<PAGE>
As filed with the Securities and Exchange Commission on October 11, 1996
Registration No. 333-11247
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
___________________
PROSOFT DEVELOPMENT, INC.
(Exact Name of Registrant as Specified in Its Charter)
7100 KNOTT AVENUE
BUENA PARK, CALIFORNIA 90620
(714) 562-8282
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Executive Offices)
NEVADA 8243 87-0448639
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation Industrial Classification Identification No.)
or Organization) Code Number)
KEITH D. FREADHOFF
CHIEF EXECUTIVE OFFICER
PROSOFT DEVELOPMENT, INC.
7100 KNOTT AVENUE
BUENA PARK, CALIFORNIA 90620
(714) 562-8282
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
____________________
COPY TO:
WILLIAM L. TWOMEY
HEWITT & MCGUIRE, LLP
19900 MACARTHUR BOULEVARD, SUITE 1050
IRVINE, CALIFORNIA 92612
____________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
____________________
If only the securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an Offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same Offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same Offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
PROSPECTUS
- --------------------------------------------------------------------------------
PROSOFT DEVELOPMENT, INC.
3,007,544 Shares of Common Stock
379,747 Shares of Common Stock Issuable Upon Exercise
of Common Stock Purchase Warrants
- --------------------------------------------------------------------------------
This Prospectus relates to 3,387,291 Shares of Common Stock (the "Shares")
of ProSoft Development, Inc. (the "Company"), including 3,007,544 currently
outstanding Shares and 379,747 Shares issuable upon exercise of currently
outstanding common stock purchase warrants (the "Warrants"). The Shares may be
offered and sold from time to time by and for the account of one or more of the
stockholders (the "Selling Stockholders") of the Company identified under the
caption "Selling Stockholders." The Company will receive no part of the
proceeds of such sales, with the exception of the exercise price of such
Warrants as may be exercised. The Company will bear all of the expenses
incurred in connection with the registration of the Shares. Holders of
2,660,291 of the Shares have agreed to limit the number of Shares they may sell
during any one-month period under the Prospectus, unless they obtain the written
consent of the Company.
The Shares offered by this Prospectus may be sold from time to time by the
Selling Stockholders. The distribution of the Shares offered hereby may be
effected in one or more transactions that may take place in the over-the-counter
market, including ordinary brokers' transactions, privately negotiated
transactions or through sales to one or more dealers for resale of such Shares
as principals, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. Usual and
customary or specifically negotiated brokerage fees or commissions may be paid
by the Selling Stockholders.
The Selling Stockholders and intermediaries through whom such Shares are
sold may be deemed "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Shares offered, and
any profits realized or commission received may be deemed underwriting
compensation. The Company has agreed to indemnify the Selling Stockholders
against certain liabilities, including liabilities under the Securities Act.
The Company's Common Stock is currently traded on the OTC Bulletin Board
under the symbol "POSO." On October 1, 1996, the closing bid price for the
Company's Common Stock was $18.00 per share. See "Price Range of Common Stock
and Dividend Policy." The Company has applied for approval for listing of the
Common Stock on the NASDAQ SmallCap Market.
____________________
THESE SHARES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 5 OF THIS PROSPECTUS.
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
____________________
The Company intends to furnish its stockholders annual reports containing
audited consolidated financial statements with a report thereon by independent
accountants, and such other periodic reports as the Company may determine to be
appropriate or as required by law.
____________________
The date of this Prospectus is ____________________, 1996.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Unless otherwise indicated,
references to "Company" or "ProSoft" are to the consolidated operations of
ProSoft Development, Inc. and its wholly-owned subsidiary, Pro-Soft Development
Corp. This Prospectus contains certain forward-looking statements and
intentions. The cautionary statements made in this Prospectus should be read as
being applicable to all related forward-looking statements wherever they appear
in this Prospectus. The Company's actual results could differ materially from
those discussed herein. Factors that could cause or contribute to such
differences include those discussed under "Risk Factors," as well as those
discussed elsewhere herein.
THE COMPANY
The Company is engaged in the business of training individuals in small,
medium and large organizations in Internet and Intranet technologies, with a
current emphasis on Netscape- and Microsoft-based Internet/Intranet products and
solutions. In addition, ProSoft is a certified Microsoft Authorized Technical
Education Center ("ATEC"), a certified Private Post Secondary Institution in the
State of California, and an approved recipient of Job Training Partnership Act
(the "JTPA") funding, the last of which enables the Company to recruit, train
and hire its own advanced technology instructor staff. ProSoft also develops
proprietary Internet/Intranet courseware and offers more than 45 customized, on-
line, hands-on and instructor-led Internet/Intranet-related courses for end-
users, system engineers and developers. While substantially all of the
Company's revenues to date have been generated from JTPA funded vocational
training, the Company expects a significant majority of its revenues in the
future will come from the delivery of commercial Internet/Intranet training to
the employees of organizations ranging from Fortune 1000 corporations to small
entrepreneurial enterprises throughout the United States.
The Company believes that the market for Internet and Intranet training is
substantial. The Internet is the world's largest network of computer networks,
and one which grows everyday. Companies are also beginning to develop private
internal networking systems called Intranets, which use the infrastructure,
standards and many of the technologies of the Internet and the World Wide Web,
but are cordoned off and protected from the public through software technologies
known as "fire walls." Companies are developing Intranets in order to improve
internal communications, facilitate employee training and motivation, and to
reduce the need for paper-based materials such as operational and procedural
manuals, internal phone books, requisition forms, and other items that must be
updated frequently. Intranets can integrate all of the computers within an
organization, including software and databases, into a unified system that
allows employees to quickly access and utilize information.
ProSoft's Internet/Intranet instruction is made available through Company
operated Internet/Intranet Training and Resource Centers ("Training Centers") as
well as through on-site tailored training for large organizations. Each ProSoft
student who takes an Internet or Intranet class is taught using a personal
computer that is connected to the Internet. As of October 1, 1996, the Company
had opened ten Training Centers in the states of California, Florida,
Massachusetts, Missouri, North Carolina and Texas. The Company plans to open
between 50 and 60 centers across the country by June 1997 and its strategy is to
continue to expand the number of Training Centers across the country, with the
goal of creating a nationwide network of Training Centers that will make ProSoft
the primary choice for Fortune 1000 corporations and other smaller firms that
require unified, quality Internet and Intranet training. ProSoft believes that
the development of a nationwide network of ProSoft Training Centers is essential
to the delivery of quality Internet/Intranet instruction.
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A typical Training Center ranges in size from 800 to 5,000 square feet and is
comprised of from one to four classrooms that can accommodate approximately 20
students per classroom. The Company has either leased commercial space for the
Training Centers or has entered into marketing affiliations with existing
computer training, consulting, distribution and reseller companies. Under such
marketing affiliations, the affiliate typically subleases classroom space to
ProSoft free of a monthly rental payment in exchange for a royalty payment based
upon the training revenue collected by ProSoft. Whether ProSoft leases
commercial space or enters into a marketing affiliation, the Company is
responsible for building the infrastructure of the Training Center to its
specifications. The Company's commercial Internet/Intranet training courses
range in length from one to five days at a cost of between $295 to $450 per day
per student.
ProSoft has and will continue to develop strategic alliances with Microsoft,
other select Internet product manufacturers, resellers (such as Merisel and
Ingram Micro), and local training affiliates. Because of these strategic
alliances and the Company's broad categorical expertise in Internet and Intranet
training ranging from the most advanced system engineering to end-user training,
ProSoft believes that it is well-positioned to sell its training to small,
medium and large corporations and other organizations. The Company believes it
can offer among the highest quality, consistent Internet curriculum in the
industry and because of the short curriculum development cycle that the Company
maintains, it can quickly create new course offerings to support new and
emerging technologies. Internet/Intranet software offerings and technology will
continue to evolve and training related to such software and technology will
need to keep pace. Technology trends indicate that end-user interfaces are and
will become more intuitive and user-friendly while system engineering and
solution development required to support these simple interfaces will become
increasingly complex. Because ProSoft addresses the full range of Internet and
Intranet technology training, the Company believes it is well positioned to
pursue and deliver on the expanding advanced Internet technology training
opportunities.
In June 1996, ProSoft created a division to develop and publish Internet,
Intranet and distant learning courseware and curriculum, which ProSoft uses in
its Internet/Intranet classes. The Company has several proprietary courseware
projects under development that support Microsoft, Netscape and Sun Microsystems
Internet/Intranet technologies.
The business of the Company was initially operated as a sole proprietorship
(the "Proprietorship") beginning in February 1995. In December 1995, Pro-Soft
Development Corp., a California corporation ("Old ProSoft") was incorporated and
acquired the business from the Proprietorship effective January 1, 1996. In
March 1996, the Company entered into a reorganization (the "Reorganization")
with Old ProSoft and the Old ProSoft shareholders, whereby (i) the Old ProSoft
shareholders received shares of Common Stock of the Company in exchange for
their shares of Old ProSoft, (ii) the Company changed its name to ProSoft
Development, Inc., and (iii) Old ProSoft became a wholly-owned subsidiary of the
Company. The Company was incorporated in Nevada in March 1985 as Tel-Fed, Inc.
From its incorporation until the Reorganization, the Company had no significant
operations.
Under applicable accounting rules, for financial statement purposes, the
Reorganization is required to be accounted for as an acquisition of the Company
by Old ProSoft, with the additional shares held by the Company's prior
shareholders reflected as a recapitalization of Old ProSoft. As a result, the
consolidated financial statements included in this Prospectus for the Company
reflect, for the period prior to the Reorganization, the operations of Old
Prosoft. Financial statements of the Proprietorship are also included herein.
The Company's executive offices are located at 7100 Knott Avenue, Buena Park,
California 90620 and its telephone number is (714) 562-8282.
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The Offering
<TABLE>
<CAPTION>
<S> <C>
Common Stock Offered by the Selling Stockholders...... 3,387,291 shares(1)
Common Stock to be outstanding after this Offering.... 7,730,351 shares(1)(2)
Use of Proceeds....................................... Other than the exercise price of such of the
Warrants as may be exercised, none of the
proceeds from the sale of shares by the Selling
Stockholders will be received by the Company.
The gross proceeds to the Company in the event
that all of the Warrants are exercised would be
approximately $2,363,708. Any proceeds
received by the Company will be utilized for
working capital and general corporate purposes.
Proposed NASDAQ SmallCap Symbol...................... POSO
</TABLE>
____________________
(1) Includes 379,747 shares issuable upon exercise of the Warrants.
(2) Does not include 1,815,000 shares reserved for issuance upon the exercise
of outstanding stock options and warrants, other than the Warrants, and
reflects the issuance of 14,200 additional shares in August 1996, including
1,200 shares issued upon exercise of warrants.
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RISK FACTORS
INVESTMENT IN THE COMPANY INVOLVES A HIGH DEGREE OF RISK AND SHOULD BE
UNDERTAKEN ONLY BY PERSONS WHOSE FINANCIAL RESOURCES ARE SUFFICIENT TO ENABLE
THEM TO ASSUME SUCH RISK. IN ADDITION TO THE OTHER FACTORS SET FORTH IN THIS
PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CAREFULLY EVALUATE THE FOLLOWING RISK
FACTORS BEFORE MAKING AN INVESTMENT DECISION.
EXTREMELY LIMITED OPERATING HISTORY AND DIFFICULTY IN PREDICTING FUTURE
OPERATING RESULTS
The Company has an extremely limited operating history, which makes it
difficult to predict future operating results. Although the Company was formed
in 1985, from its incorporation until its acquisition of Old ProSoft in March
1996, it had no significant operations. The business of the Company was only
begun in February 1995 where it was run as the Proprietorship until its
acquisition by Old ProSoft in January 1996. The first Training Center was not
opened until late 1995 and the Company has only opened ten Training Centers to
date. As a result, there is little financial information concerning the
business of the Company of the type commonly used by investors to evaluate a
potential investment. In addition, certain aspects of the Company's business
are relatively new and have not yet been fully tested in the marketplace. The
Company has incurred significant net losses to date and expects to continue to
incur significant losses on a quarterly basis in the foreseeable future. The
Company has achieved only limited revenues to date, and its ability to generate
significant revenues is subject to uncertainty, particularly with respect to the
Internet/Intranet training on which it intends to focus. The Company had
revenues of $77,477 for the period from February 1, 1995 to December 31, 1995
and $907,722 for the period from December 8, 1995 to July 31, 1996. There can
be no assurances that the Company will be able to address any of those
challenges, that its activities will be successful or that meaningful revenues
or profits will result from these activities.
FUTURE CAPITAL REQUIREMENTS AND UNCERTAINTY OF FUTURE FUNDING
The Company is dependent on outside financing to fund its growth. In order
to meet its goal of opening between 50 and 60 Training Centers by June 1997, the
Company will
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be required to obtain external funds. The actual amount of funds
needed is uncertain and will be dependent on several factors, including the
availability of cash from operations and the rate of growth. The Company is
planning on seeking additional equity capital either through additional private
placements of the Company's Common Stock or through a public offering of the
Company's Common Stock that is registered with the Securities and Exchange
Commission. If additional funds to fund growth are raised by selling equity
securities, further dilution to then existing stockholders may result. The
Company currently has no commitments for any additional financings, and there
can be no assurance that any such financings will be available, or that they
will be available on terms favorable to the Company. If adequate funds are not
available, the Company may be required to curtail its expansion plans. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
As a result of the Company's extremely limited operating history as well as
the very recent emergence of the market addressed by the Company, the Company
has neither internal nor industry-based historical financial data for any
significant period of time upon which to base planned operating revenues and
expenses. The Company has incurred significant net losses to date and expects
to continue to incur significant losses on a quarterly basis in the foreseeable
future. For the period from December 8, 1995 to July 31, 1996, the Company had
net losses of $2,693,123 and negative cash flow from operations of $3,043,328.
The Company expects to significantly increase its operating expenses to fund the
planned rapid expansion of its network of Training Centers. To the extent these
increased expenses precede or are not subsequently and timely followed by
increased revenues, the Company's business, results of operation and financial
condition will be materially adversely affected. The Company expects to be
subject to some seasonal fluctuations in its operating results, with revenues in
November and December expected to be lower because of decreased enrollment in
its classes due to holidays. However, the Company is unable to predict the
extent of such seasonal fluctuations with certainty due to its limited operating
history.
UNCERTAINTY OF RAPIDLY EVOLVING MARKET
While substantially all of the Company's limited revenues to date have been
generated from JTPA vocational training, the Company expects a significant
majority of its revenues in the future will come from the delivery of commercial
Internet/Intranet training to the employees of organizations ranging from
Fortune 1000 corporations to small entrepreneurial enterprises throughout the
United States. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Development of Business." The market for these
Internet/Intranet products and services has only recently begun to develop and
is rapidly evolving. The Company and its prospects must be considered in light
of the risks, costs and difficulties frequently encountered by companies in
their early stage of development, particularly companies in the new and rapidly
evolving Internet market. In order to be successful, the Company must, among
other things, continue to attract, retain and motivate qualified training
personnel, successfully implement its Internet/Intranet training programs, open
a substantial number of new Training Centers, respond to competitive
developments and successfully expand its internal infrastructure, particularly
sales, marketing and administrative personnel and its accounting system.
Moreover, due to the intense competition in the emerging markets addressed by
the Company, the Company must seek to
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expand all aspects of its business rapidly, which increases the challenges
facing the Company, making it more difficult for the Company to recover from
business errors.
RISK OF INABILITY TO MANAGE RAPID GROWTH AND ATTRACT QUALIFIED PERSONNEL
The Company is currently experiencing a period of rapid growth that has
placed, and could continue to place, a significant strain on the Company's
financial, management and other resources. The Company's ability to manage its
growth effectively will require it to continue to improve its operational,
financial and management information systems, and to attract, train, motivate,
manage and retain key employees. In particular, the Company's planned expansion
from ten Training Centers and 43 instructors to 50 to 60 centers by June 1997
and up to an additional 200 instructors (depending on the number of classrooms
per Training Center), places significant pressure on the Company to attract,
train and retain qualified instructors for its Training Centers. In order to
locate new instructors, the Company is advertising in local and national markets
via electronic services (including its own Web site and other sites that offer
job postings), newspapers and trade publications. Additionally, the Company has
engaged a recruiter who specializes in technical recruiting. The Company's
performance is also dependent upon a number of other factors, including its
ability to locate acceptable commercial space to lease or sublease for its
Training Centers, and its success in obtaining the necessary financing to fund
its planned growth. There can be no assurance that management of the Company
will be able to effectively manage the expansion of the Company's operations or
achieve the rapid execution necessary to fully exploit any potential market
opportunity for the Company's products and services. If the Company's management
becomes unable to manage growth effectively, the Company's business, operating
results and financial condition could be materially adversely affected.
NEED TO RESPOND TO RAPID TECHNOLOGICAL CHANGE
The market for the Company's products and services is characterized by
rapid technological change, changing customer needs, frequent new product
introductions and evolving industry standards. These market characteristics are
exacerbated by the emerging nature of the Internet market and the fact that many
companies are expected to introduce new Internet products and services in the
near future. The Company's future success will depend in significant part on
its ability to continually and on a timely basis introduce new products,
services and technologies and to continue to improve the Company's products and
services in response to both evolving demands of the marketplace and competitive
product offerings.
RELIANCE ON CURRENT MANAGEMENT
The Company is highly dependent upon the efforts of its officers who are
and will continue to be instrumental in the development of the Company's
business concept and the management of the Company's business. See
"MANAGEMENT." The loss of services of any one or more members of current
management could have a material adverse effect on the Company. The Company
currently does not have employment contracts with any of its employees,
including management.
DEPENDENCE ON STRATEGIC AFFILIATES
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The Company has focused and expects to continue to focus on the development
of strategic relationships with key strategic affiliates such as Microsoft,
Netscape and other Internet and Intranet software developers. The Company's
success will depend in part on the success of those strategic affiliates and the
Company's ability to establish successful strategic relationships with other
entities. Although the Company has entered into informal arrangements with
several key strategic affiliates, the Company has not entered into any long-term
agreements with any such affiliates and no assurances can be given that such
relationships will be maintained.
COMPETITION
The higher education market is highly competitive. The Company is subject
to intense competition from a large number of public and private companies
providing training, many of which are older, larger and have greater financial
and personnel resources than the Company. In addition, the market for Internet
products and services has only recently begun to develop, is rapidly evolving
and is characterized by an increasing number of market entrants with competing
products and services. There can be no assurance that the Company will be able
to compete successfully against its current or future competitors or that
competition will not have a material adverse effect on the Company's business,
operating results and financial condition. See "BUSINESS -- Competition."
UNCERTAIN AND CHANGING REGULATORY ENVIRONMENT FOR VOCATIONAL TRAINING
The Company's Training Centers are subject to extensive state and federal
regulations with respect to the Company's vocational training. See "BUSINESS --
Government Regulation." As a vocational, non-degree granting school, the
Company is governed by the State of California Council for Private Postsecondary
and Vocational Education (CPPVE). In addition to commercial business, the
Company also actively seeks vocational retraining funding as a vendor under the
JTPA. Because JTPA Regulations impose new regulatory requirements on the
Company annually and because the United States Department of Labor has not fully
developed administrative interpretations of the Regulations, there exists some
uncertainty concerning the application and interpretation of the new regulatory
requirements imposed by the Regulations. New or revised interpretations of such
regulatory requirements could have a material adverse effect on the Company's
vocational business. In addition, changes in or new interpretations of other
applicable laws, rules or regulations could have a material adverse effect on
the accreditation, authorization to operate in various states, permissible
activities and costs of doing business of the Company. Although the Company
expects its vocational JTPA funded business to represent a rapidly decreasing
portion of its revenues in the future, the failure to maintain or renew any
required regulatory approvals, accreditation or state authorizations by the
Company or certain of the Training Centers could have a material adverse effect
on the Company's vocational business.
CONCENTRATION OF BUSINESS
During the period December 8, 1995 to July 31, 1996, the Company derived
approximately 34%, 27% and 21%, respectively, of its total revenues from the
County of Los Angeles, the City of Los Angeles and South Bay (a Private Industry
Council), respectively. Each of these southern California governmental agencies
provided JTPA vocational training funds for students in the Company's Training
Centers. Although substantially all of the Company's limited revenues to date
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have been generated from JTPA vocational training, the Company expects a
significant majority of its revenues in the future will come from commercial
Internet/Intranet training of the employees of organizations ranging from
Fortune 1000 corporations to small entrepreneurial enterprises throughout the
United States, and the reliance on these three agencies will diminish. However,
until such time as the Company is not dependent on JTPA vocational training for
a significant portion of its revenues, the loss of, or significant adverse
change in, the relationship between the Company and any of these three agencies
would have a material adverse effect on the Company's business, operating
results and financial conditions. See "BUSINESS -- Government Regulation."
LIMITED MARKET FOR SECURITIES OF THE COMPANY AND RESTRICTIONS ON TRANSFER
There is a very limited trading market for the securities of the Company.
Trading, if any, in the Company's securities is conducted in the over-the-
counter market on the NASD OTC Electronic Bulletin Board established for
securities that do not meet NASDAQ listing requirements. See "PRICE OF COMMON
STOCK AND DIVIDEND POLICY." As a result, investors may find it difficult to
dispose of, or to obtain accurate price quotations and volume information
concerning, the Company's securities. The Company has applied for approval for
listing of the Common Stock of the Company on the NASDAQ SmallCap Market.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, none of the 7,336,404 outstanding shares of Common
Stock have been registered for sale under the Securities Act of 1933, as amended
(the "Securities Act"). As a result, none of these shares may be sold unless
registered under the Securities Act or sold pursuant to an applicable exemption
from registration such as Rule 144 of the Securities Act. Only 286,723 of such
shares are currently eligible for sale under Rule 144. See "DESCRIPTION OF
COMMON STOCK -- Shares Eligible for Future Sale." An aggregate of 3,387,291
shares are being registered for sale under this Registration Statement. Of the
shares being registered, 727,000 shares are not subject to any lock-up agreement
and are eligible for sale as of the date of this Prospectus, while the remaining
2,660,291 shares are held by stockholders who have agreed not to sell, under
this Prospectus, more than 1% of their respective Shares for each month that
elapses after October __, 1996, unless the Company's written consent is
obtained. See "DESCRIPTION OF CAPITAL STOCK -- Shares Eligible for Future
Sale."
In addition, concurrent with this registration, the Company intends to
register up to 1,710,000 shares issuable upon exercise of outstanding options to
purchase Common Stock of the Company held by employees and consultants of the
Company. As of July 31, 1996, none of these options were exercisable and by
December 31, 1996 an aggregate of 1,402,500 options will be exercisable.
The Company has had a very limited trading volume in its Common Stock to
date. Sales of substantial amounts of Common Stock of the Company under this
Registration Statement or otherwise could adversely affect the prevailing market
price of the Common Stock and could impair the
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Company's ability to raise capital at that time through the sale of its
securities. See "DESCRIPTION OF CAPITAL STOCK -- Shares Eligible for Future
Sale."
CONTROL BY PRINCIPAL STOCKHOLDERS
As of the date of this Prospectus, officers and directors of the Company
will beneficially own approximately 27.4% of Common Stock of the Company. As a
result, these stockholders may be able to effectively control most matters
requiring approval by the stockholders of the Company, including the election of
directors. See "PRINCIPAL AND SELLING STOCKHOLDERS."
NO DIVIDENDS
As of the date of this Prospectus, the Company has not paid any cash
dividends on its Common Stock and does not intend to declare any such dividends
in the foreseeable future. The Company's ability to pay dividends is subject to
limitations imposed by Nevada law and, as a quasi-California corporation, to the
more restrictive provisions of California law. Under Nevada law, dividends may
be paid to the extent that the corporation's assets exceed its liabilities and
it is able to pay its debts as they become due in the usual course of business.
California law generally prohibits a corporation from paying dividends unless
the retained earnings of the corporation immediately prior to the distribution
exceed the amount of the distribution. Alternatively, a corporation may pay
dividends if (i) the assets of the corporation exceed 1 1/4 times its
liabilities; and (ii) the current assets of the corporation equal or exceed its
current liabilities, but if the average pre-tax earnings of the corporation
before interest expense for the two years preceding the distribution was less
than the average interest expense of the corporation for those years, the
current assets of the corporation must exceed 1 1/4 times its current
liabilities. See "PRICE OF COMMON STOCK AND DIVIDEND POLICY" and "DESCRIPTION OF
CAPITAL STOCK."
EFFECT OF ANTI-TAKEOVER PROVISIONS
The Company is subject to the anti-takeover provisions of Sections 78.411
through 78.444 of the Nevada Revised Statutes, which restrict certain
"combinations" with "interested stockholders" unless certain conditions are met.
In addition, the Company's Bylaws provide that the Company's Board of Directors
will be divided into three classes of directors serving staggered three-year
terms and eliminate the right of stockholders to act by written consent without
a meeting, unless such written consent is unanimous. All of the foregoing could
have the effect of delaying or deterring unsolicited takeover attempts and could
adversely affect prevailing market prices for the Company's Common Stock. See
"DESCRIPTION OF CAPITAL STOCK -- Nevada Anti-Takeover Laws and Certain Charter
Provisions."
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USE OF PROCEEDS
Other than the exercise price of such of the Warrants as may be exercised,
the Company will not receive any proceeds from the sale of Shares by the Selling
Stockholders. Holders of the Warrants are not obligated to exercise their
Warrants, and there can be no assurance that such holders will choose to
exercise all or any of such Warrants. The gross proceeds to the Company in the
event that all of the Warrants are exercised would be approximately $2,363,708.
Any proceeds received by the Company will be utilized for working capital and
general corporate purposes.
PRICE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock trades on the National Association of Security
Dealers Over-the-Counter (OTC) Market Bulletin Board, under the trading symbol
of "POSO." The Company has applied for approval for listing of the Common Stock
on the NASDAQ SmallCap Market. The following table sets forth the high and low
bid quotation for the Common Stock as reported by various Bulletin Board market
makers. The quotations do not reflect adjustments for retail mark-ups, mark-
downs, or commissions and may not necessarily represent actual transactions.
There were no trades of the Company's Common Stock between August 1, 1994 and
April 1, 1996, therefore the following table does not reflect the bid price per
share during the quarters ending prior to April 1, 1996.
<TABLE>
<CAPTION>
Quarter Low Bid High Bid
------- ------- --------
<S> <C> <C>
May 1, 1996 -- July 31, 1996 $15.00 $19.00
February 1, 1996 -- April 30, 1996 $ 6.00 $15.00
</TABLE>
On October 1, 1996, the closing bid price for the Common Stock was $18.00.
On October 1, 1996, the Company had approximately 340 stockholders of
record.
To date, no dividends have been declared or paid on any capital stock of
the Company, and the Company does not anticipate paying any dividends in the
foreseeable future.
11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at July
31, 1996.
<TABLE>
<CAPTION>
July 31, 1996
----------------
<S> <C>
Capital lease obligations, net of current portion............. $ 437,532
-----------
Stockholder's equity:
Common stock, $.001 par value; 50,000,000 shares authorized;
7,336,404 shares issued and outstanding(1)................. 10,397,352
Note receivable from stockholder............................ (9,500)
Accumulated deficit......................................... (2,693,123)
Total stockholder's equity.......................... 7,694,729
-----------
Total capitalization............................. $ 8,132,261
===========
</TABLE>
____________________
(1) Excludes: (i) an aggregate of 750,000 shares reserved for issuance under
the Company's 1996 Stock Option Plan, of which 667,500 shares were subject
to outstanding options as of July 31, 1996 at exercise prices ranging from
$3.50 to $20.00 per share, with a weighted average exercise price of $5.92
per share; (ii) 1,042,500 shares subject to other outstanding options as of
July 31, 1996 at an exercise price of $1.00 per share; and (iii) 485,947
shares issuable upon exercise of warrants (including the Warrants) at
exercise prices ranging from $1.00 to $11.00, with a weighted average
exercise price of $5.95.
12
<PAGE>
SELECTED FINANCIAL DATA
The consolidated financial data as of July 31, 1996 and for the period
December 8, 1995 to July 31, 1996 has been derived from, and is qualified by
reference to, the consolidated financial statements of the Company included
elsewhere herein which have been audited by Ernst & Young, LLP, independent
auditors. The financial data of the Proprietorship as of December 31, 1995 and
for the period February 1, 1995 to December 31, 1995 has been derived from, and
is qualified by reference to, the financial statements of the Proprietorship
included elsewhere herein, which have been audited by Kelly & Company,
independent auditors. The following data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of the Company and the
Proprietorship and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PROPRIETORSHIP COMPANY
----------------- -----------------
FEBRUARY 1, 1995 DECEMBER 8,
TO DECEMBER 31, 1995 TO JULY 31,
1995 1996
----------------- -----------------
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue............................................. $ 77,477 $ 907,772
Cost of services.................................... 60,526 698,725
--------- -----------
Gross profit........................................ 16,951 209,047
Operating expenses:
Sales and marketing............................... 44,769 426,221
General and administrative........................ 556,382 2,407,188
--------- -----------
Loss from operations................................ (584,200) (2,624,362)
Interest expense.................................... 20,126 67,961
--------- -----------
Loss before provision for taxes..................... (604,326) (2,692,323)
Provision for state franchise tax................... -- 800
--------- -----------
Net loss............................................ $(604,326) $(2,693,123)
========= ===========
Net loss per share.................................. $(0.54)
===========
Shares used in computing net loss per share......... 5,011,781
</TABLE>
<TABLE>
<CAPTION>
AT AT
DECEMBER 31, JULY 31,
1995 1996
--------------- ----------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficiency)........................ $(561,885) $6,764,828
Total assets........................................ 765,990 8,997,490
Capital lease obligations, net of current portion... 308,671 437,532
Stockholders' equity (owner's deficit).............. (194,473) 7,694,729
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto found elsewhere herein. In March 1996, the Company
and Old ProSoft completed a reorganization pursuant to an Agreement and Plan of
Reorganization whereby Old ProSoft became a wholly-owned subsidiary of the
Company. Although the Company survived as the parent of Old ProSoft, the
transaction was accounted for such that the financial statements for the Company
following the transaction are the financial statements of Old ProSoft, with the
additional shares held by the Company's prior shareholders reflected as a
recapitalization of Old ProSoft. The assets and operating results of the
Company separate from Old ProSoft are not material and separate financial
statements of the Company prior to the transaction are not presented herein.
The financial statements of the Proprietorship, which operated the business from
its inception in February 1995 until it was acquired by Old ProSoft January 1,
1996, are included herein.
