash equivalents at end of period........ $ 1,900,171 $ 155,533 $ 314,078 $ 1,900,171
=========== =========== ========= ===========
Supplemental schedule of noncash investing and
financing activities
Common stock to be issued in redemption of
preferred stock................................. $ -- $ 900,000 $ -- $ 900,000
Conversion of loan from related party to common
stock........................................... -- 75,000 -- 75,000
Common stock and warrants issued in initial public
offering........................................ -- 5,387,614 -- 5,387,614
Issuance of common stock in exchange for full
recourse note payable........................... -- 90,000 -- 90,000
Supplemental schedule of cash flow information
Cash paid for interest............................ $ 20,090 $ -- $ -- $ 20,090
</TABLE>
See accompanying notes.
20
<PAGE> 21
COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. BUSINESS ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activities
Compressent Corporation (the "Company"), formerly Cable-Sat Systems, Inc.,
was incorporated in the state of Florida on August 26, 1994, but did not
commence formal operations until April 1995. The Company develops digital image
coding and data compression products that will enable the facsimile transmission
of color images from computers equipped with the Company's software programs.
Development Stage Company and Financing
The Company's primary activities since inception have been devoted to
developing its initial color facsimile products and related technologies,
preparation for marketing, the recruitment of key management and technical
personnel, including outside consultants, and raising capital to fund
operations. The Company has no revenue from the sale of its products through
September 30, 1997. As a result, the financial statements are presented in
accordance with Statement of Financial Accounting Standards No. 7 (SFAS 7),
"Accounting and Reporting by Development Stage Enterprises."
For the period from inception (August 26, 1994) through September 30, 1997,
the Company had a deficit accumulated during the development stage of
approximately $7,323,000 and had used approximately $6,002,000 in cash for
operating activities. The Company expects to continue to incur losses during the
year ended September 30, 1998, until the Company is able to attain revenues from
sales, licensing or other arrangements sufficient to support its operations. The
Company believes that the sale of preferred stock and warrants to purchase
common stock in exchange for municipal bonds with an aggregate total face value
of $3,500,000 and the $10,000,000 line of credit obtained from Call Now, Inc.
("Call Now"), a related party, are sufficient to provide the Company with
working capital to support planned operating activities through September 30,
1998 (see Note 10 -- Subsequent Events). Call Now is a publicly held real estate
investment company. Call Now's major asset is ownership of the Retama Park
Racetrack Project, Special Facilities Revenue Refunding Bonds. The Retama Park
Racetrack is a horse racing facility in Selma, Texas that is managed by the
Retama Entertainment Group, an 80 percent owned subsidiary of Call Now. A member
of the Company's Board of Directors is the Chairman and President of Call Now
and owns over 50 percent of Call Now stock. Another member of the Company's
Board of Directors is also a shareholder of Call Now. In addition, Call Now has
been involved in several sales of equity and debt financings with the Company in
the past and Call Now currently owns common stock of the Company.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents consist of short-term financial instruments that are
readily convertible into cash with original maturities of less than ninety days
from the date of acquisition. The carrying amount reported in the balance sheet
for cash and cash equivalents approximates fair value.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or
market and consists primarily of raw materials, such as packaging materials and
software manuals.
21
<PAGE> 22
COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
Property and Equipment
Property and equipment is recorded at cost. Depreciation and amortization
is provided on a straight-line basis over estimated useful lives or over the
life of the lease for equipment under capitalized leases, if shorter. Leasehold
improvements are amortized over the term of the lease or their estimated useful
life, whichever is shorter. The useful lives of property and equipment for
purposes of depreciation are:
<TABLE>
<S> <C>
Office Furniture and Equipment.............................. 5 years
Computers................................................... 3 years
</TABLE>
Capitalized Software Development Costs
The Company capitalizes software development costs upon achievement of
technological feasibility, subject to net realizable value consideration in
accordance with Statement of Financial Accounting Standards No. 86 (SFAS 86),
"Accounting for costs of Computer Software to be Sold, Leased or otherwise
Marketed." Based on the Company's development process, technological feasibility
is achieved upon completion of a working model. Accordingly, all expenses
incurred prior to completion of a working model are expensed. Capitalized costs
are amortized upon product release on a straightline basis over the estimated
useful life of two years or the ratio of current revenue to the total current
and anticipated future revenues, whichever results in the greater amortization.
During March 1997, the Company completed a working model of its facsimile
software and began capitalizing software development costs pursuant to SFAS 86.
A total of approximately $369,000 in software development costs were capitalized
at September 30, 1997. Amortization expense for the year ended September 30,
1997 was $0.
Other Assets
In connection with the Company's initial public offering that went
effective on September 25, 1996, the Company paid Barron-Chase Securities, Inc.
(the underwriter) a $108,000 fee for certain financial advisory services to be
provided over the three years following the effective date of the offering. The
original fee of $108,000 is amortized on a straight-line basis over the
three-year term of the agreement, and is included in other non-current assets.
For the year ended September 30, 1997, the Company amortized $36,000 of the fee.
In connection with the Company's issuance of 10% Convertible Subordinated
Promissory Notes (see Note 2) during September 1997, the Company incurred
certain debt offering cost which have been capitalized and will be amortized
over the five year term of the debt, which matures in September 30, 2002. As of
September 30, 1997, approximately $136,000 of offering costs have been
capitalized and included in non-current other assets. Amortization expense for
the year ended September 30, 1997 was not material.
Stock Based Compensation
In October 1995, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation." SFAS 123 provides an alternative to APB Opinion 25
(APBO 25), "Accounting for Stock Issued to Employees" by requiring additional
disclosure, and is effective for the Company's fiscal year beginning October 1,
1996. The Company plans to continue to account for its employee stock plans in
accordance with the provisions of APBO 25 and provide the additional disclosures
required by SFAS 123. Accordingly, SFAS is not expected to have a material
impact on the Company's financial position, or results of operations. See Note
4.
22
<PAGE> 23
COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
Advertising and Promotion Costs
The Company's policy is to expense advertising and promotion costs as
incurred. The Company's advertising and promotion expenses were approximately
$193,000 for the year ended September 30, 1997. Advertising and promotion
expenses were not significant for the year ended September 30, 1996, and for the
period from inception (August 25, 1994) to September 30, 1995.
Income Taxes
The Company accounts for income taxes in accordance with the provisions of
the Statement of Financial Accounting Standards Statement No. 109 (SFAS 109),
"Accounting for Income Taxes." Under SFAS 109, the liability method is used for
accounting in income taxes.
Net Loss Per Share Attributable to Common Shareholders
Net loss applicable to common shareholders is computed using the weighted
average number of shares of common stock outstanding. Pursuant to the Securities
and Exchange Commission Staff Accounting Bulletins, common and common equivalent
shares issued at prices below the assumed public offering price during the
twelve months prior to the initial filing of the registration statement have
been included in the calculation as if they were outstanding for all periods
prior to the quarter in which the Company's initial public offering became
effective (using the treasury stock method and an initial public offering price
of $6.00 per common share). Redeemable preferred stock is not deemed to be a
common stock equivalent for purposes of calculating the net loss applicable to
common shareholders. Fully diluted net loss per share is not presented because
it is antidilutive.
Impact of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 (SFAS 128), "Earnings per Share," which is required for all financial
statements issued for periods ending after December 15, 1997, including interim
periods. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
The new requirements will include a calculation of basic earnings per share,
from which the dilutive effect of stock options, warrants and convertible debt
will be excluded. The basic earnings per share calculation will not change the
primary earnings per share previously reported for the years ended September
1997, 1996 and for the period from inception (August 26, 1994) to September 30,
1995. A calculation of diluted earnings per share will also be required;
however, this is not expected to differ materially from the Company's reported
primary earnings per share because the Company had net losses for all prior
periods reported, and therefore the dilutive effect of stock options, warrants,
and convertible debt will be excluded. Accordingly, diluted earnings per share
will be the same as basic earnings per share until the company has net income.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income," which establishes standards for reporting and displaying comprehensive
income and its components in a full set of general-purpose financial statements
and is required to be adopted by the Company beginning in fiscal 1999. The
Company's management is currently evaluating the impact of this statement on
operations.
Additionally, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments
of an Enterprise and Related Information," which established standards for the
way the public business enterprises report information in annual statements and
interim financial reports regarding operating segments, products, and services,
geographic
23
<PAGE> 24
COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
areas and major customers. SFAS 131 will first be reflected in the Company's
annual financial statements beginning in fiscal 1999. The Company's management
is currently evaluating the impact of this statement on operations.
2. SUBORDINATED LONG-TERM DEBT
In the fourth quarter, the Company issued $1,000,000 in convertible
subordinated promissory notes (each a "Note") to twenty-six accredited
purchasers through Rickel & Associates, Inc., a placement agent. The Notes were
sold in multiples of $1,000, and the Notes are convertible into such number of
shares as the Company's common stock, $0.001 par value ("Common Stock") as shall
be determined by dividing the purchase price of the Notes by the lesser of
$10.00 per share or the closing price, Common Stock on the day prior to
conversion (but in no event less than $7.00 per share), as adjusted for stock
splits, stock dividends, and similar events. The Notes bear interest at 10% per
year, payable semi-annually on June 15th and December 15th of each year,
commencing December 15, 1997. The principal of the Notes is due in September
2002, but may be redeemed at the option of the Company if the average trading
price for the Notes has been greater than or equal to $20 per share, as adjusted
for stock splits, stock dividends, and similar events, for thirty (30)
consecutive trading days. The Notes have certain demand registration rights as
defined in the Registration Rights Agreement entered into between the Company
and each holder of the Notes.
3. REDEEMABLE PREFERRED STOCK
During 1996, the Company had authorized 150,000 shares of redeemable Series
A Preferred Stock. The Series A Preferred Stock was entitled to receive a
cumulative cash dividend of $0.21 per share on each anniversary from the date of
issuance.
The Company was required to redeem all preferred shares outstanding out of
the net proceeds from any underwritten public offering or private placement of
the Company's common stock. The redemption price was $3.00 per share plus one
share of the Company's common stock per share of preferred stock. The Company's
initial public offering of common stock purchase warrants went effective
September 25, 1996, and the Company became irrevocably committed to redeem its
then outstanding preferred stock. The preferred stock was held by Call Now, a
related party. The initial public offering closed on October 1, 1996, and the
Company redeemed the preferred stock from Call Now. For purposes of presentation
in the accompanying financial statements, the cash redemption amount of the
preferred stock of $450,000 is classified as "Preferred stock redemption
payable" at September 30, 1996, and is included in current liabilities. In
addition, the 150,000 shares of common stock issuable upon redemption of the
preferred stock are included as outstanding common stock at September 30, 1996,
in the accompanying financial statements. In February 1998, the Company reissued
its Series A preferred stock. (See Note 10 -- Subsequent Events, Sale of
Preferred Stock).
4. SHAREHOLDERS' EQUITY
Public Offering
During September 1996, the Company completed a public offering of 1,050,000
shares of common stock at $6.00 per share and 1,150,000 redeemable common stock
purchase warrants for $0.125 per warrant. The Company received net proceeds of
$5,387,614. In addition, as part of the initial public offering, the Company's
150,000 shares of Preferred Stock were redeemed at $3.00 per share plus one
share of the Company's common stock per share of preferred stock (see Note
3 -- Redeemable Preferred Stock).
The initial public offering, a firm underwriting commitment, went effective
September 25, 1996. However, the proceeds from this offering were received by
the Company from the Underwriter on October 1,
24
<PAGE> 25
COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
1996, upon the closing. Therefore, at September 30, 1996, proceeds from the sale
of common stock and redeemable common stock purchase warrants are classified as
"Other receivable from underwriter in connection with the Company's initial
public offering," the cash redemption amount of the Preferred Stock is
classified as "Preferred stock redemption payable" and the common stock issued
to redeem the preferred stock is included as outstanding common stock in the
accompanying financial statements (see Note 3 -- Redeemable Preferred Stock).
Shares Issued in Exchange for Cash and Loan
In August 1995, in connection with the sale of 550,000 shares of common
stock to Call Now, the Company also sold a warrant to Call Now to purchase
320,000 shares of common stock at an exercise price of the then current fair
value of the common stock of $0.92 per share. In January 1996 and February 1996,
the Company received $75,000 in loans from Call Now. In March 1996, the Company
adjusted the warrant exercise price on the 320,000 shares from $0.92 per share
to the then current fair market value of $0.30 per share of Common Stock. The
option was then exercised by Call Now in exchange for forgiveness of the $75,000
in loans plus $21,000 in cash.
Shares Issued for Services
In December 1995, the Company issued 60,000 shares of common stock valued
at $60,000 in exchange for past services rendered to the Company. In addition,
in April 1996, the Company issued 50,000 shares of common stock valued at
$30,000 in exchange for past services rendered to the Company. The value
assigned to the shares was based on the Company's best estimate of fair market
value of the common stock at the time of issuance.
Common Stock Purchase Warrants
On September 25, 1996, in connection with the Company's initial public
offering, the Company issued 1,150,000 redeemable common stock purchase warrants
for $0.125 per share. The warrants are exercisable to purchase common stock
during the three year period from the effective date of the offering (September
25, 1996), at an exercise price of $6.00 per share. The Company may redeem the
warrants at a price of $0.25 per warrant by giving 30 days written notice to the
holders if the Company's common stock price equals or exceeds $12.00 per share
for 30 consecutive trading days. For the year ended September 30, 1997,
redeemable stock purchase warrants to purchase 64,752 shares of common stock
were exercised for $388,512. As of September 30, 1997, 1,085,248 warrants were
outstanding.
Underwriter's Warrant and Underlying Warrant
At the closing of the initial public offering on October 1, 1996, for
nominal consideration, the Company issued to the Underwriter, 100,000 Common
Stock Underwriter Warrants ("Underwriter's Warrants") and 100,000 Warrant
Underwriter Warrants ("Underlying Warrants"). The Underwriter's Warrants are
exercisable for a five year period and allow the holder to purchase one share of
common stock at a price of $9.00 per share. The exercise price of the Underlying
Warrants is $0.1875 per warrant. Each Underlying Warrant is exercisable for a
three year period to purchase one share of common stock at a price of $9.00 per
share. The Underwriter's Warrant and the Underlying Warrants are subject to
adjustment for certain events including mergers, stock dividends, stock splits,
and other events. The Underwriter's Warrants contains net issuance provisions
permitting the holders to elect to exercise the Underwriter's Warrants in whole
or in part and instruct the Company to withhold from the securities issuable
upon exercise, the number of securities, valued at the current fair market value
on the date of exercise, to pay the exercise price.
25
<PAGE> 26
COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
Placement Agent's Warrant
On September 12, 1997, in connection with the Company's issuance of its
long-term debt, the Company granted common stock purchase warrants to the
placement agent. The warrants allow the holders to purchase up to 8,791 fully
paid and non-assessable shares of the Company's common stock at $10.00 per
share. The warrants are exercisable at any time before the close of business on
September 12, 2002. The fair value of these warrants was not material.
Stock Options
Employee and Consultant Stock Options
In February 1996, the Company's Board of Directors adopted an incentive
stock option plan. The plan allows for incentive stock options to be granted to
key employees. In addition, from time to time the Board of Directors may grant
options to consultants that are in addition to the options approved for key
employees under the incentive stock option plan. All options expire no more than
five years from the date of grant. The exercise price for all options shall not
be less than 100% of the fair market value of the stock subject to the option on
the date of grant as determined by the Board of Directors. All options generally
vest in increments over a period of three years from the date of grant, with the
first increment vesting after one year. Options may be granted with different
vesting terms from time to time. The Board of Directors has approved options to
purchase up to 1,140,000 shares of common stock to be granted to key employees
under the incentive stock option plan and to consultants of the Company.
A summary of the Company's stock option activity, and related information
for the years ended September 30, 1996 and 1997, follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES ------------------------------------------
AVAILABLE NUMBER OF AGGREGATE WEIGHTED AVERAGE
FOR GRANT SHARES PRICE EXERCISE PRICE
--------- --------- ----------- ----------------
<S> <C> <C> <C> <C>
Balance at September 30, 1995................. -- -- $ -- $ --
Shares Authorized........................... 780,000 -- -- --
Options Granted............................. (818,500) 818,500 3,308,000 4.04
Options Canceled............................ 250,000 (250,000) (1,500,000) 6.00
-------- -------- ----------- -----
Balance at September 30, 1996................. 211,500 568,500 1,808,000 3.18
Shares Authorized........................... 360,000 -- -- --
Options Granted............................. (415,000) 415,000 4,122,750 9.93
Options Canceled............................ 42,333 (42,333) (243,708) 5.76
-------- -------- ----------- -----
Balance at September 30, 1997................. 198,833 941,167 $ 5,687,042 $ 6.04
======== ======== =========== =====
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------------
WEIGHTED AVERAGE OPTIONS EXERCISABLE
REMAINING --------------------------------
RANGE OF NUMBER CONTRACTUAL WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ---------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$2.50 441,667 3.60 $ 2.50 401,667 $ 2.50
$6.00 - $10.00 268,500 4.15 6.46 99,167 6.00
$10.00 - $14.38 231,000 4.54 12.33 -- --
------- ---- ------ ------- -----
941,167 3.99 $ 6.04 500,834 $ 3.19
======= =======
</TABLE>
26
<PAGE> 27
COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
The weighted-average grant-date fair value of options granted during the
fiscal year ended September 30, 1997 and 1996 was $4.28 and $0.92, respectively.
In December 1996, the Company's Board of Directors approved the issuance of
stock options to certain outside service providers to purchase up to 145,000
shares of the Company's common stock at an exercise price of $7.013 per share.
The exercise price was calculated at 110% of the fair market value on the date
of grant of $6.375 per share. The options vest one-half in year one and one-half
in year two, and expire three years from the date of grant. Pursuant to the
provisions of SFAS 123 the fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
assumptions: risk free interest rate of approximately 6%; no dividend yield;
volatility factor of .5; and a weighted-average expected life of the options of
approximately 1.5 years. The fair market value of these options was estimated to
be approximately $216,000 and will be recognized as compensation expense over
the vesting period. Compensation expense relating to these options for the year
ended September 30, 1997 was approximately $125,000 and recorded as general and
administrative expense.
In December 1996, in connection with a preliminary agreement between the
Company and a distributor, Set 1 Communications, NSW, Australia ("Set 1"), the
Company granted Set 1 a stock option to purchase up to 248,600 shares of the
Company's common stock at the then fair market value of $6.375 per share. The
option vested immediately and expires two years from the date of grant. Pursuant
to the provisions of SFAS 123, the fair value for this option was estimated at
the date of grant using a Black-Scholes option pricing model with the following
assumptions: risk free interest rate of approximately 6%; no dividend yield;
volatility factor of .5; and a weighted-average expected life of the option of 1
year. The Company recorded the entire estimated fair value of this option of
approximately $351,000 as sales and marketing expense in December 1996.
During April 1997, the Company granted to the acting President an option to
purchase up to 200,000 shares of the Company's common stock at the then fair
market value of $10.625 per share. These options vest in increments over a
period of two years from the date of grant, with the first increment vesting
after one year and expire five years from the date of grant.
SFAS 123 requires the disclosure of pro forma net income and earnings per
share information computed as if the Company had accounted for its stock options
granted subsequent to September 30, 1995, under the fair value method set forth
in SFAS 123. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997 and 1996: a risk-free interest rate of 6.0%, a dividend
yield of 0%, a volatility factor of .5 for options granted prior to December
1996 and .7 for options granted during December 1996 through September 30, 1997,
an expected life ranging from 1.5 to 3.5 years, and a contractual term of 5
years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Actual net loss applicable to common shareholders......... $(4,874,969) $(3,093,003)
=========== ===========
Pro forma net loss applicable to common shareholders...... $(5,802,331) $(3,261,192)
=========== ===========
Actual net loss per share applicable to common
shareholders............................................ $ (0.97) $ (0.76)
=========== ===========
Pro forma net loss per share applicable to common......... $ (1.16) $ (0.81)
=========== ===========
</TABLE>
27
<PAGE> 28
COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
Other Stock Options
In February 1996, the Company's Board of Directors also approved the
issuance of stock options to purchase up to 150,000 shares of common stock at
$0.30 per share for key employees and consultants. These options are in addition
to the options that may be granted under the incentive stock option plan and to
consultants described above, and expire five years from the date of grant. As of
September 30, 1997, none of these options had been exercised. As of September
30, 1996, the Board of Directors had granted options to purchase 80,000 shares
of common stock at $0.10 Based on the difference between the option exercise
price and the fair value of the common stock on the date of grant, the Company
has recorded $192,000 of deferred compensation relating to these options and is
amortizing compensation expense over the two-year vesting period. 40,000 of
these options were exercisable at September 30, 1997. As of September 30, 1997,
none of these options had been exercised.
Common stock reserved for future issuance
Shares of common stock of the Company reserved for future issuance,
including shares reserved pertaining to the Underwriter's over-allotment and
Underwriter's Warrant and Underlying Warrant are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Redeemable common stock purchase warrants....................... 1,085,248
Long-term debt conversion....................................... 428,571
Placement agent warrants........................................ 26,373
Employee, consultant, and other stock options................... 1,290,000
Underwriter's Warrants and Underlying Warrants.................. 200,000
---------
3,030,192
=========
</TABLE>
5. INCOME TAXES
Due to operating losses, there is no provision for income taxes for fiscal
years 1995, 1996 or 1997. The statutory tax rate of 34% is directly offset by
the inability to recognize an income tax benefit from the net operating losses.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets for federal and state income taxes are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1997 1996
----------- ---------
<S> <C> <C>
Deferred Tax assets:
Net operating loss carryforwards................. $ 2,730,000 $ 800,000
Other -- net..................................... 90,000 60,000
----------- ---------
Total deferred tax assets................ 2,820,000 860,000
Valuation allowance.............................. (2,820,000) (860,000)
----------- ---------
Net deferred tax assets.................. $ -- $ --
=========== =========
</TABLE>
The realization of deferred tax assets is dependent on future earnings, the
timing and amount of which are uncertain. Accordingly, a valuation allowance,
equal to the net deferred tax asset at September 30, 1997 and
28
<PAGE> 29
COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
1996, has been established to reflect these uncertainties. The change in the
valuation allowance was a net increase of $1,960,000, $770,000, and $90,000 for
fiscal 1997, 1996 and the period from inception (August 26, 1994) to September
30, 1995, respectively.
As of September 30, 1997, the Company had net operating loss carryforwards
of approximately $6,870,000 for federal and State tax purposes, which will
expire from 2003 through 2012. Utilization of net operating loss and tax credit
carryforwards may be subject to a substantial limitation due to the ownership
change limitations provided by the Internal Revenue Code of 1986, as amended,
and similar provisions. The annual limitation may result in the expiration of
net operating loss and tax credit carryforwards before full utilization.
6. RELATED PARTY TRANSACTIONS
In connection with the September issuance of long-term debt (see Note 2), a
son, a licensed broker-dealer, of a Director of the Company was paid
approximately $60,000 in commissions.
During May 1996, the Company forgave a loan for $89,000 to the Company's
former president. The total amount of forgiveness was recognized as compensation
expense by the Company.
During March 1996, the Company sold 300,000 shares of common stock at the
then current fair value of $0.30 per share to the Company's former Chairman and
Chief Executive Officer in exchange for a full recourse interest bearing note
payable amounting to $90,000. The loan was repaid in May 1996.
In January 1996 and February 1996, the Company received $75,000 in loans
from Call Now. In March 1996, Call Now exercised a repriced warrant to purchase
320,000 shares at $0.30 per share by forgiving the $75,000 in loans plus paying
$21,000 in cash (see Note 4 -- Shareholders' Equity and Note 10 -- Subsequent
Events).
7. LEGAL MATTERS
On February 14, 1997, the Company instituted a lawsuit in Santa Clara
County Superior Court against former consultants and a company they had formed
known as Color Communication Corporation. The lawsuit asserts claims for breach
of contract, breach of confidence, unfair competition and unjust enrichment,
alleging that the former consultants misappropriated the Company's confidential
information. On April 30, 1997, the Superior Court entered a preliminary
injunction, prohibiting the defendants from using the Company's confidential
information in any products, literature or advertising. The Superior Court also
enjoined the defendants from advertising, marketing, selling or otherwise
distributing any facsimile or color imaging software product for a period of
nine months beginning April 21, 1997. The defendants have twice sought emergency
appellate relief to set aside the injunction and were twice denied it. Trial on
the Company's claims against the former consultants and Color Communication
Corporation is scheduled to begin on December 15, 1997. The defendants have
filed a formal appeal of the injunction which will not be heard until after the
trial has concluded. A total of approximately $249,000 in legal expenses has
been incurred in connection with this lawsuit through September 30, 1997. The
Company believes the ultimate resolution of this matter will not have a material
adverse impact on its financial position, results of operations, or cash flow.
However, in the near term the Company may incur substantial legal expenses in
connection with the prosecution of this matter (see Note 10 -- Subsequent
Events, Legal Matters).
8. COMMITMENTS
The Company leases office space and office equipment. Rent expense was
approximately $115,169, $65,152 and $13,360 for the years ended September 30,
1997 and 1996, and the period from inception
29
<PAGE> 30
COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(August 26, 1994) to September 30, 1995, respectively, and $193,681 for the
period from inception (August 26, 1994) to September 30, 1997.
Future payments for operating leases at September 30, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------
<S> <C>
September 30, 1998................................................ $144,000
September 30, 1999................................................ 18,000
September 30, 2000................................................ 7000
--------
$169,000
========
</TABLE>
The Company is committed under an employment agreement with an officer to
make the following future payments:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------
<S> <C>
September 30, 1998................................................ $100,000
========
</TABLE>
9. CONCENTRATIONS OF OTHER RISKS
Suppliers
The Company currently uses one subcontractor to manufacture and distribute
all of its products. If this contractor were to experience supply constraints or
financial difficulties, the Company could experience difficulty in satisfying
customer demand.
10. SUBSEQUENT EVENTS
Sale of Preferred Stock
On February 3, 1998, the Company signed an agreement to sell 56,000 shares
of its redeemable convertible Series A Preferred Stock to Call Now, a related
party, for $62.50 per share for an aggregate total proceeds of $3,500,000. As
payment for the preferred stock, on February 20, 1998, Call Now transferred to
the Company 1997 Series A, Retama Park Racetrack Project, Special Facilities
Revenue Refunding Bonds with a face value of $3,500,000. The Retama Park
Racetrack is a horseracing facility in Selma, Texas that is managed by Retama
Entertainment Group, an 80 percent owned subsidiary of Call Now. The 1997 Series
A Bonds pay interest at 7 percent per annum and are secured by the racetrack
facility. The bonds are not currently traded in the open market and prior to the
transfer of the bonds to the Company, all such bonds were owned by Call Now. The
Company believes that the fair value of the 1997 Series A bonds approximates the
face value. The Company may use the 1997 Series A Bonds as loan collateral to
provide operating cash.
The Preferred Stock sold to Call Now, is initially convertible into common
stock on a ten to one basis, subject to future adjustments for stock splits,
stock dividends or other similar events. The holders of the Preferred Stock have
no voting rights, except as required under any applicable state laws. The
Preferred Stock has mandatory cumulative dividends of $7.50 per share per annum.
The Preferred Stock has an aggregate liquidation preference over the common
stock of $62.50 per share plus cumulative unpaid dividends. The Preferred Stock
may be redeemed by the Company any time subsequent to 90 days from the date of
issuance for $100 per share plus unpaid dividends.
In connection with the issuance of the Series A Preferred Stock to Call
Now, for nominal proceeds of $500, the Company sold a warrant to Call Now to
purchase up to 500,000 shares of the Company's common stock with an exercise
price of $6.25 per share or the average bid and ask price of the common stock
for the
30
<PAGE> 31
COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
three days prior to exercise. The warrant expires three years after the date of
grant. The fair value of the warrant was estimated at the date of the grant
using a Black-Scholes option pricing model with the following assumptions, risk
free interest rate of approximately 6%; no dividend yield; volatility factor of
.7; and a weighted average expected life of 3 years. The fair market value of
the warrant is estimated to be $1,260,000.
Line of Credit
On February 3, 1998, the Company secured a $10,000,000 line of credit from
Call Now. Under the agreement, the Company has the right to draw up to
$10,000,000 on or before September 30, 1998. Proceeds paid to the Company upon
making draws under the line may be in the form of Retama Park Racetrack Bonds
similar to the proceeds received on the sale of Preferred Stock (see above).
Borrowings must be approved through resolution of the Company's Board of
Directors and must be used for working capital or acquisitions due within ten
days of the adoption of the resolution. The Company will be required to issue a
Promissory Note bearing interest at 15% per year, payable quarterly, for any
funds drawn against the line of credit. The Company is required to pay Call Now
a commitment fee of $400,000 within thirty (30) days after the first draw
pursuant to the line of credit.
In connection with the line of credit agreement, the Company issued 500,000
warrants (the "underlying warrants") to Call Now exercisable for $2.00 per
warrant. Each underlying warrant may be exercised by Call Now to purchase the
Company's common stock at an exercise price of $6.25 per share. The underlying
warrants expire three years after the date of grant. The fair value of the
underlying warrants was determined at the date of the grant using a
Black-Scholes option pricing model with the following assumptions, risk free
interest rate of approximately 6%; no dividend yield; volatility factor of .7;
and a weighted average expected life of 3 years. The fair market value of the
underlying warrants is estimated to be $80,000 will be recorded as a component
of interest expense in the quarter ended March 31, 1998.
Loan From Shareholder
On January 15, 1998, the Company issued a promissory note to a certain
shareholder for $425,000. The note bears interest at 15% per year and is payable
on demand or within thirty (30) days of issuance. The Company also issued a
warrant to purchase up to 100,000 shares of the Company's common stock at an
exercise price of $6.25 per share. The warrants expire on January 15, 2001. The
fair value of the warrant determined at the date of the grant using a
Black-Scholes option pricing model with the following assumptions, risk free
interest rate of approximately 6%; no dividend yield; volatility factor of .7;
and a weighted average expected life of 3 years. The estimated fair value of the
warrants of $195,000 will be recorded as a component of interest expense in the
quarter ended March 31, 1998.
Equity-Based Line of Credit
On December 3, 1997, the Company secured a $10,000,000 equity-based line of
credit from Kingsbridge Capital Limited, a company organized and existing under
the laws of the British Virgin Islands ("KCL"). Under the privately-placed
financing, the Company has the right to draw up to $10,000,000 in cash in
exchange for the Company's Common Stock. Each draw must be for an amount greater
than $300,000, but no more than $1,000,000. There must be a minimum of 20
business days between each draw. The number of shares to which KCL is entitled
pursuant to a draw shall be determined by dividing the dollar value of the draw
by the purchase price. The purchase price is defined as 88% of the lowest
closing bid price of the Company's Common Stock over the five trading days
beginning two trading days prior to the date of the draw. No more than 1,008,000
shares may be sold pursuant to the equity line. No draws may be made under the
line of credit until the Company registers for resale the shares issued pursuant
to the equity line of credit and the shares issuable on exercise of the warrant,
has been declared effective by the Securities and Exchange
31
<PAGE> 32
COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
Commission. No draws may be made during any 20 trading day period in which the
average daily trading volume of the Company's Common Stock is less than 22,500
shares per day. The market price of the Company's common stock must equal or
exceed $6 per share for the previous 3 trading days prior to a draw. No draws
may be made without KCL's consent to the extent the draw would cause KCL to hold
more than 9.9% of the Company's Common Stock. The Company's common stock must be
qualified for continued listing on the NASDAQ SmallCap Market, for which the
Company must, among other requirements, maintain net assets in excess of
$2,000,000 or have a total market capitalization greater than $35,000,000. The
line of credit will remain in effect for a period of eighteen months. In
connection with the agreement, the Company issued KCL a warrant to purchase up
to 45,000 shares of the Company's Common Stock at a price of $10.64 per share.
The Warrant expires on December 3, 2000. The fair value of the warrant was
estimated at the date of grant using a Black-Scholes options pricing model with
the following assumptions, risk free interest rate of approximately 6%; no
dividend yield; volatility factor of .7; and a weighted average expected life of
3 years. The estimated fair value of the warrants is $108,000 and will be
amortized over 18 months.
As of February 20, 1998, no funds were available under the equity-based
line of credit and the Company has not filed a registration statement to the
register shares that may be sold pursuant to the line. Should the Company not
make any draws under the equity-based line of credit during the term of the
agreement, the Company will be required to pay $120,000 to KCL.
Warrant Issued to Member of Board of Directors
On December 30, 1997, in connection with assistance to be provided with the
Company's management changes and financing needs, the Company granted a member
of the Board of Directors warrants to purchase 700,000 shares of the Company's
Common Stock. The Warrants have an exercise price of $6.25 per share and expire
three years from the date of grant. The fair value of the warrant was determined
at the date of the grant using a Black-Scholes option pricing model with the
following assumptions, risk free interest rate of approximately 6%; no dividend
yield; volatility factor of .7; and a weighted average expected life of 3 years.
The estimated fair value of the warrants of $1,610,000 will be recorded as a
charge against general and administrative expenses in the quarter ended December
31, 1997.
Legal Matters
On December 10, 1997, the Company and Color Communications Corporation
entered into a settlement agreement which continued the prohibitions of the
preliminary injunction through January 15, 1998 and permanently prohibited the
defendants from using the Company's confidential information. The agreement
further prohibits the defendants from communicating with six specific companies
through April 15, 1998. As part of the settlement, the Company dismissed its
claims against the defendants and received a release of claims from them.
In December 1997, the Board of Directors replaced several members of
management with a new and smaller management team. On February 18, 1998, the
Company received a letter from one member of the former management alleging
wrongful termination and racial discrimination and seeking unspecified damages.
The Company believes the claims are without merit and intends to contest the
matter vigorously. Management does not believe that resolution of the matter
will have a material effect on the Company. However, litigation is inherently
costly and uncertain and there can be no assurance that the matter will be
resolved in the Company's favor or without material cost.
32
<PAGE> 33
COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
Agreement to Acquire Softlink, Inc.
On December 31, 1997, the Company entered into an agreement to acquire all
of the issued and outstanding shares of Softlink, Inc. (Softlink), a California
corporation, pursuant to a Stock Purchase Agreement dated December 31, 1997
between the Company and the shareholders of Softlink. The final agreement is
subject to certain conditions and the approval by Softlink's shareholders.
Softlink designs, manufactures, and distributes e-mail enhancement products for
sales under the "Voice" and "BravoMail" brand names. "Voice" is software and
hardware that allows for the addition of the voice dimension of communication to
e-mail. "BravoMail" is software that allows for e-mail presentations complete
with audio, graphics, and real time sequenced annotation and animation. As of
December 31, 1997, Softlink did not have significant operating revenues and the
book value of its total assets was not material to the Company.
The closing of the acquisition is subject to a number of contingencies. If
the agreement is consummated on the terms currently anticipated, the Company
will acquire all of the capital stock of Softlink's shareholders, amounting to
4,059,449 shares of no par value common stock, for a negotiated purchase price
of 450,000 shares of the Company's $.001 par value common stock with a fair
value of $2,109,000 based on the average of the closing bid and ask prices for
the Company's common stock on December 31, 1997. The acquisition will be
accounted for using the purchase method of accounting and, accordingly, the
purchase price will be allocated to the assets purchased and the liabilities
assumed based on their fair values as of the date of the acquisition. The excess
of the purchase price over the fair values of the net liabilities acquired of
approximately $2,148,000 will be recorded as developed technology, and will be
amortized over the estimated useful life of 2 years using the greater of the
straight-line method or the ratio of current revenue to the total of current and
anticipated revenues.
Changes in Board of Directors and Management
In December 1997, the Board of Directors replaced several members of
Company management and the Company's Chairman and Chief Executive Officer and
the President resigned from the Board of Directors. In addition, on December 30,
1997, two other members of the Company's Board of Directors resigned and the
Company appointed a new Chief Executive Officer, Chief Financial Officer, and
Vice President of OEM Sales. The new Chief Executive Officer was also named to
the Company's Board of Directors. The Chief Financial Officer resigned in
February 1998. The Company's Board of Directors currently consists of four
members.
33
<PAGE> 34
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Compressent Corporation
We have audited the accompanying balance sheets of Compressent Corporation
(a development stage company) as of September 30, 1997 and 1996, and the related
statements of operations, shareholders' equity, and cash flows for the years
then ended, and for the period from inception (August 26, 1994) to September 30,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The financial statements for the period from
inception (August 26, 1994) to September 30, 1995, were audited by other
auditors whose report dated December 1, 1995, expressed an unqualified opinion
on those statements. The financial statements for the period from inception
(August 26, 1994) to September 30, 1995, include a net loss of $254,765. Our
opinion on the statements of operations, shareholders' equity, and cash flows
for the period from inception (August 26, 1994) to September 30, 1997, insofar
as it relates to amounts for prior periods through September 30, 1995, is based
solely on the report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Compressent Corporation at September 30, 1997 and
1996, and the results of its operations and its cash flows for the years then
ended and for the period from inception (August 26, 1994) to September 30, 1997,
in conformity with generally accepted accounting principles.
Ernst & Young LLP
San Jose, California
October 28, 1997, except for
Note 10 as for which the
date is February 24, 1998
34
<PAGE> 35
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
Board of Directors
Compressent Corporation (formerly Cable-Sat Systems, Inc.)
We have audited the accompanying statement of operations, shareholders'
equity and cash flows of Compressent Corporation (formerly Cable-Sat Systems,
Inc.), (a development stage company), for the period from inception (August 26,
1994) to September 30, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of
Compressent Corporation (formerly Cable-Sat Systems, Inc.), (a development stage
company), for the period from inception (August 26, 1994) to September 30, 1995
in conformity with generally accepted accounting principles.
GRANT SCHWARTZ ASSOCIATES, CPA'S
Boca Raton, Florida
December 1, 1995
35
<PAGE> 36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in and disagreements with accountants on accounting
and financial disclosures during the years ended September 30, 1996 and
September 30, 1997.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See Item 1 included herein for information concerning executive officers.
The directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------------------- --- -----------------------------------
<S> <C> <C>
President and Chief Executive
Won-Gil Choe....................... 65 Officer
William M. Allen................... 68 Director
E. T. Kalinoski.................... 42 Director and Chairman
Stanley A. Young................... 70 Director
</TABLE>
Won-Gil Choe, was appointed as President and Chief Executive Officer in
December 1997. He has served as President and Chief Executive Officer of Sofex,
Inc., a software outsourcing company since 1996. From 1993 to 1996 he was the
Chairman, President and Chief Executive Officer of Omni Media Technology, Inc.,
a multimedia technology company. He has held senior financial and engineering
management positions with companies such as Memorex, Philips-Signetics, Applied
Materials, Mass Miscrosystems, and Vacu-Blast.
William M. Allen has been a director since 1995. He has been President and
director of Call Now, Inc. since June 1992.
E. T. Kalinoski has been a director since 1995 and has served as Chairman
since January 1998. He had served as President of the Company until September
1995. He has been a financial consultant with MSH Capital, a consulting firm,
since 1991.
Stanley A. Young has been a director since October 1996. He has been active
as a consultant and venture capital investor of the past five years. He is
President and Chairman of Young Management Group, Inc., consultants. He also
serves on the Board of Directors of JetForm, Inc. Andyne Computer, Inc. and
SEEC.
36
<PAGE> 37
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation paid to the Company's
chief executive officer for the last three completed fiscal years and each of
the other executive officers of the Company who received compensation of
$100,000 or more during any such year.
<TABLE>
<CAPTION>
TOTAL ANNUAL CASH COMPENSATION
-------------------------------------
YEAR ENDED OTHER ANNUAL
NAME AND POSITION SEPTEMBER 30, SALARY BONUS COMPENSATION
------------------------------------ ------------- -------- ------- ------------
<S> <C> <C> <C> <C>
Wil Zarecor......................... 1995 $ 36,000 $ -- $ --
President 1996 144,000 -- --
1997 132,000 -- --
Abe Ostrovsky....................... 1996 120,000 90,000 4,176
Chairman and Chief Executive
Officer 1997 240,000 -- --
Shelley Harrison.................... 1997 159,000 -- --
Vice President, Marketing, Sales
and Operations
Lisa D'Alencon...................... 1997 159,000 -- --
Chief Financial Officer
</TABLE>
Employment and Consulting Agreements
Abe Ostrovsky's employment with the Company through December 1997 was
pursuant to an Employment Agreement dated March 1, 1996 with Ostrovsky
Consulting, Inc., a corporation organized to market the services of Mr.
Ostrovsky. Pursuant to the agreement, Mr. Ostrovsky would serve as Chairman and
Chief Executive Officer through February 28, 1998. The agreement provided for an
initial salary of $240,000 per year and an annual bonus as determined by the
Company's Board of Directors. Pursuant to the agreement, Mr. Ostrovsky purchased
300,000 shares of the Company's common stock at $0.30 per share. Mr. Ostrovsky
was later granted an Incentive Stock Option for 180,000 shares at $2.50 per
share. Pursuant to the agreement, Mr. Ostrovsky was appointed as a director of
the corporation.
Wil F. Zarecor served as President pursuant to a two-year employment
agreement that terminated on August 30, 1997. Such agreement provides for a base
salary of $144,000 per year.
In April 1997, the Company contracted with Peter Whealton, one of the
Company's Directors, to act as the Company's President. A consulting fee of
$15,000 per month through December 1997 was paid for his services.
Information Concerning Stock Options
The following table sets forth grants of stock options to the executive
officers named in the Summary Compensation Table during the fiscal year ended
September 30, 1997.
STOCK OPTION GRANTS IN FISCAL YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PERCENT OF
TOTAL OPTIONS
GRANTED TO
NO. OF ALL EMPLOYEES EXERCISE EXPIRATION
NAME SHARES IN FISCAL YEAR PRICE DATE 5%(1) 10%(1)
- --------------------------------- ------ -------------- ------- -------------- -------- --------
($) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Shelley Harrison................. 35,000 8.4% 14.375 February 2002 139,004 307,163
25,000 6.0% 13.00 April 2002 89,792 198,416
Lisa D'Alencon................... 25,000 6.0% 13.00 April 2002 89,792 198,416
</TABLE>
37
<PAGE> 38
- ---------------
(1) Potential realizable value is based on an assumption that the market price
of the stock appreciates at the stated rate, compounded annually, from the
date of grant until the end of the 5-year term of the option. These values
are calculated based on requirements promulgated by the Securities and
Exchange Commission and do not reflect the Company's estimate or projection
of future stock price. Actual gains, if any, on stock option exercises will
be dependent on the future performance of the Common Stock.
