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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 2, 1998
CHATCOM, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA
(State or other jurisdiction of incorporation)
0-20462 95-3746596
(Commission File Number) (I.R.S. Employer Identification No.)
9600 TOPANGA CANYON BOULEVARD 91311
CHATSWORTH, CALIFORNIA (Zip Code)
(Address of principal executive offices)
(818) 709-1778
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
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Item 5. Other Events.
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On August 26, 1998, the Company entered into a Purchase and Sale Agreement
(the "Sale Agreement") with Vermont Research Products, Inc. ("VRPI") and High
View Capital ("HVC"). VRPI is a major supplier to the Company of certain
products (which are resold by the Company) and is the holder of the Company's
Series F Convertible Preferred Stock and Series G Convertible Preferred Stock
and is also the Company's single largest trade creditor. HVC (including certain
of its affiliates) is the holder of the Company's Series D Convertible Preferred
Stock and the Company's convertible subordinated debt in the aggregate principal
amount of $890,000. The Sale Agreement provides for the sale by the Company of
its recently announced BrightStar product technology (the "New Product") to VRPI
and HVC (collectively, the "Purchasers") in exchange for $400,000 in cash
($200,000 of which was advanced to the Company by VRPI through July 7, 1998 and
the remaining $200,000 was received by the Company on September 2, 1998), the
cancellation of all outstanding loans and convertible notes made to the Company
by the Purchasers or their affiliates including accrued interest (approximately
$966,000 at August 26, 1998), the cancellation of all trade debt owing by the
Company to the Purchasers (approximately $391,000 at August 26, 1998), the
return of certain equipment by the Company to VRPI in the amount of
approximately $289,000, the cancellation of all shares of preferred stock (and
accrued dividends thereon) owned by the Purchasers or any of their affiliates
(approximately $4.0 million in stated value at August 26, 1998) and the
cancellation of all warrants held by the Purchasers or their affiliates to
purchase shares of the Company's Common Stock (835,000 shares). The Sale
Agreement included certain other conditions, which included the Company's
receipt of a minimum of $300,000 from ALCO Financial Services LLC under a line
of credit (which was effected on September 2, 1998) and the execution of a
license agreement under which the Purchaser would grant the Company an exclusive
license to the New Product (the "License Agreement"). The License Agreement
provides for royalty payments to be made by the Company to the Purchasers in the
amount of 5% of the sales price of New Products sold by the Company. In the
event of any sale or merger of the Company or the licensing by the Company of
the New Product to a third party, the Company may elect to buy-back the New
Product from the Purchasers for $1, provided the sale or merger or licensing
arrangement generates at least $8 million in aggregate proceeds to the Company.
In such an event, the Company would be required to distribute the proceeds from
such a transaction on the following incremental basis: up to $1 million, 75% to
Purchasers, 25% to the Company; $1,000,000 to $5,999,999, 48.5% to Purchasers,
51.5% to the Company; $6,000,000 to $7,999,999, 68% to Purchasers, 32% to the
Company; $8,000,000 to $9,999,999, 60% to Purchasers, 40% to the Company;
$10,000,000 to $12,999,999, 21% to Purchasers, 79% to the Company; $13,000,000
to $16,000,000, 7.5% to Purchasers, 92.5% to the Company; over $16,000,000, 100%
to the Company. In the event the Company enters into a sale, merger or licensing
agreement that generates less than $8 million in aggregate proceeds to the
Company, the license granted to the Company under the License Agreement would
convert to a non-exclusive license. The Purchasers have the right to rescind the
Sale Agreement and License Agreement for a period of one year (until September
2, 1999).
Item 7. Exhibits.
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(a) Financial statements of businesses acquired.
Not applicable
2.
(b) Pro forma financial information.
Not applicable
(c) Exhibits.
10.1 Purchase and Sale Agreement between the Company and Vermont
Research Products, Inc. and High View Capital dated
August 26, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CHATCOM, INC.
Date: September 11, 1998 By /s/ E. CAREY WALTERS
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E. Carey Walters
Chief Executive Officer
3.