DEVELOPMENT OF BUSINESS
ProSoft, and prior to that, the Proprietorship, have delivered training in
the vocational and advanced technical education business since February 1995.
Initially, a majority of time and resources were spent in the development of
government funded, JTPA vocational business and qualifying as a recipient of
JTPA funds. Resources were also spent training and developing the initial staff
of Microsoft Certified Engineers, Developers and Trainers and in securing and
maintaining its status as a Microsoft ATEC. Vocational training sales commenced
on a limited basis at the end of 1995.
Currently, JTPA funded vocational training accounts for approximately 90%
of the Company's revenues, while commercial training accounts for approximately
10% of the Company's revenues. With the planned expansion of the Company's
Training Centers over the next year, the Company expects revenues from
commercial training to account for a significant majority of the Company's
revenues.
Upon completion of a private placement of stock in February 1996, the
Company had the resources to expand its vocational training capacity in March
through May of 1996. As the Company began to graduate MCSEs, MCSDs and MCPs, it
was able to retain several of these graduates as instructors to accommodate the
expanding vocational business.
Concurrent with the expansion of the government-funded vocational
business, the Company embarked on a strategy to build a nationwide network of
Training Centers. The Company developed and opened its first two Training
Centers in late 1995 in Buena Park and Palmdale, California, and opened a third
Training Center in February 1996 in North Hollywood, California. To support
this expansion strategy, the Company significantly increased its accounting,
operational, administrative, marketing, sales, courseware development,
instructor development, instructor, information systems and technology staffing.
The infrastructure of the Company as of July 1996 is sufficient to support the
expansion of a nationwide network of Training Centers and will primarily
increase in the area of Internet/Intranet trainers.
As a result of the start-up nature of the Company's business through July
31, 1996 and the shift in focus from vocational to commercial training which is
currently in process, the Company does not believe that the results of
operations of the Company through July 31, 1996 are indicative of future
results.
14
<PAGE>
RESULTS OF OPERATIONS
Revenues. Revenues for the period from December 8, 1995 to July 31, 1996
were $907,722, compared to $77,477 for the period from February 1, 1995 to
December 31, 1995. The increase was principally attributable to an increase in
the number of students enrolled in the Company's JTPA vocational training
programs. In January 1996, the number of students enrolled was 16 with monthly
training revenue of $34,000. By July 1996, student enrollment was up to 102
and monthly training revenue was $213,000. The Company projects limited revenue
growth from JTPA vocational training in the future. The Company projects
substantial revenue growth in the future based on the expansion in the number of
sites, and its ability to deliver training in Internet and Intranet
technologies, and the Microsoft Back Office family of products.
Cost of Services. Cost of services for the period ended July 31, 1996 was
$698,725, compared to $60,526 for the period ended December 31, 1995. For the
period ended July 31, 1996, cost of services primarily consisted of courseware
($244,000), instructor salaries ($177,000) and overhead salaries ($161,000).
These costs are generally variable with revenues. The increase was principally
attributable to an increase in the number of classes being conducted, and the
related increase in the number of students attending those classes. The gross
margin for the period ended July 31, 1996 was 23%, compared to a gross margin of
22% for the period ended December 31, 1995.
Sales and Marketing. Sales and marketing expenses for the period ended
July 31, 1996 were $426,221, compared to $44,769 for the period ended December
31, 1995. For the period ended July 31, 1996, sales and marketing expenses
primarily consisted of promotions ($200,000), advertising ($90,000) and travel
($75,000). The increase in sales and marketing expenses was based on the
following: (i) new positioning of the Company in the commercial market of
Internet and Intranet training, (ii) establishing a national presence and image,
(iii) opening of a national sales office in Jacksonville Florida, (iv) hiring
four regional sales managers, and (v) participating in the Microsoft World Wide
Live promotion. In the future, the Company anticipates that sales and marketing
expenses will vary according to revenue, but at a lower percentage of revenue
due to the start-up nature of expenditures during the period ended July 31,
1996.
General and Administrative. General and administrative expenses for the
period ended July 31, 1996 were $2,407,188, compared to $556,382 for the period
ended December 31, 1995. For the period ended July 31, 1996, general and
administrative expenses primarily consisted of payroll ($1,129,000),
depreciation ($257,000) and rent ($206,000). These costs are substantially
fixed costs. The increase in general and administrative expenses related
primarily to expenses incurred in hiring and staffing of additional personnel to
support the business expansion.
Interest Expense. Interest expense for the period ended July 31, 1996 was
$67,961, compared to $20,126 for the period ended December 31, 1995. For the
period ended July 31, 1996, interest expense consisted solely of interest paid
on capital equipment leases. The increase in interest expense is related to the
increase in the amount of equipment financed through capital leases.
Net Loss. Net loss increased for the period ended July 31, 1996 to
$2,693,123, compared to $604,326 for the period ended December 31, 1995. The
increase in net loss resulted from (i) increased staffing, (ii) the opening of
new Training Centers without a corresponding increase in revenues, (iii)
developing new courseware, and (iv) an increase in the Company's sales and
marketing efforts.
The Company expects to incur losses for at least the first six months of
the fiscal year ending July 1997 pursuant to its current expansion plans.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
From inception the Company financed its operations and met a portion of
its capital expenditure requirements primarily through net proceeds from private
sales of equity securities totaling $10.5 million. The Company had $6.5 million
in cash at July 31, 1996. For the period ended July 31, 1996, operating
activities used cash of $3,043,328, primarily due to a net loss of $2,693,123,
an increase in accounts receivable of $766,405 and an increase in prepaid
expenses of $311,592, partially offset by increases in accounts payable and
depreciation of $363,414 and $257,454, respectively. Investing activities used
net cash of $851,891, primarily associated with the purchase of property and
equipment of $570,838 and the assumption of liabilities from the Proprietorship
of $194,893. Financing activities generated cash of $10,361,679, primarily from
private sales of equity, net of payments on capital lease obligations of
$228,728.
The Company anticipates purchases of equipment and furniture of
approximately $5,000,000 as it expands the number of Training Centers during
fiscal 1997. However, that amount may change depending on the speed and breadth
of the national expansion. It will also be dependent upon the Company
continuing to be successful in securing credit and raising equity capital. The
Company anticipates that it will continue to be able to purchase equipment and
furniture through lines of credit for capital leases. In addition, to the
extent necessary, current cash holdings will be used.
The Company currently anticipates that its current working capital of
approximately $6.8 million, together with the net proceeds of this offering
(assuming exercise of the Warrants), will be sufficient to meet its anticipated
needs for working capital, capital expenditures and limited business expansion
for at least the next 12 months. However, in order to meet its goal of opening
between 50 and 60 Training Centers by June 1997, the Company will be required to
obtain external funds. The Company may also need to raise additional funds in
order to develop new or enhanced services or products, to respond to competitive
pressures or to acquire complementary businesses or technologies. There can be
no assurances that additional financing will be available on terms favorable to
the Company, or at all. If adequate funds are not available or are not available
on acceptable terms, it would limit the Company's ability to fund expansion,
develop or enhance services or products or respond to competitive pressures.
Such limitation could have a material adverse effect on the Company's business,
results of operation and financial condition. See "RISK FACTORS -- Future
Capital Requirements and Uncertainty of Future Funding."
The above discussion concerning future financing needs, business expansion
and factors affecting liquidity are forward-looking statements. Although
management believes that these statements are reasonable in view of the facts
available to it, there can be no assurance that all of these statements will
prove to be accurate. There are numerous factors which could have a material
impact upon whether these projections could be realized or whether these trends
will continue. Among these factors are those set forth in "RISK FACTORS," as
well as those discussed elsewhere herein.
16
<PAGE>
BUSINESS
OVERVIEW
ProSoft Development, Inc. ("ProSoft" or the "Company") is incorporated
under the laws of the State of Nevada. From its incorporation in May 1985 until
March 1996, the Company had no significant operations. The business of the
Company was initially operated as a sole proprietorship (the "Proprietorship")
beginning in February 1995. In December 1995, Pro-Soft Development Corp., a
California corporation ("Old ProSoft"), was incorporated and acquired the
business from the Proprietorship effective January 1, 1996. In March 1996, the
Company entered into an Agreement and Plan of Reorganization (the
"Reorganization Agreement") with Old ProSoft and the Old ProSoft shareholders.
Under the terms of the Reorganization Agreement, Old ProSoft shareholders
received one share of Common Stock of the Company in exchange for each of their
shares of Old ProSoft, and Old ProSoft became a wholly-owned subsidiary of the
Company (the "Reorganization"). As part of the Reorganization, all of the
executive officers and directors of the Company resigned and the executive
officers and directors of Old ProSoft became the executive officers and
directors of the Company and the Company changed its name from Tel-Fed, Inc. to
ProSoft Development, Inc.
ProSoft is engaged in the business of training individuals in small,
medium and large organizations in Internet and Intranet technologies, with a
current emphasis on Netscape- and Microsoft-based Internet/Intranet products and
solutions. ProSoft is a certified Microsoft Authorized Technical Education
Center ("ATEC"), a certified Private Post Secondary Institution in the State of
California, and an approved recipient of Job Training Partnership Act (the
"JTPA") funding, the last of which enables the Company to recruit, train and
hire its own advanced technology instructor staff. ProSoft also develops
proprietary Internet/Intranet courseware and offers more than 45 customized, on-
line, hands-on and instructor-led Internet/Intranet-related courses for end-
users, system engineers and developers.
While JTPA funded vocational training accounted for approximately 90% of
the Company's revenues through July 31, 1996, with the planned expansion of the
Company's Internet/Intranet Training Resource Centers ("Training Centers") over
the next year, the Company expects revenues from commercial training to account
for a significant majority of the Company's revenues.
Internet/Intranet instruction is made available through Company-operated
Training Centers offering commercial Internet/Intranet training to the employees
of organizations ranging from Fortune 1000 corporations to small entrepreneurial
enterprises throughout the United States. Each ProSoft student who takes an
Internet or Intranet class is taught using a personal computer that is connected
to the Internet. As of October 1, 1996, the Company had opened ten Training
Centers in the states of California, Florida, Massachusetts, North Carolina,
Missouri and Texas. The Company plans to open between 50 and 60 Training
Centers across the country by June 1997.
A typical Training Center ranges in size from 800 to 5,000 square feet and
is comprised of from one to four classrooms that can accommodate approximately
20 students per classroom. The Company has either leased commercial space for
the Training Centers or has entered into marketing affiliations with existing
computer training, consulting, distribution and reseller companies. Under such
marketing affiliations, the affiliate typically subleases classroom space to
ProSoft free of a monthly rental payment in exchange for a royalty payment based
upon the training revenue collected by ProSoft. In certain cases, the Company
may issue options to purchase Common Stock to these affiliates. Whether ProSoft
leases commercial space or enters into a marketing affiliation, the Company is
responsible for building the
17
<PAGE>
infrastructure of the Training Center to its specifications. The Training
Centers are connected directly to the Internet by means of a high speed T-1 line
(provided by UUNET, a leader in high speed Internet/Intranet access) that
guarantees a connection of 1.544 MBps and insures that the students' computers
have the high speed bandwidth required to complete the complex, hands-on
exercises efficiently, especially those exercises that are focused on the
graphics-intensive World Wide Web. The Company's commercial Internet/Intranet
training courses range in length from one to five days at a cost of between $295
to $450 per day per student.
A common barrier to entry in the advanced technical education business is
developing and maintaining a staff of qualified, motivated instructors. In
addition to hiring experienced commercial instructors, ProSoft has developed a
strategy to internally develop such a staff in numbers large enough to support a
national network of Internet/Intranet training centers. ProSoft is an authorized
recipient of JTPA funding and uses these funds to recruit displaced defense,
airline and aerospace workers, provide them with instruction in advanced
Microsoft and Internet/Intranet technologies, and then hire them as Microsoft
Certified Professionals, Internet/Intranet Training Professionals or both. The
JTPA-funded programs pay ProSoft approximately $10,000 for each displaced worker
that receives advanced Microsoft technology training, which vocational training
runs eight hours a day, five days a week and spans six to nine months. The
Company has been successful at attracting and retraining displaced employees to
become Microsoft Certified and qualified to teach the Company's
Internet/Intranet curriculum. Each of the Company's vocational students
graduates as a Microsoft Certified System Engineer, a Microsoft Certified
Solution Developer, a Microsoft Certified Trainer (all three of these
certifications fall under a designation known as a Microsoft Certified
Professional or "MCP") or an Internet/Intranet Professional ("IIP"). As of
October 1, 1996, ProSoft had employed approximately 24 full-time MCPs. In
addition, as of October 1, 1996, the Company had approximately 102 additional
students under development to be MCPs and an additional 19 students under
development to be IIPs.
Once a student completes vocational training, he or she is either placed
into the job market through ProSoft's placement center or, if the student meets
ProSoft's training standards, is retained by the Company and hired to teach in
one of the Company's Training Centers. In addition, the Company expects to
develop a growing pool of MCP and IIP employees who can also be leased out at
daily rates to corporations that are engaged in commercial computer training but
cannot satisfy their internal demand for MCPs or IIPs to provide such training.
In June 1996, ProSoft created a division to develop and publish Internet,
Intranet and distant learning courseware and curriculum, which ProSoft uses in
its Internet/Intranet classes. The Company has several proprietary courseware
projects under development that support Microsoft, Netscape and Sun Microsystems
Internet/Intranet technologies.
MARKET BACKGROUND
Internet and Intranet information technology is transforming the way
people live and work. Companies are migrating to Internet and Intranet
technologies in order to improve customer service, seek productivity gains,
access voluminous databases around the world, and attain or maintain a
competitive profile. International Data Corp. and Forrester Research, Inc.
estimate that the number of Internet users doubles every nine months and that
there will be more than 200 million users by the year 2000. Forrester estimates
that less than 10% of the population is currently connected to the Internet,
with no estimate of how many of those connected actually know how to access the
full potential of the medium.
18
<PAGE>
Companies are also beginning to develop private internal networking
systems called Intranets, which use the infrastructure, standards and many of
the technologies of the Internet and the World Wide Web, but are cordoned off
and protected from the public through software programs known as "fire walls."
Companies are developing Intranets in order to improve internal communications,
facilitate employee training and motivation, and to reduce the need for paper-
based materials such as operational and procedural manuals, internal phone
books, requisition forms, and other items that must be updated frequently.
Intranets can integrate all of the computers within an organization, including
software and databases, into a unified system that allows employees to quickly
access and utilize information. The percentage of large and midsize companies
employing some sort of Intranet system has increased to 55% from just 11% a year
ago, according to Business Research Group of Newton, Massachusetts. Zona
Research in Redwood City, California estimates that Intranet software sales will
grow at four times the rate of Internet server software sales. Already, Netscape
Communications Corp., one of the leading providers of Internet and Intranet
software, estimates that 80% of its business comes from sales to companies that
operate Intranets.
The Company believes that the market for Internet and Intranet training is
substantial. The Internet is the world's largest network of computer networks,
and one which grows everyday. Originally conceived and implemented by the U.S.
Department of Defense and later taken over by the National Science Foundation,
the Internet was developed for scientists and those in academia. It was not
developed nor intended for the average American or as a corporate information
tool, and as a result, it is neither intuitive nor user friendly. In the eyes
of many executives in corporate America, understanding how to efficiently move
through this "maze" and identify and manage its power is critical if the
Internet is to achieve its full promise as a productivity tool and not become
merely a distraction in the workplace.
PROSOFT'S MARKET POSITIONING
ProSoft has and will continue to develop courseware, provide training and
deliver technical support relating to the Internet and Intranets as a
competitive business tool.
Microsoft Corporation has repeatedly emphasized that it believes that the
future of computing lies with the Internet, and has based much of its strategy
around developing software and technologies that will exploit this trend. The
major Internet software companies, Microsoft and Netscape Communications Corp.,
have given away "browser" software (software that provides a user-friendly
interface to the Internet) while selling the more expensive "server" software.
In addition, Microsoft is bundling both browser and server software (Internet
Information Server) with its Window NT operating system. Dozens of major
computer companies plan to ship their machines with this software. Windows NT
has become a leading network operating system for the kind of small-scale
servers used on local area networks and now those machines are positioned to
become Intranet servers. Microsoft's Internet Information Server includes
security features and has the ability to connect to corporate data bases.
Based on Microsoft's aggressive strategy and historical dominance of the
software market, ProSoft's management believes that Microsoft is well-positioned
to be a dominant entity in the Internet/Intranet technology market and has
strategically embraced Microsoft's vision and approach. Currently, most
training courses offered by ProSoft revolve around Microsoft's Internet/Intranet
tools and platforms, ranging from advanced courses for system engineers and
solution developers to courses for end-users and self-paced, self-help
instruction. A central part of the Company's strategy will be to proactively
assist Microsoft in building marketshare for Microsoft's Internet/Intranet
products and
19
<PAGE>
technologies by providing a nationwide network of Training Centers that offer
courses in all of the major Microsoft Internet and Intranet technologies.
Notwithstanding the importance of ProSoft's relationship with Microsoft,
the Company realizes that not every corporation and end-user will ultimately
embrace Microsoft's technologies, and that other Internet companies, such as
Netscape, will continue to maintain a large presence in this arena. Accordingly,
the Company intends to expand its training curriculum to include Internet and
Intranet tools and products offered by companies other than Microsoft, including
those offered by Netscape and Sun MicroSystems.
THE PROSOFT STRATEGY
ProSoft believes that it should have an advantage over the majority of
other computer and advanced technology training companies by virtue of its
growing national presence and its specific emphasis and expertise in
Internet/Intranet technologies. While other training institutions may offer a
limited number of Internet/Intranet courses, this type of training is ProSoft's
primary area of emphasis. As a result, the Company believes that it has
developed a broad range of experience with respect to classroom infrastructure,
curriculum, courseware and instructor development, mastery of subject matter,
breadth and depth of course offerings, and the ability to quickly develop and
offer new Internet/Intranet technology training as market demands shift.
The Company's strategy is to continue to expand the number of Training
Centers across the country, with the goal of creating a nationwide network of
Training Centers that will make ProSoft a primary choice for Fortune 1000
corporations and other smaller firms that require unified, quality Internet and
Intranet training. ProSoft believes that the development of a nationwide
network of ProSoft Training Centers is essential to the delivery of quality
Internet/Intranet instruction. By the very nature of Internet/Intranet
technology, the delivery of uniform, consistent training is mandatory in order
for companies with multiple geographic locations to efficiently learn and use
the technology. In addition, ProSoft believes that because the
Internet/Intranet demands that an entire organization be properly trained in
order for the technology to be effective, training should be delivered locally,
but with identical curriculum and content in every region of the country.
Internet/Intranet training is not effective if varying curriculum is dispensed
to one office or group of employees at a time. All members of an organization
must simultaneously learn the proper skills necessary to realize the full
capabilities of the Internet/Intranet.
STRATEGIC ALLIANCES
ProSoft will continue to focus on the development of strategic
relationships with Private Industry Councils (PICs), which are provided
technical assistance by the Department of Labor (the "DOL"), Microsoft,
Microsoft-based Internet and Intranet software developers, hardware
manufacturers, computer distributors (otherwise known as value-added-resellers
or "VARs"), telecommunications companies and future Internet technology
developers to attract and deliver training opportunities.
ProSoft will continue to work with the DOL through "subrecipients"
(administrators of JTPA funds on the local level) to access JTPA retraining
funds as a steady source of revenue and to develop its advanced technology
instructors. With respect to the Company's hiring programs, ProSoft is able to
administer its own intake and eligibility criteria under authority granted by
the City of Los Angeles. This is significant because ProSoft can execute its
own intake and eligibility of displaced workers living in the City of Los
Angeles to determine if they qualify for a JTPA grant. In just 48 hours,
ProSoft can accomplish what normally can take up to eight
20
<PAGE>
weeks of government processing. This processing speed has enabled the Company to
attract and process large pools of qualified displaced workers from which to
select its instructor trainees.
On May 6, 1996, the Company signed an agreement with Merisel, Inc., a $6
billion distributor of computer hardware and software products, to become
Merisel's exclusive Internet/Intranet training provider. The Company also has
the right of first refusal to deliver all of Merisel's Microsoft Authorized
Technical training in markets where ProSoft has an ATEC presence. This
agreement has no stated term, although it may be terminated by Merisel if the
Company loses its ATEC status. In addition, Merisel has recently experienced
significant financial difficulties and the Company is uncertain regarding the
extent to which this contract will be a source of revenues for the Company in
the future.
In June 1996, Microsoft chose ProSoft to be the exclusive training company
featured in a worldwide presentation of two Microsoft Internet programs: (a)
Microsoft Explorer Version 3.0, the updated version of Microsoft's popular
Internet browser software, and (b) Microsoft Front Page, a new Microsoft web
page authoring tool that applies the user-friendly and intuitive point and click
technology to HTML, or hypertext markup language, the language currently used to
build and develop Internet/Intranet web pages (put another way, Front Page is to
HTML as Windows is to DOS). In connection with the presentation, known as World
Wide Live, Microsoft created a direct link from its web page to ProSoft's web
page, which contains training schedules of the various ProSoft curricular
offerings, including training relating to the Microsoft technologies featured at
World Wide Live. Microsoft estimates that approximately 20,000 people viewed
the World Wide Live program at various satellite down-link theaters across the
U.S. and Canada. The Company has developed and maintains proprietary ownership
of its Front Page curriculum.
In June 1996, the Company also entered into an agreement with Innovus
Corporation, a developer and marketer of interactive multimedia software, to
become Innovus's exclusive national training resource for its multimedia
products, subject to Innovus' rights to provide training for certain major
customers, distributors which require specialized training, and VARs in cities
where the Company has no Training Centers. Innovus Multimedia is designed to
allow business managers and their employees, even those with only modest
business skills, to quickly build a wide range of employee management, training
and customer support applications. The product, developed on Microsoft
platforms and designed to take advantage of advanced features of Windows 95 and
Windows NT, requires from two to five days of training. ProSoft will train and
certify its instructors to deliver this training and will provide a national
training support system for Innovus. ProSoft plans to incorporate Innovus
Multimedia presentations into all of its Internet/Intranet classes and will work
with Innovus to develop pre- and post-class student performance assessment tools
using the Innovus products. The Company will continue to carefully select a
number of software developers whose products support the Internet/Intranet and
Microsoft tools and platforms, and develop similar training relationships. This
agreement has a one-year term and is automatically extended for additional one
year terms unless either party gives at least 120 days prior notice of its
intent not to extend.
The Company's success will depend in large part on the success of its
strategic affiliates and the Company's ability to establish successful strategic
relationships with other entities.
COURSEWARE, COMPUTER BASED TRAINING AND DISTANCE LEARNING
The Company intends to continue to develop cutting edge courseware for all
new Microsoft and Netscape Internet/Intranet product releases as well as other
popular and emerging Internet/Intranet technology courses.
21
<PAGE>
Once ProSoft has designed the books and materials that will constitute the
courseware for a given class, it is able to internally produce such courseware
on a sophisticated copying and binding machine located in its Buena Park,
California facility. ProSoft courseware is published, packaged and shipped from
Buena Park either to a ProSoft Training Center or another training company or
organization.
ProSoft is also building the staff and technological resources necessary
to offer what the Company calls "Learning on Demand" (LOD) or distance learning.
The Company is developing proprietary Internet/Intranet technologies that will
allow individuals to access training on an any number of products, tools or
applications, in real time and on demand. To reach this goal, the Company is
developing strategic alliances and plans to invest in the infrastructure and
development of LOD technologies.
Learning on Demand or distance learning over the Internet has the
potential to lower training costs, increase accuracy, and facilitate
communications among employees and their managers. By making LOD content
available on the Internet, companies can distribute curriculum around the world
and update materials every hour if they desire. ProSoft is addressing various
security, billing and other issues that must be resolved before LOD can become
commonplace on the Internet, but with the proliferation of Intranet systems
within large organizations, there is a large and immediate opportunity for the
Company to sell and/or license its LOD content.
MARKETING
ProSoft will market Internet and Intranet training through its own
internal sales and marketing organization in conjunction with key strategic
alliances. As of October 1, 1996, the Company's sales and marketing
organization consisted of 18 employees. ProSoft is currently creating and
producing marketing material designed to help position ProSoft as the premier
Internet/Intranet training and resource company.
As part of ProSoft's overall strategy involving Microsoft, whenever the
Company opens a Training Center in a new market, its first priority will be to
offer introductory Internet and Intranet training to all Microsoft Solution
Providers and Microsoft sales and marketing employees in the area. This plan
has proven effective in helping Microsoft employees better understand Microsoft
products as well as gain an appreciation for the training support that ProSoft
will provide to Microsoft clients. The intent is to develop goodwill with
Microsoft and ultimately to increase the frequency of Microsoft recommendations
and sales of ProSoft Internet training.
ProSoft has trained and will continue to train Merisel's sales, marketing
and technical support staff in basic Internet technologies in order to give
these employees the insight, knowledge and confidence to sell this training to
Merisel's network of more than 65,000 VARs and Merisel's end-user customers.
The Company, by virtue of its exclusive Internet training agreement with
Merisel, has access to several important Merisel marketing programs and
campaigns. Merisel sales people actively market ProSoft training to their
customer base.
ProSoft, as an integral part of its strategy to open between 50 and 60
Training Centers by June 1997, has established what is called the Affiliate
Training Program (the "Affiliate Program"). Under the terms of the Affiliate
Program, an existing computer training, consulting, distribution and/or reseller
company, such as a ComputerLand franchisee, will provide the physical space
within its premises for one or more ProSoft training rooms in a particular
market. In
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<PAGE>
exchange for this rent-free classroom space, the affiliate is entitled to a
small percentage (usually between 3% and 5%) of all revenue generated from the
Internet and Intranet training that occurs at that location. The affiliate is
entitled to a larger percentage (usually 20%) of the training revenue if its
internal sales staff, either acting alone or in concert with ProSoft's sales
force, sells the training seat. By forming various affiliations in this fashion,
the Company has dramatically reduced its fixed operating expense by replacing
fixed rent or lease payments with a small variable expense tied to sales
revenue. In addition, the Affiliate Program permits the Company to take
advantage of the affiliate's local sales force in each market, which understands
and has personal relationships with the local customer base.
In addition to Merisel's and the local affiliate's marketing and sales
efforts, ProSoft plans to enter each market with a uniform advertising campaign
that employs direct mail, newspaper and radio advertising, followed up by
aggressive telemarketing efforts, to support ProSoft's sale of training for each
of the Training Centers. The Company has also established a national
inbound/outbound telemarketing organization located in Jacksonville, Florida.
The Company's telemarketing sales group will market the Company's Internet and
Intranet training to computer resellers and end-users.
ProSoft has also developed an arrangement that allows other interested
training and consulting companies in any ProSoft Training Center market to sell
ProSoft training seats as if they were their own. As part of this program,
these companies, ranging from end-user application training firms to allied
health or vocational skills training firms, may publish ProSoft training
schedules in their course catalogs and other marketing materials and will be
paid a percentage of the training revenue generated by such means. In this way,
potential competitors that offer a wide range of unrelated training courses can
add Internet offerings to their catalog without having to develop the curriculum
or instructors, install T-1 lines, or compete with ProSoft. The Company plans
to roll this program out aggressively in each new ProSoft market it enters.
MARKET POTENTIAL
Because ProSoft has and will continue to develop strategic alliances with
Microsoft, other select Internet products manufacturers, resellers (such as
Merisel and Ingram Micro), and local training affiliates, and because the
Company has broad categorical expertise in Internet and Intranet training
ranging from the most advanced system engineering to end-user training, ProSoft
believes that it is well-positioned to sell its training to small, medium and
large organizations. The Company believes it can offer among the highest
quality, consistent Internet curriculum in the industry and because of the short
curriculum development cycle that the Company maintains, it can quickly create
new course offerings to support new and emerging technologies.
Internet/Intranet software offerings and technology will continue to evolve and
training related to such software and technology will need to keep pace.
Technology trends indicate that end-user interfaces are and will become more
intuitive and user-friendly while system engineering and solution development
required to support these simple interfaces will become increasingly complex.
Because ProSoft addresses a broad range of Internet and Intranet technology
training, the Company believes it is well positioned to pursue and deliver on
the expanding advanced Internet technology training opportunities.
As corporations move to develop and expand internal Intranet systems,
ProSoft believes it will be positioned to deliver a wide range of Intranet
training classes, ranging from Internet Information Servers to Web Page
development and maintenance, as well as a host of other courses necessary for an
organization to maximize the utility of Intranet systems. ProSoft believes that
company-developed
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Intranets will become indispensable tools in the workplace and
intends to position itself to take advantage of this growing market.
COMPETITION
At the present time, the Company has been unable to identify any other
Internet/Intranet-specific training company that offers the breadth and depth of
Internet and Intranet courses that ProSoft offers, or that teaches such courses
in Training Centers located across the country as the Company intends to do.
However, as the Internet and company-developed Intranets continue to grow in
popularity and become mandatory productivity tools in the workplace, ProSoft's
management believes that several existing training companies will increase their
focus on Internet/Intranet training. In addition, other large computer software
and reseller companies with even greater financial resources than the training
companies may enter the market and begin providing Internet training.
Although studies by the American Society for Training and Development and
the International Technology Training Association consistently demonstrate that
hands-on, instructor led training is the most effective manner in which to learn
and master technology-oriented subject matter, most Internet users in the U.S.
have not had access to this type of training. Most Internet instruction is
delivered seminar-style in hotel auditoriums or similar venues using passive
training techniques such as slides, multimedia presentations or perhaps an
overhead of an instructor's computer in action. There are several regionally-
based Internet training companies, but only a few that have direct, high speed
access to the Internet. Gestalt Systems, Inc., a Washington, DC-based training
Company, offers such training. CompUSA, a national computer retail chain, has
opened computer training centers in several of its stores, offering a wide array
of training across many different platforms ranging from advanced technical
education to end-user applications training. CompUSA, however, offers a limited
schedule of hands-on, on-line, end-user Internet instruction.
ProSoft's management believes that it will have a competitive advantage
over most existing training organizations because of the Company's developed
curriculum, training focus, ability to offer high speed, on-line training and
ability to quickly develop quality courseware to support the rapidly evolving
Internet products and technologies. In addition, the Company believes that its
planned national presence will give it an advantage over its competitors having
a limited geographical presence. In order for existing training companies to
develop the level of expertise and consistency offered by ProSoft, the Company
believes they would have to narrow their focus, eliminate many of their current
course offerings, retrain and/or develop their staffs, and dramatically expand
their training locations.