The following table sets forth the number of stock options held by the
executive officers named in the Summary Compensation Table as of September 30,
1997 as well as fiscal year end value of unexercised "in-the-money" options held
which represents the positive difference between the exercise price and the
market price at fiscal year end. No such executive exercised any options during
the fiscal year.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS IN-THE-MONEY OPTION
AT FISCAL YEAR END AT FISCAL YEAR END
-------------------- -----------------------
NAME VESTED UNVESTED VESTED UNVESTED
----------------------------------------- -------- -------- ---------- --------
<S> <C> <C> <C> <C>
Abe Ostrovsky............................ 180,000 -- $1,395,000 $ --
Wil Zarecor.............................. 6,667 -- $ 51,667 $ --
Shelley Harrison......................... 100,000 80,000 $ 823,000 $203,000
Lisa D'Alencon........................... 45,000 25,000 $ 191,250 $ --
</TABLE>
Director Compensation
Non-employee directors receive no compensation for attending Board or
Committee meetings. The Company pays the expenses directors incurred in
attending Board and Committee meetings. On December 4, 1996 each of the
following directors received an option to purchase 20,000 shares of the
Company's common stock at the then fair market value of $6.375 per share:
William M. Allen, E. T. Kalinoski, Wil Zarecor, Fred Chanowski, Stanley A.
Young, Peter A. Whealton and Jeffrey Waxman. These options vest in increments
over a period of three years from the date of grant, with the first increment
vesting after one year and expire five years from the date of grant.
During April 1997, the Company granted to the acting President, who was
also a Director, an option to purchases up to 200,000 shares of the Company's
common stock at the then fair market value of $10.625 per share. These options
vest in increments over a period of two years from the date of grant, with the
first increment vesting after one year and expire five years from the date of
grant.
38
<PAGE> 39
Stock Performance Chart
The graph below compares the cumulative total stockholder return on the
Company's Common Stock with the cumulative total return on the NASDAQ Stock
Market Index and the NASDAQ Computer & Data Processing Index for the period
September 30, 1996 through September 30, 1997, assuming an investment of $100
and the reinvestment of any dividends.
The comparisons in the graph are based upon historical data and are not
indicative of, nor intended to forecast, future performance of the Company's
Common Stock.
<TABLE>
<CAPTION>
Measurement Period Compressent Computer & Data
(Fiscal Year Covered) Corporation NASDAQ Processing Index
<S> <C> <C> <C>
9/30/96 100 100 100
9/30/97 158 137 135
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 1, 1997, the beneficial
ownership of the Company's Common Stock by (i) the only persons who own of
record or are known to own, beneficially, more than 5% of the Company's Common
Stock; (ii) each director and each executive officer of the Company named in the
Summary Compensation Table; and (iii) all directors and officers as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENT
NAME AND ADDRESS SHARES OF CLASS
---------------------------------------------------------- --------- --------
(1)
<S> <C> <C>
Call Now, Inc.(2)
P.O. Box 531399
Miami Shores, FL 33153.................................. 204,897 4.1%
Abe Ostrovsky(3).......................................... 457,000 9.1%
William M. Allen(2),(4)................................... 459,272 9.1%
Fred Chanowski(4)......................................... 20,100 *
Lisa D'Alencon(5)......................................... 70,000 1.4%
Shelley Harrison(6)....................................... 180,000 3.6%
E. T. Kalinoski(4)........................................ 128,500 2.5%
Jeff Waxman(4)............................................ 20,000 *
Peter Whealton(7)......................................... 223,000 4.4%
Stanley A. Young(4),(8)................................... 123,600 2.5%
Wil Zarecor(9)............................................ 186,667 3.7%
Directors................................................. 1,431,472 28.4%
</TABLE>
39
<PAGE> 40
- ---------------
(1) Based on 5,042,202 shares outstanding.
(2) Represents 204,897 shares owned by Call Now, Inc. of which Mr. Allen is an
affiliate and 254,375 shares owned directly and owned by his spouse.
(3) Includes 140,000 shares which may be acquired pursuant to outstanding stock
options.
(4) Includes 20,000 shares which may be acquired pursuant to outstanding stock
options.
(5) Includes 70,000 shares which may be acquired pursuant to outstanding stock
options.
(6) Includes 180,000 shares which may be acquired pursuant to outstanding stock
options.
(7) Includes 220,000 shares which may be acquired pursuant to outstanding stock
options.
(8) Includes 79,412 shares owned by a Limited Partnership of which Mr. Young is
a General Partner.
(9) Includes 6,667 shares which may be acquired pursuant to outstanding stock
options.
* Less than 1%
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 1997, the Company contracted with Peter Wealton, then one of the
Company's Directors, to act as the Company's President. A consulting fee of
$15,000 per month was paid for his services.
In connection with the September 1997 issuance of long-term debt a son, a
licensed broker-dealer, of a Director of the Company was paid approximately
$60,000 in commissions.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report.
(1) Financial Statements
The following financial statements of the Registrant and Reports of
Ernst & Young LLP, Independent Auditors and Grant-Scwartz Associates,
CPA's, Independent Auditors are included herewith:
(i) Statements of Operations for the year ended September 30, 1997,
the year ended September 30, 1996, the period from inception (August 26,
1994) to September 30, 1995, and the period from inception (August 26,
1994) to September 30, 1997.
(ii) Balance Sheets as of September 30, 1997 and 1996.
(iii) Statements of Shareholder's Equity for the year ended
September 30, 1997, the year ended September 30, 1996, and the period
from inception (August 26, 1994) to September 30, 1995.
(iv) Statements of Cash Flows for the year ended September 30,
1997, the year ended September 30, 1996, the period from inception
(August 26, 1994) to September 30, 1995, and the period from inception
(August 26, 1994) to September 30, 1997.
(v) Notes to Financial Statements.
(vi) Report of Ernst & Young LLP, Independent Auditors.
(vii) Report of Grant-Schwartz Associates, CPA's, Independent
Auditors.
(2) Financial Statement Schedules -- None.
(3) Exhibits
40
<PAGE> 41
The following exhibits are incorporated by this reference to Registrant's
Registration Statement on Form S-1, File No. 333-06121:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------
<S> <C>
1(a) Underwriting Agreement
3(a) Amended and Restated Articles of Incorporation of the Registrant
3(b) Bylaws of the Registrant
4.1 Form Warrant Certificate
4.2 Form of Common Stock Certificate
10.1 Financial Advisory Agreement
10.2 Merger and Acquisition Agreement
10.3 Warrant Agreement
10.4 Underwriter's Warrant Agreement
10.5 Incentive Stock Option Plan
10.5(a) Employment Agreement -- Ostrovsky Consulting, Inc.
10.5(b) Employment Agreement -- Wil F. Zarecor
10.5(c) Employment Agreement -- John L. Douglas
10.5(d) Employment Agreement -- Glenn Crepps
</TABLE>
The following exhibits are filed herewith:
<TABLE>
<S> <C>
10.7(a) 10% Convertible Subordinated Promissory Note
10.7(b) Common Stock Purchase Warrant
10.7(c) Private Equity Line of Credit Agreement
10.7(d) Registration Rights Agreement
10.7(e) Promissory Note
10.7(f) Loan Agreement
10.7(g) Stock Purchase Warrant
10.7(h) Preferred Stock and Warrant Purchase Agreement
10.7(i) Certificate of Designation of Series A Convertible Preferred Stock of Compressent
Corporation
10.7(j) Stock Purchase Warrant
10.7(k) Reorganization Agreement of Purchase and Sale of Stock
10.7(l) Stock Purchase Warrant
11.1 Computation of net loss per share
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K -- The Company filed reports on Form 8-K on May 5,
1997 to disclose the change of the Company's name from Cable-Sat Systems, Inc.,
to Compressent Corporation and on January 20, 1998 and February 24, 1998 to
disclose changes made to the Company's Board of Directors and Management.
41
<PAGE> 42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
COMPRESSENT CORPORATION
By: /s/ WON-GIL CHOE
------------------------------------
Won-Gil Choe,
President, Chief Executive
Officer,
and Director (Principal Executive
Officer)
February 24, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- --------------------------- ------------------
<C> <S> <C>
/s/ WON-GIL CHOE President, Chief Executive February 24, 1998
- ----------------------------------------------- Officer, and Director
Won-Gil Choe (Principal Executive
Officer and Financial
Officer)
/s/ WILLIAM M. ALLEN Director February 24, 1998
- -----------------------------------------------
William M. Allen
/s/ E.T. KALINOSKI Director, Chairman February 24, 1998
- -----------------------------------------------
E.T. Kalinoski
/s/ STANLEY A. YOUNG Director February 24, 1998
- -----------------------------------------------
Stanley A. Young
</TABLE>
42
<PAGE> 1
EXHIBIT 10.7(a)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT"), OR UNDER THE PROVISIONS OF ANY APPLICABLE STATE SECURITIES
LAWS, BUT HAS BEEN ACQUIRED BY THE REGISTERED HOLDER HEREOF FOR PURPOSES OF
INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS UNDER THE 1933 ACT, AND UNDER
ANY APPLICABLE STATE SECURITIES LAWS. THIS NOTE MAY NOT BE SOLD, PLEDGED,
TRANSFERRED OR ASSIGNED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER PROVISIONS
OF THE 1933 ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT; AND IN THE CASE OF AN EXEMPTION, ONLY IF THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
TRANSACTION DOES NOT REQUIRE REGISTRATION OF THIS NOTE.
COMPRESSENT CORPORATION
September 12, 1997 New York, New York
No.: N-Grant~ $Amount~
10% CONVERTIBLE SUBORDINATED PROMISSORY NOTE
Compressent Corporation, a Florida corporation (the "Company"),
for value received, hereby promises to pay to Name~ or registered assigns (the
"Holder"), on September 12, 2002 (the "Maturity Date"), at the principal offices
of the Company, the principal sum of Dollars~ ($Amount~ ) Dollars in such coin
or currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, and to pay interest on
the outstanding principal sum hereof at the rate of ten percent (10%) per annum
(the "Note"). Accrued interest shall be payable semi-annually on June 15 and
December 15 of each year, commencing December 15, 1997 in like coin or currency
to the Holder hereof at the registered address of the Holder, provided that any
payment otherwise due on a Saturday, Sunday or legal Bank holiday may be paid on
the following business day. In the event that for any reason whatsoever any
interest or other consideration payable with respect to this Note shall be
deemed to be usurious by a court of competent jurisdiction under the laws of the
State of New York or the laws of any other state governing the repayment hereof,
then so much of such interest or other consideration as shall be deemed to be
usurious shall be held by the holder as security for the repayment of the
principal amount hereof and shall otherwise be waived. This Note is one of a
series of Notes in the aggregate principal amount of up to $3,000,000
(collectively, the "Notes"), sold through Rickel & Associates, Inc. (the
"Placement Agent").
1. TRANSFERS OF NOTE TO COMPLY WITH THE 1933 ACT
<PAGE> 2
The Holder agrees that this Note may not be sold, transferred,
pledged, hypothecated or otherwise disposed of except as follows: (1) to a
person whom the Note may legally be transferred without registration and without
delivery of a current prospectus under the 1933 Act with respect thereto and
then only against receipt of an agreement of such person to comply with the
provisions of this Section 1 with respect to any resale or other disposition of
the Note; or (2) in connection with an effective registration statement to any
person upon delivery of a prospectus then meeting the requirements of the 1933
Act relating to such securities and the offering thereof for such sale or
disposition, and thereafter to all successive assignees.
2. CONVERSION This Note, together with accrued but unpaid
interest, is convertible into shares of the Company's common stock, $.001 par
value per share (the "Common Stock"), at the option of the Holder at any time
after the last original issue date of the Notes and prior to the close of
business on the Maturity Date. The Holder shall deliver this Note, together with
the completed Conversion Notice attached hereto, to the Company at its principal
address. The number of shares of Common Stock issuable to the Holder upon
conversion shall be equal to the principal amount of this Note (together with
accrued, but unpaid interest), divided by the lower of (i) $10.00 or (ii) the
closing high bid price of the Common Stock on the day before the conversion date
(the "Conversion Rate"); provided, that in no event shall the Conversion Rate be
less than $7.00 (as such amounts may be adjusted from time to time to take into
account stock splits, stock dividends, consolidations, recapitalization or
similar transactions from time to time). Within three days after receipt by the
Company of the Holder's Conversion Notice, the Company shall deliver a stock
certificate representing the Common Stock to the Holder at the Holder's
registered address.
3. REDEMPTION
A. This Note is redeemable at the option of the Company, in whole
or in part, at any time commencing on or after August 30, 1999, for the face
value hereof plus accrued interest to the redemption date, provided that the
average closing high bid price of the Common Stock for the 30 trading days prior
to the date of the notice equals or exceeds 200% of the Conversion Rate on the
date of the notice. Redemption shall be effected by delivery of a written notice
to the Holder at the Holder's registered address, which notice shall include the
effective date of the redemption which date shall not be less than 15 nor more
than 20 days after the delivery date of the notice (the "Redemption Notice
Period"). The Holder's right to convert the principal amount of this Note as set
forth in section 2 hereof shall continue until 5:00pm on the day prior to the
date of redemption. Upon any redemption of principal, all accrued, but unpaid,
interest shall be paid to the Holder on the date of redemption.
B. Upon a Change of Control (as hereinafter defined), the Holder
may require the Company to redeem all or part of this Note at the face value of
<PAGE> 3
the portion requested to be redeemed, plus accrued interest to the redemption
date. The Holder shall give written notice to the Company at its principal
address stating the request for redemption. The Company shall pay the redemption
price by delivery of a check to the Holder at its registered address within ten
days of the date of the Holder's redemption notice. A "Change of Control" shall
occur if at any time (x) there occurs any consolidation or merger of the Company
with or into any other corporation or other entity or person (whether or not the
Company is the surviving corporation) or any other corporate reorganization or
transaction or series of related transactions, in which in each such case in
excess of 50% of the Company's voting power is transferred (y) in excess of 50%
of the Company's Board of Directors consists of directors not nominated by the
prior Board of Directors of the Company, or (z) any person (as defined in
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), together with its affiliates and associates (as such terms are defined
in Rule 405 under the 1933 Act, beneficially owns or is deemed to beneficially
own (as described in Rule 13d-3 under the Exchange Act without regard to the
60-day exercise period) in excess of 50% of the Company's voting power. The
Company shall notify the Holder of any Change of Control by written notice
within five days after the occurrence of any such event.
4. COVENANTS OF COMPANY
The Company covenants and agrees that, so long as any
principal of, or interest on, this Note shall remain unpaid, unless the holders
of a majority of the outstanding principal amount of the Notes shall otherwise
consent in writing, it will comply with the following terms:
(a) REPORTING REQUIREMENTS. The Company will furnish to the
Holder:
(i) as soon as possible, and in any event within five (5) days
after obtaining knowledge of the occurrence of (A) an "Event of Default," as
hereinafter defined, (B) an event which, with the giving of notice or the lapse
of time or both, would constitute an Event of Default, or (C) a material adverse
change in the business, earnings, liquidity, financial condition or operations
of the Company, taken as whole (a "Material Adverse Effect"), the written
statement of the Chief Executive Officer or the Chief Financial Officer of the
Company, setting forth the details of such Event of Default, event or Material
Adverse Effect and the action which the Company proposes to take with respect
thereto;
(ii) promptly after the sending or filing thereof, copies of all
financial statements, reports, certificates of its Chief Executive Officer,
Chief Financial Officer or accountants and other information which the Company
or any subsidiary sends to any holders (other than the Note) of its securities;
<PAGE> 4
(iii) promptly after the commencement thereof, notice of each
action, suit or proceeding before any court or other governmental authority or
other regulatory body or any arbitrator as to which there is a reasonable
possibility of a determination that would (A) materially impact the ability of
the Company or any subsidiary to conduct its business, (B) have a Material
Adverse Effect on the Company, or (C) impair the validity or enforceability of
the Note or the ability of the Company to perform its obligations under the
Note;
(b) COMPLIANCE WITH LAWS. The Company will comply, in all
material respects with all applicable laws, rules, regulations and orders,
except to the extent that noncompliance would not have a Material Adverse Effect
on the Company.
(c) PRESERVATION OF EXISTENCE. The Company will maintain and
preserve, and cause each subsidiary, if any, to maintain and preserve, its
existence, and become or remain duly qualified and in good standing in each
jurisdiction in which the failure to be so qualified would have a Material
Adverse Effect on the Company.
(d) MAINTENANCE OF PROPERTIES. The Company will maintain and
preserve, all of its properties which are necessary in the proper conduct of its
business in good working order and condition, ordinary wear and tear excepted,
and comply, at all times with the provisions of all leases to which it is a
party as lessee or under which it occupies property, so as to prevent any
forfeiture or material loss thereof or thereunder except to the extent the
failure to do so could not reasonably be expected to have a material adverse
effect on the business, properties and operations of the Company. The Company
will not dispose of any assets, rights, properties, claims, contracts and
business as a going concern, including inventory, goodwill, customer lists,
trademarks and trade names, franchises, customer purchase orders, telephone
numbers, fixed assets, furniture or fixtures, except in the ordinary course of
its business at prices and terms consistent with the Company's past practices.
(e) MAINTENANCE OF INSURANCE. The Company will maintain, with
responsible and reputable insurers, insurance with respect to its properties and
business, in such amounts and covering such risks, as is carried generally in
accordance with sound business practice by companies in similar businesses in
the same localities in which the Company is situated.
(f) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company will
keep adequate records and books of account, with complete entries made in
accordance with generally accepted accounting principles, reflecting all of its
financial and other business transactions.
(g) REGISTRATION OF COMMON STOCK. The Common Stock issuable upon
conversion of this Note shall be registered for resale in accordance with the
terms and conditions of the registration rights agreement between the Company
and the
<PAGE> 5
Holder, dated as of the date hereof (the "Registration Rights Agreement"). In
the event a registration statement is not filed under the 1933 Act by February
28, 1998, interest shall accrue on this Note at the rate of 18% per annum until
such time as an appropriate registration statement is filed and declared
effective by the Securities and Exchange Commission.
5. EVENTS OF DEFAULT AND REMEDIES
(a) Any one or more of the following events which shall have
occurred and be continuing shall constitute an event of default ("Event of
Default"):
(i) Default in the due and punctual payment of any
installment of interest upon this Note or upon any of the Notes, as and when the
same shall become due, and such default shall have continued for a period of
five (5) business days; or
(ii) Default in the due and punctual payment of the
principal of this Note or any of the Notes, as and when the same shall become
due; or
(iii) Any representation or warranty made by the Company
or any officer of the Company in the placement agent agreement executed between
the Company and the Placement Agent of even date (the "Placement Agent
Agreement"), the Notes, or in any agreement, report, certificate or other
document delivered to the Holder pursuant to or in connection with the Placement
Agent Agreement or the Notes shall have been incorrect in any material respect
when made; or
(iv) The Company shall fail to perform or observe any
covenant contained in this Note or in the Registration Rights Agreement and such
Default, if capable of being remedied, shall not have been remedied thirty (30)
days after written notice thereof shall have been given by the Holder or the
Placement Agent to the Company; or
(v) The Company or any subsidiary (A) shall institute any
proceeding or voluntary case seeking to adjudicate it bankrupt or insolvent, or
seeking dissolution, liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of any order for relief or the appointment of a receiver,
trustee, custodian or other similar official for such the Company or any
subsidiary or for any substantial part of its property, or shall consent to the
commencement against it of such a proceeding or case, or shall file an answer in
any such case or proceeding commenced against it consenting to or acquiescing in
the commencement of such case or proceeding, or shall consent to or acquiesce in
the appointment of such a receiver, trustee, custodian or similar official; (B)
shall be generally not paying its debts as such debts become due, or shall admit
in writing its inability to apply its debts generally; (C) shall make a general
assignment
<PAGE> 6
for the benefit of creditors; or (D) shall take any action to authorize or
effect any of the actions set forth above in this subsection 5 (vi); or
(vi) Any proceeding shall be instituted against the
Company seeking to adjudicate it a bankrupt or insolvent, or seeking
dissolution, liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief of debtors, or seeking the entry of an order for relief or
the appointment of a receiver, trustee, custodian or other similar official for
the Company or for any substantial part of its property, and either such
proceeding shall not have been dismissed or shall not have been stayed for a
period of sixty (60) days or any of the actions sought in such proceeding
(including, without limitation, the entry of any order for relief against it or
the appointment of a receiver, trustee, custodian or other similar official for
it or for any substantial part of its property) shall occur; or
(vii) One or more final judgments or orders for the
payment of money in excess of $200,000 in the aggregate shall be rendered
against the Company, and either (A) enforcement proceedings shall have been
commenced by any creditor upon any such judgment or order, or (B) there shall be
any period of thirty (30) days during which enforcement of any such judgment or
order shall not be discharged, stayed or fully satisfied; or
(viii) Any indebtedness for money borrowed by the Company
in an outstanding principal amount of $200,000 is not paid at final maturity or
upon acceleration thereof and such default in payment or acceleration is not
cured or rescinded within 30 days after written notice.
(ix) The failure of the Company to file by February 28,
1998, a registration statement with the Securities and Exchange Commission
covering the resale of Common Stock issuable upon conversion of this Note.
(b) If an Event of Default described above has occurred, then the
Holder may, upon notice to the Company, declare the principal amount of this
Note at the time outstanding, together with accrued unpaid interest thereon, and
all other amounts payable under this Note to be forthwith due and payable,
whereupon such principal, interest and all such amounts shall become and be
forthwith due and payable.
(c) The Company covenants that in case the principal of, and
accrued interest on, the Note becomes due and payable by declaration or
otherwise, then the Company will pay in cash to the Holder of this Note, the
whole amount that then shall have become due and payable on this Note for
principal or interest, as the case may be, and in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including reasonable fees and disbursements of the Holder's legal counsel. In
case the Company shall fail forthwith to pay such amount, the Holder may
commence an action or proceeding at law or in equity for the collection of the
sums so due and unpaid, and may prosecute any such action or proceeding to
judgment
<PAGE> 7
or final decree against Company or other obligor upon this Note, wherever
situated, the monies adjudicated or decreed to be payable.
(d) In case any one or more of the Events of Default specified
above shall happen and be continuing, the Holder may proceed to protect and
enforce his or her right by suit in the specific performance of any covenant or
agreement contained in this Note or in aid of the exercise of any power granted
in this Note or may proceed to enforce the payment of this Note or to enforce
any other legal or equitable rights as such Holder may possess.
6. SUBORDINATION
The indebtedness evidenced by this Note is hereby
expressly subordinated, to the extent and in the manner hereinafter set forth,
in right of payment to the prior payment in full of all the Company's "Senior
Indebtedness" (as hereafter defined).
(a) SENIOR INDEBTEDNESS. As used in this Note, the term "Senior
Indebtedness" shall mean the principal of (and premium, if any) and interest, if
any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company to the extent that such
claim for post-petition interest is allowed in such proceeding), on, and all
fees and other amounts payable in connection with, the following, whether
absolute or contingent, secured or unsecured, due or to become due, outstanding
on the date hereof or thereafter created, incurred or assumed; (a) indebtedness
of the Company evidenced by credit or loan agreement, note, bond, debenture or
other written obligation in favor of a bank, finance company, insurance company
or other institutional lender, and (b) renewals, extensions, modifications,
replacements, restatements and refundings of, or any indebtedness or obligation
issued in exchange for, any such indebtedness or obligation described in clause
(a) of this paragraph; provided, however, that Senior Indebtedness shall not
include the Notes or any such indebtedness or obligation if the terms of such
indebtedness or obligation (or the terms of the instrument under which, or
pursuant to which it is issued) expressly provide that such indebtedness or
obligation is not superior in right of payment to the Notes.
(b) Insolvency Proceedings. If there shall occur any
receivership, insolvency assignment for the benefit of creditors (whether or not
pursuant to bankruptcy or other insolvency laws), sale of all or substantially
all of the assets, dissolution, liquidation, or any other marshaling of the
assets and liabilities of Company, (i) the holder(s) of Senior Indebtedness
shall be entitled to receive payment in full in cash of all Senior Indebtedness
(including any interest thereon accruing at the contract rate after the
commencement of any such proceedings, whether or not allowed as a claim in such
proceedings) then outstanding before Holder shall be entitled to receive any
payment or distribution, whether in cash, securities or other property, in
<PAGE> 8
respect of the principal of, interest on or other amounts due with respect to
this Note at the time outstanding, and (ii) any payment or distribution, whether
in cash, securities or other property, (other than securities of Company or any
other corporation provided for by a plan or reorganization or readjustment, the
payment of which is subordinated, at least to the extent provided in this
Section 6, to the payment of all Senior Indebtedness at the tie outstanding and
to any securities issued in respect thereof under any such plan of
reorganization or readjustment), which would otherwise (but for this Section 6)
be payable or deliverable in respect of the amounts due under this Note shall be
paid or delivered directly to the holder(s) of the Senior Indebtedness (ratably
according to the aggregate amounts remaining unpaid on account of the Senior
Indebtedness held by each) or to a trustee or other representative for holder(s)
of Senior Indebtedness.
(c) Permitted Payments Default on Senior Indebtedness.
Notwithstanding any provision to the contrary contained in this Note, so long as
there shall not have occurred and be continuing an event of default which has
been declared in writing, or is automatically effective in the case of
bankruptcy or insolvency events, with respect to any Senior Indebtedness (as
such event of default is defined therein or in the instrument under which it is
outstanding), which event of default permits the holder to accelerate the
maturity thereof (a "Senior Default"), Company shall be permitted to make, and
Holder to accept and receive, regularly scheduled payments of principal and
accrued interest under this Note. Notwithstanding anything to the contrary
contained in this Section 6, if there shall occur a Senior Default which has
been declared in writing with respect to any Senior Indebtedness and Holder
shall have received written notice thereof from the holder of such Senior
Indebtedness, then, unless and until such event of default shall have been cured
or waived or shall have ceased to exist, or all Senior Indebtedness shall have
been paid in full in cash, no payment shall be made in respect of the principal
or interest on or other amounts due with respect to this Note, unless within one
hundred eighty (180) days after the declaration of such Senior Default, the
maturity of such Senior Indebtedness shall not have been accelerated. Not more
than one notice may be given to Holder pursuant to the terms of this Section
7(b) during any 365 day period.
(d) Acceleration; Enforcement Rights. Holder, prior to the
payment in full of the Senior Indebtedness and while a Senior Default exists,
shall have no rights to accelerate the maturity of the amounts due under this
Note or otherwise demand payment thereof, enforce any claim with respect to the
amounts due under this Note, institute or attempt to institute any bankruptcy or
insolvency proceedings against Company or otherwise to take any action against
Company or Company's property without the prior written consent of each holder
of Senior Indebtedness.
(e) Turnover of Payments. Except for payments permitted under
Section 6(c), should any payment or distribution whether in cash, securities or
other property, be received by Holder upon or with respect to the amounts
payable under this Note by any means, including, without limitation, setoff,
prior to the payment in full in
<PAGE> 9
cash of the Senior Indebtedness, Holder shall receive and hold the same in
trust, as trustee, for the benefit of the Holder(s) of the Senior Indebtedness,
and shall forthwith deliver the same to the Holder(s) of the Senior Indebtedness
(ratably according to the aggregate amounts remaining unpaid on account of the
Senior Indebtedness held by each) or to a trustee or other representative for
holder(s) of Senior Indebtedness in precisely the form received for application
of the Senior Indebtedness (whether or not it is then due).
(f) Further Assurances. By acceptance of this Note, Holder agrees
to execute and deliver customary forms of subordination agreement requested from
time to time by holder(s) of Senior Indebtedness, and as a condition to Holder's
rights hereunder, Company may require that Holder execute such forms of
subordination agreement; provided that such forms shall not impose on Holder
terms less favorable than those provided herein.
(g) Other Indebtedness. No indebtedness which does not constitute
Senior Indebtedness shall be senior in any respect to the indebtedness
represented by this Note.
(h) Subrogation. Subject to the payment in full in cash of all
Senior Indebtedness and the termination of any commitments to lend under the
agreements or instruments governing such Senior Indebtedness, Holder shall be
subrogated to the rights of the holder(s) of such Senior Indebtedness (to the
extent of the payments or distributions made to the holder(s) of such Senior
Indebtedness pursuant to the provisions of this Section 6) to receive payments
and distributions of assets of Company applicable to the Senior Indebtedness. No
such payments or distributions applicable to the Senior Indebtedness shall, as
between Company and its creditors, other than the holder(s) of Senior
Indebtedness and Holder, be deemed to be a payment by Company to or on account
of this Note; and for purposes of such subrogation, no payments or distributions
to the holder(s) of Senior Indebtedness to which Holder would be entitled except
for the provisions of this Section 6 shall, as between Company and its
creditors, other than the holder(s) of Senior Indebtedness and Holder, be deemed
to be a payment by Company to or on account of the Senior Indebtedness.
(i) No Impairment. Subject to the rights, if any, of the
holder(s) of Senior Indebtedness under this Section 6 to receive cash,
securities or other properties otherwise payable or deliverable to Holder and
the other restrictions set forth in this Section 6, nothing contained in this
Section 6 shall impair, as between Company and Holder, the obligation of
Company, subject to the terms and conditions hereof, to pay to Holder the
principal hereof and interest hereon as and when the same become due and payable
or shall prevent Holder, upon the occurrence of an Event of Default hereunder
from exercising all rights, powers and remedies provided herein or by applicable
law.
<PAGE> 10
(j) Continuing Subordination. The subordination effected by these
provisions is a continuing subordination and may not be modified or terminated
by Holder until payment in full in cash of the Senior Indebtedness. At any time
and from time to time, without consent of or notice to Holder or any other
holder of Notes, and without impairing or affecting the obligations of Holder
hereunder; (i) the time for Company's performance of, or compliance with any
agreement relating to Senior Indebtedness may be modified or extended or such
performance may be waived; (ii) a holder of Senior Indebtedness may exercise or
refrain from exercising any rights under any agreement relating to the Senior
Indebtedness; (iii) any agreement relating to the Senior Indebtedness bay be
revised, amended or otherwise modified for the purpose of adding or changing any
provision thereof or changing in any manner the rights of Company, any holder of
Senior Indebtedness or any guarantor thereunder; (iv) payment of Senior
Indebtedness or any portion thereof may be accelerated or extended or refunded
or any instruments evidencing the Senior Indebtedness may be renewed in whole or
in part; (v) any Person liable in any manner for payment of the Senior
Indebtedness may be released by a holder of Senior Indebtedness; (vi) a holder
of Senior Indebtedness may make loans or otherwise extend credit to Company
whether or not any default or event of default exists with respect to such
Senior Indebtedness; and (vii) a holder of Senior Indebtedness may take an/or
release any Lien at any time on any collateral now or hereafter securing the
Senior Indebtedness and take or fail to take any action to perfect any Lien at
any time granted therefor, and take or fail to take any action to enforce such
Liens. Notwithstanding the occurrence of any of the foregoing, these
subordination provisions shall remain in full force and effect with respect to
the Senior Indebtedness, as the same may have been modified, extended, renewed
or refunded. Holder has established adequate, independent means of obtaining
from Company on a continuing basis financial and other information pertaining to
Company's financial condition.
(k) Holder's Waivers. Holder hereby expressly waives for the
benefit of the holder(s) of Senior Indebtedness (i) all notices not specifically
required pursuant to the terms of this Note whatsoever, including without
limitation any notice of the incurrence of Senior Indebtedness; (ii) any claim
which Holder may now or hereafter have against a holder of Senior Indebtedness
arising out of any and all actions which a holder of Senior Indebtedness in good
faith, takes or omits to take with respect to the Senior Indebtedness
(including, without limitation, (A) actions with respect to the creation,
perfection or continuation of Liens in or on any collateral security for the
Senior Indebtedness, (B) actions with respect tot eh occurrence of an event of
default under any Senior Indebtedness, (C) actions with respect to the
foreclosure upon, sale, release, or depreciation of, or failure to realize upon,
any of the collateral security for the Senior Indebtedness and (D) actions with
respect to the collection of any claim for all or any part of the Senior
Indebtedness or the valuation, use, protection or release of any collateral
security for the Senior Indebtedness); and (iii) any right to require holders of
Senior Indebtedness to exhaust any collateral or marshall any assets.
<PAGE> 11
(l) Reliance of Holder(s) of Senior Indebtedness. Holder, by its
acceptance hereof, shall be deemed to acknowledge and agree that the foregoing
subordination provisions are, and are intended to be, an inducement to and a
consideration of each holder of Senior Indebtedness, whether such Senior
Indebtedness was created or acquired before or after the creation of the
indebtedness evidenced by this Note, and each such holder of Senior Indebtedness
shall be deemed conclusively to have relied on such subordination provisions
acquiring and holding or continuing to hold, such Senior Indebtedness.
6 MISCELLANEOUS
(a) This Note has been issued by the Company pursuant to
authorization of the Board of Directors of the Company.
(b) The Company may consider and treat the entity in whose
name this Note shall be registered as the absolute owner thereof for all
purposes whatsoever (whether or not this Note shall be overdue) and the Company
shall not be affected by any notice to the contrary. Subject to the limitations
herein stated, the registered owner of this Note shall have the right to
transfer this Note by assignment, and the transferee thereof shall, upon his
registration as owner of this Note, become vested with all the powers and rights
of the transferor. Registration of any new owners shall take place upon
presentation of this Note to the Company at its principal offices, together with
a duly authenticated assignment. In case of transfer by operation of law, the
transferee agrees to notify the Company of such transfer and of his address, and
to submit appropriate evidence regarding the transfer so that this Note may be
registered in the name of the transferee. This Note is transferable only on the
books of the Company by the holder hereof, in person or by attorney, on the
surrender hereof, duly endorsed. Communications sent to any registered owner
shall be effective as against all holders or transferees of the Note not
registered at the time of sending the communication.
(c) Payments of principal and interest shall be made as
specified above to the registered owner of this Note. No interest shall be due
on this Note for such period of time that may elapse between the maturity of
this Note and its presentation for payment.
(d) The Holder shall not, by virtue, hereof, be entitled
to any rights of a shareholder in the Company, whether at law or in equity, and
the rights of the Holder are limited to those expressed in this Note.
(e) Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Note,
and (in the case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Note, if mutilated,
the Company shall execute and deliver a new Note of like tenor and date. Any
such new Note executed and delivered
<PAGE> 12
shall constitute an additional contractual obligation on the part of the
Company, whether or not this Note so lost, stolen, destroyed or mutilated shall
be at any time enforceable by anyone.
(f) This Note shall be construed and enforced in
accordance with the laws of the State of New York. The parties hereto consent to
the jurisdiction of the courts of the State of New York and the United States
District Court for the Southern District of New York in connection with any
action or proceeding arising out of or relating to this Agreement. If any one or
more of the provisions contained in this Note shall, for any reason, be held to
be invalid, illegal or unenforceable in any respect, then and in that event, to
the maximum extent permitted by law, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement or any
other such instrument.
(g) The Company shall pay all reasonable costs and
expenses incurred by Holder to enforce any of the provisions of this Agreement,
including reasonable attorneys' fees and other expenses of collection of the
Note.
(h) No recourse shall be had for the payment of the
principal or interest of this Note against any incorporator or any past, present
or future stockholder, officer, director, agent or attorney of the Company, or
of any successor corporation, either directly or through the Company or any
successor corporation, otherwise, all such liability of the incorporators,
stockholders, officers, directors, attorneys and agents being waived, released
and surrendered by the Holder hereof by the acceptance of this Note.
(i) This Note may be amended by a writing signed by the
Company and the Holder or by the Company and the holders of a majority of the
outstanding principal amount of the Notes; provided that the principal amount,
interest rate, terms of payment and the maturity of this Note may not be amended
except with the written consent of Holder.
IN WITNESS WHEREOF, COMPRESSENT CORPORATION has caused this Note
to be signed in its name by its President.
COMPRESSENT CORPORATION
By:
Abe Ostrovsky, Chief Executive Officer
<PAGE> 13
CONVERSION FORM
Compressent Corporation:
The undersigned hereby irrevocably elects to exercise the right
of conversion of the principal of an accrued interest on this Note, and to
accept hereunder, shares of Common Stock, $.001 par value per share, of
Compressent Corporation (the "Shares") provided for herein, and requests that
certificates for the Shares be issued in the name of:
(Please print name, address and social security number) and that the
certificate representing the Shares be delivered to the address stated below.
Dated:____________________________ , 1997
Name of Noteholder or Assignee:_______________________
(Please print)
Address:_____________________
Signature:___________________
Note:The above signature
must correspond with the name as it appears
upon the front page of this Warrant in every
particular, without alteration or
enlargement or any change whatever, unless
this Warrant has been assigned.
<PAGE> 1
Exhibit 10.7(b)
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER
SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE TERMS AND CONDITIONS OF A ROYALTY AND CONSULTING AGREEMENT AND A
REGISTRATION RIGHTS AGREEMENT BY AND BETWEEN THE HOLDER AND THE CORPORATION.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY
OF THE CORPORATION.
No.: W-Cert. #~ Void after
September 12, 2002
COMPRESSENT CORPORATION
COMMON STOCK PURCHASE WARRANT
Issued September 12, 1997
This Warrant is issued, for good and valuable consideration, receipt of
which is hereby acknowledged, to Name~ (the "Holder") by Compressent
Corporation, a Florida corporation (the "Company").
1. Purchase of Shares. Subject to the terms and conditions hereinafter set
forth, the Holder is entitled, upon surrender of this Warrant to the Company, to
purchase from the Company # shares~ fully paid and non-assessable shares of the
Company's Common Stock (the "Shares").
2. Purchase Price. The purchase price per share for the Shares shall be $10.00
(the "Warrant Price").
3. Exercise Period. This Warrant is exercisable at any time before the close
of business on September 12, 2002 (the "Exercise Period"). Notwithstanding the
foregoing, the Exercise Period shall terminate and this Warrant shall cease to
be exercisable upon the merger, sale of all or substantially all of the assets
of the Company, or other corporate transaction, as a result of which the
shareholders of the Company as of immediately prior to the consummation of such
transaction do not hold a majority of the voting power of the shareholders of
the resulting entity as of immediately subsequent to the consummation of such
transaction (a "Major Transaction"). The Company shall give the Holder at least
twenty (20) days' prior written notice of the closing of any such Major
Transaction.
<PAGE> 2
4. Method of Exercise. The Holder may exercise this Warrant, in whole or in
part, at any time, or from time to time, during the Exercise Period. Each such
exercise shall be effected by the surrender of this Warrant to the Chief
Financial Officer of the Company at its principal offices, together with the
payment to the Company (i) in cash, by check or by wire transfer to an account
designated by the Company, (ii) by cancellation by the Holder of any
then-outstanding indebtedness of the Company to the Holder, or (iii) by a
combination of (i) and (ii) of an amount equal to the aggregate purchase price
for the number of Shares being purchased. On or prior to the date of each such
exercise, Holder shall deliver to the Chief Financial Officer of the Company:
(a) a Notice of Exercise in the form attached hereto as Exhibit 1 duly executed
by the Holder, and (b) unless a registration statement under the Securities Act
of 1933 shall be in effect with respect to the Shares, an Investment
Representation Statement in the form attached hereto as Exhibit 2 duly executed
by the Holder.
5. Net Issue Exercise. In lieu of the payment methods set forth in Section 4
above, immediately prior to the closing of a Major Transaction, the Holder may
elect to exchange all or a portion of this Warrant for Shares equal to the value
of the amount of the Warrant being exchanged on the date of exchange. If the
Holder elects to exchange this Warrant as provided in this Section 5, the Holder
shall tender to the Company the Warrant for the amount being exchanged, along
with written notice of the Holder's election to exchange some or all of the
Warrant, and the Company shall issue to the Holder the number of Shares computed
using the following formula:
X = Y (A-B)
------
A
Where X = the number of Shares to be issued to the Holder.
Y = the number of Shares purchasable under the amount of the
Warrant being exchanged (as adjusted to the date of such
calculation).
A = the Fair Market Value of a Share.
B = the Purchase Price (as adjusted to the date of such
calculation).
All references herein to an "exercise" of the Warrant shall include an
exchange pursuant to this Section 5. In the event the Holder elects to exercise
this Warrant pursuant to this Section 5 in connection with a Major Transaction,
Market Value of a Share shall be determined by dividing the fair market value of
the aggregate consideration to be paid to the holders of Common Stock of the
Company (as determined by the Board of Directors, acting in good faith) by the
aggregate number of shares of the Company's capital Common Stock outstanding
immediately prior to the consummation of such Major Transaction which shall be
deemed to
<PAGE> 3
include the number of shares of Common Stock to be issued upon the exercise of
this Warrant pursuant to this Section 5.
6. Adjustments for Stock Splits, Etc. In the event of any stock split, stock
dividend, or combination with respect to the Common Stock of the Company, the
number of Shares of Common Stock subject to this Warrant and the Warrant Price
shall be appropriately adjusted.
7. Reservation of Shares. The Company covenants that it will at all times keep
available such number of authorized shares of its Common Stock sufficient to
permit the exercise of this Warrant for the full number of Shares specified
herein.
8. Restrictions on Transfer. Holder shall not, without the prior written consent
of the Company, sell, transfer, give, pledge, hypothecate, or otherwise dispose
of any interest in this Warrant or the Shares until the earlier of (a) the
occurrence of a Major Transaction, or (b) the fifth anniversary of the Effective
Date. Notwithstanding the foregoing, Holder may transfer without consideration
for estate planning purposes, all or a portion of the Warrant and/or Shares, to
his parents, siblings, spouse, or children, or to a trustee for the benefit of
one or more of such persons, (each, an "Estate Transferee"); provided, that each
such Estate Transferee shall have agreed in writing to be bound by the terms and
conditions of this Warrant.
9. Restricted Securities. The Holder understands that this Warrant and the
Shares issuable hereunder constitute "restricted securities" under the federal
securities laws inasmuch as they are being, or will be, acquired from the
Company in transactions not involving a public offering and accordingly may not,
under such laws and applicable regulations, be resold or transferred without
registration under the Securities Act of 1933 or an applicable exemption from
registration. In this connection, the Holder acknowledges that Rule 144 of the
Securities and Exchange Commission is not now, and may not in the future be,
available for resale of the Warrant or the Shares. Therefore, The Holder agrees
not to make any disposition of all or any portion of the Warrant or the Shares
unless: (i) There is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; (ii) Such disposition is made in conformity
with the requirement of Rule 144; (iii) The Holder has furnished the Company
with an opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such Shares under the Act, or (iv)
An authorized representative of the Securities and Exchange Commission (the
"SEC") shall have rendered written advice to the Holder to the effect that the
SEC would take no action, or that the staff of the SEC would not recommend that
the SEC take action, with respect to such disposition, and a copy of such
written advice shall have been delivered to the Company.
The Holder further acknowledges that the Warrant and the Shares shall bear the
following legends:
(i) THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
<PAGE> 4
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS
SOLD PURSUANT TO RULE 144 OF SUCH ACT OR OTHERWISE IN ACCORDANCE WITH THE TERMS
OF AGREEMENTS AMONG THE COMPANY AND THE REGISTERED HOLDER HEREOF. COPIES OF SUCH
AGREEMENTS MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE
CORPORATION.
(ii) Any legend required by the blue sky laws of the State of
California or any other applicable state.
10. No Shareholder Rights. Prior to exercise of this Warrant, the Holder shall
not enjoy the rights of a shareholder of the Company with respect to the shares
subject to this Warrant.
