<PAGE>
As filed with the Securities and Exchange Commission on August 30, 1996
Registration No. _______________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
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)
<TABLE>
<S> <C> <C>
NEVADA 8243 87-0448639
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or Organization) Classification Code Number)
</TABLE>
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. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================================
Proposed Proposed
Title of Each Class Amount Maximum Maximum
of Securities to be Offering Price Aggregate Amount of
to be Registered Registered Per Share(1) Offering Price(1) Registration Fee
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.001 per share 3,387,291 $19.00 $64,358,529 $22,192.75
==========================================================================================================
</TABLE>
(1) Calculated pursuant to Rule 457(c) on the basis of the average of the
closing bid and asked quotation prices of the Company's Common Stock on
August 27, 1996 on the NASD OTC Bulletin Board.
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 sell only certain specified percentages
of such Shares for a period of 450 days after the date of this Prospectus.
The Shares offered by this Prospectus may be sold from time to time by the
Selling Stockholders, or by their transferees. 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 August 27, 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."
____________________
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 Internet/Intranet training.
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").
Each ProSoft student who takes an Internet or Intranet class at a Training
Center is taught using a personal computer that is connected to the Internet. As
of August 31, 1996, the Company had opened five Training Centers in the states
of California, Florida and Massachusetts. The Company plans to open between 60
and 100 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
only realistic 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.
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
partnerships with existing
2
<PAGE>
computer training, distribution and reseller companies. Under such marketing
partnerships, the partner 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 partnership, 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 partners. 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 organizations. The Company believes it can offer 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.
3
<PAGE>
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 reseved 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.
4
<PAGE>
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. THIS SECTION SETS FORTH A BRIEF SUMMARY OF SOME OF
THE PRINCIPAL RISK FACTORS. PROSPECTIVE INVESTORS SHOULD FULLY UNDERSTAND AND
EVALUATE THESE RISKS, IN ADDITION TO THE OTHER FACTORS SET FORTH IN THIS
PROSPECTUS, BEFORE MAKING AN INVESTMENT DECISION.
EXTREMELY LIMITED OPERATING HISTORY; RAPIDLY EVOLVING MARKET
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 five 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. 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 Internet/Intranet training. 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
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. Moreover, due
to the intense competition in the emerging markets addressed by the Company, the
Company must seek to 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. 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. 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 60 and 100 Training Centers by June 1997,
the Company will be required to obtain external funds. 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. However, 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
5
<PAGE>
favorable to the Company. If adequate funds are not available, the Company may
be required to curtail its expansion plans.
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. 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.
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 five Training Centers to 60 to 100 centers by June 1997 places significant
pressure on the Company to attract, train and retain qualified instructors for
its Training Centers. 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.
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.
6
<PAGE>
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. The loss of services of
any one or more members of current management could have a material adverse
effect on the Company.
DEPENDENCE ON STRATEGIC PARTNERS
The Company has focused and expects to continue to focus on the development
of strategic relationships with key strategic partners 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 partners 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 partners, the Company has not entered into any long-term
agreements with any such partners 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,
7
<PAGE>
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. 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. However, the
Company expects its vocational JTPA funded business to represent a rapidly
decreasing portion of its revenues in the future.
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
have been generated from JTPA vocational training, the Company expects a
significant majority of its revenues in the future will come from
Internet/Intranet training, 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.
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. 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 their
shares without the Company's written consent except as follows: 12.5% of each
such stockholder's shares covered by this Prospectus (a total of 332,536 shares)
may be sold on or after the date of this Prospectus; an additional 12.5%
(332,536 shares) may be sold on or after each of the 90th, 180th and 270th day
anniversaries of the date of this Prospectus; an additional 25% (665,074 shares)
may be sold on or after each of the 360th and 450th day anniversary of the date
of this Prospectus. 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
8
<PAGE>
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 "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. The Company is a quasi-California corporation subject to certain
provisions of the California General Corporation Law (the "California GCL"). See
"DESCRIPTION OF CAPITAL STOCK -- Application of California GCL." Among other
consequences of the Company's status as a quasi-California corporation, at the
request of any stockholder, the election of the Company's directors will be
determined by cumulative voting procedures. Consequently, following this
offering the Company's stockholders other than its current officers and
directors will have sufficient votes, if cumulative voting is exercised, to
elect one of its three 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.
By delaying and deterring unsolicited takeover attempts, these provisions 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."
9
<PAGE>
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 August 27, 1996, the closing bid price for the Common Stock was $18.00.
On August 27, 1996, the Company had approximately 303 stockholders.