ProSoft believes that by virtue of its careful positioning, convenience of
training, and commitment to an Internet/Intranet-specific strategy, its courses
and services will have a strong appeal to the corporate market, which is looking
to expand its understanding and use of Internet and Intranet technologies.
ProSoft also believes that it can preempt many potential competitors by teaming
up with training affiliates across the nation and expanding quickly to become
the largest and most visible provider of Internet/Intranet training. In
addition, ProSoft has developed strategies and programs that will allow other
training companies in any ProSoft market to re-sell ProSoft training seats as if
they were their own.
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<PAGE>
SEASONALITY
The Company expects to be subject to some seasonal fluctuations in its
operating results, with revenues in November and December expected to be lower
because of decreased enrollment in its classes due to holidays. However, the
Company is unable to predict the extent of such seasonal fluctuations with
certainty due to its limited operating history.
PROPRIETARY RIGHTS
Most of ProSoft's Internet courseware is protected by copyright laws. The
Company has also filed for trademark registration for certain of its products,
tags lines and feature names. The Company will continue to seek copyright
registration on certain newly developed courseware products and on operating
software products that relate to the delivery of Internet and Intranet training.
GOVERNMENT REGULATION
The Company's Training Centers are subject to extensive state and federal
regulations with respect to the Company's vocational training. As a vocational,
non-degree granting school, the Company is governed by the State of California
Council for Private Postsecondary and Vocational Education ("CPPVE"). In
addition to commercial business, the Company also actively seeks vocational
retraining funding as a vendor under the JTPA.
Federal job re-training programs under the JTPA pay ProSoft, on average, a
grant of approximately $10,000 for each qualifying student for 22 to 37 weeks of
intensive advanced Microsoft-based Internet technology training. If a student
leaves a JTPA program before the completion of the course, ProSoft is paid a pro
rata portion of the grant. The Company has been successful at attracting and
re-training displaced defense and aerospace workers to become Microsoft
Certified Professionals. As discussed above, those MCPs who ProSoft deems
qualified are then offered positions as instructors to deliver Internet and
Intranet training in ProSoft Training Centers.
ProSoft actively seeks vocational retraining funding as a vendor under the
JTPA, which was signed into law in 1982 with the stated purpose to "establish
programs to prepare youth and unskilled adults for entry into the labor force
and to afford job training to those economically disadvantaged individuals and
others facing serious barriers to employment who are in special need of such
training to obtain productive employment." ProSoft participates primarily in
JTPA Title III programs, which provide for operation of state and local programs
of employment and training assistance for dislocated workers. Vocational schools
are traditionally providers of Title III training. Title III requires that the
entity delivering JTPA-funded training be a certified school operating within
the regulations set forth by the state department of education. The CPPVE is
the governing council for Vocational and non-degree granting schools.
JTPA awards are made directly from the DOL to the individual states, which
are the direct recipients of the funds. Each state then allocates funding to a
local grantee, known as a Service Delivery Area ("SDA"). The Governor of each
state designates SDAs pursuant to JTPA regulations (an SDA is also referred to
as a subrecipient). Funds may also be allocated to a subrecipient that,
depending on local
25
<PAGE>
circumstances, may be a Private Industry Council, local elected official or
administrative entity. Subrecipients then identify eligible participants for
retraining and refer them to vendors for the necessary training and contracted
services.
California has 24 subrecipients. Each subrecipient allocates training
through service providers or vendors. A school becomes qualified to be a vendor
through a proposal process. Each subrecipient has its individual set of vendor
qualifications as allowed under the JTPA. Each subrecipient may allocate funding
to a vendor only through a direct contract allowing for individual referral
voucher training. The JTPA requires that all commercial for-profit schools offer
"commercially available off-the-shelf" training programs and packages. In order
to be a "commercially available off-the-shelf" training program, such course
must be sold to the general public in the course of normal business operations
at prices set forth in established catalogs or at market prices. In addition,
qualifying schools must not derive more than 90% of their net revenues from
students who participate in JTPA programs. A further criteria for funding
eligibility is a student job placement rate of 75%.
Because the JTPA imposes new regulations annually and because the DOL has
not fully developed administrative interpretations of such new regulations,
there exists some uncertainty concerning the application of the evolving rules.
New or revised interpretations of such requirements could have a material
adverse effect on the Company. In addition, changes in and new interpretations
of the applicable laws, rules or regulations could have a material adverse
effect on ProSoft's accreditation, authorization to operate, permissible
activities and cost of doing business in various states. The failure to maintain
or renew any required approval, accreditation or state authorization by ProSoft
could have a material adverse effect on the Company.
In addition, subrecipients of JTPA funding may limit the amount of Title
III funds that a student is eligible to receive for re-training. These limits
currently range from $6,000 to $12,000 per student, depending on the size of the
grant and the vagaries of the individuals in need of classroom training.
The violation by the Company of regulatory standards governing JTPA
programs could be the basis for a proceeding by the subrecipient to suspend or
terminate the Company's participation in these Title III programs. Although
there is no such proceedings pending, and the Company has no reason to believe
such a proceeding is contemplated, if such a proceeding were initiated against
the Company, and resulted in a substantial curtailment of the Company's
participation in JTPA programs, the Company would be adversely effected. In
addition, if the CPPVE were to determine that the Company misappropriated JTPA
funds or failed to deliver the training as contracted, the Company could be
required to repay such funds as outlined in each contract executed with each
subrecipient.
CPPVE regulations contain specific requirements governing the
establishment of new main campuses, branch campuses and classroom locations at
which students qualifying for JTPA funds receive instruction. The Company
intends to continue to seek CPPVE approvals for its new stand-alone locations.
Should the CPPVE change its regulation with respect to this approval process, or
delay approvals of new locations beyond the current approval time rate, the
Company's vocational business may be adversely affected. In addition, the United
States Department of Education directs the CPPVE to assess the administrative
capability of each school participating in federal retraining programs. A
finding by the CPPVE that a school has failed to satisfy administrative
capability criteria may result in a suspension or revocation of that school's
ability to operate.
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<PAGE>
CPPVE regulations also contain specific requirements governing curriculum
and course content for JTPA funded programs. While ProSoft has obtained all
approvals for the courses of instruction that are currently offered as well as
the projected 1996 and 1997 course offerings, in the event that any ProSoft site
is determined by the CPPVE to have offered a course of instruction without
having obtained the proper approvals, ProSoft can be placed on probation by the
CPPVE for a specific period of time not to exceed two years, and can be ordered
to post a bond and to refrain from entering into any new agreements for any
course of instruction. In such a case, the CPPVE may order the Company to
reimburse all reasonable costs and expenses on behalf of the affected student.
During the period December 8, 1995 to July 31, 1996, three southern
California governmental agencies accounted for approximately 82% of the
Company's total revenues. Each of these agencies provided JTPA vocational
training funds for students in the Company's Training Centers. Although
substantially all of the Company's revenues to date have been generated from
JTPA vocational training and these three agencies, the Company expects a
significant majority of its revenues in the future will come from
Internet/Intranet training, and its dependence on these agencies and its
exposure to state and federal regulations discussed above will diminish.
EMPLOYEES
As of October 1, 1996, ProSoft had 135 full-time employees and plans to
hire additional support, executive, and instructor staff as new Training Centers
open across the country. The current employees have considerable experience in
all areas of vocational and commercial advanced technology school management,
education and training.
PROPERTIES
The Company's headquarters are located at 7100 Knott Avenue, Buena Park,
California, a 22,700 square foot facility on which the Company pays rent on a
month-to-month basis. ProSoft and its Buena Park landlord have agreed that this
lease will terminate on December 31, 1996, and ProSoft is actively searching for
a new corporate headquarters in the Buena Park area that is more consistent with
ProSoft's business plan and growth strategy. As of July 31, 1996, the Company
had entered into the leases for commercial space in the following locations:
<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE MONTHLY LEASE RENT EXPIRATION
<S> <C> <C> <C>
Buena Park, CA 22,700 $25,000 Month-to-month
North Hollywood, CA 3,000 $ 3,000 4/99
Palmdale, CA 5,000 $ 3,100 Month-to-month
New York, NY 5,558 $ 7,410 8/99
</TABLE>
As discussed above, ProSoft has entered into the Affiliate Program with
several independent training, computer reseller or other educational companies
under which the affiliates provide space to ProSoft for its Training Centers.
The lease or rental agreements reside with the affiliate and ProSoft has no
obligation or liability for this rent. However, the Company is responsible for
all necessary tenant improvements relating to the Training Centers made at the
affiliates' locations and in the event that any such affiliation is terminated
prior to the expiration of the contract, ProSoft would have to write off the
remaining value of those improvements.
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LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
28
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ------------------------ --- -----------------------------------------
<S> <C> <C>
Keith D. Freadhoff 37 Chairman of the Board and Chief Executive
Officer
Donald Danks 39 President and Director
John J. Buckley 43 Chief Technology Officer
James P. Stapleton 33 Chief Operating Officer
Brooks A. Corbin 36 Chief Financial Officer
William E. Richardson 49 Director
</TABLE>
KEITH D. FREADHOFF. Mr. Freadhoff has served as Director, Chairman of the
Board and Chief Executive Officer of the Company since the Reorganization and
prior to that served in the same capacities with Old ProSoft from its inception.
From February 1995 to December 1995, Mr. Freadhoff operated the business of the
Company while it was owned by the Proprietorship. From 1994 through 1995, Mr.
Freadhoff served as Executive Director for the Career Planning Center, a
community based non-profit organization. From 1993 through 1994, Mr. Freadhoff
served as Chief Executive Officer of The Focus Institute, a company specializing
in computer based, classroom training. Mr. Freadhoff headed a new government
training program division for Frojen Advertising Company between 1991 and 1993.
Mr. Freadhoff began his training background by forming Oasis Corporate Education
and Training in 1987. Oasis was a customized training company that developed
courseware for manufacturing, financial, service and public organizations. In
November 1991, Oasis filed for bankruptcy protection. Mr. Freadhoff completed
graduate level coursework in the University of Southern California School of
Business Management and graduated from the University of Nebraska in 1982.
DONALD DANKS. Mr. Danks has served as Director and President of the
Company since the Reorganization and prior to that served in the same capacities
with Old ProSoft from its inception. From 1991 through 1995, Mr. Danks was
President and Chief Executive Officer of Advantage Life Products, Inc.
("Advantage"), a publicly traded consumer products company. From 1989 to 1991,
Mr. Danks was the Chief Operating Officer for Advantage. Mr. Danks has
extensive experience in strategic planning, capital formation and the
development and implementation of national marketing strategies. Mr. Danks
graduated from the University of California, Los Angeles, in 1979.
JOHN J. BUCKLEY. Mr. Buckley has served as the Chief Technology Officer
of the Company since the Reorganization and prior to that served in the same
capacities with Old ProSoft which he joined in February 1996. Mr. Buckley was
Vice President of Business Development for Gestalt Systems, Inc., an Internet
training company, from July 1993 through January 1996. From May 1992 through
June 1993, Mr. Buckley was an Information Technology Consultant to corporations
in the Washington, D.C. metropolitan area, where he specialized in the design
and implementation of Novell LANs. From October 1987 through April 1992, Mr.
Buckley served as President of Communication Services International, a company
specializing in LAN consulting and implementation services for corporations
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in the Mid-Atlantic U.S. Mr. Buckley graduated from the University of Maryland
at College Park with a BA in Political Science in 1974, and earned an MBA in
1976 from the same institution.
JAMES P. STAPLETON. Mr. Stapleton has served as the Chief Operating
Officer of the Company since May 1996 and prior thereto served as the Chief
Financial Officer since he joined the Company in March 1996. Mr. Stapleton was
the Chief Financial Officer of BioTek Solutions, Inc., a life-sciences company,
from December 1995 through February 1996. Prior to that, Mr. Stapleton was
employed in a variety of positions for Advantage Life Products, Inc. From 1992
though 1995, Mr. Stapleton was Executive Vice President and Chief Financial
Officer of Advantage. From March 1991 through May of 1992 Mr. Stapleton was
Vice President of Sales - Western U.S., and from May 1987 through March of 1991,
Mr. Stapleton was Vice President: Finance and Operations of Advantage. Mr.
Stapleton graduated from the University of California at Irvine with an MBA in
1995, and from the University of Washington with a BA in Economics in 1985.
BROOKS A. CORBIN. Mr. Corbin has served as Chief Financial Officer since
he joined the Company in May 1996. From 1995 through 1996, Mr. Corbin was Chief
Financial Officer for Hastl Acquisitions, Inc., an import-export company. In
February 1996, Hastl filed for Chapter 11 bankruptcy protection. Prior to 1995,
Mr. Corbin worked for six years as a business consultant to start-up and
troubled companies. He started his career with Price Waterhouse in 1982. Mr.
Corbin graduated from Stanford University with BAs in Economics and
International Relations in 1982, and from the University of California, Los
Angeles with an MBA in Finance and Real Estate in 1987. Mr. Corbin is a member
of the AICPA.
WILLIAM E. RICHARDSON. Mr. Richardson has served as a member of the Board
of Directors of the Company since the Reorganization and prior to that served as
a member of the Board of Directors of Old ProSoft beginning in February 1996.
Mr. Richardson co-founded Performance Consulting International ("PCI"), a
management consulting and training firm, in 1995 where he has served as
Principal Director. Prior to founding PCI, Mr. Richardson served as CEO for
Bird Products Corporation from 1993 to 1995 and CITATION Computer Systems from
1984 to 1989. In addition, Mr. Richardson has served over sixteen years in
executive management capacities with Diasonics, ADAC Laboratories and the
SmithKline Corporation. Mr. Richardson holds undergraduate degrees in Chemistry
and Mathematics from the University of Nebraska and an EMBA from Columbia
University. He currently is a member of the Executive Advisory Council,
Graduate School of Management and the Advisory Board for Entrepreneurial
Management at the University of California.
30
<PAGE>
SUMMARY COMPENSATION TABLE
The following sets forth certain summary compensation information
concerning the named Chief Executive Officer of the Company. No executive
officer of the Company received more than $100,000 in compensation during the
period December 8, 1995 to July 31, 1996.
<TABLE>
<CAPTION>
NAME AND PERIOD ENDING ANNUAL COMPENSATION
PRINCIPAL POSITION JULY 31, 1996 SALARY
------------------ ------------- -------------------
<S> <C> <C>
Keith D. Freadhoff(1) 1996 $24,923.07
Chairman of the Board and Chief Executive Officer
</TABLE>
- ----------------
(1) Mr. Freadhoff became Chief Executive Officer of the Company in March 1996
upon completion of the Reorganization. The amounts disclosed include
compensation received as Chief Executive Officer of Old ProSoft prior to
the Reorganization, as well as compensation received as Chief Executive
Officer of the Company. Mr. Freadhoff has not been granted any stock
options by the Company. No compensation was paid to any employee of the
Company prior to the Reorganization.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company presently does not have a compensation committee or other
committee of the Board of Directors performing similar functions. Messrs.
Freadhoff and Danks are each officers of the Company and, as members of the
Board of Directors, participated in deliberations of the Board concerning
executive officer compensation.
COMPENSATION OF BOARD OF DIRECTORS
Directors of the Company do not receive compensation for serving on the
Board of Directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company believes that certain provisions of its Restated Articles of
Incorporation ("Articles") and Bylaws will be useful to attract and retain
qualified persons as directors and officers. The Company's Articles limit the
liability of directors to the fullest extent permitted by Nevada law. This is
intended to allow the Company's directors the benefit of Nevada Corporation Law
which provides that directors of Nevada corporations may be relieved of monetary
liabilities for breach of their fiduciary duties as directors, except under
certain circumstances, including (i) acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law, or (ii) the payment of unlawful
distributions. The Company's Bylaws generally require the Company to indemnify,
as well as to advance expenses, to its directors and its officers to the fullest
extent permitted by Nevada law upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if it should be ultimately
determined that they are not entitled to indemnification by the Company. The
Company has also entered into indemnification agreements with its directors and
officers which similarly provide for the indemnification and advancement of
expenses by the Company.
The Company has obtained officer and director liability insurance with
respect to liabilities arising out of certain matters, including matters arising
under the Securities Act.
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<PAGE>
There is no pending litigation or proceeding involving a director, officer,
associate or other agent of the Company as to which indemnification is being
sought, nor is the Company aware of any threatened litigation that may result in
claims for indemnification by any director, officer, associate or other agent.
EMPLOYMENT AGREEMENTS
The Company has not entered into any employment agreements with its
executive officers.
STOCK OPTION PLAN
In 1996, the Board of Directors and stockholders of the Company approved
the adoption of a 1996 Stock Option Plan (the "1996 Plan"), for which 750,000
shares of Common Stock are reserved for issuance on exercise of options. The
following is a brief summary of the material features of the 1996 Plan.
The 1996 Plan calls for the granting of options to purchase up to 750,000
shares of the Company's Common Stock. No employee, director or consultant may
be granted options to acquire more than 250,000 shares during any one-year
period under the 1996 Plan. Shares covered by options which terminate without
exercise are available for issuance upon the grant of additional options. The
number and kind of shares subject to the 1996 Plan and any outstanding options
under the 1996 Plan will be appropriately adjusted in the event of a stock
split, stock dividend, reorganization or other specified changes in the
capitalization of the Company. The 1996 Plan allows for the grant of either
incentive stock options or nonstatutory stock options.
The 1996 Plan is administered by the Company's Board of Directors, which
has the sole authority to determine which eligible persons shall receive options
and the terms and provisions of the options. The Board also has the full power
and authority to interpret the provisions of the 1996 Plan and any option
granted under the 1996 Plan. The Board may delegate administration of the 1996
Plan to a committee of not less than two members of the Board.
Employees, directors and consultants of the Company and any subsidiary of
the Company are eligible to receive options under the 1996 Plan, with only
employees eligible to receive incentive stock options. At October 1, 1996,
approximately 89 persons were eligible to participate in the 1996 Plan. The
Board has the discretion to set the exercise price for options granted under the
1996 Plan, provided that the exercise price per share for each incentive stock
option cannot be less than the fair market value on the date of grant and the
exercise price per share for each nonstatutory stock option cannot be less than
85% of the fair market value on the date of grant; provided, further, that the
exercise price per share for each option granted to a person owning greater than
10% of the total combined voting power of all classes of stock of the Company (a
"Restricted Stockholder") cannot be less than 110% of the fair market value on
the date of grant. The Board also has broad discretion as to the other terms
and conditions upon which options granted shall be exercisable, but under no
circumstances will an option have a term exceeding ten years from the date of
grant, nor may an option granted to an employee who is not an officer or
director be exercisable at a rate of less than 20% per year.
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<PAGE>
The purchase price for shares issued under the 1996 Plan shall be paid by
cash or such other means deemed acceptable by the Board, including the payment
of all or part of the exercise price with shares previously acquired by the
optionee. The Company may also facilitate the cashless exercise of options
through customary brokerage arrangements.
Each option will expire on the date established by the Board for that
option, except that no option may be exercised later than ten years after the
date of grant and no incentive stock option granted to a Restricted Stockholder
may be exercised later than five years after the date of grant. Options
generally terminate upon the termination of the optionee's employment, except
that the Board may provide in the option agreement that the vested portion of
the option at the time of termination may be exercisable for up to three months
after termination for any reason other than death or disability, and for up to
one year after termination in the event of death or disability. The Board also
has the authority to extend the post-termination exercise period, although not
beyond the original option expiration date, and to accelerate unvested portions
of an option upon the termination of employment. Options are not transferable
by the optionee other than by will or the laws of descent and distribution.
The 1996 Plan provides that in the case of certain reorganizations, mergers
or consolidations of the Company with one or more corporations, or the sale of
substantially all of the Company's assets, all outstanding options, including
unvested installments, shall be accelerated and be exercisable in full beginning
immediately prior to the consummation of the transaction unless such options are
assumed in some manner as part of the transaction or new options or securities
are substituted for them.
The 1996 Plan provides that the Board may at any time amend or terminate
the 1996 Plan, although no amendment or termination may adversely affect any
previously granted option without the consent of the holder of the option.
Unless sooner terminated by the Board, the 1996 Plan will terminate in March
2006.
As of July 31, 1996, there were options outstanding under the 1996 Plan to
purchase 667,500 shares of Common Stock, with exercise prices ranging from $3.50
to $20.00 per share and termination dates ranging from January 1997 to December
1999. The options under the 1996 Plan vest over varying lengths of time pursuant
to various option agreements that the Company has entered into with the grantees
of such options.
OTHER STOCK OPTIONS
As a result of the Reorganization, nonstatutory stock options to purchase
1,042,500 shares of common stock of Old ProSoft were converted into options to
purchase 1,042,500 shares of the Company's Common Stock on substantially the
same terms and conditions as options granted under the 1996 Plan. As of July
31, 1996, all 1,042,500 options remained outstanding at an exercise price of
$1.00 per share and expire on July 31, 1997. All of such options became fully
exercisable on August 1, 1996.
33
<PAGE>
CERTAIN TRANSACTIONS
REORGANIZATION
From its incorporation in May 1985 until March 1996, the Company had no
significant operations. In March 1996, the Company entered into the
Reorganization Agreement with Old ProSoft and the Old ProSoft shareholders.
Under the term of the Reorganization Agreement, the Old ProSoft shareholders
received one share of Common Stock of the Company in exchange for each of their
shares of Old ProSoft, and Old ProSoft became a wholly-owned subsidiary of the
Company. An aggregate of 4,726,250 shares were issued to the Old ProSoft
shareholders in the Reorganization and the Old ProSoft shareholders ended up
owning approximately 90% of the Company immediately after the Reorganization.
All outstanding options and warrants to purchase shares of common stock of Old
ProSoft became options or warrants to purchase the same number of shares of
Common Stock of the Company, and on the same terms, in the Reorganization. As
part of the Reorganization, all of the executive officers and directors of the
Company resigned and the executive officers and directors of Old ProSoft became
the executive officers and directors of the Company and the Company changed its
name from Tel-Fed, Inc. to ProSoft Development, Inc.
STOCK ISSUANCES BY OLD PROSOFT
Old ProSoft was incorporated in December 1995. Donald L. Danks, a director
and President of the Company, Keith D. Freadhoff, Chairman of the Board and
Chief Executive Officer of the Company, and Douglas Hartman, a former director
of the Company, each received 1,000,000 shares of Common Stock of the Company in
exchange for $9,500 in the case of Mr. Danks, a demand promissory note for
$9,500 in the case of Mr. Freadhoff, and the contribution of all of the assets
and liabilities of the Proprietorship in the case of Mr. Hartman.
William E. Richardson, a director of the Company, purchased 100,000 shares
of Old ProSoft Common Stock of the Company for $25,000 in January 1996.
From January to March 1996, Old ProSoft conducted a private offering of its
common stock and warrants to purchase common stock. Pursuant to that offering,
a total of 931,250 shares of common stock were sold for total cash consideration
of $927,500. Warrants to purchase an aggregate of 945,000 shares of common
stock at $1.00 per share were issued to investors in that private placement.
Mr. Richardson purchased 25,000 shares and received a warrant to purchase 25,000
shares in that offering for $25,000. Although the warrants issued in that
offering were called for redemption in May 1996, the Company has agreed to
extend Mr. Richardson's warrants until 1999.
All outstanding Old ProSoft shares were exchanged for newly-issued shares
of Company Common Stock in the Reorganization. In addition, all outstanding Old
ProSoft options and warrants became options or warrants to purchase Company
Common Stock in the Reorganization.
POST-REORGANIZATION PRIVATE PLACEMENT
During April and May of 1996, the Company conducted a private offering of
its Common Stock and warrants to purchase Common Stock. Pursuant to that
offering, a total of 430,462 shares of Common Stock were sold for total cash
consideration of $1,506,639 and warrants to purchase
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<PAGE>
143,473 shares of Common Stock at $5.00 per share were also issued to the
investors. William Richardson purchased 10,000 shares and a warrant to purchase
an additional 3,333 shares in that offering for $35,000, and Brooks Corbin, the
Company's Chief Financial Officer, purchased 7,000 shares and a warrant to
purchase an additional 2,333 shares for $24,500.
The Company and Messrs. Freadhoff, Danks and Hartman have agreed to use
their best efforts to cause and maintain the election to the Board of Directors
of the Company of a representative mutually agreed upon by the Company and a
majority in interest of the shares issued in that private placement. This
obligation terminates upon the closing of a firm commitment underwritten public
offering by the Company involving net proceeds to the Company of at least
$5,000,000.
OTHER
During 1996, the Company loaned approximately $80,000 to Mr. Freadhoff at
an interest rate of 10% per annum. Principal and interest on this loan is due
and payable on demand.
The Company has agreed to include in the Registration Statement of which
this Prospectus is a part an aggregate of 60,000 shares of Common Stock,
including 25,000 shares of Common Stock issuable upon exercise of warrants,
owned by Mr. Richardson. The Company has entered into a registration agreement
with Mr. Richardson and certain other Selling Stockholders in connection with
such registration of their shares. See "DESCRIPTION OF CAPITAL STOCK -- Shares
Eligible For Future Sale".
All transactions between the Company and its officers, directors and
principal stockholders have been on terms no less favorable to the Company than
could have been obtained from unaffiliated third parties.
35
<PAGE>
SELLING STOCKHOLDERS
All of the Shares offered by this Prospectus are being offered by the
Selling Stockholders for their own respective accounts. The following table
sets forth certain information as of October 1, 1996, with respect to the
Selling Stockholders:
<TABLE>
<CAPTION>
Shares Shares
Owned Shares Owned
Prior to Covered by after the
Name of Selling Stockholder Offering Prospectus Offering(1)
- ------------------------------ ------------- -------------- --------------
<S> <C> <C> <C>
9,000 9,000 0
95,236 95,236 0
3,500 3,500 0
200,000 200,000 0
2,858 2,858 0
2,500 2,500 0
50,000 50,000 0
21,000 21,000 0
5,000 5,000 0
30,000 30,000 0
3,000 3,000 0
7,150 7,150 0
8,571 8,571 0
50,000 50,000 0
13,200 3,200 10,000
70,000 70,000 0
2,000 2,000 0
50,000 50,000 0
1,250 1,250 0
150,000 50,000 100,000(3)
12,000 12,000 0
20,000 20,000 0
59,333(4) 9,333(5) 50,000
27,999 27,999 0
6,000 6,000 0
5,000 5,000 0
5,000 5,000 0
7,143 7,143 0
30,000 30,000 0
5,733 5,733 0
2,000 2,000 0
180,000 180,000 0
1,000 1,000 0
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Shares Shares
Owned Shares Owned
Prior to Covered by after the
Name of Selling Stockholder Offering Prospectus Offering(1)
- --------------------------- -------- ---------- -----------
<S> <C> <C> <C>
4,500 4,500 0
1,500 1,500 0
3,811 3,811 0
50,000 50,000 0
14,400 14,400 0
42,000 42,000 0
7,142 7,142 0
3,000 3,000 0
50,000 50,000 0
100,000 100,000 0
1,000 1,000 0
10,000 10,000 0
12,000 12,000 0
5,000 5,000 0
2,500 2,500 0
1,000 1,000 0
9,904(6) 9,904(6) 0
40,000 40,000 0
921 921 0
2,500 2,500 0
50,000 50,000 0
1,250 1,250 0
2,500 2,500 0
36,000 36,000 0
341,200(7) 131,200(7) 210,000(8)
4,000 4,000 0
2,500 2,500 0
40,000 40,000 0
50,000 50,000 0
20,000 20,000 0
1,333 1,333 0
25,000 25,000 0
2,667 2,667 0
2,500 2,500 0
150,000(9) 150,000(9) 0
15,000 15,000 0
3,000 3,000 0
1,000 1,000 0
10,607(10) 10,607(10) 0
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Shares Shares
Owned Shares Owned
Prior to Covered by after the
Name of Selling Stockholder Offering Prospectus Offering(1)
- ------------------------------ ------------- -------------- --------------
<S> <C> <C> <C>
74,522(11) 74,522(11) 0
122,583(12) 122,583(12) 0
5,000 5,000 0
30,000 30,000 0
110,666(13) 10,666(14) 100,000(3)
160,000(15) 60,000(15) 100,000(3)
1,000 1,000 0
15,000 15,000 0
19,046 19,046 0
2,000 2,000 0
3,000 3,000 0
5,000 5,000 0
71,000 71,000 0
50,000 50,000 0
3,000 3,000 0
8,000 8,000 0
60,000(16) 60,000(16) 0
50,000 50,000 0
33,333 33,333 0
250,000 250,000 0
50,000 50,000 0
2,000 2,000 0
9,600 9,600 0
110,000 110,000 0
120,000 20,000 100,000(13)
120,000 120,000 0
280,000(17) 200,000(17) 80,000(18)
9,000 9,000 0
5,000 5,000 0
33,333 33,333 0
20,000 20,000 0
50,000 50,000 0
--------- --------- -------
4,137,291 3,387,291 750,000
========= ========= =======
</TABLE>
- ----------------
(1) Assumes that each Selling Stockholder sells all of the Shares to which this
Prospectus relates.
(2) These Selling Stockholders have agreed generally not to sell, under this
Prospectus, more than 1% of their respective Shares for each month that
38
<PAGE>
elapses after October__, 1996 unless the consent of the Company is
obtained. See "DESCRIPTION OF CAPITAL STOCK -- Shares Eligible for Future
Sale."
(3) Represents 1.3% of the Company's shares after this offering.
(4) Includes 50,000 shares subject to a currently exercisable option and 2,333
shares subject to a currently exercisable warrant.
(5) Includes 2,333 shares subject to a currently exercisable warrant.
(6) Includes 2,476 shares subject to a currently exercisable warrant.
(7) Includes 25,000 shares subject to a currently exercisable warrant.
(8) Represents 2.8% of the Company's shares after this offering.
(9) Includes 120,000 shares subject to a currently exercisable warrant.
(10) Includes 5,607 shares subject to a currently exercisable warrant.
(11) Includes 31,665 shares subject to a currently exercisable warrant.
(12) Includes 55,000 shares subject to a currently exercisable warrant.
(13) Includes 100,000 shares subject to a currently exercisable option and 2,666
shares subject to a currently exercisable warrant.
(14) Includes 2,666 shares subject to a currently exercisable warrant.
(15) Includes 25,000 shares subject to a currently exercisable warrant.
(16) Includes 60,000 shares subject to a currently exercisable warrant.
(17) Includes 50,000 shares subject to a currently exercisable warrant.
(18) Represents 1.1% of the Company's shares after this offering.