11. Counterparts. For the convenience of the parties, any number of counterparts
of this Warrant may be executed by the parties hereto and each such executed
counterpart shall be, and shall be deemed to be, an original instrument.
12. Governing Law. This Warrant shall be governed by the laws of the State of
California as applied to agreements among California residents entered into and
to be performed entirely within California.
COMPRESSENT CORPORATION
Abe Ostrovsky, Chief Executive Officer
ACCEPTED AND AGREED:
NAME~
By:
Name:
Title:
<PAGE> 5
EXHIBIT 1
NOTICE OF EXERCISE
(TO BE EXECUTED UPON EXERCISE OF WARRANT)
COMPRESSENT CORPORATION
The undersigned hereby irrevocably elects to exercise the Warrant for
shares of capital stock, as provided for therein, and (check the applicable
box):
Tenders payment of the purchase price in the form of cash,
by check or wire transfer, in the amount of $__________________
for _______ shares of Common Stock.
Elects the Net Issue Exercise option pursuant to Section 5 of the
Warrant.
The undersigned hereby affirms the statements and covenants in the
Warrant. Please issue a certificate or certificates for such shares in the name
of:
(Please sign and print name, title and taxpayer identification number)
Name~
__________________________________
__________________________________
(Address)
By:
Name:
Title:
Taxpayer Identification Number:
Note: The above signature should correspond exactly with the name on the first
page of this Warrant.
If said number of shares shall not be all the shares purchasable under
the within Warrant, a new Warrant is to be issued in the name of the Holder for
the balance remaining of the shares purchasable thereunder.
<PAGE> 6
EXHIBIT 2
INVESTMENT REPRESENTATION STATEMENT
_________ Shares of Common Stock of Compressent Corporation
In connection with the purchase of the above-listed securities the
undersigned hereby represents to Compressent Corporation (the "Company") as
follows:
Investment Representation.
(a) The shares to be received by the undersigned upon the exercise of
the Warrant (the "Securities") are being acquired by the undersigned for
investment for his own account, not as a nominee or agent, and not with a view
to the sale or distribution of any part thereof, and the undersigned has no
present intention of selling, or otherwise distributing the same. By executing
this Statement, the undersigned further represents that he does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer, or grant participation to such person or to any third person, with
respect to any of the Securities.
(b) The undersigned understands that the Securities have not been
registered under the Securities Act of 1933, as amended (the "Act"), or
applicable state securities laws, on the ground that the issuance of the
Securities is exempt pursuant to Section 4(2) of the Act and state law
exemptions relating to offers and sales not by means of a public offering, and
that the Company's reliance on such exemptions is predicated on the
undersigned's representations set forth herein.
(c) The undersigned agrees that in no event will he make a disposition
of any of the Securities unless and until (i) he shall have notified the Company
of the proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the proposed disposition, and (ii) he
shall have furnished the Company with an opinion of counsel satisfactory to the
Company and the Company's counsel to the effect that (A) appropriate action
necessary for compliance with the Act and any applicable state securities laws
has been taken or an exemption from the registration requirements of the Act and
such laws is available, and (B) that the proposed transfer will not violate any
of said laws.
(d) The undersigned represents that he is able to fend for himself in
the transactions contemplated by this Statement, has together with his
professional advisors who are not affiliated with Equilibrium such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its investments, and has the ability to bear the economic
risks (including the risk of a total loss) of its investment. The undersigned
represents
<PAGE> 7
that he has had the opportunity to ask questions of the Company
concerning the Company's business and assets and to obtain any additional
information which he considered necessary to verify the accuracy of the
information provided to him, and has had all questions which have been asked by
him satisfactorily answered by the Company.
(e) The undersigned acknowledges that the Securities issuable upon
exercise of the Warrant must be held indefinitely unless subsequently registered
under the Act or an exemption from such
<PAGE> 8
registration is available, except as provided otherwise herein. The undersigned
is aware of the provisions of Rule 144 promulgated under the Act which permit
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, the existence
of a public market for the shares, the availability of certain current public
information about the Company, the resale occurring not less than two years
after a party has purchased and paid for the security to be sold, the sale being
through a "broker's transaction" or in transactions directly with a "market
maker" (as provided by Rule 144(f)) and the number of shares being sold during
any three-month period not exceeding specified limitations. The undersigned is
aware that the conditions for resale set forth in Rule 144 have not been
satisfied.
Dated:
NAME~
By:
Name:
Title:
<PAGE> 1
EXHIBIT 10.7(c)
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
BETWEEN
KINGSBRIDGE CAPITAL LIMITED
AND
COMPRESSENT CORPORATION
Dated as of December 3, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I Certain Definitions..........................................................2
Section 1.1 "Bid Price".....................................................2
Section 1.2 "Call"..........................................................2
Section 1.3 "Call Shares"...................................................2
Section 1.4 "Capital Shares"................................................2
Section 1.5 "Ceiling Price".................................................2
Section 1.6 "Closing".......................................................3
Section 1.7 "Closing Date"..................................................3
Section 1.8 "Commitment Amount".............................................3
Section 1.9 "Commitment Period".............................................3
Section 1.10 "Common Stock"..................................................3
Section 1.11 "Common Stock Equivalents"......................................3
Section 1.12 "Effective Date"................................................4
Section 1.13 "Equity Credit".................................................4
Section 1.14 "Exchange Act"..................................................4
Section 1.15 "Investment Amount".............................................4
Section 1.16 "Market Price"..................................................4
Section 1.17 "Material Adverse Effect".......................................4
Section 1.18 "Optional Purchase Date"........................................5
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 1.19 "Optional Purchase Notice"......................................5
Section 1.20 "Outstanding"...................................................5
Section 1.21 "Person"........................................................5
Section 1.22 "Principal Market"..............................................5
Section 1.23 "Purchase Price"................................................5
Section 1.24 "Registrable Securities"........................................6
Section 1.25 "Registration Rights Agreement".................................6
Section 1.26 "Registration, Statement".......................................6
Section 1.27 "Regulation D"..................................................7
Section 1.28 "SEC"...........................................................7
Section 1.29 "Section 4(2)"..................................................7
Section 1.30 "Securities Act"................................................7
Section 1.31 "SEC Documents".................................................7
Section 1.32 "Subscription Date".............................................7
Section 1.33 "Trading Cushion"...............................................7
Section 1.34 "Trading Day" ..................................................7
Section 1.35 "Valuation Event"...............................................8
Section 1.36 "Valuation Period"..............................................9
Section 1.37 "Warrant".......................................................9
Section 1.38 "Warrant Shares"................................................9
ARTICLE II Purchase and Sale of Common Stock..............................10
Section 2.1 Investments....................................................10
Section 2.2 Mechanics......................................................11
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 2.3 Closings..........................................................11
Section 2.4 Adjustment Period.................................................12
Section 2.5 Termination of Investment Obligation..............................13
Section 2.6 Commitment Fee....................................................14
ARTICLE III Conditions to Delivery of Optional
Purchase Notices and Conditions to Closing....................................14
Section 3.1 Conditions Precedent to the Obligation of the
Company to Issue and Sell Common Stock...........................14
Section 3.2 Conditions Precedent to the Right of the
Company to Deliver an Optional Purchase
Notice and the Obligation of the Investor to
Purchase Call Shares.............................................15
Section 3.3 Due Diligence Review and Non-Disclosure of Non-
Public Information...............................................20
ARTICLE IV Representations and Warranties of Investor.........................22
Section 4.1 Intent...........................................................22
Section 4.2 Sophisticated Investor...........................................23
Section 4.3 Authority........................................................23
Section 4.4 Not an Affiliate.................................................23
Section 4.5 Organization and Standing........................................23
Section 4.6 Absence of Conflicts.............................................23
Section 4.7 Disclosure; Access to Information................................24
Section 4.8 Manner Of Sale...................................................24
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE V Representations and Warranties of the Company...............24
Section 5.1 Common Stock................................................24
Section 5.2 SEC Documents...............................................25
Section 5.3 No General Solicitation or Advertising in
Regard to this Transaction..................................26
Section 5.4 Capitalization..............................................26
Section 5.5 Valid Issuances.............................................28
Section 5.6 Organization and Qualification..............................28
Section 5.7 Authorization; Enforcement..................................29
Section 5.8 Corporate Documents.........................................29
Section 5.9 No Conflicts................................................29
Section 5.10 No Material Adverse Change..................................31
Section 5.11 No Undisclosed Liabilities..................................31
Section 5.12 No Undisclosed Events or Circumstances......................31
Section 5.13 No Integrated Offering......................................32
Section 5.14 Litigation and Other Proceedings............................32
Section 5.15 No Misleading or Untrue Communication.......................32
Section 5.16 Non-Public Information......................................33
Section 5.17 Broker-Dealer Status........................................33
ARTICLE VI Covenants of the Company ...................................33
Section 6.1 Registration Rights .........................................33
Section 6.2 Reservation of Common Stock .................................33
Section 6.3 Listing of Common Stock .....................................34
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
Section 6.4 Exchange Act Registration.....................................34
Section 6.5 Legends.......................................................35
Section 6.6 Corporate Existence...........................................35
Section 6.7 Additional SEC Documents......................................35
Section 6.8 "Blackout Period".............................................35
Section 6.9 Expectations Regarding Optional Purchase Notices..............36
Section 6.10 Consolidation; Merger.........................................37
Section 6.11 Issuance of Call Shares and Warrant Shares....................37
ARTICLE VII Covenants of the Investor ..............................................37
Section 7.1 ................................................................38
Section 7.2 ................................................................38
ARTICLE VIII Legends ................................................................38
Section 8.1 Legends.........................................................38
Section 8.2 No Other Legend or Stock Transfer Restrictions..................40
Section 8.3 Investor's Compliance...........................................41
ARTICLE IX Adjustments.............................................................41
Section 9.1 Adjustment of the Ceiling Price.................................41
Section 9.2 Notice of Adjustments...........................................51
ARTICLE X Choice of Law ..........................................................51
Section 10.1 Choice of Law .................................................51
</TABLE>
v
<PAGE> 7
<TABLE>
<S> <C>
ARTICLE XI Assignment; Entire Agreement, Amendment, Termination.....................51
Section 11.1 Assignment.....................................................52
Section 11.2 Termination....................................................52
Section 11.3 Entire Agreement, Amendment....................................52
ARTICLE XII Notices; Indemnification.................................................52
Section 12.1 Notices.......................................................53
Section 12.2 Indemnification...............................................54
Section 12.3 Method of Asserting Indemnification Claims....................55
ARTICLE XIII Miscellaneous............................................................62
Section 13.1 Counterparts..................................................62
Section 13.2 Entire Agreement..............................................62
Section 13.3 Survival; Severability........................................62
Section 13.4 Title and Subtitles...........................................63
Section 13.5 Reporting Entity for the Common Stock.........................63
</TABLE>
EXHIBITS
EXHIBIT A Form of Warrant
EXHIBIT B Form of Opinion of the Company's Independent Counsel
EXHIBIT C Form Certificate of Executive Officer of the Company
EXHIBIT D Form of Transfer Agent Instructions
EXHIBIT E Form of Adjustment Period Notice
vi
<PAGE> 8
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
Between
KINGSBRIDGE CAPITAL LIMITED
And
COMPRESSENT CORPORATION
Dated as of December 3, 1997
PRIVATE EQUITY LINE OF CREDIT AGREEMENT dated as of December 3, 1997
(the "Agreement"), between Kingsbridge Capital Limited (the "Investor"), an
entity organized and existing under the laws of the British Virgin Islands, and
Compressent Corporation. a corporation organized and existing under the laws of
the State of Florida (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase, up to
$10,000,000 of the Common Stock; and
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United
States Securities Act of 1933, as amended (the "Securities Act"), and/or upon
such other exemption from the registration requirements of the Securities Act as
may be available with respect to any or all of the investments in Common Stock
to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
<PAGE> 9
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 "Bid Price" shall mean the closing bid price (as reported by
Bloomberg L.P.) of the Common Stock on the Principal Market.
Section 1.2 "Call" shall mean each occasion the Company elects to
exercise its right to tender an Optional Purchase Notice requiring the Investor
to purchase a discretionary amount of the Company's Common Stock, subject to the
terms of this Agreement.
Section 1.3 "Call Shares" shall mean all shares of Common Stock issued
or issuable pursuant to a Call that has occurred or may occur in accordance with
the terms and conditions of this Agreement.
Section 1.4 "Capital Shares" shall mean the Common Stock and any shares
of any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of the
Company with the exception of except for any common stock issued pursuant (i) to
warrants, stock options, and convertible securities outstanding and described in
the SEC Documents on file with the Commission as of the date of this Agreement
(ii) an offering of up to $3 million of Convertible Subordinated Notes
convertible into Common Stock at between $7 and $10 per share, or (iii) pursuant
to an Employee Stock Purchase Plan qualified under Section 423 of the Internal
Revenue Code.
Section 1.5 "Ceiling Price" shall mean one-hundred and fifty percent
(150%) of the Market Price with respect to the Call Shares as of the Effective
Date.
2
<PAGE> 10
Section 1.6 "Closing" shall mean one of the closings of a purchase and
sale of the Common Stock pursuant to Section 2.1.
Section 1.7 "Closing Date" shall mean, with respect to a Closing, the
third Trading Day following the Optional Purchase Date related to such Closing,
provided all conditions to such Closing have been satisfied on or before such
Trading Day.
Section 1.8 "Commitment Amount" shall mean the $10,000,000 up to which
the Investor has agreed to provide to the Company in order to purchase Call
Shares pursuant to the terms and conditions of this Agreement.
Section 1.9 "Commitment Period" shall mean the period commencing on the
earlier to occur of (i) the Effective Date or (ii) such earlier date as the
Company and the Investor may mutually agree in writing, and expiring on the
earlier to occur of (x) the date on which the Investor shall have purchased Call
Shares pursuant to this Agreement for an aggregate Purchase Price of
$10,000,000, (y) the date this Agreement is terminated pursuant to Section
2.5(b), or (z) the date occurring eighteen months from the date of commencement
of the Commitment Period.
Section 1.10 "Common Stock" shall mean the Company's common stock, par
value $.001 per share.
Section 1.11 "Common Stock Equivalents" shall mean any securities that
are convertible into or exchangeable for Common Stock or any warrants, options
or other rights to subscribe for or purchase Common Stock or any such
convertible or exchangeable securities.
3
<PAGE> 11
Section 1.12 "Effective Date" shall mean the date on which the
Securities Exchange Commission first declares effective a Registration Statement
registering resale of the Registrable Securities as set forth in Section 3.2(a).
Section 1.13 "Equity Credit." See Section 2.1(a)(2).
Section 1.14 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
Section 1.15 "Investment Amount" shall mean the dollar amount (within
the range specified in Section 2.2) to be invested by the Investor to purchase
Call Shares with respect to any Optional Purchase Date as notified by the
Company to the Investor in accordance with Section 2.2 hereof.
Section 1.16 "Legend." See Section 8.1.
Section 1.17 "Market Price" on any given date shall mean the average of
the lowest intra-day prices of the Common Stock over the Valuation Period.
"Lowest intraday price" shall mean the lowest price of the Common Stock (as
reported by Bloomberg L.P.) during any Trading Day.
Section 1.18 "Material Adverse Effect" shall mean any effect on the
business, operations, properties, prospects, or financial condition of the
Company that is material and adverse to the Company or to the Company and such
other entities controlling or controlled by the Company, taken as a whole,
and/or any condition, circumstance, or situation that would prohibit or
otherwise interfere with the ability of the Company to enter, into and perform
its obligations under any of (a) this Agreement, (b) the Registration Rights
Agreement, and (c) the Warrant.
4
<PAGE> 12
Section 1.19 "Optional Purchase Date" shall mean the Trading Day during
the Commitment Period that an Optional Purchase Notice to sell Common Stock to
the Investor is deemed delivered pursuant to Section 2.2(b) hereof.
Section 1.20 "Optional Purchase Notice" shall mean a written notice to
the Investor setting forth the Investment Amount that the Company intends to
sell to the Investor.
Section 1.21 "Outstanding" when used with reference to Common Shares or
Capital Shares (collectively the "Shares"), shall mean, at any date as of which
the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not mean any such Shares then
directly or indirectly owned or held by or for the account of the Company.
Section 1.22 "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.23 "Principal Market" shall mean the Nasdaq National Market,
the Nasdaq Small-Cap Market, the American Stock Exchange or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock.
Section 1.24 "Purchase Price" shall mean the lesser of (i) eighty-eight
percent (88%) (the "Purchase Price Percentage") of the Market Price upon an
Optional Purchase
5
<PAGE> 13
Date (or such other date on which the Purchase Price is calculated in accordance
with the terms and conditions of this Agreement) and (ii) the Ceiling Price.
Section 1.25 "Registrable Securities" shall mean the Call Shares and the
Warrant Shares until (i) the Registration Statement has been declared effective
by the SEC and all Call Shares and Warrant Shares have been disposed of pursuant
to the Registration Statement, (ii) all Call Shares and Warrant Shares have been
sold under circumstances under which all of the applicable conditions of Rule
144 (or any similar provision then in force) under the Securities Act ("Rule
144") are met, (iii) all Call Shares and Warrant Shares have been otherwise
transferred to holders who may trade such shares without restriction under the
Securities Act, and the Company has delivered a new certificate or other
evidence of ownership for such securities not bearing a restrictive legend or
(iv) such time as, in the opinion of counsel to the Company, which counsel shall
be reasonably acceptable to the Investor, all Call Shares and Warrant Shares may
be sold without any time, volume or manner limitations pursuant to Rule 144(k)
(or any similar provision then in effect) under the Securities Act.
Section 1.26 "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investor on the
Subscription Date.
Section 1.27 "Registration Statement" shall mean a registration statement
on Form S-3 (if use of such form is then available to the Company pursuant to
the rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate and which form
6
<PAGE> 14
shall be available for the resale of the Registrable Securities to be
registered thereunder in accordance with the provisions of this Agreement, the
Registration Rights Agreement, and the Warrant and in accordance with the
intended method of distribution of such securities), for the registration of the
resale by the Investor of the Registrable Securities under the Securities Act.
Section 1.28 "Regulation D" shall mean Regulation D of the Securities
Act.
Section 1.29 "SEC" shall mean the Securities and Exchange Commission
("SEC").
Section 1.30 "Section 4(2)" shall mean Section 4(2) of the Securities
Act.
Section 1.31 "Securities Act" shall have the definition ascribed to it
in the recitals hereof.
Section 1.32 "SEC Documents" shall mean the Company's latest Form 10-K
as of the time in question, all Forms 10-Q and 8-K filed thereafter, and the
Proxy Statement for its latest fiscal year as of the time in question until such
time the Company no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights Agreement.
Section 1.33 "Subscription Date" shall mean the date in which this
Agreement is executed.
Section 1.34 "Trading Cushion" shall mean the mandatory twenty (20)
Trading Days between Optional Purchase Dates.
Section 1.35 "Trading Day" shall mean any day during which the New York
Stock Exchange shall be open for business.
7
<PAGE> 15
Section 1.36 "Valuation Event" shall mean an event in which the Company
at any time during a Valuation Period takes any of the following actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend in its Capital Stock or makes any other
distribution of its Capital Shares;
(c) issues any additional Capital Shares ("Additional Capital
Shares"), otherwise than as provided in the foregoing Subsections (a) and (b)
above, at a price per share less, or for other consideration lower, than the Bid
Price in effect immediately prior to such issuance, or without consideration;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Bid Price in
effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable for
Capital Shares and the consideration per share for which Additional Capital
Shares may at any time thereafter be issuable pursuant to the terms of such
convertible or exchangeable securities shall be less than the Bid Price in
effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of indebtedness
to the holders of its Capital Shares as a dividend in liquidation or by way of
return of capital or other than as a dividend payable out of earnings or surplus
legally available for dividends under applicable law or any distribution to such
holders made in respect of the
8
<PAGE> 16
sale of all or substantially all of the Company's assets (other than under the
circumstances provided for in the foregoing subsections (a) through (e); or
(g) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing Subsections (a)
through (f) hereof, inclusive, which in the opinion of the Company's Board of
Directors, determined in good faith, would have a materially adverse effect upon
the rights of the Investor at the time of a Call or exercise of the Warrant.
Section 1.37 "Valuation Period" shall mean the period of five Trading
Days during which the Purchase Price of the Common Stock is valued, which period
shall be (i) with respect to the Purchase Price on any Optional Purchase Date,
the two Trading Days preceding and the two Trading Days following the Trading
Day on which an Optional Purchase Notice is deemed to be delivered, as well as
the Trading Day on which such notice is deemed to be delivered; and (ii) with
respect to the Exercise Price of Warrant Shares, the two Trading Days preceding
and the two Trading Days following the Subscription Date, as well as the
Subscription Date; provided, however, that if a Valuation Event occurs during
any Valuation Period, a new Valuation Period shall begin on the Trading Day
immediately after the occurrence of such Valuation Event and end on the fifth
Trading Day thereafter.
Section 1.38 "Warrant". See Section 2.6.
Section 1.39 "Warrant Shares" shall mean all shares of Common Stock
issued or issuable pursuant to exercise of the Warrant.
9
<PAGE> 17
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 Investments.
(a) Calls. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article III hereof), on any
Optional Purchase Date the Company may make a Call by the delivery of an
Optional Purchase Notice. The number of Call Shares that the Investor shall
receive pursuant to such Call shall be determined by dividing the Investment
Amount specified in the Optional Purchase Notice by the Purchase Price on such
Optional Purchase Date.
(b) Minimum Amount of Calls. The Company shall, in accordance with
Section 2.2(a), issue and sell Call Shares to the Investor totaling (in
aggregate Purchase Prices) at least $1,000,000. If the Company for any reason
fails to issue and deliver such Call Shares during the Commitment Period, on
the, first Trading Day after the expiration of the Commitment Period, the
Company shall deliver to Investor a sum in cash equal to the greater of:
1. ($1,000,000 minus the aggregate Investment Amounts of the Call
Shares delivered hereunder) X $0.12; and
2. ($1,000,000 minus the aggregate Investment Amounts of the Call
Shares delivered hereunder) X (the Bid Price on the last Trading Day of the
Commitment Period minus the Ceiling Price).
10
<PAGE> 18
(c) Maximum Amount of Calls. Unless the Company obtains Shareholder
approval to the Agreement, no more than 1,008,000 shares of Common Stock may be
issued and sold pursuant to Calls.
Section 2.2 Mechanics.
Optional Purchase Notice. At any time during the Commitment Period, the
Company may deliver an Optional Purchase Notice to the Investor, subject to the
conditions set forth in Section 3.2; provided, however, the Investment Amount
for each Call as designated by the Company in the applicable Optional Purchase
Notice shall be neither less than $300,000 nor more than $1,000,000.
Date of Delivery of Optional Purchase Notice. An Optional Purchase
Notice shall be deemed delivered on (i) the Trading Day it is received by
facsimile or otherwise by the Investor if such notice is received prior to 12:00
noon New York time, or (ii) the immediately succeeding Trading Day if it is
received by facsimile or otherwise after 12:00 noon New York time on a Trading
Day or at any time on a day which is not a Trading Day. No Optional Purchase
Notice may be deemed delivered, on a day that is not a Trading Day.
Section 2.3 Closings. On each Closing Date for a Call the Company shall
deliver to the Investor one or more certificates, at the Investor's option,
representing the Call Shares to be purchased by the Investor pursuant to Section
2.1 herein, registered in the name of the Investor or, at the Investor's option,
deposit such certificate(s) into such account or accounts previously designated
by the Investor and (ii) the Investor shall deliver to escrow the Investment
Amount specified in the Optional Purchase Notice by
11
<PAGE> 19
wire transfer of immediately available funds to an account designated by the
Company on or before the Closing Date. In addition, on or prior to the Closing
Date, each of the Company and the Investor shall deliver all documents,
instruments and writings required to be delivered or reasonably requested by
either of them pursuant to this Agreement in order to implement and effect the
transactions contemplated herein. Payment of funds to the Company and delivery
of the certificates to the Investor shall occur out of escrow immediately
following the latter of the Company's deposit of the certificates representing
the Call Shares and the Investor's deposit of the Investment Amount.
Section 2.4 Adjustment Period.
The Adjustment Period Notice. Provided the Company gives the Investor at
least twenty-one (21) days' advance notice in the form of Exhibit E hereto, the
Company may initiate an Adjustment Period (the "Adjustment Period" as defined
below). The Company shall be permitted to deliver such Adjustment Period Notice
only in the case the Company in good faith anticipates executing a merger or
acquisition agreement within ninety (90) days of the giving of such Adjustment
Period Notice and the giving of such notice would not constitute the giving of
non-public information to the Investor.
During the Adjustment Period, the Purchase Price shall be the lesser of
(i) eighty-three percent (83%) of the Market Price upon a Optional Purchase Date
and (ii) 150% of the Market Price on the Subscription Date.
The duration of the Trading Cushion shall be shortened to ten (10)
Trading Days until the expiration of five consecutive weeks (the "Adjustment
Period")
12
<PAGE> 20
During the Adjustment Period, the Company may not deliver an Optional
Purchase Notice such that the number of Call Shares to be purchased by the
Investor upon the applicable Closing, when aggregated with all other shares of
Common Stock then owned by the Investor beneficially or deemed beneficially
owned by the Investor, would result in the Investor owning more than 4.9% of all
of such Common Stock as would be outstanding on such Closing Date, as determined
in accordance with Section 13(d) of the Exchange Act and the regulations
promulgated thereunder. For purposes of this Section 2.4(c), in the event that
the amount of Common Stock outstanding as determined in accordance with Section
13(d) of the Exchange Act and the regulations promulgated thereunder is greater
on a Closing Date than on the date upon which the Optional Purchase Notice
associated with such Closing Date is given, the amount of Common Stock
outstanding on such Closing Date shall govern for purposes of determining
whether the Investor, when aggregating all purchases of Common Stock made
pursuant to this Agreement and, if any, Warrant Shares, would own more than 4.9%
of the Common Stock following such Closing Date.
Section 2.5 Termination of Investment Obligation. The obligation of the
Investor to purchase shares of Common Stock shall terminate permanently
(including with respect to a Closing Date that has not yet occurred) in the
event that (i) there shall occur any stop order or suspension of the
effectiveness of the Registration Statement for an aggregate of thirty (30)
Trading Days during the Commitment Period, for any reason other than deferrals
or suspension in accordance with Section 1.1(f) of the Registration Rights
Agreement, as a result of corporate developments subsequent to the Subscription
Date that
13
<PAGE> 21
would require such Registration Statement to be amended to reflect such event in
order to maintain its compliance with the disclosure requirements of the
Securities Act or (ii) the company shall at any time fail to comply with the
requirements of Section 6.3, 6.4, 6.5 or 6.6.
Section 2.6 Commitment Fee. On the Subscription Date, the Company will
issue to the Investor a warrant, substantially in the form of Exhibit A hereto,
exercisable beginning six months from the Subscription Date (the "Warrant") and
then exercisable any time over the three-year period there following, to
purchase an aggregate of 45,000 Warrant Shares at a price equal to 115% of the
Market Price on the Subscription Date. The warrant shall be delivered by the
Company to the Investor upon execution of this Agreement by the parties hereto.
The Warrant Shares shall be registered for resale pursuant to the Registration
Rights Agreement.
Section 2.7 Additional Shares. In the event that, (a) within five
Trading Days of any Closing Date, the Company gives notice to the Investor of an
impending "blackout period" in accordance with Section 1.1(f) of the
Registration Rights Agreement, and (b) the Bid Price on the Trading Day
immediately preceding such "blackout period" ("Old Bid Price") is greater than
the Bid Price on the first Trading Day following such "blackout period" that the
Investor may sell its Registrable Securities pursuant to an effective
Registration Statement ("New Bid Price"), then the Company shall issue to the
Investor a number of additional shares of Registrable Securities equal to the
difference between (X) the product of the number of Registrable Securities held
by Investor immediately prior to the "blackout period" multiplied by the Old Bid
Price, divided by
14
<PAGE> 22
the New Bid Price and (Y) the number Of Registrable Securities held by Investor
immediately prior to the "blackout period".
Section 2.8 Liquidated Damages. The parties hereto acknowledge and agree
that the sum payable under Section 2.1(b) and the obligation to issue
Registrable Securities under Section 2.7 above shall constitute liquidated
damages and not penalties. The parties further acknowledge that (a) the amount
of loss or damages likely to be incurred is incapable or is difficult to
precisely estimate, (b) the amounts specified in such Sections bear a reasonable
proportion and are not plainly or grossly disproportionate to the probable loss
likely to be incurred by the Investor in connection with the failure by the
Company to make Calls with aggregate Purchase Prices totalling at least
$10,000,000 or in connection with a "blackout" period under Section 1.1(f) of
the Registration Rights Agreement, and (c) the parties are sophisticated
business parties and have been represented by sophisticated and able legal and
financial counsel and negotiated this Agreement at arm's length.
ARTICLE III
CONDITIONS TO DELIVERY OF OPTIONAL
PURCHASE NOTICES AND CONDITIONS TO CLOSING
Section 3.1 Conditions Precedent to the Obligation of the Company to Issue
and Sell Common Stock. The obligation hereunder of the Company to issue and
sell the Call Shares to the Investor incident to each Closing is subject to the
satisfaction, at or before each such Closing, of each of the conditions set
forth below.
15
<PAGE> 23
(a) Accuracy of the Investor's Representation and Warranties. The
representations and warranties of the Investor shall be true and correct in all
material respects as of the date of this Agreement and as of the date of each
such Closing as though made at each such time.
(b) Performance by the Investor. The Investor shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Investor at or prior to such Closing.
Section 3.2 Conditions Precedent to the Right of the Company to Deliver
an Optional Purchase Notice and the Obligation of the Investor to Purchase Call
Shares. The right of the Company to deliver an Optional Purchase Notice and the
obligation of the Investor hereunder to acquire and pay for the Call Shares
incident to a Closing is subject to the satisfaction, on (i) the date of
delivery of such Optional Purchase Notice and (ii) the applicable Closing Date
(each a "Condition Satisfaction Date"), of each of the following conditions:
(a) Registration of the Common Stock with the SEC. As set forth in
the Registration Rights Agreement, the Company shall have filed with the SEC a
Registration Statement with respect to the resale of the Registrable Securities
that shall have been declared effective by the SEC prior to the first Optional
Purchase Date, but in no event later than ninety (90) days after Subscription
Date.
(b) Effective Registration Statement. As set forth in the
Registration Rights Agreement, the Registration Statement shall have previously
become effective and
16
<PAGE> 24
shall remain effective on each Condition Satisfaction Date and (i) neither the
Company nor the Investor shall have received notice that the SEC has issued or
intends to issue a stop order with respect to the Registration Statement or that
the SEC otherwise has suspended or withdrawn the effectiveness of the
Registration Statement, either temporarily or permanently, or intends or has
threatened to do so (unless the SEC's concerns have been addressed and the
Investor is reasonably satisfied that the SEC no longer is considering or
intends to take such action), and (ii) no other suspension of the use or
withdrawal of the effectiveness of the Registration Statement or related
prospectus shall exist.
(c) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct as of
each Condition Satisfaction Date as though made at each such time (except for
representations and warranties specifically made as of a particular date) with
respect to all periods, and as to all events and circumstances occurring or
existing to and including each Condition Satisfaction Date, except for any
conditions which have temporarily caused any representations or warranties
herein to be incorrect and which have been connected with no continuing
impairment to the Company or the Investor.
(d) Performance by the Company. The Company shall have performed,
satisfied and complied, in all respects with all covenants, agreements and
conditions required by this Agreement, the Registration Rights Agreement and the
Warrant to be performed, satisfied or complied with by the Company at or prior
to each Condition Satisfaction Date.
17
<PAGE> 25
(e) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits or directly and adversely affects any of the transactions contemplated
by this Agreement, and no proceeding shall have been commenced that may have the
effect of prohibiting or adversely affecting any of the transactions
contemplated by this Agreement.
(f) Adverse Changes. Since the date of filing of the Company's most
recent SEC Document, no event that had or is reasonably likely to have a
Material Adverse Effect has occurred.
(g) No Suspension of Trading In or Delisting of Common Stock. The
trading of the Common Stock shall not have been suspended by the SEC, the
Principal Market or the National Association of Securities Dealers, Inc. (the
"NASD") and the Common Stock shall have been approved for listing or quotation
on and shall not have been delisted from the Principal Market. The issuance of
shares of Common Stock with respect to the applicable Closing, if any, shall not
violate the shareholder approval requirements of the Principal Market.
(h) Legal Opinions. The Company shall have caused to be delivered to
the Investor, (i) within five (5) Trading Days of the effective date of the
Registration Statement and (ii) to the extent provided by Section 3.3, an
opinion of the Company's independent counsel in the form of Exhibit B hereto,
addressed to the Investor; provided, however, that in the event that such an
opinion cannot be delivered by the Company's independent counsel to the
Investor, the Company shall promptly revise the Registration
18
<PAGE> 26
Statement and shall not deliver an Optional Purchase Notice. If an Optional
Purchase Notice shall have been delivered in good faith without knowledge by
the Company that an opinion of independent counsel can not be delivered as
required, at the option of the Investor, either the applicable Closing Date
shall automatically be postponed for a period of up to five (5) Trading Days
until such an opinion is delivered to the Investor, or such Closing shall
otherwise be canceled. In the event of such a postponement, the Purchase Price
of the Common Stock to be issued at such Closing as determined pursuant of
Section 2.2 shall be the lower of the Purchase Price as calculated as of the
originally scheduled Closing Date and as of the actual Closing Date. The
Company's independent counsel shall also deliver to the investor upon execution
of this Agreement an opinion in form and substance satisfactory to the Investor
addressing, among other things, corporate matters and the exemption from
registration under the Securities Act of the issuance of the Registrable
Securities and the Warrant by the Company to the Investor under this Agreement.
(i) Due Diligence. No dispute between the Company and the Investor
shall exist pursuant to Section 3.3 as to the adequacy of the disclosure
contained in the Registration Statement.
(j) Ten Percent Limitation. On each Closing Date, the number of Call
Sham then to be purchased by the Investor exceeding the number of such shares
which, when aggregated with all other shares of Common Stock then owned by the
Investor beneficially or deemed beneficially owned by the Investor, would result
in the Investor owning no more than 9.9% of all of such Common Stock as would be
19
<PAGE> 27
outstanding on such Closing Date, as determined in accordance with Section 16 of
the Exchange Act and the regulations promulgated thereunder. For purposes of
this Section 3.2(k), in the event that the amount of Common Stock outstanding as
determined in accordance with Section 16 of the Exchange Act and the regulations
promulgated thereunder is greater on a Closing Date than on the date upon which
the Optional Purchase Notice associated with such Closing Date is given, the
amount of Common Stock outstanding on such Closing Date shall govern for
purposes of determining whether the Investor, when aggregating all purchases of
Common Stock made pursuant to this Agreement and, if any, Warrant Shares, would
own more than 9.9% of the Common Stock following such Closing Date.
(k) Minimum Bid Price. The Bid Price equals or exceeds $6 U.S.
from the Trading Day immediately preceding the date on which such Notice is
deemed delivered until the Trading Day immediately preceding the Closing Date
(as adjusted for stock splits, stock dividends, reverse stock splits, and
similar events).
(l) Minimum Average Trading Volume. The average trading volume
for the Common Stock over the previous twenty (20) Trading Days equals or
exceeds 22,500 shares per Trading Day.
(m) No Knowledge. The Company has no knowledge of any event more
likely than not to have the effect of causing such Registration Statement to be
suspended or otherwise ineffective (which event is more likely than not to
occur within the fifteen Trading Days following the Trading Day on which such
Notice is deemed delivered).
20
<PAGE> 28
(n) Trading Cushion. The Trading Cushion shall have elapsed since
the immediately preceding Optional Purchase Date.
(o) Shareholder Vote. The issuance of shares of Common Stock with
respect to the applicable Closing, if any, shall not violate the shareholder
approval requirements of the Principal Market.
(p) Escrow Agreement. The parties hereto shall have entered into a
mutually acceptable escrow agreement for the Purchase Prices due hereunder,
providing for reasonable interest on any funds deposited into the escrow account
established under such agreement.
(q) Other. On each Condition Satisfaction Date, the Investor shall
have received and been reasonably satisfied with such other certificates and
documents as shall have been reasonably requested by the Investor in order for
the Investor to confirm the Company's satisfaction of the conditions set forth
in this Section 3.2., including, without limitation, a certificate in
substantially the form and substance of Exhibit C hereto, executed in either
case by an executive officer of the Company and to the effect that all the
conditions to such Closing shall have been satisfied as at the date of each such
certificate.
Section 3.3 Due Diligence Review and Non-Disclosure of Non-Public
Information.
(a) The Company shall make available for inspection and review by
the Investor, advisors to and representatives of the Investor (who may or may
not be affiliated with the Investor and who are reasonably acceptable to the
Company), any
21
<PAGE> 29
underwriter participating in any disposition of the Registrable Securities on
behalf of the Investor pursuant to the Registration Statement, any such
registration statement or supplement thereto or any blue sky, NASD or other
filing, all financial and other records, all SEC Documents and other filings
with the SEC, and all other corporate documents and properties of the Company as
may be reasonably necessary for the purpose of such review, and cause the
Company's officers, directors and employees to supply all such information
reasonably requested by the Investor or any such representative, advisor or
underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose of enabling the
Investor and such representatives, advisors and underwriters and their
respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement.
(b) The Company shall in no event disclose non-public information to
the Investor, advisors to or representatives of the Investor (including, without
limitation, in connection with the giving of the Adjustment Period Notice
pursuant to Section 2.4) unless prior to disclosure of such information the
Company identifies such information as being non-public information and
provides the Investor, such advisors and representatives with the opportunity to
accept or refuse to accept such non-public information for review. The Company
may, as a condition to disclosing any non-public information hereunder, require
the Investor's advisors and representatives to enter into
22
<PAGE> 30
a confidentiality agreement in form reasonably satisfactory to the Company and
the Investor.
(c) Nothing herein shall require the Company to disclose non-public
information to the Investor or its advisors or representatives, and the Company
represents that it does not disseminate non-public information to any investors
who purchase stock in the Company in a public offering, to money managers or to
securities analysts, provided, however, that notwithstanding anything herein to
the contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements,
therein, in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 3.3 shall be construed to mean that such
persons or entities other than the Investor (without the written consent of the
Investor prior to disclosure of such information) may not obtain non-public
information in the course of conducting due diligence in accordance with the
terms of this Agreement and nothing herein shall prevent any such persons or
entities from notifying the Company of their opinion that based on such due
diligence by such persons or entities, that the Registration Statement contains
an untrue statement of
23
<PAGE> 31
a material fact or omits a material fact required to be stated in the
Registration Statement or necessary to make the statements contained therein, in
light of the circumstances in which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF INVESTOR
The Investor represents and warrants to the Company that:
Section 4.1 Intent. The Investor is entering into this Agreement for its
own account and the Investor has no present arrangement (whether or not legally
binding) at any time to sell the Common Stock to or through any person or
entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
Section 4.2 Sophisticated Investor. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in Common Stock. The Investor acknowledges
that an investment in the Common Stock is speculative and involves a high degree
of risk.
Section 4.3 Authority. This Agreement has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable
24
<PAGE> 32
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application.
Section 4.4 Not an Affiliate. The Investor is not an officer, director
or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.
Section 4.5 Organization and Standing. Investor is duly organized,
validly existing, and in good standing under the laws of the British Virgin
Islands.
Section 4.6 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investor, or, to
the Investor's knowledge, (a) violate any provision of any indenture, instrument
or agreement to which Investor is a party or is subject, or by which Investor or
any of its assets is bound, (b) conflict with or constitute a material default
thereunder, (c) result in the creation or imposition of any lien pursuant to the
terms of any such indenture, instrument or agreement, or constitute a breach of
any fiduciary duty owed by Investor to any third party, or (d) require the
approval of any third-party (which has not been obtained) pursuant to any
material contract, agreement, instrument, relationship or legal obligation to
which Investor is subject or to which any of its assets, operations or
management may be subject.
Section 4.7 Disclosure: Access to Information. Investor has received all
documents, records, books and other information pertaining to Investors
investment in the Company that have been requested by Investor. The Company is
subject to the
25
<PAGE> 33
periodic reporting requirements of the Exchange Act, and Investor has reviewed
or received copies of any such reports that have been requested by it.
Section 4.8 Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that:
Section 5.1 Common Stock. The Company has registered its Common Stock
pursuant to Section 12(b) or 12(g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company has
maintained all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on the Principal
Market. As of the date hereof, the Principal Market is the Nasdaq Small Cap
Market.
Section 5.2 SEC Documents. The Company has delivered or made available
to the Investor true and complete copies of the SEC Documents (including,
without limitation, proxy information and solicitation materials). The Company
has not provided to the Investor any information that, according to applicable
law, rule or regulation should have been disclosed publicly prior to the date
hereof by the Company, but which has not been so disclosed. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
rules and regulations of the SEC promulgated thereunder and other
26
<PAGE> 34
federal, state and local laws, rules and regulations applicable to such SEC
Documents, and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
Section 5.3 No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor any distributor
or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising with respect to any of the Call Shares, the Warrant, or
the Warrant Shares, or (ii) made any offers or sales of any security or
solicited any offers to buy any security under any circumstances that would
require registration of the Common Stock under the Securities Act.
27
<PAGE> 35
Section 5.4 Capitalization. As of the date Of the Agreement, the Company
has authorized capital consisting of 50,000,000 shares of Common Stock, par
value $0.001, and 150,000 shares of Series A Preferred Stock, par value $0.001.
As of November 25, 1997, 5,042,202 shares of Common Stock were issued and
outstanding, and no shares of Preferred Stock were issued and outstanding. Under
the Company's 1996 Stock Option Plan, the Company has authorized options to
purchase 1,140,000 shares of its Common Stock, of which the Company has granted
options to purchase 1,308,500 shares to certain employees and consultants of the
Company (of which 292,333 shares have been cancelled). As of November 25, there
were options to purchase 500,834 shares of Common Stock exercisable, and 123,833
options available for future grant by the Company. The Company has granted
options to purchase 948,600 shares to certain employees and outside service
providers of the Company outside its 1996 Stock Option Plan. As of November 25,
1997, there were outstanding warrants to purchase Common Stock as follows: (i)
redeemable stock purchase warrants to purchase approximately 1,079,798 shares of
common stock at an exercise price of $6.00 per share, (ii) underwriters'
warrants to purchase 100,000 shares of Common Stock at an exercise price of
$9.00 per share, (iii) underlying warrants to purchase 100,000 warrants, at a
purchase price of $0.18375 per warrant (where each warrant purchased may be
exercised to purchase one share of Common Stock at an exercise price of $9.00
per share), and (iv) placement agent warrants to purchase 8,791 shares of Common
Stock at $10.00 per share. The Company also has outstanding subordinated
promissory notes, in the principal amount of $1,000,000, which are convertible
into Common, Stock at a conversion price
28
<PAGE> 36
per share of the lower of $10.00, or the closing high bid of the Common Stock on
the day before the conversion date. As of November 25, 1997, the Company has
reserved 3,024,742 shares of Common Stock for issuance upon redemption of
warrants, exercise of options, and conversion of debt. Except as stated above,
there are no outstanding options, warrants, script rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any right to
subscribe for or acquire any shares of Common Stock or contracts, commitments,
understanding, or arrangements by which the Company is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. All of the outstanding shares of
Common Stock of the Company have been duly and validly authorized and issued and
are fully paid and nonassessable.