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.
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at July 31,
1996, and As Adjusted to reflect the receipt by the Company of $2,363,708 in
gross proceeds in the event that all of the Warrants are exercised.
<TABLE>
<CAPTION>
July 31, 1996
-------------------------------
Actual As Adjusted
------ -----------
<S> <C> <C>
Capital lease obligations, net of
current portion........................... $ 437,532 $ 437,532
----------- -----------
Stockholder's equity:
Common stock, $.001 par value;
50,000,000 shares authorized;
7,336,404 shares issued and outstanding
and 7,716,151 shares
as adjusted(1).......................... 10,397,352 12,761,060
Note receivable from stockholder......... (9,500) (9,500)
Accumulated deficit...................... (2,693,123) (2,693,123)
----------- -----------
Total stockholder's equity............ 7,694,729 10,058,437
----------- -----------
Total capitalization.................. $ 8,132,261 $10,495,969
=========== ===========
</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; and (ii) 1,042,500 shares subject to other outstanding options
as of July 31, 1996 at an exercise price of $1.00 per share. The Actual
issued and outstanding share number also excludes 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, while the As Adjusted share number assumes the exercise of the
Warrants and therefore excludes 106,200 shares issuable upon exercise of
warrants.
11
<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 TO DECEMBER 8, 1995 TO
DECEMBER 31, 1995 JULY 31, 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 DECEMBER 31, 1995 AT JULY 31, 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......... 308,671 437,532
current portion
Stockholders' equity (owner's deficit).... (194,473) 7,694,729
</TABLE>
12
<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.
13
<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. 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. 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. 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.
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. 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. 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.
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
and an increase in accounts receivable of $766,405. 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.
14
<PAGE>
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 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) and cash flows generated from future
operations, will be sufficient to meet its anticipated needs for working
capital, capital expenditures and business expansion for at least the next 12
months. Thereafter, the Company may need to raise additional funds. The
Company may need to raise additional funds sooner, however, in order to fund
more rapid expansion, 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.
15
<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. Each ProSoft student who takes an Internet or Intranet class
at a Training Center is taught using a personal computer that is connected to
the Internet. As of August 31, 1996, the Company had opened five Training
Centers in the states of California, Florida and Massachusetts. The Company
plans to open between 60 and 100 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 partnerships with existing
computer training, distribution and reseller companies. Under such marketing
partnerships, the partner 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 partners. Whether ProSoft leases
commercial space or enters into a marketing partnership, the Company is
responsible for building the 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
16
<PAGE>
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
unique 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 July
31, 1996, ProSoft had employed approximately 18 full-time MCPs. In addition, as
of July 31, 1996, the Company had approximately 114 additional students under
development to be MCPs and an additional 35 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.
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
17
<PAGE>
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. To realize the full potential of the
Internet and various Intranet systems, training is required.
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 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. Most major
Internet software companies, such as 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. Microsoft,
however, 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 technologies by providing a nationwide network of Microsoft-centric
Training Centers.
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.
18
<PAGE>
THE PROSOFT STRATEGY
ProSoft believes that it should have a unique advantage over 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 Internet/Intranet
curriculum, this type of training is ProSoft's primary area of emphasis. As a
result, the Company has developed broad expertise 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 the only realistic 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. ProSoft is able to administer its own intake and eligibility
criteria under authority granted by the City of Los Angeles, in connection with
the Company's hiring programs. 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 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 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
19
<PAGE>
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 partners 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.
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
20
<PAGE>
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. 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, sales representatives and 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 60 and 100
Training Centers by June 1997, has established what is called the "Partnership
for Profit in Internet Training" program (the "Partnership Program"). Under the
terms of the Partnership Program, an existing computer reseller and/or training
company, such as a ComputerLand store, will provide the physical space within
its premises for one or more ProSoft training rooms in a particular market. In
exchange for this rent-free classroom space, the partner 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 partner 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 partnerships 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 Partnership Program permits the Company to take
advantage of the partner'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 partner's marketing and sales
efforts, ProSoft will 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
21
<PAGE>
of the Training Centers. In addition, the Company has 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 Internet Training Partnership Program that
allows other interested training 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 partners, 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 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.
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 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, there is no 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
22
<PAGE>
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 has a competitive advantage over
existing training organizations because of such organizations' (1) lack of
developed curriculum, (2) inability to offer high speed, on-line training, (3)
diluted training focus, and (4) inability to quickly develop quality courseware
to support the rapidly evolving Internet products and technologies. In
addition, the Company believes its planned national presence will give it a
unique advantage over its competitors having a limited geographical presence.