39
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's capital stock at October 1, 1996, and as
adjusted to reflect the sale by the Company of the Shares offered hereby, (i) by
each person who is known by the Company to be the beneficial owner of more than
5% of the Common Stock of the Company, (ii) by each of the Company's directors,
and (iii) by all directors and executive officers as a group. Except as
otherwise noted, each named beneficial owner has sole voting and investment
power with respect to the shares owned.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Name of Individual Owned Prior to Shares Owned After
or Identity of Group(1) the Offering to be Sold the Offering
- ----------------------------------- ----------------------- ------------- --------------------
Number Percent Number Percent
------------ -------- --------- --------
<S> <C> <C> <C> <C> <C>
Keith D. Freadhoff 725,000 9.8% -- 725,000 9.8%
Douglas Hartman 750,000 10.2% -- 750,000 10.2%
Donald L. Danks 716,500 9.7% -- 716,500 9.7%
William E. Richardson 160,000(2) 2.1% 60,000(2) 100,000 1.3%
All directors and executive 2,108,500(3) 27.4% 69,333(4) 2,039,167 26.5%
officers as a group (6 persons)
</TABLE>
_______________________
(1) The address of each of Messrs. Freadhoff, Danks, Hartman and
Richardson is c/o the Company, 7100 Knott Avenue, Buena Park,
California 90620. Unless otherwise noted, the Company believes that
all persons named in the table have sole voting and investment power
with respect to all shares of stock beneficially owned by them.
(2) Includes 25,000 shares issuable pursuant to warrants exercisable
within 60 days of the date of this Prospectus.
(3) Includes 325,000 shares issuable pursuant to options and warrants
exercisable within 60 days of the date of this Prospectus.
(4) Includes 27,333 shares issuable pursuant to warrants exercisable
within 60 days of the date of this Prospectus.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, $0.001 par value per share, of which 7,336,404 shares of Common
Stock were issued and outstanding as of October 1, 1996.
The holders of outstanding shares of Common Stock are entitled to share
ratably in dividends declared out of assets legally available therefor at such
time and in such amounts as the Board of Directors may from time to time
lawfully determine. Each holder of Common Stock is entitled to one vote for
each share held. Cumulative voting in elections of directors and all other
matters brought before stockholders meetings, whether they be annual or special,
is not provided for under the Company's Articles or Bylaws. However, under
certain circumstances, cumulative voting rights in the election of the Company's
directors may exist under California law. See "DESCRIPTION OF CAPITAL STOCK -
Application of California GCL". The Common Stock is not entitled to conversion
or preemptive rights and is not subject to redemption
40
<PAGE>
or assessment. Upon liquidation, dissolution or winding up of the Company, any
assets legally available for distribution to stockholders as such are to be
distributed ratably among the holders of the Common Stock at that time
outstanding. The Common Stock presently outstanding is, and the Common Stock
issued in this offering will be, fully paid and nonassessable.
The Transfer Agent for the Company's Common Stock is Interwest Transfer
Company, Inc.
SHARES ELIGIBLE FOR FUTURE SALE
On October 1, 1996, the Company had 7,336,404 shares of Common Stock
outstanding, assuming no exercise of the outstanding stock options or warrants,
which total 2,195,947 shares.
None of the outstanding shares of Common Stock have been registered for
sale under the Securities Act of 1933, as amended (the "Securities Act"). These
shares may not be sold unless registered under the Securities Act or sold
pursuant to an applicable exemption from registration such as Rule 144 of the
Securities Act. Only 286,723 of such shares are currently eligible for sale
under Rule 144. In general, under Rule 144, as currently in effect, subject to
the satisfaction of certain other conditions, a person, including an affiliate
of the Company (or persons whose shares are aggregated), who has owned
restricted shares of Common Stock beneficially for at least two years is
entitled to sell, within any three-month period, a number of shares that do not
exceed the greater of 1% of the total number of outstanding shares of the same
class or, if the Common Stock is quoted on NASDAQ, the average weekly trading
volume during the four calendar weeks preceding the sale. Any person who has
not been an affiliate of the Company for at least the three months immediately
preceding the sale, and who has beneficially owned shares of Common Stock for at
least three years, is entitled to sell such shares under Rule 144 without regard
to any of the limitations described above.
An aggregate of 3,387,291 shares are being registered for sale by the
Selling Stockholders under this Registration Statement. In connection with such
registration, holders of 2,660,291 of these shares have entered into an
agreement with the Company relating to the sale of shares under this Prospectus
(the "Registration Agreement"). Under the Registration Agreement, the Company
has agreed to include those shares in this Prospectus and the stockholders have
agreed not to sell under this Prospectus more than 1% of their Shares for each
month that elapses after October ___, 1996, without the written consent of the
Company.
To the extent the Company allows shares in excess of this amount to be sold
it has agreed to do so only on a pro rata basis among all stockholders who are
parties to the Registration Agreement, except the Company may, in its
discretion, allow Selling Stockholders to sell amounts less than 1,000 shares
without regard to the percentage of that stockholder's shares. Such
stockholders have also agreed that, in the event of any future underwritten
public offering of
41
<PAGE>
the Company's securities they will not sell their shares for a period of 180
days after the closing of such offering without the written consent of the
managing underwriter.
Concurrent with this registration, the Company also intends to register up
to 1,710,000 shares issuable upon exercise of outstanding options to purchase
Common Stock of the Company held by employees and consultants of the Company.
As of July 31, 1996, none of these options were exercisable and by December 31,
1996 an aggregate of 1,402,500 options will be exercisable.
The Company has had a very limited trading volume in its Common Stock to
date. Sales of substantial amounts of Common Stock of the Company under this
Registration Statement or otherwise could adversely affect the prevailing market
price of the Common Stock and could impair the Company's ability to raise
capital at that time through the sale of its securities. See "Shares Eligible
for Future Sale."
REGISTRATION RIGHTS
In connection with the recent private placement of 727,000 shares of its
Common Stock, the Company agreed to prepare, file and use its best efforts to
have declared effective a registration statement covering the shares with the
Securities and Exchange Commission. The Company has agreed to file this
registration statement no later than August 31, 1996 and, once such registration
statement is declared effective, to keep such registration effective for a
period of 24 months or until all of such shares could otherwise be sold under
Rule 144 under the Securities Act. This Registration Statement is intended to
satisfy the obligation to the purchasers in that private placement.
Under the Registration Agreement, the Company has agreed to register
2,660,291 shares of Common Stock held by certain investors in the Company. See
"Shares Eligible for Future Sale."
Investors in an earlier private placement by the Company received certain
piggyback registration rights with respect to a portion of the shares issuable
to them upon exercise of the warrants received in that offering. Generally,
those shareholders shall be entitled to include up to 50% of their warrant
shares in any registration statement filed by the Company after the closing of
the Company's initial public offering, subject to possible cutbacks by the
underwriters, if any, in the offering covered by that registration statement. A
total of 93,591 shares of Common Stock are issuable or have been issued upon
exercise of warrants in that private placement. Under the Registration
Agreement, the Company has agreed to include all of those warrant shares in this
Prospectus, as well as all 430,462 shares issued in that private placement.
Another shareholder of the Company has certain piggyback registration
rights with respect to 120,000 shares of Common Stock issuable upon exercise of
a warrant held by him. All of those shares are included in this Prospectus.
No other shareholders of the Company have registration rights with respect
to the Common Stock which they own or have the right to acquire.
NEVADA ANTI-TAKEOVER LAWS AND CERTAIN CHARTER PROVISIONS
Nevada's "Combination with Interested Stockholders Statute," Nevada Revised
Statutes 78.411-78.444, which applies to Nevada corporations having at least 200
stockholders, prohibits an
42
<PAGE>
"interested stockholder" from entering into a "combination" with the
corporation, unless certain conditions are met. A "combination" includes (a) any
merger with an "interested stockholder," or any other corporation which is or
after the merger would be, an affiliate or associate of the interested
stockholder, (b) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets, in one transaction or a series of transactions, to an
"interested stockholder," having (i) an aggregate market value equal to 5% or
more of the aggregate market value of the corporation's assets, (ii) an
aggregate market value equal to 5% or more of the aggregate market value of all
outstanding shares of the corporation, or (iii) representing 10% or more of the
earning power or net income of the corporation, (c) any issuance or transfer of
shares of the corporation or its subsidiaries, to the "interested stockholder,"
having an aggregate market value equal to 5% or more of the aggregate market
value of all the outstanding shares of the corporation, (d) the adoption of any
plan or proposal for the liquidation or dissolution of the corporation proposed
by the "interested stockholder," (e) certain transactions which would have the
effect of increasing the proportionate share of outstanding shares of the
corporation owned by the "interested stockholder," or (f) the receipt of
benefits, except proportionately as a stockholder, of any loans, advances or
other financial benefits by an "interested stockholder." An "interested
stockholder" is a person who (i) directly or indirectly owns 10% or more of the
voting power of the outstanding voting shares of the corporation or (ii) an
affiliate or associate of the corporation which at any time within three years
before the date in question was the beneficial owner, directly or indirectly, of
10% or more of the voting power of the then outstanding shares of the
corporation.
A corporation to which the statute applies may not engage in a
"combination" within three years after the interested stockholder acquired its
shares, unless the combination or the interested stockholder's acquisition of
shares was approved by the board of directors before the interested stockholder
acquired the shares. If this approval was not obtained, then after the three-
year period expires, the combination may be consummated if all the requirements
in the Articles of Incorporation are met and either (a)(i) the board of
directors of the corporation approves, prior to such person becoming an
"interested stockholder," the combination or the purchase of shares by the
"interested stockholder" or (ii) the combination is approved by the affirmative
vote of holders of a majority of voting power not beneficially owned by the
"interested stockholder" at a meeting called no earlier than three years after
the date the "interested stockholder" became such or (b) the aggregate amount of
cash and the market value of consideration other than cash to be received by
holders of common shares and holders of any other class or series of shares
meets the minimum requirements set forth in Sections 78.411 through 78.443,
inclusive, and prior to the consummation of the combination, except in limited
circumstances, the "interested stockholder" will not have become the beneficial
owner of additional voting shares of the corporation.
Nevada's "Control Share Acquisition Statute," Nevada Revised Statute
(S)78.378-78.379, prohibits an acquiror, under certain circumstances, from
voting shares of a target corporation's stock after crossing certain threshold
ownership percentages, unless the acquiror obtains the approval of the target
corporation's stockholders. The Control Share Acquisition Statute only applies
to Nevada corporations with at least 200 stockholders, including at least 100
record stockholders who are Nevada residents, and which do business directly or
indirectly in Nevada. While the Company does not currently exceed these
thresholds, it may well do so in the near future. In addition, although the
Company does not presently "do business" in Nevada within the meaning of the
Control Share Acquisition Statute, it plans to open offices there shortly.
Therefore, it is likely that the Control Share Acquisition Statute will apply to
the Company. The statute specifies three thresholds: at least one-fifth but
less than one-third, at least one-third but less than a majority, and a majority
or more,
43
<PAGE>
of all the outstanding voting power. Once an acquiror crosses one of the above
thresholds, shares which it acquired in the transaction taking it over the
threshold or within ninety days become "Control Shares" which are deprived of
the right to vote until a majority of the disinterested stockholders restore
that right. A special stockholders' meeting may be called at the request of the
acquiror to consider the voting rights of the acquiror's shares no more than 50
days (unless the acquiror agrees to a later date) after the delivery by the
acquiror to the corporation of an information statement which sets forth the
range of voting power that the acquiror has acquired or proposes to acquire and
certain other information concerning the acquiror and the proposed control share
acquisition. If no such request for a stockholders' meeting is made,
consideration of the voting rights of the acquiror's shares must be taken at the
next special or annual stockholders' meeting. If the stockholders fail to
restore voting rights to the acquiror or if the acquiror fails to timely deliver
an information statement to the corporation, then the corporation may, if so
provided in its articles of incorporation or bylaws, call certain of the
acquiror's shares for redemption. The Company's Restated Articles of
Incorporation and Bylaws do not currently permit it to call an acquiror's shares
for redemption under these circumstances. The Control Share Acquisition Statute
also provides that the stockholders who do not vote in favor of restoring voting
rights to the Control Shares may demand payment for the "fair value" of their
shares (which is generally equal to the highest price paid in the transaction
subjecting the stockholder to the statute).
Certain provisions of the Company's Bylaws which are summarized below may
affect potential changes in control of the Company. The Board of Directors
believes that these provisions are in the best interests of stockholders because
they will encourage a potential acquiror to negotiate with the Board of
Directors, which will be able to consider the interests of all stockholders in a
change in control situation. However, the cumulative effect of these terms may
be to make it more difficult to acquire and exercise control of the Company and
to make changes in management more difficult.
The Bylaws provide that each director will serve for a three-year term and
that approximately one-third of the directors are to be elected annually. The
Company may have three to twenty-five directors as determined from time to time
by the Board, which currently consists of three members. Between stockholder
meetings, the Board may appoint new directors to fill vacancies or newly created
directorships. A director may be removed from office by the affirmative vote of
66-2/3% of the combined voting power of the then outstanding shares of stock
entitled to vote generally in the election of directors.
The Bylaws further provide that stockholder action must be taken at a
meeting of stockholders and may not be effected by a consent in writing, unless
such consent is unanimous. Special meetings of stockholders may be called only
by a majority of the Board of Directors. If a stockholder wishes to propose an
agenda item for consideration, they must give a brief description of each item
and written notice to the Company (i) in the case of an annual meeting called
for a date within 30 days of the anniversary date of the immediately preceding
annual meeting, not less than 120 days in advance of the anniversary date of the
proxy statement for the previous year's annual meeting nor more than 150 days
prior to such date and (ii) in the case of an annual meeting called for a date
that is not within 30 days of the anniversary date of the immediately preceding
annual meeting, not later than 10 days following the day on which notice of the
date of the meeting is mailed or public disclosure of the date of the meeting is
made, whichever occurs first.
44
<PAGE>
The Bylaws generally provide that the foregoing provisions of the Bylaws
may be amended or repealed only with the affirmative vote of at least a majority
of the outstanding shares. This provision exceeds the usual majority of a
quorum vote requirement of Nevada law and is intended to prevent the holders of
less than 50% of the voting power from circumventing the foregoing terms by
amending the Bylaws.
The effect of such provisions of the Company's Bylaws may be to make more
difficult the accomplishment of a merger or other takeover or change in control
of the Company. To the extent that these provisions have this effect, removal of
the Company's incumbent Board of Directors and management may be rendered more
difficult. Furthermore, these provisions may make it more difficult for
stockholders to participate in a tender or exchange offer for Common Stock and
in so doing may diminish the market value of the Common Stock. The Company is
not aware of any proposed takeover attempt or any proposed attempt to acquire a
large block of Common Stock.
The provisions described above may have the effect of delaying or deterring
a change in the control or management of the Company.
APPLICATION OF CALIFORNIA GCL
Although incorporated in Nevada, the Company is headquartered in the State
of California. Section 2115 of the California GCL ("Section 2115") provides
that certain provisions of the California GCL shall be applicable to a
corporation organized under the laws of another state to the exclusion of the
law of the state in which it is incorporated, if the corporation meets certain
tests regarding the business done in California and the number of its California
stockholders.
An entity such as the Company can be subject to Section 2115 if the average
of the property factor, payroll factor and sales factor deemed to be in
California during its latest full income year is more than 50 percent and more
than one-half of its outstanding voting securities are held of record by persons
having addresses in California. Section 2115 does not apply to corporations
with outstanding securities listed on the New York or American Stock Exchange,
or with outstanding securities designated as qualified for trading as a national
market security on NASDAQ, if such corporation has at least 800 beneficial
holders of its equity securities. Since the Company currently would be deemed
to meet these factors and does not currently qualify as a national market
security on NASDAQ, it is subject to Section 2115.
During the period that the Company is subject to Section 2115, the
provisions of the California GCL regarding the following matters are made
applicable to the exclusion of the law of the State of Nevada: (i) general
provisions and definitions; (ii) annual election of directors; (iii) removal of
directors without cause; (iv) removal of directors by court proceedings; (v)
filling of director vacancies where less than a majority in office were elected
by the stockholders; (vi) directors' standard of care; (vii) liability of
directors for unlawful distributions; (viii) indemnification of directors,
officers and others; (ix) limitations on corporate distributions of cash or
property; (x) liability of a stockholder who receives an unlawful distribution;
(xi) requirements for annual stockholders meetings; (xii) stockholders' right to
cumulate votes at any election of directors; (xiii) supermajority vote
requirements; (xiv) limitations on sales of assets; (xv) limitations on mergers;
(xvi) reorganizations; (xvii) dissenters' rights in connection with
45
<PAGE>
reorganizations; (xviii) required records and papers; (xix) actions by the
California Attorney General; and (xx) rights of inspection.
PLAN OF DISTRIBUTION
The sale of the Shares by the Selling Stockholders may be effected from
time to time in transactions (which may include block transactions by or for the
account of the Selling Stockholders) in the over-the-counter market or in
negotiated transactions, a combination of such methods of sale or otherwise.
Sales may be made at fixed prices which may be changed, at market prices
prevailing at the time of sale or at negotiated prices.
Selling Stockholders may effect such transactions by selling their Shares
directly to purchasers, through broker-dealers acting as agents for the Selling
Stockholders or to broker-dealers who may purchase Shares as principals and
thereafter sell the Shares from time to time in the over-the-counter market, in
negotiated transactions or otherwise. Such broker-dealers, if any, may receive
compensation in the form of discounts, concessions or commissions from the
Selling Stockholders or the purchasers for whom such broker-dealers may act as
agents or to whom they may sell as principals or otherwise (which compensation
as to a particular broker-dealer may exceed customary commissions).
Holders of 2,660,291 of the Shares have agreed to sell only certain
specified percentages of such Shares for a period of 450 days after the date of
this Prospectus. See "DESCRIPTION OF CAPITAL STOCK -- Shares Eligible for
Future Sale."
The Selling Stockholders and broker-dealers, if any, acting in connection
with such sales may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act and any commission received by them and any profit
on the resale of the securities by them might be deemed to be underwriting
discounts and commissions under the Securities Act. The Company has agreed to
indemnify the Selling Stockholders against certain liabilities, including
liabilities under the Securities Act.
From time to time this Prospectus will be supplemented and amended as
required by the Securities Act. During any time when a supplement or amendment
is so required, the Selling Stockholders are to cease sales until the Prospectus
has been supplemented or amended. Pursuant to the registration rights granted
to certain of the Selling Stockholders, the Company has agreed to update and
maintain the effectiveness of this Prospectus for not less than 24 months from
the date hereof. Certain of the Selling Stockholders also may be entitled to
sell their Shares without the use of this Prospectus, provided that they comply
with the requirements of Rule 144 promulgated under the Securities Act.
The Company has agreed to pay the fees and expenses incurred by it in
connection with the preparation and filing of the Registration Statement of
which this Prospectus is a part.
LEGAL MATTERS
Hewitt & McGuire, LLP, Irvine, California, counsel to the Company, has
acted as legal counsel to the Company in connection with certain legal matters
related to this offering.
46
<PAGE>
EXPERTS
The consolidated financial statements of ProSoft Development, Inc. at July
31, 1996 and for the period from December 8, 1995 (date of incorporation) to
July 31, 1996, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young, LLP, independent auditors, as set forth in their
report thereon, appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of Professional Development Institute as of
December 31, 1995, and for the period from February 1, 1995 (date of inception)
to December 31, 1995, appearing in this Prospectus and Registration Statement
have been audited by Kelly & Company, independent auditors,
as set forth in their report thereon, appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement under the Securities
Act with respect to the Shares. This Prospectus omits certain information
contained in said Registration Statement as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is made to such Registration Statement,
including the exhibits thereto. Statements contained herein concerning the
contents of any contract or any other document are not necessarily complete, and
in each instance, reference is made to such contract or other document filed
with the Commission as an exhibit to the Registration Statement, or otherwise,
each such statement being qualified in all respects by such reference. The
Registration Statement, including exhibits and schedules thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, at the Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at the New York
Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such materials can be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission also maintains a Web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission.
47
<PAGE>
ProSoft Development, Inc. and Predecessor
Consolidated Financial Statements
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Reports of Independent Auditors
Ernst & Young LLP................................................... F-2
Kelly & Company..................................................... F-3
Financial Statements of ProSoft Development, Inc. and Predecessor
Consolidated Balance Sheets......................................... F-4
Consolidated Statements of Operations............................... F-5
Consolidated Statements of Stockholders' Equity..................... F-6
Consolidated Statements of Cash Flows............................... F-7
Notes to Consolidated Financial Statements.......................... F-8
</TABLE>
F-1
<PAGE>
PROSOFT DEVELOPMENT, INC. AND PREDECESSOR
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Reports of Independent Auditors
Ernst & Young LLP................................................ F-2
Kelly & Company.................................................. F-3
Financial Statements of ProSoft Development, Inc. and Predecessor
Consolidated Balance Sheets...................................... F-4
Consolidated Statements of Operations............................ F-5
Consolidated Statements of Stockholders' Equity.................. F-6
Consolidated Statements of Cash Flows............................ F-7
Notes to Consolidated Financial Statements....................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
ProSoft Development, Inc.
We have audited the accompanying consolidated balance sheet of ProSoft
Development, Inc. as of July 31, 1996, and the related consolidated statements
of operations, stockholders' equity and cash flows for the period December 8,
1995 (date of incorporation) to July 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ProSoft
Development, Inc. at July 31, 1996, and the consolidated results of its
operations and its cash flows for the period from December 8, 1995 (date of
incorporation) to July 31, 1996, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Orange County, California
August 28, 1996
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Owner
Professional Development Institute (a Sole Proprietorship)
We have audited the accompanying balance sheet of Professional Development
Institute (a Sole Proprietorship) as of December 31, 1995, and the related
statements of operations, Owner's deficit and cash flows for the period February
1, 1995 (date of inception) to December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Professional
Development Institute (a Sole Proprietorship) as of December 31, 1995, and the
results of its operations and its cash flows for the period February 1, 1995
(date of inception) to December 31, 1995, in conformity with generally accepted
accounting principles.
KELLY & COMPANY
Newport Beach, California
March 8, 1996
F-3
<PAGE>
PROSOFT DEVELOPMENT, INC. AND PREDECESSOR
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PREDECESSOR
ENTITY COMPANY
----------------- -------------
DECEMBER 31, 1995 JULY 31, 1996
----------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 420 $ 6,466,460
Tuition receivable 89,487 766,405
Notes receivable from officers/shareholders - 85,600
Prepaid expenses and other current assets - 311,592
--------- -----------
Total current assets 89,907 7,630,057
Property and equipment:
Computer equipment and software 300,520 1,159,391
Office equipment, furniture and fixtures 335,354 453,497
--------- -----------
635,874 1,612,888
Less accumulated depreciation 29,861 245,455
--------- -----------
Other assets 70,070 -
--------- -----------
Total assets $ 765,990 $ 8,997,490
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ - $ 61,832
Accounts payable 293,305 363,414
Accrued payroll and related expenses - 88,474
Deferred revenue 38,744 -
Other accrued liabilities 16,811 -
Current portion of capital lease obligations 302,932 351,509
--------- -----------
Total current liabilities 651,792 865,229
Obligations under capital leases, net of current portion 308,671 437,532
Commitments and contingencies
Stockholders' equity (owner's deficit):
Common stock, $.001 par value:
Authorized shares - 50,000,000
Issued and outstanding shares - 7,336,404 7,336
Additional paid-in capital - 10,390,016
Note receivable from stockholder - (9,500)
Accumulated deficit - (2,693,123)
Owner's deficit (194,473) -
--------- -----------
Total stockholders' equity (owner's deficit) (194,473) 7,694,729
--------- -----------
Total liabilities and shareholders' equity (owner's deficit) $ 765,990 $ 8,997,490
========= ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
PROSOFT DEVELOPMENT, INC. AND PREDECESSOR
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR ENTITY COMPANY
---------------------- --------------------
PERIOD FROM
PERIOD FROM DECEMBER 8, 1995
FEBRUARY 1, 1995 (DATE OF
(DATE OF INCEPTION) TO INCORPORATION) TO
DECEMBER 31, 1995 JULY 31, 1996
---------------------- ---------------------
<S> <C> <C>
Revenue $ 77,477 $ 907,772
Costs and expenses:
Cost of services 60,526 698,725
Sales and marketing 44,769 426,221
General and administrative 556,382 2,407,188
--------- -----------
Total costs and expenses 661,677 3,532,134
--------- -----------
Loss from operations (584,200) (2,624,362)
Interest expense 20,126 67,961
--------- -----------
Loss before provision for income taxes (604,326) (2,692,323)
Provision for state franchise tax - 800
--------- -----------
Net loss $(604,326) $(2,693,123)
========= ===========
Net loss per share $(.54)
===========
Shares used in computing net loss per share 5,011,781
===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
PROSOFT DEVELOPMENT, INC. AND PREDECESSOR
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREDECESSOR PRO-SOFT DEVELOPMENT PRO-SOFT DEVELOPMENT,
ENTITY CORP. COMMON STOCK INC., COMMON STOCK NOTE
----------- -------------------- -------------------- ADDITIONAL RECEIVABLE
OWNER'S PAID-IN FROM ACCUMULATED
DEFICIT SHARE AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDER DEFICIT TOTAL
----------- -------------------- -------------------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital contributions
to sole proprietorship $ 409,853 -- $ -- -- $ -- $ -- $ -- $ -- $ --
Net loss (604,326) -- -- -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------
Balance at December 31,
1995 (194,473) -- -- -- -- -- -- -- --
Contribution of net
assets of Predecessor
to Pro-Soft Development
Corp. in exchange for
common stock 194,473 1,000,000 1,000 -- -- (195,473) -- -- (194,473)
Issuance of common
stock for cash, note
and services -- 3,576,250 3,576 -- -- 999,174 (9,500) -- 993,250
Conversion of accounts
payable to common stock -- 150,000 150 -- -- 37,350 -- -- 37,500
Shares outstanding prior
to reorganization -- -- -- 480,060 480 (455) -- -- 25
Acquisition of Pro-Soft
Development Corp. by the
Company -- (4,726,250) (4,726) 4,726,250 4,726 -- -- -- --
Issuance of common stock
for cash, net of issuance
costs of $338,000 -- -- -- 1,169,462 1,169 8,307,221 -- -- 8,308,390
Exercise of warrants -- -- -- 960,632 961 1,242,199 -- -- 1,243,160
Net loss -- -- -- -- -- -- -- (2,693,123) (2,693,123)
-----------------------------------------------------------------------------------------------------------
Balance at July 31,
1996 $ -- -- $ -- $7,336,404 $7,336 $10,390,016 $(9,500) $(2,693,123) $ 7,694,729
</TABLE>
See accompanying notes.
F-6
<PAGE>
PROSOFT DEVELOPMENT, INC. AND PREDECESSOR
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR ENTITY COMPANY
---------------------- -----------------------
PERIOD FROM PERIOD FROM
FEBRUARY 1, 1995 DECEMBER 8, 1995
(DATE OF INCEPTION) TO (DATE OF INCORPORATION)
DECEMBER 31, 1995 TO JULY 31, 1996
---------------------- -----------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(604,326) $(2,693,123)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 40,441 257,454
Operating expenses paid in common stock - 16,250
Change in operating assets and liabilities:
Tuition receivable (89,487) (766,405)
Prepaid expenses and other assets (28,200) (311,592)
Accounts payable 293,305 363,414
Accrued liabilities 16,811 88,474
Deferred revenue 38,744 -
Other - 2,200
--------- ------------
Net cash used in operating activities (332,712) (3,043,328)
INVESTING ACTIVITIES
Acquisition of Predecessor, net of cash acquired - (194,893)
Acquisition of Tel-Fed, Inc., net of cash acquired - (560)
Purchases of property and equipment - (570,838)
Purchases of licenses (52,450) -
Notes receivable from officers/shareholders - (85,600)
--------- -----------
Net cash used in investing activities (52,450) (851,891)
FINANCING ACTIVITIES
Capital contributions 409,853 -
Issuance of common stock - 10,528,575
Payments on capital lease obligations (24,271) (228,728)
Proceeds from notes payable - 61,832
--------- -----------
Net cash provided by financing activities 385,582 10,361,679
--------- -----------
Increase in cash and cash equivalents $ 420 6,466,460
Cash and cash equivalents at beginning of period - -
-----------
Cash and cash equivalents at end of period $ 420 $ 6,466,460
--------- -----------
SUPPLEMENTARY DISCLOSURE OF CASH PAID DURING THE
PERIOD FOR:
Interest $ 3,315 $ 84,772
========= ===========
Income taxes $ - $ -
========= ===========
SUPPLEMENTARY DISCLOSURE OF NONCASH FINANCING
ACTIVITIES:
Accounts payable converted to common stock $ - $ 37,500
========= ===========
Equipment acquired under capital leases $ 635,874 $ 393,460
========= ===========
</TABLE>
See accompanying notes.
F-7
<PAGE>
PROSOFT DEVELOPMENT, INC. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
COMPANY BACKGROUND
ProSoft Development, Inc. (ProSoft or the Company) is a Nevada corporation
(previously named Tel-Fed, Inc.) that is engaged in the business of training
individuals in small, medium and large organizations in Internet and Intranet
technologies, with a current emphasis on Microsoft and Internet/Intranet
products and solutions.
Professional Development Institute, the predecessor entity, (a sole
proprietorship formed on February 1, 1995), acquired and developed training
curricula and commenced a marketing program for a private vocational training
institution. Its first students were enrolled in September 1995. On December
8, 1995, Pro-Soft Development Corp. was formed as a California corporation, and
effective January 1, 1996, the assets and liabilities of the Professional
Development Institute, (Predecessor) were contributed to Pro-Soft Development
Corp. in exchange for 1,000,000 shares of common stock.
In March 1996, Pro-Soft Development Corp. entered into an Agreement and
Plan of Reorganization whereby Pro-Soft Development Corp.'s shareholders
received one share of common stock of the Company in exchange for each of the
4,726,250 outstanding shares and Pro-Soft Development Corp. became a wholly
owned subsidiary of the Company. For accounting purposes, Pro-Soft Development
Corp. is deemed to be the acquiring corporation and, therefore, the transaction
is being accounted for as a reverse acquisition of the Company by Pro-Soft
Development Corp. Prior to March 31, 1996, the Company did not have operations
and at March 31, 1996, only immaterial liabilities existed. Accordingly, the
financial statements present the historical financial position and results of
operations of Pro-Soft Development Corp. and its predecessor entity,
Professional Development Institute.
The Company has incurred losses of $2,639,373 from inception, primarily due
to the start-up nature of its business. The ability of the Company to establish
itself as a successful operating entity on an ongoing basis is dependent upon
future events, including further marketing of its services and achieving
profitable operations.