Section 5.5 Valid Issuances. The sale of the Warrant may and will be
properly issued pursuant to Rule 4(2), Regulation D and/or any applicable state
law. When issued, the Call Shares and the Warrant Shares will be duly and
validly issued, fully paid, and nonassessable. Neither the sales of the Call
Shares, the Warrant or the Warrant Shares pursuant to, nor the Company's
performance of its obligations under, this Agreement, the Registration Rights
Agreement, or the Warrant will (i) result in the creation or imposition of any
liens, charges, claims or other encumbrances upon the Call Shares, the Warrant
Shares or any of the assets of the Company, or (ii) entitle the holders of
Outstanding Capital Shares to preemptive or other rights to subscribe to or
acquire the Capital Shares
29
<PAGE> 37
or other securities of the Company. The Call Shares and the Warrant Shares shall
not subject the Investor to personal liability by reason of the possession
thereof.
Section 5.6 Organization and Qualification. The Company is a corporation
duly incorporated and existing in good standing under the laws of the State of
Florida and has the requisite corporate power to own its properties and to carry
on its business as now being conducted. The Company does not have any
subsidiaries. The Company does not own more than fifty percent (50%) of or
control any other business entity. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify
would not have a Material Adverse Effect.
Section 5.7 Authorization: Enforcement. (i) The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement, and the
Warrant and to issue the Call Shares, the Warrant and the Warrant Shares,
(ii) the execution, issuance and delivery of this Agreement, the Registration
Rights Agreement and the Warrant by the Company and the consummation by it of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors or stockholders is required, and (iii) this Agreement, the
Registration Rights Agreement, and the Warrant have been duly executed and
delivered by the Company and constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may
30
<PAGE> 38
be limited by applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 5.8 Corporate Documents. The Company has finished or made
available to the Investor true and correct copies of the Company's Articles of
Incorporation, as amended and in effect on the date hereof (the "Certificate"),
and the Company's By-Laws, as amended and in effect on the date hereof (the
"By-Laws").
Section 5.9 No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
Common Stock, the Warrant and each Additional Warrant do not and will not (i)
result in a violation of the Company's Articles of Incorporation or By-Laws or
(ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, indenture, instrument or any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company is a party, or (iii)
result in a violation of any federal, state, local or foreign law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or by which any property or
asset of the Company is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect) nor is
the Company otherwise in violation of, conflict with or in default under any
31
<PAGE> 39
of the foregoing; provided that, for purposes, of the Company's representations
and warranties as to violations of foreign law, rule or regulation referenced in
clause (iii), such representations and warranties are made only to the best of
the Company's knowledge insofar as the execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby are or may be affected by the status of the
Investor under or pursuant to any such foreign law, rule or regulation. The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Common Stock or the Warrant in accordance with
the terms hereof (other than any SEC, NASD or state securities filings that may
be required to be made by the Company subsequent to any Closing, any
registration statement that may be filed pursuant hereto, and any shareholder
approval required by the rules applicable to companies whose common stock trades
on the Nasdaq Small Cap Market referenced in Section 5. 1); provided that, for
purposes of the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Investor herein.
32
<PAGE> 40
Section 5.10 No Material Adverse Change. Since September 30, 1996, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents.
Section 5.11 No Undisclosed Liabilities. The Company has no liabilities
or obligations which are material, individually or in the aggregate, and are not
disclosed in the SEC Documents or otherwise publicly announced, other than those
incurred in the ordinary course of the Company's businesses since September 30,
1996 and which, individually or in the aggregate, do not or would not have a
Material Adverse Effect on the Company (other than convertible debt in the
amount of $1,000,000).
Section 5.12 No Undisclosed Events or Circumstances. Since September 30,
1996, no event or circumstance has occurred or exists with respect to the or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
Section 5.13 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Common Stock under the Securities Act.
Section 5.14 Litigation and Other Proceedings. Except as may be set,
forth in the SEC Documents, there are no lawsuits or proceedings pending or to
the best knowledge
33
<PAGE> 41
of the Company threatened, against the Company, nor has the Company received any
written or oral notice of any such action, suit, proceeding or investigation,
which might have a Material Adverse Effect. Except as set forth in the SEC
Documents, no judgment, order, writ, injunction or decree or award has been
issued by or, so far as is known by the Company, requested of any court,
arbitrator or governmental agency which might result in a Material Adverse
Effect.
Section 5.15 No Misleading Untrue Communication. The Company, any person
representing the Company, and, to the best knowledge of the Company, any other
person selling or offering to sell the Call Shares, the Warrant or the Warrant
Shares in connection with the transaction contemplated by this Agreement, have
not made, at any time, any oral communication in connection with the offer or
sale of the same which contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements, in
the light of the circumstances under which they were made, not misleading.
Section 5.16 Non-Public Information. The Company neither possesses nor
has disclosed to the Investor any material non-public information that (i) if
disclosed, would, or could reasonably be expected to have, an effect on the
price of the Common Stock or (ii) according to applicable law, rule or
regulation, should have been disclosed publicly by the Company prior to the date
hereof but which has not been so disclosed.
Section 5.17 Broker-Dealer Status. The Company has duly investigated its
agent, Trinity Capital Advisors, Inc. ("Trinity"), and represents and warrants
to the Investor that Trinity is a duly registered broker or dealer (or a duly
registered representative of
34
<PAGE> 42
such a broker or dealer) under the Exchange Act, in accordance with the rules
and regulation of the SEC.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to satisfy any obligation to issue the Call,
and the Warrant Shares; such amount of shares of Common Stock to be reserved
shall be calculated based upon the minimum Purchase Price therefor under the
terms of this Agreement and the Warrant respectively. The number of shares so
reserved from time to time, as theretofore increased or reduced as hereinafter
provided, may be reduced by the number of shares actually delivered hereunder
and the number of shares so reserved shall be increased or decreased to reflect
potential increases or decreases in the Common Stock that the Company may
thereafter be so obligated to issue by reason of adjustments to Warrant or
adjustments pursuant to Article IX hereof.
Section 6.3 Listing of Common Stock. The Company hereby agrees to
maintain the listing of the Common Stock on a Principal Market, and as soon as
practicable (but in any event prior to the commencement of the Commitment
Period) to list the Call
35
<PAGE> 43
Shares and the Warrant Shares. The Company further agrees, if the Company
applies to have the Common Stock traded on any other Principal Market, it will
include in such application the Call Shares and the Warrant Shares, and will
take such other action as is necessary or desirable in the opinion of the
investor to cause the Common Stock to be listed on such other Principal Market
as promptly as possible. The Company will take all action to continue the
listing and trading of its Common Stock on the Principal Market (including,
without limitation, maintaining sufficient net tangible assets) and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the NASD and the Principal Market.
Section 6.4 Exchange Act Registration. The Company will cause its Common
Stock to continue to be registered under Section 12(g) or 12(b) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
said Act, and will not take any action or file any document (whether or not
permitted by said Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Act. The Company will take all action to continue the listing and
trading of its Common Stock on the Principal Market and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the NASD and the Principal Market.
Section, 6.5 Legends. The certificates evidencing the Common Stock to be
sold by the Investor pursuant to Section 8.1 shall be free of legends, except as
set forth in Article VIII.
36
<PAGE> 44
Section 6.6 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company
Section 6.7 Additional SEC Documents. The Company will deliver to the
Investor, as and when the originals thereof are submitted to the SEC for filing,
copies of all SEC Documents so furnished or submitted to the SEC.
Section 6.8 "Blackout Period". (a) The Company will immediately notify
the Investor upon the occurrence of any of the following events in respect of a
registration statement or related prospectus in respect of an offering of
Registrable Securities; (i) receipt of any request for additional information by
the SEC or any other federal or state governmental authority during the period
of effectiveness of the registration statement for amendments or supplements to
the registration statement or related prospectus; (ii) the issuance by the SEC
or any other federal or state governmental authority of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose; (iii) receipt of any notification with respect
to the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in such registration statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the registration statement, related prospectus or documents so that,
in the case of the registration statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary
37
<PAGE> 45
to make the statements therein not misleading, and that in the case of the
related prospectus, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; and (v) the Company's reasonable determination that a
post-effective amendment to the registration statement would be appropriate; and
the Company will promptly make available to the Investor any such supplement or
amendment to the related prospectus. The Company shall not deliver to the
Investor any Optional Purchase Notice during the of any of the foregoing events.
Section 6.9 Expectations Regarding Optional Purchase Notices. Within ten
(10) days after the commencement of each calendar quarter occurring subsequent
to the commencement of the Commitment Period, the Company undertakes to notify
the Investor as to its reasonable expectations as to the dollar amount it
intends to raise during such calendar quarter, if any, through the issuance of
Optional Purchase Notices. Such notification shall constitute only the.
Company's good faith estimate and shall in no way obligate the Company to raise
such amount, or any amount, or otherwise limit its ability to deliver Optional
Purchase Notices. The failure by the Company to comply with this provision can
be cured by the Company's notifying the Investor at any time as to its
reasonable expectations with respect to the current calendar quarter.
Section 6.10 Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a
38
<PAGE> 46
"Consolidation Event") unless the resulting successor or acquiring entity (if
not the Company) assumes by written instrument the obligation to deliver to the
Investor such shares of stock and/or securities as the Investor is entitled to
receive pursuant to this Agreement.
Section 6.11 Issuance of Call Shares Warrant Shares. The sale of the
Call Shares and the issuance of the Warrant Shares pursuant to exercise of the
Warrant shall be made in accordance with the provisions and requirements of
Regulation D and any applicable state law. Issuance of the Warrant Shares
pursuant to exercise of the Warrant through a cashless exercise shall be made in
accordance with the provisions and requirements of Section 3(a)(9) under the
Securities Act and any applicable state law.
ARTICLE VII
COVENANTS OF THE INVESTOR
Section 7.1 The Investor's trading activities with respect to shares of
the Company's Common Stock will be in compliance with all applicable state and
federal securities laws, rules and regulations and rules and regulations of the
Principal Market on which the Company's Common Stock is listed.
Section 7.2 The Investor and its affiliates will not engage in short
sales of the Company's Common Stock.
39
<PAGE> 47
ARTICLE VIII
LEGENDS
Section 8.1 Legends. Each of the Warrant and, unless otherwise provided
below, each certificate representing Registrable Securities will bear the
following legend (the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED
OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR
NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE
BENEFICIARY OF CERTAIN OBLIGATIONS OF THE COMPANY SET FORTH IN A PRIVATE
EQUITY LINE OF CREDIT AGREEMENT BETWEEN COMPRESSENT CORPORATION AND KINGSBRIDGE
CAPITAL LIMITED DATED DECEMBER 3, 1997. A COPY OF THE PORTION OF THE AFORESAID
AGREEMENT
40
<PAGE> 48
EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM THE COMPANY'S EXECUTIVE
OFFICES.
Upon the execution and delivery hereof, the Company is issuing to the
transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit D hereto. Such instructions shall be irrevocable by the Company from
and after the date hereof or from and after the issuance thereof to any such
substitute or replacement transfer agent, as the case may be, except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investor to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and under
the following circumstances and without consultation by the transfer agent with
the Company or its counsel and without the need for any further advice or
instruction or documentation to the transfer agent by or from the Company or its
counsel or the Investor:
(a) At any time after the Effective Date, upon surrender of one or
more certificates evidencing Common Stock that bear the Legend, to the extent
accompanied by a notice requesting the issuance of new certificates free of the
Legend to replace those surrendered; provided that (i) the Registration
Statement shall then be effective; (ii) the Investor confirms to the transfer
agent that it has sold, pledged or otherwise transferred or agreed to sell,
pledge or otherwise transfer such Common Stock in a bona fide
41
<PAGE> 49
transaction to a third party that is not an affiliate of the Company; and (iii)
the Investor confirms to the transfer agent that the Investor has complied with
the prospectus delivery requirement.
(b) At any time upon any surrender of one or more certificates
evidencing Registrable Securities that bear the Legend, to the extent
accompanied by a notice requesting the issuance of new certificates free of the
Legend to replace those surrendered and containing representations that (i) the
Investor is permitted to dispose of such Registrable Securities without
limitation as to amount or manner of sale pursuant to Rule 144(k) under the
Securities Act or (ii) the Investor has sold, pledged or otherwise transferred
or agreed to sell, pledge or otherwise transfer such Registrable Securities in a
manner other than pursuant to an effective registration statement, to a
transferee who will upon such transfer be entitled to freely tradeable
securities.
Section 8.2 No Other Legend or Stock Transfer Restrictions. No legend
other than the one specified in Section 8.1 has been or shall be placed on the
share certificates representing the Common Stock and no instructions or "stop
transfers orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article VIII.
Section 8.3 Investor's Compliance. Nothing in this Article VIII shall
affect in any way the Investor's obligations under any agreement to comply with
all applicable securities laws upon resale of the Common Stock.
42
<PAGE> 50
ARTICLE IX
ADJUSTMENTS
Section 9.1 Adjustment of the Ceiling Price. The Ceiling Price and,
accordingly, the number of Call Shares issuable upon a Call, shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) Reclassification, Consolidation, Merger or Mandatory Share
Exchange. If the Company, at any time during the Commitment Period, (i)
reclassifies or changes its Outstanding Capital Shares (other than a change in
par value, or from par value to no par value per share, or from no par value per
share to par value or a subdivision or combination of outstanding securities
issuable upon a Call), (ii) consolidates, merges or effects a mandatory share
exchange with or into another corporation (other than a merger or mandatory
share exchange with another corporation in which the Company is a continuing
corporation and that does not result in any reclassification or change, other
than a change in par value, or from par value to no par value per share, or from
no par value per share to par value, or a subdivision or combination of
Outstanding Capital Shares issuable upon a Call), or (iii) sells or transfers to
another corporation the property of the Company as an entirety or substantially
as an entirety, then in any such event the Company, or such successor or
purchasing corporation, as the case may be, shall, without payment of any
additional consideration therefore, amend this Agreement or enter into a new
Private Equity Line of Credit Agreement providing that the Investor shall have
rights not less favorable to the Investor than those then applicable to this
Agreement. Such amendment of this Agreement or new
43
<PAGE> 51
Private Equity Line of Credit Agreement shall include, without limitation, the
right to receive upon Calls under such, in lieu of each share of Common Stock
theretofore issuable upon a Call hereunder, the kind and amount of shares of
stock, other securities, money or property receivable upon such
reclassification, change, consolidation, merger, mandatory share exchange, sale
or transfer by the holder of one share of Common Stock issuable upon a Call had
the Call been made immediately prior to such reclassification, change,
consolidation, merger, mandatory share exchange or sale or transfer. Such
amended agreement shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
9. 1. The provisions of this subsection (a) shall similarly apply to successive
reclassifications, changes, consolidations, mergers, mandatory share exchanges
and sales and transfers.
(b) Subdivision or Combination of Shares. If the Company, at any
time during the Commitment Period, shall subdivide its Common Stock, the Ceiling
Price shall be proportionately reduced as of the effective date of such
subdivision, or, if the Company shall take a record of holders of its Common
Stock for the purpose of so subdividing, as of such record date, whichever is
earlier. If the Company, at any time during the Commitment Period, shall combine
its Common Stock, the Ceiling Price shall be proportionately increased as of the
effective date of such combination, or, if the Company shall take a record of
holders of its Common Stock for the purpose of so combining, as of such record
date, whichever is earlier.
(c) Stock Dividends. If the Company at any time during the
Commitment Period shall pay a dividend in its Capital Shares, or make any other
44
<PAGE> 52
distribution of its Capital Shares, then the Ceiling Price shall be adjusted, as
of the date the Company shall take a record of the holders of its Capital Shares
for the purpose of receiving such dividend or other distribution (or if no such
record is taken, as at the date of such payment or other distribution), to that
price determined by multiplying the Ceiling Price in effect immediately prior
to such payment or other distribution by a fraction:
1. the numerator of which shall be the total number of
Outstanding Capital Shares immediately prior to such dividend or distribution,
and
2. the denominator of which shall be the total number of
Outstanding Capital Shares immediately after such dividend or distribution. The
provisions of this subsection (c) shall not apply under any of the circumstances
for which an adjustment is provided in subsections (a) or (b).
(d) Issuance of Additional Capital Shares. If the Company, at any
time during the Commitment Period, shall issue any Additional Capital Shares,
otherwise than as provided in the foregoing subsections (a) through (c) above,
at a price per share less, or for other consideration, lower than both the Bid
Price and the Ceiling Price in effect immediately prior to such issuance, or
without consideration, then upon such issuance the Ceiling Price shall be
reduced to that price determined by multiplying the Ceiling Price in effect
immediately prior to such event by a fraction:
1. the numerator of which shall be the number of
Outstanding Capital Shares immediately prior to the issuance of the Additional
Capital Shares plus the number of Capital Shares that the aggregate
consideration for the total number of such Additional Capital Shares so issued
would purchase at the then effective Bid Price, and
45
<PAGE> 53
2. the denominator of which shall be the number of
Outstanding Capital Shares immediately after the issuance of the Additional
Capital Shares.
The provisions of this subsection (d) shall not apply under any of the
circumstances for which an adjustment is provided in subsections (a), (b) or
(c). The provisions of this subsection (d) shall not apply to the issuance of
any Additional Capital Shares which are issued pursuant to the exercise of any
warrants, options or other subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any convertible or exchangeable
securities.
(e) Issuance of Warrants, Options or Other Rights. If the Company,
at any time during the Commitment Period, shall issue any warrants, options or
other rights to subscribe for or purchase any Additional Capital Shares and the
price per share for which Additional Capital Shares may at any time thereafter
be issuable pursuant to such warrants, options or other rights shall be less
than the Bid Price in effect immediately prior to such issuance, then, upon the
issuance of such warrants, options or other rights, the Ceiling Price shall be
adjusted as provided in subsection (d) hereof on the basis that:
1. the maximum number of Additional Capital Shares issuable
on the date of determination (subject to adjustment on the date(s) of exercise)
pursuant to all such warrants, options or other rights shall be deemed to have
been issued as of the date of actual issuance of such warrants, and or other
rights, and
2. the aggregate consideration for such maximum number of
Additional Capital Shares issuable pursuant to such warrants, options or other
rights, shall be deemed to be the consideration received by the Company for the
issuance of such
46
<PAGE> 54
warrants, options, or other rights plus the minimum consideration to be received
by the Company for the issuance of Additional Capital Shares pursuant to such
warrants, options, or other rights.
(f) Issuance of Convertible or Exchangeable Securities. If the
Company, at any time during the Commitment Period, shall issue any securities
convertible into or exchangeable for Capital Shares and the consideration per
share for which Additional Capital Shares may at any time thereafter be issuable
pursuant to the terms of such convertible or exchangeable securities shall be
less than the Bid Price in effect immediately prior to such issuance, then, upon
the issuance of such convertible or exchangeable securities, the Ceiling Price
shall be adjusted as provided in subsection (d) hereof on the basis that:
1. the maximum number of Additional Capital Shares necessary on
the date of determination (subject to adjustment on the date(s) of conversion or
exchange) to effect the conversion or exchange of all such convertible or
exchangeable securities shall be deemed to have been issued as of the date of
issuance of such convertible or exchangeable securities, and
2. the aggregate consideration for such maximum number of
Additional Capital Shares shall be deemed to be the consideration received by
the Company for the issuance of such convertible or exchangeable securities plus
the minimum consideration received by the Company for the issuance of such
Additional Capital Shares pursuant to the terms of such convertible or
exchangeable securities.
47
<PAGE> 55
No adjustment of the Ceiling Price shall be made under this subsection
(f) upon the issuance of any convertible or exchangeable securities that are
issued pursuant to the exercise of any warrants, options or other subscription
or purchase rights therefor, if the issuance of such warrants, options or other
rights was subject to subsection (e) hereof.
(g) Reserved.
(h) Liquidating Dividends, Etc. If the Company at any time during
the Commitment Period makes a distribution of its assets or evidences of
indebtedness to the holders of its Capital Shares as a dividend in liquidation
or by way of return of capital or other than as a dividend payable out of
earnings or surplus legally available for dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Company's assets (other than under the circumstances provided for in
the foregoing subsections (a) through (g)), then the Investor shall be entitled
to receive upon such Call (for which the Purchase Price is the Ceiling Price),
in addition to the Call Shares receivable in connection therewith, and without
payment of any consideration other than the Purchase Price, an amount in cash
equal to the value of such distribution per Capital Share multiplied by the
number of Call Shares that, on the record date for such distribution, are
issuable upon such Call (with no further adjustment being made following any
event that causes a subsequent adjustment in the number of Call Shares
issuable), and an appropriate provision therefor shall be made a part of any
such distribution. The value of a distribution that is paid in other than cash
shall be determined in good faith by the Board of Directors of the Company.
48
<PAGE> 56
(i) Other Provisions Applicable to Adjustments Under this Section.
The following provisions will be applicable to the making of adjustments in a
Ceiling Price hereinabove provided in this Section 9.1:
1. Computation of Consideration. To the extent that any
Additional Capital Shares or any convertible or exchangeable securities or any
warrants, options or other rights to subscribe for or purchase any Additional
Capital Shares or any convertible or exchangeable securities shall be issued
for a cash consideration, the consideration received by the Company therefor
shall be deemed to be the amount of the cash received by the Company therefor,
or, if such Additional Capital Shares or convertible or exchangeable securities
are offered by the Company for subscription, the subscription price, or, if such
Additional Capital Shares or convertible or exchangeable securities are sold to
or through underwriters or dealers for public offering without a subscription
offering, the initial public offering price, in any such case excluding any
amounts paid or incurred by the Company for and in the underwriting of, or
otherwise in connection with the issue thereof. To the extent that such issuance
shall be for a consideration other than cash, then, the amount of such
consideration shall be deemed to be the fair value of such consideration at the
time of such issuance as determined in good faith by the Company's Board of
Directors. The consideration
49
<PAGE> 57
for any Additional Capital Shares issuable pursuant to the terms of any
convertible or exchangeable securities shall be the consideration paid or
payable to the Company in respect of the subscription for or purchase of such
convertible or exchangeable securities, plus the additional consideration, if
any, payable to the Company upon the exercise of the right of conversion or
exchange in such convertible or exchangeable securities. In case of the issuance
at any time of any Additional Capital Shares or convertible or exchangeable
securities in payment or satisfaction of any dividend upon any class of stock
preferred as to dividends in a fixed amount, the Company shall be deemed to have
received for such Additional Capital Shares or convertible or exchangeable
securities a consideration equal to the amount of such dividend so paid or
satisfied.
2 Readjustment of Ceiling Price. Upon the expiration of
the right to convert or exchange any convertible or exchangeable securities, or
upon the expiration of any rights, options or warrants, the issuance of which
convertible or exchangeable securities, rights, options or warrants effected an
adjustment in Ceiling Price, if any such convertible or exchangeable securities
shall not have been converted or exchanged, or if any such rights, options or
warrants shall not have been exercised, the number of Capital Shares deemed to
be issued and Outstanding by reason of the fact that they were issuable upon
conversion or exchange of any such convertible or exchangeable securities or
upon exercise of any such rights, options, or warrants shall no longer be
computed as set forth above, and such Ceiling Price shall forthwith be
readjusted and thereafter be the price that it would have been (but reflecting
any other adjustments in the Ceiling Price made pursuant to the provisions of
this Section 9.1 after
50
<PAGE> 58
the issuance of such convertible or exchangeable securities, rights, options or
warrants) had the adjustment of the Ceiling Price made upon the issuance or sale
of such convertible or exchangeable securities or issuance of rights, options or
warrants been made on the basis of the issuance only of the number of Additional
Capital Shares actually issued upon conversion or exchange of such convertible
or exchangeable securities, or upon the exercise of such rights, options or
warrants, and thereupon only the number of Additional Capital Shares actually so
issued, if any, shall be deemed to have been issued and only the consideration
actually received by the Company (computed as set forth in sub-subsection (i)
hereof) shall be deemed to have been received by the Company. If the purchase
price provided for in any rights, options or warrants, or the additional
consideration (if any) payable upon the conversion or exchange of any
convertible or exchangeable securities, or the rate at which any convertible or
exchangeable securities are convertible into or exchangeable for Capital Shares
changes at any time (other than under or by reason of provisions designed to
protect against dilution), the Ceiling Price in effect at the time of the change
shall be adjusted to the Ceiling Price that would have been in effect at such
time had such rights, options, warrants or convertible or exchangeable
securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold.
(j) Other Action Affecting Capital Shares. In case after the date
hereof the Company shall take any action affecting the number of Outstanding
Capital Shares, other than an action described in any of the foregoing
subsections (a) through (h) hereof,
51
<PAGE> 59
inclusive, that in the opinion of the Company's Board of Directors would have a
materially adverse effect upon the rights of the Investor at the time of a Call,
the Ceiling Price shall be adjusted in such manner and at such time as the Board
or Directors on the advice of the Company's independent public accountants may
in good faith determine to be equitable in the circumstances.
(k) No Adjustments. No adjustments shall be made to the Ceiling
Price shall be made whatsoever as a result of (i) warrants and stock options
granted or reserved for issuance to employees and directors as described in the
SEC Documents on file with the Commission as of the date of this Agreement, (ii)
an outstanding offering of up to $3 million of Convertible Subordinated Notes
convertible into Common Stock at between $7 and $10 per share (iii) pursuant to
an Employee Stock Purchase Plan qualified under Section 423 of the Internal
Revenue Code, (iv) the purchase and sale of the Call Shares hereunder, (v) the
Warrant, or (vi) any Common Stock issuable upon conversion or exercise of any of
the foregoing.
Section 9.2 Notice of Adjustments. Whenever the Ceiling Price under the
terms of this Agreement shall be adjusted pursuant to Section 9.1 hereof, the
Company shall promptly make a certificate signed by its President or a Vice
President and by its Treasurer or Assistant Treasurer or its Secretary or
Assistant Secretary, setting forth in reasonable detail the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Company's
Board of Directors made any determination hereunder), and the Ceiling Price and
number of Call Shares purchasable at that Ceiling Price after giving
52
<PAGE> 60
effect to such adjustment, and shall promptly cause copies of such certificate
to be mailed (by first class and postage prepaid) to the Investor.
ARTICLE X
CHOICE OF LAW
Section 10.1 Choice of Law. This Agreement shall be construed under the
laws of the State of California, without giving effect to provisions regarding
conflicts of law or choice of law.
ARTICLE XI
ASSIGNMENT; ENTIRE AGREEMENT, AMENDMENT; TERMINATION
Section 11.1 Assignment. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any transferee of any of
the Common Stock purchased or acquired by the Investor hereunder with respect to
the Common Stock held by such person, and (b) the Investor's interest in this
Agreement may be assigned at any time, in whole or in part, to any other person
or entity (including any affiliate of the Investor) upon the prior written
consent of the Company, which consent shall not to be unreasonably withheld.
Section 11.2 Termination. This Agreement shall terminate eighteen months
after the commencement of the Commitment Period; provided, however, that the
provisions of Articles VI, VII, VIII, X, XI, and XII shall survive the
termination of this Agreement.
53
<PAGE> 61
Section 11.3 Entire Agreement, Amendment. This Agreement, the
Registration Rights Agreement, and the Warrant constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof, and no party shall be liable or bound to any other party in
any manner by any warranties, representations or covenants except as
specifically set forth in this Agreement or therein. Except as expressly
provided in this Agreement, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by both parties hereto.
ARTICLE XII
NOTICES; INDEMNIFICATION
Section 12.1 Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is
to be received), or the first business day following such delivery (if
delivered other
54
<PAGE> 62
than on a business day during normal business hours where such notice is to be
received), or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to Compressent Corporation:
Abraham Ostrovsky
Chairman and Chief Executive Officer
2105 Hamilton Avenue, Suite 140
San Jose, CA 95125-5900
Fax No. (408) 559-8793
with a copy to (shall not constitute notice):
Mike Danaher, Esq.
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Fax No. (650) 845-5000
If to the Investor:
Adam Gurney
Kingsbridge Capital Limited
Main Street
Kilcullen, County Kildare
Republic of Ireland
Fax No. 011-35345482003
with a copy to (shall not constitute notice):
Sara Hanks, Esq.
Rogers & Wells
200 Park Avenue
New York, NY 10166
Fax No. (212) 878-8375
55
<PAGE> 63
Either party hereto may from time to time change its address or
facsimile number for notices under this Section 12.1 by giving at least ten (10)
days prior written notice of such changed address or facsimile number to the
other party hereto.
Section 12.2 Indemnification. The Company agrees to indemnify and hold
harmless the Investor, its partners, Affiliates, officers, directors, employees,
and duly authorized agents, and each Person or entity, if any, who controls the
Investor within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, together with the Controlling Persons (as defined in the
Registration Rights Agreement) from and against any Damages (as defined in the
Registration Rights Agreement), joint or several, and any action in respect
thereof to which the Investor, its partners, Affiliates, officers, directors,
employees, and duly authorized agents, and any such Controlling Person becomes
subject to, resulting from, arising out of or relating to any misrepresentation,
breach of warranty or nonfulfillment of or failure to perform any covenant or
agreement on the part of Company contained in this Agreement, as such Damages
are incurred, unless such Damages result primarily from the Investor's gross
negligence, recklessness or bad faith in performing its obligations under this
Agreement.
Section 12.3 Method of Asserting Indemnification Claims. All claims for
indemnification by any Indemnified Party (as defined below) under Section 12.2
will be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which any person
claiming indemnification under any provision of Section 12.2 (an "Indemnified
Party")
56
<PAGE> 64
might seek indemnity under Section 12.2 is asserted against or sought to be
collected from such Party by a person other than the Company, the Investor or
any affiliate of the Company or (a "Third Party Claim"), the Indemnified Party
shall deliver a written notification, enclosing a copy of all papers served, if
any, and specifying the nature of and basis for such Third Party Claim and for
the Indemnified Party's claim for indemnification that is being asserted under
any provision of Section 12.2 against any person (the "Indemnifying Party"),
together with the amount or, if not then reasonably ascertainable, the estimated
amount, determined in good faith, of such Third Party Claim (a "Claim Notice")
with reasonable promptness to the Indemnifying Party. If the Indemnified Party
fails to provide the Claim Notice with reasonable promptness after the
Indemnified Party receives notice of such Third Party Claim, the Indemnifying
Party will not be obligated to indemnify the Indemnified Party with respect to
such Third Party Claim to the extent that the Indemnifying Party's ability to
defend has been irreparably prejudiced by such failure of the Indemnified Party.
The Indemnifying Party will notify the Indemnified Party as soon as practicable
within the period ending thirty (30) calendar days following receipt by the
Indemnifying Party of either a Claim Notice or an Indemnity Notice (as defined
below) (the "Dispute Period") whether the Indemnifying Party disputes its
liability or the amount of its liability to the Indemnified Party under Section
12.2 and whether the Indemnifying Party desires, at its sole cost and expense,
to defend the Indemnified Party against such Third Party Claim.
57
<PAGE> 65
1. If the Indemnifying Party notifies the Indemnified
Party within the Dispute Period that the Indemnifying Party desires to defend
the Indemnified Party with respect to the Third Party Claim pursuant to this
Section 12.3(a), then the Indemnifying Party will have the right to defend, with
counsel reasonably satisfactory to the Indemnified Party, at the sole cost and
expense of the Indemnifying Party, such Third Party Claim by all appropriate
proceedings, which proceedings will be vigorously and diligently prosecuted by
the Indemnifying Party to a final conclusion or will be settled at the
discretion of the Indemnifying Party (but only with the consent of the
Indemnified Party in the case of any settlement that provides for any relief
other than the payment of monetary damages or that provides for the payment of
monetary damages as to which the Indemnified Party will not be indemnified in
full pursuant to Section 12.2). The Indemnifying Party will have full control of
such defense and proceedings, including any compromise or settlement thereof,
provided, however, that the Indemnified Party may, at the sole cost and expense
of the Indemnified Party, at any time prior to the Indemnifying Party's delivery
of the notice referred to in the first sentence of this clause (i), file any
motion, answer or other pleadings or take any other action that the Indemnified
Party reasonably believes to be necessary or appropriate to protect its
interests; and provided further, that if requested by the Indemnifying Party,
the Indemnified Party will, at the sole cost and expense of the Indemnifying
Party, provide reasonable cooperation to the Indemnifying Party in contesting
any Third Party Claim that the Indemnifying Party, elects to contest. The
Indemnified Party may participate in, but not control, any
58
<PAGE> 66
defense or settlement of any Third Party Claim controlled by the Indemnifying
Party pursuant to this clause (i), and except as provided in the preceding
sentence, the Indemnified Party will bear its own costs and expenses with
respect to such participation. Notwithstanding the foregoing, the Indemnified
Party may take over the control of the defense or settlement of a Third Party
Claim at any time if it irrevocably waives its right, to indemnity under Section
12.2 with respect to such Third Party Claim.
2. If the Indemnifying Party fails to notify the
Indemnified Party within the Dispute Period that the Indemnifying Party desires
to defend the Third Party Claim pursuant to Section 12.3(a), or if the
Indemnifying Party gives such notice but fails to prosecute vigorously and
diligently or settle the Third Party Claim, or if the Indemnifying Party fails
to give any notice whatsoever within the Dispute Period, then the Indemnified
Party will have the right to defend, at the sole cost and expense of the
Indemnifying Party, the Third Party Claim by all appropriate proceedings, which
proceedings will be prosecuted by the Indemnified Party in a reasonable manner
and in good faith or will be settled at the discretion of the Indemnified Party
(with the consent of the Indemnifying Party, which consent will not be
unreasonably withheld). The Indemnified Party will have full control of such
defense and proceedings, including any compromise or settlement thereof;
provided, however, that if requested by the Party, the Indemnifying Party will,
at the sole cost and expense of the Indemnifying Party, provide reasonable
cooperation to the Indemnified Party and its counsel in contesting any Third
Party Claim which the
59
<PAGE> 67
Indemnified Party is contesting. Notwithstanding the foregoing provisions of
this clause (ii), if the Indemnifying Party has notified the Indemnified Party
within the Dispute Period that the Indemnifying Party disputes its liability or
the amount of its liability hereunder to the Indemnified Party with respect to
such Third Party Claim and if such dispute is resolved in favor of the
Indemnifying Party in the manner provided in clause (iii) below, the
Indemnifying Party will not be required to bear the costs and expenses of the
Party's defense pursuant to this clause (ii) or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the Indemnified
Party will reimburse the Indemnifying Party in full for all reasonable costs and
expenses incurred by the Indemnifying Party in connection with such litigation.
The Indemnifying Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to this clause (ii), and
the Indemnifying Party will bear its own costs and expenses with respect to such
participation.
3. If the Indemnifying Party notifies the Indemnified Party
that it does not dispute its liability or the amount of its liability to the
Indemnified Party with respect to the Third Party Claim under Section 12.2 or
fails to notify the Indemnified Party within the Dispute Period whether the
Indemnifying Party disputes its liability or the amount of its liability to the
Indemnified Party with respect to such Third Party Claim, the Loss in the amount
specified in the Claim Notice will be conclusively deemed a liability of the
Indemnifying Party under Section 12.2 and the Indemnifying Party shall pay the
amount of such Loss to the Indemnified Party on
60
<PAGE> 68
demand. If the Indemnifying Party has timely disputed its liability or the
amount of its liability with respect to such claim, the Indemnifying Party and
the Indemnified Party will proceed in good faith to negotiate a resolution of
such dispute, and if not resolved through negotiations within the Resolution
Period, such dispute shall be resolved by arbitration in accordance with
paragraph (c) of this Section 12.3.
(b) In the event any Indemnified Party should have a claim under
Section 12.2 against the Indemnifying Party that does not involve a Third Party
Claim, the Indemnified Party shall deliver a written notification of a claim for
indemnity under Section 12.2 specifying the nature of and basis for such claim,
together with the amount or, if not then reasonably ascertainable, the estimated
amount, determined in good faith, of such claim (an "Indemnity Notice") with
reasonable promptness to the Indemnifying Party. The failure by any Party to
give the Indemnity Notice shall not impair such party's rights hereunder except
to the extent that the Indemnifying Party demonstrates that it has been
irreparably prejudiced thereby. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim or the amount of the claim
described in such Indemnity Notice or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes the claim or
the amount of the claim described in such Indemnity Notice, the Loss in the
amount specified in the Indemnity Notice will be conclusively deemed a liability
of the Indemnifying Party under Section 12.2 and the Indemnifying Party shall
pay the amount of such Loss to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such
61
<PAGE> 69
claim, the Indemnifying Party and the Indemnified Party will proceed in good
faith to negotiate a resolution of such dispute, and if not resolved through
negotiations within the Resolution Period, such dispute shall be resolved by
arbitration in accordance with paragraph (c) of this Section 12.3.
(c) Any dispute under this Agreement or the Warrant shall be
submitted to arbitration (including, without limitation, pursuant to this
Section 12.3) and shall be finally and conclusively determined by the decision
of a board of arbitration consisting of three (3) members (the "Board of
Arbitration") selected as hereinafter provided. Each of the Indemnified Party
and the Indemnifying Party shall select one (1) member and the third member
shall be selected by mutual agreement of the other members, or if the other
members fail to reach agreement on a third member within twenty (20) days after
their selection, such third member shall thereafter be selected by the American
Arbitration Association upon application made to it for such purpose by the
Indemnified Party. The Board of Arbitration shall meet on consecutive business
days in Santa Clara County, California or such other place as a majority of the
members of the Board of Arbitration determines more appropriate, and shall reach
and render a decision in writing (concurred in by a majority of the members of
the Board of Arbitration) with respect to the amount, if any, which the
Indemnifying Party is required to pay to the Indemnified Party in respect of a
claim filed by the Indemnified Party. In connection with rendering its
decisions, the Board of Arbitration shall adopt and follow such rules and
procedures as a majority of the members of the Board of Arbitration deem
necessary or appropriate. To the extent
62
<PAGE> 70
practical, decisions of the Board of Arbitration shall be rendered no more than
thirty (30) calendar days following commencement of proceedings with respect
thereto. The Board of Arbitration shall cause its written decision to be
delivered to the Indemnified Party and the Indemnifying Party. Any decision made
by the Board of Arbitration (either prior to or after the expiration of such
thirty (30) calendar day period) shall be final, binding and conclusive on the
Indemnified Party and the Indemnifying Party and entitled to be enforced to the
fullest extent permitted by law and entered in any court of competent
jurisdiction. Each party to any arbitration shall bear its own expense in
relation thereto, including but not limited to such party's attorneys' fees, if
any, and the expenses and fees of the Board of Arbitration shall be divided
between the Indemnifying Party and the Indemnified Party in the same proportion
as the portion of the related claim determined by the Board of Arbitration to be
payable to the Indemnified Party bears to the portion of such claim determined
not to be so payable.
ARTICLE XIII
Miscellaneous
Section 13.1 Counterparts. This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the parties and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument.
Section 13.2 Entire Agreement. This Agreement, the Exhibits hereto, the
Warrant, and the Registration Rights Agreement set forth the entire agreement
and
63
<PAGE> 71
understanding of the parties relating to the subject matter hereof and
supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof. The terms and conditions of all Exhibits to this
Agreement are incorporated herein by this reference and shall constitute part of
this Agreement as if fully set forth herein.
Section 13.3 Survival: Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 13.4 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 13.5 Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting
entity.
64
<PAGE> 72
IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Line of Credit Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
KINGSBRIDGE CAPITAL LIMITED:
By: /s/ ADAM GURNEY
-------------------------------------
Adam Gurney
Director
COMPRESSENT CORPORATION
By:
-------------------------------------
Abraham Ostrovsky
Chairman and Chief Executive Officer
<PAGE> 73
IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Line of Credit Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
KINGSBRIDGE CAPITAL LIMITED:
By:
-------------------------------------
Adam Gurney
Director
COMPRESSENT CORPORATION
By: /s/ ABRAHAM OSTROVSKY
-------------------------------------
Abraham Ostrovsky
Chairman and Chief Executive Officer
<PAGE> 74
EXHIBIT A
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED
OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION WHICH IS EXEMPT FROM, OR
NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE
BENEFICIARY OF CERTAIN OBLIGATIONS OF THE COMPANY SET FORTH IN A PRIVATE EQUITY
LINE OF CREDIT AGREEMENT, DATED AS OF DECEMBER 3, 1997, BETWEEN COMPRESSENT
CORPORATION AND KINGSBRIDGE CAPITAL LIMITED. A COPY OF THE PORTION OF THE
AFORESAID AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM THE
COMPANY'S EXECUTIVE OFFICES.
DECEMBER 3, 1997
Warrant to Purchase up to 45,000 Shares of Common Stock of Compressent
Corporation.
Compressent Corporation, a Florida corporation (the "Company"), hereby
acknowledges that Kingsbridge Capital Limited (the "Investor") or any other
Warrant Holder is entitled, on the terms and conditions set forth below, to
purchase from the Company at any time during the Exercise Period up to 45,000
fully paid and nonassessable shares of Common Stock, par value $.001 per share,
of the Company (the "Common Stock"), as the same may be adjusted pursuant to
Section 6 herein, at the Exercise Price (hereinafter defined), as the same may
be adjusted pursuant to Section 6 herein. The resale of the shares of Common
Stock or other securities issuable upon exercise or exchange of this Warrant is
subject to the provisions of the Registration Rights Agreement (as defined
below).
Section 1. Definitions.
"Agreement" shall mean the Private Equity Line of Credit
Agreement, dated as of December 3, 1997, between the Company and the Investor.
"Capital Shares" shall mean the Common Stock and any shares of
any other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company
with the exception of except for any common stock issued pursuant (i) to
warrants, stock options, and convertible securities outstanding and
<PAGE> 75
described in the SEC Documents on file with the Commission as the date of this
Agreement (ii) an offering of up to $3 million of Convertible Subordinated
Notes convertible into Common Stock at between $7 and $10 per share, or (iii)
pursuant to an Employee Stock Purchase Plan qualified under Section 423 of the
Internal Revenue Code.
"Date of Exercise" shall mean the date that the advance copy of the
Exercise Form is sent by facsimile to the Company, provided that the original
Warrant and Exercise Form are received by the Company within reasonable time
thereafter. If the Warrant Holder has not sent advance notice by facsimile, the
Date of Exercise shall be the date the original Exercise Form is received by
the Company.
"Exercise Period" shall mean that period beginning on June 2, 1998 and
ending on June 2, 2001; provided that such period shall be extended one day for
each day after June 2, 1998, that a Registration Statement is not effective
during the period such Registration Statement is required to be effective
pursuant to the Registration Rights Agreement.
