<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED: JUNE 30, 1998
COMMISSION FILE NO. 333-06121
COMPRESSENT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
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)
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 [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date, 5,278,869 shares of common stock, as
of June 30, 1998.
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<PAGE> 2
COMPRESSENT CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Condensed Statements of Operations -
three and nine months ended June 30, 1997 and 1998, and for
the period from inception (August 26, 1994)
to June 30, 1998 ............................................................. 3
Condensed Balance Sheets -
June 30, 1997 and June 30, 1998 .............................................. 4
Condensed Statements of Cash Flows - nine months ended June 30,
1998 and 1998, and for the period from inception (August 26,
1994) to June 30, 1998 ....................................................... 5
Notes to Condensed Financial Statements ...................................... 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................................... 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................................ 17
Item 6 Exhibits and Reports on Form 8-K ............................................. 18
SIGNATURES ................................................................... 19
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS.
COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
Three Months Ended Nine Months Ended Inception
---------------------------- ---------------------------- -----------
June 30, June 30, June 30, June 30, (August 26, 1994
1997 1998 1997 1998 to June 30, 1998)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales, net -- 27,467 -- 85,084 85,084
Cost of goods sold -- 120,399 -- 373,721 373,721
----------- ----------- ----------- ----------- -----------
Gross profit on sales -- (92,932) -- (288,637) (288,637)
Operating costs and expenses:
Research and development 292,016 215,369 1,015,347 984,702 3,393,545
Sales and marketing 273,126 58,252 1,111,530 1,274,640 3,141,492
General and administrative 591,612 387,511 1,526,957 3,556,929 6,787,754
----------- ----------- ----------- ----------- -----------
Total operating costs
and expenses 1,156,754 661,131 3,653,834 5,816,271 13,322,791
----------- ----------- ----------- ----------- -----------
Loss from operations (1,156,754) (754,063) (3,653,834) (6,104,908) (13,611,428)
Interest income and other,
net 41,143 (264,571) 156,884 (366,781) (182,998)
----------- ----------- ----------- ----------- -----------
Net Loss (1,115,611) (1,018,634) (3,496,950) (6,471,689) (13,794,426)
----------- ----------- ----------- ----------- -----------
Less: Accretion on preferred
stock -- -- -- -- (900,000)
Accrued dividend on preferred
stock -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Net loss applicable to common
shareholders (1,115,611) (1,018,634) (3,496,950) (6,471,689) (14,694,426)
=========== =========== =========== =========== ===========
Net loss per share applicable to
common shareholders:
Basic (0.22) (0.19) (0.70) (1.23)
Diluted (0.22) (0.19) (0.70) (1.23)
Shares used in computing net loss
per share applicable to common
shareholders:
Basic 5,032,349 5,278,869 4,994,685 5,278,869
Diluted 5,032,349 5,278,869 4,994,685 5,278,869
</TABLE>
See accompanying notes
3
<PAGE> 4
COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, June 30,
1997 1998
----------- -----------
<S> <C> <C>
Current Assets
Cash 1,900,171 16,877
Short Term Investments -- 3,500,500
Inventory 55,620 53,353
Other receivable from underwriter in connection with IPO -- --
Other current assets 114,709 193,821
----------- -----------
Total current assets 2,070,500 3,764,550
Property, Plant & Equipment, net 217,656 174,427
Other Assets 576,989 482,439
----------- -----------
Total assets 2,865,145 4,421,416
=========== ===========
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Accounts payable and other accrued liabilities 474,292 1,401,056
Loans -- 2,000,000
Other Current Liabilities 105,742 3,753
----------- -----------
Total current liabilities 580,034 3,404,809
Long-Term Debt 1,000,000 1,000,000
Shareholder's equity
Preferred Stock -- 2,240,500
Common stock and additional paid in capital 8,655,848 11,617,332
Deficit accumulated during development stage (7,322,737) (13,825,226)
Deferred compensation (48,000) (16,000)
----------- -----------
Total shareholder's equity 1,285,111 16,607
=========== ===========
Total liabilities and shareholder's equity 2,865,145 4,421,416
=========== ===========
</TABLE>
See accompanying notes
4
<PAGE> 5
COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Period from
------------------------------ Inception
June 30, June 30, (August 26, 1994
1997 1998 to June 30, 1998)
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net cash used in operating activities (3,044,565) (5,116,979) (11,118,917)
----------- ----------- -----------
Cash flow from investing activities
Investment in joint venture -- (80,000) (80,000)
Purchase of available-for-sale investments (4,853,727) -- (4,868,029)
Maturities of available-for-sale investments 2,597,571 1,300,000 6,168,029
Purchase of property and equipment (133,514) (42,678) (420,960)
Capitalized software development -- -- (369,324)
----------- ----------- -----------
Net Cash used in investing activities (2,389,670) 1,177,322 429,716
----------- ----------- -----------
Cash flow from financing
Sale of common stock -- -- 1,952,263
Receipt of proceeds from underwriter 5,549,573 -- 5,549,573
IPO registration costs paid -- -- (269,968)
Loans from shareholders -- -- 75,000
Repayment of full recourse note payable -- -- 90,000
Sale of redeemable preferred stock -- -- 450,000
Redemption of preferred stock (450,000) -- (450,000)
Exercise of redeemable stock purchase warrants for
common stock -- 32,700 421,212
Proceeds from issuance of loans and notes payable 1,250,000 2,000,000 3,250,000
Principal payment of loans and notes payable -- -- (1,250,000)
Debt offering registration costs paid -- -- (135,665)
Proceeds from issuance of subordinated long-term debt -- -- 1,000,000
Exercise of stock options -- 23,662 23,662
Conversion of redeemable stock warrant 388,512 -- --
----------- ----------- -----------
Net cash provided from financing activities 6,738,085 2,056,362 10,706,077
----------- ----------- -----------
Net increase (decrease) in cash 1,303,850 (1,883,295) 16,877
Cash at beginning of period 155,533 1,900,171 --
----------- ----------- -----------
Cash at end of period 1,459,383 16,877 16,877
=========== =========== ===========
Supplemental schedule of noncash investing and financing
activities
Common stock to be issued in redemption of preferred stock -- -- 900,000
Conversion of loan and advance from shareholder to
common stock -- -- 75,000
Issuance of common stock in exchange for full-recourse
note payable -- -- 90,000
Issuance of preferred stock in exchange for full recourse
note payable -- 2,240,500 2,240,500
Issuance of warrant in exchange for full recourse note payable -- 1,260,000 1,260,000
Fair value of warrants issued in exchange for services -- -- 1,610,000
</TABLE>
See accompanying notes
5
<PAGE> 6
COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998
1. BUSINESS ACTIVITIES AND BASIS OF PRESENTATION
Business
Compressent Corporation (the "Company") was incorporated in the state of Florida
on August 26, 1994, but did not commence formal operations until April 1995. It
is engaged in the development of digital image coding and data compression
software products which will enable the facsimile transmission of color images
from computers equipped with the Company's software program.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and in accordance with the instructions to Form 10-Q and Articles 10 of
Regulation S -X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Management recommends that
these interim financial statements be read in conjunction with the audited
financial statements and the related notes thereto included in the Company's
Annual Report on Form 10-K for the year ended September 30, 1997 previously
filed with the Security and Exchange Commission. The results of operations for
the nine months ended June 30, 1998, are not necessarily indicative of the
results that may be expected for the year ended June 30, 1998.