Such competing training organizations also lack personnel sufficiently
specialized to deliver specific Internet training. In order for existing
training companies to develop the level of expertise and consistency offered by
ProSoft, they would have to retrench, 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 partners across the nation and expanding quickly to become the
largest and most visible provider of Internet/Intranet training. 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.
These companies may publish ProSoft training descriptions and schedules in their
course catalogs and will be paid a percentage of the training sale. In this
way, potential competitors who offer a wide range of technology courses will be
able to add Internet offerings without having to develop the curriculum or
instructors, install T-1 lines or compete with ProSoft. The Company plans to
roll-out this program aggressively in every new ProSoft market.
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.
23
<PAGE>
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 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
24
<PAGE>
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. 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 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.
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.
25
<PAGE>
EMPLOYEES
As of July 31, 1996, ProSoft had 113 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 Month-to-month
Palmdale, CA 5,000 $ 3,100 10/96
New York, NY 5,558 $ 7,410 8/99
</TABLE>
As discussed above, ProSoft has entered into the Partnership Program with
several independent training, computer reseller or other educational companies
("Partners") under which the Partners provide space to ProSoft for its Training
Centers. The lease or rental agreements reside with the Partner 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 Partners' locations and in the event that any such partnership is terminated
prior to the expiration of the contract, ProSoft would have to write off the
remaining value of those improvements.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
26
<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
27
<PAGE>
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.
28
<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 and Bylaws will be useful to attract and retain qualified persons
as directors and officers. The Company's Restated Articles of Incorporation
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.
29
<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 July 31, 1996, approximately 72
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.
30
<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.
31
<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, Keith D.
Freadhoff and Douglas Hartman 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 143,473 shares of Common Stock at $5.00
per share were also issued to the investors. William
32
<PAGE>
Richardson purchased 10,000 shares and a warrant to purchase an additional 3,333
shares in that offering for $35,000, and Brooks Corbin 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".
33
<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 July 31, 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>
34
<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>
35
<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 Shares
under this Prospectus without the consent of the Company, except as
follows: 12.5% of Shares covered by this Prospectus may be sold on
or after the date of this Prospectus; an additional 12.5% may be
36
<PAGE>
sold on or after 90 days after the date of this Prospectus; an
additional 12.5% may be sold on or after 180 days after the date of
this Prospectus; an additional 12.5% may be sold on or after 270
days after the date of this Prospectus; an additional 25% may be
sold on or after 360 days after the date of this Prospectus; and the
final 25% may be sold on or after 450 days after the date of this
Prospectus. 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.
37
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's capital stock at July 31, 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>
Name of Individual Shares of Common Stock Outstanding Common Stock
or Identity of Group(1) Beneficially Owned Beneficially Owned
----------------------- ------------------------- -------------------------
<S> <C> <C>
Keith D. Freadhoff 725,000 9.8%
Douglas Hartman 750,000 10.2%
Donald L. Danks 716,500 9.7%
William E. Richardson 160,000(2) 2.1%
All directors and executive officers as
a group (6 persons) 2,108,500(3) 27.4%
</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.
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 July 31, 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 permitted. The Common Stock is not entitled to conversion or preemptive
rights and is not subject to redemption 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.
38
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
On July 31, 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 their shares under this Prospectus without the written
consent of the Company except as follows:
Cumulative Percentage
Lock-Up Period Eligible for Resale
-------------- ----------------------
Between date of Prospectus and 90 days
after date of Prospectus 12.5%
From 91 days to 180 days after date of
Prospectus 25.0%
From 181 days to 270 days after date of
Prospectus 37.5%
From 271 days to 360 days after date of
Prospectus 50.0%
From 361 days to 450 days after date of
Prospectus 75.0%
After 450 days after date of Prospectus 100.0%
To the extent the Company allows shares in excess of those percentages 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 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.
39
<PAGE>
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 "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
40
<PAGE>
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, 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
41
<PAGE>
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).
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
42
<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.
43
<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.