"Exercise Price" shall mean 115% of the Market Price for the Common Stock
on the Subscription Date.
"Per Share Warrant Value" shall mean the difference resulting from
subtracting the Exercise Price from the Bid Price of one share of Common Stock
on the Trading Day next preceding the Date of Exercise.
"Registration Rights Agreement" shall mean the registration rights
agreement, dated as of December 3, 1997, between the Company and the Investor.
"Warrant Holder" shall mean the Investor or any assignee or transferee of
all or any portion of this Warrant; and
other capitalized terms used herein that are defined in the Agreement
shall have the same means herein as therein.
Section 2. Cash Exercise: Net Exercise.
This Warrant may be exercised by the Warrant Holder, in whole or in part,
at any time and from time to time during the Exercise Period by surrender of
this Warrant, together with the form of exercise attached hereto as Exhibit A
(the "Exercise Form") duly executed by Warrant Holder, together with the full
Exercise Price for each share of Common Stock as to which this Warrant is
exercised to the Company at the address set forth in Section 13 hereof. In the
event that the Warrant is not exercised in full, the number of Warrant Shares
shall be reduced by the number of such Warrant Shares for which this Warrant is
exercised, and the Company, at its expense, shall forthwith issue and deliver
to or upon the order of the Warrant Holder a new Warrant of like tenor in the
name of the Warrant Holder or as the Warrant Holder may request, reflecting
such adjusted number of Warrant Shares.
2
<PAGE> 76
This Warrant may be exercised at any time during the Exercise Period, by
presentation and surrender of this Warrant to the Company at its principal
executive offices with a written notice of the Warrant Holder's intention to
effect a cashless exercise, including a calculation of the number of shares of
Common Stock to be issued upon such exercise in accordance with the terms
hereof (a "Cashless Exercise"). In the event of a Cashless Exercise, the holder
shall surrender this Warrant for that number of shares of Common Stock
determined by (i) multiplying the number of Warrant Shares for which this
Warrant is being exercised by the Per Share Warrant Value and (ii) dividing the
product by the Bid Price of one share of the Common Stock on the Trading Day
next preceding the Date of Exercise. In the event that the Warrant is not
exercised in full, the number of Warrant Shares shall be reduced by the number
of such Warrant Shares for which this Warrant is exercised, and the Company, at
its expense, shall forthwith issue and deliver to or upon the order of the
Warrant Holder a new Warrant of like tenor in the name of the Warrant Holder or
as the Warrant Holder may request, reflecting such adjusted number of Warrant
Shares.
Section 3. Ten Percent Limitation. The Warrant Holder may not exercise
this Warrant such that the number of Warrant Shares to be received pursuant to
such exercise aggregated with all other shares of Common Stock then owned by the
Warrant Holder beneficially or deemed beneficially owned by the Warrant Holder
would result in the Warrant Holder owning more than 9.9% of all of such Common
Stock as would be outstanding on such Closing Date, as determined in accordance
with Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder. As of any date prior to the Date of Exercise, the aggregate number
of shares of Common Stock into which this Warrant is exercisable, together with
all other shares of Common Stock then beneficially owned (as such term is
defined in Rule 16a-1 under the Exchange Act) by such Warrant Holder and its
affiliates, shall not exceed 9.9% of the total outstanding shares of Common
Stock as of such date.
Section 4. Delivery of Stock Certificates.
(a) Subject to the terms and conditions of this Warrant, as soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within three (3) Trading Days thereafter, the Company at its expense
(including, without limitation, the payment by it of any applicable issue taxes)
will cause to be issued in the name of and delivered to the Warrant Holder, or
as the Warrant Holder may lawfully direct, a certificate or certificates for the
number of validly issued, fully paid and non-assessable Warrant Shares to which
the Warrant Holder shall be entitled on such exercise, together with any other
stock or other securities or property (including cash, where applicable) to
which the Warrant Holder is entitled upon such exercise in accordance with the
provisions hereof.
(b) This Warrant may not be exercised as to fractional shares of Common
Stock. In the event that the exercise of this Warrant, in full or in part,
would result in the issuance of any fractional share of Common Stock, then in
such event the Warrant Holder shall receive in cash an amount equal to the Bid
Price of such fractional share within three (3) Trading Days.
3
<PAGE> 77
Section 5. Covenants of the Company.
(a) The Company shall use its reasonable best efforts to insure that
a Registration Statement under the Securities Act covering the resale or other
disposition thereof of the Warrant Shares by the Warrant Holder is effective to
the extent required by the Registration Rights Agreement.
(b) The Company shall take all necessary action and proceedings as
may be required and permitted by applicable law, rule and regulation,
including, without limitation the notification of the Nasdaq Small Cap Market,
for the legal and valid issuance of this Warrant and the Warrant Shares to the
Warrant Holder.
(c) From the date hereof through the last date on which this
Warrant is exercisable, the Company shall take all steps reasonably necessary
and within its control to insure that the Common Stock remains listed or quoted
on the Principal Market.
(d) The Warrant Shares, when issued in accordance with the terms
hereof, will be duly authorized and, when paid for or issued in accordance with
the terms hereof, shall be validly issued, fully paid and non-assessable.
(e) The Company has authorized and reserved for issuance to the
Warrant Holder the requisite number of shares of Common Stock to be issued
pursuant to this Warrant. The Company shall at all times reserve and keep
available, solely for issuance and delivery as Warrant Shares hereunder, such
shares of Common Stock as shall from time to time be issuable as Warrant Shares.
(f) With a view to making available to the Warrant Holder the
benefits of Rule 144 promulgated under the Securities Act ("Rule 144") and any
other rule or regulation of the Securities and Exchange Commission (the "SEC"),
that may at any time permit the Warrant Holder to sell securities of the
Company to the public without registration, the Company agrees to use its
reasonable best efforts to (i) make and keep public information available, as
those terms are understood and defined in Rule 144, at all times; and (ii) file
with the SEC in a timely manner all reports and other documents required of
the Company under the Securities Act and the Exchange Act.
Section 6. Adjustment of the Exercise Price. The Exercise Price
and, accordingly, the number of Warrant Shares issuable upon exercise of the
Warrant, shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(a) Reclassification, Consolidation, Merger or Mandatory Share
Exchange. If the Company, at any time while this Warrant is unexpired and not
exercised in full, (i) reclassifies or changes its Outstanding Capital Shares
(other than a change in par value, or from par value to no par value per share,
or from no par value per share to par value or as a result of a subdivision or
combination of outstanding securities issuable upon exercise of the Warrant)
4
<PAGE> 78
or (ii) consolidates, merges or effects a mandatory share exchange with or into
another corporation (other than a merger or mandatory share exchange with
another corporation in which the Company is a continuing corporation and that
does not result in any reclassification or change, other than a change in par
value, or from par value to no par value per share, or from no par value per
share to par value, or as a result of a subdivision or combination of
Outstanding Capital Shares issuable upon exercise of the Warrant) at any time
while this Warrant is unexpired and not exercised in full, then in any such
event the Company, or such successor or purchasing corporation, as the case may
be, shall, without payment of any additional consideration therefore, amend this
Warrant or enter into a new Warrant providing that the Warrant Holder shall have
rights not less favorable to the holder than those then applicable to this
Warrant and to receive upon exercise under such amendment of this Warrant or new
Warrant, in lieu of each share of Common Stock theretofore issuable upon
exercise of the Warrant hereunder, the kind and amount of shares of stock, other
securities, money or property receivable upon such reclassification, change,
consolidation, merger, mandatory share exchange, sale or transfer by the holder
of one share of Common Stock issuable upon exercise of the Warrant had the
Warrant been exercised immediately prior to such reclassification, change,
consolidation, merger, mandatory share exchange or sale or transfer. Such
amended Warrant shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section 6.1. The provisions of this subsection (a) shall similarly apply to
successive reclassifications, changes, consolidations, mergers, mandatory share
exchanges and sales and transfers.
(b) Subdivision or Combination of Shares. If the Company, at any time
while this Warrant is unexpired and not exercised in full, shall subdivide its
Common Stock, the Exercise Price shall be proportionately reduced as of the
effective date of such subdivision, or, if the Company shall take a record of
holders of its Common Stock for the purpose of so subdividing, as of such
record date, whichever is earlier. If the Company, at any time while this
Warrant is unexpired and not exercised in full, shall combine its Common Stock,
the Exercise Price shall be proportionately increased as of the effective date
of such combination, or, if the Company shall take a record of holders of its
Common Stock for the purpose of so combining, as of such record date, whichever
is earlier.
(c) Stock Dividends. If the Company, at any while this Warrant is
unexpired and not exercised in full, shall pay a dividend in its Capital
Shares, or make any other distribution of its Capital Shares, then the Exercise
Price shall be adjusted, as of the date the Company shall take a record of the
holders of its Capital Shares for the purpose of receiving such dividend or
other distribution (or if no such record is taken, as at the date of such
payment or other distribution), to that price determined by multiplying the
Exercise Price in effect immediately prior to such payment or other
distribution by a fraction:
1. the numerator of which shall be the total number of
Outstanding Capital Shares immediately prior to such dividend or distribution,
and
5
<PAGE> 79
2. the denominator of which shall be the total number of
Outstanding Capital Shares immediately after such dividend or distribution. The
provisions of this subsection (c) shall not apply under any of the
circumstances for which an adjustment is provided in subsections (a) or (b).
(d) Issuance of Additional Capital Shares. If the Company, at any time
while this Warrant is unexpired and not exercised in full, shall issue any
additional Capital Shares ("Additional Capital Shares"), otherwise than as
provided in the foregoing subsections (a) through (c) above, at a price per
share less, or for other consideration lower, than the Bid Price in effect
immediately prior to such issuance, or without consideration, then upon such
issuance the Exercise Price shall be reduced to that price determined by
multiplying the Exercise Price in effect immediately prior to such event by a
fraction:
1. the numerator of which shall be the number of Outstanding
Capital Shares immediately prior to the issuance of the Additional Capital
Shares plus the number of Capital Shares that the aggregate consideration for
the total number of such Additional Capital Shares so issued would purchase at
the then effective Bid Price, and
2. the denominator of which shall be the number of Outstanding
Capital Shares immediately after the issuance of the Additional Capital Shares.
The provisions of this subsection (d) shall not apply under any of the
circumstances for which an adjustment is provided in subsections (a), (b) or
(c). The provisions of this subsection (d) shall not apply to the issuance of
any Additional Capital Shares that are issued pursuant to the exercise of any
warrants, options or other subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any convertible or
exchangeable securities.
(e) Issuance of Warrants, Options or Other Rights. If the Company, at
any time while this Warrant is unexpired and not exercised in full, shall issue
any warrants, options or other rights to subscribe for or purchase any
Additional Capital Shares and the price per share for which Additional Capital
Shares may at any time thereafter be issuable pursuant to such warrants,
options or other rights shall be less than the Bid Price in effect immediately
prior to such issuance, then, upon the issuance of such warrants, options or
other rights, the Exercise Price shall be adjusted as provided in subsection
(d) hereof on the basis that:
1. the maximum number of Additional Capital Shares issuable on
the date of determination (subject to adjustment on the date(s) of exercise)
pursuant to all such warrants, options or other rights shall be deemed to have
been issued as of the date of actual issuance of such warrants, options or
other rights, and
2. the aggregate consideration for such maximum number of
Additional Capital Shares issuable pursuant to such warrants, options or other
rights, shall be deemed to be the consideration received by the Company for the
issuance of such warrants, options, or other rights plus the minimum
consideration to be received by the Company for the issuance of Additional
Capital Shares pursuant to such warrants, options, or other rights.
6
<PAGE> 80
(f) Issuance of Convertible or Exchangeable Securities. If the
Company, at any time while this Warrant is unexpired and not exercised in full,
shall issue any securities convertible into or exchangeable for Capital Shares
and the consideration per share for which Additional Capital Shares may at any
time thereafter be issuable pursuant to the terms of such convertible or
exchangeable securities shall be less than the Bid Price in effect immediately
prior to such issuance, then, upon the issuance of such convertible or
exchangeable securities, the Exercise Price shall be adjusted as provided in
subsection (d) hereof on the basis that:
1. the maximum number of Additional Capital Shares necessary on
the date of determination (subject to adjustment on the date(s) of conversion or
exchange) to effect the conversion or exchange of all such convertible or
exchangeable securities shall be deemed to have been issued as of the date of
issuance of such convertible or exchangeable securities, and
2. the aggregate consideration for such maximum number of
Additional Capital Shares shall be deemed to be the consideration received by
the Company for the issuance of such convertible or exchangeable securities plus
the minimum consideration received by the Company for the issuance of such
Additional Capital Shares pursuant to the terms of such convertible or
exchangeable securities.
No adjustment of the Exercise Price shall be made under this
subsection (f) upon the issuance of any convertible or exchangeable securities
that are issued pursuant to the exercise of any warrants, options or other
subscription or purchase rights therefor, if the issuance of such warrants,
options or other rights was subject to subsection (e) hereof.
(g) Adjustment of Number of Shares. Upon each adjustment of
the Exercise Price pursuant to any provisions of this Section 6.1, the number
of Warrant Shares issuable hereunder at the option of the Warrant Holder shall
be calculated, to the nearest one hundredth of a whole share, multiplying the
number of Warrant Shares issuable prior to an adjustment by a fraction:
1. the numerator of which shall be the Exercise Price before
any adjustment pursuant to this Section 6.1; and
2. the denominator of which shall be the Exercise Price after
such adjustment.
(h) Liquidating Dividends, Etc. If the Company, at any while
this Warrant is unexpired and not exercised in full, makes a distribution of
its assets or evidences of indebtedness to the holders of its Capital Shares as
a dividend in liquidation or by way of return of capital or other than as a
dividend payable out of earnings or surplus legally available for dividends
under applicable law or any distribution to such holders made in respect of the
sale of all or substantially all of the Company's assets (other than under the
circumstances provided for in the foregoing subsections (a) through (g) while
an exercise is pending, then the Warrant Holder shall be entitled to receive
upon such exercise of the Warrant in addition to the Warrant
<PAGE> 81
Shares receivable in connection therewith, and without payment of any
consideration other than the Exercise Price, an amount in cash equal to the
value of such distribution per Capital Share multiplied by the number of Warrant
Shares that, on the record date for such distribution, are issuable upon such
exercise of the Warrant (with no further adjustment being made following any
event which causes a subsequent adjustment in the number of Warrant Shares
issuable), and an appropriate provision therefor shall be made a part of any
such distribution. The value of a distribution that is paid in other than cash
shall be determined in good faith by the Board of Directors of the Company.
(i) Other Provisions Applicable to Adjustments Under this Section. The
following provisions will be applicable to the making of adjustments in a
Exercise Price hereinabove provided in this Section 6.1:
1. Computation of Consideration. To the extent that any Additional
Capital Shares or any convertible or exchangeable securities or any warrants,
options or other rights to subscribe for or purchase any Additional Capital
Shares or any convertible or exchangeable securities shall be issued for a cash
consideration, the consideration received by the Company therefor shall be
deemed to be the amount of the cash received by the Company therefor, or, if
such Additional Capital Shares or convertible or exchangeable securities
are offered by the Company for subscription, the subscription price,
or, if such Additional Capital Shares or convertible or exchangeable securities
are sold to or through underwriters or dealers for public offering without a
subscription offering, the initial public offering price, in any such case
excluding any amounts paid or incurred by the Company for and in the
underwriting of, or otherwise in connection with the issue thereof. To the
extend that such issuance shall be for a consideration other than cash, then,
the amount of such consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined in good faith by the
Company's Board of Directors. The consideration for any Additional Capital
Shares issuable pursuant to any warrants, options or other rights to subscribe
for or purchase the same shall be the consideration received by the Company for
issuing such warrants, options or other rights, plus the addition consideration
payable to the Company upon the exercise of such warrants, options or other
rights. The consideration for any Additional Capital Shares issuable pursuant to
the terms of any convertible or exchangeable securities shall be the
consideration paid or payable to the Company in respect of the subscription for
or purchase of such convertible or exchangeable securities, plus the additional
consideration, if any, payable to the Company upon the exercise of the right of
conversion or exchange in such convertible or exchangeable securities. In case
of the issuance at any time of any Additional Capital Shares or convertible or
exchangeable securities in payment or satisfaction of any dividend upon any
class of stock preferred as to dividends in a fixed amount, the Company shall be
deemed to have received for such Additional Capital Shares or convertible or
exchangeable securities a consideration equal to the amount of such dividend so
paid or satisfied.
2. Readjustment of Exercise Price. Upon the expiration of the right to
convert or exchange any convertible or exchangeable securities, or upon the
expiration of any rights, options or warrants, the issuance of which
convertible or exchangeable securities, rights.
8
<PAGE> 82
options or warrants effected an adjustment in Exercise Price, if any such
convertible or exchangeable securities shall not have been converted or
exchanged, or if any such rights, options or warrants shall not have been
exercised, the number of Capital Shares deemed to be issued and Outstanding by
reason of the fact that they were issuable upon conversion or exchange of any
such convertible or exchangeable securities or upon exercise of any such rights,
options, or warrants shall no longer be computed as set forth above, and such
Exercise Price shall forthwith be readjusted and thereafter be the price that
it would have been (but reflecting any other adjustments in the Exercise Price
made pursuant to the provisions of this Section 6.1 after the issuance of such
convertible or exchangeable securities, rights, options or warrants) had the
adjustment of the Exercise Price made upon the issuance or sale of such
convertible or exchangeable securities or issuance of rights, options or
warrants been made on the basis of the issuance only of the number of
Additional Capital Shares actually issued upon conversion or exchange of such
convertible or exchangeable securities, or upon the exercise of such rights,
options or warrants, and thereupon only the number of Additional Capital Shares
actually so issued, if any, shall be deemed to have been issued and only the
consideration actually received by the Company (computed as set forth in
sub-subsection (i) hereof) shall be deemed to have been received by the
Company. If the purchase price provided for in any rights, options or warrants,
or the additional consideration (if any) payable upon the conversion or
exchange of any convertible or exchangeable securities, or the rate at which
any convertible or exchangeable securities are convertible into or exchangeable
for Capital Shares changes at any time (other than under or by reason of
provisions designed to protect against dilution), the Exercise Price in effect
at the time of the change shall be adjusted to the Exercise Price that would
have been in effect at such time had such rights, options, warrants or
convertible or exchangeable securities still outstanding provided for such
changed purchase price, additional consideration or conversion rate, as the
case may be, at the time initially granted, issued or sold.
3. Other Action Affecting Capital Shares. In case after the date hereof
the Company shall take any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing subsections (a)
through (h) hereof, inclusive, which in the opinion of the Company's Board of
Directors would have a materially adverse effect upon the rights of the Warrant
Holder at the time of exercise of the Warrant, the Exercise Price shall be
adjusted in such manner and at such time as the Board or Directors on the
advice of the Company's independent public accountants may in good faith
determine to be equitable in the circumstances.
(j) No Adjustments. No adjustments shall be made to the Exercise Price
shall be made whatsoever as a result of (i) warrants and stock options granted
or reserved for issuance to employees and directors as described in the SEC
Documents on file with the Commission as of the date of this Agreement, (ii) an
outstanding offering of with up to $3 million of Convertible Subordinated Notes
convertible into Common Stock at between $7 and $10 per share, (iii) an
Employee Stock Option Plan qualified under Section 423 of the Internal Revenue
Code, (iv) the purchase and sale of the Call Shares hereunder, (v) and the
Warrant, or (vi) any Common Stock issuable upon conversion or exercise of any
of the foregoing.
9
<PAGE> 83
(k) In the event the Company shall, at a time while the Warrant is
unexpired and outstanding, take any action which pursuant to subsections (a)
through (g) of this Section 6.1 may result in an adjustment of the Exercise
Price, the Company shall give to the Warrant Holder at its last address known
to the Company written notice of such action ten (10) days in advance of its
effective date in order to afford to the Warrant Holder an opportunity to
exercise the Warrant prior to such action becoming effective.
Section 6.1 Notice of Adjustments. Whenever the Exercise Price or
number of Warrant Shares shall be adjusted pursuant to Section 6.1 hereof, the
Company shall promptly make a certificate signed by its President or a Vice
President and by its Treasurer or Assistant Treasurer or its Secretary or
Assistant Secretary, setting forth in reasonable detail the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Company's
Board of Directors made any determination hereunder), and the Exercise Price
and number of Warrant Shares purchasable at that Exercise Price after giving
effect to such adjustment, and shall promptly cause copies of such certificate
to be mailed (by first class and postage prepaid) to the Holder of the Warrant.
In the event the Company shall, at a time while the Warrant is unexpired and
not exercised in full, take any action that pursuant to subsections (a) through
(g) of Section 6.1 may result in an adjustment of the Exercise Price, the
Company shall give to the Holder of the Warrant at its last address known to
the Company written notice of such action ten (10) days in advance of its
effective date in order to afford to the Holder of the Warrant an opportunity
to exercise the Warrant prior to such action becoming effective.
Section 7. No Impairment. The Company will not, by amendment of
its Articles of Incorporation or By-Laws or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such action as may be necessary or appropriate in order to protect the
rights of the Warrant Holder against impairment. Without limiting the
generality of the foregoing, the Company (a) will not increase the par value of
any Warrant Shares above the amount payable therefor on such exercise, and (b)
will take all such action as may be reasonably necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares on the exercise of this Warrant.
Section 8. Rights As Stockholder. Prior to exercise of this
Warrant, the Warrant Holder shall not be entitled to any rights as a
stockholder of the Company with respect to the Warrant Shares, including
(without limitation) the right to vote such shares, receive dividends or other
distributions thereon or be notified of stockholder meetings. However, in the
event of any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend (other than a cash dividend) or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right, the
Company shall mail to each Warrant Holder, at least 10 days prior to the date
specified
10
<PAGE> 84
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
Section 9. Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of the Warrant and, in the case of any such loss, theft or
destruction of the Warrant, upon delivery of an indemnity agreement or security
reasonably satisfactory in form and amount to the Company or, in the case of
any such mutilation, on surrender and cancellation of such Warrant, the Company
at its expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
Section 10. Choice of Law. This Agreement shall be construed under
the laws of the State of California, without giving effect to provisions
regarding conflicts of law or choice of law.
Section 11. Entire Agreement: Amendments. This Warrant, the
Registration Rights Agreement, and the Agreement contain the entire
understanding of the parties with respect to the matters covered hereby and
thereby. No provision of this Warrant may be waived or amended other than by a
written instrument signed by the party against whom enforcement of any such
amendment or waiver is sought.
Section 12. Restricted Securities.
(a) Registration or Exemption Required. This Warrant has been
issued in a transaction exempt from the registration requirements of the
Securities Act in reliance upon the provisions of Section 4(2) promulgated by
the SEC under the Securities Act. This Warrant and the Warrant Shares issuable
upon exercise of this Warrant may not be resold except pursuant to an effective
registration statement or an exemption to the registration requirements of the
Securities Act and applicable state laws.
(b) Legend. The Warrant and any Warrant Shares issued upon exercise
thereof, shall bear the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS
AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANS-
FERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
11
<PAGE> 85
UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION WHICH IS
EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER
OF THIS CERTIFICATE IS THE BENEFICIARY OF CERTAIN OBLIGATIONS
OF THE COMPANY SET FORTH IN A PRIVATE EQUITY LINE OF CREDIT
AGREEMENT, DATED AS OF DECEMBER 3, 1997, BETWEEN COMPRESSENT
CORPORATION AND KINGSBRIDGE CAPITAL LIMITED. A COPY OF THE
PORTION OF THE AFORESAID AGREEMENT EVIDENCING SUCH OBLIGATIONS
MAY BE OBTAINED FROM THE COMPANY'S EXECUTIVE OFFICES."
Removal of such legend shall be in accordance with the legend removal
provisions in the Agreement.
(c) No Other Legend or Stock Transfer Restrictions. No legend other
than the one specified in Section 12(b) has been or shall be placed on the
share certificates representing the Common Stock and no instructions or "stop
transfer orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Section 12.
(d) Assignment. Assuming the conditions of Section 12(a) above
regarding registration or exemption have been satisfied, the Warrant Holder may
sell, transfer, assign, pledge or otherwise dispose of this Warrant, in whole
or in part. The Warrant Holder shall deliver a written notice to Company,
substantially in the form of the Assignment attached hereto as Exhibit B,
indicating the person or persons to whom the Warrant shall be assigned and the
respective number of warrants to be assigned to each assignee. The Company
shall effect the assignment within ten (10) days, and shall deliver to the
assignee(s) designated by the Warrant Holder a Warrant or Warrants of like
tenor and terms for the appropriate number of shares.
(e) Investor's Compliance. Nothing in this Section 12 shall affect
in any way the Investor's obligations under any agreement to comply with all
applicable securities laws upon resale of the Common Stock.
Section 13. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and shall be (i) personally served (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile (with accurate confirmation generated by the transmitting facsimile
machine) at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal
12
<PAGE> 86
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
if to Compressent
Corporation: Abraham Ostrovsky
Chairman and Chief Executive Officer
2105 Hamilton Avenue, Suite 140
San Jose, CA 95125-5900
Fax No. (408) 559-8793
with a copy to: Mike Danaher, Esq.
(shall not constitute notice)
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Fax No. (650) 845-5000
if to the Investor: Adam Gurney
Kingsbridge Capital Limited
Main Street
Kilcullen County Kildare
Republic of Ireland
Fax No. 353 45 482 003
with a copy to: Sara Hanks, Esq.
(shall not constitute notice)
Rogers & Wells
200 Park Avenue
New York, NY 10166
Fax No. (212) 878-8375
13
<PAGE> 87
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 13 by giving at least ten (10) days'
prior written notice of such changed address or facsimile number to the other
party hereto.
Section 14. Miscellaneous. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the laws of the State of California. The
headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision.
14
<PAGE> 88
IN WITNESS WHEREOF, this Warrant was duly executed by the undersigned,
thereunto duly authorized, as of the date first set forth above.
COMPRESSANT CORPORATION
By:
----------------------------------------------
Name: Abraham Ostrovsky
Title: Chairman and Chief Executive Officer
Attested:
By:
----------------------------------------------
Name:
Title: Secretary
<PAGE> 89
EXHIBIT A TO THE WARRANT
EXERCISE FORM
COMPRESSENT CORPORATION
The undersigned hereby irrevocably exercises the right to purchase
_____________ shares of Common Stock of COMPRESSENT CORPORATION, a Florida
corporation, evidenced by the attached Warrant, and herewith makes payment of
the Exercise Price with respect to such shares in full in the form of [cash or
check in the amount of $_______], [_______ Warrant Shares, which represent the
amount of Warrant Shares as provided in the attached Warrant to be canceled in
connection with such exercise], all in accordance with the conditions and
provisions of said Warrant.
The undersigned requests that stock certificates for such Warrant Shares
be issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to this Warrant in the name of the registered Holder and delivered to
the undersigned at the address set forth below.
Dated:
-------------------------------------
- -------------------------------------------
Signature of Registered Holder
Name of Registered Holder (Print)
- -------------------------------------------
Address
16
<PAGE> 90
NOTICE
The signature to the foregoing Exercise Form must correspond to the name
as written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
17
<PAGE> 91
EXHIBIT B TO THE WARRANT
ASSIGNMENT
(To be executed by the registered Warrant Holder desiring to transfer
the Warrant)
FOR VALUED RECEIVED, the undersigned Warrant Holder of the attached
Warrant hereby sells, assigns and transfers unto the persons below named the
right to purchase ____________ shares of the Common Stock of COMPRESSENT
CORPORATION evidenced by the attached Warrant and does hereby irrevocably
constitute and appoint ___________________________ attorney to transfer the said
Warrant on the books of the Company, with full power of substitution in the
premises.
Dated:
_______________________________________________
Signature
18
<PAGE> 92
Fill in for new Registration of Warrant:
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
Please print name and address of assignee
(including zip code number)
19
<PAGE> 93
NOTICE
This signature to the foregoing Assignment must correspond to the name
as written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
20
<PAGE> 94
[WILSON SONSINI GOODRICH & ROSATI LETTERHEAD]
December 3, 1997
Kingsbridge Capital Limited
Main Street
Kilcullen, County Kildare
Republic of Ireland
Re: Private Equity Line of Credit Agreement between Kingsbridge Capital
Limited and Compressent Corporation dated December 3, 1997
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 3.2(h) of the Private
Equity Line of Credit Agreement Between Kingsbridge Capital Limited, a British
Virgin Islands entity (the "Investor") and Compressent Corporation (the
"Company"), dated December 3, 1997 (the "Line of Credit Agreement"), complete
with exhibits thereto, which provides for the issuance and sale by the Company
of up to 1,008,000 shares of Common Stock of the Company (the "Call Shares"), a
warrant to purchase 45,000 shares of Common Stock of the Company (the
"Warrant"), and the shares of Common Stock issued or issuable pursuant to
exercise of the Warrant (the "Warrant Shares"). All terms used herein have the
meanings defined for them in the Line of Credit Agreement unless otherwise
defined herein.
We have acted as counsel for the Company in connection with the
negotiation of the Line of Credit Agreement and the Registration Rights
Agreement between the Investor and the Company, dated December 3, 1997 (the
"Registration Rights Agreement") (collectively, the "Agreements"). As counsel,
we have made such legal and factual examinations and inquiries as we have
deemed advisable or necessary for the purpose of rendering this opinion. In
addition, we have examined, among other things, originals or copies of such
corporate records of the Company, certificates of public officials and such
other documents and questions of law that we consider necessary or advisable
for the purpose of rendering this opinion. In such examination we have assumed
the genuineness of all signatures on original documents, the authenticity and
completeness of all documents submitted to us as originals, the conformity to
original documents of all copies submitted to us as copies thereof, the legal
capacity of natural persons, and the due execution and delivery of all
documents (except as to due execution and delivery by the Company) where due
execution and delivery are a prerequisite to the effectiveness thereof.
As used in this opinion, the expression "to our knowledge" or similar
language with reference to matters of fact means that, after an examination of
documents made available to us by the Company including, without limitation,
the Articles of Incorporation and Bylaws of the Company, and after inquiries of
officers of the Company, but without any further independent factual
investigation, we find no reason to believe that the opinions expressed herein
are factually
<PAGE> 95
WILSON SONSINI GOODRICH & ROSATI
Kingsbridge Capital Limited
December 3, 1997
Page 2
incorrect. Further, the expression "to our knowledge" or similar language with
reference to matters of fact refers to the current actual knowledge of the
attorneys of this firm who have worked on matters for the Company solely in
connection with the Agreements and the transactions contemplated thereby. Except
to the extent expressly set forth herein or as we otherwise believe to be
necessary to our opinion, we have not undertaken any independent investigation
to determine the existence or absence of any fact, and no inference as to our
knowledge of the existence or absence of any fact should be drawn from our
representation of the Company or the rendering of the opinion set forth below.
For purposes of this opinion, we are assuming that you have all requisite
power and authority, and have taken any and all necessary corporate or
partnership action, to execute and deliver the Agreements, and we are assuming
that the representations and warranties made by the Investor in the Agreements
and pursuant thereto are true and correct. We are also assuming that the
Investor will be purchasing the Call Shares and the Warrant Shares for value,
in good faith and without notice of any adverse claims within the meaning of
the California Uniform Commercial Code.
The opinions hereinafter expressed are subject to the following
qualifications:
(a) We express no opinion as to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium or other similar federal or
state laws affecting the rights of creditors;
(b) We express no opinion as to the effect or availability of
rules of law governing specific performance, injunctive relief or other
equitable remedies (regardless of whether any such remedy is considered in a
proceeding at law or in equity);
(c) We express no opinion as to compliance with applicable
anti-fraud provisions of federal or state securities laws;
(d) We express no opinion as to the enforceability of the
indemnification provisions of Section 12 of the Line of Credit Agreement and
Article III of the Registration Rights Agreement, to the extent the provisions
thereof may be subject to limitations of public policy and the effect of
applicable statutes and judicial decisions;
(e) We express no opinion as to the enforceability of the
various liquidated damages and penalty provisions in the Line of Credit
Agreement and Registration Rights Agreement; and
(f) We are member of the Bar of the State of California, and we
express no opinion as to any matter relating to the laws of any jurisdiction
other than the federal laws of the United States of America and laws of the
State of California.
<PAGE> 96
WILSON SONSINI GOODRICH & ROSATI
Kingsbridge Capital Limited
December 3, 1997
Page 3
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the law of the State of Florida and has all requisite power
and authority (corporate and other) to carry on its business and to own, lease
and operate its properties and assets as described in the Company's SEC
Documents. To our knowledge, the Company does not have any subsidiaries. The
Company is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the Company owns or leases
property, other than those in which the failure so to qualify would not have a
Material Adverse Effect.
2. To our knowledge, except as disclosed in the SEC Documents, there are
no claims, actions, suits, proceedings or investigations that are pending
against the Company or its properties, or against any officer or director of
the Company in his or her capacity as such, nor has the Company received any
written threat of any such claims, actions, suits, proceedings, or
investigations which are required to be and have not been disclosed in the SEC
Documents.
3. To our knowledge, there are no outstanding options, warrants, calls
or commitments of any character whatsoever relating to, or securities, rights
or obligations convertible into or exchangeable for, or giving any right to
subscribe for or acquire any shares of Common Stock or contracts, commitments,
understanding, or arrangements by which the Company is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible
or exchangeable into shares of Common Stock, except (i) as described in the
Company's representations in the Line of Credit Agreement.
4. The issuance of the Warrant is, and the issuance of the Warrant
Shares on exercise of the Warrant as provided in the Warrant and the issuance
of Call Shares pursuant to any calls that may be made by the Company in
accordance with the Agreements will be, exempt from registration under the
Securities Act of 1933 and will be in compliance with California state
securities laws. The Warrant is, and when so issued the Call Shares and the
Warrant Shares will be, duly and validly issued, fully paid and nonassessable,
and free of any liens, encumbrances and preemptive or similar rights contained
in the Company's Articles of Incorporation (the "Articles") or Bylaws or, to
our knowledge, in any agreement to which the Company is party which has been
filed with the SEC.
5. The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Agreements and to issue the Call
Shares, the Warrant, and the Warrant Shares. The execution, issuance and
delivery of the Agreements and the Warrant by the Company and the consummation
by it of the transactions contemplated thereby have been duly authorized by
all necessary corporate action and not further consent or authorization of the
Company's Board of Directors or stockholders is required. The Agreements and
the Warrant have been duly executed and delivered by the Company and constitute
valid and binding
<PAGE> 97
WILSON, SONSINI, GOODRICH & ROSATI
Kingsbridge Capital Limited
December 3, 1997
Page 4
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application.
6. To our knowledge, the Company is not in violation of any terms of its
Articles or Bylaws. The execution, delivery and performance of and compliance
with the terms of the Agreements, and the issuance of the Call Shares, Warrant,
and the Warrant Shares, do not violate any provision of the Articles or Bylaws
or, to our knowledge, any provision of any applicable federal or state law,
rule or regulation.
This opinion is furnished to the Purchaser solely for its benefit in
connection with the purchase of the Shares, and may not be relied upon by any
other person or for any other purpose without our prior written consent.
Very truly yours,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
/s/ WILSON, SONSINI, GOODRICH & ROSATI
<PAGE> 98
EXHIBIT C
COMPLIANCE CERTIFICATE
COMPRESSENT CORPORATION
The undersigned, Abraham Ostrovsky, hereby certifies, with respect to
shares of common stock of the Company issuable in connection with the Optional
Purchase Notice date _______ (the "Notice"), delivered pursuant to Article II
of the Agreement, as follows:
1. The undersigned is the duly elected Chairman and Chief Executive
Officer of the Company.
2. The representations and warranties of the Company set forth in
Article V of the Agreement dated as of December 3, 1997, are true and correct
in all material respects as though made on and as of the date hereof.
3. The Company has performed with all covenants and agreements to be
performed by the Company on or prior to the Closing Date related to the Notice
and has complied with all obligations and conditions contained in Article III
of the Agreement.
The undersigned has executed this Certificate this ____ day of ________,
199__.
--------------------------------------
Abraham Ostrovsky
Chairman and Chief Executive Officer
66
<PAGE> 99
EXHIBIT D
INSTRUCTIONS TO TRANSFER AGENT
COMPRESSENT CORPORATION
____________________ , 1997
[Name, address and phone and fax number of Transfer Agent]
Dear Sirs:
Reference is made to the Private Equity Line of Credit Agreement (the
"Agreement") dated as of December 3, 1997 between the Kingsbridge Capital
Limited (the "Investor") and Compressent Corporation (the "Company"). Pursuant
to the Agreement, subject to the terms and conditions set forth in the
Agreement the Investor has agreed to purchase from the Company and the Company
has agreed to sell to the Investor from time to time during the term of the
Agreement shares of Common Stock of the Company, par value $.001 per share
(the "Common Stock") and (ii) the Company has issued to the Investor a warrant
to purchase Common Stock (the "Warrant"). As a condition to the effectiveness
of the Agreement, the Company has agreed to issue to you, as the transfer agent
for the Common Stock (the "Transfer Agent"), these instructions relating to the
Common Stock to be issued to the Investor (or a permitted assignee) pursuant to
the Agreement or upon exercise of the Warrants. All terms used herein and not
otherwise defined shall have the meaning set forth in the Agreement.
1. ISSUANCE OF COMMON STOCK WITHOUT THE LEGEND
Pursuant to the Agreement, the Company is required to prepare and file
with the Commission, and maintain the effectiveness of, a registration statement
or registration statements registering the resale of the Common Stock to be
acquired by the Investor (i) under the Agreement and (ii) upon exercise of the
Warrants. The Company will advise the Transfer Agent in writing of the
effectiveness of any such registration statement promptly upon its being
declared effective. The Transfer Agent shall be entitled to rely on such
advice and shall assume that the effectiveness of such registration statement
remains in effect unless the Transfer Agent is otherwise advised in writing by
the Company and shall not be required to independently confirm the continued
effectiveness of such registration statement. In the circumstances set forth in
the following two
67
<PAGE> 100
paragraphs, the Transfer Agent shall deliver to the Investor certificates
representing Common Stock not bearing the Legend without requiring further
advice or instruction or additional documentation from the Company or its
counsel or the Investor or its counsel or any other party (other than as
described in such paragraphs).
At any time after the effective date of the applicable registration
statement (provided that the Company has not informed the Transfer Agent in
writing that such registration statement is not effective) upon any surrender
of one or more certificates evidencing Common Stock which bear the Legend, to
the extent accompanied by a notice requesting the issuance of new certificates
free of the Legend to replace those surrendered, the Transfer Agent shall
deliver to the Investor the certificates representing the Common Stock not
bearing the Legend, in such names and denominations as the Investor shall
request, provided that:
(a) in connection with such event, the Investor (or its permitted
assignee) shall confirm in writing to the Transfer Agent that (i) the
Investor confirms to the transfer agent that it has sold, pledged or
otherwise transferred or agreed to sell, pledge or otherwise transfer such
Common Stock in a bona fide transaction to a designated transferee that is
not an affiliate of the Company; and (ii) the Investor confirms to the
transfer agent that the Investor has complied with the prospectus delivery
requirement;
(b) the Investor (or its permitted assignee) shall represent that it is
permitted to dispose thereof with limitation as to amount of manner of sale
pursuant to Rule 144(k) under the Securities Act; or
(c) the Investor, its permitted assignee, or either of their brokers
confirms to the transfer agent that (i) the Investor has held the shares of
Common Stock for at least one year, (ii) counting the shares surrendered as
being sold upon the date the unlegended Certificates would be delivered to
the Investor (or the Trading Day immediately following such date is not a
Trading Day), the Investor will not have sold more than the greater of (a)
one percent (1%) of the total number of outstanding shares of Common Stock
or (b) the average weekly trading volume of the Common Stock for the
preceding four weeks during the three months ending upon such delivery date
(or the Trading Day immediately following if such date
68
<PAGE> 101
is not a Trading Day), and (iii) the Investor has complied with the manner
of sale and notice requirements of Rule 144 under the Securities Act.
2. MECHANICS OF DELIVERY CERTIFICATES
REPRESENTING COMMON STOCK
In connection with any Closing pursuant to which the Investor acquires
Common Stock under the Agreement, the Transfer Agent shall deliver certificates
representing Common Stock (with or without the Legend, as appropriate) as
promptly as practicable, but in no event later than three business days, after
such Closing.
3. FEES OF TRANSFER AGENT; INDEMNIFICATION
The Company agrees to pay the Transfer Agent for all fees incurred in
connection with these Irrevocable Instructions. The Company agrees to indemnify
the Transfer Agent and its officers, employees and agents, against any losses,
claims, damages or liabilities, joint or several, to which it or they become
subject based upon the performance by the Transfer Agent of its duties in
accordance with the Irrevocable Instructions.
69
<PAGE> 102
4. THIRD PARTY BENEFICIARY
The Company and the Transfer Agent acknowledge and agree that the
Investor is an express third party beneficiary of these Irrevocable
Instructions and shall be entitled to rely upon, and enforce, the provisions
thereof.
COMPRESSENT CORPORATION
By:
------------------------------------
Abraham Ostrovsky
Chairman and Chief Executive Officer
AGREED:
[NAME OF TRANSFER AGENT]
By:
------------------------------------
Name:
Title:
70
<PAGE> 103
EXHIBIT E
ADJUSTMENT PERIOD NOTICE
COMPRESSENT CORPORATION
Notice is hereby granted that the Board of Directors of Compressent
Corporation (the "Company") anticipates executing a merger or acquisition
agreement within ninety (90) days of the date hereof.
The following five-week period is hereby designated as an Adjustment
Period pursuant to Section 2.4 of the PRIVATE EQUITY LINE OF CREDIT AGREEMENT
dated December 3, 1997, by and between the Company and Kingsbridge Capital
Limited.
Beginning:
-----------------------------------
(no sooner than twenty-one (21) days from the date this notice is deemed
to be delivered)
Expiring:
------------------------------------
71
<PAGE> 104
The undersigned has executed this Certificate this ___ day of
________________ , 199__ .
________________________________________
Abraham Ostrovsky
Chairman and Chief Executive Officer
72
<PAGE> 1
EXHIBIT 10.7(d)
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
December 3, 1997, is made and entered into between COMPRESSANT CORPORATION, a
Florida corporation (the "Company"), and KINGSBRIDGE CAPITAL LIMITED (the
"Investor").
WHEREAS, the Company and the Investor have entered into that certain
Private Equity Line of Credit Agreement, dated as of the date hereof (the
"Investment Agreement"), pursuant to which the Company will issue, from time to
time, to the Investor up to $10,000,000 worth of shares of Common Stock, par
value $.001 per share, of the Company (the "Common Stock");
WHEREAS, pursuant to the terms of, and in partial consideration for,
the Investor entering into the Investment Agreement, the Company has issued to
the Investor a warrant dated December 3, 1997, exercisable from time to time
within three (3) years following the six-month anniversary of the date of
issuance (the "Warrant") for the purchase of an aggregate of 45,000 shares of
Common Stock at a price specified in such Warrant;
WHEREAS, pursuant to the terms of, and in partial consideration for,
the Investor's agreement to enter into the Investment Agreement, the Company
has agreed to provide the Investor with certain registration rights with
respect to the Registrable Securities;
NOW, THEREFORE, in consideration of the premises, the representations,
warranties, covenants and agreements contained herein, in the Warrant, and in
the Investment Agreement and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, intending to be
legally bound hereby, the parties hereto agree as follows (capitalized terms
used herein and not defined herein shall have the meaning ascribed to them in
the Investment Agreement):
ARTICLE I
REGISTRATION RIGHTS
Section 1.1. FORM S-3 REGISTRATION STATEMENTS.