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. The new requirements include a calculation of basic earnings per share,
from which the dilutive effect of stock options, warrants and convertible debt
are excluded. The basic earnings per share calculation does not change the
primary earnings per share previously reported for the three month period ended
December 31, 1996. A calculation of diluted earnings per share is required;
however, this does not 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. The
accompanying condensed statement of operations for the three month period ended
December 31, 1997 and December 31, 1996 includes the presentation of both basic
and diluted earnings per share.
2. INVENTORY
Inventories are summarized as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
-------- -------
<S> <C> <C>
Raw Materials $102,311 $53,353
Finished Goods
======== =======
Total Inventories $102,311 $53,353
======== =======
</TABLE>
6
<PAGE> 7
3. 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 the investor 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. The purchase price was
determined as an equivalent to the net received in the IPO. 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
Commission. No draws may be made during any 20 trading day period in which the
average 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 Small-Cap Market, 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 August 14, 1998, no funds were available under the equity-based line of
credit as the Company has not filed a registration statement on Form S-3 to
register the shares that may be sold pursuant to the line and the average daily
trading volume requirement has not been met. 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.
4. 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 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 below).
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,
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 expires 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
7
<PAGE> 8
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 following quarter.
As of May 20, 1998 the Company had made no draws nor paid any commitment fee
against the Call Now line of credit. On August 4, 1998, the Company completed
termination of this and all other agreements with Call Now. All warrants issued
pursuant to this transaction have been cancelled. The $80,000 interest charge
associated with this transaction will be reversed in the upcoming quarter.
5. 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 promissory note has been
paid on March 16, 1998. 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 amount of $32,937.50 was recorded as a component of interest
expense in the quarter ended March 31, 1998.
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 price.
Cash used in operating activities has increased from approximately $2,012,000
for the nine month period ended June 30, 1997 to approximately $4,271,000 for
the nine month period ended June 30, 1998, 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 marketing, manufacturing, sales and distribution
and technical support expenses associated with the introduction of its initial
color fax products to the market place.
Management believes that the sale of preferred stock and warrants to purchase
common stock in exchange for municipal bonds with an aggregate total fair 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 may
not be sufficient to provide the Company with working capital to support the
Company's planned operating activities through the fiscal year ended September
30, 1998. As a result, the Company has entered into an agreement with Call Now
to rescind both transactions. As part of the agreement, Call Now will receive
500,000 shares of Company common stock in exchange for assuming $2,000,000 in
Company debt to Howe Solomon & Hall.
The Company does not currently have the funding available for 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 funding arrangements, acquisitions of businesses,
products and technologies. Such potential activities may require substantial
capital resources, which may require the Company to seek additional debt or
equity financing.
8
<PAGE> 9
6. WARRANT ISSUED TO MEMBER OF BOARD 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 has been recorded as a
charge against general and administrative expenses in the quarter ended December
31, 1997.
This member of the board of directors resigned in April 1998. As a result of
this resignation and the conditions of issue of the warrants, these warrants
have been rescinded and the effects of this reversal will be reflected in the
upcoming quarter.
7. 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., a related
party, for $62.50 per share for 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 Bonds with a face value of $3,500,000. The Company utilized the 1997
Series A Bonds as collateral to raise $2,000,000 cash to provide short term
working capital requirements.
On May 20, 1998, the Company and Call Now entered into an agreement to terminate
both the Preferred Stock Agreement and the Line of Credit (see above). The
Preferred Stock sold to Call Now, was 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 have
been 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 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 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 fair market value of the
warrant is estimated to be $1,260,000. Total proceeds from the offering of the
Series A Preferred Stock and the sale of the warrant amount to $3,500,000.
Proceeds allocated to the estimated fair value market value of the warrants will
be allocated to Paid-in Capital; with the remaining balance, net offering costs,
allocated to Series A Preferred. Again, as this Preferred Stock transaction has
been rescinded, so will the allocations. (See note below).
8. SHORT TERM LOAN BORROWED AGAINST SERIES A BONDS
On March 10, 1998, the Company signed the loan agreement with HOWE, SOLOMON &
HALL, Inc. a New Jersey corporation with a business address of International
Place, 100 S. E. 2nd Street, 42nd Floor, Miami, Florida 33131 for $2,000,000
principal with 10% per annum. The loan will provide the partial short
9
<PAGE> 10
term working capital requirements to support operating activities through the
fiscal year ending September 30, 1998. The loan is secured by the $3,500,000
Retama Development Corporation Special Facilities Revenue Refunding Bonds Series
1997 A (the "Bonds") assigned by the Company to the Lender. The principal on the
Loan is due in full on September 5, 1998. No other principal payments are
required hereunder unless there is an event of default. The loan may be prepaid
at the option of the Company in full only at any date provided that the Company
also pays the accrued but unpaid interest on the Bonds. As part of the
settlement with Call Now, the note has been assumed by Call Now (see note
below).
9. 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. Subsequently,
Color Communications has filed a countersuit making several additional
allegations.
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.
The Company has terminated its relationship with a director and a shareholder.
As part of this settlement, the shareholder has assumed a $2,000,000 liability
of the Company and the director has resigned. In return, the Company has issued
500,000 shares among certain other provisions and mutual releases have been
signed by all parties reducing the potential for any litigation. (See
accompanying notes and exhibits).
In the course of its day to day business, the Company is party to various other
lawsuits. Though the current suits pending are believed to be without merit, any
adverse judgements could have a material adverse effect on the Company and its
ability to operate.
10. AGREEMENT TO ACQUIRE SOFTLINK, INC.
On December 31, 1997, the Company entered into a definitive 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 was (Refer note 12) subject to certain conditions and the approval by
Softlink's shareholders. Subsequent to March 31, 1998, the Company terminated
this agreement and took back a promissory note for $100,000 at 8% interest
payable to the Company in December 1998.
11. 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 President
resigned from the Company's Board of Directors. In addition, on December 30,
1997, two other members of the Company's Board of Directors also resigned and
the Company appointed a new Chief Executive Officer and Chief Financial Officer
and Vice President of OEM Sales. The new Chief Financial Officer resigned in
February 1998. The Company's Board of Directors currently consists of four
members.
10
<PAGE> 11
On April 28, 1998, changes of the Company's Board of Directors were made. Mr.
Edward T. Kalinoski a Director of the Company resigned and Mr. Joseph S. Kastrup
was elected as the Chairman of the Board.
12. MISCELLANEOUS
The Company entered into a joint venture agreement with Vela Partners, Inc. on
March 16, 1998. The purpose of this agreement was to establish a joint venture
to be known as ComCore Systems between the parties for the purposes on
developing an all-purpose, multi-mode, multimedia advanced telecommunications
system. The ownership and equity of the joint venture will be 50% owned by each
party. The initial payment of $80,000 has been made by the Company to Vela
Partners, Inc. The agreement with Vela Partners was terminated on May 19, 1998.
Demand for payment of this $80,000 has been made by the Company.
13. TERMINATION OF AGREEMENT WITH SOFTLINK
On April 28, 1998, the Company terminated the agreement previously announced
with Softlink, Inc. The original agreement was made on December 31, 1997 between
the Company and Softlink whereby the Company would acquire 100% of the issued
and outstanding shares of Softlink from the shareholders of Softlink in exchange
for 450,000 common shares of Compressent. The termination of this agreement has
been made by mutual consent and no shares have been exchanged at this time. The
payment of $100,000 the Company made to Softlink based on the Promissory Note
signed on April 14, 1998 will be due to the Company on December 31, 1998 with an
interest rate of 8% per annum from December 18, 1997.