44
<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 financial position of Professional Development
Institute (a Sole Proprietorship) as of December 31, 1995, and the results of
its operations and 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, JULY 31,
1995 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
---------------- -----------
606,013 1,367,433
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 - 10,397,352
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
FEBRUARY 1, DECEMBER 8,
1995 (DATE OF 1995 (DATE OF
INCEPTION) TO INCORPORATION)
DECEMBER 31, TO JULY 31,
1995 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 ProSoft Development,
Entity Corp Inc. Note
---------- common stock common stock receivable
Owner's ---------------------- -------------------- from Accumulated
deficit Share Amount Shares Amount stockholder deficit Total
---------- -----------------------------------------------------------------------------------------
<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 (194,473) - - - - (194,473)
Issuance of common stock for
cash, note and services - 3,576,250 1,002,750 - - (9,500) - 993,250
Conversion of accounts
payable to common stock - 150,000 37,500 - - - - 37,500
Shares outstanding prior to
reorganization - - 480,060 25 - - 25
Acquisition of Pro-Soft
Development Corp. by the
Company - (4,726,250) (845,777) 4,726,250 845,777 - - -
Issuance of common stock for
cash, net of issuance costs
of $338,000 - - - 1,169,462 8,308,390 - - 8,308,390
Exercise of warrants - - - 960,632 1,243,160 - - 1,243,160
Net loss - - - - - - (2,693,123) (2,693,123)
--------- -----------------------------------------------------------------------------------------
Balance at July 31, 1996 $ - - $ - 7,336,404 $10,397,352 $(9,500) $(2,693,123) $(2,693,123)
========= ========================================================================================
</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, DECEMBER 8,
1995 (DATE OF 1995 (DATE OF
INCEPTION) TO INCORPORATION)
DECEMBER 31, TO JULY 31, 1996
1995
-------------- ----------------
<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>
ProSoft Development, Inc. and Predecessor
Notes to Consolidated Financial Statements (Continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. 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.
F-9
<PAGE>
ProSoft Development, Inc. and Predecessor
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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.
F-10
<PAGE>
ProSoft Development, Inc. and Predecessor
Notes to Consolidated Financial Statements (Continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
F-11
<PAGE>
ProSoft Development, Inc. and Predecessor
Notes to Consolidated Financial Statements (continued)
2. STOCKHOLDERS' EQUITY (CONTINUED)
1996 STOCK OPTION PLAN (CONTINUED)
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-12
<PAGE>
ProSoft Development, Inc. and Predecessor
Notes to Consolidated Financial Statements (continued)
3. LEASES AND OTHER COMMITMENTS (CONTINUED)
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.
F-13
<PAGE>
ProSoft Development, Inc. and Predecessor
Notes to Consolidated Financial Statements (continued)
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-14
<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>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary...................................................................... 2
Risk Factors............................................................................ 5
Use of Proceeds......................................................................... 10
Price of Common Stock and Dividend Policy............................................... 10
Capitalization.......................................................................... 11
Selected Financial Data................................................................. 12
Management's Discussion and Analysis of Financial Condition and Results of Operations... 13
Business................................................................................ 16
Management.............................................................................. 27
Certain Transactions.................................................................... 31
Selling Stockholders.................................................................... 33
Principal Stockholders.................................................................. 37
Description of Capital Stock............................................................ 37
Plan of Distribution.................................................................... 42
Legal Matters........................................................................... 42
Experts................................................................................. 42
Additional Information.................................................................. 43
Index to Consolidated Financial Statements.............................................. F-1
</TABLE>
==============================================
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.
Securities and Exchange Commission
registration fee....................... $22,193
NASDAQ listing fee...................... $ *
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.............................. $ *
- --------------------
* 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 any such action must be paid as incurred and in
advance of the final disposition of such action. The
II-1
<PAGE>
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").
In February 1995, the Company issued 100,000 shares for $1,500 to one
investor. 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.
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 after the Reorganization. No commissions were paid in connection
with such issuance. The
II-2
<PAGE>
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.
In March 1996, the Company issued 25,000 shares to a consultant in
consideration for services rendered. 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.
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.
In connection with the $3.50 Private Placement, the Company issued warrants to
purchase an aggregate of 22,988 shares to two sophisticated individuals as
payment of finders' fees. 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.
In June and July of 1996, an aggregate of 840,000 shares were issued to 26
stockholders of the Company upon exercise of warrants 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.
In June 1996, 50,000 shares of Common Stock were issued to a stockholder of
the Company upon exercise of a warrant 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.
In June through August 1996, the Company issued an aggregate of 71,832 shares
to 16 stockholders of the Company upon exercise of warrants 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.
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
II-3
<PAGE>
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.
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.
In connection with the $10.00 Private Placement, in August 1996 the Company
issued a warrant to purchase an aggregate of 120,000 shares to one sophisticated
individual as payment of finders' fees. 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.
In August 1996, the Company issued an option to purchase 50,000 shares to a
consultant to the Company. 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.