(a) Filing of Form S-3 Registration Statements. Subject to
the terms and conditions of this Agreement, the Company shall file with the
within forty-five (45) days following the Subscription Date a registration
statement on Form S-3 under the Securities Act (the "Registration Statement")
for the registration of the resale by the Investor of the Registrable
Securities.
(b) Effectiveness of the Registration Statement. The
Company shall use its best efforts to have the Registration Statement declared
effective by the SEC by no later than ninety
<PAGE> 2
(90) days after Subscription Date and to insure that the Registration Statement
remains in effect throughout the term of this Agreement as set forth in Section
4.2.
(c) Failure to Obtain Effectiveness of Registration Statements. In
the event the Company fails for any reason to obtain the effectiveness of a
Registration Statement within the time period set forth in Section 1.1(b), the
Company shall pay to the Investor, within three Trading Days of the date by
which such Registration Statement was required to have been declared effective,
$10,000 in immediately available funds into an account designated by the
Investor; provided, however, that such amount shall not be payable with respect
to the postponement of the effectiveness of a Registration Statement (or use of
the underlying prospectus) pursuant to Section 1.1(f). Such payment shall be
made by wire transfer of immediately available funds.
(d) Failure to Maintain Effectiveness of Registration Statements. In
the event the Company fails to maintain the effectiveness of a Registration
Statement (or the underlying prospectus) throughout the period set forth in
Section 4.2, other than temporary suspensions as set forth in Section 1.1(f),
and the Investor holds any Registrable Securities at any time during the period
of such ineffectiveness (an "Ineffective Period"), the Company shall pay to the
Investor in immediately available funds into an account designated by the
Investor an amount equal to one half of one percent (0.5%) of the aggregate
Purchase Price of all of the Registrable Securities then held by the Investor
for the each of the first four seven-calendar-day periods (or portion thereof)
of an Ineffective Period and one percent (1.0%) of such aggregate Purchase Price
for each subsequent seven-calendar-day periods (or portion thereof) of such
Ineffective Period. Such amounts shall not be payable with respect to
suspensions of the effectiveness of a Registration Statement (or use of the
underlying prospectus), in accordance with Section 1.1(f). Such payments shall
be made on the first Trading Day after the earliest to occur of (i) the
expiration of the Commitment Period, (ii) the expiration of an ineffective
Period, (iii) the expiration of the first twenty-eight calendar days of an
Ineffective Period and (iv) the expiration of each additional twenty-eight
calendar-day period during an Ineffective Period.
(e) SEC Disapproval. Sections 1.1 (b) and (c) notwithstanding, the
date by which a Registration Statement is required to become effective shall be
extended for up to sixty (60) days without penalty in the event the failure to
obtain effectiveness of a Registration Statement by no later than ninety (90)
days after Subscription Date results solely from the SEC's disapproval of the
structure of the transactions contemplated by the Investment Agreement. In such
event, the parties agree to cooperate with one another in good faith to arrive
at a resolution acceptable to the SEC and the parties hereto and no penalty
shall be payable under this Agreement if the parties are unable to arrive at
such a resolution.
(f) Deferral and Suspension. Sections 1.1(c) and (d)
notwithstanding, if the Company shall furnish to the Investor notice signed by
the Chairman and Chief Executive Officer of the Company stating that the Board
of Directors of the Company has, by duly authorized resolution, determined in
good faith that it would be seriously detrimental to the Company and its
shareholders for the Registration Statement to be filed (or remain in effect)
and it is therefore essential to defer the filing of such Registration Statement
(or temporarily suspend the effectiveness of such Registration Statement or use
of the related prospectus), the Company shall
2
<PAGE> 3
have the right to defer such filing (or suspend such effectiveness) immediately
for a period of not more than thirty (30) days beyond such the date by which
such Registration Statement was otherwise required to be filed (or required to
remain in effect). The Investor acknowledges that it would be seriously
detrimental to the Company and its shareholders for such Registration Statement
to be filed (or remain in effect) and therefore essential to defer such filing
(or suspend such effectiveness) and agrees to cease any disposition of the
Registrable Securities immediately upon receipt of such notice. The Company may
not utilize any of its rights under this Section 1.1(f) to defer the filing of a
Registration Statement (or suspend its effectiveness) more than twice in any
twelve (12) month period. Following such deferral or suspension, the Investor
shall be entitled to such additional number of shares of Common Stock as set
forth in Section 2.7 of the Investment Agreement.
(g) The parties hereto acknowledge and agree that the sums payable
under Sections 1(c) or 1(d) above shall constitute liquidated damages and not
penalties. The parties further acknowledge that (a) the amount of loss or
damages likely to be incurred is incapable or is difficult to precisely
estimate, (b) the amounts specified in such Sections bear a reasonable
proportion and are not plainly or grossly disproportionate to the probable loss
likely to be incurred in connection with any failure by the Company to obtain or
maintain the effectiveness of a Registration Statement, (c) one of the reasons
for the Parties reaching an agreement as to such amounts was the uncertainty
and cost of litigation regarding the question of actual damages, and (d) the
parties are sophisticated business parties and have been represented by
sophisticated and able legal and financial counsel and negotiated this
Agreement at arm's length.
ARTICLE II
REGISTRATION PROCEDURES
Section 2.1. FILINGS; INFORMATION. The Company will effect the registration
and sale of such Registrable Securities in accordance with the intended methods
of disposition thereof. Without limiting the foregoing, the Company in each
such case will do the following as expeditiously as possible, but in not event
later than the deadline, if any, prescribed therefor in this Agreement:
(a) The Company shall prepare and file with the SEC a registration
statement on Form S-3 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate and which form shall be available for the sale of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement and in accordance with the intended method of
distribution of such Registrable Securities); use reasonable best efforts to
cause such filed Registration Statement to become and remain effective (pursuant
to Rule 415 under the Act or otherwise); prepare and file with the SEC such
amendments and supplements to such Registration Statement and the prospectus
used in connection therewith as may be necessary to keep such Registration
Statement effective for the time periods prescribed by Section 1.1(b); and
comply with the provisions of the Act with respect to the disposition of all
securities covered by such Registration Statement during such period in
accordance with the intended methods of disposition by the Investor set forth in
such Registration Statement.
3
<PAGE> 4
(b) The Company shall file all necessary amendments to the
Registration Statement in order to effectuate the purpose of this Agreement,
the Investment Agreement, and the Warrant.
(c) If so requested by the managing underwriters, if any, or
the holders of a majority in aggregate principal amount of the Registrable
Securities being sold in connection with the filing of a Shelf Registration,
the Company shall (i) promptly incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters, if any,
and such holders agree should be included therein, and (ii) make all required
filings of such prospectus supplement or post-effective amendment as soon as
practicable after the Company has received notification of the matters to be
incorporated in such prospectus supplement or post-effective amendment;
provided, however, that the Company shall not be required to take any action
pursuant to this Section 2.1(c)(ii) that would, in the opinion of counsel for
the Company, violate applicable law.
(d) In connection with the filing of a shelf registration, the
Company shall enter into such agreements and take all such other reasonable
actions in connection therewith (including those reasonably requested by the
managing underwriters, if any, or the holders of a majority in aggregate
principal amount of the Registrable Securities being sold) in order to expedite
or facilitate the disposition of such Registrable Securities, and in such
connection, whether or not an underwriting agreement is entered into and
whether or not the registration is an underwritten registration, (i) make such
representations and warranties to the holders of such Registrable Securities
and the underwriters, if any, with respect to the business of the Company
(including with respect to businesses or assets acquired or to be acquired by
the Company), and the Registration Statement, prospectus and documents, if any,
incorporated or deemed to be incorporated by reference therein, in each case,
in form, substance and scope as are customarily made by issuers to underwriters
in underwritten offerings, and confirm the same if and when requested; (ii) if
an underwriting agreement is entered into, the same shall contain
indemnification provision and procedures no less favorable to the selling
holders of such Registrable Securities and the underwriters, if any, than those
set forth herein (or such other provisions and procedures acceptable to the
holders of a majority in aggregate principal amount of Registrable Securities
covered by such Registration Statement and the managing underwriters, if any);
and (iii) deliver such documents and certificates as may be reasonably
requested by the holders of a majority in aggregate principal amount of the
Registrable Securities being sold, their counsel and the managing underwriters,
if any, to evidence the continued validity of their representations and
warranties made pursuant to clause (i) above and to evidence compliance with
any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
(e) Five Trading Days prior to filing a Registration Statement
or prospectus, or any amendment or supplement thereto (excluding amendments
deemed to result from the filing of documents incorporated by reference
therein), the Company shall deliver to the Investor and one firm of counsel
representing the Investor, in accordance with the notice provisions of Section
4.8, copies of such Registration Statement as proposed to be filed, together
with exhibits thereto, which documents will be subject to review by such
parties, and thereafter deliver to the Investor and its counsel, in accordance
with the notice provisions of Section 4.8, such number of copies
4
<PAGE> 5
of such Registration Statement, each amendment and supplement thereto (in each
case including all exhibits thereto), the prospectus included in such
Registration Statement (including each preliminary prospectus) and such other
documents or information as the Investor or counsel may reasonably request in
order to facilitate the disposition of the Registrable Securities.
(f) The Company shall deliver, in accordance with the notice
provisions of Section 4.8, to each seller of Registrable Securities covered by
such Registration Statement such number of conformed copies of such
Registration Statement and of each amendment and supplement thereto (in each
case including all exhibits and documents incorporated by reference), such
number of copies of the prospectus contained in such Registration Statement
(including each preliminary prospectus and any summary prospectus) and any
other prospectus file under Rule 424 promulgated under the Securities Act
relating to such seller's Registrable Securities, and such other documents, as
such seller may reasonably request to facilitate the disposition of its
Registrable Securities.
(g) After the filing of the Registration Statement, the Company
shall promptly notify the Investor of any stop order issued or threatened by
the SEC in connection therewith and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered.
(h) The Company shall use its reasonable best efforts to (i)
register or qualify such Registrable Securities under such other securities or
blue sky laws of such jurisdictions in the United States as the Investor may
reasonably (in light of its intended plan of distribution) request, and (ii)
cause such Registrable Securities to be registered with or approved by such
other governmental agencies or authorities in the United States as may be
necessary by virtue of the business and operations of the Company and do any
and all other acts and things that may be reasonably necessary or advisable to
enable the Investor to consummate the disposition of the Registrable Securities;
provided that the Company will not be required to qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this paragraph (h), subject itself to taxation in any such
jurisdiction, or consent or subject itself to general service of process in any
such jurisdiction.
(i) The Company shall immediately notify the Investor upon the
occurrence of any of the following events in respect of a Registration Statement
or related prospectus in respect of any offering of Registrable Securities; (i)
receipt of any request for additional information by the SEC or any other
federal or state governmental authority during the period of effectiveness of
the Registration Statement for amendments or supplements to the Registration
Statement or related prospectus; (ii) the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose; (iii) receipt of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in the Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so
that, in the case
<PAGE> 6
of the Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and that in the
case of the related prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (v) the Company's reasonable
determination that a post-effective amendment to the Registration Statement
would be appropriate; and the Company will promptly make available to the
Investor any such supplement or amendment to the related prospectus.
(j) The Company shall enter into customary agreements and take
such other actions as are reasonably required in order to expedite or
facilitate the disposition of such Registrable Securities (whereupon the
Investor may, at its option, require that any or all of the representations,
warranties and covenants of the Company also be made to and for the benefit of
the Investor).
(k) The Company shall make available to the Investor (and will
deliver to Investor's counsel), subject to restrictions imposed by the United
States federal government or any agency or instrumentality thereof, copies of
all correspondence between the SEC and the Company, its counsel or auditors and
will also make available for inspection by the Investor and any attorney,
accountant or other professional retained by the Investor (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers and employees to supply all
information reasonably requested by any Inspectors in connection with such
Registration Statement. Records that the Company determines, in good faith, to
be confidential and which it notifies the Inspectors are confidential shall not
be disclosed by the Inspectors unless (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in such Registration
Statement or (ii) the disclosure or release of such Records is requested or
required pursuant to oral questions, interrogatories, requests for information
or documents or a subpoena or other order from a court of competent
jurisdiction or other process; provided that prior to any disclosure or release
pursuant to clause (ii), the Inspectors shall provide the Company with prompt
notice of any such request or requirement so that the Company may seek an
appropriate protective order or waive such Inspectors' obligation not to
disclose such Records; and, provided further, that if failing the entry of a
protective order or the waiver by the Company permitting the disclosure or
release of such Records, the Inspectors, upon advice of counsel, are compelled
to disclose such Records, the Inspectors may disclose that portion of the
Records which counsel has advised the Inspectors that the Inspectors are
compelled to disclose. The Investor agrees that information obtained by it
solely as a result of such inspections (not including any information obtained
from a third party who, insofar as is known to the Investor after reasonable
inquiry, is not prohibited from providing such information by a contractual,
legal or fiduciary obligation to the Company) shall be deemed confidential and
shall not be used by it as the basis for any market transactions in the
securities of the Company or its Affiliates unless and until such information
is made generally available to the public. The Investor further agrees that it
will, upon learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the Company, at
its expense, to undertake appropriate action to prevent disclosure of the
Records deemed confidential.
6
<PAGE> 7
(l) The Company shall deliver, in accordance with the notice
provisions of Section 4.8, to the Investor a signed counterpart, addressed to
the Investor, of (1) an opinion or opinions of counsel to the Company, and (2)
a comfort letter or comfort letters from the Company's independent public
accountants, each in customary form and covering such matters of the type
customarily covered by opinions or comfort letters, as the case may be, as the
Investor reasonably requests.
(m) The Company shall otherwise comply with all applicable rules
and regulations of the SEC, including, without limitation, compliance with
applicable reporting requirements under the Exchange Act.
(n) The Company shall appoint a transfer agent and registrar for
all such Registrable Securities covered by such Registration Statement not
later than the effective date of such Registration Statement.
(o) The Company may require the Investor to promptly furnish in
writing to the Company such information as may be legally required in
connection with such registration including, without limitation, all such
information as may be requested by the SEC or the National Association of
Securities Dealers. The Investor agrees to provide such information requested
in connection with such registration within ten (10) business days after
receiving such written request and the Company shall not be responsible for any
delays in obtaining or maintaining the effectiveness of the Registration
Statement caused by the Investor's failure to timely provide such information.
Section 2.2 REGISTRATION EXPENSES. In connection with each Registration
Statement, the Company shall pay all registration expenses incurred in
connection with the registration thereunder (the "Registration Expenses"),
including, without limitation, (i) all registration, filing, securities
exchange listing and fees required by the National Association of Securities
Dealers, (ii) all registration, filing, qualification and other fees and
expenses of compliance with securities or blue sky laws (including reasonable
fees and disbursements of counsel in connection with blue sky qualifications of
the Registrable Securities), (iii) all word processing, duplicating, printing,
messenger and delivery expenses, (iv) the Company's internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), (v) the fees and expenses
incurred in connection with the listing of the Registrable Securities, (vi)
reasonable fees and disbursements of counsel for the Company and customary fees
and expenses for independent certified public accountants retained by the
Company (including the expenses of any special audits or comfort letters or
costs associated with the delivery by independent certified public accountants
of such special audit(s) or comfort letter(s) requested pursuant to Section
2.1(h) hereof), (vii) the fees and expenses of any special experts retained by
the Company in connection with such registration, (viii) all reasonable fees
and expenses of one firm of counsel for the Investor retained as the Investor's
counsel with respect to such Registration Statement (an estimate of such fees
and expenses of such firm of counsel to be provided to the Company prior to the
undertaking of such counsel's review), (ix) premiums and other costs of
policies of insurance against liabilities arising out of any public offering of
the Registrable Securities being registered, and (x) any fees and disbursements
of underwriters customarily paid by issuers or sellers of securities, but
excluding underwriting fees, discounts,
7
<PAGE> 8
transfer taxes or commissions, if any, attributable to the sale of Registrable
Securities, which shall be payable by each holder of Registrable Securities pro
rata on the basis of the number of Registrable Securities of each such holder
that are included in a registration under this Agreement.
ARTICLE III
INDEMNIFICATION AND CONTRIBUTION
Section 3.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless the Investor, its partners, Affiliates, officers, directors,
employees and duly authorized agents, and each Person or entity, if any, who
controls the Investor within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, together with the partners, Affiliates,
officers, directors, employees and duly authorized agents of such controlling
Person or entity (collectively, the "Controlling Persons"), from and against any
loss, claim, damage, liability, costs and expenses (including, without
limitation, reasonable attorneys' fees and disbursements and costs and expenses
of investigating and defending any such claim) (collectively, "Damages"), joint
or several, and any action or proceeding in respect thereof to which the
Investor, its partners, Affiliates, officers, directors, employees and duly
authorized agents, and any such Controlling Person may become subject under the
Act or otherwise as incurred and, insofar as such Damages (or actions or
proceedings in respect thereof) arise out of, or are based upon, any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement or prospectus relating to the Registrable Securities or
any preliminary prospectus, or arises out of, or are based upon, any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
the same are based upon information furnished in writing to the Company by the
Investor expressly for use therein, and shall reimburse the Investor, its
partners, Affiliates, officers, directors, employees and duly authorized agents,
and each such Controlling Person for any legal and other expenses reasonably
incurred by the Investor, its partners, Affiliates, officers, directors,
employees and duly authorized agents, or any such Controlling Person, as
incurred, in investigating or defending or preparing to defend against any such
Damages or actions or proceedings; provided, however, that the Company shall not
be liable to the Investor to the extent that any such Damages arise out of or
are based upon an untrue statement or omission made in any preliminary
prospectus if (i) the Investor failed to send or deliver a copy of the final
prospectus delivered by the Company to the Investor with or prior to the
delivery of written confirmation of the sale by the Investor to the Person
asserting the claim from which such Damages arise, and (ii) the final prospectus
would have corrected such untrue statement or such omission or alleged omission.
Section 3.2. CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after receipt by
any person or entity in respect of which indemnity may be sought pursuant to
Section 3.1 (an "Indemnified Party") of notice of any claim or the commencement
of any action, the Indemnified Party shall, if a claim in respect thereof is to
be made against the person or entity against whom such indemnity may be sought
(the "Indemnifying Party"), notify the Indemnifying Party in writing of the
claim or the commencement of such action; in the event an Indemnified Party
shall fail to give such notice as provided in this Section 3.2 and the
Indemnifying Party to whom
8
<PAGE> 9
notice was not given was unaware of the proceeding to which such notice would
have related and was materially prejudiced by the failure to give such notice,
the indemnification provided for in Section 3.1 shall be reduced to the extent
of any actual prejudice resulting from such failure to so notify the
Indemnifying Party; provided, that the failure to notify the Indemnifying Party
shall not relieve it from any liability that it may have to an Indemnified
Party otherwise than under Section 3.1. If any such claim or action shall be
brought against an Indemnified Party, and it shall notify the Indemnifying
Party thereof, the Indemnifying Party shall be entitled to participate therein,
and, to the extent that it wishes, jointly with any other similarly notified
Indemnifying Party, to assume the defense thereof with counsel reasonably
satisfactory to the Indemnified Party. After notice from the Indemnifying Party
to the Indemnified Party of its election to assume the defense of such claim or
action, the Indemnifying Party shall not be liable to the Indemnified Party for
any legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation; provided that the Indemnified Party shall have the right to
employ separate counsel to represent the Indemnified Party and its controlling
persons who may be subject to liability arising out of any claim in respect of
which indemnity may be sought by the Indemnified Party against the Indemnifying
Party, but the fees and expenses of such counsel shall be for the account of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) in the
reasonable judgment of the Company and such Indemnified Party, representation
of both parties by the same counsel would be inappropriate due to actual or
potential conflicts of interest between them, it being understood, however,
that the Indemnifying Party shall not, in connection with any one such claim or
action or separate but substantially similar or related claims or actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (together with appropriate local counsel) at any time for all
Indemnified Parties, or for fees and expenses that are not reasonable. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any claim or pending or threatened proceeding
in respect of which the Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party, unless
such settlement includes an unconditional release of such Indemnified Party
from all liability arising out of such claim or proceeding. Whether or not the
defense of any claim or action is assumed by the Indemnifying Party, such
Indemnifying Party will not be subject to any liability for any settlement made
without its consent, which consent will not be unreasonably withheld.
Section 3.3. OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding paragraphs of this Article 3 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification of
securities under any federal or state law or regulation of any governmental
authority other than the Securities Act. The provisions of this Article III
shall be in addition to any other rights to indemnification, contribution or
other remedies which an Indemnified Party may have pursuant to law, equity,
contract or otherwise.
Section 3.4. CONTRIBUTION. If the indemnification provided for in this
Article III is unavailable to the Indemnified Parties in respect of any Damages
referred to herein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Damages as between the
9
<PAGE> 10
Company on the one hand and the Investor on the other, in such proportion as is
appropriate to reflect the relative fault of the Company and of the Investor in
connection with such statements or omissions, as well as other equitable
considerations. The relative fault of the Company on the one hand and of the
Investor on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Investor agree that it would not be just and equitable if
contribution pursuant to this Section 3.4 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified party as a result of
the Damages referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 3.4, the Investor shall in no event be required to
contribute any amount in excess of the amount by which the total price at which
the Registrable Securities of the Investor were sold to the public (less
underwriting discounts and commissions) exceeds the amount of any damages which
the Investor has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
ARTICLE IV
MISCELLANEOUS
Section 4.1. NO OUTSTANDING REGISTRATION RIGHTS. The Company represents and
warrants to the Investor that there is not in effect on the date hereof any
agreement by the Company pursuant to which any holders of securities of the
Company have a right to cause the Company to register or qualify such
securities under the Securities Act or any securities or blue sky laws of any
jurisdiction that would conflict or be inconsistent with any provision of this
Agreement or the Investment Agreement.
Section 4.1. TERM. The registration rights provided to the holders of
Registrable Securities hereunder shall terminate at such time as all Call
Shares (i) have been disposed of pursuant to the Registration Statement, (ii)
have been sold under circumstances under which all of the applicable conditions
of Rule 144 (or any similar provision then in force) under the Securities Act
("Rule 144") are met, (iii) have been otherwise transferred to holders who may
trade such shares without restriction under the Securities Act, and the
Company has delivered a new certificate or other evidence of ownership for
such securities not bearing a restrictive legend, or (iv) may be sold without
any time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act in the opinion of counsel to
the Company, which counsel shall be reasonably acceptable to the Investor;
provided, however, that
10
<PAGE> 11
such registration rights shall not terminate sooner than two years following
the Subscription Date. Notwithstanding the foregoing, paragraphs (c) and (d) of
Section 1.1, Article III, Section 4.8, and Section 4.9 shall survive the
termination of this Agreement.
Section 4.3 RULE 144. The Company covenants that it will file all reports
required to be filed by it under the Act and the Exchange Act and that it will
take such further action as holders of Registrable Securities may reasonably
request, all to the extent required from time to time to enable the Investor to
sell Registrable Securities without registration under the Act within the
limitation of the exemptions provided by (a) Rule 144, as such Rule may be
amended from time to time, or (b) any similar rule or regulation hereafter
adopted by the SEC. If at any time the Company is not required to file such
reports, it will, upon the request of any holder of Registrable Securities,
make publicly available other information so long as necessary to permit sales
pursuant to Rule 144. Upon the request of the Investor, the Company will
deliver to Investor a written statement as to whether it has complied with such
requirements.
Section 4.4 CERTIFICATE. The Company will, at its expense, forthwith upon
the request of any holder of Registrable Securities, deliver to such holder a
certificate, signed by the Company's principal financial officer, stating (a)
the Company's name, address and telephone number (including area code), (b) the
Company's Internal Revenue Service identification number, (c) the Company's
Commission file number, (d) the number of shares of each class of Stock
outstanding as shown by the most recent report or statement published by the
Company, and (e) whether the Company has filed the reports required to be filed
under the Exchange Act for a period of at least ninety (90) days prior to the
date of such certificate and in addition has filed the most recent annual
report required to be filed thereunder.
Section 4.5 AMENDMENT AND MODIFICATION. Any provision of this Agreement may
be waived, provided that such waiver is set forth in a writing executed by both
parties to this Agreement. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the Company has obtained the written consent of the holders of a
majority of the then outstanding Registrable Securities. Notwithstanding the
foregoing, the waiver of any provision hereof with respect to a matter that
relates exclusively to the rights of holders of Registrable Securities whose
securities are being sold pursuant to a Registration Statement and does not
directly or indirectly affect the rights of other holders of Registrable
Securities may be given by holders of at least a majority of the Registrable
Securities being sold by such holders; provided that the provisions of this
sentence may not be amended, modified or supplemented except in accordance with
the provisions of the immediately preceding sentence. No course of dealing
between or among any Person having any interest in this Agreement will be
deemed effective to modify, amend or discharge any part of this Agreement or
any rights or obligations of any person under or by reason of this Agreement.
Section 4.6 SUCCESSORS AND ASSIGNS; ENTIRE AGREEMENT. This Agreement and all
of the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and all their respective successors and assigns. The Investor
may assign its rights under this Agreement to any subsequent holder of the
Registrable Securities, provided that the Company shall have the right to
require any holder of Registrable Securities to execute a counterpart of this
11
<PAGE> 12
Agreement as a condition to such holder's claim to any rights hereunder. This
Agreement, together with the Investment Agreement and the Warrants sets forth
the entire agreement and understanding between the parties as to the subject
matter hereof and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them.
Section 4.7 SEPARABILITY. In the event that any provision of this Agreement
or the application of any provision hereof is declared to be illegal, invalid
or otherwise unenforceable by a court of competent jurisdiction, the remainder
of this Agreement shall not be affected except to the extent necessary to
delete such illegal, invalid or unenforceable provision unless that provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
Section 4.8 NOTICES. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and shall be (i) personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii) delivered by
reputable air courier service with charges prepaid, or (iv) transmitted by hand
deliver, telegram or facsimile, addressed as set forth below or to such other
address as such party shall have specified most recently by written notice. Any
notice or other communication required or permitted to be given hereunder shall
be deemed effective (a) upon hand delivery or delivery by facsimile, with
accurate confirmation generated by the transmitting facsimile machine, at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
if to Compressent Corporation: Abraham Ostrovsky
Chairman and Chief Executive Officer
2105 Hamilton Avenue, Suite 140
San Jose, CA 95125-5900
Fax No. (408) 559-8793
with a copy to: Mike Danaher, Esq.
(shall not constitute notice) Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Fax No. (650) 845-5000
if to the Investor: Adam Gurney
Kingsbridge Capital Limited
Main Street
Kilcullen, County Kildare
Republic of Ireland
Fax No. 353 45 482 003
12
<PAGE> 13
with a copy to: Sara Hanks, Esq.
(shall not constitute notice) Rogers & Wells
200 Park Avenue
New York, NY 10166
Fax No. (212) 878-8375
Either party hereto may from time to time change its address or facsimile
number for notice under this Section 4.8 by giving at least ten (10) days'
prior written notice of such changed address or facsimile number to the other
party hereto.
Section 4.9 GOVERNING LAW. This Agreement shall be construed under the laws
of the State of California, without giving effect to provision regarding
conflicts of law or choice of law.
Section 4.10 HEADINGS. The headings in this Agreement are for convenience of
reference and shall not constitute a part of this agreement, nor shall they
affect their meaning, construction or effect.
Section 4.11 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original instrument and
all of which together shall constitute one and the same instrument.
Section 4.12 FURTHER ASSURANCES. Each party shall cooperate and take such
action as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement and the transactions contemplated
hereby.
Section 4.13 REMEDIES. In the event of a breach or a threatened breach by any
party to this Agreement of its obligations under this Agreement, any party
injured or to be injured by such breach will be entitled to specific performance
of its rights under this Agreement or to injunctive relief, in addition to being
entitled to exercise all rights provided in this Agreement and granted by law.
The parties agree that the provisions of this Agreement shall be specifically
enforceable, it being agreed by the parties that remedy at law, including
monetary damages, for breach of any such provision will be inadequate
compensation for any loss and that any defense or objection to any action for
specific performance or injunctive relief that a remedy at law would be adequate
is waived.
13
<PAGE> 14
IT WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be executed by the undersigned, thereunto duly authorized,
as of the date first set forth above.
COMPRESSENT CORPORATION
By: /s/ ABRAHAM OSTROVSKY
--------------------------------
Abraham Ostrovsky
Chairman and Chief Executive
Officer
KINGSBRIDGE CAPITAL LIMITED
By:
---------------------------------
Adam Gurney
Director
<PAGE> 15
IT WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be executed by the undersigned, thereunto duly authorized,
as of the date first set forth above.
COMPRESSENT CORPORATION
By:
--------------------------------
Abraham Ostrovsky
Chairman and Chief Executive
Officer
KINGSBRIDGE CAPITAL LIMITED
By: /s/ ADAM GURNEY
---------------------------------
Adam Gurney
Director
<PAGE> 1
EXHIBIT 10.7(e)
PROMISSORY NOTE
$425,000.00 Date: January 15, 1998
Compressent Corporation hereby promises to pay $425,000.00 to Mr. Ted Cooper at
P.O. Box 36007, San Jose, CA 95158 on demand or within thirty (30) days with
interest rate at 15% per annum.
Compressent Corporation hereby agree to pay the commitment fee of four percent
(4%) of the amount lent to the Company prior to February 15, 1998.
Compressent Corporation hereby agrees to issue 100,000 warrants to purchase
100,000 shares of Common Stock at $6.25 per share for period of three years.
/s/ WON-GIL CHOE /s/ EDWARD T. KALINOSKI
- ----------------------- --------------------------------
Won-Gil Choe Edward T. Kalinoski
Chief Executive Officer Member of the Board of Director
Compressent Corporation Compressent Corporation
<PAGE> 1
EXHIBIT 10.7(f)
LOAN AGREEMENT
THIS LOAN AGREEMENT made and entered as of this 3rd day of February, 1998
by and between CALL NOW, INC. (hereinafter referred to as the "Lender") having
the address, 9701 Biscayne Boulevard, Miami Shores, FL 33138; and COMPRESSENT
CORPORATION (hereinafter referred to as the "Company") having the address of
2105 Hamilton Avenue, Suite 140, San Jose, CA 95125.
WITNESSETH
WHEREAS, Company has requested the Lender to lend to Company at any time
and from time to time, subject to the terms herein, up to the sum of
$10,000,000, solely for business purposes as hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants of the parties
hereto, and for other good and valuable consideration, the parties hereto agree
as follows:
SECTION 1. COMMITMENT AND CONDITIONS
1.1 COMMITMENT. Subject to the terms and conditions of this Agreement,
the Lender agrees to loan up to the aggregate principal amount of $10,000,000
(the "Commitment Agreement"), on such dates on or before July 31, 1998 as the
Company may request from time to time prior to such date.
1.2 CONDITIONS. Notwithstanding any other provision of this Agreement,
any new loan hereunder need not be made if the conditions precedent to the
making of the loans specified in Section 2 herein have not been satisfied in
full.
1.3 NOTE. Each advance hereunder shall be noted by Lender on the
promissory note (hereinafter referred to as the "Company Note") substantially
in the form set forth in Exhibit A.
1
<PAGE> 2
1.4 MANDATORY PREPAYMENT.
(a) The Company, without further notice or demand, shall promptly
pay to the Lender as a prepayment of the loans the net proceeds (after
deduction of reasonable offering expenses) of the sale of any securities it
receives, which proceeds are expected to be received pursuant to private
placement. Once the Company has received proceeds from the sale of securities,
the Commitment Agreement shall be reduced and the obligation of Lender to make
any further loans hereunder shall be reduced to the extent of such proceeds.
1.5 INTEREST. Interest will accrue on the principal amount
outstanding from time to time under the Loan, computed on a daily basis, based
upon a 360-day year, at the rate of 15% per annum. In no event shall interest
be due at a rate in excess of the highest lawful rate. It is not the intention
of the parties hereto to make any agreement which shall be violative of the
applicable laws relating to usury. In no event shall Company pay or Lender
accept or charge any interest which, together with any other charges upon the
principal or any portion thereof, shall exceed the maximum lawful rate. Should
any provision of this Agreement, or any existing or further notes or any other
agreements between the parties be construed to require the payment of interest
which, together with any other charges upon the principal, or any portion
thereof, exceed such maximum lawful rate of interest, then any such excess
shall be and is hereby expressly waived, and shall be credited to the
outstanding principal balance.
1.6 COMMITMENT FEE. Company shall pay Lender commitment fee of
$400,000 within thirty (30) days after the first loan pursuant to this
agreement or on such other schedule as the parties agree.
2
<PAGE> 3
1.7 Stock Purchase Warrant. Upon execution hereof, Company shall sell
to Lender for $500.00 a warrant to purchase 500,000 shares of Company Common
Stock for on the terms set forth in Exhibit B hereto.
SECTION 2. CONDITIONS TO LOANS
Prior to funding of each loan request hereunder, Company shall deliver to
Lender:
2.1 Funding Request. Certificate to Lender setting forth certified copy
of resolution duly adopted by the Company's Board of Directors by written
consent requesting the loan and that such loan is required by the Company to
meet working capital requirements or acquisitions due within ten (10) days of
the date of adoption of such resolution.
2.2 Officer's Certificate. Certificate of officer of the Company
certifying that the proceeds of such loan shall be utilized only for said
purpose specified in the directors' resolution.
2.3 Return of Unused Proceeds. Any loan proceeds not utilized as set
forth in the foregoing certificates shall be promptly returned to Lender.
SECTION 3. MISCELLANEOUS
3.1 Notices. Any notice shall be conclusively deemed to have been
received by the Company and be effective on the date on which delivered to the
offices of the Company by messenger, courier or facsimile, or if sent by
telegram, on the next business day after the day on which sent, addressed to
them at their addresses as shown on the records of Lender, or if sent by
registered or certified mail, addressed to them at said addresses, on the third
business day after the day on which mailed.
3.2 Survival of Representations. All covenants, agreements,
representations and warranties made herein and in the certificates delivered
pursuant hereto shall survive the execution
3
<PAGE> 4
of this Agreement and the execution and delivery to the Lender of the Note
evidencing the indebtedness to the Lender hereunder, and shall continue in full
force and effect so long as any indebtedness created hereunder is outstanding
and unpaid. All covenants and agreements by or on behalf of a party which are
contained or incorporated in this Agreement shall bind and inure to the benefit
of the successors and assigns of the parties hereto.
3.3 Effect of Delay. Neither any failure nor any delay on the part
of Lender in exercising any right, power or privilege hereunder or under the
Note shall operate as a waiver thereof, nor shall a single or partial exercise
thereof preclude any other or further exercise of any other right, power or
privilege.
3.4 Expenses. The Company will pay all out-of-pocket expenses
reasonably incurred by Lender in connection with the preparation of this
Agreement, and all documents and instruments provided for herein, and the
enforcement of the rights of Lender in connection with this Agreement, or with
the loans and advances made or the Note issued hereunder, including but not
limited to the fees of and expenses of special counsel for Lender which
expenses shall be due and payable fifteen (15) days after giving a reasonably
itemized statement thereof.
3.5 Modifications and Waivers. No modification or waiver of any
provision of this Agreement, or of the Note, nor consent to any departure by
the Company therefrom shall in any event be effective unless the same shall be
in writing, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice to or demand on
the Company or the Company in any case shall thereby entitle the Company to any
other or further notice or demand in the same, similar or other circumstance.
4
<PAGE> 5
3.6 Business Day. Should any installment on the Note become due and
payable on other than a business day of the Lender, the maturity thereof, shall
be extended to the next succeeding business day with interest on the Principal
amount thereof at the rate specified therein.
3.7 Remedies Cumulative. Any rights or remedies of the Lender
hereunder or under any other writing shall be cumulative and in addition to
every other right or remedy contained therein or herein or now or existing
hereafter at law or in equity or by statute or otherwise.
3.8 Construction. This Agreement shall be governed and construed in
accordance with the Laws of the State of Florida.
3.9 Complete Agreement. This Agreement (together with the Exhibits
hereto and the Notes and Collateral provided for herein and all agreements,
schedules and other instruments heretofore executed in connection with banking
transactions) constitutes the entire agreement and supersedes all prior
agreements and understandings; written or oral, between the Lender and the
Company with respect to the making of loans to Company by Lender.
3.10 Records and Inspection. Company shall keep correct current
records of its inventory, accurately and sufficiently itemizing and describing
the kinds, type and quantities of inventory and the cost and selling prices
thereof, all of which records shall be continuously available to lender for
inspection; and Lander shall at all reasonable times have access to and the
right to inspect and copy data from any of Borrower's other books and records
for the purpose of checking and verifying all such statements and records.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
CALL NOW, INC.
By: /s/ WILLIAM M. ALLEN
------------------------------------
William M. Allen
Chairman
COMPRESSENT CORPORATION
By: /s/ WON GIL CHOE
------------------------------------
Won Gil Choe
President
6
<PAGE> 7
PROMISSORY NOTE
$
- ---------- ------------------
The undersigned, COMPRESSENT CORPORATION, a Florida corporation ("Maker"),
for value received, promises to pay to CALL NOW, INC. ("CNI"), or assigns, at
9701 Biscayne Boulevard, Miami Shores, FL 33138, or at such other location as
the holder hereof shall specify to Maker, the sum of DOLLARS
($) one year (1) year from the date hereof. Interest shall accrue from the
date hereof at the rate of 15% per annum and shall be paid quarterly. After the
maturity of any installment of principal or interest which is not paid when due,
interest on such unpaid installment shall accrue at the highest rate allowed by
law.
In addition to, and not in limitation of the foregoing, the undersigned
further agrees, subject only to any limitation imposed by applicable law, to pay
all expenses, including reasonable attorneys' fees and legal expenses, incurred
by the holder of this Note in endeavoring to collect any amounts payable
hereunder that are not paid when due.
If default be made in the payment of any amount herein provided for, then,
or at any time thereafter, at holder's option, the security given to secure the
payment of this Note may be foreclosed. Failure to exercise such option, or any
other rights holder may have in the event of any such default, shall not
constitute a waiver of the right to exercise such option or any other rights in
the event of any subsequent default, whether of the same or a different nature.
This Note may be prepaid in full or in part at any time and from time to
time without premium or penalty.
<PAGE> 1
EXHIBIT 10.7 EXHIBIT (G)
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR
TRANSFERRED WITHOUT COMPLIANCE WITH THE ACT.
Void after 5:00 P.M., West Coast Time, on February 3, 2001
STOCK PURCHASE WARRANT
For the purchase of 500,000 shares of common stock of COMPRESSENT
CORPORATION, par value $.001 per share (a Florida corporation).
This is to certify that, for value received, CALL NOW, INC., or
assigns, are entitled, subject to the terms and conditions hereinafter set
forth, at or before 5:00 P.M. on February 3, 2001 to purchase 500,000 shares of
the common stock of COMPRESSENT CORPORATION, $.001 par value per share, from the
said corporation, for the purchase price of $6.25 per share, and to receive a
certificate or certificates for the common stock so purchased upon presentation
and surrender to the corporation of this warrant with payment of the purchase
price for each share purchased; provided, however, that in the event that this
warrant is exercised more than one (1) year after the original issue date, the
exercise price shall the lower of the foregoing price or the average of the
closing bid and asked price of such common stock for the three (3) trading days
immediately preceeding such exercise.
(a) The corporation covenants and agrees that all shares which may
be delivered upon the exercise of this warrant will, upon delivery, be free
from all taxes, liens, and charges with respect to the purchase thereof, and
shall be fully paid and nonassessable.
<PAGE> 2
(b) The purchase rights represented by this warrant are exercisable
at the option of the holder hereof in whole or in part from time to time within
the period specified above. In case of the purchase of less than all of the
shares purchasable under this warrant, the corporation will cancel this warrant
upon the surrender hereof and shall execute and deliver a new warrant for the
balance of the shares purchasable hereunder.
(c) The number of shares purchasable upon the exercise of this
warrant and the purchase price per share shall be subject to adjustment from
time to time as set forth herein.
(d) If the outstanding shares of common stock of the corporation
are increased, decreased, or changed into, or exchanged for a different number
of kind of shares or securities through reorganization, merger,
recapitalization, reclassification, stock split, stock dividend, stock
consolidation, or otherwise, and appropriate and proportionate adjustment shall
be made in the number and kind of shares as to which this warrant relates. Such
adjustment shall be made without change in the total price applicable to the
unexercised portion of this warrant, but with a corresponding adjustment in the
price of each share subject to the warrant.
(e) If there shall be any adjustment as provided above, the
corporation shall forthwith cause written notice to be sent to the initial
holder of this warrant at the address of such holder shown on the books of the
corporation, which notice shall be accompanied by a statement setting forth in
reasonable detail the facts
<PAGE> 3
requiring any such adjustment and the warrant price and number of shares
purchaseable after such adjustment, as the case may be.
(f) This warrant shall not entitle the holder hereof to any voting
rights or other rights as a shareholder of the corporation unless and until
this warrant shall be exercised.
IN WITNESS WHEREOF, the corporation has caused this warrant to be
executed by the signatures of its duly authorized officers and its corporate
seal hereunto affixed.
COMPRESSENT CORPORATION
By /s/ WON-GIL CHOE
-------------------------------------
Attest:
/s/ KENTON D. CHOW
----------------------------------------
Secretary
Dated: February 3, 1998
<PAGE> 4
February 11, 1998
Compressent Corporation
2105 Hamilton Avenue, Suite 140
San Jose, CA 95125
RE: Loan Agreement dated February 3, 1998
Preferred Stock and Warrant Purchase Agreement dated February 3, 1998
Gentlemen:
This will confirm that we have agreed to amend Section 1.7 of the
above-referenced Loan Agreement to provide that Call Now, Inc. shall have the
option to acquire any or all of the stock purchase warrants referred to therein
at a purchase price of $2.00 per warrant, such option to be exercised on or
before exercise thereof.
We have also agreed that the Series A Convertible Preferred Stock being
purchase pursuant to the above referenced Preferred Stock and Warrant Purchase
Agreement will pay dividends of $7.50 per share accruing as of one year after
the date of issuance.
Would you please confirm your agreement to the foregoing by signing the
enclosed copy of this letter where indicated and returning for our records.
Yours very truly,
CALL NOW, INC.