SUBSEQUENT EVENTS
14. CHANGES IN BOARD OF DIRECTORS AND MANAGEMENT
On April 28, 1998 the Company made changes to the Company's Board of Directors.
Mr. Edward T. Kalinoski a Director of the Company resigned and Mr. Joseph S.
Kastrup was elected as the Chairman of the Board. On June 8, 1998, Mr. Won
Gil-Choe was terminated as President and CEO of the Company and subsequently
resigned from the Board of Directors. Mr. Kastrup was elected Chief Executive
Officer. On August 4, 1998, the Company reached an agreement with Mr. Allen, a
director of the Company. Pursuant to this agreement, after the completion of
certain events, Mr. Allen will be resigning from the Board of Directors. This
will leave only two directors remaining, Mr. Stan Young and Mr. Kastrup.
15. TERMINATION OF AGREEMENTS WITH CALL NOW
On May 20, 1998, the Company entered into Termination Agreements with Call Now
regarding its Line of Credit and Preferred Stock Agreements to reduce dependence
on Call Now. In exchange for the termination, Call Now has assumed $2,000,000 in
Company debt and received 500,000 shares of Company common stock and the Company
returned the $3,500,000 in Series A Retama Bonds. In addition, Mr. Allen has
resigned from the Board of Directors effective immediately pursuant to certain
conditions. Following the completion of the terms of the agreements with Call
Now, there will be no further relationship with Howe Solomon & Hall and the only
remaining relationship with Call Now will be in its status as shareholder of the
Company.
16. STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
Due to several of the subsequent transactions, there will be material positive
effects to the Company's financial statements. Several expenses related to the
issuance of warrants and preferred stock will be reversed as well as other
consequences. The Company is currently reviewing its financial condition to best
take advantage of these reversals.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This report contains forward-looking statements within the meaning of Section
27A of the Securities Exchange 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 including, but not limited to those
listed below under "Risk Factors".
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 designing and 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."
The Company believes its sale of preferred stock and warrant to purchase common
stock and the line of credit with Call Now, Inc. ("Call Now"), a related party,
were not sufficient to support planned operating activities through September
30, 1998. 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 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 and Call Now owns common stock of the Company. The
Company is reliant on the availability of funds under the line of credit with
Call Now. The Line of Credit and Preferred Stock Agreement have been terminated
with Call Now. (See accompanying notes).
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 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 June
30, 1998, the Company has had no significant revenue from sales. 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
12
<PAGE> 13
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. The Company is
currently seeking financing to fund its operations for the calendar year ended
September 30, 1998.
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
("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, subject to
certain conditions. The line of credit will remain available for a period of
eighteen months. As of May 15, 1998, no funds are available under this line of
credit as the Company does not satisfy all the conditions for borrowing under
the agreement.
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 borrow up to $10,000,000 on or before September 30,
1998. Borrowings from Call Now may be provided to the Company in the form of
Retama Track municipal bonds. To obtain cash, the Company may have to sell the
bonds or borrow cash using the bonds as collateral. 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 line of credit with Call Now Inc.
are not sufficient to finance the Company's planned activities during fiscal
1998. This agreement was terminated by agreement with Call Now (see accompanying
notes).
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 future 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 as
to when, or whether, 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 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.
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<PAGE> 14
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, 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 patentability 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
Three and Nine Months Ended June 30, 1997 and 1998.
14
<PAGE> 15
Research and Development
From inception through June 30, 1998, a substantial part of the Company's
activities related to research and development. The Company's research and
development expenses were approximately $215,000 and $984,000 for the three and
nine months ended June 30, 1998, respectively, compared to $292,000 and
$1,015,000, respectively in the corresponding periods in fiscal 1997. The
decrease is primarily due to cost containment by management, decreased
engineering labor and supplies costs related to completion of development and
testing activities of the latest software version. The Company believes that
significant investments in research and development will be necessary for both
new products and continuing enhancements to existing products. As a consequence
the company may incur increased research and development expenditures in the
future.
Sales and Marketing
Sales and marketing expenses were approximately $58,000 and $1,274,000 for the
three and nine months ended June 30, 1998, respectively, compared to $273,000
and $1,111,000 respectively in the corresponding periods in fiscal 1997. The
decrease is due to the reallocation of sales and marketing expenses while the
nine month increase is primarily due to costs associated with staffing employees
and consultants, participation in trade shows and other events, and the
Company's marketing efforts and costs associated with the general product
release.
Achieving significant market acceptance and commercialization of the Company's
initial color fax products will require 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.
General and Administrative
General and administrative expenses were approximately $387,000 and $3,556,000
for the three months and nine ended June 30, 1998, respectively, compared to
$591,000 and $1,526,000, respectively in the corresponding periods in fiscal
1997. The increase in general and administrative expenses was primarily
attributable to the recognition of warrants issued in exchange for services,
fees for professional services, and legal expenses in connection with the
lawsuit against Color Communication Corporation. Several agreements were
terminated subsequent to the end of this quarter and the effects, including the
reversal of warrants, will be reflected in the fourth quarter.
On December 30, 1997, in connection with assistance to be provided with the
Company's management changes and financial 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 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 was recorded as a charge
against general and administrative expenses for the quarter ended December 1997.
This transaction was terminated. The amounts recorded will be reversed in the
next quarter.
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
15
<PAGE> 16
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.
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 price.
Cash used in operating activities has increased from approximately $3,044,000
for the nine month period ended June 30, 1997 to approximately $5,117,000 for
the nine month period ended June 30, 1998, 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 marketing, manufacturing, sales and distribution
and technical support expenses associated with the introduction of its initial
color fax products to the market place.
Management believes that the sale of preferred stock and warrants to purchase
common stock in exchange for municipal bonds with an aggregate total fair 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 may
not be sufficient to support planned operating activities through the fiscal
year ended September 30, 1998. This agreement has been terminated (See
accompanying notes). 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 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 financial statements beginning in fiscal 1999. The Company's
management is currently evaluating the impact of this statement on operations.
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<PAGE> 17
In October 1997, the AIPCA issued Statement of Position (SOP) 97-2, "Software
Revenue Recognition," which supersedes SOP 91-1. The Company will be required to
adopt SOP 97-2 prospectively for software transactions entered into beginning
October 1, 1998. SOP 97-2 generally requires revenue earned on software
arrangements involving multiple elements such as software products, upgrades,
enhancements, postcontract customer support, installation and training, to be
allocated to each element based on the relative fair values of the elements. The
fair value of an element must be based on evidence which is specific to the
vendor. The revenue allocated to software products, including specified upgrades
or enhancements generally is recognized upon delivery of the products. The
revenue allocated to postcontract customer support generally is recognizable
ratably over the term of the support and revenue allocated to service elements
generally is recognizable as the services are performed. If a vendor does not
have evidence of the fair value for all elements in a multiple-element
arrangement, all revenue from the arrangements is deferred until such evidence
exists or until all elements are delivered. In March 1998, the AICPA issued
Statement of Position 98-4 ("SOP 98-4"), which amends certain provisions of SOP
97-2. The Company's management is currently evaluating the impact of this
statement on operations. Detailed implementation guidelines for this standard
have not been issued. Once issued, such guidance could lead to unanticipated
changes in the Company's current revenue recognition practices, and such changes
could be material to the Company's results of operations.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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. Subsequently,
Color Communications has filed a countersuit making several additional
allegations.