BASIS OF CONSOLIDATION
The financial statements include the accounts of the Company and its wholly
owned subsidiary. All significant intercompany transactions and balances have
been eliminated in consolidation.
F-8
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
CONCENTRATION OF BUSINESS AND CREDIT RISK
Financial instruments which potentially subject the Company to a
concentration of credit risk consist primarily of trade receivables. In the
normal course of business, the Company provides credit terms to its customers
and collateral is generally not required. The Company has not experienced any
credit losses during its existence, and does not consider its exposure to such
losses to be significant at July 31, 1996. As of July 31, 1996, three customers
accounted for 90% of total accounts receivable.
Revenues from three southern California governmental agencies aggregated
34%, 27% and 21% of revenues, respectively, in 1996 and revenues from two
southern California governmental agencies in 1995 aggregated 57% and 39% of
revenues, respectively.
ADVERTISING COSTS
The Company expenses the costs of advertising as incurred. Advertising
expenses aggregated $90,000 in 1996 and were not significant in 1995.
TAXES BASED ON INCOME
Deferred taxes are provided for items recognized in different periods for
financial and tax reporting purposes in accordance with Financial Accounting
Standards Board Statement No. 109, Accounting for Income Taxes.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding during the period presented.
LONG-LIVED ASSETS
In 1996, the Company adopted SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations or are
expected to be disposed of, when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets
F-9
<PAGE>
are less than the carrying value of the assets. There were no impairment losses
recorded in fiscal 1996 as the result of adopting SFAS No. 121.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
are computed on a straight-line basis over the lesser of the estimated useful
lives of the related assets or the lease term. The estimated useful lives range
from two to seven years.
STOCK OPTION PLANS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123). As permitted by SFAS 123, the Company intends to
continue to account for employee stock options under previous accounting
standards, and will make pro forma disclosures required by SFAS 123 in fiscal
1997.
RECOGNITION OF REVENUE AND COSTS
Tuition revenue is recognized ratably as earned over the term of the
course. Vocational training courses generally range from 20 to 37 weeks while
Internet training courses range from one to five days. Costs of providing
services to students are charged to expense as incurred.
TUITION RECEIVABLE
At various times, the Company will have unbilled receivables for tuition
earned prior to, or in excess of, billings under the terms of various contracts
with paying agencies. Tuition receivable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JULY 31, 1996
----------------- -------------
<S> <C> <C>
Billed tuition $58,725 $542,054
Unbilled tuition 30,762 224,351
------- --------
$89,487 $766,405
======= ========
</TABLE>
2. STOCKHOLDERS' EQUITY
1996 STOCK OPTION PLAN
The ProSoft Development, Inc. 1996 Stock Option Plan (the Plan) provides
for the granting of options to purchase shares of the Company's common stock, to
employees, officers, consultants, and directors. The Plan includes nonstatutory
options (NSOs) and incentive stock options (ISOs). Options expire no later than
ten years after the date of grant.
F-10
<PAGE>
The plan allows for the issuance of up to 750,000 shares of common stock.
At July 31, 1996, options to purchase 667,500 shares of common stock at exercise
prices ranging from $3.50 to $20 per share were outstanding. At July 31, 1996,
none of the options issued under the Plan were exercisable.
As a result of the reorganization, nonstatutory stock options to purchase
1,042,500 shares of common stock of Pro-Soft Development Corp. were converted
into options to purchase 1,042,500 shares of the Company's common stock at an
exercise price of $1.00 per share, which become exercisable August 1, 1996.
During 1996, the Company issued warrants to purchase 1,496,461 shares of
common stock to purchasers of its common stock and other parties at prices
ranging from $1.00 to $11.00 per share. During 1996, warrants for 960,632
shares of common stock were exercised at prices ranging from $1.00 to $5.00, and
warrants for 49,882 were redeemed for a nominal amount. At July 31, 1996,
warrants for 485,947 shares of common stock exercisable at $1 to $11 per share
and expiring through 1999 remained outstanding.
COMMON STOCK RESERVED
At July 31, 1996, a total of 2,195,947 shares of the Company's common stock
were reserved for future exercise of stock options and warrants.
3. LEASES AND OTHER COMMITMENTS
The Company leases certain facilities as well computers and production
equipment under noncancelable, lease agreements. The Company's future minimum
lease payments under such agreements are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ---------
<S> <C> <C>
1997 $ 447,425 $ 98,182
1998 235,665 78,792
1999 99,505 59,094
2000 99,505 -
2001 94,065 -
Thereafter 31,600 -
---------- -------
1,007,765 $236,068
========
Less amounts representing interest 218,724
----------
Present value of minimum lease payments 789,041
Less current portion 351,509
----------
Obligations under capital lease, net of
current portion $ 437,532
==========
</TABLE>
F-11
<PAGE>
Assets held under capital leases are included in property and equipment and
at December 31, 1995 and July 31, 1996 had a total value of $635,874 and
$1,242,781, respectively, and a net book value of $606,013 and $1,043,822,
respectively.
Rent expense for the periods ended December 31, 1995 and July 31, 1996
totaled $20,516 and $166,763, respectively.
4. INCOME TAXES
The Predecessor's financial statements include no provision for income
taxes because, as a proprietorship, the results of operations were reported on
the individual income tax return of the owner.
There was no significant provision for federal or state income taxes for
any period as the Company has incurred operating losses and there can be no
assurance that the Company will realize the benefit of the resulting net
operating loss carryforwards.
Deferred income taxes reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and their bases for
financial reporting purposes. Temporary differences which give rise to deferred
tax assets are as follows:
<TABLE>
<CAPTION>
<S> <C>
Net operating loss carryforwards $ 960,000
Valuation allowance (960,000)
---------
Net deferred tax assets $ -
=========
</TABLE>
At July 31, 1996, the Company has net operating loss carryforwards
available to offset future federal and state taxable income of approximately
$2,600,000 and $1,300,000, respectively, that expire in 2011 and 2001,
respectively. Because of the equity transactions completed by the Company in
1996, utilization of net operating loss carryforwards for federal income tax
reporting purposes will be subject to annual limitations under the change in
ownership provisions of the Tax Reform Act of 1986.
5. NOTES PAYABLE
At July 31, 1996, notes payable consisted of a $61,832 demand note payable
to a shareholder bearing interest at 8%.
6. RELATED PARTY TRANSACTIONS
During 1996, the Company made short-term loans and advances to certain
officers and shareholders generally bearing interest at 10%.
F-12
<PAGE>
===============================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information and representations must not be relied upon as having
been authorized by the Company. This Prospectus does not constitute an offer to
sell or a solicitation of any offer to buy the shares of Preferred Stock by
anyone in any jurisdiction in which such offer or solicitation is not
authorized, or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation. Neither the delivery of this prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that
information contained herein is correct as of any time subsequent to the date
hereof.
_____________________
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Prospectus Summary........................... 2
Risk Factors................................. 5
Use of Proceeds.............................. 11
Price of Common Stock and Dividend Policy.... 11
Capitalization............................... 12
Selected Financial Data...................... 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.............................. 14
Business..................................... 17
Management................................... 28
Certain Transactions......................... 33
Selling Stockholders......................... 35
Principal Stockholders....................... 39
Description of Capital Stock................. 39
Plan of Distribution......................... 44
Legal Matters................................ 45
Experts...................................... 45
Additional Information....................... 46
Index to Consolidated Financial Statements... F-1
</TABLE>
Until __________, 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
===============================================================================
===============================================================================
PROSOFT DEVELOPMENT, INC.
3,007,544 Shares of
Common Stock
379,747 Shares of
Common Stock
Issuable Upon Exercise of
Common Stock Purchase Warrants
____________________
PROSPECTUS
____________________
__________, 1996
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered. All of the amounts
shown are estimates, except the Securities and Exchange Commission registration
and NASDAQ filing fees.
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee... $22,193
NASDAQ listing fee.................................... $10,000
Accounting fees and expenses.......................... $ *
Printing and engraving expenses....................... $ *
Transfer agent and registrar (fees and expenses)...... $ *
Blue sky fees and expenses (including counsel fees)... $ *
Other legal fees and legal expenses................... $ *
Miscellaneous expenses................................ $ *
Total............................................ $ *
</TABLE>
- --------------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Nevada Private Corporation Law ("NPCL") provides that a corporation may
indemnify any person who was or is a party or is threatened to be made a party,
by reason of the fact that such person was an officer or director of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, to (x) any action or suit by or in the right
of the corporation against expenses, including amounts paid in settlement and
attorneys' fees, actually and reasonably incurred, in connection with the
defense or settlement believed to be in, or not opposed to, the best interests
of the corporation, except that indemnification may not be made for any claim,
issue or matter as to which such a person has been adjudged by a court of
competent jurisdiction to be liable to the corporation or for amounts paid in
settlement to the corporation and (y) any other action or suit or proceeding
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement, actually and reasonably incurred, if he or she acted in good
faith and in a manner which he or she reasonably believed to be in, or not
opposed to, reasonable cause to believe his or her conduct was unlawful. To the
extent that a director, officer, employee or agent has been "successful on the
merits or otherwise" the corporation must indemnify such person. The articles
of incorporation or bylaws may provide that the expenses of officers and
directors incurred in defending
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<PAGE>
any such action must be paid as incurred and in advance of the final disposition
of such action. The NPCL also permits the corporation to purchase and maintain
insurance on behalf of the corporation's directors and officers against any
liability arising out of their status as such, whether or not the corporation
would have the power to indemnify him against such liability. These provisions
may be sufficiently broad to indemnify such persons for liabilities arising
under the Securities Act.
The Company's Restated Articles of Incorporation provide that the Company
shall indemnify any director or officer of the Company in connection with
certain actions, suits or proceedings, against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred. The Company is also required to pay any expenses incurred by a
director or officer in defending the Company or its stockholders for damages for
breach of fiduciary duty as a director or officer, provided that such a
provision must not eliminate or limit the liability of a director or officer
for: (a) acts or omissions which involve intentional misconduct, fraud or a
knowing violation of law; or (b) the payment of illegal distributions. The
Company's Restated Articles of Incorporation include a provision eliminating the
personal liability of directors for breach of fiduciary duty except that such
provision will not eliminate or limit any liability which may not be so
eliminated or limited under applicable law.
The Company's Bylaws generally require the Company to indemnify, as well as
to advance expenses, to its directors and its officers to the fullest extent
permitted by Nevada Law upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it should be ultimately determined
that they are not entitled to indemnification by the Company. The Company has
also entered into indemnification agreements with its directors and officers
which similarly provide for the indemnification and advancement of expenses by
the Company.
The Company maintains liability insurance for its directors and officers
covering, subject to certain exceptions, any actual or alleged negligent act,
error, omission, misstatement, misleading statement, neglect or breach of duty
by such directors or officers, individually or collectively, in the discharge of
their duties in their capacity as directors or officers of the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following securities of the Company have been sold by the Company
during the past three years without registration under the Securities Act of
1933, as amended (the "Act").
(a) In February 1995, the Company issued 100,000 shares for $1,500 to Kelly
Trimble. No commissions were paid in connection with this issuance. The Company
believes the foregoing sale was exempt from the registration requirements of the
Act in reliance on the exemption contained in Section 4(2) of the Act.
(b) In March 1996, the Company entered into the Reorganization Agreement
with Old ProSoft and the Old ProSoft stockholders. Under the terms of the
Reorganization Agreement, Old ProSoft stockholders received one share of Common
Stock of the Company in exchange for each of their shares of Old ProSoft, and
Old ProSoft became a wholly-owned subsidiary of the Company. An aggregate of
4,726,250 shares were issued to the 76 Old ProSoft stockholders in the
Reorganization and the Old ProSoft stockholders ended up owning approximately
90% of the Company immediately
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<PAGE>
after the Reorganization. No commissions were paid in connection with such
issuance. The Company believes that the issuance of Common Stock to the Old
ProSoft stockholders was exempt from the registration requirements of the Act in
reliance on the exemption contained in Section 4(2) of the Act.
(c) In March 1996, the Company issued 25,000 shares to Kelly Trimble in
consideration for consulting services rendered in connection with the
Reorganization and valued at $25,000. The Company believes the foregoing
issuance was exempt from the registration requirements of the Act in reliance on
the exemption contained in Section 4(2) of the Act.
(d) In April and May of 1996, the Company issued and sold 430,462 shares of
Common Stock at $3.50 per share and warrants to purchase 143,473 shares of
Common Stock at $5.00 per share to 30 investors in a private offering (the
"$3.50 Private Placement"). This offering was made on a private basis only to
persons who were "accredited investors" as defined in Securities Act Rule
501(a). No commissions were paid in connection with the $3.50 Private
Placement. The Company believes the foregoing sales were exempt from the
registration requirement of the Act in reliance on the exemption contained in
Section 4(2) of the Act and/or Regulation D promulgated thereunder.
(e) In connection with the $3.50 Private Placement, in April 1996 the
Company issued warrants to purchase an aggregate of 22,988 shares to Barry
Nussbaum and Bram Nager as payment of finders' fees. These warrants were at an
exercise price of $5.25 per share. The Company believes that the foregoing
issuances were exempt from the registration requirement of the Act in reliance
on the exemption contained in Section 4(2) of the Act.
(f) In June and July of 1996, an aggregate of 840,000 shares were issued to
26 stockholders of the Company upon exercise of warrants at $1.00 per share to
purchase Common Stock by those stockholders. The warrants were originally
acquired by the stockholders in a private placement by Old ProSoft and became
warrants to purchase Common Stock of the Company as part of the Reorganization.
Each of the individuals exercising warrants was an accredited investor. The
Company believes the foregoing sales were exempt from the registration
requirements of the Act in reliance on the exemption contained in Section 4(2)
of the Act.
(g) In June 1996, 50,000 shares of Common Stock were issued to a
stockholder of the Company upon exercise of a warrant at $1.00 per share which
was originally received by the stockholder in consideration for services
performed for Old ProSoft. The warrant became a warrant to purchase Common Stock
of the Company as part of the Reorganization. The Company believes the foregoing
issuance was exempt from the registration requirements of the Act in reliance on
the exemption contained in Section 4(2) of the Act.
(h) In June through August 1996, the Company issued an aggregate of 73,032
shares to 17 stockholders of the Company upon exercise of warrants at $5.00 per
share acquired in the $3.50 Private Placement. Each of the individuals
exercising warrants was an accredited investor. The Company believes the
foregoing sales were exempt from the registration requirements of the Act in
reliance on the exemption contained in Section 4(2) of the Act.
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(i) During April 1996 through July 1996, the Company, pursuant to its 1996
Stock Option Plan, issued options to purchase 667,500 shares of Common Stock to
certain of its employees and consultants, with exercise prices ranging from
$3.50 to $20.00 per share. None of these options has been exercised. The
Company believes the foregoing issuances were exempt from the registration
requirements of the Act in reliance on the exemption contained in Section 4(2)
of the Act and by virtue of Rule 701 promulgated under the Act.
(j) In July through August 1996, the Company issued and sold 727,000 shares
of Common Stock at $10.00 per share to 35 investors in a private offering (the
"$10.00 Private Placement"). This offering was made on a private basis only to
persons who were "accredited investors" as defined in Securities Act Rule
501(a). No commissions were paid in connection with the $10.00 Private
Placement. The Company believes the foregoing sales were exempt from the
registration requirement of the Act in reliance on the exemption contained in
Section 4(2) of the Act and/or Regulation D promulgated thereunder.
(k) In August 1996, the Company issued an option to purchase 50,000 shares
at $10.00 per share to J.R. Boothe & Associates, a consultant to the Company,
for financial public relations work. The Company believes that the foregoing
issuance was exempt from the registration requirement of the Act in reliance on
the exemption contained in Section 4(2) of the Act.
(l) In August 1996, the Company issued warrants to purchase an aggregate of
120,000 and 60,000 shares at $11.00 per share to David Mock and Andy Stallman,
respectively. These warrants were issued as consideration for ongoing
consultant services by these two individuals. The Company believes that the
foregoing issuance was exempt from the registration requirement of the Act in
reliance on the exemption contained in Section 4(2) of the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Index of Exhibits
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<CAPTION>
Exhibit
No. Description of Exhibits
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<C> <S>
2 Agreement and Plan of Reorganization, dated March 26, 1996, between
the Company, Pro-Soft Development Corp. and the shareholders of Pro-
Soft Development Corp.**
3.1 Restated Articles of Incorporation of the Company**
</TABLE>
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<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibits
- ------- -----------------------------------------------------------------
<C> <S>
3.2 Amended and Restated Bylaws of the Company
4 Specimen Stock Certificate**
5 Opinion of Hewitt & McGuire, LLP*
10.1 Pro-Soft Development Corp. 1996 Stock Option Plan**
10.2 ProSoft Development, Inc. 1996 Stock Option Plan**
10.3 Stock and Warrant Purchase Agreement, dated April 15, 1996, by
and among the Company, Donald L. Danks, Keith D. Freadhoff,
Douglas Hartman and various investors**
10.4 Form of Subscription Agreement, entered into in July and August
1996, between the Company and various investors**
10.5 Form of Registration and Lock-Up Agreement, dated September __,
1996, between the Company and certain of the Selling Stockholders
10.6 Microsoft/Internet Contract Teaching Agreement dated as of April
29, 1996 by and between the Company and Merisel, Inc.**
10.7 Strategic Relationship Agreement dated as of June 25, 1996
between the Company and Innovus Corporation**
10.8 Lease dated September 29, 1995 between Douglas E. Hartman dba
Professional Development Institute and Steven R. Layton, as
Receiver**
10.9 Xerox Order Agreement dated September 26, 1995 between Professional
Development Institute and Xerox Corporation**
10.10 Term Lease Master Agreement dated as of April 19, 1996 between
Pro-Soft Development Corp. and IBM Credit Corporation**
10.11 Lease Agreement dated as of June 21, 1996 between Pro-Soft
Development Corp. and Sanwa Leasing Corporation**
10.12 Promissory Notes dated July 3, 1996 and July 31, 1996 made by
Keith Freadhoff in favor of the Company**
10.13 Form of Indemnification Agreement between the Company and its
Directors and Officers**
11 Computation of Net Loss Per Share
21 Subsidiaries of the Company**
23.1 Consent of Ernst & Young, LLP
</TABLE>
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<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibits
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<C> <S>
23.2 Consent of Kelly & Co.
23.3 Consent of Hewitt & McGuire, LLP (included in the opinion filed
as 5)
24 Power of Attorney**
27 Financial Data Schedule**
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</TABLE>
* To be filed by amendment.
** Previously filed.
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ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually, or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
Offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) (230.424(b) of this
Chapter) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
Offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the Offering of such securities at that time
shall be deemed to be the initial bona fide Offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the Offering.
Insofar as indemnification for liabilities arising from the Securities Act
of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Buena
Park, State of California on the 11th day of October, 1996.
PROSOFT DEVELOPMENT, INC.
By: /s/ Keith D. Freadhoff
----------------------
Keith D. Freadhoff,
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed below by the following persons
on behalf of the Company in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- ----------------------------- ---------------------------- -----------------
<S> <C> <C>
/s/ Keith D. Freadhoff* Chief Executive Officer and October 11, 1996
- ----------------------------- Chairman of the Board
Keith D. Freadhoff (Principal Executive Officer)
/s/ Donald L. Danks* President and Director October 11, 1996
- -----------------------------
Donald L. Danks
/s/ Brooks A. Corbin* Chief Financial Officer October 11, 1996
- ----------------------------- (Principal Financial and
Brooks A. Corbin Accounting Officer)
/s/ William E. Richardson* Director October 11, 1996
- -----------------------------
William E. Richardson
*By /s/ Eric W. Richardson October 11, 1996
- -----------------------------
Eric W. Richardson
Attorney-in-Fact
</TABLE>
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibits
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<C> <S>
2 Agreement and Plan of Reorganization, dated March 26, 1996, between
the Company, Pro-Soft Development Corp. and the shareholders of Pro-
Soft Development Corp.**
3.1 Restated Articles of Incorporation of the Company**
3.2 Amended and Restated Bylaws of the Company
4 Specimen Stock Certificate**
5 Opinion of Hewitt & McGuire, LLP*
10.1 Pro-Soft Development Corp. 1996 Stock Option Plan**
10.2 ProSoft Development, Inc. 1996 Stock Option Plan**
10.3 Stock and Warrant Purchase Agreement, dated April 15, 1996, by
and among the Company, Donald L. Danks, Keith D. Freadhoff,
Douglas Hartman and various investors**
10.4 Form of Subscription Agreement, entered into in July and August
1996, between the Company and various investors**
10.5 Form of Registration and Lock-Up Agreement, dated September __,
1996, between the Company and certain of the Selling Stockholders
10.6 Microsoft/Internet Contract Teaching Agreement dated as of April
29, 1996 by and between the Company and Merisel, Inc.**
10.7 Strategic Relationship Agreement dated as of June 25, 1996
between the Company and Innovus Corporation**
10.8 Lease dated September 29, 1995 between Douglas E. Hartman dba
Professional Development Institute and Steven R. Layton, as
Receiver**
10.9 Xerox Order Agreement dated September 26, 1995 between Professional
Development Institute and Xerox Corporation**
10.10 Term Lease Master Agreement dated as of April 19, 1996 between
Pro-Soft Development Corp. and IBM Credit Corporation**
10.11 Lease Agreement dated as of June 21, 1996 between Pro-Soft
Development Corp. and Sanwa Leasing Corporation**
10.12 Promissory Notes dated July 3, 1996 and July 31, 1996 made by
Keith Freadhoff in favor of the Company**
10.13 Form of Indemnification Agreement between the Company and its
Directors and Officers**
11 Computation of Net Loss Per Share
21 Subsidiaries of the Company**
23.1 Consent of Ernst & Young, LLP
23.2 Consent of Kelly & Co.
23.3 Consent of Hewitt & McGuire, LLP (included in the opinion filed
as 5)
24 Power of Attorney**
27 Financial Data Schedule**
</TABLE>
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* To be filed by amendment.
** Previously filed.
<PAGE>
EXHIBIT 2
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization ("the Agreement"), dated as of
the 26th day of March, 1996, by and between Tel-Fed, Inc., a Nevada corporation
("Tel-Fed") and ProSoft Development Corp., a California corporation ("ProSoft")
and the shareholders of ProSoft ("Shareholders"), set forth on Exhibit A of this
Agreement and the Investment Letter as set forth in Exhibit B of this Agreement,
with reference to the following:
A. Tel-Fed is a Nevada corporation organized on May 14, 1985. Tel-
Fed has authorized capital stock of 50,000,000 shares, $.001 par value, of
which 7,200,000 shares are outstanding. Tel-Fed conducted a public
offering in which it sold 2,500,000 shares of its previously authorized,
but unissued common stock, pursuant to an offering under Section 3(a)(11)
and Rule 147, promulgated under the Securities Act of 1933. The common
shares of Tel-Fed are traded on the OTC Bulletin Board under the symbol
TLFD.
B. ProSoft is a privately held corporation organized under the laws
of the state of California, in December 1995.
C. The respective Boards of Directors of Tel-Fed and ProSoft have
deemed it advisable and in the best interests of Tel-Fed and ProSoft that
ProSoft be acquired by Tel-Fed, pursuant to the terms and conditions set
forth in this Agreement.
D. Tel-Fed and ProSoft propose to enter into this Agreement which
provides among other things that all of the outstanding shares of ProSoft
be acquired by Tel-Fed, in exchange for shares of Tel-Fed as more fully
described in the Agreement.
E. The parties desire the transaction to qualify as a tax-free
reorganization under Section 368 (a)(1)(B) of the Internal Revenue Code of
1986, as amended.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
THE ACQUISITION
1.01 At the Closing, up to a total of 4,473,500 common shares, which
represents all of the outstanding shares of ProSoft, shall be acquired by Tel-
Fed in exchange for 4,473,500 shares. All shares of Tel-Fed shall be issued to
ProSoft shareholders as directed by ProSoft at the Closing.
1.02 At the Closing, ProSoft shareholders will deliver certificates for
the outstanding shares of ProSoft, duly endorsed so as to make Tel-Fed the sole
holder thereof, free and clear
<PAGE>
of all claims and encumbrances and Tel-Fed shall deliver a transmittal letter
directed to the transfer agent of Tel-Fed directing the issuance of shares to
the shareholders of ProSoft as set forth on the signature page of this
Agreement.
1.03 Following the reorganization, and reverse split of shares, there will
be a total of 5,068,750 shares, $.001 par value, issued and outstanding in Tel-
Fed.
ARTICLE 2
THE CLOSING
2.01 The consummation of the transactions contemplated by this Agreement
(the "Closing") shall take place in the offices of ProSoft Development Corp.,
7100 Knott Avenue, Buena Park, California 90620, at 10:00 a.m., on, March __,
1996 (the "Closing Date") or at such other place or date and time as may be
agreed to in writing by the parties hereto.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF TEL-FED
Tel-Fed and its officers and directors hereby represent and warrant to
ProSoft as follows:
3.01 Tel-Fed shall deliver to ProSoft, on or before Closing, each of the
following:
(a) Financial Statements. Audited financial statements of Tel-Fed
including, but not limited to, balance sheets and profit and loss
statements as of December 31, 1993 and through December 31, 1995 prepared
in accordance with generally accepted accounting principles which fairly
present the financial condition of Tel-Fed at the dates thereof. (Schedule
A.)
(b) Property. An accurate list and description of all property, real
or personal, owned by Tel-Fed of a value equal to or greater than
$1,000.00. (Schedule B.)
(c) Liens and Liabilities. A complete and accurate list of all
material liens, encumbrances, easements, security interests or similar
interests in or on any of the assets listed on Schedule A. (Schedule C.)
A complete and accurate list of all debts, liabilities and obligations of
Tel-Fed incurred or owing as of the date of this Agreement. (Schedule
C.1.)
(d) Leases and Contracts. A complete and accurate list describing
all material terms of each lease (whether of real or personal property) and
each contract, promissory note, mortgage, license, franchise, or other
written agreement to which Tel-Fed is a party which involves or can
reasonably be expected to involve aggregate future payments or receipts by
Tel-Fed (whether by the terms of such lease, contract, promissory note,
2
<PAGE>
license, franchise or other written agreement or as a result of a guarantee
of the payment of or indemnity against the failure to pay same) of
$1,000.00 or more annually during the twelve-month period ended December
31, 1995, or any consecutive twelve-month period thereafter, except any of
said instruments which terminate or are cancelable without penalty during
such twelve-month period. (Schedule D.)
(e) Loan Agreements. Complete and accurate copies of all loan
agreements and other documents with respect to obligations of Tel-Fed for
the repayment of borrowed money. (Schedule E.)
(f) Consents Required. A complete list of all agreements wherein
consent to the transaction herein contemplated is required to avoid a
default thereunder; or where notice of such transaction is required at or
subsequent to closing, or where consent to an acquisition, consolidation,
or sale of all or substantially all of the assets is required to avoid a
default thereunder. (Schedule F.)
(g) Articles and Bylaws. Complete and accurate copies of the
Certificate and Articles of Incorporation and Bylaws of Tel-Fed together
with all amendments thereto to the date hereof. (Schedule G.)
(h) Shareholders. A complete list of all persons or entities holding
capital stock of Tel-Fed or any rights to subscribe for, acquire, or
receive shares of the capital stock of Tel-Fed (whether warrants, calls,
options, or conversion rights), including copies of all stock option plans
whether qualified or nonqualified, and other similar agreements. (Schedule
H.)
(i) Officers and Directors. A complete and current list of all
officers and Directors of Tel-Fed. (Schedule I.)
(j) Salary Schedule. A complete and accurate list (in all material
respects) of the names and the current salary rate for each present
employee of Tel-Fed who received $1,000.00 or more in aggregate
compensation from Tel-Fed whether in salary, bonus or otherwise, during the
year 1995, or who is presently scheduled to receive from Tel-Fed a salary
in excess of $1,000.00 during the year ending December 1996, including in
each case the amount of compensation received or scheduled to be received,
and a schedule of the hourly rates of all other employees listed according
to departments. (Schedule J.)
(k) Litigation. A complete and accurate list (in all material
respects) of all material civil, criminal, administrative, arbitration or
other such proceedings or investigations (including without limitations
unfair labor practice matters, labor organization activities, environmental
matters and civil rights violations) pending or, to
3
<PAGE>
the knowledge of Tel-Fed threatened, which may materially and adversely
affect Tel-Fed. (Schedule K.)
(l) Tax Returns. Accurate copies of all Federal and State tax
returns for Tel-Fed for the last fiscal year. (Schedule L.)
(m) Agency Reports. Copies of all material reports or filings (and a
list of the categories of reports or filings made on a regular basis) made
by Tel-Fed under ERISA, EEOC, FDA and all other governmental agencies
(federal, state or local) during the last fiscal year. (Schedule M.)
(n) Banks. A true and complete list (in all material respects), as
of the date of this Agreement, showing (1) the name of each bank in which
Tel-Fed has an account or safe deposit box, and (2) the names and addresses
of all signatories. (Schedule N.)
(o) Jurisdictions Where Qualified. A list of all jurisdictions
wherein Tel-Fed is qualified to do business and is in good standing.
(Schedule O.)
(p) Subsidiaries. A complete list of all subsidiaries of Tel-Fed.
(Schedule P.) The term "Subsidiary" or "Subsidiaries" shall include
corporations, unincorporated associations, partnerships, joint ventures, or
similar entities in which Tel-Fed has an interest, direct or indirect.
(q) Union Matters. An accurate list and description (in all material
respects) of all union contracts and collective bargaining agreements of
Tel-Fed, if any. (Schedule Q.)
(r) Employee and Consultant Contracts. A complete and accurate list
of all employee and consultant contracts which Tel-Fed may have, other than
those listed in the schedule on Union Matters. (Schedule R.)
(s) Employee Benefit Plans. Complete and accurate copies of all
salary, stock options, bonus, incentive compensation, deferred
compensation, profit sharing, retirement, pension, group insurance,
disability, death benefit or other benefit plans, trust agreements or
arrangements of Tel-Fed in effect on the date hereof or to become effective
after the date thereof, together with copies of any determination letters
issued by the Internal Revenue Service with respect thereto. (Schedule S.)
(t) Insurance Policies. A complete and accurate list (in all
material respects) and a description of all material insurance policies
naming Tel-Fed as an insured or beneficiary or as a loss payable payee or
for which Tel-Fed has paid all or part of the premium in force on the date
hereof, specifying any notice or other information
4
<PAGE>
possessed by Tel-Fed regarding possible claims thereunder, cancellation
thereof or premium increases thereon, including any policies now in effect
naming Tel-Fed as beneficiary covering the business activities of Tel-Fed.