By: /s/ William M. Allen
---------------------------------
William M. Allen
Chairman
The above is confirmed:
COMPRESSENT CORPORATION
By: /s/ Won-Gil Choe
-----------------------
Won-Gil Choe, President
<PAGE> 1
EXHIBIT 10.7(H)
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
THIS PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT is made and entered
into as of the 3rd day of February, 1998, by and between COMPRESSENT CORP., a
Florida corporation maintaining its principal offices at 2105 Hamilton Avenue,
San Jose, CA 95125 (the "Company"), and CALL NOW, INC., a Florida corporation
maintaining its principal offices at 9701 Biscayne Boulevard, Miami, Florida
33138 (the "Purchaser").
WHEREAS, Purchaser desires to purchase and hold certain equity securities
of the Company and the Company desires to sell such securities to Purchaser, all
in accordance with, and subject to, the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, the covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. AUTHORIZATION AND SALE OF THE SHARES AND WARRANT.
1.1 Authorization. The Company has authorized the issuance pursuant to
the terms and conditions hereof: (i) 56,000 shares (the "Shares") of its
convertible preferred stock, par value $0.001 per share (the "Preferred Stock")
and (ii) the Company's Warrant to purchase 500,000 shares of the Company's
Common Stock (the "Warrant"). Such Shares and Warrant are further described in
Exhibit A hereto.
1.2 Purchase and Sale. Subject to the terms and conditions hereof, the
Company will issue and sell to Purchaser, and Purchaser will purchase from the
Company, the Shares and the Warrant (collectively, the "Securities") at an
aggregate purchase price of $3,500,500 (the "Purchase Price"), of which
$3,500,000 shall be allocated to the Shares and $500 shall be allocated to the
Warrant.
2. CLOSING AND DELIVERY.
2.1 Closing. The closing of the purchase and sale of the Securities (the
"Closing") shall be held at the offices of Purchaser on February 3rd, 1998 (the
"Closing Date") or at such other time and place as the Company and Purchaser
may agree in writing.
2.2 Delivery. At the Closing, subject to the terms and conditions of
this Agreement, the Company will deliver to Purchaser the Shares and the
Warrant against payment by Purchaser of the Purchase Price in the form of the
securities specified in Exhibit B hereto. In the event of any redemption of the
Preferred Stock, such securities may be utilized as valued herein.
1
<PAGE> 2
2.3 Conditions. The obligations of each of the parties to this
Agreement to be performed by it shall be subject to the satisfaction, on or
before the Closing Date of the following conditions:
(a) Representations and Warranties True. The representations
and warranties made in this Agreement by the other parties hereto, when
construed as representations and warranties made as of the Closing Date, shall
be true and correct as of the Closing Date except for any changes required,
permitted or contemplated by this Agreement or other transactions consented to
by the parties to whom the representations and warranties are made, and except
for other changes, the aggregate cumulative effect of which upon its financial
condition, results of operations, business and financial position, taken as a
whole, is not materially adverse.
(b) Performance of Agreements. The other parties and their
subsidiaries shall have substantially performed and complied with all material
agreements, obligations and restrictions required by this Agreement to be
performed or complied with by them or their subsidiaries at or prior to the
Closing Date.
(c) Approval of Shareholders and Others. The shareholders
of the Company shall have authorized the issuance of the Shares in the manner
required by applicable law; all material consents from third parties required
to consummate the sale shall have been obtained, and the Company shall have
obtained all authorizations and approvals of regulatory bodies or officials
necessary to permit the consummation of the sale.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth in Exhibit C attached hereto, the Company hereby
represents and warrants to Purchaser as follows (unless the context otherwise
requires or admits, references herein to the Company include any Subsidiaries
of the Company):
3.1 Organization and Standing, Articles and Bylaws. The Company is
a corporation duly organized and existing under the laws of the State of
Florida and its status under such laws is active. The Company has the requisite
corporate power to own and operate its properties and assets and to carry on
its business as presently conducted and as proposed to be conducted. The
Company has furnished Purchaser with copies of its Articles of Incorporation
and Bylaws. Said copies are true, correct and complete and contain all
amendments through the date of this Agreement.
3.2 Corporate Power. The Company has now, or will have at the
Closing Date, all requisite legal authority and corporate power to enter into
this Agreement, to sell the Securities hereunder and to perform its obligations
under this Agreement.
2
<PAGE> 3
3.3 Subsidiaries. The Company has no subsidiaries other than
Softlink, Inc. The Company does not own, directly or indirectly, any shares of
stock or other equity interests in any other corporation, association, joint
venture or business organization.
3.4 Capitalization. The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock, of which there are issued and
outstanding 5,612,000 shares and 150,000 shares of Preferred Stock of which
none are issued and outstanding. All such outstanding shares of Common Stock
have been duly authorized and validly issued, and are fully paid and
nonassessable. There are no outstanding rights, options, warrants, conversion
rights or agreements for the purchase or acquisition from the Company of any
shares of its capital stock except as set forth in Exhibit C hereto. All shares
heretofore issued have been issued in full compliance with all applicable
federal and state securities laws.
3.5 SEC and Financial Statements. (a) The Company has filed with
the SEC all reports, forms, schedules and statements and other documents
required to be filed by it (the "SEC Documents"). As of their respective filing
dates, (i) the SEC Documents complied in all material respects with the
requirements of the Securities Act, or the Exchange Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder applicable to
such SEC Documents, and (ii) none of the SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made not misleading. The financial
statements included in the SEC Documents complied, as of their respective
filing dates as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, were prepared in accordance with generally accepted accounting
principles ("GAAP") (except, in the case of unaudited statements, as permitted
by Form 10-Q of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly present,
in all material respects, the consolidated financial position of the Company
and its Subsidiaries as of the dates thereof and the results of its operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set forth on
Schedule 3.5 and except for liabilities and obligations incurred in the ordinary
course of business consistent with past practice since the date of the most
recent consolidated balance sheet included in the SEC Documents filed and
publicly available prior to the date hereof, neither the Company nor any of its
Subsidiaries has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) required by GAAP to be set forth on a
balance sheet or in the notes thereto.
3.6 Taxes. The amount of the provision for liability for taxes on
the Company's Balance Sheet is sufficient for the payment of all unpaid
federal, state and local income, franchise and property taxes of the Company
accrued for or applicable to the period ended on the date of said Balance Sheet
and all years and periods prior thereto. The Company has collected or paid all
applicable local tax returns, intangible tax returns and other tax returns
which are required to be filed by it, and such returns and reports are true and
correct. The Company has prepared and filed all Federal, State and County and
local income, excise and other tax returns required to be filed by it
3
<PAGE> 4
and all such returns are true and correct. The Company has paid all taxes which
have become due pursuant to such returns or pursuant to any assessment received
by it. The Federal income tax returns of the Company have not been examined by
the Internal Revenue Service. The Company has not incurred any tax liabilities
other than in the ordinary course of business; there are no tax liens upon any
of the properties or assets, real, personal or mixed, tangible or intangible, of
the Company, (except for liens of taxes not yet due); and, except as reflected
in the Balance Sheet, there are no pending questions relating to, or claims
asserted for, taxes or assessments against the Company, and there is no basis
for any such question or claim.
3.7 Insurance. The Company has in force and effect and is covered under
policies of insurance covering such risks and in amounts adequate for the size
and scope of its business.
3.8 Other Material Contracts and Commitments. Set forth in Exhibit 3.18
and delivered to Purchaser are copies of all material contracts, agreements,
instruments and other commitments to which the Company is a party and which are
not included in other exhibits hereto. Except as included in said Exhibit 3.8
and such other exhibits to this Agreement, the Company is not a party to or
bound by any written or oral (a) material contract, agreement or other
instrument or understanding creating a liability; (b) material lease, mortgage,
pledge, conditional sales contract, security agreement, factoring agreement or
other similar agreement with respect to any real or personal property, whether
as lessor or lessee or otherwise; (c) material agreement or arrangement for the
borrowing of money or for a line of credit; (e) agreement or arrangement any for
the sale of the assets of the Company or for the grant of any preferential
rights to purchase any of the assets, property or rights of the Company or for
the transfer or the assignment thereof other than the ordinary course of
business of the Company; (f) guarantee, surety, subordination or other agreement
for related type of agreement or arrangement; (g) agreement of any kind with any
director or officer or with any associate of any such person; (h) material
agreement or commitment for capital expenditures or for the acquisition of fixed
assets. As used in this Section 3.18, the term "material" refers to any
contract, agreement, commitment, instrument or understanding involving a
liability, actual or potential, in excess of $5,000.
3.9 Performance of Obligations. The Company has performed all of the
material obligations required to be performed by it and is not in material
default under any of the agreements, leases, contracts or other documents to
which it is a party. No party with whom the Company has an agreement or
commitment is in material default thereof. As used in this Section 3.9, the term
"material" refers to a default involving more than $500 or which, when
aggregated with other defaults, would exceed $2,000, or which would give the
nondefaulting party a right to cancel or terminate such defaulted agreement or
obligation.
3.10 Conflict. Neither the execution of this Agreement nor the consummation
of the transactions contemplated hereby will conflict with or result in a breach
of, or give rise to, or termination of, or accelerate the maturity of or the
performance required by any terms of the Articles of Incorporation or By-laws or
any indenture, loan agreement, lease or other agreement or arrangement of the
Company, or constitute a default thereunder, or result in the creation of any
lien, charge or encumbrance upon any of the assets or properties of the Company.
4
<PAGE> 5
3.11 Litigation, etc. There is no investigation by any governmental
agency or any legal proceedings pending, or to the best knowledge of the
Seller, threatened against the Company, or the property, assets or good will
thereof, and there is no out-standing order, writ, injunction or decree of any
court or governmental agency against or affecting the Company, or against or
affecting its business, property, assets, good will or common stock.
3.12 Compliance with Laws. The Company has complied in all material
respects with all laws, regulations and orders applicable to the conduct of its
business, and the Company possesses all permits, licenses and other approvals
and authorizations of all governmental agencies which are necessary to the
conduct of its business and all said permits, licenses and other approvals and
authorizations are in full force and effect. The Company has not received any
notice of, and is not aware of any material violation of, any law, rule,
regulation or ordinance concerning zoning, environmental regulation, hazardous
substances or of any law, order, regulation or requirement relating to the
operation of its business which remains uncured or which has not been dismissed.
3.13 Recent Transactions. Except as shown on the Exhibits
delivered in connection herewith, the business of the Company has been conducted
diligently and only in the ordinary course and the Company has not (a) incurred
or become subject to any obligation or liability (absolute or contingent) except
current liabilities incurred in the ordinary course of business of the Company
and under contracts entered into in the ordinary course of business of the
Company, none of which involves potential liability in excess of $5,000 or is
not cancelable in thirty days or less notice without penalty or liquidated
damages; (b) discharged or satisfied any lien or encumbrance or paid any
obligation (tangible or intangible) other than liabilities shown on the Balance
Sheet and current liabilities incurred since the date of the said Balance Sheet
in the ordinary course of business of the Company; (c) mortgaged, pledged or
subjected to lien, charge or any other encumbrance, any of its assets, real or
personal tangible or intangible; (d) sold or transferred any of its assets,
property or rights or cancelled any debts or claims except in each case in the
ordinary course of business of the Company, or entered into any agreement or
arrangement granting any preferential rights to purchase any of its assets,
property or rights or which requires consent of any third party to the transfer
and assignment of any of its assets, property or rights; (e) suffered any
extraordinary losses (whether or not covered by insurance) or waived any rights
of substantial value; (f) made or permitted any amendment or termination of any
contract, agreement or license to which it is a party, otherwise than in the
ordinary course of business; (g) through negotiation or otherwise, made any
commitment or incurred any liability to any labor organization; (h) made capital
expenditures or entered into agreements therefor aggregating more than $5,000;
(i) issued any stock, bonds or any other corporate securities or granted any
options, warrants or other rights calling for the issuance thereof; (j) amended
its Articles of Incorporation or By-Laws.
3.14 Warranties. There are no pending claims against the Company or
its insurers for breach of any warranty or with respect to liability for
defective products or services.
3.15 Brokers and Finder. The Company has not entered into an
agreement with any person, firm or corporation, or become indirectly a party to
any such agreement nor has it taken any action or is it aware of any facts
which would result in the assertion of any liability or claim for the
5
<PAGE> 6
payment of any commission, brokerage or finder's fee in connection with the
execution of this Agreement or the consummation of transactions contemplated
herein.
3.16 Disclosure. All material facts regarding the assets, business,
operations, financial condition and prospects of the Company are reflected in
the Balance Sheet, or have been disclosed herein, or have been disclosed to
Purchaser in writing set forth as Exhibit 3.16 hereto. No representation or
warranty by the Company contained in this agreement and no statement contained
in any certificate, schedule, exhibit, list or other writing furnished to
Purchaser pursuant to the provisions hereof or in connection with the
negotiation hereof, contains any untrue statement of any material fact or omits
to state a material fact necessary in order to make the statements herein not
misleading.
3.17 Update. The Company will promptly advise the Purchaser in writing
of any changes in any of the representations, warranties or Exhibits herein and
these representations and warranties shall be true and correct as of the date
of the Closing as well as the date hereof, and the Company will provide
Purchaser with quarterly and annual balance sheets and income statements of the
Company from the date hereof until the Purchaser no longer owns any securities
of the Company.
4. SECURITIES ACT.
4.01 Investment Representation. Purchaser acknowledges that the
Company's Securities issuable pursuant to this Agreement will not have been
registered under the Securities Act of 1933 (the "Securities Act") and that the
Securities must be held indefinitely unless subsequently registered thereunder
or an exemption from registration is available. Purchaser represents and
warrants to Company that (i) Purchaser will acquire such Securities for
investment, and not with a view to the distribution thereof within the meaning
of the Securities Act, (ii) Purchaser will acquire such Securities for its own
account and has not offered, and as of the Closing Date will not have offered
and does not intend to offer any participation or interest of any kind in such
Securities to any other person (iii) the purchase of the Securities constitutes
an investment decision of any amount and type consistent with such Purchaser's
investment practices and objectives. Purchaser acknowledges that the Company
has offered it access to all information, financial and otherwise, regarding
the Company deemed relevant by Purchaser to its investment decision and an
opportunity to discuss such information with officers and employees of the
Company and to examine the Company's books and records.
4.02 Legending of Securities. The Securities issuable hereunder shall
not be transferable except upon the conditions specified in this Section 4,
which conditions are intended to insure compliance with the provisions of the
Securities Act in respect of the transfer of any such Securities.
Each certificate for a Security issued to Purchaser, and each certificate
for a Security issued to subsequent transferees of Purchaser, shall (unless
otherwise permitted by this Section 4) be stamped or otherwise imprinted in
substantially the following form:
6
<PAGE> 7
"The transfer of the shares represented by this certificate is
subject to compliance with the conditions specified in an
Agreement, a copy of which is on file at the office of the
Corporation, and no transfer of such shares shall be valid or
effective until such conditions have been fulfilled."
4.03 Restrictions on Transferability. Purchaser and any subsequent
holder of a certificate of Securities bearing the restrictive legend set forth
in Section 4.02 (hereinafter in this Section 4 called the "Holder") by
acceptance thereof agrees, prior to any transfer or attempted transfer of such
Security, to give written notice to the Company of such Holder's intention to
effect such transfer (the "notice of transfer"). Each such notice of transfer
shall describe the manner and circumstances of the proposed transfer in
reasonable detail and shall contain an undertaking by the person giving such
notice to furnish such further information as may reasonably be required by the
Company or counsel referred to below. Promptly upon receiving any such notice of
transfer, the following provisions shall apply:
(i) If such notice of transfer does not include an opinion of
counsel for the Holder concerning the transferability of the securities
without registration under the Securities Act, the Company shall promptly
submit copies of the notice of transfer to its counsel. If in the opinion
of such counsel, the proposed transfer of such Security may be effected
without registration under the Securities Act, the Company shall as
promptly as is practicable so notify the Holder and the transfer agent of
such Security and such Holder shall thereupon be entitled to transfer such
Security in accordance with the terms of the notice delivered by such
Holder to the Company. Each certificate representing a Security issued upon
the transfer of any such Security shall bear the restrictive legend set
forth above if in the opinion of such counsel such legend is required in
order to insure compliance with the applicable provisions of the Securities
Act;
(ii) If, in the opinion of such counsel, the proposed transfer of
such Security may not be effected without registration under the Securities
Act, the Company shall as promptly as is practicable so notify the Holder.
The Holder thereof, agrees, as to such Security, by acceptance thereof,
that if the proposed transfer cannot, in the reasonable opinion of such
counsel, be effected without registration under the Securities Act, such
Holder will not transfer such Security unless it has been registered under
the Securities Act, or unless the staff of the Securities and Exchange
Commission has stated in writing that it would raise no objection with
respect to the proposed transfer. The restrictions imposed by this Section
4 upon the transferability of any particular Security shall cease and
terminate concurrently with the sale or other disposition thereof pursuant
to and in the manner contemplated by an effective registration statement
under the Securities Act, or pursuant to and in accordance with Rule 144
promulgated under the Securities Act (or any similar rule or regulation
hereafter promulgated). Whenever the restrictions imposed by the Section 4
shall terminate, as hereinabove provided, the Holder of any Security as to
which such restrictions shall have terminated shall be entitled to receive
from the Company one or more new certificates of such Security not bearing
the restrictive legend set forth above and not containing any other
reference to the restrictions imposed by this Section 4.
7
<PAGE> 8
(iii) If the Holder delivers with the notice of transfer an opinion
of Holder's counsel confirming the transferability of the Securities
without registration under the Securities Act, the Company shall as
promptly as is practicable so notify the transfer agent, if any, of such
Security and such Holder shall thereupon be entitled to immediately receive
from the Company one or more new certificates of such Security not bearing
the restrictive legend set forth above and not containing any other
reference to the restrictions imposed by this Section.
4. REGISTRATION RIGHTS. Upon request of purchaser the Company will
register under the Securities Act for sale by purchaser or its assignees of the
Securities (including Common Stock issuable on exercise of the Warrant). All
expenses of such registration, other than commissions of broker/dealers shall be
paid by the Company.
5. CONDUCT OF THE BUSINESS OF THE COMPANY.
5.01 As long as the Purchaser owns any of the Securities, including any
Common Stock issuable on exercise of the Warrant the Company will;
(i) Establish and maintain adequate internal accounting controls.
(ii) Give Purchaser and its counsel, accountants and other
representatives full access during normal business hours to all of the
properties, personnel, books, tax returns, contracts, commitments and records of
the Company and the Purchaser shall be furnished with all such documents and
information with respect to the affairs of the Company as Purchaser or its
counsel or accountants may from time to time reasonably request. Such inspection
shall not extend to the confidential product development areas which the Company
protects as trade secrets.
(iii) Give the Purchaser five (5) days' prior written notice of all
meetings of the Board of Directors and any committee of the Board of the Company
and allow the Purchaser through its authorized representative to attend and
observe at any such meeting. Copies of the minutes of all such meetings all be
delivered to the Purchaser within ten (10) days after the date of each such
meeting. Company will not amend its Articles of Incorporation of By-laws without
the consent of the holders of a majority of the outstanding Preferred Stock.
(iv) Deliver to the Purchaser copies of all actions of the Board of
Directors and any committee of the Board or the shareholders taken by written
consent without a meeting within five (5) days after the effective date of such
action.
(v) Utilize the funds of the Company only for valid business
purposes on behalf of the Company. Deliver a copy of the Company's check
register showing disposition of the funds of the Company in reasonable detail
to the Purchaser upon request. All disbursements of funds of the Company in
excess of $250 shall require two signatures authorized by the Board of
Directors and approved by Purchaser.
8
<PAGE> 9
(vi) Provide Purchaser with quarterly and annual balance
sheets and income statements of the Company from the date hereof within 45 days
after the end of the first three fiscal quarters of each fiscal year and within
90 days after the end of each fiscal year and file all statements and reports
with the SEC required under the Securities Exchange Act of 1934.
(vii) Company will not issue any additional shares of its
Common Stock or any warrants, options or securities convertible into its Common
Stock without the written consent of Purchaser.
6. MISCELLANEOUS.
6.01 Notices. All notices, requests, demands or other communications
hereunder shall be in writing and shall be deemed to have been duly given when
sent by certified mail, return receipt requested:
(i) If to Purchaser, addressed to:
Call Now, Inc.
P.O. Box 531399
Miami Shores, FL 33153
Attention: William M. Allen
(ii) If to Company, addressed to:
Compressent Corporation
2105 Hamilton Avenue, Suite 140
San Jose, CA 95125-5900
or such other address as the parties shall designate by notice given as
provided herein.
6.02 Public Announcements. The parties shall consult with each other
with respect to any public announcement of the transactions provided for herein
and no such public announcement shall be made by the Company unless the same
shall be approved in advance in writing by Purchaser.
6.03 Expenses. Except as otherwise expressly provided herein, each
of the parties hereto shall pay its own fees and expenses incident to the
negotiation, preparation, execution and consummation of this Agreement,
including all fees and expenses of their respective counsel and accountants
incurred in connection with this Agreement and all other agreements, documents,
certificates, applications and other instruments prepared in connection
herewith.
6.04 Successors. This Agreement shall inure to the benefit of and
be binding upon the Company and its successors and assigns, and Purchaser and
its successors and assigns.
9
<PAGE> 10
6.05 Law to Apply. This Agreement shall be construed and enforced in
accordance with the laws of the State of Florida, and the parties hereby agree
that any action, suit or other legal proceeding by any party concerning this
Agreement or the construction or enforcement thereof shall be brought only in a
court of appropriate jurisdiction in the State of Florida.
6.06 Assignment. This Agreement shall not be assignable by any party
hereto without the prior written consent of the other parties hereto.
6.07 Entire Agreement. This Agreement contains the entire agreement
among the parties hereto with respect to the subject matter hereof and
supersedes any and all prior arrangements, proposals or understandings, written
or oral, by or among any of the parties hereto with respect to such purchase and
sale or other transactions, which arrangements, proposals and understandings
shall be of no further force and effect. No waiver, amendment or modification
of this Agreement shall be effective for any purpose unless the same shall be
in writing signed by all of the parties hereto or their successors in interest.
6.08 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall not affect the construction hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
CALL NOW, INC.
By: /s/ WILLIAM M. ALLEN
------------------------------------------
William M. Allen
Chairman
COMPRESSANT CORP.
By: /s/ WON GIL CHOE
------------------------------------------
Won Gil Choe
President
10
<PAGE> 1
EXHIBIT 10.7(I)
CERTIFICATE OF DESIGNATION OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
COMPRESSENT CORPORATION
It is hereby certified that::
1. The name of the Company (hereinafter called the "Company") is
COMPRESSENT CORPORATION.
2. The Certificate of Incorporation of the Company (the
"Certificate of Incorporation") authorize the issuance of One Hundred Fifty
Thousand (150,000) shares of preferred stock, $.001 par value per share, and
expressly vests in the Board of Directors of the Company the authority provided
therein to issue any or all undesignated preferred shares in one or more
series and by resolution or resolutions to establish the designation and number
and to fix the relative rights and preferences of each series to be issued.
3. The Board of Directors of the Company, pursuant to the
authority expressly vested in it as aforesaid, has adopted the following
resolutions creating a series of preferred stock to be designated as "Series A
Convertible Preferred Stock":
RESOLVED, that 56,000 authorized but undesignated shares of preferred
stock of the Company shall be designated Series A Convertible Preferred Stock,
$.001 par value per share, and shall possess the rights and preferences set
forth below:
Section 1. Designation and Amount. 80,000 shares of the Company's
authorized but undesignated preferred stock shall be designated as Series A
Convertible Preferred Stock (the "Series A Convertible Preferred Stock") par
value $.001 per share. The Series A Convertible Preferred Stock shall have a
stated value of $62.50 per share (the "Original Series A Convertible Issue
Price").
Section 2. Rank. The Series A Convertible Preferred Stock shall
rank prior to all of the Company's Common Stock ("Common Stock") and prior to
any class or series of capital stock of the Company (collectively with the
Common Stock, the "Junior Securities") in each case as to distributions of
assets upon liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary (all such distributions being referred to collectively
as "Distributions").
Section 3. Dividends. The holders of the then outstanding Series A
Convertible Preferred Stock shall be entitled to receive, when and as declared
by the Board of Directors, out of any funds legally available therefor,
cumulative dividends at the annual rate of $3.72 per share, payable in cash
annually on each January 1, April 1, July 1, October 1, commencing on April 1,
1998. Such dividends shall accrue on each share from original issue date and
shall accrue from day to day, whether or not earned or declared. Such dividends
shall be cumulative so that if such dividends in respect of any previous or
current annual dividend period, at the annual rate specified above, shall
<PAGE> 2
not have been paid or declared and a sum sufficient for the payment thereof set
apart, the deficiency shall first be fully paid before any dividend or other
distribution shall be paid on or declared and set apart for the Junior
Securities. Any accumulation of dividends on the Series A Convertible Preferred
Stock shall not bear interest.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
the Company ("Liquidation Event"), either voluntary or involuntary, the Holders
of shares of Series A Convertible Preferred Stock shall be entitled to receive,
immediately after any distributions to Senior Securities required by the
Company's Certificate of Incorporation or any certificate of designation, and
prior in preference to any distribution to Junior Securities but in parity with
any distribution to Parity Securities an amount per share equal to the sum of
(i) $62.50 and (ii) all accrued and unpaid dividends thereon, whether or not
earned or declared, and no more. If upon the occurrence of such event, and
after payment in full of the preferential amounts with respect to the Senior
securities, the assets and funds available to be distributed among the Holders
of the Series A Convertible Preferred Stock shall be insufficient to permit the
payment to such Holders of the full preferential amounts due to the Holders of
the Series A Convertible Preferred Stock then the entire assets and funds of
the Company legally available for distribution shall be distributed among the
Holders of the Series A Convertible Preferred Stock, pro rata, based on the
respective liquidation amounts to which the Holders of each such series are
entitled by the Company's Articles of Incorporation and any certificate(s) of
designation relating thereto. A Business Combination Event shall be considered
a Liquidation Event unless otherwise agreed by the Holders of the Series A
Convertible Preferred Stock.
(b) Upon the completion of the distribution required by subsection
4(a), if assets remain in this Company, they shall be distributed to holders of
Junior Securities in accordance with the Company's Articles of Incorporation
including any duly adopted certificate(s) of designation.
Section 5. Conversion. The record Holders of this Series A Convertible
Preferred Stock shall have conversion rights as follows (the "Conversion
Rights"):
(a) Right to Convert. Each record Holder of Series A Convertible
Preferred Stock shall be entitled (at the times set forth below) to convert (in
multiples of one preferred share) any or all of the shares of Series A
Convertible Preferred Stock held by such Holder at any time into ten (10)
fully-paid and non-assessable shares of Common Stock of the Company.
(b) Mechanics of Conversion. Before any holder of Series A
Convertible Preferred Stock shall be entitled to convert the same into shares
of Common Stock, he shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Company or of any transfer agent for the
Common Stock, and shall give written notice to the Company at such office that
he elects to convert the same and shall state therein the number of shares of
Series A Convertible Preferred Stock being converted. Thereupon the Company
shall promptly issue and deliver at such
2
<PAGE> 3
office to such holder of Series A Convertible Series A Convertible Preferred
Stock a certificate or certificates for the number of shares of Common Stock to
which he shall be entitled. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series A Convertible Preferred Stock to be converted, and the person
or persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.
(i) Lost or Stolen Certificates. Upon receipt by the Company of evidence
of the loss, theft, destruction or mutilation of any Preferred Stock
Certificates, and (in the case of loss, theft or destruction) of indemnity or
security reasonably satisfactory to the Company and its Transfer Agent, and upon
surrender and cancellation of the Preferred Stock Certificate(s), if mutilated,
the Company shall execute and deliver new Preferred Stock Certificate(s) of like
tenor and date. However, Company shall not be obligated to re-issue such lost or
stolen Preferred Stock Certificates if Holder contemporaneously requests Company
to convert such Series A Convertible Preferred Stock into Common Stock.
(ii) No Fractional Shares. If any conversion of the Series A Convertible
Preferred Stock would create a fractional share of Common Stock to a holder or a
right to acquire a fractional share of Common Stock, such fractional share shall
be disregarded and the number of shares of Common Stock issuable upon
conversion, shall be the next higher number of shares, or the Company may at its
option pay cash equal to fair value of the fractional share based on the fair
market value of one share of the Company's Common Stock on the date of
conversion, as determined in good faith by the Board of Directors.
(c) Reservation of Stock Issuable Upon Conversion. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
Series A Convertible Preferred Stock, such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all then
outstanding Series A Convertible Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of Series A Convertible
Preferred Stock, the Company will immediately take such corporate action as may
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
(d) Adjustment to Conversion Rate.
(i) Adjustment Due to Stock Split, Stock Dividend, Etc. If, prior to
the conversion of all of the Series A Convertible Preferred Stock, the number
of outstanding shares of Common Stock is increased by a stock split, stock
dividend, or other similar event, the Conversion Rate shall be proportionately
reduced, or if the number of outstanding shares of Common Stock is decreased by
a combination or reclassification of shares, or other similar event, the
Conversion Rate shall be proportionately increased.
3
<PAGE> 4
(ii) Adjustment Due to Merger, Consolidation, Etc. If, prior to the
conversion of all Series A Convertible Preferred Stock, there shall be any
merger, consolidation, exchange of shares, recapitalization, reorganization, or
other similar event, as a result of which shares of Common Stock of the Company
shall be changed into the same or a different number of shares of the same or
another class or classes of stock or securities of the Company or another entity
or, as a result of any such transaction the outstanding shares of Common Stock
is increased by 20% or more (each a "Business Combination Event"), then the
Holders of Series A Convertible Preferred Stock shall thereafter have the right
to receive upon conversion of Series A Convertible Preferred Stock, upon the
basis and upon the terms and conditions specified herein and in lieu of the
shares of Common Stock immediately theretofore issuable upon conversion, such
stock, securities and/or other assets which the Holder would have been entitled
to receive in such transaction had the Series A Convertible Preferred Stock
been converted immediately prior to such transactions, and in any such case
appropriate provisions shall be made with respect to the rights and interests
of the Holders of the Series A Convertible Preferred Stock to the end that the
provisions hereof (including, without limitation, provisions for the adjustment
of the Conversion Rate and of the number of shares issuable upon conversion of
the Series A Convertible Preferred Stock) shall thereafter be applicable, as
nearly as may be practicable in relation to any securities thereafter
deliverable upon the exercise hereof.
(iii) No Fractional Shares. If any adjustment under this Section 5(e)
would require the issuance of a fractional share of Common Stock to a holder,
such fractional share shall be disregarded and the number of shares of Common
Stock issuable upon conversion shall be the next higher full number of shares.
(c) Effect on Accrued and Unpaid Dividends. In the event that any shares of
Series A Convertible Preferred Stock shall be converted into Common Stock, no
accrued and unpaid dividends on such converted Series A Convertible Preferred
Stock shall be paid upon or after such conversion.
Section 6. Redemption by Company.
(a) Company's Right to Redeem at its Election. At any time, commencing
after ninety (90) days after the Last Closing Date, the Company shall have the
right, in its sole discretion, to redeem ("Redemption at Company's Election"),
from time to time, any or all of the Series A Convertible Preferred Stock;
provided (i) Company shall first provide thirty (30) days advance written
notice as provided in subparagraph 67(b)(ii) below (which can be given
beginning on the ninety first (91st) day after the Last Closing Date). If the
Company elects to redeem some, but not all, of the Series A Convertible
Preferred Stock, the Company shall redeem a pro-rata amount from each Holder of
the Series A Convertible Preferred Stock.
(i) Redemption Price At Company's Election. The "Redemption Price at
Company's Election" shall be an amount per share equal to the sum of (i) $100.00
and (ii) all accrued and unpaid dividends thereon, whether or not earned or
declared.
4
<PAGE> 5
(ii) Mechanics of Redemption at Company's Election. The Company
shall effect each such redemption by giving at least thirty (30) days prior
written notice ("Notice of Redemption At Company's Election") to the Holders of
the Series A Convertible Preferred Stock selected for redemption, by first
class, mail, postage prepaid at the address. Election shall indicate (i) the
number of shares of Series A Convertible Preferred Stock that have been selected
for redemption, (ii) the date which such redemption is to become effective (the
"Date of Redemption At Company's Election") and (iii) the applicable Redemption
Price at Company's Election, as defined in (a)(i) above. Notwithstanding the
above, Holder may convert into Common Stock, prior to the close of business on
the Date of Redemption at Company's Election, any Series A Convertible Preferred
Stock which it is otherwise entitled to convert.
(c) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to effect any redemption or begin
any redemption procedure (including the delivery of any notice required by this
Section 6) under Section 6(a) or Section 6(b) unless it has:
(i) the full amount of the redemption price in cash, available
in a demand or other immediately available account in a bank or similar
financial institutions; or
(ii) immediately available credit facilities, in the full
amount of the redemption price with a bank or similar financial institution; or
(iii) an agreement with any underwriter willing to purchase from
the Company a sufficient number of shares of stock to provide proceeds
necessary to redeem any stock that is not converted prior to redemption; or
(iv) a combination of the items set forth in (i), (ii) and
(iii) above, aggregating the full amount of the redemption price.
(d) Payment of Redemption Price.
Each Holder submitting Preferred Stock being redeemed under this
Section 6 shall send its Series A Convertible Preferred Stock Certificates so
redeemed to the Transfer Agent, and the Company shall pay the applicable
redemption price to that Holder by within five (5) business days of the
Company's receipt of Preferred Stock Certificates representing the Series A
Convertible Preferred Stock to be redeemed. The Company shall not be obligated
to deliver the redemption price unless the Preferred Stock Certificates so
redeemed are delivered to the Transfer Agent, or, in the event one or more
certificates have been lost, stolen, mutilated or destroyed, the Holder has
complied with Section 5(b)(i).
Section 7. Voting Rights. The Holders of the Series A Convertible
Preferred Stock shall initially have no voting power whatsoever, and no Holder
of Series A Convertible Preferred Stock shall vote or otherwise participate in
any proceeding in which actions shall be taken by the Company or the
shareholders thereof or be entitled to notification as to any meeting of the
shareholders except
5
<PAGE> 6
as otherwise provided by the Florida Business Corporation Act ("Florida Law");
provided, however, the holders of the shares of Series A Convertible Preferred
Stock shall be entitled to elect two members of the Board of Directors of the
Company.
To the extent that under Florida Law the vote of the Holders of the
Series A Convertible Preferred Stock, voting separately as a class, is required
to authorize a given action of the Company, the affirmative vote or consent of
the Holders of at least a majority of the shares of the Series A Convertible
Preferred Stock represented at a duly held meeting at which a quorum is present
or by written consent of a majority of the shares of Series A Convertible
Preferred Stock (except as otherwise may be required under Florida Law) shall
constitute the approval of such action by the class. To the extent that under
Florida Law the Holders of the Series A Convertible Preferred Stock are
entitled to vote on a matter with holders of Common Stock, voting together as
one class, each share of Series A Convertible Preferred Stock shall be entitled
to a number of votes equal to the number of shares of Common Stock into which
it is then convertible using the record date for the taking of such vote of
stockholders as the date as of which the Conversion Rate is calculated. Holders
of the Series A Convertible Preferred Stock shall be entitled to notice of all
shareholder meetings or written consents with respect to which they would be
entitled to vote, which notice would be provided pursuant to the Company's
by-laws and applicable statutes.
Section 8. In the event Holders of at least seventy five percent (75%)
of the then outstanding shares of Series A Convertible Preferred Stock and at
least seventy five percent (75%) of the then outstanding Holders agree to allow
the Corporation to alter or change the rights, preferences or privileges of the
shares of Series A Convertible Preferred Stock, pursuant to subsection (a)
above, so as to affect the Series A Convertible Preferred Stock, then the
Corporation will deliver notice of such approved change to the Holders of the
Series A Convertible Preferred Stock that did not agree to such alteration or
change (the "Dissenting Holders") and Dissenting Holders shall have the right
for a period of thirty (30) days to convert pursuant to the terms of this
Certificate of Designation as they exist prior to such alteration or change
(notwithstanding the holding requirements set forth in Section 5(a) hereof), or
continue to hold their shares of Series A Convertible Preferred Stock subject
to the altered rights, preferences or privileges.
Signed on February 3, 1998.
[SIG]
--------------------------------
CEO & Chairman of the Board
6
<PAGE> 1
EXHIBIT 10.7(J)
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR
TRANSFERRED WITHOUT COMPLIANCE WITH THE ACT.
Void after 5:00 P.M., West Coast Time, on February 3rd, 2001
STOCK PURCHASE WARRANT
For the purchase of 500,000 shares of common stock of COMPRESSANT
CORPORATION, par value $.001 per share (a Florida corporation).
This is to certify that, for value received, CALL NOW, INC., or assigns,
are entitled, subject to the terms and conditions hereinafter set forth, at or
before 5:00 P.M. on February 3, 2001 to purchase 500,000 shares of the common
stock of COMPRESSANT CORPORATION, $.001 par value per share, from the said
corporation, for the purchase price of $6.25 per share, and to receive a
certificate or certificates for the common stock so purchased upon presentation
and surrender to the corporation of this warrant with payment of the purchase
price for each share purchased; provided, however, that in the event that this
warrant is exercised more than one (1) year after the original issue date, the
exercise price shall be the lower of the foregoing price or the average of the
closing bid and asked price of such common stock for the three (3) trading days
immediately preceeding such exercise.
(a) The corporation covenants and agrees that all shares which may be
delivered upon the exercise of this warrant will, upon delivery, be free from
all taxes, liens, and charges with respect to the purchase thereof, and shall
be fully paid and nonassessable.
<PAGE> 2
(b) The purchase rights represented by this warrant are exercisable at
the option of the holder hereof in whole or in part from time to time within
the period specified above. In case of the purchase of less than all of the
shares purchasable under this warrant, the corporation will cancel this warrant
upon the surrender hereof and shall execute and deliver a new warrant for the
balance of the shares purchasable hereunder.
(c) The number of share purchasable upon the exercise of this warrant and
the purchase price per share shall be subject to adjustment from time to time
as set forth herein.
(d) If the outstanding shares of common stock of the corporation are
increased, decreased, or changed into, or exchanged for a different number or
kind of shares or securities through reorganization, merger, recapitalization,
reclassification, stock split, stock dividend, stock consolidation, or
otherwise, an appropriate and proportionate adjustment shall be made in the
number and kind of shares as to which this warrant relates. Such adjustment
shall be made without change in the total price applicable to the unexercised
portion of this warrant, but with a corresponding adjustment in the price of
each share subject to the warrant.
(e) If there shall be any adjustment as provided above, the corporation
shall forthwith cause written notice to be sent to the initial holder of this
warrant at the address of such holder shown on the books of the corporation,
which notice shall be accompanied by a statement setting forth in reasonable
detail the facts
<PAGE> 3
requiring any such adjustment and the warrant price and number of shares
purchasable after such adjustment, as the case may be.
(f) This warrant shall not entitle the holder hereof to any voting rights
or other rights as a shareholder of the corporation unless and until this
warrant shall be exercised.
IN WITNESS WHEREOF, the corporation has caused this warrant to be executed
by the signature of its duly authorized officers and its corporate seal hereunto
affixed.
COMPRESSENT CORPORATION
By: /s/ Won-Gil Choe
-----------------------------------
Attest:
/s/ Kenton D. Chow
----------------------------------------
Secretary
Dated: February 3, 1998
<PAGE> 1
EXHIBIT 10.7(K)
REORGANIZATION AGREEMENT
AGREEMENT OF PURCHASE AND SALE OF STOCK
I. INTRODUCTION
A. Introductory Clause
This agreement is made as of 12-31-97 at San Jose, California,among
Compressent ("Buyer"), a Florida corporation, having its principal office at
2105 Hamilton Ave., Suite 140, San Jose, CA 95125; List of SOFTLINK SHAREHOLDERS
(collectively referred to as "Shareholders"), Softlink, Inc. (Corporation), a
California Corporation, having its principal office at 1621 W. El Camino Real,
Suite #22, Mountain View, CA 94040-2452. Shareholders, and Corporation, are
collectively referred to in this agreement as Selling Parties.
B. Recitals
Shareholders have represented that collectively, they own all the
outstanding stock of Corporation. Buyer desires to purchase from Shareholders
and shareholders desire to sell to Buyer all the outstanding stock of
Corporation (the "Shares"); Corporation desires that this transaction be
consummated. Buyer, Shareholders and Corporation enter into this transaction
with the purpose of having Corporation become a wholly owned subsidiary of
Buyer. In consideration of the mutual covenants, agreements, representations,
and warranties contained in this agreement, the parties agree as follows:
C. Tax-Free Reorganization
Compressant and Softlink adopt this agreement as a plan for reorganization
under Section 368(a)(1)(B) of the Internal Revenue Code.
D. Plan of Reorganization
The Shareholders are the owners of all the issued and outstanding stock of
Softlink, which consists of 4,059,449 shares of common stock. It is the
intention of the parties hereto that all of the issued and outstanding capital
stock of Softlink shall be acquired by Buyer in exchange solely for its voting
stock.
II. ARTICLE ONE: PURCHASE AND SALE OF SHARES
A. Sale and Transfer of Shares
1
<PAGE> 2
Subject to the terms and conditions set forth in this agreement, on the
Closing Date, Shareholders will transfer and convey the Shares to Buyer, and
Buyer will acquire the Shares from Shareholders.
B. Exchange of Shares
Compresent and the Shareholders agree that all of the 4,059,449 shares
of Softlink shall be exchanged with compresent for shares of the common stock
of Compressent. The following numbers of Compressent common shares will, on the
closing date, as hereinafter defined, be delivered to the individual
Shareholders in exchange for their Softlink shares as hereinafter set forth:
<TABLE>
<CAPTION>
No. of Compressent Corporation
Shareholder N. of Softlink Shares shares to be issued
----------- --------------------- -----------------------------
<S> <C> <C>
Johnson Lee 1,525,000
Edmund Leung 1,525,000
Kwok Kit Yu 85,000
William Lau 110,000
Audric Chong 26,000
Hilda Li 5,000
Stephen Wai 60,000
Sam Sasaki 10,000
M & C Consulting 6,000
Joahua Lau 67,000
Van Quach 53,333
Chi-Fai Leung 20,000
Tommy Lee 13,600
Austin Hills 374,145
Neddie Postohica 20,000
</TABLE>
2
<PAGE> 3
Commercial Scientific 158,594
Corporation
Such shares shall be issued in certificates of such denominations,
amounts, and names as may be requested by the respective Shareholders.
Each certificate of Compressent will bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"). SUCH SHARES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT RELATING TO SUCH ACT, PROVIDED THAT, IF
REQUESTED BY THE COMPANY, AN OPTION OF COUNSEL REASONABLY SATISFACTORY
IN FORM AND SUBSTANCE IS FURNISHED TO THE COMPANY THAT AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE."
C. DELIVERY OF SHARES
On the closing date, the Shareholders will deliver certificates
for the shares of Softlink duly endorsed with signatures guaranteed and
with documentary stamps affixed at the Shareholders' expense of the
Compressent shares, on which documentary stamp faxes will be paid by
Compressent will be made to the Shareholders as above set forth.
Delivery will be made at such place as may be determined by the Parties.