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.
The Company has terminated its relationship with a director and a shareholder.
As part of this settlement, the shareholder has assumed a $2,000,000 liability
of the Company and the director has resigned. In return, the Company has issued
500,000 shares among certain other provisions and mutual releases have been
signed by all parties reducing the potential for any litigation. (See
accompanying notes and exhibits).
In the course of its day to day business, the Company is party to various other
lawsuits. Though the current suits pending are believed to be without merit, any
adverse judgements could have a material adverse effect on the Company and its
ability to operate.
See accompanying notes
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<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are incorporated by this reference to Registrant's
Registration Statement on Form 10-K for the year ended September 30, 1997.
<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
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) Common Stock Purchase Warrant
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 Computation of Net Loss Per Share
</TABLE>
The following exhibits are filed herewith:
27 Financial Data Schedule
(b) Form 8-K filed on January 20, 1998, February 24, 1998, February 28,
1998, April 30, 1998, June 9, 1998 June 12, 1998 and June 14, 1998 are
incorporated by reference on Form 10-K for the year ended September 30, 1997,
Form 10-Q for quarter ended December 31, 1997, Form 10-Q for quarter ended March
31, 1998 and the Form 10-Q for the quarter ended June 30, 1998..
See accompanying notes
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<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMPRESSENT CORPORATION
Date: August 14, 1998 By: /s/ Joseph S. Kastrup
---------------------------------
Joseph S. Kastrup
Chairman and
Chief Executive Officer
Signing on behalf of the
registrant and as principal
officer
19
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --- -----------
<S> <C>
12.1 Termination and Release Agreement
12.2 Preferred Stock Termination Agreement
12.3 Line of Credit Termination Agreement
12.4 Call Now/Howe Solomon Agreement
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 12.1
TERMINATION AND MUTUAL RELEASE AGREEMENT
THIS AGREEMENT is entered into and dated as of August 4, 1998, by and
among Compressent Corporation, a Florida corporation ("Compressent"), Call Now,
Inc., a Florida corporation ("Call Now"), and William Allen, an individual
residing in the State of Florida ("Allen").
RECITALS
A. Call Now, an early stage venture capital investor in Compressent, owns
shares of the common stock of Compressent and has warrants or options for the
purchase of additional shares of the common stock of Compressent.
B. Except as set forth in Compressent's shareholder list maintained by the
stock transfer agent, Allen owns no shares of the common or preferred stock of
Compressent and has no warrants or options for the purchase of shares of the
common or preferred stock of Compressent.
C. Allen is now a member of the Board of Directors of Compressent.
D. On or about February 3, 1998, Compressent secured a $10,000,000.00 line
of credit from Call Now in return for payment of a commitment fee of $400,000
within thirty days of the first draw ("Line of Credit Agreement"). In connection
with the Line of Credit Agreement, Call Now received a stock purchase warrant
for 500,000 shares of Compressent common stock.
E. On or about February 3, 1998, Compressent entered into a Preferred Stock
and Warrant Purchase Agreement with Call Now whereby Compressent agreed to sell
56,000 shares of its redeemable convertible Series A Preferred Stock ("Preferred
Stock") and a warrant to purchase up to 500,000 shares of Compressent common
stock to Call Now ("Preferred Stock Agreement").
F. The purchase price for the Preferred Stock and warrant under the
Preferred Stock Agreement paid by Call Now was $3,500,000.00 and was paid in the
form of Retama Park Racetrack Project Special Facilities Series A Revenue Bonds
with a face value of $3,500,000.00 ("Retama Bonds").
G. On March 10, 1998, Compressent entered into a loan agreement with Howe,
Solomon & Hall, Inc., a New Jersey corporation ("HSH") to borrow $2,000,000.00
principal at 10% per annum ("HSH Loan"). The loan was secured by the Retama
Bonds. In connection with the HSH Loan, Compressent and HSH entered into a
"Financial Advisory Agreement" whereby Compressent agreed to pay to HSH warrants
for 100,000 shares of Compressent common stock immediately exercisable by HSH
for $6.25 per share in exchange for financial advice.
H. On May 20, 1998, Compressent and Call Now entered into an agreement
which rescinded the February 3, 1998, Preferred Stock Agreement. Pursuant to
this rescission agreement, Call Now agreed to return to Compressent all issued
shares of Preferred Stock and the
1
<PAGE> 2
stock purchase warrant. Compressent, in turn, agreed to return or cause to be
returned the Retama Bonds to Call Now. Call Now agreed to assume all obligations
of Compressent under the terms of the HSH Loan, including the Financial Advisory
Agreements between Compressent and HSH made in connection with the HSH Loan.
Finally, Compressent agreed to issue 1,333,333 shares of its common stock to
Call Now.
I. On May 20, 1998, Compressent and Call Now entered into an agreement
which terminated the February 3, 1998, Line of Credit Agreement, canceled the
associated stock purchase warrant issued to Call Now, and released Compressent
from any commitment fee and all other payments due Call Now in connection with
that Line of Credit Agreement.
J. Compressent believes it has claims against either one or both of Call
Now and Allen arising from the actions of each of Call Now and Allen. Call Now
and Allen believe they have claims against Compressent.
K. The parties desire to modify their existing relationship as set forth
below to resolve all disputes between them and to allow Compressent to pursue
additional financing.
THEREFORE, in consideration of the mutual promises and other consideration
stated in this Agreement, the parties agree as follows:
1. Terminated Undertakings. Except for this Agreement, and any other agreement
attached hereto or referred to herein as an exhibit to this Agreement, the
parties hereby terminate all written and oral agreements, representations
and undertakings between, on the one hand, either one or both of Call Now
and Allen, and on the other hand, Compressent to the extent not already
rescinded, terminated or canceled, including, without limitation, the
following "Terminated Agreements":
a) The February 3, 1998, Line of Credit agreement by and between Call Now
and Compressent and its connected stock purchase warrant for the
purchase of 500,000 shares of common stock of Compressent Corporation,
b) The February 3, 1998, Preferred Stock Agreement for the purchase of
56,000 shares of Compressent Convertible Preferred Stock and its
connected stock purchase warrant for purchase 500,000 shares of
Compressent common stock in return for Retama Bonds with a face value
of $3,500,000.00.
2. Return of Preferred Stock. Call Now hereby confirms that it does not own,
possess, or control any Compressent Preferred Stock and all such
Compressent Preferred Stock to be issued to Call Now pursuant to the
February 3, 1998 Preferred Stock Agreement was never issued and delivered
to Call Now.
3. No Previous Assignment. Except as set forth in paragraph 5(e) below with
respect to HSH, Call Now and Allen, jointly and severally, hereby represent
and warrant that no agreement, representation or undertaking between Call
Now or Allen and Compressent, including any agreement referred to in this
Agreement, has been transferred, assigned,
2
<PAGE> 3
pledged or encumbered in any way whatsoever, directly or indirectly, by
absolute or partial conveyance, option, warrant or otherwise.