(Schedule T.)
(u) Customers. A complete and accurate list (in all material
respects) of the customers of Tel-Fed, including all presently effective
contracts of Tel-Fed, accounting for the principle revenues of Tel-Fed,
indicating the dollar amounts of gross revenues of each such customer for
the period ending December 31, 1995. (Schedule U.)
(v) Licenses and Permits. A complete list of all licenses, permits
and other authorizations of Tel-Fed. (Schedule U.)
3.02 Organization, Standing and Power. Tel-Fed is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada with all requisite corporate power to own or lease its properties and
carry on its businesses as are now being conducted.
3.03 Qualification. Tel-Fed is duly qualified and is licensed as a
foreign corporation authorized to do business in each jurisdiction wherein it
conducts its business operations. Such jurisdictions, which are the only
jurisdictions in which Tel-Fed is duly qualified and licensed as a foreign
corporation, are shown in Schedule O.
3.04 Capitalization of Tel-Fed. The authorized capital stock of Tel-Fed
consists of 50,000,000 shares of Common Stock, $.001 par value, of which the
only shares issued and outstanding are 7,200,000 issued to shareholders listed
on Schedule H, which shares were duly authorized, validly issued and fully paid
and nonassessable. There are no preemptive rights with respect to the Tel-Fed
stock.
3.05 Authority. The execution and delivery of this Agreement and
consummation of the transactions contemplated herein have been duly authorized
by all necessary corporate actions, including but not limited to duly and
validly authorized action and approval by the Board of Directors, on the part of
Tel-Fed. This Agreement constitutes the valid and binding obligation of Tel-Fed
enforceable against it in accordance with its terms, subject to the principles
of equity applicable to the availability of the remedy of specific performance.
This Agreement has been duly executed by Tel-Fed and the execution and delivery
of this Agreement and the consummation of the transactions contemplated by this
Agreement shall not result in any breach of any terms or provisions of Tel-Fed's
Certificate and Articles of Incorporation or Bylaws or of any other agreement,
court order or instrument to which Tel-Fed is a party or bound by.
3.06 Absence of Undisclosed Liabilities. Tel-Fed has no material
liabilities of any nature, whether fixed, absolute, contingent or accrued, which
were not reflected on the financial statements set forth in Schedule A or
otherwise disclosed in this Agreement or any of the
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Schedules or Exhibits attached hereto. As of the Closing, Tel-Fed shall have no
assets or liabilities other than those resulting from the acquisition of
ProSoft.
3.07 Absence of Changes. Since December 31, 1995 there has not been any
material adverse change in the condition (financial or otherwise), assets,
liabilities, earnings or business of Tel-Fed, except for changes resulting from
completion of those transactions described in Section 5.01.
3.08 Tax Matters. All taxes and other assessments and levies which Tel-
Fed is required by law to withhold or to collect have been duly withheld and
collected, and have been paid over to the proper government authorities or are
held by Tel-Fed in separate bank accounts for such payment or are represented by
depository receipts, and all such withholdings and collections and all other
payments due in connection therewith (including, without limitation, employment
taxes, both the employee's and employer's share) have been paid over to the
government or placed in a separate and segregated bank account for such purpose.
There are no known deficiencies in income taxes for any periods and further, the
representations and warranties as to absence of undisclosed liabilities
contained in Section 3.06 includes any and all tax liabilities of whatsoever
kind or nature (including, without limitation, all federal, state, local and
foreign income, profit, franchise, sales, use and property taxes) due or to
become due, incurred in respect of or measured by Tel-Fed's income or business
prior to the Closing Date.
3.09 Options, Warrants, etc. Except as otherwise described in Schedule H,
there are no outstanding options, warrants, calls, commitments or agreements of
any character to which Tel-Fed or its shareholders are a party or by which Tel-
Fed or its shareholders are bound, or are a party, calling for the issuance of
shares of capital stock of Tel-Fed or any securities representing the right to
purchase or otherwise receive any such capital stock of Tel-Fed.
3.10 Title to Assets. Except for liens set forth in Schedule C, Tel-Fed
is the sole unconditional owner of, with good and marketable title to, all
assets listed in the schedules as owned by it and all other property and assets
are free and clear of all mortgages, liens, pledges, charges or encumbrances of
any nature whatsoever.
3.11 Agreements in Force and Effect. Except as set forth in Schedules D
and E, all material contracts, agreements, plans, promissory notes, mortgages,
leases, policies, licenses, franchises or similar instruments to which Tel-Fed
is a party are valid and in full force and effect on the date hereof, and Tel-
Fed has not breached any material provision of, and is not in default in any
material respect under the terms of, any such contract, agreement, plan,
promissory note, mortgage, lease, policy, license, franchise or similar
instrument which breach or default would have a material adverse effect upon the
business, operations or financial condition of Tel-Fed.
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3.12 Legal Proceedings, Etc. Except as set forth in Schedule K, there are
no civil, criminal, administrative, arbitration or other such proceedings or
investigations pending or, to the knowledge of either Tel-Fed or the
shareholders thereof, threatened, in which, individually or in the aggregate, an
adverse determination would materially and adversely affect the assets,
properties, business or income of Tel-Fed. Tel-Fed has substantially complied
with, and is not in default in any material respect under, any laws, ordinances,
requirements, regulations or orders applicable to its businesses.
3.13 Governmental Regulation. To the knowledge of Tel-Fed and except as
set forth in Schedule K, Tel-Fed is not in violation of or in default with
respect to any applicable law or any applicable rule, regulation, order, writ or
decree of any court or any governmental commission, board, bureau, agency or
instrumentality, or delinquent with respect to any report required to be filed
with any governmental commission, board, bureau, agency or instrumentality which
violation or default could have a material adverse effect upon the business,
operations or financial condition of Tel-Fed.
3.14 Brokers and Finders. Tel-Fed shall be solely responsible for payment
to any broker or finder retained by Tel-Fed for any brokerage fees, commissions
or finders' fees in connection with the transactions contemplated herein.
3.15 Accuracy of Information. No representation or warranty by Tel-Fed
contained in this Agreement and no statement contained in any certificate or
other instrument delivered or to be delivered to ProSoft pursuant hereto or in
connection with the transactions contemplated hereby (including without
limitation all Schedules and exhibits hereto) contains or will contain any
untrue statement of material fact or omits or will omit to state any material
fact necessary in order to make the statements contained herein or therein not
misleading.
3.16 Subsidiaries. Except as listed in Schedule P, Tel-Fed does not have
any other subsidiaries or own capital stock representing ten percent (10%) or
more of the issued and outstanding stock of any other corporation.
3.17 Consents. Except as listed in Schedule F, no consent or approval of,
or registration, qualification or filing with, any governmental authority or
other person is required to be obtained or accomplished by Tel-Fed or any
shareholder thereof in connection with the consummation of the transactions
contemplated hereby.
3.18 Improper Payments. Neither Tel-Fed, nor any person acting on behalf
of Tel-Fed has made any payment or otherwise transmitted anything of value,
directly or indirectly, to (a) any official or any government or agency or
political subdivision thereof for the purpose of influencing any decision
affecting the business of Tel-Fed (b) any customer, supplier or competitor of
Tel-Fed or employee of such customer, supplier or competitor, for the purpose of
obtaining, retaining or directing business for Tel-Fed or (c) any political
party or any
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candidate for elective political office nor has any fund or other asset of Tel-
Fed been maintained that was not fully and accurately recorded on the books of
account of Tel-Fed.
3.19 Copies of Documents. Tel-Fed has made available for inspection and
copying by ProSoft and its duly authorized representatives, and will continue to
do so at all times, true and correct copies of all documents which it has filed
with the Securities and Exchange Commission and all other governmental agencies
which are material to the terms and conditions contained in this Agreement.
Furthermore, all filings by Tel-Fed with the Securities and Exchange Commission,
and all other governmental agencies, including but not limited to the Internal
Revenue Service, have contained information which is true and correct, to the
best knowledge of the Board of Directors of Tel-Fed, in all material respects
and did not contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements made therein not misleading or
which could have any material adverse effect upon the financial condition or
operations of Tel-Fed or adversely effect the objectives of this Agreement with
respect to ProSoft including, but not limited to, the issuance and subsequent
trading of the shares of common stock of Tel-Fed to be received hereby, subject
to compliance by the shareholders of ProSoft with applicable law.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
PROSOFT DEVELOPMENT CORP.
ProSoft hereby represent and warrant to Tel-Fed as follows:
4.01 ProSoft shall deliver to Tel-Fed, on or before Closing, the
following:
(a) Financial Statements. Audited financial statements of
Professional Development Institute including, but not limited to, balance
sheets and profit and loss statements for the period from inception through
December 31, 1995 (Schedule AA.)
(b) Property. An accurate list and description of all property, real
or personal owned by ProSoft of a value equal to or greater than $1,000.00.
(Schedule BB.)
(c) Liens and Liabilities. A complete and accurate list of all
material liens, encumbrances, easements, security interests or similar
interests in or on any of the assets listed on Schedule AA. (Schedule CC.)
A complete and accurate list of all debts, liabilities and obligations of
ProSoft incurred or owing as of the date of this Agreement. (Schedule
CC.1.)
(d) Leases and Contracts. A complete and accurate list describing
all material terms of material leases (whether of real or personal
property) and each contract, promissory note, mortgage, license, franchise,
or other written agreement to which
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ProSoft is a party which involves or can reasonably be expected to involve
aggregate future payments or receipts by ProSoft (whether by the terms of
such lease, contract, promissory note, license, franchise or other written
agreement or as a result of a guarantee of the payment of or indemnity
against the failure to pay same) of $1,000.00 or more annually during the
twelve-month period ended December 31, 1996 or any consecutive twelve-month
period thereafter, except any of said instruments which terminate or are
cancelable without penalty during such twelve-month period. (Schedule DD.)
(e) Loan Agreements. Complete and accurate copies of all loan
agreements and other documents with respect to obligations of ProSoft for
the repayment of borrowed money. (Schedule EE.)
(f) Consents Required. A complete list of all agreements wherein
consent to the transaction herein contemplated is required to avoid a
default hereunder; or where notice of such transaction is required at or
subsequent to closing, or where consent to an acquisition, consolidation,
or sale of all or substantially all of the assets is required to avoid a
default thereunder. (Schedule FF.)
(g) Articles and Bylaws. Complete and accurate copies of the
Articles of Incorporation and Bylaws of ProSoft, together with all
amendments thereto to the date hereof. (Schedule GG.)
(h) Shareholders. A complete list of all persons or entities holding
capital stock of ProSoft or any rights to subscribe for, acquire, or
receive shares of the capital stock of ProSoft (whether warrants, calls,
options, or conversion rights), including copies of all stock option plans
whether qualified or nonqualified, and other similar agreements. (Schedule
HH.)
(i) Officers and Directors. A complete and current list of all
officers and Directors of ProSoft. (Schedule II.)
(j) Salary Schedule. A complete and accurate list (in all material
respects) of the names and the current salary rate or each present employee
of ProSoft who received $1,000 or more in aggregate compensation from
ProSoft whether in salary, bonus or otherwise, during the year 1995, or who
is presently scheduled to receive from ProSoft a salary in excess of
$1,000.00 during the year ending December 31, 1996, including in each case
the amount of compensation received or scheduled to be received, and a
schedule of the hourly rates of all other employees listed according to
departments. (Schedule JJ.)
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(k) Litigation. A complete and accurate list (in all material
respects) of all material civil, criminal, administrative, arbitration or
other such proceedings or investigations (including without limitations
unfair labor practice matters, labor organization activities, environmental
matters and civil rights violations) pending or, to the knowledge of
ProSoft threatened, which may materially and adversely affect ProSoft.
(Schedule KK.)
(l) Tax Returns. Accurate copies of all Federal and State tax
returns for ProSoft, if any. (Schedule LL.)
(m) Agency Reports. Copies of all material reports or filings (and a
list of the categories of reports or filings made on a regular basis) made
by ProSoft under ERISA, EEOC, FDA and all other governmental agencies
(federal, state or local). (Schedule MM.)
(n) Banks. A true and complete list (in all material respects), as
of the date of this Agreement, showing (1) the name of each bank in which
ProSoft has an account or safe deposit box, and (2) the names and addresses
of all signatories. (Schedule NN.)
(o) Jurisdictions Where Qualified. A list of all jurisdictions
wherein ProSoft is qualified to do business and is in good standing.
(Schedule OO.)
(p) Subsidiaries. A complete list of all subsidiaries of ProSoft.
(Schedule PP.) The term "Subsidiary" or "Subsidiaries" shall include
corporations, unincorporated associations, partnerships, joint ventures, or
similar entities in which ProSoft has an interest, direct or indirect.
(q) Union Matters. An accurate list and description (in all material
respects) of all union contracts and collective bargaining agreements of
ProSoft, if any. (Schedule QQ.)
(r) Employee and Consultant Contracts. A complete and accurate list
of all employee and consultant contracts which ProSoft may have, other than
those listed in the schedule on Union Matters. (Schedule RR.)
(s) Employee Benefit Plans. Complete and accurate copies of all
salary, stock option, bonus, incentive compensation, deferred compensation,
profit sharing, retirement, pension, group insurance, disability, death
benefit or other benefit plans, trust agreements or arrangements of ProSoft
in effect on the date hereof or to become effective after the date thereof,
together with copies of any determination letters issued by the Internal
Revenue Service with respect thereto. (Schedule SS.)
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(t) Insurance Policies. A complete and accurate list (in all
material respects) and description of all material insurance policies
naming ProSoft as an insured or beneficiary or as a loss payable payee or
for which ProSoft has paid all or part of the premium in force on the date
hereof, specifying any notice or other information possessed by ProSoft
regarding possible claims thereunder, cancellation thereof or premium
increases thereon, including any policies now in effect naming ProSoft as
beneficiary covering the business activities of ProSoft. (Schedule TT.)
(u) Customers. A complete and accurate list (in all material
respects) of the customers of ProSoft, including all presently effective
contracts of ProSoft accounting for the principle revenues of ProSoft,
indicating the dollar amounts of gross revenues of each such customer for
the period ended December 31, 1995. (Schedule UU.)
(v) Licenses and Permits. A complete list of all licenses, permits
and other authorizations of ProSoft. (Schedule VV.)
4.02 Organization, Standing and Power. ProSoft is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California with all requisite corporate power to own or lease its properties and
carry on its business as is now being conducted.
4.03 Qualification. ProSoft is duly qualified and licensed as a foreign
corporation authorized to do business in each jurisdiction wherein it conducts
business operations. Such jurisdictions, which are the only jurisdictions in
which ProSoft is duly qualified and licensed as a foreign corporation, is shown
in Schedule OO.
4.04 Capitalization of ProSoft. The authorized capital stock of ProSoft
consists of 10,000,000 shares of Common Stock, of which 4,473,500 shares are
issued and outstanding and up to 750,000 additional shares are being offered by
ProSoft prior to the Closing. All shares issued to the shareholders listed on
Schedule HH were duly authorized, validly issued and fully paid and
nonassessable. There are no preemptive rights with respect to the ProSoft
stock.
4.05 Authority. The execution and delivery of this Agreement and
consummation of the transactions contemplated herein have been duly authorized
by all necessary corporate action, including but not limited to duly and validly
authorized action and approval by the Board of Directors, on the part of
ProSoft. This Agreement constitutes the valid and binding obligation of
ProSoft, enforceable against it in accordance with its terms, subject to the
principles of equity applicable to the availability of the remedy of specific
performance. This Agreement has been duly executed by ProSoft and the execution
and delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement shall not result in any breach of any terms or
provisions of ProSoft's Articles of Incorporation or Bylaws or of any other
agreement, court order or instrument to which ProSoft is a party or bound.
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4.06 Absence of Undisclosed Liabilities. ProSoft has no material
liabilities of any nature, whether fixed, absolute, contingent or accrued, which
were not reflected on the financial statements set forth in Schedule AA or
otherwise disclosed in this Agreement or any of the Schedules or Exhibits
attached hereto.
4.07 Absence of Changes. Since December 31, 1995, there has not been any
material adverse change in the condition (financial or otherwise), assets,
liabilities, earnings or business of ProSoft, except for the acquisition of the
assets and liabilities of Professional Development Institute and changes
resulting from completion of those transactions described in Section 5.01.
4.08 Tax Matters. All taxes and other assessments and levies which
ProSoft is required by law to withhold or to collect have been duly withheld and
collected, and have been paid over to the proper government authorities or are
held by ProSoft in separate bank accounts for such payment or are represented by
depository receipts, and all such withholdings and collections and all other
payments due in connection therewith (including, without limitation, employment
taxes, both the employee's and employer's share) have been paid over to the
government or placed in a separate and segregated bank account for such purpose.
There are no known deficiencies in income taxes for any periods and further, the
representations and warranties as to absence of undisclosed liabilities
contained in Section 4.06 includes any and all tax liabilities of whatsoever
kind or nature (including, without limitation, all federal, state, local and
foreign income, profit, franchise, sales, use and property taxes) due or to
become due, incurred in respect of or measured by ProSoft income or business
prior to the Closing Date.
4.09 Options, Warrants, etc. Except as otherwise described in Schedule
HH, there are no outstanding options, warrants, calls, commitments or agreements
of any character to which ProSoft or its shareholders are a party or by which
ProSoft or its shareholders are bound, or are a party, calling for the issuance
of shares of capital stock of ProSoft or any securities representing the right
to purchase or otherwise receive any such capital stock of ProSoft.
4.10 Title to Assets. Except for liens set forth in Schedule CC, ProSoft
is the sole and unconditional owner of, with good and marketable title to, all
the assets listed in the schedules as owned by them and all other property and
assets are free and clear of all mortgages, liens, pledges, charges or
encumbrances of any nature whatsoever.
4.11 Agreements in Force and Effect. Except as set forth in Schedules DD
and EE, all material contracts, agreements, plans, promissory notes, mortgages,
leases, policies, licenses, franchises or similar instruments to which ProSoft
is a party are valid and in full force and effect on the date hereof, and
ProSoft has not breached any material provision of, and is not in default in any
material respect under the terms of, any such contract, agreement, plan,
promissory note, mortgage, lease, policy, license, franchise or similar
instrument which breach or default would have a material adverse effect upon the
business, operations or financial condition of ProSoft.
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4.12 Legal Proceedings, Etc. Except as set forth in Schedule KK, there
are no civil, criminal, administrative, arbitration or other such proceedings or
investigations pending or, to the knowledge of ProSoft, threatened, in which,
individually or in the aggregate, an adverse determination would materially and
adversely affect the assets, properties, business or income of ProSoft. ProSoft
has substantially complied with, and is not in default in any material respect
under, any laws, ordinances, requirements, regulations or orders applicable to
its businesses.
4.13 Governmental Regulation. To the knowledge of ProSoft and except as
set forth in Schedule KK, ProSoft is not in violation of or in default with
respect to any applicable law or any applicable rule, regulation, order, writ or
decree of any court or any governmental commission, board, bureau, agency or
instrumentality, or delinquent with respect to any report required to be filed
with any governmental commission, board, bureau, agency or instrumentality which
violation or default could have a material adverse effect upon the business,
operations or financial condition of ProSoft.
4.14 Broker and Finders. ProSoft shall be solely responsible for payment
to any broker or finder retained by ProSoft for any brokerage fees, commissions
or finders' fees in connection with the transactions contemplated herein.
4.15 Accuracy of Information. No representation or warranty by ProSoft
contained in this Agreement and no statement contained in any certificate or
other instrument delivered or to be delivered to Tel-Fed pursuant hereto or in
connection with the transactions contemplated hereby (including without
limitation all Schedules and Exhibits hereto) contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary in order to make the statements contained herein or therein not
misleading.
4.16 Subsidiaries. Except as listed in Schedule PP, ProSoft does not have
any other subsidiaries or own capital stock representing ten percent (10%) or
more of the issued and outstanding stock of any other corporation.
4.17 Consents. Except as listed in Schedule FF, no consent or approval
of, or registration, qualification or filing with, any other governmental
authority or other person is required to be obtained or accomplished by ProSoft
or any shareholder thereof, in connection with the consummation of the
transactions contemplated hereby.
4.18 Improper Payments. No person acting on behalf of ProSoft has made
any payment or otherwise transmitted anything of value, directly or indirectly,
to (a) any official or any government or agency or political subdivision thereof
for the purpose of influencing any decision affecting the business of ProSoft
(b) any customer, supplier or competitor of ProSoft, or employee of such
customer, supplier or competitor, for the purposes of obtaining, retaining or
directing business for ProSoft, or (c) any political party or any candidate for
elective political office, nor has any fund or other asset of ProSoft been
maintained that was not fully and
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accurately recorded on the books of account of ProSoft.
4.19 Copies of Documents. ProSoft has made available for inspection and
copying by Tel-Fed and its duly authorized representatives, and will continue to
do so at all times, true and correct copies of all documents which it has filed
with any governmental agencies which are material to the terms and conditions
contained in this Agreement. Furthermore, all filings by ProSoft with
governmental agencies, including but not limited to the Internal Revenue
Service, have contained information which is true and correct in all material
respects and did not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements made therein not
misleading or which could have any material adverse effect upon the financial
condition or operations of ProSoft or adversely affect the objectives of this
Agreement.
4.20 Investment Intent of Shareholders. Each shareholder of ProSoft
represents and warrants to Tel-Fed that the shares of Tel-Fed being acquired
pursuant to this Agreement are being acquired for his own account and for
investment and not with a view to the public resale or distribution of such
shares and further acknowledges that the shares being issued have not been
registered under the Securities Act and are "restricted securities" as that term
is defined in Rule 144 promulgated under the Securities Act and must be held
indefinitely unless they are subsequently registered under the Securities Act or
an exemption from such registration is available.
ARTICLE 5
CONDUCT AND TRANSACTIONS PRIOR TO THE
EFFECTIVE TIME OF THE ACQUISITION
5.01 Conduct and Transactions of Tel-Fed. During the period from the date
hereof to the date of Closing, Tel-Fed shall:
(a) Conduct its operations in the ordinary course of business,
including but not limited to, paying all obligations as they mature,
complying with all applicable tax laws, filing all tax returns required to
be filed and paying all taxes due;
(b) Maintain its records and books of account in a manner that fairly
and correctly reflects its income, expenses, assets and liabilities.
Tel-Fed shall not during such period, except in the ordinary course of
business, without the prior written consent of ProSoft:
(a) Except as otherwise contemplated or required by this Agreement,
sell, dispose of or encumber any of its properties or assets;
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(b) Declare or pay any dividends on shares of its capital stock or
make any other distribution of assets to the holders thereof;
(c) Issue, reissue or sell, or issue options or rights to subscribe
to, or enter into any contract or commitment to issue, reissue or sell, any
shares of its capital stock or acquire or agree to acquire any shares of
its capital stock except, the issuance of options for 100,000 shares at an
exercise price of $1.00 per share to consultants of Tel-Fed;
(d) Except as otherwise contemplated and required by this Agreement,
amend its Articles of Incorporation or merge or consolidate with or into
any other corporation or sell all or substantially all of its assets or
change in any manner the rights of its capital stock or other securities;
(e) Except as contemplated or required by this Agreement, pay or
incur any obligation or liability, direct or contingent of more than
$1,000;
(f) Incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise become responsible for obligations of any other party,
or make loans or advances to any other party;
(g) Make any material change in its insurance coverage;
(h) Increase in any manner the compensation, direct or indirect, of
any of its officers or executive employees; except in accordance with
existing employment contracts;
(i) Enter into any agreement or make any commitment to any labor
union or organization;
(j) Make any capital expenditures.
5.02 Conduct and Transactions of ProSoft. During the period from the date
hereof to the date of Closing, ProSoft shall:
(a) Obtain an investment letter from each shareholder of ProSoft in a
form substantially like that attached hereto as Exhibit B.
(b) Conduct the operations of ProSoft in the ordinary course of
business.
ProSoft shall not during such period, except in the ordinary course of
business, without the prior written consent of Tel-Fed:
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(a) Except as otherwise contemplated or required by this Agreement,
sell, dispose of or encumber any of the properties or assets of ProSoft;
(b) Declare or pay any dividends on shares of its capital stock or
make any other distribution of assets to the holders thereof;
(c) Issue, reissue or sell, or issue options or rights to subscribe
to, or enter into any contract or commitment to issue, reissue or sell, any
shares of its capital stock or acquire or agree to acquire any shares of
its capital stock;
(d) Except as otherwise contemplated and required by this Agreement,
amend its Articles of Incorporation or merge or consolidate with or into
any other corporation or sell all or substantially all of its assets or
change in any manner the rights of its capital stock or other securities;
(e) Except as otherwise contemplated and required by this Agreement,
pay or incur any obligation or liability, direct or contingent;
(f) Incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise become responsible for obligations of any other party,
or make loans or advances to any other party;
(g) Make any material change in its insurance coverage;
(h) Increase in any manner the compensation, direct or indirect, of
any of its officers or executive employees; except in accordance with
existing employment contracts;
(i) Enter into any agreement or make any commitment to any labor
union or organization;
(j) Make any material capital expenditures.
(k) Allow any of the foregoing actions to be taken by any subsidiary
of ProSoft.
ARTICLE 6
RIGHTS OF INSPECTION
6.01 During the period from the date of this Agreement to the date of
Closing of the acquisition, Tel-Fed and ProSoft agree to use their best efforts
to give the other party, including its representatives and agents, full access
to the premises, books and records of each of the entities, and to furnish the
other with such financial and operating data and other information
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including, but not limited to, copies of all legal documents and instruments
referred to on any schedule or exhibit hereto, with respect to the business and
properties of Tel-Fed or ProSoft, as the case may be, as the other shall from
time to time request; provided, however, if there are any such investigations:
(1) they shall be conducted in such manner as not to unreasonably interfere with
the operation of the business of the other parties and (2) such right of
inspection shall not affect in any way whatsoever any of the representations or
warranties given by the respective parties hereunder. In the event of
termination of this Agreement, Tel-Fed and ProSoft will each return to the other
all documents, work papers and other materials obtained from the other party in
connection with the transactions contemplated hereby, and will take such other
steps necessary to protect the confidentiality of such material.
ARTICLE 7
CONDITIONS TO CLOSING
7.01 Conditions to Obligations of ProSoft. The obligation of ProSoft to
perform this Agreement is subject to the satisfaction of the following
conditions on or before the Closing unless waived in writing by ProSoft.
(a) Representations and Warranties. There shall be no information
disclosed in the schedules delivered by Tel-Fed which in the opinion of
ProSoft would materially adversely affect the proposed transaction and
intent of the parties as set forth in this Agreement. The representations
and warranties of Tel-Fed set forth in Article 3 hereof shall be true and
correct in all material respects as of the date of this Agreement and as of
the Closing as though made on and as of the Closing, except as otherwise
permitted by this Agreement.
(b) Performance of Obligations. Tel-Fed shall have in all material
respects performed all agreements required to be performed by it under this
Agreement and shall have performed in all material respects any actions
contemplated by this Agreement prior to or on the Closing and Tel-Fed shall
have complied in all material respects with the course of conduct required
by this Agreement.
(c) Corporate Action. Tel-Fed shall have furnished minutes,
certified copies of corporate resolutions and/or other documentary evidence
satisfactory to counsel for ProSoft that Tel-Fed has submitted with this
Agreement and any other documents required hereby to such parties for
approval as provided by applicable law.
(d) Consents. Execution of this Agreement by the shareholders of
ProSoft and any consents necessary for or approval of any party listed on
any Schedule delivered by Tel-Fed whose consent or approval is required
pursuant thereto shall have been obtained.
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(e) Financial Statements. ProSoft shall have been furnished with
audited financial statements of Tel-Fed including, but not limited to,
balance sheets and profit and loss statements as of December 31, 1993 and
through December 31, 1995. Such financial statements shall have been
prepared in conformity with generally accepted accounting principles on a
basis consistent with those of prior periods and fairly present the
financial position of Tel-Fed as of December 31, 1995.
(f) Statutory Requirements. All statutory requirements for the valid
consummation by Tel-Fed of the transactions contemplated by this Agreement
shall have been fulfilled.
(g) Governmental Approval. All authorizations, consents, approvals,
permits and orders of all federal and state governmental agencies required
to be obtained by Tel-Fed for consummation of the transactions contemplated
by this Agreement shall have been obtained.
(h) Changes in Financial Condition of Tel-Fed. There shall not have
occurred any material adverse change in the financial condition or in the
operations of the business of Tel-Fed, except expenditures in furtherance
of this Agreement.
(i) Absence of Pending Litigation. Tel-Fed is not engaged in or
threatened with any suit, action, or legal, administrative or other
proceedings or governmental investigations pertaining to this Agreement or
the consummation of the transactions contemplated hereunder.
(j) Authorization for Issuance of Stock. ProSoft shall have received
in form and substance satisfactory to Counsel for ProSoft a letter
instructing and authorizing the Registrar and Transfer Agent for the shares
of common stock of Tel-Fed to issue stock certificates representing
ownership of Tel-Fed common stock to ProSoft shareholders in accordance
with the terms of this Agreement and a letter from said Registrar and
Transfer Agent acknowledging receipt of the letter of instruction and
stating to the effect that the Registrar and Transfer Agent holds adequate
supplies of stock certificates necessary to comply with the letter of
instruction and the terms and conditions of this Agreement.
(k) Shareholder Approval. Tel-Fed shareholders shall have (i)
approved a one for fifteen share reverse split of its outstanding shares,
prior to issuance of shares to ProSoft under Section 1.01; (ii) approved a
change of the name of Tel-Fed to ProSoft Development Corp.; (iii) elected
the following persons to the Board of Directors of Tel-Fed: William
Richardson, Keith D. Freadhoff, and Donald Danks; (iv) approved the
Agreement and Plan of Reorganization.
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<PAGE>
7.02 Conditions to Obligations of Tel-Fed. The obligation of Tel-Fed to
perform this Agreement is subject to the satisfaction of the following
conditions on or before the Closing unless waived in writing by Tel-Fed.
(a) Representations and Warranties. There shall be no information
disclosed in the schedules delivered by ProSoft, which in the opinion of
Tel-Fed, would materially adversely affect the proposed transaction and
intent of the parties as set forth in this Agreement. The representations
and warranties of ProSoft set forth in Article 4 hereof shall be true and
correct in all material respects as of the date of this Agreement and as of
the Closing as though made on and as of the Closing, except as otherwise
permitted by this Agreement.
