Preo Software Inc.
CNSX : PKM

Preo Software Inc.

January 29, 2010 11:13 ET

Karel Capital Corporation Announces Proposed Qualifying Transaction With Preo Software Inc.

CALGARY, ALBERTA--(Marketwire - Jan. 29, 2010) - KAREL CAPITAL CORPORATION ("Karel") (TSX VENTURE:KRL.P) is pleased to announce that it has entered into a Letter of Intent dated December 24, 2009 as amended on January 12, 2010 (the "LOI") to amalgamate with PREO SOFTWARE INC. (CNSX:PKM) ("Preo"). The proposed transaction between Karel and Preo will constitute a Qualifying Transaction of Karel and will not be a Non-Arm's Length transaction of Karel, as such terms are defined in Policy 2.4 (the "CPC Policy") of the TSX Venture Exchange (the "Exchange").

Karel Capital Corporation

Karel is a capital pool company under the CPC Policy. Karel does not have any operations and has no material assets other than cash. The principal business of Karel is to identify and evaluate opportunities for the acquisition of an interest in a business and once identified and evaluated, to negotiate an acquisition or participation subject to receipt of shareholder approval and acceptance for filing by the Exchange. Karel is authorized to issue common shares (the "Karel Shares") and an aggregate of 12,800,000 Karel Shares are currently issued and outstanding and options (the "Karel Options") to purchase an aggregate of 1,850,000 Karel Shares at an exercise price of $0.10 with expiry dates ranging from June 26, 2010 to August 22, 2013.

Preo Software Inc.

Preo is a Calgary, Alberta based company trading on the Canadian National Stock Exchange (CNSX) under the symbol PKM. Preo offers print management solutions serving Fortune 5,000 customers in a wide variety of industries, both domestically and internationally, operating on Windows-based systems. Preo's primary proprietary software is called Printelligence, which is the only print management system that adapts itself to an organization's printing behaviour, based on a unique adaptive rules engine that modifies the messaging delivered to end-users at the desktop, based on individual behaviour. In October 2009, Preo entered into a licensing agreement with Xerox Corp for a term of four years. Using Preo's proprietary technology, the companies will jointly develop the industry's first assessment tools and software products that measure colour coverage on each page in real time for Xerox's ColorQube 9200 Series multifunction printers.

Preo is authorized to issue Class "A" common shares (the "Preo Shares") and an aggregate of 36,994,072 Preo Shares are currently issued and outstanding and options (the "Preo Options") to purchase an aggregate of 5,256,736 Preo Shares at exercise prices ranging from $0.10 to $0.23 with expiry dates ranging from February 4, 2010 to December 14, 2014. Preo also has a $500,000 non-interest bearing convertible debenture maturing on July 28, 2012 and a $375,000 non-interest bearing convertible debenture ("Second Convertible Debenture") maturing on April 1, 2010.

Foundation Equity Corporation ("Foundation Equity") of St. Albert, Alberta holds 30% of the outstanding Preo Shares prior to conversion of the outstanding convertible debentures of Preo. Foundation Equity is a venture capital firm with current deployed capital of $25 million in a broad range of business sectors, including emerging technologies. The directors of Foundation Equity are Kerry Brown, Nate Glubish, Terry Chalupa, Earl Everall, Ron Fehr, John C. Howard, Peter von Sass and Herman Young. No person or party has a controlling interest in Foundation Equity.

The following selected financial data has been extracted from the financial statements of Preo, prepared in accordance with Canadian Generally Accepted Accounting Principles, for the fiscal period indicated and should be read in conjunction with those financial statements which can be found on Sedar at www.sedar.com.

    9 months ended 12 months ended
    Sept. 30, 2009 Dec. 31, 2008
    (unaudited) (audited)
Cash and cash equivalents $ 111,308 589,665
Current assets $ 230,289 701,105
Total assets $ 297,823 791,915
Total liabilities $ 747,519 168,842
Working capital $ (111,165) 532,263
Revenues $ 292,173 98,403
Gross profit $ 189,795 25,606
Operating expenses $ 1,528,692 2,392,879
Net loss and comprehensive loss $ 1,345,012 2,463,489
Basic and diluted loss per share $ (0.04) (0.09)

Proposed Qualifying Transaction

Pursuant to the terms of the LOI, Karel and Preo will amalgamate (the "Amalgamation") to form a new company (the "Resulting Issuer") under the following fundamental terms:

  1. Karel shall complete a brokered or a non-brokered private placement, (the details of which are still being determined and once finalized will be announced in a further press release), for gross aggregate proceeds of a minimum of $750,000 and a maximum of $1,200,000 at an issuance price of $0.10 per Karel Share (the "Private Placement Financing");

  2. Each issued and outstanding Karel Share, including the Karel Shares subscribed for in the Private Placement Financing, will be exchanged for one-half (1/2) of one common share ("Amalco Share") of the Resulting Issuer, at a deemed price of $0.20 per share;

  3. Each Karel Option will be exchanged with an option to purchase one-half (1/2) of an Amalco Share, with the remaining terms to be identical to the terms of the Karel Options;

  4. The Second Convertible Debenture will be converted into 1,875,000 Preo Shares at a conversion price of $0.20 per share prior to completion of the Amalgamation;

  5. Each issued and outstanding Preo Share, including the Preo Shares to be issued under the conversion of the Second Convertible Debenture, will be exchanged for one (1) Amalco Share, at a deemed price of $0.20 per share;

  6. Each Preo Option will be exchanged with an option to purchase one (1) Amalco Share, with the remaining terms to be identical to the terms of the Preo Options;

  7. The officers, directors and insiders of the Resulting Issuer will enter into a form of escrow agreement as required by the Exchange in accordance with the CPC Policy and Policy 5.4 of the Exchange;

  8. The parties shall enter into a definitive form of amalgamation agreement containing the terms of the LOI and other customary terms as are reasonably required by counsel to Karel and Preo and in such form as is mutually agreeable to the parties;

  9. The parties contemplate calling and holding special shareholders meetings to approve the Amalgamation on or about April 1, 2010 and completing the Amalgamation shortly thereafter;

  10. Completion of the Amalgamation is subject to the receipt of all necessary regulatory and Exchange approvals, including the approval by the Exchange of the Amalgamation as Karel's Qualifying Transaction, approval by the shareholders and directors of Karel as required by the CPC Policy and approval by the shareholders of each of Karel and Preo under applicable securities and corporate laws;

  11. Completion of the Amalgamation is subject to satisfactory due diligence reviews by Karel and Preo; and

  12. The board of directors of the Resulting Issuer will consist of five (5) directors, of which four directors will be nominees of Preo and one (1) director will be the nominee of Karel. If Karel secures maximum proceeds of $1,200,000 under the Private Placement Financing, then Karel has the option to nominate a second director to the board of directors bringing the total number of directors of the Resulting Issuer to six (6) directors.

The proposed nominee directors and officers of the Resulting Issuer are as follows:

Cameron Schuler – Director

Mr. Schuler's multifaceted career has covered finance, business and product development, consumer products, IT and general management from start-ups to mature companies. Industry experience includes Alternative Energy, Banking, Consumer Goods, Information Technology (Consumer and Enterprise), Investment Sales and Trading, Life Sciences, Manufacturing, Nutraceuticals, Oil & Gas, and Oil & Gas Services. He attained an MBA from Queen's University, is a Certified Investment Manager and Fellow of the Canadian Securities Institute.

Ted Redmond – Director

Mr. Redmond has been senior officer of McCoy Corporation (TSX-V:MCB) since November 2006, a public company operating in 3 sectors, energy products and services, trailer manufacturing and truck and trailer products and services. Mr. Redmond has been a director of Preo since February 2005. Mr. Redmond has an MBA from Stanford Business School, a M.Sc. in Electrical Engineering from the University of Toronto and a B.Sc. in Computer Engineering from the University of Alberta.

Nathaneal Glubish – Director

Mr. Glubish was Manager of Planning and Development for McCoy Corporation (TSX-V:MCB) in their Energy Products and Services division from May 2008 to May 2009. Since September 2009, Mr. Glubish has been a Partner and Portfolio Manager at Foundation Equity II LP. Mr. Glubish currently sits on the board of directors for Rocketfuel Productions Inc., a privately held company in the internet multi-media business, Foundation Equity and Foundation Ventures GP Inc. Mr. Glubish has been a director of Preo since February 2005. Mr. Glubish completed a Bachelor of Commerce, with a major in Finance at the University of Saskatchewan.

Mike Cabigon – Director

Mr. Cabigon has been the General Manager of Foundation Equity since August 2008 and President of Foundation of Equity II LP since April 2009. Mr. Cabigon is responsible for Foundation Equity's investment initiatives and actively works with portfolio management teams to develop strategic, financing and operations plans. From 2006 to 2008, Mr. Cabigon was Vice President and General Manager of Persona Communications Corp., at the time Canada's 5th largest cable and Internet provider. Mr. Cabigon has been a director of Preo since. September 2008. Mr. Cabigon holds a Bachelor of Commerce degree from the University of Alberta.