4. Mutual Release. Except for the rights and obligations of the parties under
this Agreement and all other agreements incorporated herein by reference
and not terminated under paragraph 1 above,
a) Compressent hereby forever releases, remises, acquits and discharges
Call Now and Allen, and
b) Call Now and Allen hereby jointly and severally release, remise,
acquit and discharge Compressent,
of and from any and all obligations, liens, claims, demands, damages,
liabilities, suits, actions and causes of action of whatsoever kind, nature of
description, present and future, now known or hereafter discovered, whether
arising in law or equity, upon contract, tort or warranty, or under state or
federal law or laws or under common law, or otherwise, which the respective
releasor has had, now has, or hereafter may have, or claim to have, against any
one or more of the respective releasees for or by reason of any act, omission,
matter, cause, or thing whatsoever, from the beginning of time to the date of
this Agreement, whether the lien, claim, demand, damage, liability, suit, action
or cause of action is known or unknown and whether the same may hereafter arise,
develop, be discovered, accrue or mature, relating to, but not limited to the
following:
c) any one or more of the Terminated Agreements or any breach or
nonperformance thereof by any party thereto,
d) conduct of Allen in any way related to his duties as an officer or
director of Compressent, except for such conduct which violates any
applicable federal, state or local law, rule or regulation which is
expressly not released under this Agreement,
e) any and all other liens, claims, demands, damages, liabilities, suits,
actions and causes of action arising from any act or omission or from
any undertaking terminated in paragraph 1 above or any breach thereof,
f) any and all obligations of Call Now or Allen to contribute capital or
to make advances to or for the benefit of Compressent,
g) any and all obligations of Compressent to contribute capital or to
make advances to or for the benefit of Call Now or Allen, and
h) any loans, advances, goods or services or other thing of value
whatsoever of any kind provided by the releasor to or for the benefit
of any releasee relating in any way to Compressent.
3
<PAGE> 4
5. Call Now and Allen - Additional Obligations. Call Now and Allen, as the
case may be, agree to the following:
a) Upon the arranging for the issuance of the Compressent shares pursuant
to paragraph 6(b) below, Allen will immediately submit his resignation
as a member of the Board of Directors to Compressent via facsimile and
certified mail in form and substance similar to the resignation
attached hereto as Exhibit A and incorporated herein by this
reference;
b) Call Now hereby assumes and agrees to pay and perform and further
confirms and ratifies its assumption of all of Compressent's
obligations under the terms of the HSH Loan, including any Financial
Advisory Agreements between Compressent and HSH. Call Now will
continue to cause Compressent to be removed as maker or obligor under
the terms of the HSH Loan and related loan documents;
c)
d) Call Now and Allen will each assign to Harris & Hull, pllc, in trust
for Compressent all of Call Now's voting rights arising from its
ownership or control of any and all shares of Compressent common or
preferred stock, for a two year period commencing on the date of this
Agreement, pursuant to a Voting Rights Assignment Agreement the terms
and conditions of which will be mutually agreed upon; and
e) Call Now will surrender for cancellation or cause to be surrendered
for cancellation to Compressent all shares and warrants of Compressent
stock previously held or possessed by HSH or International Trading
Group, Inc. as described in Exhibit 8.15 of the Call Now Form 10-KSB
dated December 31, 1997 filed with the Securities and Exchange
Commission in July 1998.
6. Obligations of Compressent - Additional Obligations. Compressent agrees to
the following:
a) Compressent hereby confirms and ratifies its transfer of all right,
title and interest of Compressent in and to the Retama Bonds to Call
Now,;
b) Compressent will instruct the transfer agent to arrange for the issue
of 500,000 shares of Compressent common stock to Call Now within five
(5) days of the execution of this Agreement by Allen and Call Now in
consideration of Allen's release in paragraph 4 above. Such shares
will be registered for sale in the first registration statement under
the Securities Act of 1933 and blue sky laws of Compressent which
includes shares being sold by any shareholder of Compressent after May
1, 1999;
4
<PAGE> 5
c) Compressent agrees to take such actions as are reasonably requested by
Call Now to complete the transfer of the Retama Bonds to Call Now;
d) Compressent will maintain Allen's director's and officer's insurance
coverage by Compressent relating to Allen's service to Compressent as
a director to the fullest extent permitted by Compressent's existing
articles and by-laws under Florida law (and incorporated herein by
this reference) and subject to approval by Compressent's insurers. In
addition, Compressent agrees not to modify ex post its by-laws as they
relate to the indemnification of Allen as a then present or former
director or officer of Compressent; and
e) Compressent will pay Call Now, Inc. a ten percent (10%) commission on
net amounts received by Compressent from AmTote pursuant to any
agreement between Compressent and AmTote arising out of AmTote
providing services to OTB for off track betting video techology,
within thirty (30) days of Compressent's receipt of such funds.
f) Within five days after the execution of this Agreement, to extent
permitted by law, Compressent will instruct its transfer agent to
remove the restrictive legend on all Compressent shares owned by Allen
or Call Now in excess of two years.
7. Representations and Warranties of Call Now. In addition to the
representations and warranties set forth elsewhere herein, Call Now hereby
makes the following representations and warranties to Compressent:
a) Shares Owned Directly and Indirectly. Except for those shares of
Compressent common and preferred stock now held of record in its name
with the stock transfer agent, Call Now has no common or preferred
shares of Compressent and has no options, warrants or rights regarding
any common or preferred shares of Compressent.
b) Corporate Existence and Power. Call Now is a corporation duly
incorporated, validly existing, and in good standing under the laws of
the State of Florida and has full corporate power and authority to
transact business in the corporate form in that state and to enter
into this Agreement and carry out the transactions provided for
herein. The execution and delivery of this Agreement does not and the
consummation of the transactions contemplated herein will not violate
any provision of its Articles of Incorporation or Bylaws, or any
provision of or result in accelerating of any obligation under any
mortgage, lien, lease, agreement, instrument, order, arbitration
award, judgment, or decree to which it is a party, or by which it is
bound, and will not violate any other restriction of any kind or
character to which it is subject.
c) Board of Directors Approval. Call Now's Board of Directors has duly
approved this Agreement and has authorized the execution and delivery
of this Agreement and all related agreements, documents and
instruments.
5
<PAGE> 6
d) Disclosure. No representation or warranty by Call Now contained in
this Agreement, and nothing contained in any instrument or certificate
furnished or to be furnished by it or any of its representatives
pursuant to this Agreement or in connection with the transactions
contemplated hereby, contains or will contain any untrue or misleading
statement of fact.
e) Brokers and Finders. Call Now has not employed any investment banker,
broker or finder, or incurred any liability for any brokerage fees,
commissions or finders fees in connection with the transactions
contemplated by this Agreement.
8. Representations and Warranties of Compressent. In addition to
representations and warranties set forth elsewhere herein, Compressent
makes the following representations and warranties to Call Now and Allen:
a) Corporate Existence and Power. Compressent is a corporation duly
incorporated, validly existing, and in good standing under the laws of
the State of Florida and has full corporate power and authority to
transact business in the corporate form in that state and to enter
into this Agreement and carry out the transactions provided for
herein. The execution and delivery of this Agreement does not and the
consummation of the transactions contemplated herein will not violate
any provision of its Articles of Incorporation or Bylaws, or any
provision of or result in the acceleration of any obligation under any
mortgage, lien, lease, agreement, instrument, order, arbitration
award, judgment, or decree to which it is a party, or by which it is
bound, and will not violate any other restriction of any kind or
character to which it is subject.
b) Board of Directors Approval. Compressent's Board of Directors has duly
approved this Agreement and has authorized the execution and delivery
of this Agreement and all related agreements, documents and
instruments.
c) Disclosure. No representation or warranty by Compressent contained in
this Agreement, and nothing contained in any instrument or certificate
furnished or to be furnished by it or any of its representatives
pursuant to this Agreement or in connection with the transactions
contemplated hereby, contains or will contain any untrue or misleading
statement of fact.
d) Brokers and Finders. Compressent has not employed any investment
banker, broker or finder, or incurred any liability for any brokerage
fees, commissions or finders fees in connection with the transactions
contemplated by this Agreement.
