DD, If you have an opportunity, I'd appreciate your opinion on the following from COVR's 10k:
<For the buy back of the Care Software License by Care, the Company received $500,000 on March 31, 1998 and a $4,500,000 non-interest bearing non-recourse (except as to collateral) note payable in semi-annual installments of $500,000 which, when discounted, results in a principal amount of the note of $3,893,054. Due to the related party nature of the Care Software License buy back agreement, the Company recorded the $1,143,000 difference between the carrying value of the Care Software License and the discounted $4,393,000 buy back agreement to capital in excess of par value at March 31, 1998. Upon receipt of the first $500,000 payment under the agreement on March 31, 1998, the Company lifted the aforementioned $.01 per share repurchase restriction on the 2,500,000 shares.
The discounted note is collateralized by unencumbered Cover-All common stock owned by Care and Software Investments Limited (a party related to Care). The number of shares required as collateral will vary, such that the market value of the shares held as collateral must equal 150% of the outstanding balance of the note. The number of shares required as collateral will be adjusted at each payment date based on the market price of the Company's shares and the balance outstanding on such date. Based on the market price of the Company's common stock on March 30, 1998, approximately 1,700,000 shares were pledged as collateral. Upon receiving the second installment of $500,000 on September 30, 1998, the number of shares required as collateral was recalculated. An additional 2,000,000 shares were required as collateral bringing the total number of shares pledged to approximately 3,700,000. The carrying value of the note at December 31, 1998 is $3,511,000, without accrued interest.
On March 31, 1997, the Company sold $3,000,000 of 12 1/2% Convertible Debentures due March 2002 (the "Debentures") to an institutional investor. The Debentures were sold at face value, pay interest quarterly and are convertible, in whole or in part, into shares of common stock of the Company at $1.25 per share, subject to adjustment. The Debentures contain certain covenants which restrict the Company's ability to incur indebtedness, grant liens, pay dividends or other defined restricted payments and make investments and acquisitions. The Company cannot redeem the Debentures for two years (from March 31, 1997) and thereafter may only call the Debentures if the closing price of the Company's common stock for the twenty business days preceding the redemption date exceeds $1.50. The net proceeds from this financing were used for working capital purposes. >
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