(b) Performance of Obligations. ProSoft shall have in all material
respects performed all agreements required to be performed by it under this
Agreement and shall have performed in all material respects any actions
contemplated by this Agreement prior to or on the Closing and ProSoft shall
have complied in all respects with the course of conduct required by this
Agreement.
(c) Corporate Action. ProSoft shall have furnished minutes,
certified copies of corporate resolutions and/or other documentary evidence
satisfactory to Counsel for Tel-Fed that ProSoft has submitted with this
Agreement and any other documents required hereby to such parties for
approval as provided by applicable law.
(d) Consents. Any consents necessary for or approval of any party
listed on any Schedule delivered by ProSoft, whose consent or approval is
required pursuant thereto, shall have been obtained.
(e) Financial Statements. Tel-Fed shall have been furnished with
audited financial statements of ProSoft including, but not limited to,
balance sheets and profit and loss statements from inception through
January 1, 1996.
(f) Statutory Requirements. All statutory requirements for the valid
consummation by ProSoft of the transactions contemplated by this Agreement
shall have been fulfilled.
(g) Governmental Approval. All authorizations, consents, approvals,
permits and orders of all federal and state governmental agencies required
to be obtained by ProSoft for consummation of the transactions contemplated
by this Agreement shall have been obtained.
(h) Employment Agreements. Existing ProSoft employment agreements
will have been delivered to Counsel for Tel-Fed.
19
<PAGE>
(i) Changes in Financial Condition of Tel-Fed. There shall not have
occurred any material adverse change in the financial condition or in the
operations of the business of Tel-Fed, except expenditures in furtherance
of this Agreement.
(j) Absence of Pending Litigation. Tel-Fed is not engaged in or
threatened with any suit, action, or legal, administrative or other
proceedings or governmental investigations pertaining to this Agreement or
the consummation of the transactions contemplated hereunder.
(k) Shareholder Approval. The Tel-Fed shareholders shall have (i)
approved a one for fifteen share reverse split of its outstanding shares,
prior to issuance of shares to ProSoft under Section 1.01; (ii) approved a
change of the name of Tel-Fed to ProSoft Development Corp.; (iii) elected
the following persons to the Board of Directors of Tel-Fed: William
Richardson, Keith D. Freadhoff, and Donald Danks; (iv) approved the
Agreement and Plan of Reorganization.
ARTICLE 8
MATTERS SUBSEQUENT TO CLOSING
8.01 Covenant of Further Assurance. The parties covenant and agree that
they shall, from time to time, execute and deliver or cause to be executed and
delivered all such further instruments of conveyance, transfer, assignments,
receipts and other instruments, and shall take or cause to be taken such further
or other actions as the other party or parties to this Agreement may reasonably
deem necessary in order to carry out the purposes and intent of this Agreement.
ARTICLE 9
NATURE AND SURVIVAL OF REPRESENTATIONS
9.01 All statements contained in any written certificate, schedule,
exhibit or other written instrument delivered by Tel-Fed or ProSoft pursuant
hereto, or otherwise adopted by Tel-Fed by its written approval, or by ProSoft
by its written approval, or in connection with the transactions contemplated
hereby, shall be deemed representations and warranties by Tel-Fed or ProSoft as
the case may be. All representations, warranties and agreements made by either
party shall survive for the period of the applicable statute of limitations and
until the discovery of any claim, loss, liability or other matter based on
fraud, if longer.
ARTICLE 10
TERMINATION OF AGREEMENT AND
ABANDONMENT OF REORGANIZATION
10.01 Termination. Anything herein to the contrary notwithstanding, this
Agreement and any agreement executed as required hereunder and the acquisition
contemplated hereby may
20
<PAGE>
be terminated at any time before the Closing as follows:
(a) By mutual written consent of the Boards of Directors of Tel-Fed
and ProSoft.
(b) By the Board of Directors of Tel-Fed if any of the conditions set
forth in Section 7.02 shall not have been satisfied by the Closing Date.
(c) By the Board of Directors of ProSoft if any of the conditions set
forth in Section 7.01 shall not have been satisfied by the Closing Date.
10.02 Termination of Obligations and Waiver of Conditions; Payment of
Expenses. In the event this Agreement and the acquisition are terminated and
abandoned pursuant to this Article 10 hereof, this Agreement shall become void
and of no force and effect and there shall be no liability on the part of any of
the parties hereto, or their respective directors, officers, shareholders or
controlling persons to each other. Each party hereto will pay all costs and
expenses incident to its negotiation and preparation of this Agreement and any
of the documents evidencing the transactions contemplated hereby, including
fees, expenses and disbursements of counsel.
ARTICLE 11
EXCHANGE OF SHARES; FRACTIONAL SHARES
11.01 Exchange of Shares. At the Closing, Tel-Fed shall issue a letter to
the transfer agent of Tel-Fed with a copy of the resolution of the Board of
Directors of Tel-Fed authorizing and directing the issuance of Tel-Fed shares as
set forth on the signature page of this Agreement.
11.02 Restrictions on Shares Issued to ProSoft. Due to the fact that
ProSoft will receive shares of Tel-Fed common stock in connection with the
acquisition which have not been registered under the 1933 Act by virtue of the
exemption provided in Section 4(2) of such Act, those shares of Tel-Fed will
contain the following legend:
The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares have been
acquired for investment and may not be sold or offered for sale in the
absence of an effective Registration Statement for the shares under
the Securities Act of 1933 or an opinion of counsel to the Corporation
that such registration is required.
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<PAGE>
ARTICLE 12
MISCELLANEOUS
12.01 Construction. This Agreement shall be construed and enforced
in accordance with the laws of the State of California excluding the conflicts
of laws.
12.02 Notices. All notices necessary or appropriate under this
Agreement shall be effective when personally delivered or deposited in the
United States mail, postage prepaid, certified or registered, return receipt
requested, and addressed to the parties last known address which addresses are
currently as follows:
<TABLE>
<CAPTION>
<S> <C>
If to "Tel-Fed" If to "ProSoft"
Tel-Fed, Inc. ProSoft Development Corp.
8 West 38th Street 7100 Knott Avenue
9th Floor Buena Park, California 90620
New York, New York 10018
With copies to:
Ronald L. Poulton, Esq. William L. Twomey, Esq.
4 Triad Center, Suite 500-A 19000 MacArthur Blvd., Suite 1050
Salt Lake City, Utah 84180 Irvine, California 92612
</TABLE>
12.03 Amendment and Waiver. The parties hereby may, by mutual
agreement in writing signed by each party, amend this Agreement in any respect.
Any term or provision of this Agreement may be waived in writing at any time by
the party which is entitled to the benefits thereof, such waiver right shall
include, but not be limited to, the right of either party to:
(a) Extend the time for the performance of any of the obligations of
the other;
(b) Waive any inaccuracies in representations by the other contained
in this Agreement or in any document delivered pursuant hereto;
(c) Waive compliance by the other with any of the covenants contained
in this Agreement, and performance of any obligations by the other; and
(d) Waive the fulfillment of any condition that is precedent to the
performance by the party so waiving of any of its obligations under this
Agreement. Any writing on the part of a party relating to such amendment,
extension or waiver as provided in this
22
<PAGE>
Section 12.03 shall be valid if authorized or ratified by the Board of
Directors of such party.
12.04 Remedies not Exclusive. No remedy conferred by any of the specific
provisions of this Agreement is intended to be exclusive of any other remedy,
and each and every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity or
by statute or otherwise. The election of any one or more remedies by Tel-Fed or
ProSoft shall not constitute a waiver of the right to pursue other available
remedies.
12.05 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.06 Benefit. This Agreement shall be binding upon, and inure to the
benefit of, the respective successors and assigns of Tel-Fed and ProSoft and its
shareholders.
12.07 Entire Agreement. This Agreement and the Schedules and Exhibits
attached hereto, represent the entire agreement of the undersigned regarding the
subject matter hereof, and supersedes all prior written or oral understandings
or agreements between the parties.
12.08 Each Party to Bear its Own Expense. Tel-Fed and ProSoft shall each
bear their own respective expenses incurred in connection with the negotiation,
execution, closing, and performance of this Agreement, including counsel fees
and accountant fees.
12.09 Captions and Section Headings. Captions and section headings used
herein are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement.
Executed as of the date first written above.
<TABLE>
<CAPTION>
<S> <C>
"Tel-Fed" "ProSoft"
Tel-Fed, Inc., ProSoft Development Corp.,
a Nevada corporation a California corporation
By: By:
------------------------ -----------------------------
Jeffrey Brown, President Keith D. Freadhoff, President
</TABLE>
23
<PAGE>
"Shareholders"
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<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
PROSOFT DEVELOPMENT, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I - IDENTIFICATION.......................................... 1
Section 1.1 NAME.................................... 1
Section 1.2 REGISTERED OFFICE AND RESIDENT AGENT.... 1
Section 1.3 OTHER OFFICES........................... 1
Section 1.4 SEAL.................................... 1
Section 1.5 FISCAL YEAR............................. 1
ARTICLE II - STOCK.................................................. 1
Section 2.1 CONSIDERATION FOR SHARES................ 1
Section 2.2 PAYMENT FOR SHARES...................... 1
Section 2.3 CERTIFICATES REPRESENTING SHARES........ 2
Section 2.4 TRANSFER OF SHARES...................... 2
Section 2.5 REGULATIONS............................. 2
ARTICLE III - STOCKHOLDERS.......................................... 2
Section 3.1 PLACE OF STOCKHOLDERS' MEETINGS......... 2
Section 3.2 ANNUAL STOCKHOLDERS' MEETING............ 2
Section 3.3 SPECIAL STOCKHOLDERS' MEETINGS.......... 2
Section 3.4 BUSINESS AT STOCKHOLDERS' MEETINGS...... 2
Section 3.5 NOTICE OF STOCKHOLDERS' MEETINGS........ 3
Section 3.6 STOCKHOLDER QUORUM...................... 4
Section 3.7 ADJOURNED STOCKHOLDERS' MEETINGS........ 4
Section 3.8 ENTRY OF NOTICE......................... 4
Section 3.9 VOTING.................................. 4
Section 3.10 CONSENT OF ABSENTEES.................... 5
Section 3.11 STOCKHOLDER ACTION WITHOUT MEETING...... 5
Section 3.12 PROXIES................................. 5
Section 3.13 DEFINITION OF "STOCKHOLDER"............. 5
ARTICLE IV - BOARD OF DIRECTORS..................................... 5
Section 4.1 NUMBER; TERM; ELECTION.................. 5
Section 4.2 NOMINATIONS............................. 6
Section 4.3 VACANCIES............................... 7
Section 4.4 ANNUAL MEETING.......................... 7
Section 4.5 REGULAR MEETINGS........................ 8
Section 4.6 OTHER MEETINGS.......................... 8
Section 4.7 NOTICE OF ADJOURNED MEETINGS............ 8
Section 4.8 ENTRY OF NOTICE......................... 8
Section 4.9 WAIVER OF NOTICE........................ 8
Section 4.10 QUORUM.................................. 9
Section 4.11 PARTICIPATION IN MEETINGS BY TELEPHONE.. 9
i
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 4.12 ADJOURNMENT............................. 9
Section 4.13 ACTION WITHOUT MEETING.................. 9
Section 4.14 FEES AND COMPENSATION................... 9
Section 4.15 LIMITATION OF LIABILITY................. 9
Section 4.16 INDEMNIFICATION; ADVANCEMENT OF EXPENSES 10
Section 4.17 INDEMNIFICATION OF EMPLOYEES AND AGENTS. 10
Section 4.18 INSURANCE............................... 10
Section 4.19 POWERS OF DIRECTORS..................... 11
Section 4.20 COMMITTEES.............................. 11
ARTICLE V - OFFICERS................................................ 11
Section 5.1 OFFICERS................................ 11
Section 5.2 ELECTION................................ 11
Section 5.3 SUBORDINATE OFFICERS.................... 11
Section 5.4 REMOVAL AND RESIGNATION................. 11
Section 5.5 VACANCIES............................... 12
Section 5.6 CHAIRMAN OF THE BOARD OF DIRECTORS...... 12
Section 5.7 CHIEF EXECUTIVE OFFICER................. 12
Section 5.8 PRESIDENT............................... 12
Section 5.9 VICE PRESIDENTS......................... 12
Section 5.10 SECRETARY............................... 13
Section 5.11 ASSISTANT SECRETARIES................... 13
Section 5.12 CHIEF FINANCIAL OFFICER................. 13
Section 5.13 TREASURER............................... 14
Section 5.14 ASSISTANT TREASURERS.................... 14
Section 5.15 CORPORATE BANK ACCOUNTS................. 14
Section 5.16 TRANSFERS OF AUTHORITY.................. 14
ARTICLE VI - MISCELLANEOUS.......................................... 14
Section 6.1 RECORD DATE AND CLOSING STOCK BOOKS..... 14
Section 6.2 CHECKS, DRAFTS, ETC..................... 15
Section 6.3 CONTRACTS, ETC., HOW EXECUTED........... 15
Section 6.4 LOST CERTIFICATES OF STOCK.............. 15
Section 6.5 REPRESENTATION OF SHARES................ 15
Section 6.6 INSPECTION OF BYLAWS.................... 16
ARTICLE VII - AMENDMENTS............................................ 16
Section 7.1 POWER OF STOCKHOLDERS................... 16
Section 7.2 POWER OF DIRECTORS...................... 16
</TABLE>
ii
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
PROSOFT DEVELOPMENT, INC.
ARTICLE I
IDENTIFICATION
Section 1.1 NAME. The name of the Corporation is ProSoft Development,
Inc.
Section 1.2 REGISTERED OFFICE AND RESIDENT AGENT. The address of its
registered office in Nevada is 3263 Howard Hughes Parkway, Suite 350, Las Vegas,
Nevada 89109.
Section 1.3 OTHER OFFICES. The principal executive office of the
Corporation shall be established by the Board of Directors and branch or
subordinate offices may be established by the Board of Directors.
Section 1.4 SEAL. The seal of the Corporation will be circular in form
and mounted upon a metal die, suitable for impressing the same upon paper. The
use of the seal is not necessary on any corporate document and its use or nonuse
shall not in any way affect the legality of the document.
Section 1.5 FISCAL YEAR. The fiscal year of the Corporation will be
determined by resolution of the Board of Directors.
ARTICLE II
STOCK
Section 2.1 CONSIDERATION FOR SHARES. The shares of stock may be issued
or such consideration, expressed in dollars, as shall be fixed from time to time
by the Board of Directors. Treasury shares may be disposed of by the
Corporation for such consideration expressed in dollars as may be fixed from
time to time by the Board of Directors.
Section 2.2 PAYMENT FOR SHARES. The consideration for the issuance of
shares may be paid, in whole or in part, in the form of any tangible or
intangible property or benefit to the Corporation, including, but not limited
to, cash, promissory notes, services performed, contracts for services to be
performed or other securities of the Corporation. When the Corporation receives
the consideration for which the Board of Directors authorized the issuance of
shares, the shares issued therefor are fully paid and non-assessable. The
judgment of the Board of Directors as to the adequacy of the consideration
received for shares shall be conclusive in the absence of actual fraud in the
transaction. The Corporation may place in escrow shares issued for a contract
for further services or benefits or a promissory note, or make any other
arrangement to restrict the transfer of the shares.
<PAGE>
Section 2.3 CERTIFICATES REPRESENTING SHARES. Each holder of stock is
entitled to a certificate in such form as may be required by applicable law
signed by the Chairman of the Board of Directors, Chief Executive Officer, or
President (or a vice president), and the Secretary (or an assistant secretary),
certifying the number of shares owned by the stockholder in the Corporation.
In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall have been used on, any certificate or certificates
shall cease to be an officer or officers of the Corporation, ether because of
death, resignation or otherwise, before the certificate or certificates shall
have been delivered by the Corporation, the certificate or certificates may
nevertheless be adopted by the Corporation and be issued and delivered as though
the person or persons who signed the certificate or certificates, or whose
facsimile signature or signatures shall have been used thereon, had not ceased
to be an officer or officers of the Corporation.
Section 2.4 TRANSFER OF SHARES. Transfers of shares shall be made only
upon the stock transfer books of the Corporation kept in an office of the
Corporation or by transfer agents designated to transfer shares of the stock of
the Corporation.
Section 2.5 REGULATIONS. The issue, transfer, conversion and registration
of stock shall be governed by such other regulations as the Board Directors may
establish.
ARTICLE III
STOCKHOLDERS
Section 3.1 PLACE OF STOCKHOLDERS' MEETINGS. Meetings of the Corporation
shall be held at the principal executive office of the Corporation, or at such
other place as may be designated by the Chairman of the Board of Directors, the
Chief Executive Officer or the Board of Directors.
Section 3.2 ANNUAL STOCKHOLDERS' MEETING. The annual meeting of the
stockholders shall be held on such date and at such time as the Board of
Directors shall fix for the purposes of electing directors and transacting such
other business as may properly be brought before the meeting.
Section 3.3 SPECIAL STOCKHOLDERS' MEETINGS. Subject to the Corporation's
Articles of Incorporation, special meetings of the stockholders may be called
only by the Board of Directors, and shall be held on such date and at such time
as shall be fixed by resolution.
Section 3.4 BUSINESS AT STOCKHOLDERS' MEETINGS. Except as otherwise
provided by law (including but not limited to Rule 14a-8 of the Securities
Exchange Act of 1934, as amended, or any successor provision thereto) or in
these Bylaws, the business which shall be conducted at any meeting of the
stockholders shall (a) have been specified in the written notice of the meeting
(or any supplement thereto) given by the Corporation, (b) be brought before the
2
<PAGE>
meeting at the direction of the Board of Directors or the presiding officer of
the meeting, or (c) have been specified in a written notice given to the
Secretary of the Corporation by or on behalf of any stockholder who shall have
been a stockholder of record on the record date of such meeting and who shall
continue to be entitled to vote thereat and who is in continuing compliance with
the requirements of Rule 14a-8 (the "Stockholder's Notice"), in accordance with
all of the following requirements:
(1) Each Stockholder's Notice must be delivered to, or mailed and
received at, the principal executive offices of the Corporation:
(a) in the case of an annual meeting that is called for a date
that is within thirty (30) days before or after the anniversary date of the
immediately preceding annual meeting of stockholders, not less than one hundred
twenty (120) calendar days in advance of the anniversary date of the
Corporation's proxy statement for the previous year's annual stockholder's
meeting nor more than one hundred fifty (150) days prior to such anniversary
date; and
(b) in the case of an annual meeting that is called for a date
that is not within thirty (30) days before or after the anniversary date of the
immediately preceding annual meeting, not later than the close of business on
the tenth (10th) day following the day on which notice of the date of the
meeting was mailed or public disclosure of the date of the meeting was made,
whichever occurs first; and
(2) Each such Stockholder's Notice must set forth each of the
following:
(a) the name and address of the stockholder who intends to bring
the business before the meeting:
(b) the general nature of the business which he or she seeks to
bring before the meeting; and
(c) a representation that the stockholder is a holder of record of
shares of stock entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to bring the business specified in the notice before
the meeting.
The presiding officer of the meeting may, in his or her sole discretion,
refuse to acknowledge any business proposed by a stockholder not made in
compliance with the foregoing procedure.
Section 3.5 NOTICE OF STOCKHOLDERS' MEETINGS. Written notice stating the
place, day and hour of a meeting of stockholders and the purpose for which the
meeting is called must be delivered not less than ten (10) days, nor more than
sixty (60) days before the date of the meeting, either personally, or by mail,
or by means of written communication, charges prepaid, signed by the President
(or any vice-president) or the Secretary (or any assistant secretary) to each
registered stockholder entitled to vote at the meeting. If mailed, the notice
shall be considered to be delivered when deposited in the United States mail
addressed to the
3
<PAGE>
stockholder at the stockholder's address as it appears on the stock transfer
books of the Corporation. It is not required that the notice be published in any
newspaper. Waiver by a stockholder in writing of notice of a meeting is
equivalent to giving notice. Attendance by a stockholder, without objection to
the notice, whether in person or by proxy, at a meeting is a waiver of notice of
the meeting.
Section 3.6 STOCKHOLDER QUORUM. A majority of the shares entitled to
vote, represented in person or by proxy, is a quorum at a meeting of
stockholders, unless or except to the extent that the presence of a larger
number may be required by law. Where separate vote by a class or classes is
required, a majority of the shares of such class or classes present in person or
represented by proxy shall constitute a quorum entitled to take action with
respect to that vote on that matter. The stockholders present at a duly
organized meeting may continue to do business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum.
Section 3.7 ADJOURNED STOCKHOLDERS' MEETINGS. Any meeting of
stockholders, whether annual or special, whether or not a quorum is present, may
be adjourned from time to time by the vote of a majority of the shares, the
holders of which are either present in person or represented by proxy, but in
the absence of a quorum no other business may be transacted at any meeting of
stockholders.
When any meeting of stockholders, whether annual or special, is adjourned
for thirty (30) days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. As to any adjournment of less than (30)
days, it shall not be necessary to give any notice of the time and place of the
adjourned meeting or of the business to be transacted, other than by
announcement at the meeting at which the adjournment is taken.
Section 3.8 ENTRY OF NOTICE. An entry in the minutes of any meeting of
stockholders, whether annual or special, to the effect that notice has been duly
given shall be conclusive and incontrovertible evidence that due notice of the
meeting was given to all stockholders as required by law and these bylaws.
Section 3.9 VOTING. Except as otherwise provided by law, only persons in
whose names shares entitled to vote stand on the stock registry of the
Corporation (a) on the day prior to any meeting of stockholders, or (b) if a
record date for voting purposes is fixed as provided in Article VI, Section 6.1,
of these Bylaws, then on that record date, shall be entitled to vote at the
meeting. Voting shall be by ballots, each of which shall state the
stockholder's name or proxy voting and such other information as may be required
under the procedure established for the meeting. The Corporation may, and to
the extent required by law shall, in advance of any meeting of stockholders,
appoint one or more inspectors to act at the meeting and make written report
thereof. Each vote taken by ballot shall be counted by an inspector or
inspectors appointed by the chairman of the meeting.
Except as otherwise provided by law or by an express provision of the
Articles of Incorporation, or by an express provision of any Directors'
Resolution for a series of Preferred
4
<PAGE>
Stock, each full share is entitled to one vote and, when a quorum is present at
the commencement of any meeting of stockholders, the vote of the holders of a
majority of the shares entitled to vote present, in person or by proxy, shall
decide any question brought before the meeting of stockholders. Fractional
shares shall not be entitled to any voting rights whatsoever.
Section 3.10 CONSENT OF ABSENTEES. The transactions of any meeting of
stockholders, whether annual or special, and however called and noticed, shall
be as valid as though had at a meeting duly held after regular call and notice
if a quorum be present either in person or by proxy and if, either before or
after the meeting, each of the stockholders entitled to vote, not present in
person or by proxy, signs a written waiver of notice, or a consent to the
holding of the meeting, or an approval of the minutes thereof, all such waivers,
consents or approvals shall be filed with the Secretary or be made a part of the
minutes of the meeting.
Section 3.11 STOCKHOLDER ACTION WITHOUT MEETING. Except for actions taken
by the unanimous written consent of the stockholders, all action taken by the
stockholders, including but not limited to the election and removal of
directors, voting on stockholder issues, consents, approvals and ratifications,
must be taken at a duly called, noticed and held meeting of the stockholders
and no such action may be taken without a meeting.
Section 3.12 PROXIES. Every person entitled to vote or execute consents
shall have the right to do so either in person or by an agent or agents
authorized by a written proxy executed by the person or by the person's duly
authorized agent and filed with the Secretary of the Corporation; provided, that
no proxy shall be valid after the expiration of six (6) months from the date of
its execution unless the person executing it specified therein the length of
time for which the proxy is to continue in force, which in no event all exceed
seven (7) years from the date of its execution.
Section 3.13 DEFINITION OF "STOCKHOLDER". As used in these Bylaws, the
term "stockholder," and any term of like import, shall include all persons
entitled to vote the shares held by a stockholder, unless the context in which
the term is used indicates that a different meaning is intended.
ARTICLE IV
BOARD OF DIRECTORS
Section 4.1 NUMBER; TERM; ELECTION. The number of directors shall be
fixed from time to time exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exists any vacancy in a previously authorized directorship
at the time any such resolution is presented to the Board of Directors for
adoption) but the number shall be not less than three (3) nor more than twenty-
five (25).
5
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If a vacancy occurs on the Board of Directors, including a vacancy created
by an increase in the number of directors, the vacancy shall be filled by the
Board of Directors. All directors shall continue in office until the election
and qualification of their respective successors in office. No decrease in the
number of directors shall have the effect of shortening the term of any
incumbent director.
Effective at the first annual meeting of stockholders held after
September 25, 1996 (the "Initial Meeting"), the Board of Directors shall be
divided into three classes: Class I, Class II and Class III. Such classes shall
be as nearly equal in number of directors as possible. Each director shall serve
for a term ending at the third annual stockholders meeting following the annual
meeting at which such director was elected; provided, however, that the
directors first elected to Class I shall serve for a term ending at the first
annual meeting held after the Initial Meeting, the directors first elected to
Class II shall serve for a term ending at the second annual meeting held after
the Initial Meeting, and the directors first elected to Class III shall serve
for a term ending at the third annual meeting held after the Initial Meeting.
At each annual election held after the Initial Meeting, the directors
chosen to succeed those whose terms then expire shall be identified as being of
the same class as the directors they succeed, unless, by reason of any
intervening changes in the authorized number of directors, the Board shall
designate one or more directorships whose term then expires as directorships of
another class in order more nearly to achieve equality in the number of
directors among the classes. When the Board of Directors fills a vacancy
resulting from the death, resignation or removal of a director, the director
chosen to fill that vacancy shall be of the same class as the director he or she
succeeds, unless, by reason of any previous changes in the authorized number of
directors, the Board shall designate the vacant directorship as a directorship
of another class in order more nearly to achieve equality in the number of
directors among the classes.
Notwithstanding the rule that the three classes shall be as nearly equal in
number of directors as possible, in the event of any change in the authorized
number of directors each director then continuing to serve as such will
nevertheless continue as a director of the class of which he or she is a member
until the expiration of his or her current term or earlier death, resignation or
removal. If any newly created directorship or vacancy on the Board, consistent
with the rule that the three classes shall be as nearly equal in number of
directors as possible, may be allocated to one or two or more classes, the Board
shall allocate it to that of the available classes whose term of office is due
to expire at the earliest date following such allocation.
Section 4.2 NOMINATIONS. Only persons who are nominated in accordance
with the following procedures shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors at the annual
meeting, by or at the direction of the Board of Directors, may be made by any
Nominating Committee or person appointed by the Board of Directors; nominations
may also be made by any stockholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with the notice procedures set
forth in this Section 4. Such nomination, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a stockholder's
nominating notice shall be delivered to or mailed and received at the principal
executive office of the Corporation addressed to the attention of the Secretary
of the Corporation not less than thirty-five (35) days prior to the meeting or
the date the stockholders are first solicited for their consents as the case may
be; provided, however, that, in the case of an annual meeting and in the event
that less than fifty (50) days' notice or prior public disclosure of the date of
the meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received no later than the earlier of (a) the close of
business on the tenth (10th) day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made, whichever
first occurs, or (b) two (2) days prior to the date of the meeting.
Such stockholder's nominating notice to the Secretary shall set forth
(1) as to each person whom the stockholder proposes to nominate for
election or reelection as a director, each of the following:
(a) the name, age, business address and residence address of the
person;
(b) the principal occupation or employment of the person;
(c) the class and number of shares of stock which are beneficially
owned by the person;
(d) a statement as to the person's citizenship; and
(e) any other information relating to the person that is required
to be disclosed in solicitations for proxies for election of directors pursuant
to Section 14 of the Securities Exchange Action of 1934, as amended, and the
rules and regulations promulgated thereunder; and
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(2) as to the stockholder giving the notice, each of the following:
(a) the name and record address of the stockholder giving the
notice;
(b) the name and record address of the stockholder; and
(c) the class, series and number of shares of stock which are
beneficially owned by the stockholder.
The Corporation may require any proposed nominee to furnish such other
information as may reasonably be required by the Corporation to determine the
eligibility of such proposed nominee to serve as a director of the Corporation.
No person shall be eligible for election as a director of the Corporation unless
nominated in accordance with the procedures set forth herein.
In connection with any annual meeting, the Chairman of the Board of
Directors or the Chief Executive Officer or such officer presiding at the
meeting shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the foregoing procedure and that the
defective nomination shall be disregarded.
Section 4.3 VACANCIES. Any vacancy occurring in the Board of Directors
may be filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the Board of Directors was present, or a sole
remaining director. A director elected to fill a vacancy shall be elected for
the unexpired term of the director's predecessor in office.
A vacancy or vacancies in the Board of Directors shall be deemed to exist
in case of the death, resignation or removal of any director, or if the
authorized number of directors be increased, or if the stockholders fail at any
annual or special meeting of stockholders at which any director or directors are
elected to elect the full authorized number of directors to be voted for at that
meeting, or if a vacancy is declared by the Board of Directors for any reason
permitted by law.
The stockholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the Board of Directors. If the Board of
Directors accepts the resignation of a director tendered to take effect at a
future time, the Board of Directors shall have power to elect a successor to
take office when the resignation is to become effective.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of the director's term office.
Section 4.4 ANNUAL MEETING. Immediately after the annual meeting of the
stockholders, at the same place as the meeting of the stockholders or such other
place as may be provided in a notice thereof, the Board of Directors shall meet
each year for the purpose of organization, election of officers, and
consideration of any other business that may properly be brought before the
meeting. No notice of any kind to either old or new members of the Board
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of Directors for this annual meeting shall be necessary unless the meeting is to
be held at a place other than the place of the meeting of the stockholders, in
which case notice of the place of the meeting shall be given as provided in
Section 4.6.
Section 4.5 REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at the times and places within or without the State Nevada as may
be designated from time to time by resolution of the Board Directors or by
written consent of all members of the Board of Directors. No notice of any kind
to members of the Board of Directors for these regular meetings shall be
necessary unless the meeting is to be held at a place other than the principal
executive office of the Corporation, in which case notice of the place of the
meeting shall be given as provided in Section 4.6.
Section 4.6 OTHER MEETINGS. Other meetings of the Board of Directors for
any purpose or purposes may be held at any time upon call by the Chairman the
Board of Directors, Chief Executive Officer, President or, if any of the above
listed officers is absent or unable or refuses to act, by any vice president or
by any two (2) directors. The other meetings may be held at any place within or
without the State of Nevada as may be designated from time to time by resolution
of the Board of Directors or by written consent of all directors.