In August 1996, 1,200 shares were issued to a stockholder of the Company at
$5.00 per share upon exercise of a warrant issued in the $3.50 Private
Placement. The individual exercising the warrant was an accredited investor.
The Company believes the foregoing sale 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
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibits
- ----------- ---------------------------------------
<S> <C>
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 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
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibits
- ----------- ---------------------------------------
<S> <C>
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 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
21 Subsidiaries of the Company
24 Power of Attorney (contained on signature page)
23.1 Consent of Ernst & Young, LLP
23.2 Consent of Kelly & Company
23.3 Consent of Hewitt & McGuire, LLP (included in the opinion filed
as Exhibit 5)*
27 Financial Data Schedule
</TABLE>
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
- --------------------
* To be filed by amendment.
II-5
<PAGE>
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.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this 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 29th day of August, 1996.
PROSOFT DEVELOPMENT, INC.
By: /s/ Keith D. Freadhoff
-----------------------------
Keith D. Freadhoff,
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Keith D.
Freadhoff and Eric Richardson his true and lawful attorney-in-fact and agent,
acting alone, with full powers of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
any amendments thereto and any Registration Statement for the same Offering
which is effective upon filing pursuant to Rule 462(b) under the Securities Act
of 1933, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, each acting alone, full powers and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all said attorney-in-fact
and agent, acting alone, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
II-7
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this 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 August 29, 1996
Keith D. Freadhoff Chairman of the Board
(Principal Executive Officer)
/s/ Donald L. Danks
- ----------------------------- President and Director August 29, 1996
Donald L. Danks
/s/ Brooks A. Corbin
- ----------------------------- Chief Financial Officer August 29, 1996
Brooks A. Corbin (Principal Financial and
Accounting Officer)
/s/ William E. Richardson
- ----------------------------- Director August 29, 1996
William E. Richardson
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibits
- ----------- ---------------------------------------
<S> <C>
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 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 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
21 Subsidiaries of the Company
24 Power of Attorney (contained on signature page)
23.1 Consent of Ernst & Young, LLP
23.2 Consent of Kelly & Company
23.3 Consent of Hewitt & McGuire, LLP (included in the opinion filed
as Exhibit 5)*
27 Financial Data Schedule
</TABLE>
- --------------------
* To be filed by amendment.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
PROSOFT DEVELOPMENT, INC.
ProSoft Development, Inc., a corporation organized under the laws of the
State of Nevada on May 14, 1985, hereby amends and restates its Articles of
Incorporation pursuant to the provisions of Nevada Revised Statutes Sections
78.385, 78.390 and 78.403.
1. The Articles of Incorporation of the Corporation are hereby amended and
restated as follows:
ARTICLE I
NAME
The name of the Corporation is ProSoft Development, Inc.
ARTICLE II
RESIDENT AGENT
The name and address of the Corporation's resident agent is James, Driggs &
Walch, 3763 Howard Hughes Parkway, Suite 350, Las Vegas, Nevada 89109.
ARTICLE III
PURPOSE AND POWERS
The purpose for which the Company is organized is to engage in any lawful
activity except banking and insurance operations.
ARTICLE IV
AUTHORIZED CAPITAL
The Corporation shall have the authority to issue a total of 50,000,000
shares of capital stock having a par value of $.001 per share. All shares of
capital stock of the Corporation shall be of the same class and shall have the
same rights and preferences.
ARTICLE V
BOARD OF DIRECTORS
The members of the governing board of the Corporation shall be styled
directors. The board of directors consists of three (3) directors, and the
names and addresses of the persons currently serving as the directors until the
next annual meeting of shareholders, or until their successors are elected and
qualified, are:
<PAGE>
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Donald L. Danks 7100 Knott Avenue, Buena Park, CA 90620
Keith D. Freadhoff 7100 Knott Avenue, Buena Park, CA 90620
William E. Richardson 7100 Knott Avenue, Buena Park, CA 90620
</TABLE>
The number of directors may be increased or decreased from time to time in
the manner provided in the Bylaws of the Corporation.
ARTICLE VI
INDEMNIFICATION
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.
ARTICLE VII
LIMITATION OF OFFICER AND DIRECTOR LIABILITY
No officer or director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as an officer or director; provided, however, that this Article VII 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 amendment or repeal of this Article VII 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.
2. The foregoing amendment and restatement of the Articles of
Incorporation was duly adopted by stockholders representing a majority of the
outstanding shares of the Corporation entitled to vote thereon pursuant to
shareholder action taken in lieu of a shareholder meeting, as authorized under
Nevada Revised Statutes Section 78.320.