Time is of the essence.
III. ARTICLE TWO: REPRESENTATIONS AND WARRANTIES OF SELLING PARTIES
Selling Parties, jointly and severally, represent and warrant that:
A. ORGANIZATION, STANDING, AND QUALIFICATION OF CORPORATION
Corporation is a corporation duly organized, validly existing,
and in good standing under the laws of the State of California and has
all necessary corporate powers to own its properties and to operate its
business as now owned and operated by it. Neither the ownership of its
properties nor the nature of its business requires Corporation to be
qualified in any jurisdiction other than where the Corporation was
incorporated.
B. STOCK OF CORPORATION
1. CAPITAL STRUCTURE
3
<PAGE> 4
The authorized capital stock of Corporation consists of 100,000,000 shares
of common stock, with no par value of which 4,059,449 shares (the "Shares") are
issued and outstanding. All the Shares are validly issued, fully paid, and
nonassessable, and such shares have been so issued in full compliance with all
federal and state securities laws. There are no outstanding subscriptions,
options, rights, warrants, convertible securities, or other agreements or
commitments obligating Corporation to issue or to transfer from treasury any
additional shares of its capital stock of any class.
2. TITLE TO SHARES
Shareholders are the owner, beneficially and of record, of all the Shares
free and clear of all liens, encumbrances, security agreements, equities,
options, claims, charges, and restrictions. Shareholder has full power to
transfer the Shares to Buyer without obtaining the consent or approval of any
other person or governmental authority.
C. FINANCIAL STATEMENTS
Exhibit Two (2) to this agreement sets forth unaudited consolidated and
consolidating balance sheets of Corporation as of November 30, 1997, and
November 30, 1997, together with related unaudited consolidated and
consolidating statements of income and retained earnings, certified by the
Certified Public Accountant for the Corporation as accurately reflecting the
financial condition of Corporation for those periods and accurately reflecting
all information normally reported to Corporation's independent public
accountants for the preparation of Corporation's financial statements. The
financial statements in Exhibit Two (2) are referred to as the financial
statements. The financial statements have been prepared in accordance with
generally accepted accounting principles consistently followed by Corporation
throughout the periods indicated, and fairly present the financial position of
Corporation as of the respective dates of the balance sheets included in
the financial statements, and the results of its operations for the respective
periods indicated.
D. ABSENCE OF SPECIFIED CHANGES
Since November 30, 1997 there has not been any:
(1) Transaction by Corporation except in the ordinary course of
business as conducted on that date;
(2) Capital expenditure by Corporation exceeding $20,000;
(3) Material adverse change in the financial condition,
liabilities, assets, business, or prospects of Corporation;
(4) Destruction, damage to, or loss of any asset of Corporation
(whether nor not covered by insurance) that materially and adversely
affects the financial condition, business, or prospects of Corporation;
4
<PAGE> 5
(5) Change in accounting methods or practices (including, without
limitation, any change in depreciation or amortization policies or rates)
by Corporation;
(6) Revaluation by Corporation of any of its assets;
(7) Declaration, setting aside, or payment of a dividend or other
distribution in respect to the capital stock of Corporation, or any
direct or indirect redemption, purchase, or other acquisition by
Corporation of any of its shares of capital stock;
(8) Increase in the salary or other compensation payable or to
become payable by Corporation to any of its officers, directors, or
employees, or the declaration, payment, or commitment of obligation of any
kind for the payment, by Corporation or Subsidiary of a bonus or other
additional salary or compensation to any such person;
(9) Sale or transfer of any asset of Corporation, except in the
ordinary course of business;
(10) Amendment or termination of any contract, agreement, or
license to which corporation is a party, except in the ordinary course of
business;
(11) Loan by Corporation to any person or entity, or guaranty by
Corporation or Subsidiary of any loan;
(12) Mortgage, pledge, or other encumbrance of any asset of
Corporation;
(13) Waiver or release of any right or claim of Corporation, except
in the ordinary course of business;
(14) Commencement or notice or threat of commencement of any civil
litigation or any governmental proceeding against or investigation of
Corporation or the affairs of either of them;
(15) Labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(16) Issuance or sale by Corporation of any shares of its capital
stock of any class, or of any other of its securities;
(17) Agreement by Corporation to do any of the things described in
the preceding clauses (1) through (16); or
5
<PAGE> 6
(18) Other event or condition of any character that has or might
reasonably have a material and adverse effect on the financial condition,
business, assets, liabilities, or prospects of Corporation.
E. ABSENCE OF UNDISCLOSED LIABILITIES
Corporation has no debt, liability, or obligation of any nature, whether
accrued, absolute, contingent, or otherwise, and whether due or to become due,
that is not reflected or reserved against in Corporation's consolidated balance
sheet as of November 30, 1997, included in the financial statements, except
for (1) those that may have been incurred after the date of that consolidated
balance sheet and (2) those that are not required by generally accepted
accounting principles to be included in a balance sheet. All debts,
liabilities, and obligations incurred after that date were incurred in the
ordinary course of business and are usual and normal in amount both
individually and in the aggregate.
F. TAX RETURNS AND AUDITS
Within the times and in the manner prescribed by law, Corporation has
filed all tax returns required by law and have paid all taxes, assessments, and
penalties due and payable. The provisions for taxes reflected in Corporation's
consolidated balance sheet as of November 30, 1997, are adequate for any and
all required taxes for the period ending on the date of that balance sheet and
for all prior periods, whether or not disputed. There are no present disputes
as to taxes of any nature payable by Corporation.
G. TITLE TO ASSETS
Corporation has good and marketable title to all their respective assets
and interests in assets, whether real, personal, mixed, tangible, or intangible
which constitute all the assets and interests in assets that are used in the
businesses of Corporation and Subsidiary. All these assets are free and clear
of restrictions on or conditions to transfer or assignment, and free and clear
of mortgages, liens, pledges, charges, encumbrances, equities, claims,
easements, rights of way, covenants, conditions, or restrictions, except for
(1) those disclosed in Corporation's consolidated balance sheet as of November
30, 1997 included in the financial statements, (2) the lien of current taxes not
yet due and payable; and (3) possible minor matters that, in the aggregate,
are not substantial in amount and do not materially detract from or interfere
with the present or intended use of any of these assets or materially impair
business operations. Corporation is not in default or in arrears in any material
respect under any lease. All real property and tangible personal property of
Corporation is in good operating condition and repair, ordinary wear and tear
excepted. Corporation is in possession of all premises leased to them from
others. Neither Shareholders; nor any officer, director, or employee of
Corporation; nor any spouse, child, or other relative of any of these persons,
owns, or has any interest, directly or indirectly, in any of the real or
personal property owned by or leased to Corporation or any copyrights, patents,
trademarks, trade names, or trade secrets licensed by Corporation. Corporation
does not occupy any real property in violation of any law, regulation, or
decree.
6
<PAGE> 7
H. COMPLIANCE WITH LAWS
Corporation has complied in all material respects with all applicable
environmental protection laws and regulations and have not been cited for any
violation of any such law or regulation. No material capital expenditures will
be required for compliance with any applicable laws or regulations now in force
relating to the protection of the environment. There is no pending audit known
to Selling Parties or any of their officers by any governmental authority with
respect to groundwater, soil, or any monitoring; the storage, burial, release,
transportation, or disposal of hazardous substances; or the use of underground
storage tanks by Corporation or relating to the facilities of Corporation.
Corporation does not have any agreement with any third party or local
governmental authority relating to any such environmental matter or any
environmental cleanup.
I. LITIGATION
There is not pending, or, to the best actual knowledge of Shareholders, and
Corporation, threatened, any suit, action, arbitration, or legal
administrative, or other proceeding, or governmental investigation against or
affecting Corporation, or any of their businesses, assets, or financial
condition. Corporation is not in default with respect to any order, writ,
injunction, or decree of any federal, state, local or foreign court,
department, agency, or instrumentality.
J. AGREEMENT WILL NOT CAUSE BREACH OR VIOLATION
The consummation of the transactions contemplated by this agreement will
not result in nor constitute any of the following: (1) a breach of any term or
provision of this agreement; (2) a default or any event that, with notice or
lapse of time or both, would be a default, breach, or violation of the articles
of incorporation or bylaws of Corporation or any lease, license, promissory
note, conditional sales contract, commitment, indenture, mortgage, deed of
trust, or other agreement, instrument, or arrangement to which Shareholders, or
Corporation, is a party or by which any of them or the property of any of them
is bound; (3) an event that would permit any party to terminate any agreement
or to accelerate the maturity of any indebtedness or other obligation of
Corporation; or (4) the creation or imposition of any lien, charge, or
encumbrance on any of the properties of Corporation.
K. AUTHORITY AND CONSENTS
Selling Parties have the right, power, legal capacity and authority to
enter into, and perform their respective obligations under, this agreement, and
no approvals or consents of any persons other than Selling Parties are
necessary in connection with it. The execution and delivery of this agreement
by Corporation have been duly authorized by all necessary corporate action.
L. CORPORATE DOCUMENTS
7
<PAGE> 8
Selling Parties have made reasonably available to Buyer for its examination
(1) copies of the articles of incorporation and bylaws of Corporation; (2) the
minute books of Corporation.
M. FULL DISCLOSURE
None of the representations and warranties made by Shareholders, or
Corporation, or made in any certificate or memorandum furnished or to be
furnished by any of them or on their behalf, contains or will contain any untrue
statement of a material fact, or omits to state any material fact necessary to
make the statements made, in the light of the circumstances under which they
were made, not misleading.
N. EXPERIENCE
Each Shareholder has, from time to time, evaluated investment in new, high
technology companies and either individually, has experience in evaluating and
investing in new, high technology companies, or will make use of a purchaser
representative who has such experience. Each Shareholder has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to Compressent so that they are capable of
evaluating the merits and risks of its investment in Compressent, or through
other similar experience has the necessary financial knowledge and experience to
protect its own interests.
O. ACCESS TO INFORMATION
The Shareholders and its counsel, accountants, and other representatives
have had full access to all properties, books, accounts, records, contracts,
and documents of or relating to Compressent that the Shareholders would need to
inspect in order to make an informed investment decision in Compressent.
P. INVESTMENT INTENT
The Shareholders are acquiring the shares of Compressent for investment
purposes and not with an intent to resell or distribute them.
IV. ARTICLE THREE: BUYER'S REPRESENTATIONS AND WARRANTIES
Buying party represents and warrants that:
A. GOOD STANDING
Buyer is a corporation duly organized, existing, and in good standing under
the laws of the State of Florida. The Execution and delivery of this agreement
and the consummation
8
<PAGE> 9
of this transaction by Buyer have been duly authorized, and no further
corporate authorization is necessary on the part of a Buyer.
B. PROPER APPROVAL AND AUTHORIZATION
No consent, approval, or authorization of, or declaration, filing, or
registration with, any United States federal or state governmental or
regulatory authority is required to be made or obtained by Buyer in connection
with the execution, delivery, and performance of this agreement and the
consummation of the transactions contemplated by this agreement.
C. PROPER AUTHORITY
Buyer has the full right, power and authority to sell, transfer and
deliver to the individual Shareholders, in accordance with this Agreement, the
shares of Compressent as stated in Section II(A) of this Agreement.
D. EXPERIENCE
Buyer or its officials, from time to time, evaluated investment in new,
high technology companies and has experience in evaluating new, high technology
companies. The Buyer or its officials has substantial experience in evaluating
and investing in private placement transactions of securities in companies
similar to Softlink no that they are capable of evaluating the merits and risks
of its investment in Softlink, or through other similar experience has the
necessary financial knowledge and experience to protect its own interests.
E. ACCESS TO INFORMATION
Buyer and its counsel, accountants and other representatives have had
full access to all properties, books, accounts, records, contracts and
documents of or relating to Softlink that they the Buyer would need to inspect
in order to make an informed investment decision in Softlink.
F. ACCREDITED INVESTOR
Buyer is an "accredited investor" as defined under Regulation D of the
1933 Securities Act.
G. INVESTMENT INTENT
Buyer is acquiring the shares of Softlink for investment purposes and
not with an intent to resell or distribute them.
9
<PAGE> 10
V. ARTICLE FOUR: SELLING PARTIES' OBLIGATIONS BEFORE CLOSING
Selling Parties covenant that from the date of this agreement until the
closing:
A. BUYER'S ACCESS TO PREMISES AND INFORMATION
Buyer and its counsel, accountants, and other representatives shall have
full access during normal business hours to all properties, books, accounts,
records, contracts, and documents of or relating to Corporation. Selling Parties
shall furnish or cause to be furnished to Buyer and its representatives all data
and information concerning the business, finances, and properties of Corporation
that may reasonably be requested.
B. CONDUCT OF BUSINESS IN NORMAL COURSE
Corporation will carry on their respective businesses and activities
diligently and in substantially the same manner as they previously have been
carried out and shall not make or institute any unusual or novel methods of
manufacture, purchase, sale, lease, management, accounting, or operation that
vary materially from those methods used by Corporation as of the date of this
agreement.
C. PRESERVATION OF BUSINESS AND RELATIONSHIPS
Corporation will use their best efforts to preserve their respective
business organizations intact, to keep available to Corporation and Subsidiary
their present officers and employees, and to preserve their present
relationships with suppliers, customers, and others having business
relationships with them.
D. CORPORATE MATTERS
The Corporation agrees that they will not (1) amend its articles of
incorporation or bylaws; (2) issue any shares of its capital stock; (3) issue or
create any warrants, obligations, subscriptions, options, convertible
securities, or other commitments under which any additional shares of its
capital stock of any loss might be directly or indirectly authorized, issued, or
transferred from treasury; or (4) agree to do any of the acts listed above.
E. MAINTENANCE OF INSURANCE
Corporation and Subsidiary will continue to carry their existing insurance,
subject to variations in amounts required by the ordinary operations of their
businesses. At the request of Buyer and at Buyer's sole expense, the amount of
insurance against fire and other casualties that, at the date of this agreement,
Corporation and Subsidiary carry on any of their properties or in respect of
their operations shall be increased by the amount or amounts Buyer shall
specify.
F. EMPLOYEES AND COMPENSATION
10
<PAGE> 11
Corporation agrees they will not do, or agree to do, any of the
following acts: (1) make any change in compensation payable or to become
payable by either of them, to any officer, employee, sales agent, or
representative; (2) make any change in benefits payable to any officer,
employee, sales agent, or representative under any bonus or pension plan or
other contract or commitment; or (3) modify any collective bargaining agreement
to which either of them is a party or by which either may be bound.
G. NEW TRANSACTIONS
Corporation agrees they will not, without Buyer's consent, enter into
any contract, commitment, or transaction not in the usual and ordinary course
of its business.
H. DIVIDENDS, DISTRIBUTIONS, AND ACQUISITIONS OF STOCK
Corporation agrees that it will not:
(1) Declare, set aside, or pay any dividend or make any
distribution in respect of its capital stock;
(2) Directly or indirectly purchase, redeem or otherwise
acquire any shares of its capital stock; or
(3) Enter into any agreement obligating it to do any of the
foregoing prohibited acts.
I. PAYMENT OF LIABILITIES AND WAIVER OF CLAIMS
Corporation agrees not to do, or agree to do, any of the following
acts: (1) pay any obligation or liability, fixed or contingent, other than
current liabilities; (2) waive or compromise any right or claim; or (3) cancel,
without full payment, any note, loan, or other obligation owing to Corporation.
J. EXISTING AGREEMENTS
Corporation will not modify, amend, cancel, or terminate any of its
existing contracts or agreements, or agree to do any of those acts.
K. DOCUMENTATION OF PROCEDURES AND TRADE SECRETS
At the written request of Buyer, Corporation will document and describe
any of their trade secrets, processes, or business procedures specified by
Buyer, in form and content satisfactory to Buyer, within a reasonable time
period.
L. REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING
11
<PAGE> 12
All representations and warranties of Selling Parties set forth in this
agreement and in any written statements delivered to Buyer by Selling Parties
under this agreement will also be true and correct as of the Closing Date as if
made on that date.
M. PATENTS, TRADEMARKS, LICENSEES, ETC.
Exhibit Three (3) lists all patents, trademarks, trademark
registrations, trade names, copyrights, know-how and trade secrets which the
Company owns or is licensed to use that are necessary for the conduct of its
business as now conducted. Except as shown on Exhibit Three (3), the Company is
not, to its knowledge, in conflict with or infringing upon any valid patents,
trademarks, trade names or copyrights of others. The Company holds or has
obtained all governmental permits, licenses, consents, approvals and waivers
necessary for the lawful conduct of its business as now conducted. Except as
set forth in Exhibit Three (3), the Company is not obligated to pay any royalty
in connection with and has not granted any licensees with respect to use of any
of said patents, trademarks, trade registrations, trade names, or copyrights.
There are no restrictions in any agreements, licenses or franchises, either
granted to or obtained by the Company, which would prevent the Company from
caring on its present business or any new business except as shown in said
Exhibit Three (3). All other intellectual property rights of the Company shall
stay with the Company after the Closing.
The Company has not granted to, or recognized in, any employee or other
person, any special right of ownership or use of any of the technology or other
rights (including within such term, without limitation, patents, trademarks,
copyrights, trade secrets, and other confidential information) used by the
Company or represented as owned by the Company.
VI. ARTICLE FIVE: BUYER'S OBLIGATIONS BEFORE CLOSING
A. INFORMATION TO BE HELD IN CONFIDENCE
Buyer agrees that, unless and until the Closing has been consummated,
Buyer and its officers, directors, and other representatives will hold in
strict confidence, and will not use to the detriment of Shareholder or
Corporation, all data and information with respect to the business of
Corporation obtained in connection with this transaction or agrement. If the
transactions contemplated by this agreement are not consummated, Buyer will
return to Selling parties all that data and information that Selling parties
may reasonably request, including, but not limited to, worksheets, test
reports, manuals, lists, memoranda, and other documents prepared by or made
available to Buyer in connection with this transaction.
VII. ARTICLE SIX: CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE
12
<PAGE> 13
The obligations of Buyer to purchase the Shares under this agreement are
subject to the satisfaction, at or before the closing, of all the conditions set
out below in this paragraph. Buyer may waive any or all of these conditions in
whole or in part without prior notice; provided, however, that no such waiver of
a condition shall constitute a waiver by Buyer of any of its other rights or
remedies, at law or in equity, if Shareholder or Corporation shall be in default
of any of their representations, warranties, or covenants under this agreement.
A. ACCURACY OF SELLING PARTIES' REPRESENTATIONS AND WARRANTIES
Except as otherwise permitted by this agreement, all representations and
warranties by each of the Selling Parties in this agreement, or in any written
statement that shall be delivered to Buyer by any of them under this agreement
shall be true in all material respects on and as of the Closing Date as though
made at that time.
B. PERFORMANCE BY SELLING PARTIES
Selling Parties shall have performed, satisfied, and complied in all
material respects with all covenants, agreements, and conditions required by
this agreement to be performed or complied with by them, or any of them, on or
before the Closing Date.
C. NO MATERIAL ADVERSE CHANGE
During the period from November 30, 1997 to the Closing Date, there
shall not have been any material adverse change in the financial condition or
the results of operations of Corporation or Subsidiary, and neither Corporation
nor Subsidiary shall have sustained any material loss or damage to its assets,
whether or not insured, that materially affects its ability to conduct a
material part of its business.
D. CONSENTS
All necessary agreements and consents of any parties to be consummation
of the transactions contemplated by this agreement, or otherwise pertaining to
the matters covered by it, shall have been obtained by Selling Parties and
delivered to Buyer prior to closing.
E. APPROVAL OF DOCUMENTATION
The form and substance of all certificates, instruments, opinions, and
other documents, opinions, and other documents delivered to Buyer under this
agreement shall be satisfactory in all reasonable respects to Buyer and its
counsel.
VIII. ARTICLE SEVEN: CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE
13
<PAGE> 14
The obligations of Shareholders to sell and transfer the Shares under
this agreement are subject to the satisfaction, at or before the Closing, of
all the following conditions, Shareholders may waive any or all of these
conditions in whole or in part without prior notice; provided, however, that no
such waiver of a condition shall constitute a waiver by Shareholder of any of
its other rights or remedies, at law or in equity, if Buyer should be in
default of any of its representations, warranties, or covenants under this
agreement.
A. ACCURACY OF BUYER'S REPRESENTATIONS AND WARRANTIES
All representations and warranties by Buyer contained in this agreement
or in any written statement delivered by Buyer under this agreement shall be
true on and as of the Closing Date as though such representations and warranties
were made on and as of that date.
B. BUYER'S PERFORMANCE
Buyer shall have performed and complied with all covenants and
agreements and satisfied all conditions that it is required by this agreement
to perform, comply with, or satisfy before or at the Closing.
C. ABSENCE OF LITIGATION
No action, suit, or proceeding before any court or any government body
or authority, pertaining to the transaction contemplated by this agreement or
to its consummation, shall have been instituted or threatened on or before the
Closing Date.
IX. ARTICLE EIGHT: THE CLOSING
A. TIME AND PLACE
The delivery and exchange of the Shares as referenced in Sections II
(B)and II (C) (the Closing) shall take place at the offices of Compressent
Corporation, located at 2105 Hamilton Ave., Suite 140, San Jose, CA 95825, at
3:00 p.m. local time, on December 30, 1997, or at such other time and place as
the parties may agree to in writing (THE CLOSING DATE).
B. SELLING PARTIES' OBLIGATIONS AT CLOSING
At the Closing, Selling Parties shall deliver to Buyer the following
instruments, in form and substance satisfactory to Buyer and its counsel,
against delivery of the items specified in paragraph C(1) of Article Eight:
1. A certificate or certificates representing the Shares,
registered in the name of each Shareholder, duly endorsed by Shareholder for
transfer or accompanied by an assignment of the Shares duly executed by
Shareholder, with signatures guaranteed by a bank
14
<PAGE> 15
or trust company, and with all required documentary stock transfer stamps
affixed or accompanied by Shareholder's personal check for the amount of these
stamps. On submission of that certificate or certificates to Corporation for
transfer, Corporation shall issue to Buyer a certificate representing the
Shares, registered in the Buyer's name.
2. The stock books, stock ledgers, minute books, and
corporate seals of Corporation and Subsidiary.
C. BUYER'S OBLIGATIONS AT CLOSING
At the Closing, Buyer shall deliver to Shareholders the following
instruments and documents against delivery of the items specified in paragraphs
B(1) and B(2) or Article Eight.
1. A certificate or certificates representing the number
of shares of Compressent Corporation Common Stock to be issued to each
Shareholder in exchange for that Shareholder's shares of Softlink, Inc. common
stock, as specified in Article II, Paragraph B of the agreement.
X. ARTICLE NINE: SELLING PARTIES' OBLIGATIONS AFTER CLOSING
A. SELLER'S INDEMNITY
Shareholders shall indemnify, defend, and hold harmless Buyer against
and in respect of any and all claims, demands, losses, costs, expenses,
obligations, liabilities, damages, recoveries, and deficiencies, including
interest, penalties, and reasonable attorneys' fees, that it shall incur or
suffer, which arise, result from, or relate to any breach of, or failure by
Selling Parties to perform, any of their representations, warranties,
covenants, or agreements in this agreement or in any schedule, certificate,
exhibit, or other instrument furnished or to be furnished by Selling Parties
under this agreement. Shareholder's liability under this paragraph shall not,
however, exceed the aggregate amount of ____. Notwithstanding any other
provision of this agreement, Shareholders shall not be liable to Buyer on any
warranty, representation, or covenant made by Selling Parties in this
agreement, or under any of their indemnities in this agreement, regarding any
single claim, loss, expense, obligation, or other liability that does not
exceed _______ provided, however, that when the aggregate amount of all such
claims, losses, expenses, obligations, and liabilities not exceeding ________
each reaches ____________, Shareholders shall, subject to the above limitation
on their maximum aggregate liability, thereafter be liable in full for all
their breaches and indemnities and regarding all those claims, losses,
expenses, obligations, and liabilities.
XI. ARTICLE TEN: BUYER'S OBLIGATIONS AFTER CLOSING
A. BUYER'S INDEMNITY
15
<PAGE> 16
Buyer agrees to indemnify and hold harmless Selling Parties against, and
in respect of, any and all claims, losses, expenses, costs, obligations, and
liabilities may incur by reason of Buyer's breach of or failure to perform any
of its warranties, guaranties, commitments, or covenants in this agreement, or
by reason of any act or omission of Buyer, or any of its successors or assigns,
after the Closing Date, that constitutes a breach or default under, or a
failure to perform, any obligation, duty, or liability of any of the Selling
Parties under any loan agreement, lease, contract, order, or other agreement to
which it is a party or by which it is bound at the Closing Date, but only to
the extent to which Buyer expressly assumes these obligations, duties, and
liabilities under this agreement.
B. REGISTRATION
Buyer agrees to register one third of the shares of the Compressent stock
acquired by the Shareholders when the Buyer next registers shares of the Buyer
("Piggyback Registration"). Buyer will be responsible for the expenses of such
Piggyback Registration.
The Company covenants and agrees as follows:
(1) Definitions. For purposes of this Section B:
a. The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document;
b. The term "Registrable Securities" means one third of the Common
Stock of Compressent Corporation issue to each individual shareholder
pursuant to this Reorganization agreement; provided, however, that any
Registrable Securities sold by an individual shareholder in a transaction
in which his or her rights under this Section B are not assigned shall no
longer be deemed to be Registrable Securities from and after such sale;
c. The term "Holder" means any individual shareholder receiving
Registrable Securities pursuant to this Reorganization agreement; and
d. The term "Form S-3" means such form under the Act as in effect on
the date hereof or any registration form under the Act subsequently adopted
by the Securities and Exchange Commission (the "Commission") which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the Commission.
e. The term "Securities with Piggyback Rights" means securities of
the Company which are entitled upon request to be included in a
registration effected by
16
<PAGE> 17
the Company (including a registration statement effected by the Company for
shareholders).
(2) Company Registration. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Act in connection with the public
offering of such securities solely for cash (other than a registration
relating solely to the sale of securities to employees of the Company
pursuant to a stock option, stock purchase or similar plan, relating to a
Rule 145 transaction or a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities),
the Company shall, at such time, promptly give each Holder written notice
of such registration. Upon the written request of each such Holder given
within twenty (20) days after mailing of such notice by the Company in
accordance with Section 8.6 hereof, the Company shall, subject to the
provisions of Section 6.8 hereof, cause to be registered under the Act all
of the Registrable Securities that each such Holder has requested to be
registered.
(3) Expenses of Company Registration. The Company shall bear and pay
all costs of the incidental to any registration, filing or qualification of
Registrable Securities with respect to the registrations pursuant to
Section (2) for each Investor (which right may be assigned as provided in
Section 6.13), including (without limitation) all registration, filing, and
qualification fees, printers' and accounting fees relating or apportionable
thereto and the reasonable fees and disbursements of one (1) counsel for
the selling Holders and the Holders will bear and pay their prorata portion
of any underwriting discounts and commissions.
(4) Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section B:
a. To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the officers, directors and partners of each Holder,
any underwriter (as defined in the Act) for such Holder and each person, if
any, who controls such Holder or underwriter within the meaning of the Act or
the Securities Exchange Act of 1934, as amended (the 1934 Act), against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Act, the 1934 Act or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (a) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (b) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(c) any violation or alleged violation by the Company of the Act, the 1934 Act,
any state securities law or any rule or regulation promulgated under the Act,
the 1934 Act or
17
<PAGE> 18
any state securities law; and the Company will reimburse each such Holder,
officer, director and partners of each Holder, underwriter or controlling person
for any legal or other expenses reasonably incurred by it in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this Section
6.10(1) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld); provided
further, however, that, thereforegoing indemnity agreement is subject to the
condition that, insofar as it relates to any such untrue statement, alleged
untrue statement, omission or alleged omission made in a preliminary prospectus
but eliminated or remedied in the amended prospectus on file with the Commission
at the time the registration Statement becomes effective or the amended
prospectus filed with the Commission pursuant to Rule 424(b) (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
underwriter if a copy of the Final Prospectus was not furnished to the person
asserting the loss, liability, claim or damage at or prior to the time such
action is required by the Act. The Company shall not be liable under any of the
foregoing circumstances for any such loss, claim, damage, liability, or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the registration statement, each person, if any, who controls the Company
within the meaning of the Act, any underwriter (within the meaning of the Act)
for the Company or such other Holders, any person who controls such underwriter,
and any other Holder selling securities in such registration statement or any of
its directors, officers or partners or any person who controls such Holder,
against any losses, claims, damages, or liabilities (joint or several) to which
the Company or any such director, officer, partners, controlling person, or
underwriter or controlling person, or other such Holder or director, officer or
controlling person may become subject, under the Act the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, partner, controlling person, underwriter
or controlling person, other Holder, officer, director, partner, or controlling
person in connection with investigating or defending any such loss, claim,
damage, Liability, or action; provided, however, that the indemnity agreement
contained in this Section 6.10(2) shall not apply to amounts paid in settlement
is effected without the consent of Holder, which consent shall not be
unreasonably withheld.
18
<PAGE> 19
(c) Promptly after receipt by an indemnified party, under this Section
6.10 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 6.10 notify the
indemnifying party in writing of the commencement thereof and the indemnifying
party shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
6.10, but the omission so to notify the indemnifying party will not relieve it
of any liability that it may have to any indemnified party otherwise than under
this Section 6.10.
C. EMPLOYMENT CONTRACTS
Messrs Johnson Lee and Edmund Leung will enter into employment contracts
whereby Mr. Johnson Lee will assume the position of Vice President of Technology
- - BravoMAIL product division and Mr. Edmund Leung will assume the position of
Vice President of Engineering - BrovoMAIL product division pursuant to the
terms outlined in the employment contracts, which are attached to this
agreement as Exhibit Four (4).
XII. ARTICLE ELEVEN: PUBLICITY
All notices to third parties and all other publicity concerning the
transactions contemplated by this agreement shall be jointly planned and
coordinated by and between Buyer and Selling Parties. No party shall act
unilaterally in this regard without the prior written approval of the others;
however, this approval shall not be unreasonably withheld.
XIII. ARTICLE TWELVE: COSTS
A. FINDER'S OR BROKER'S FEES
Each party represents and warrants that it has dealt with no broker or
finder in connection with any transaction contemplated by this agreement, and,
as far as it knows, no broker or other person is entitled to any commission or
finder's fee in connection with any of these transactions.
19
<PAGE> 20
B. EXPENSES
Each party shall pay all costs and expenses incurred or to be incurred
by it in negotiating and preparing this agreement and in closing and carrying
out the transactions contemplated by this agreement.
XIV. ARTICLE THIRTEEN: FORM OF AGREEMENT
A. EFFECT OF HEADINGS
The subject headings of the paragraphs and subparagraphs of this
agreement are included for convenience only and shall not affect the
construction or interpretation of any of its provisions.
B. ENTIRE AGREEMENT; MODIFICATION; WAIVER
This agreement constitutes the entire agreement between the parties
pertaining to the subject matter contained in it and supersedes all prior and
contemporaneous agreements, representations, and understandings of the parties.
No supplement, modification, or amendment of this agreement shall be binding
unless executed in writing by all the parties. No waiver of any of the
provisions of this agreement shall be deemed, or shall constitute, a waiver of
any other provision, whether or not similar, nor shall any waiver constitute a
continuing waiver. No waiver shall be binding unless executed in writing by the
party making the waiver.
C. COUNTERPARTS
This agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
XV. ARTICLE FOURTEEN: PARTIES
A. PARTIES IN INTEREST
Nothing in this agreement, whether express or implied, is intended to
confer any rights or remedies under or by reason of this agreement on any
persons other than the parties to it and their respective successors and
assigns, nor is anything in this agreement intended to relieve or discharge the
obligation or liability of any third persons to any party to this agreement,
nor shall any provision give any third persons any right of subrogation or
action over against any party to this agreement.
B. ASSIGNMENT
20
<PAGE> 21
This agreement shall be binding on, and shall inure to the benefit of, the
parties to it and their respective heirs, legal representatives, successors,
and assigns; provided, however, that Buyer may not assign any of its rights
under this agreement, except to a wholly owned subsidiary corporation of Buyer.
No such assignment by Buyer to its wholly owned subsidiary shall relieve Buyer
of any of its obligations or duties under this agreement.
XVI. ARTICLE FIFTEEN: REMEDIES
A. ARBITRATION.
Any controversy or claim arising out of, or relating to, this agreement,
or the making, performance, or interpretation of it, shall be settled by
arbitration in San Francisco, California, under the commercial arbitration
rules of the American Arbitration Association then existing, and judgment on
the arbitration award may be entered in any court have jurisdiction over the
subject matter of the controversy.
B. SPECIFIC PERFORMANCE AND WAIVER OF RESCISSION RIGHTS
Each party's obligation under this agreement is unique. If any party
should default in its obligations under this agreement, the parties each
acknowledge that it would be extremely impracticable to measure the resulting
damages; accordingly, the nondefaulting party or parties, in addition to any
other available rights or remedies, may sue in equity for specific performance,
and the parties each expressly waive the defense that a remedy in damages will
be adequate. Notwithstanding any breach or default by any of the parties of any
of their respective representations, warranties, covenants, or agreements under
this agreement, if the purchase and sale contemplated by it shall be
consummated at the Closing, each of the parties waives any rights that it or
they may have to rescind this agreement or the transaction consummated by it;
provided, however, that this waiver shall not affect any other rights or
remedies available to the parties under this agreement or under the law.
C. RECOVERY OF LITIGATION COSTS
If any legal action or any arbitration or other proceeding is brought for
the enforcement of this agreement, or because of an alleged dispute, breach,
default, or misrepresentation in connection with any of the provisions of this
agreement, the successful or prevailing party or parties shall be entitle to
recover reasonable attorneys' fees and other cost incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.
D. TERMINATION
1. CONDITIONS PERMITTING TERMINATION
21
<PAGE> 22
Subject to the provisions of Article Eight relating to the postponement of
the Closing Date, any party may on the Closing Date terminate this agreement,
without liability to any other:
(a) If any bona fide action or proceeding shall be pending against any
party on the Closing Date that could result in an unfavorable judgment, decree,
or order that would prevent or make unlawful the performance of this agreement
or if any agency of the federal or of any state government shall have objected
at or before the Closing Date to this acquisition or to any other action
required by or in connection with this agreement;
(b) If the legality and sufficiency of all steps taken and to be taken by
the parties and their shareholders in carrying out this agreement shall not
have been approved by counsel as required by this agreement.
2. DEFAULTS PERMITTING TERMINATION
If either Buyer or Selling Parties materially default in the due and
timely performance of any of its or their warranties, covenants, or agreements
under this agreement, the nondefaulting party or parties may on the Closing
Date give notice of termination of this agreement, in the manner provided in
Article Seventeen. The notice shall specify with particularity the defaults on
which the notice is based. The termination shall be effective five days after
the Closing Date, unless the specified default or defaults have been cured on
or before this effective date for termination.
XVIL. ARTICLE SIXTEEN: NATURE AND SURVIVAL OF REPRESENTATIONS AND
OBLIGATIONS
No representations or warranties whatever are made by any party, except as
specifically set forth in this agreement, or in an instrument, certificate,
opinion, or other writing provided for in this agreement. All statements
contained in any of these instruments, certificates, opinions, or other
writings shall be deemed to be representations and warranties under this
agreement. The representations, warranties, and indemnities made by the
parties in this agreement or in instruments, certificates, opinions, or other
writings provided for in the covenants and agreements to be performed or
complied with by the respective parties under it before the Closing Date, shall
be deemed to be continuing and shall survive the Closing, but shall expire on
the first anniversary date following the Closing Date, unless a specific claim
in writing with respect to these matters shall have been made, or an action at
law or in equity shall have been commenced or filed, before this anniversary
date. Nothing in this paragraph shall affect the obligations and indemnities
of the parties with respect to covenants and agreements contained in this
agreement that are permitted to be performed, in whole or in part, after the
Closing Date.
XVIII. ARTICLE SEVENTEEN: NOTICES
22
<PAGE> 23
All notices, requests, demands, and other communications under this
agreement shall be in writing and shall be deemed to have been duly given on the
date of service if served personally on the party to whom notice is to be given,
or on the fourth day after mailing if mailed to the party to whom notice is to
be given, by first class mail, registered or certified, postage prepaid, and
properly addressed as follows:
To Selling Parties at: 1621 W. El Camino Real, Suite #22
Mountain View, CA 94040-2452
To Buyer at: 2105 Hamilton Ave., Suite 140
San Jose, CA 95125
XIX. ARTICLE EIGHTEEN: GOVERNING LAW
This agreement shall be construed in accordance with, and governed by, the
laws of the State of California as applied to contracts that are executed and
performed entirely in California.
XX. ARTICLE NINETEEN: SEVERABILITY
If any provision of this agreement is held invalid or unenforceable by any
court of final jurisdiction, it is the intent of the parties that all other
provisions of this agreement be construed to remain fully valid, enforceable,
and binding on the parties.
XXI. SIGNATURES
IN WITNESS WHEREOF, the parties to this agreement have duly executed it on
the day and year first above written.
Softlink, Inc. Compressent Corporation
/s/ JOHNSON LEE /s/ WON GOL CHOI
- ------------------ -----------------
Johnson Lee, Pres. Won Gol Choi, CEO
12/31/97
* Registration of 450,000 shares in next S-3.
Edmond & Johnson will have a market standoff until June 1, 1998 on 2/3 of
their individual shares.
/s/ E.T. KALINOSKI
- ------------------ ------------------
Edmund Leung, Sec. E.T. Kalinoski
C.O.B.
23
<PAGE> 1
EXHIBIT 10.7(L)
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR
TRANSFERRED WITHOUT COMPLIANCE WITH THE ACT.
Void after 5:00 P.M., West Coast Time, on December 30, 2000
STOCK PURCHASE WARRANT
For the purchase of 700,000 shares of common stock of COMPRESSENT
CORPORATION, par value $.001 per share (a Florida corporation).
This is to certify that, for value received, E.T. KALINOSKI, or assigns,
are entitled, subject to the terms and conditions hereinafter set forth, at or
before 5:00 P.M. on December 30, 2000, to purchase 700,000 shares of the common
stock of COMPRESSENT CORPORATION, $.001 par value per share, from the said
corporation, for the purchase price of $6.25 per share, and to receive a
certificate or certificates for the common stock so purchased upon presentation
and surrender to the corporation of this warrant with payment of the purchase
price for each share purchased.
(a) The Corporation covenants and agrees that all shares which may be
delivered upon the exercise of this warrant will, upon delivery, be free from
all taxes, liens, and charges with respect to the purchase thereof, and shall be
fully paid and nonassessable.
(b) The purchase rights represented by this warrant are exercisable at the
option of the holder hereof in whole or in part from time to time within the
period specified above. In case of the purchase of less than all of the shares
purchasable under this warrant, the corporation will cancel this warrant upon
the surrender hereof and shall execute and deliver a new warrant for the balance
of the shares purchasable hereunder.
<PAGE> 2
(c) The number of shares purchasable upon the exercise of this warrant and
the purchase price per share shall be subject to adjustment from time to time as
set forth herein.
(d) If the outstanding shares of common stock of the corporation are
increased, decreased, or changed into, or exchanged for a different number or
kind of shares or securities through reorganization, merger, recapitalization,
reclassification, stock split, stock dividend, stock consolidation, or
otherwise, an appropriate and proportionate adjustment shall be made in the
number and kind of shares as to which this warrant relates. Such adjustment
shall be made without change in the total price applicable to the unexercised
portion of this warrant, but with a corresponding adjustment in the price of
each share subject to the warrant.
(e) If there shall be an adjustment as provided above, the corporation
shall forthwith cause written notice to be sent to the initial holder of this
warrant at the address of such holder shown on the books of the corporation,
which notice shall be accompanied by a statement setting forth in reasonable
detail the facts requiring any such adjustment and the warrant price and number
of shares purchasable after such adjustment, as the case may be.
(f) This warrant shall not entitle the holder hereof to any voting rights
or other rights as a shareholder of the corporation unless and until this
warrant shall be exercised.
IN WITNESS WHEREOF, the corporation has caused this warrant to be executed
by the signatures of its duly authorized officers and its corporate seal
hereunto affixed.
COMPRESSENT CORPORATION
By: /s/ Won-Gil Choe
-------------------------------
President
Attest:
/s/ Keaton D. Chow
----------------------------------
Secretary
Dated: December 30, 1997
<PAGE> 1
EXHIBIT 11.1
COMPRESSENT CORPORATION
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
YEAR ENDED YEAR ENDED (AUGUST 26, 1994)
SEPTEMBER 30, SEPTEMBER 30, TO SEPTEMBER 30,
1997 1996 1995
------------- ------------- ------------------
<S> <C> <C> <C>
PRIMARY
Weighted average number of common shares
outstanding during the period......................... 5,007,880 3,181,667 1,833,333
Incremental common shares attributable to the
application of SAB 64 and 83......................... - 863,041 2,268,500
------------ ------------ ------------
Shares used in computing net loss per share
applicable to common shareholders.................... 5,007,880 4,044,708 4,101,833
============ ============ ============
Net loss.............................................. $ (4,874,969 $ (2,193,003) $ (254,765)
Less: Accretion on preferred stock.................... - (900,000) -
------------ ------------ ------------
Net loss applicable to common stockholders............. $ (4,874,969) $ (3,093,003) $ (254,765)
Net loss per share applicable to common shareholders.. $ (0.97) $ (0.76) $ (0.06)
============ ============ ============
FULLY DILUTED
Weighted average number of common shares outstanding
during the period.................................... 5,007,880 3,181,667 1,833,333
Incremental common shares attributable to the
application of SAB 64 and 83.......................... - 863,041 2,268,500
Impact on weighted average of common shares to be issued
upon redemption of preferred stock.................... - 75,000 -
------------ ------------ ------------
Total shares outstanding for purposes of computing
fully diluted net loss per share....................... 5,0007,880 4,119,708 4,101,833
============ ============ ============
Net loss................................................ $ (4,874,969) $ (2,193,003) $ (254,765)
Less: Accretion on preferred stock...................... - - -
------------ ------------ ------------
Net Loss................................................ $ (4,874,969) $ (2,193,003) $ (254,765)
============ ============ ============
Net loss per fully diluted share........................ $ (0.97) $ (0.53) $ (0.06)
============ ============ ============
</TABLE>
Fully diluted earnings per share is not presented because its effective are
anti-dilutive
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,900,171
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 55,620
<CURRENT-ASSETS> 2,070,500
<PP&E> 346,340
<DEPRECIATION> 128,684
<TOTAL-ASSETS> 2,865,145
<CURRENT-LIABILITIES> 580,034
<BONDS> 0
0
0
<COMMON> 5,037
<OTHER-SE> 8,650,811
<TOTAL-LIABILITY-AND-EQUITY> 2,865,145
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 5,045,717
<OTHER-EXPENSES> (195,005)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,257
<INCOME-PRETAX> (4,874,969)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,874,969)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,874,969)
<EPS-PRIMARY> (0.97)
<EPS-DILUTED> (0.97)
</TABLE>