Gary McCone – Director, President and Chief Executive Officer

From 1992-1998, Mr. McCone was co-founder and President of Posicom Inc, one of Canada's largest switchless resellers of long distance services. In 1998, Posicom Inc. was sold to Calgary based MetroNet Communications which subsequently acquired controlling interest in AT&T Canada where Mr. McCone assumed the position of President-Marketing, Carrier and Consumer Services until July 2000. From 2000- 2007, Mr. McCone was appointed President and CEO of Ceres Inc. a privately held manufacturer of natural fertilizers. Mr. McCone has been the President and CEO of Preo since October 2007 and a director since December 2009.

Karim Teja – Chief Financial Officer

Since September 2007, Mr. Teja has been a consultant advising pre-commercial and early commercial technology companies on financial, operational and strategic matters. From June 1999 to September 2007, Mr. Teja served as an officer of Imaging Dynamics Company Ltd., a TSX-V listed company in the medical-imaging business. From June 1999 to June 2006, Mr. Teja was the Chief Financial Officer and from June 2006 to September 2007 he was the Chief Operating Officer of Imaging Dynamics. From 1996 to 1999, Mr. Teja was the Chief Financial Officer and Chief Operating Officer of Erasoft Technologies Inc., a private software company which was required by Viasoft Inc., a NASDAQ listed company. Mr. Teja holds a Bachelors degree in Business Administration with honours from Simon Fraser University and an honours certificate from the Canadian Securities Institute. Mr. Teja joined Preo in June 2008 as a CFO consultant. Mr. Teja received the designation of Certified General Accountant (CGA) in 1992.

Randy K. Coates – Vice-President, Operations

From 1995 to 2001, Mr. Coates was founder, Director, and Vice-President of Burntsand Inc. a TSX-V listed company. Since February 2005, Mr. Coates has been the Vice-President, Operations at Preo. Mr. Coates holds both a Bachelors of Commerce and a MBA from the University of Calgary.

Ian Graham – Chief Technical Officer

Mr. Graham served as Senior Manager of Engineering (2004 – 2006) for Symantec Corporation (Nasdaq: SYMC), the world leader in security software. Mr. Graham held several positions with EnCana Corporation (TSX/NYSE:ECA) (1995 – 2003), formally PanCanadian Energy. Mr. Graham joined Preo in April 2006. Mr. Graham holds a Bachelors of Science (1990) from the University of Calgary.

Ashif Merani – Corporate Secretary

Mr. Merani, Barrister & Solicitor has been practising corporate and securities law since 1998 and is the founder of the law firm Merani Reimer LLP. Mr. Merani has been the corporate secretary of Preo since January, 2009.

All information contained in this joint news release with respect to the nominee directors and officers has been provided by the respective parties.

Sponsorship

The Qualifying Transaction will be subject to the CPC Policy relating to sponsorship and sponsorship requirements. Karel will make an application to the Exchange to exempt the Qualifying Transaction from sponsorship requirements. There are no assurances that the Exchange will grant the exemption, in which case, if required, Karel expects to retain PI Financial Corp. ("PI Financial ") to act as sponsor for the Qualifying Transaction pursuant to PI Financial's right of first refusal under Karel's current sponsorship agreement with PI Financial. An agreement to sponsor should not be construed as any assurance with respect to the merits of the Qualifying Transaction or the likelihood of completion.

Trading of Karel Shares has been halted in connection with the dissemination of this joint press release and will recommence at such time as the Exchange may determine, having regard to the completion of certain requirements pursuant to the CPC Policy.

Completion of the transaction is subject to a number of conditions, including but not limited to, Exchange acceptance and if applicable pursuant to Exchange requirements, majority of the minority shareholder approval. Where applicable, the transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the management information circular or filing statement to be prepared in connection with the transaction, any information released or received with respect to the transaction may not be accurate or complete and should not be relied upon. Trading in the securities of a capital pool company should be considered highly speculative.

The TSX Venture Exchange Inc. has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release.

Preo Options

Preo announces that an aggregate of 2,125,000 incentive stock options have been granted on December 10, 2009 to officers, directors, consultants and employees at an exercise price of $0.125. The grant of stock options is subject to approval of the Canadian National Stock Exchange (CNSX) and all applicable securities laws.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release. The Canadian National Stock Exchange (CNSX) has not reviewed and does not accept responsibility for the adequacy or accuracy of this press release.

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