2
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of August,
1996.
PROSOFT DEVELOPMENT, INC.
By: /s/ Anna Brannon
----------------------------
Anna Brannon
Executive Vice President
By: /s/ Eric W. Richardson
----------------------------
Eric W. Richardson
Secretary
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On the _____ day of _______________, 1996, personally appeared before me,
Anna Brannon and Eric W. Richardson, and duly acknowledged to me that they are
the persons who signed the foregoing instrument as President and Secretary,
respectively, and that they have read the foregoing instrument and know the
contents thereof and that the same is true of their own knowledge except as to
those matters upon which they operate on information and belief and as to those
matters believe them to be true.
________________________________
Notary Public
My commission expires:___________
3
<PAGE>
EXHIBIT 3.2
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 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 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. Any action required or
permitted to be taken at a meeting of the stockholders may be taken without a
meeting, without notice, and without a vote, if a consent in writing, setting
forth the action so taken, is signed by the holders of a majority of the voting
power of the outstanding stock entitled to vote.
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).
The Board of Directors including directors who may be elected by the
holders of one or more classes or series of Preferred Stock shall be elected at
each annual meeting of stockholders.
5
<PAGE>
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.
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 allowing 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
6
<PAGE>
(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
7
<PAGE>
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
8
<PAGE>
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
9
<PAGE>
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
10
<PAGE>
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
11
<PAGE>
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
12
<PAGE>
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
13
<PAGE>
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
14
<PAGE>
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
15
<PAGE>
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
laws may be amended or repealed by the vote or written assent 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 4
[ProSoft Common Stock Certificate]
Number Shares
Cusip No. 743477 10 1
PROSOFT
DEVELOPMENT INC
AUTHORIZED COMMON SHARES: 50,000,000
PAR VALUE: $.001
THIS CERTIFIES THAT
S P E C I M E N
IS THE RECORD HOLDER OF
Shares of Common Stock of PROSOFT DEVELOPMENT, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ DONALD L. DANKS /s/ WILLIAM E. RICHARDSON
- -------------------------- -----------------------
Donald L. Danks Eric Richardson
President Secretary
[Seal of ProSoft Development, Inc.]
<PAGE>
NOTICE: Signature must be guaranteed by a firm which is a member of a
registered national stock exchange, or by a bank (other than a saving
bank), or a trust company. The following abbreviations, when used in the
inscription on the face of this certificate, shall be construed as
though they were written out in full according to applicable laws of
regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants in common Act...........................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, ______ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
-------------------------------------
| |
-------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint.
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _________________________________________
_______________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF
THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
S P E C I M E N
<PAGE>
EXHIBIT 10.1
PRO-SOFT DEVELOPMENT CORP.
(a California corporation)
<PAGE>
PRO-SOFT DEVELOPMENT CORP.
1996 STOCK OPTION PLAN
1. Purpose. The purposes of this Plan are to attract and retain the best
-------
available personnel for positions of substantial responsibility, to provide
additional incentive to the Employees, Directors and Consultants of the Company
and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Board and as reflected in
the terms of the written option agreement.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Committee" shall mean the Committee appointed by the Board of
---------
Directors in accordance with paragraph (b) of Section 3 of the Plan, if one is
appointed.
(d) "Common Stock" shall mean the Common Stock of the Company.
------------
(e) "Company" shall mean Pro-Soft Development Corp., a California
-------
corporation.
(f) "Consultant" shall mean any person who is engaged by the Company
----------
or any Parent or Subsidiary to render consulting services and is compensated for
such consulting services, including compensation through Options granted under
this Plan; provided that the term Consultant shall not include Directors who are
not compensated for their services or are paid only a director's fee by the
Company.
(g) "Continuous Status as an Employee, Director or Consultant" shall
--------------------------------------------------------
mean the absence of any interruption or termination of service as an Employee,
Director or Consultant (as the case may be). Continuous Status as an Employee,
Director or Consultant shall not be considered interrupted in the case of sick
leave, military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than 90 days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
(h) "Director" shall mean a member of the Board.
--------
(i) "Disability" shall mean a total and permanent disability as that
----------
term is defined in Section 22(e)(3) of the Code.
<PAGE>
(j) "Disinterested Person" shall have the meaning set forth in Rule
--------------------
16b-3 and shall mean a Director who has not, during the one-year period prior to
the date he or she is appointed to the Committee or during the period he or she
is on the Committee, received an option grant or stock issuance under this Plan
or any other stock plan of the Company or any Parent or Subsidiary of the
Company, other than as permitted by Rule 16b-3; provided, however, if Rule 16b-3
is amended after the effective date of this Plan, "Disinterested Person" shall
have the meaning set forth in such amended Rule 16b-3.