9. Representations and Warranties of Allen. In addition to representations and
warranties set forth elsewhere herein, Allen makes the following
representations and warranties to Compressent:
6
<PAGE> 7
a) Shares Owned Directly and Indirectly. Except as set forth on Recital
B, Allen has no common or preferred shares of Compressent and has no
options, warrants or rights regarding any common or preferred shares
of Compressent.
b) Power and Authority. Allen has full power and authority to enter into
this Agreement and to carry out the transactions provided for herein.
The execution and delivery of this Agreement does not, and the
consummation of the transaction contemplated herein will not, violate
any provision of or result in accelerating any obligation under any
mortgage, lien, lease, agreement, instrument, order, arbitration
award, judgment, or decree to which he is a party, or by which he is
bound, and will not violate any other restriction of any kind or
character to which he is subject.
c) Disclosure. No representation or warranty by Allen contained in this
Agreement, and nothing contained in any instrument or certificate
furnished or to be furnished by him or any of his representatives
pursuant to this Agreement or in connection with the transactions
contemplated hereby, contains or will contain any untrue or misleading
statement of fact.
d) Brokers and Finders. Allen has not employed any investment banker,
broker or finder, or incurred any liability for any brokerage fees,
commissions or finders fees in connection with the transactions
contemplated by this Agreement.
10. Access and Information/Reliance. Compressent, Call Now and Allen and their
respective accountants, legal counsel, and other representatives and agents
have each had full access and opportunity to examine and investigate all
properties, assets, liabilities, books, contracts, commitments,
undertakings and records of each other. Neither Allen nor any officer of
Compressent or Call Now will be deemed to have knowledge of any information
or fact in any of the above-described items unless that officer had actual
knowledge thereof on the date of this Agreement. No party hereto is relying
on any agreement, statement, representation or warranty of any other party
or any other person or entity in entering into this Agreement and the
transactions contemplated hereby other than those set forth in this
Agreement (including exhibits, addenda, agreements, instruments,
certificates and other writings delivered pursuant hereto or in connection
herewith).
11. Intent. The undersigned agree that the Mutual Release set forth in
paragraph 4 above and the giving of consideration therefor does not
constitute an admission of liability by any one or more of the releasees,
and is given in full settlement and compromise of doubtful and disputed
claims, present and future, known and unknown and is also intended to
release any and all future injury and damage including effects or
consequences thereof, not now known but which may later develop or be
discovered, and all causes of action therefor, and a part of the
consideration is given and received by each respective releasee and
releasor in satisfaction of unknown liens, claims, injury and damage.
12. Bound and Remitted Persons. The foregoing Mutual Release set forth in
paragraph 4 above extends to and releases and binds and inures to the
benefit of each respective
7
<PAGE> 8
releasee and releasor, as the case may be, and in the case of corporations,
all its shareholders, directors, officers, employees, underwriters,
lenders, beneficiaries, attorneys, agents, assigns, successors,
subsidiaries, affiliated and connected corporations, companies and
entities, and in the case of persons, all their marital communities, heirs,
executors, administrators, personal representatives, underwriters,
beneficiaries, attorneys, agents, and assigns.
13. Miscellaneous.
a) Choice of Law. This Agreement is made with reference to and is
intended to be construed in accordance with the laws of the State of
California without reference to its conflict of law provisions. The
parties agree that the exclusive jurisdiction and venue of any suit
will be in U.S. District Court in San Jose, California or San
Francisco, California, unless the federal court declines jurisdiction
in which such jurisdiction will be the state court in San Jose,
California.
b) Waiver and Modification. The failure of any party hereto to require
strict performance of any provision hereof will not in any manner
limit the right of that party at a later time to enforce the same. No
waiver by any party of the breach of any term or covenant contained in
this Agreement will be deemed to be a release or limit any liability
resulting from the breach. No waiver of any nature, whether by
conduct, course of dealing, or otherwise, in any one or more instances
will be deemed to be or construed as a continuing waiver of any such
condition or breach or as a waiver of any other condition or of any
other breach of any other term or covenant of this Agreement.
c) Successors in Interest. This Agreement is and will be binding upon and
is and will inure to the benefit of the successors and assigns of the
parties. No party hereto may assign any of its rights or obligations
under this Agreement without the prior written consent of all of
Compressent, Call Now and Allen, except to a successor to at least 80%
of the business and assets of the assignor in which case both assignor
and assignee will be and remain jointly and severally liable to pay
and perform all indebtedness, liabilities and obligations of the
assignor under this Agreement.
d) Entire Agreement. This Agreement contains the entire agreement between
the parties hereto with respect to the subject matter hereof and
supersedes all prior negotiations and agreements. There are no
representations, warranties understandings, or agreements other than
those expressly set forth herein. Time is expressly declared to be of
the essence of this Agreement.
e) Exhibits. Exhibits, schedules and addenda attached to this Agreement
and any other agreements, documents, instruments and certificates
delivered in connection with this Agreement are expressly made a part
of this Agreement as fully as though completely set forth in it. All
references to this Agreement either in the Agreement itself or in any
of such writings will be deemed to refer to and include this
8
<PAGE> 9
Agreement and all such exhibits, schedules, addenda, agreements,
documents, instruments and certificates. Any breach of or default
under any provision of any such writings will, for all purposes,
constitute a breach or default under this Agreement and all other such
writings.
f) Execution by Counterpart. This Agreement may be executed separately or
independently in any number of counterparts, each and all of which
together will be deemed to have been executed simultaneously and for
all purposes to be one agreement.
g) Captions. The respective captions of the sections and paragraphs
hereof are inserted for convenience of reference only and will not be
deemed to modify or otherwise affect in any respect any of the
provisions hereof.
h) Dispute Resolution Expenses. The prevailing party in any action,
proceeding or lawsuit arising out of the enforcement of any term or
condition of this Agreement will be entitled to an award of attorneys'
fees, costs and expenses.
EXECUTED as of the date first above written.
COMPRESSENT CORPORATION CALL NOW, INC.
By: By:
--------------------------------- ---------------------------------
Its: Its:
----------------------------- -----------------------------
/s/ WILLIAM ALLEN
- ------------------------------------
William Allen, Individually
9
<PAGE> 10
EXHIBIT A
Resignation of William Allen
10
<PAGE> 11
August 4, 1998
To: The Shareholders and the Board of Directors of Compressent Corporation.
From: William Allen.
I hereby resign as a director of Compressent Corporation effective immediately.
/s/ WILLIAM ALLEN
- -------------------------
William Allen
11
<PAGE> 1
EXHIBIT 12.2
AGREEMENT
THIS AGREEMENT dated May 20, 1998, between and among COMPRESSENT
CORPORATION ("COMPRESSENT") and CALL NOW, INC. ("CNI").