Written notice of the time and place of other meetings shall be delivered
personally to each director or sent to each director by mail or other form of
written communication, charges prepaid, addressed to the director at the
director's address as it is shown upon the records of the Corporation or, if it
is not so shown on the Corporation's records or is not readily ascertainable, at
the place in which the meetings of the directors are regularly held. In case
the notice is mailed or telegraphed, it shall be deposited in the United States
mail or delivered to the telegraph company in the place in which the principal
executive office of the Corporation is located at least three (3) days prior to
the time of the holding of the meeting. In case the notice is delivered
personally, it shall be so delivered at least three (3) days prior to the time
of the holding of the meeting. The mailing, telegraphing or delivery as above
provided shall constitute due, legal and personal notice to the director.
Section 4.7 NOTICE OF ADJOURNED MEETINGS. Notice of the time and place of
holding an adjourned meeting need not be given to absent directors if the time
and place be fixed at the meeting adjourned.
Section 4.8 ENTRY OF NOTICE. An entry in the minutes of any special
meeting of the Board of Directors to the effect that notice has been duly given
shall be conclusive and incontrovertible evidence that due notice of the special
meeting was given to all directors as required by law and by these Bylaws.
Section 4.9 WAIVER OF NOTICE. The transactions of any meeting of the
Board of Directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice, if a
quorum be present, and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice or a consent
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to the holding of the meeting or an approval of the minutes thereof. All such
waivers, consents or approvals shall be filed with the corporate records or be a
part of the minutes of the meeting.
Section 4.10 QUORUM. A majority of the authorized number of directors,
or, in the event that a flexible number of directors is authorized by the
Articles of Incorporation or these Bylaws, a majority of the exact authorized
number of directors, shall be necessary to constitute a quorum for the
transaction of business, except to adjourn as hereinafter provided. Every act
or decision done or made by a majority of the directors present at a meeting
duly held at which a quorum is present shall be regarded as the act of the Board
of Directors unless a greater number be required by the Articles of
Incorporation, these Bylaws or applicable law.
Section 4.11 PARTICIPATION IN MEETINGS BY TELEPHONE. Members of the Board
of Directors, or of any committee thereof, may participate in any meeting of the
Board of Directors or committee by means of telephone conference or similar
communications by which all persons participating in the meeting can hear each
other and such participation shall constitute presence in person at such
meeting.
Section 4.12 ADJOURNMENT. A quorum of the directors may adjourn any
directors' meeting to meet again at a stated day and hour; provided, however,
that in the absence of a quorum, a majority of the directors present at any
directors' meeting either regular or special, may adjourn from time to time
until the time fixed for the next regular meeting of the Board of Directors.
Section 4.13 ACTION WITHOUT MEETING. Any action required or permitted to
be taken by the Board of Directors under the Articles of Incorporation, these
Bylaws, or under applicable law, may be taken without a meeting if all members
of the Board of Directors shall individually or collectively consent, in
writing, before or after the action, to the action. Any action by written
consent shall have the same force and effect as a unanimous vote of all
directors. All written consents must be filed with the Secretary.
Section 4.14 FEES AND COMPENSATION. By resolution of the Board of
Directors, a fixed fee, with or without expenses of attendance, may be allowed
to any director for the director's services and any director may participate in
a stock option plan. Nothing herein contained shall be construed to preclude
any director from serving the Corporation in any other capacity as an officer,
agent, employee or otherwise, and receiving compensation therefor.
Section 4.15 LIMITATION OF LIABILITY. No officer or director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as an officer or director;
provided, however, that this Section 4.15 shall not eliminate or limit the
liability of an officer or director to the extent provided by applicable law
for: (a) acts or omissions that involve intentional misconduct, fraud, or a
knowing violation of law; or (b) authorizing the unlawful payment of any
dividend or other distribution in violation of Section 78.300 of the Nevada
Revised Statutes. The limitation of liability provided herein shall continue
after an officer or director has ceased to occupy such position as to acts or
omissions occurring during such officer's or director's term or terms of office,
and no
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amendment or repeal of this Section 4.15 shall apply to or have any effect on
the liability or alleged liability of any officer or director of the Corporation
for or with respect to any acts or omissions of such officer or director
occurring prior to such amendment or repeal.
Section 4.16 INDEMNIFICATION; ADVANCEMENT OF EXPENSES. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, including an action
by or in the right of the Corporation, by reason of the fact that he or she is
or was a director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust, or other enterprise, against expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit, or proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
The Corporation shall pay the expenses incurred by an officer or director
in defending any civil, criminal, administrative, or investigative action, suit
or proceeding in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such officer or
director to repay such amount if it should by ultimately determined that he/she
is not entitled to be indemnified by the Corporation authorized by Nevada law.
The indemnification and advancement of expenses provided by or granted
pursuant to this Article IV shall not be deemed exclusive of any other rights to
which those seeking indemnification may be entitled under any law, bylaw,
agreement, vote of stockholders, or disinterested directors or otherwise, both
as to action in his or her official capacity and as to action in another
capacity while holding such office.
Any amendment to or repeal of any of the provisions in this Section 4.16
shall not adversely affect any right or protection of an officer or director of
the Corporation for or with respect to any act or omission of such officer or
director occurring prior to such amendment or repeal.
Section 4.17 INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Corporation
may, to the extent authorized from time to time by the Board of Directors, grant
rights to indemnification and to the advancement of expenses to any employee or
agent of the Corporation to the fullest extent permitted by law.
Section 4.18 INSURANCE. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee, or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity
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or arising out of his or her status as such, whether or not the Corporation
would have the power to indemnify him or her against such liability under the
provisions of this Article IV.
Section 4.19 POWERS OF DIRECTORS. The Board of Directors may, except as
otherwise provided or required by law, exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
Section 4.20 COMMITTEES. The Board of Directors, by resolution passed by
a majority of the whole Board, may from time to time designate committees of the
Board of Directors, including, without limitation, Executive, Nominating, Audit
and Compensation Committees with such lawfully delegable powers and duties as
the Board of Directors may confer, to serve at the pleasure of the Board of
Directors and shall, for those committees and any other provided herein, elect
one or more directors to serve on such committees. Except as otherwise provided
in these Bylaws or by resolution of the Board of Directors, each committee may
fix its own rules of procedure and shall hold its meetings as provided by such
rules.
ARTICLE V
OFFICERS
Section 5.1 OFFICERS. The officers of the Corporation shall be a Chairman
of the Board of Directors, Chief Executive Officer, President, Chief Financial
Officer, Treasurer and Secretary. The Corporation may also have, at the
discretion of the Board of Directors, one or more executive vice presidents or
vice presidents, one or more assistant treasurers, one or more assistant
secretaries, and such other officers as may be designated from time to time by
the Board of Directors. Any number of offices may be held by the same person.
Officers, other than the Chairman of the Board of Directors, need not be
directors.
Section 5.2 ELECTION. The officers of the Corporation, except those
officers as may be appointed in accordance with the provisions of Section 5.3 or
Section 5.5 of this Article V, shall be elected annually by the Board of
Directors, and each shall hold office until the officer shall resign or shall be
removed as set forth in Section 5.4 or otherwise be disqualified to serve, or
the officer's successor shall be elected and qualified; provided that officers
may be elected at any time by the Board of Directors, or, as permitted by
Section 5.3 of this Article V, appointed by the Chairman of the Board of
Directors or the Chief Executive Officer, for the purpose of initially filling
an office or filling a newly created or vacant office.
Section 5.3 SUBORDINATE OFFICERS. The Board of Directors may appoint, and
may empower the Chairman of the Board of Directors or Chief Executive Officer to
appoint, such other officers as the business of the Corporation may require,
each of whom shall hold office for the term, have the authority and perform the
duties as are provided in these Bylaws or as the Board of Directors may from
time to time determine.
Section 5.4 REMOVAL AND RESIGNATION. Any officer may, subject to any
contractual arrangements between the officer and the Corporation, be removed,
either with or
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without cause, by a majority vote of the outstanding stock or a majority of the
Directors in office at the time, at any regular or special meeting of the
stockholders or the Board of Directors, or, unless otherwise specified by the
Board of Directors, by the Chairman of the Board Directors or any other officer
upon whom a general or special power of removal may be conferred by the Board of
Directors.
Any officer may resign at any time by giving written notice to the
Secretary and, in the case of the Secretary, to the President. Any resignation
shall take effect at the earlier of fourteen (14) days after receipt of the
notice or upon acceptance thereof by the Board of Directors.
Section 5.5 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these Bylaws for regular appointments to that office.
Section 5.6 CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board
of Directors, if there be such officer, shall, if present, preside at all
meetings of the Board of Directors and exercise and perform such other powers
and duties as may be from time to time assigned to him or her by the Board of
Directors or prescribed by these Bylaws. If there is not a Chief Executive
Officer, the Chairman of the Board of Directors shall, in addition, be the Chief
Executive Officer of the Corporation and shall have the powers duties prescribed
in Section 5.7 of Article V of these Bylaws.
Section 5.7 CHIEF EXECUTIVE OFFICER. Subject to the control of the Board
of Directors and the Chairman of the Board of Directors, the Chief Executive
Officer shall have the general supervision, direction and control of the
business and officers of the Corporation. In the absence of the Chairman of the
Board of Directors, or if there be none, the Chief Executive Officer shall
preside at all meetings of the Board of Directors and the stockholders. Except
as expressly stated otherwise in these Bylaws, the Chief Executive Officer shall
be ex officio a member of all standing committees of the Board of Directors,
including the Executive Committee, if any. The Chief Executive Officer shall
have all the powers and shall perform all of the duties which are ordinarily
inherent in the office of Chief Executive Officer of a corporation, and he or
she shall have such further powers and shall perform such further duties as may
as prescribed for him or her by the Board Directors.
Section 5.8 PRESIDENT. In the absence or disability of the Chief
Executive Officer, or if there be none, the President shall perform all of the
duties of the Chief Executive Officer, and when so acting shall have all the
powers of and be subject to all of the restrictions upon the Chief Executive
Officer. The President shall have such other duties as from time to time may be
prescribed for him or her by the Board of Directors.
Section 5.9 VICE PRESIDENTS. In the absence or disability of the
President, the vice presidents in order of their rank as fixed by the Board of
Directors, or if not ranked, the vice president designated by the Board of
Directors, the President or the officer, if any, senior to the President, shall
perform all the duties of the President, and when so acting, shall have all
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the powers of and be subject to all the restrictions upon the President. The
vice presidents shall have such other powers and perform such other duties as
may be prescribed for them respectively by the Board of Directors, the
President, the officer, if any, senior to the President or these Bylaws.
Section 5.10 SECRETARY. The Secretary shall keep or cause to be kept, at
the registered office, the principal executive office or such other place as the
Board of Directors may order, a book of minutes of all meetings of directors and
stockholders, with the time and place of holding, whether regular or special,
and, if special, how authorized, the notice thereof given, the names of those
present at directors' meetings, the number of shares present or represented at
meetings of the stockholders, and the proceedings thereof. The Secretary shall
be responsible for authenticating records of the Corporation.
The Secretary shall keep or cause to be kept, in any form permitted by law,
at the registered office, the principal executive office or at the office of the
Corporation's transfer agent, a stock register, or a duplicate stock register,
revised at least annually, showing the names of the stockholders and their
residence addresses and the number and classes of shares held by each
stockholder. If the share register or a duplicate share register is located at
a place other than the registered office of the Corporation, the Secretary shall
file a certificate with the resident agent located at the registered office
setting out the name of the custodian of the stock ledger or a duplicate stock
ledger, and the present and complete post office address, including street and
number, if any, where such stock ledger or duplicate stock ledger is kept.
The Secretary shall give, or cause to be given, notice of all the meetings
of the stockholders and of the Board of Directors and written consents in lieu
thereof required by these Bylaws or by law to be given, and shall keep the seal
of the Corporation in safe custody, and shall have such other powers and perform
such other duties as may be prescribed by the Board Directors, the Chairman of
the Board of Directors, the Chief Executive Officer, the President or these
Bylaws.
After fixing a record date for a meeting, the Secretary shall prepare an
alphabetical list of the names of all stockholders who are entitled to notice of
a stockholders meeting, which is arranged by voting group and class, and shows
the address and number of shares held by each stockholder. The list must be
available for inspection by any stockholder, for any purpose germane to the
meeting, beginning ten (10) business days before the meeting and continue to be
available throughout the meeting at the place indicated in the meeting notice in
the city where the meeting will be held.
Section 5.11 ASSISTANT SECRETARIES. It shall be the duty of the assistant
secretaries to assist the Secretary in the performance of his or her duties and
generally to perform such other duties as may be delegated to them by the Board
of Directors, the Secretary or these Bylaws.
Section 5.12 CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of
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account of the Corporation. He or she shall receive and deposit all moneys and
other valuables belonging to the Corporation in the name and to the credit of
the Corporation and shall disburse the same only in such manner as the Board of
Directors or the appropriate officer of the Corporation may from time to time
determine, shall render to the Board of Directors, the Chairman of the Board of
Directors, and the Chief Executive Officer whenever any of them may request it,
an account of all his or her transactions as Chief Financial Officer and of the
financial condition of the Corporation, and shall perform such further duties as
the Board of Directors or the Chairman of the Board of Directors may require.
Section 5.13 TREASURER. The Treasurer shall assist the Chief Financial
Officer in the performance of his or her duties and generally such other duties
as may be delegated to him or her by the Board of Directors, the Chief Financial
Officer or these Bylaws.
Section 5.14 ASSISTANT TREASURERS. It shall be the duty of the assistant
treasurers to assist the Treasurer in the performance of his or her duties and
generally to perform such other duties as may be delegated to them by the Board
of Directors, the Chief Financial Officer, the Treasurer or these Bylaws.
Section 5.15 CORPORATE BANK ACCOUNTS. Bank accounts in the name of the
Corporation may be opened without the approval of the Board of Directors if
opened with the consent of both the Chief Executive Officer and the Chief
Financial Officer. The Chief Financial Officer shall inform the Board of
Directors of any bank account opened by the Chief Executive Officer and Chief
Financial Officer pursuant to the authority granted in this section at the next
meeting of the Board of Directors.
Section 5.16 TRANSFERS OF AUTHORITY. In case of the absence of any
officer of the Corporation, or for any reason that the Board of Directors may
consider sufficient, the Board of Directors may transfer the powers or duties of
that officer to any other officer or to any director or employee of the
Corporation, provided a majority of the Board of Directors concurs.
ARTICLE VI
MISCELLANEOUS
Section 6.1 RECORD DATE AND CLOSING STOCK BOOKS. The Board of Directors
may fix a time in the future, as a record date for the determination of the
stockholders entitled to notice of and to vote at any meeting of stockholders,
or entitled to receive any dividend or distribution, or any allotment of rights,
or to exercise rights in respect to any change, conversion or exchange of
shares. The record date so fixed shall not be more an sixty (60) days prior to
the date of the meeting or event for the purposes of which it is fixed. When a
record date is so fixed, only stockholders of record on that date shall be
entitled to notice of and to be at the meeting, or to receive the dividend,
distribution or allotment of rights, or to exercise the rights, as the case may
be, notwithstanding any transfer of any shares on the books
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of the Corporation after the record date. The Board of Directors may close the
books of the Corporation against transfers of shares during the whole or any
part of the sixty (60) day period.
Section 6.2 CHECKS, DRAFTS, ETC. All checks, drafts, bonds, bills of
change, or other orders for payment of money, notes, or other evidences of
indebtedness issued in the name of or payable to the Corporation shall be signed
or endorsed by such person or persons and in such manner as, from time to time,
shall be determined by resolution of the Board of Directors.
Section 6.3 CONTRACTS, ETC., HOW EXECUTED. The Board of Directors, except
as in these Bylaws otherwise provided, may authorize any officer or officers,
agent or agents, to enter into any contract or execute any instrument or
document in the name of and on behalf of the Corporation, and the authority may
be general or confined to specific instances. Unless otherwise specifically
determined by the Board of Directors or otherwise required by law, formal
contacts, promissory notes and other evidences of indebtedness, deeds of trust,
mortgages and corporate instruments or documents requiring the corporate seal,
and certificates for shares of stock owned by the Corporation shall be executed,
signed or endorsed by the Chairman of the art of Directors, Chief Executive
Officer or the President (or any vice president) and by the Secretary (or any
assistant secretary) or the Treasurer or any assistant treasurer). The Board of
Directors may, however, authorize any one (1) of these officers to sign any of
such instruments, for and on behalf of the Corporation, without necessity of
countersignature; may designate officers or employees of the Corporation, other
than those named above, who may, in the name of the Corporation, sign such
instruments; and may authorize the use of facsimile signatures for any of such
persons. No officer, agent or employee shall have any power or authority to
bind the Corporation by any contract or engagement or to pledge its credit to
render it liable for any purpose or to any amount except as specifically
authorized in these Bylaws or the Board of Directors in accordance with these
Bylaws.
Section 6.4 LOST CERTIFICATES OF STOCK. The Board of Directors may direct
a new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
destroyed, or stolen, upon the making of an affidavit of that act by the person
claiming the certificate of stock to be lost or destroyed. When authorizing the
issue of a new certificate or certificates, the Board of Directors may, in its
discretion, and as a condition precedent to the issuance thereof, require the
owner of the lost or destroyed certificate or certificates, or the stockholder's
legal representative, to advertise the same in any manner as it shall require or
give the Corporation a bond in any sum as it may direct as indemnity against any
claim that may be made against the Corporation with respect to the certificate
alleged to have been lost or destroyed, or both.
Section 6.5 REPRESENTATION OF SHARES. The Chairman of the Board of
Directors, Chief Executive Officer, the President (or any vice president) and
the Secretary (or any assistant secretary) of this Corporation are each
authorized to vote, represent and exercise on behalf of this Corporation all
rights incident to any and all shares of any other Corporation or Corporations
standing in the name of this Corporation. The authority herein granted to these
officers to vote or represent on behalf of this Corporation any and all shares
held by this Corporation in any other Corporation or Corporations may be
exercised either by these officers
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in person or by any persons authorized so to do by proxy or power of attorney
duly executed by these officers.
Section 6.6 INSPECTION OF BYLAWS. The Corporation shall keep in its
registered office for the transaction of business the original or a copy of the
Bylaws as amended or otherwise altered to date, certified by the Secretary,
which shall be open to inspection by the stockholders at all reasonable times
during office hours.
ARTICLE VII
AMENDMENTS
Section 7.1 POWER OF STOCKHOLDERS. New Bylaws may be adopted or these
Bylaws may be amended or repealed by the vote of stockholders entitled to
exercise a majority of the voting power of the Corporation, unless a greater
number is required by law, by the Articles of Incorporation or by these Bylaws.
Section 7.2 POWER OF DIRECTORS. Subject to the right of stockholders as
provided in Section 7.1 of this Article VII to adopt, amend or repeal Bylaws,
Bylaws may be adopted, amended, or repealed by the Board of Directors.
16
<PAGE>
EXHIBIT 10.5
F O R M
-------
[PROSOFT DEVELOPMENT, INC. LETTERHEAD]
September , 1996
--
[SHAREHOLDER NAME]
[SHAREHOLDER ADDRESS]
Re: Registration and Lock-Up Agreement
----------------------------------
Dear :
----------
ProSoft Development, Inc. (the "Company") is currently in the process
of registering shares of its common stock with the United States Securities and
Exchange Commission ("SEC"). The Company is obligated to register shares
purchased by certain of its stockholders in a private placement by the Company
in July and August 1996 at a purchase price of $10 per share ("Private Placement
3"). As the Company is already required to register shares purchased in Private
Placement 3, the Company has decided to offer stockholders, such as yourself,
who purchased common stock (and/or warrants to purchase common stock) of the
Company in March 1996 at $1 per share ("Private Placement 1") or in April and
May 1996 at $3.50 per share ("Private Placement 2") the opportunity to also
register their shares, on the terms and conditions set forth below. Only those
shares purchased, or shares issuable pursuant to warrants purchased, in Private
Placements 1, 2 or 3, may be registered. In consideration of the registration of
such shares, you will be required to give up certain rights you may have with
respect to your shares and to restrict your right to sell your shares, as more
fully described below. If you wish to have your shares registered, you will need
to sign and date the extra copy of this letter included herewith, signifying
your acceptance of the Company's offer to register your shares on the terms set
forth below, and return it to the Company no later than October 7, 1996.
Agreement to Register Shares
----------------------------
In consideration of the registration of the number of shares of common
stock, par value $.001 per share, of the Company set forth below your signature
on the signature page of this letter agreement (the "Shares") with the SEC under
the Securities Act of 1933, as amended (the "Act"), pursuant to a registration
statement on Form S-1 filed by the Company (the "Registration Statement") with
the SEC, you hereby represent, covenant and certify as follows:
Authority
- ---------
If you are (i) a corporation, a partnership or a trust, or (ii) an
individual acting in a representative capacity or as an agent, you have full
power and authority to make the representations, covenants and certifications
specified herein and to consummate the transactions
<PAGE>
contemplated in the Registration Statement. If you are a corporation or a
partnership, you are in good standing under the laws of the jurisdiction of your
organization.
Share Ownership
- ---------------
The exact name in which the Shares are, or will be, held as such name
should appear in the Registration Statement is " ". As of
--------------------
the date hereof, you are the owner of record of the shares of Common Stock, and
warrants and options to purchase shares of Common Stock, set forth on Exhibit A
hereto.
You hereby request that the Shares be registered by the Company
pursuant to the Registration Statement.
Lock-Up of Shares
- -----------------
Unless you receive the written consent of the Company, you agree to
sell no more than one percent (1%) of your Shares under the Registration
Statement during any one month period following the date of initial
effectiveness of the Registration Statement. This limitation shall be
cumulative such that if you do not sell the full one percent (1%) during any
month, any unsold portion shall be added to the one percent (1%) limitation for
the following month.
To the extent the Company allows stockholders who are parties to a
Registration and Lock-Up Agreement to sell shares in excess of the percentages
set forth above, the Company agrees to do so only on a pro rata basis among all
such stockholders, except that the Company may, in its sole discretion, allow
stockholders to sell amounts of less than 1,000 shares without regard to the
percentage of that stockholder's shares.
You also agree that, in the event of any future underwritten public
offering of the Company's securities, upon the written request of the Company or
the managing underwriter, you will not sell, sell short, grant an option to buy,
or otherwise dispose of shares of the Company's Common Stock for a period of 180
days after the closing of such offering.
Waiver of Certain Rights
- ------------------------
If you purchased Shares in Private Placement 2, you hereby agree that,
upon the Registration Statement being declared effective by the SEC, (i) your
right of first refusal with respect to future sales of shares by the major
shareholders of the Company or by the Company itself as set forth in Section 4
of your Stock and Warrant Purchase Agreement and (ii) your rights relating to
the election of a member of the Board of Directors as set forth in Section 5.2
of your Stock and Warrant Purchase Agreement.
Information and Execution of Documents
- --------------------------------------
You shall furnish to the Company such information regarding yourself,
the Shares, and the intended method of disposition of the Shares as the Company
shall reasonably request
2
<PAGE>
and as shall be required in connection with the registration of the Shares under
the Act pursuant to the Registration Statement. You agree to complete and
execute all questionnaires and other documents required by the Company in
connection with the offering.
Distribution
- ------------
The distribution of your Shares will be affected in one or more
transactions that may take place in the over-the-counter market, including
ordinary brokers' transactions, privately negotiated transactions or through
sales to one or more dealers for resale of such Shares as principals, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. You agree to notify the Company
immediately upon any change in your intended method of distribution of the
Shares.
Prospectus Delivery
- -------------------
You hereby acknowledge that you must deliver a currently effective
prospectus in connection with any sale of the Shares. The sale of the Shares by
you is not, and will not be, prompted by any information concerning the Company
not set forth in the then current prospectus contained in the Registration
Statement and delivered in connection with the sale of such Shares. The Company
agrees to furnish you such number of copies of the prospectus, and of any
supplement or amendment thereto, as you may reasonably request in order to
facilitate the sale of your Shares.
Suspension of Disposition of the Shares
- ---------------------------------------
The Company hereby agrees to promptly notify you in writing, at the
address set forth below (or such other address as you shall notify the Company
of in writing), of the need for a supplement or amendment to any prospectus
pertaining to the Shares included in the Registration Statement and, upon
receipt of such notice, you agree to immediately discontinue disposition of the
Shares until you receive copies of a supplemented or amended prospectus, or
until you are advised in writing by the Company that the use of the prospectus
may be resumed, and have received copies of any additional or supplemental
filings which are incorporated by reference in the prospectus.
Expenses
- --------
All expenses incurred in connection with the registration of the
Shares pursuant to the Registration Statement will be borne by the Company;
provided, however, that you shall bear all of your own costs, including the
costs of your counsel and shall pay any commissions and discounts pertaining to
the sale of the Shares pursuant to the Registration Statement.
Indemnification
- ---------------
The Company will indemnify and hold harmless, you and each other
person or entity (a "Person"), if any, who controls you within the meaning of
the Act, against any losses,
3
<PAGE>
claims, damages or liabilities, joint or several, to which you or such
controlling Person may become subject under the Act or otherwise, insofar as
such loses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained, on the effective date thereof, in the Registration
Statement, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
arise out of or are based upon the failure by the Company to file any amendment
or supplement thereto that was required to be filed under the Act, and will
reimburse you and each such controlling Person for any legal or any other
expenses reasonably incurred by you and each such controlling Person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon (i) an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
preliminary prospectus, final prospectus or amendment or supplement in reliance
upon and in conformity with written information furnished by you to the Company
specifically for use in the preparation thereof or (ii) your failure to deliver
a copy of the Registration Statement, preliminary prospectus, final prospectus
or amendment or supplement after the Company has furnished you with a sufficient
number of copies of the same.
You agree to indemnify and hold harmless (in the same manner and to
the same extent as set forth above) the Company, each director of the Company,
each officer of the Company who shall sign the Registration Statement, any
Persons who control the Company within the meaning of the Act, with respect to
any statement or omission from the Registration Statement, preliminary
prospectus or any final prospectus contained therein, or any amendment or
supplement thereto, if such statement or omission was made in reliance upon and
in conformity with written information furnished by you to the Company,
specifically for use in the preparation of the Registration Statement,
preliminary prospectus or amendment or supplement.
Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to above, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to then indemnifying party of the commencement of
such action. In case any such action is brought against an indemnified party,
the indemnifying party will be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified,
to the extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any legal or
other expenses subsequently incurred by the indemnified party in connection with
the defense thereof.
4
<PAGE>
Obligation to Maintain Effectiveness of Registration Statement
- --------------------------------------------------------------
The Company shall have the right to terminate or withdraw the
Registration Statement at any time before or after it becomes effective. In the
event of such termination or withdrawal of the Registration Statement, the lock-
up obligations with respect to your shares set forth above, other than those
lock-up provisions relating to an underwritten public offering of the Company's
securities, shall terminate.
Blue Sky Laws
- -------------
In addition to the registration of the sale of the Shares under the
Act, the sale of the Shares must also be registered, qualified, or exempt from
such registration or qualification under the securities or Blue Sky laws of the
states or jurisdictions in which the offer and sale of the Shares will occur.
You acknowledge that, prior to any sale of the Shares, you must comply with such
laws. The Company shall be under no obligation to register or qualify the
Shares in any such jurisdictions.
Market Manipulation
- -------------------
You have been informed that the anti-manipulation provisions of Rules
10b-6 and 10b-7 under the Securities Exchange Act of 1934 may apply to your sale
of the Shares and have been furnished with a copy of these Rules, as well as a
copy of certain interpretations thereof by the SEC. You have not taken and will
not take, directly or indirectly, any action designed to, or which has
constituted, or which might reasonably be expected to cause or result in,
stabilization or manipulation of the price of the Company's Common Stock.
Updating
- --------
You agree to immediately notify the Company by telephone (Attention:
Eric W. Richardson, General Counsel, telephone (714) 562-8282, ext. 243),
confirmed in writing at ProSoft Development, Inc., 7100 Knott Avenue, Buena
Park, CA 90620, of any changes in the information, representations and
certifications contained herein (including the sale of Shares pursuant to the
Registration Statement) from the date set forth below until either all of the
Shares have been sold by you pursuant to the Registration Statement or all
unsold Shares have been withdrawn from registration. In the absence of any such
notice, the Company may rely on the fact that the information, representations
and certifications contained herein remain complete and accurate.
5
<PAGE>
PROSOFT DEVELOPMENT, INC.
By:
----------------------------------
Keith D. Freadhoff,
Chief Executive Officer
ACKNOWLEDGED AND AGREED:
Date: , 1996
-----------------
STOCKHOLDER:
-------------------------
- -------------------------------------
(Signature)
- -------------------------------------
(Name)
- -------------------------------------
(Title)
- -------------------------------------
- -------------------------------------
- -------------------------------------
(Address)
Shares of Common Stock to be
Registered:
-------------------------
6
<PAGE>
EXHIBIT A
---------
<TABLE>
<CAPTION>
TO BE INCLUDED IN
TOTAL REGISTRATION STATEMENT
----- ----------------------
<S> <C> <C>
Shares of Company Common Stock
Shares of Company Common Stock
issuable upon exercise of Warrants
Shares of Company Common Stock -0-
issuable upon exercise of Stock Options ------ -------
====== =======
</TABLE>
7
<PAGE>
EXHIBIT 11
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Period from
December 8, 1995
to
July 31, 1996
----------------
<S> <C>
PRIMARY
Net loss $(2,693,123)
===========
Weighted average common shares outstanding 5,011,781
===========
Net loss per share $ (0.54)
===========
FULLY DILUTED
Net loss $(2,693,123)
===========
Weighted average common shares outstanding 5,011,781
===========
Net loss per share $ (0.54)
===========
</TABLE>
<PAGE>
EXHIBIT 23.1
Consent of Ernst & Young LPP, Independent Auditors
We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated August 28, 1996, in
Amendment No. 2 to the Registration Statement (Form S-1) and related Prospectus
of ProSoft Development, Inc. for the registration of 3,387,291 shares of its
common stock.
ERNST & YOUNG LLP
Orange County, California
October 9, 1996
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement relating to 3,387,291
shares of common stock of ProSoft Development, Inc. on Amendment No. 2 to Form
S-1 of our report dated March 8, 1996, appearing in the Prospectus, which is
part of this Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
KELLY & COMPANY
Newport Beach, California
October 9, 1996