(k) "Employee" shall mean any person, including officers and
--------
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" shall mean: (i) if Shares are exchange-traded
-----------------
or traded on the NASDAQ National Market System ("NMS"), the closing sale or last
sale price per share of the Shares; (ii) if Shares are regularly traded in any
over-the-counter market other than NMS, the average of the bid and asked prices
per share of the Shares; and (iii) if Shares are not traded as described in (i)
and (ii) of this Section 2(m), the per share fair market value of the Shares as
determined in good faith by the Board on such basis as the Board in its sole
discretion shall choose. Fair Market Value as of a given date with respect to
subparagraphs (i), (ii) and (iii) shall be determined as of the close of
business on the day prior to the date of determination, or if no trading in the
Shares takes place on such date, on the next preceding trading day on which
there has been such trading.
(n) "Incentive Stock Option" shall mean an Option intended to qualify
----------------------
as an incentive stock option within the meaning of Section 422(b) of the Code.
(o) "Nonstatutory Stock Option" shall mean an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(p) "Option" shall mean a stock option granted pursuant to the Plan.
------
(q) "Optionee" shall mean an Employee, Director or Consultant who
--------
receives an Option.
(r) "Option Termination Date" shall mean the date of expiration of the
-----------------------
term of such Option as set forth in the written option agreement.
(s) "Parent" shall mean a "parent corporation", whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
(t) "Plan" shall mean this Pro-Soft Development Corp. 1996 Stock
----
Option Plan.
2
<PAGE>
(u) "Restricted Shareholder" shall mean an Optionee who, at the time
----------------------
the Option is granted, owns stock representing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary of the Company.
(v) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
----------
and Exchange Commission under the Exchange Act, as such rule may be amended from
time to time.
(w) "Share" shall mean a share of the Common Stock, as adjusted in
-----
accordance with Section 10 of the Plan.
(x) "Subsidiary" shall mean a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
(y) "Terminating Transaction" shall mean any of the following events:
-----------------------
(a) the dissolution or liquidation of the Company; (b) a reorganization, merger
or consolidation of the Company with one or more other corporations (except with
respect to a transaction, the purpose of which is to change the domicile or name
of the Company), as a result of which the Company goes out of existence or
becomes a subsidiary of another corporation (which shall be deemed to have
occurred if another corporation shall own, directly or indirectly, fifty percent
(50%) or more of the aggregate voting power of all outstanding equity securities
of the Company); or (c) a sale of all or substantially all of the Company's
assets.
3. Administration.
--------------
(a) The Plan shall be administered by the Board, which shall have sole
authority in its absolute discretion, subject to the terms of Section 3(b)
herein, (i) to determine which Employees, Directors and Consultants shall
receive Options, (ii) subject to the express provisions of the Plan, to
determine the time when Options shall be granted, the number of Shares subject
to the Options, the exercise prices, and the terms and conditions of Options
other than those terms and conditions fixed under the Plan, and (iii) to
interpret the provisions of the Plan and any Option granted under the Plan. The
Board shall adopt by resolution such rules and regulations as may be required to
carry out the purposes of the Plan and shall have authority to do everything
necessary or appropriate to administer the Plan. All decisions, determinations
and interpretations of the Board shall be final and binding on all Optionees.
(b) The Board may delegate administration of the Plan to a Committee
of no less than two Directors, each of which shall be Disinterested Persons
unless the Board expressly declares that it does not require the Plan to comply
with the requirements of Rule 16b-3. The Board may from time to time remove
members from, or add members to, the Committee, and vacancies on the Committee
shall be filled by the Board. Furthermore, the Board at any time by resolution
may abolish the Committee and revest in the Board the administration of the
Plan. (For purposes of this Plan document, the term "Board" shall mean the
Committee to the extent that the Board's powers have been delegated to the
Committee.)
3
<PAGE>
4. Eligibility.
-----------
(a) Incentive Stock Options may be granted only to Employees who
render services which contribute to the Company. Nonstatutory Stock Options may
be granted only to Employees, Directors or Consultants who render services which
contribute to the Company.
(b) The Plan shall not confer upon any Optionee any right to continue
as an Employee, Director or Consultant of the Company, nor shall it interfere in
any way with an Optionee's right or the Company's right to terminate Optionee's
employment or relationship as a Director or Consultant at any time, with or
without cause.