WITNESSETH:
WHEREAS, on or about February 6, 1998 and pursuant to a Preferred Stock and
Warrant Purchase Agreement (the "Agreement") between the parties hereto CNI
agreed to purchase 56,000 shares of Series A Convertible Preferred Stock and a
Stock Purchase Warrant to purchase 500,000 shares of Common Stock of Compressent
in exchange for $3,500,000 in principal amount of a Retama Development
Corporation Revenue Refunding Bonds (Series A 1997) (the "Bonds"); and
WHEREAS, in order to resolve certain disputes in connection with the
Agreement the parties have agreed to rescission of the Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereby agree to rescind the Agreement and the sale
of Compressent Preferred Stock and Stock Purchase Warrants thereunder as
follows:
1. The Agreement and all documents executed pursuant thereto or in
connection therewith by the parties hereto are hereby rescinded and shall be
null and void and of no force and effect.
2. Simultaneously herewith and as a part of the rescission provided for
herein, CNI hereby tenders to Compressent all shares of Series A Convertible
Preferred Stock and Stock Purchase Warrant to be purchased pursuant to the
Agreement.
3. Compressent hereby assigns to CNI all of its right, title and interest
in and to the Bonds. The parties acknowledge that the Bonds are subject to a
lien in favor of Hall, Solomon & Howe, Inc. in the approximate amount of
$2,000,000 which CNI hereby assumes and agrees to pay. In consideration
of the diminution of value of the Bonds due to such lien and assumption thereof
by CNI Compressent shall issue to CNI 2,000,000 shares of its Common Stock. Such
shares have not been registered under the Securities Act of 1933 and shall
contain a restrictive legend to such effect.
4. Compressent hereby represents and warrants to CNI that:
4.1 Compressent owns all the right, title and interest in and to the
Bonds, free and clear of any security interests, liens, claims and encumbrances
of any kind subject only to the lien set forth above, and has full right and
power effectively to transfer record and beneficial ownership of such Bonds to
CNI pursuant to the terms of this Agreement.
4.2 Compressent has authority to take, and has taken, all action
required to be taken to permit it to enter into and carry out this agreement.
This Agreement has been duly executed and delivered by Compressent and is valid
and enforceable against it in accordance with its terms.
<PAGE> 2
5. CNI hereby represents and warrants to Compressent that it has
authority to take, and has taken, all action required to be taken to permit it
to enter into and carry out this agreement. This Agreement has been duly
executed and delivered by CNI and is valid and enforceable against it in
accordance with its terms.
6. Compressent hereby indemnifies and holds CNI harmless from and against
any and all liabilities, losses, damages and claims (including attorney's fees)
which may be asserted against CNI by any past, present or future creditor of
Compressent arising out of this agreement. The relief afforded hereunder shall
be in addition to all other relief provided by law.
7. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their successors and assigns. The parties shall take such
further actions and execute such further instruments as may be necessary or
appropriate to carry out the transactions herein.
8. This Agreement constitutes the entire agreement and understanding
between the parties with respect to the rescission provided for herein.
9. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
10. This Agreement shall be construed and interpreted in accordance with
the laws of the State of Florida. The parties acknowledge that Joel Bernstein
has acted as attorney for CNI in connection with the Agreement and this
agreement.
11. All representations, warranties, covenants and agreements of any of
the parties hereto made in this Agreement or in any certificate or document
delivered by it pursuant hereto, shall survive the execution and delivery hereof
and the closing hereunder.
IN WITNESS WHEREOF, CNI amd Compressent have caused their corporate names
to be hereunto subscribed and their corporate seals to be hereunto affixed by
their officers thereunto duly authorized.
COMPRESSENT CORPORATION
By: /s/
------------------------------------
Chairman
CALL NOW, INC.
By: /s/
------------------------------------
Chairman
<PAGE> 1
EXHIBIT 12.3
TERMINATION AGREEMENT
This Termination Agreement made as of this 20th day of May, 1998 between
COMPRESSENT CORPORATION ("COMPRESSENT") and CALL NOW, INC. ("CALL NOW").
WHEREAS, on or about February 2, 1998 the parties entered into a Loan
Agreement under which Call Now could lend certain amounts to Compressent (the
"Agreement"); and
WHEREAS, the Agreement was entered into primarily to facilitate a proposed
acquisition by Compressent; and
WHEREAS, the proposed acquisition has not been consummated, the parties
have agreed to terminate such Agreement on the terms set forth herein.
NOW, THEREFORE, the parties agree as follows:
1. The Agreement is hereby terminated by mutual consent of the parties.
The Stock Purchase Warrant issued to Call Now in connection with the Agreement
is hereby cancelled.
2. Call Now hereby releases Compressent from the Commitment Fee and all
other payments due to Call Now under the Agreement. Compressent hereby releases
all rights under the Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
above written by their respective officers thereunto duly authorized.
COMPRESSENT CORPORATION
By: /s/
--------------------------------
Chairman
CALL NOW, INC.
By: /s/
--------------------------------
Chairman
<PAGE> 1
EXHIBIT 12.4
Term Sheet
Retama Bond Investment
Parties:
- -- Howe Solomon & Hall ("HSH")
- -- International Trading Group, Inc., Individually and on behalf of The ITG
Tax Free Income & Capital Appreciation Fund, Ltd. (collectively, "ITG")
- -- Call Now, Inc. ("CNI")
Background:
- -- ITG currently holds $3,500,000 face amount of Ratama Series 1997A Bonds
(the "ITG Retama Bonds") which it purchased from HSH in March, 1,008 free
and clear of adverse claims of $2,000,000.
- -- HSH loaned ("the Loan") the proceeds of sale of the ITG Retama Bonds to
Compressant Corporation ("Compressant"), and this loan was due and payable
on or before September 1, 1998. CNI has subsequently assumed the Loan and
Compressant has assigned its rights in the ITG Ratama Bonds to CNI.
- -- CNI currently owns all of the Issued and outstanding 1997 Series B Ratama
Bonds (the "B Bonds").
- -- At the time of purchase of the ITG Retama Bonds, HSH agreed to deliver to
ITG 16,000 shares of common stock and warrants to purchase 50,000 shares of
Compressant common stock at $5.25 per share (collectively the "Compressant
Securities"). To date, the Compressant Securities have not been delivered
to ITG, and they have declined in value to the extent that ITG will not
accept them.
- -- At CNI's request, ITG purchased or caused to be purchased from CNI for
$2,150,000 an additional $3,500,000 face amount of Retama Series 1997 A
Bonds (the "HSH Retama Bonds") on July 10, 1998 to be sold to HSH.
- -- HSH has arranged a sale of the HSH Retama Bonds for $2,150,000 plus accrued
interest.
- -- HSH, ITG and CNI desire to document their respective arrangements with
respect to the ITG Retama Bonds and the HSH Retama Bonds, as follows:
Term Sheet
Retama Bond Investment ITG
---
HSH
---
CNI
---
1
<PAGE> 2
Agreement:
- -- ITG agrees to sell the HSH Retama Bonds to HSH for $2,150,000 plus half of
the accrued and unpaid interest to date of sale, (ie, half of $338,235.10,
or $169,115.05), for a total purchase price of $2,319,118.05. The sale will
take place as of July 15, 1998 and settlement will be on Friday, July 17,
1998.
- -- When and if paid by the Issuer, ITG will receive the entire $50,000 sinking
fund payment in respect to the Retama Bonds and will remit $25,000 to HSH,
ITG and HSH will instruct the trustee as to which Bond Numbers will be sunk
from the Retama Bonds.
- -- HSH and CNI agree to extend the due date of the Loan until January 1, 1999.
ITG acknowledges and consents to said extension.
- -- HSH agrees to deliver, or cause to be delivered, to ITG 50,000 shares of
unrestricted Call Now Stock and 25,000 shares of restricted Call Now Stock
upon receiving the 150,000 shares from Call Now. In satisfaction and
replacement of its obligation to deliver the Compressant Securities to ITG.
HSH will deliver said stock to ITG on or before August 15, 1998. On August
3, 1998, ITG agrees to notify CNI and confirm notification that HSH has not
performed under this section. In the event that HSH has not made delivery
of said stock, CNI would then deliver said Call Now Stock directly to ITG.
- -- HSH and ITG agrees to assign its right and interest to receive 100,000
shares Compressant and 100,000 shares of Compressant warrants to purchase
Compressant Shares at $1.00 to Call Now.
- -- Upon receipt of the interest payment due September 1, 1998 on the ITG
Retama Bonds, ITG will remit $86,116 to HSH, which amount includes a
deduction for ITG's cost of carry of ITG Retama Bonds through July 17,
1998.
- -- From and after July 17, 1998, ITG and HSH (or the registered bondholders
acquiring Bonds from ITG or HSH) respectively, shall each be responsible
for their costs of carry for Retama Bonds.
- -- Provided CNI pays the Loan in full prior to January 1, 1999, and HSH has
timely delivered the CNI Stock to ITG, CNI shall have an option,
exerciseable on or before January 1, 1999 by written notice to ITG, to
purchase the ITG Retama Bonds for $2,000,000 plus accrued interest. HSH
agrees that payment by CNI of the purchase price of the ITG Retama Bonds,
to ITG will
Term Sheet
Retama Bond Investment ITG
----
HSH
----
CNI
----
2
<PAGE> 3
satisfy in full CNI's obligation to HSH under the Loan and ITG's
obligations to HSH and CNI with respect to the ITG Retama Bonds.
- -- HSH agrees that it will procure for CNI and option to repurchase the HSH
Retama Bonds for $2,150,000 plus accrued interest on or before January 1,
1988. Exercise of such option and payment of the $2,150,000 plus accrued
interest shall constitute payment in full of the Loan.
- -- HSH and CNI releases and discharges ITG and its officers, agents and
employees from any and all liability, claims or obligations in respect of
the transactions described herein. HSH and CNI agree to release, indemnify
and hold ITG, its agents, servants and employees harmless from loss or
liability of any kind in connection with the transactions described herein
and/or any failure by HSH to deliver the HSH Retama Bonds to CNI or
Compressant.
- -- In the event that the September 1, 1996 principal and interest payments due
on the Retama Series 1997 A Bonds is not made, CNI agrees to support the
foreclosure rights and actions of the holders of such bonds. Furthermore,
CNI will lose all rights to repurchase the ITG and the HSH Retama Bonds.
- -- In the event CNI fails for any reason to repay the Loan and to acquire all
of the ITG Retama Bonds and the HSH Retama Bonds in accordance with this
Term Sheet on or before January 1, 1988, CNI agrees as follows:
- For so long as ITG and/or HSH own any Retama Series 1997 A Bonds, in
the event that CNI desires to sell H Bonds at or below 80% of par
value:
- CNI grants to ITG and HSH a right of first refusal (the "Right of
First Refusal") to purchase CNI's holdings of B Bonds, including
any such B Bonds which may in the future be converted to A Bonds.
At the time CNI desires to sell any such Bonds, CNI shall send a
written notice by facsimile (the "Sale Notice") to ITG and HSH
describing the principal amount and identity of the Bonds
proposed to be sold, in the event that ITG and HSH and CNI have
not agreed upon the terms of purchase of the Bonds covered by the
Sale Notice, CNI may send ITG and HSH and CNI have agreed upon
the terms of purchase of the Bonds covered by the Sale Notice,
CNI may send ITG and HSH a written notice by facsimile, by no
later than 10:00 A.M. Eastern Time on the fifth business day
after delivery of the Sale Notice to ITG and HSH, setting forth
the proposed purchase price and payment terms of the Bonds
covered by the Sale Notice (the "Price Notice"). ITG and HSH
shall have the right to purchase the Bonds covered by the Sale
Notice in proportion to their ownership (if any) of B Bonds by
paying the purchase price specified in the Price Notice (on
Term Sheet
Retama Bond investment ITG /s/
HSH /s/
CNI /s/
3
<PAGE> 4
the terms specified in the Price Notice) to CNI no later than
5:00 P.M. Eastern Time on the 5th business day after ITG and
HSH's receipt of the Price Notice. In the event ITG or HSH does
not select to purchase its full share of B Bonds, the other party
may exercise the Right of First Refusal with respect to the
remainder of sold B Bonds. Time is of the essence in connection
with the transactions herein. The right described in this Section
4 shall not apply to any sale of the B Bonds to a partnership or
other entity organized by Seller, but subsequent sale of such
Bonds by that partnership or other entity during the term of the
Right of First Refusal shall be subject to such right.
- If ITG and HSH fails to exercise the Right of First Refusal by
making payment for the Bonds covered by the Sale Notice as
specified above, CNI may, not later than 15 days following the
sending of the Price Notice, conclude a sale of the Bonds subject
to the Sale Notice at the price and upon the terms set forth in
the Price Notice. Any proposed sale at a price lower than that
specified in the Price Notice, or on terms different from those
specified in the Price Notice, shall again be subject to ITG and
HSH's Right of First Refusal and shall require strict compliance
by CNI with the procedures described in Section 4.1 of this
Agreement. If ITG and HSH exercises the Right of First Refusal.
CNI shall take such steps as may be necessary and appropriate to
transfer the purchased Bonds to ITG.
- CNI will enter into a remarketing agreement with respect to the Retama
Series 1997 A Bonds and take any and all such steps as are necessary
to permit the A Bonds to be eligible for sale and delivery through
Depository Trust Corporation without restriction on transfer, sale or
distribution by ITC or any subsequent purchaser or holder of said
Bonds.
Signed by ITG, HSH and CNI this 15th day of July, 1998.
International Trading Group, Inc. Howe Solomon & Hall, Inc.
By: /s/ Dan Carter By: /s/ Chris Hall
--------------------------------- ----------------------------
Dan Carter, President Chris Hall, Principal
Call Now, Inc.
By: /s/ Bryan Brown
----------------------------------
Bryan Brown, President Call Now
Term Sheet
Retama Bond Investment ITG /s/ DC
HSH /s/ CJH
CMI /s/ BPB
4
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<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 16,877
<SECURITIES> 3,500,500
<RECEIVABLES> 294,858
<ALLOWANCES> (241,669)
<INVENTORY> 53,353
<CURRENT-ASSETS> 3,764,550
<PP&E> 389,017
<DEPRECIATION> (214,590)
<TOTAL-ASSETS> 4,421,416
<CURRENT-LIABILITIES> 3,401,056
<BONDS> 0
0
2,240,500
<COMMON> 11,617,332
<OTHER-SE> (13,825,226)
<TOTAL-LIABILITY-AND-EQUITY> 4,421,416
<SALES> 85,084
<TOTAL-REVENUES> 85,084
<CGS> 373,521
<TOTAL-COSTS> 5,816,271
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<INTEREST-EXPENSE> (366,781)
<INCOME-PRETAX> (6,471,689)
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