(c) The determination as to whether an Employee, Director or
Consultant is eligible to receive Options hereunder shall be made by the Board
in its sole discretion, and the decision of the Board shall be binding and
final.
5. Number of Shares. The maximum aggregate number of Shares which may be
----------------
optioned and sold under this Plan is One Million Fifty Thousand (1,050,000)
Shares of authorized but unissued Common Stock of the Company. No Employee,
Director or Consultant shall receive Options for more than Two Hundred Fifty
Thousand (250,000) shares over any one-year period. In the event that Options
granted under the Plan shall terminate or expire without being exercised, in
whole or in part, the Shares subject to such unexercised Options may again be
optioned and sold under this Plan.
6. Term of the Plan. The Plan shall be effective as of February 1, 1996,
----------------
and shall continue in effect until January 31, 2001, unless terminated earlier.
7. Exercise Price and Consideration.
--------------------------------
(a) The per Share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board in
its sole discretion, but shall be subject to the following:
(i) for an Option granted to a Restricted Shareholder, the per
Share exercise price shall be no less than 110% of the Fair Market Value
per Share on the date of grant;
(ii) for a Nonstatutory Stock Option granted to any Employee,
Director or Consultant (other than a Restricted Shareholder), the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share
on the date of grant; and
(iii) for an Incentive Stock Option granted to any Employee
(other than a Restricted Shareholder), the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of
grant.
4
<PAGE>
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option shall consist of full payment in cash or cash equivalents
or, with the consent of the Board, one of the alternative forms specified below:
(i) full payment in shares of Common Stock (duly endorsed for
transfer to the Company) held by the Optionee for the requisite period
necessary to avoid a charge to the Company's earnings for financial
reporting purposes and valued at Fair Market Value on the date of delivery;
or
(ii) full payment through a combination of cash or cash
equivalents and shares of Common Stock (duly endorsed for transfer to the
Company) held by the Optionee for the requisite period necessary to avoid a
charge to the Company's earnings for financial reporting purposes and
valued at Fair Market Value on the date of delivery; or
(iii) full payment effected through a broker-dealer sale and
remittance procedure pursuant to which the Optionee (A) shall provide
irrevocable written instructions to a designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the Company, out of
the sale proceeds available on the settlement date, sufficient funds to
cover the aggregate option price payable for the purchased Shares plus all
applicable Federal and State income and employment taxes required to be
withheld by the Company by reason of such purchase and (B) shall provide
written directives to the Company to deliver the certificates for the
purchased Shares directly to such brokerage firm in order to complete the
sale transaction; or
(iv) any other legal consideration that may be acceptable to the
Board.
8. Exercise of Options.
-------------------
(a) Vesting of Options. Any Option granted hereunder shall be
------------------
exercisable at such times and under such conditions as determined by the Board,
including performance criteria with respect to the Company and/or the Optionee,
and as shall be permissible under the terms of the Plan, except that any Option
granted hereunder shall be exercisable at a rate of at least 20% per year over
five (5) years from the date of grant.
(b) Procedure for Exercise. An Option may be exercised at any time as
----------------------
to all or any portions of the Shares as to which it is then exercisable, except
that an Option may not be exercised for a fraction of a Share and shall be
subject to any provision in the written option agreement governing the minimum
number of Shares as to which the Option may be exercised. An Option shall be
deemed to be exercised when written notice of such exercise has been given to
the Company in accordance with the terms of the Option by the person entitled to
exercise the Option and full payment for the Shares with respect to which the
Option is exercised has been received by the Company. Full payment may, as
authorized by the Board, consist of any consideration and method of payment
allowable under Section 7(b) of the Plan.
5
<PAGE>
(c) Termination of Options. All installments of an Option shall
----------------------
expire and terminate on such date(s) as the Board shall determine, but in no
event later than ten (10) years from the date such Option was granted (except
that an Incentive Stock Option granted to a Restricted Shareholder shall by its
terms not be exercisable after the expiration of five (5) years from the date
such Option was granted).
(d) Death or Termination of Service of Optionee. The following
-------------------------------------------
provisions shall govern the exercise period applicable to any Options held by an
Optionee at the time of his or her death or termination of service with the
Company or any Parent or Subsidiary of the Company:
(i) Termination of Continuous Status as an Employee, Director
---------------------------------------------------------
or Consultant. In the event of termination of an Optionee's Continuous
-------------
Status as an Employee, Director or Consultant (as the case may be) for any
reason other than Optionee's death or Disability, such Optionee may only
exercise the Option within three (3) months (or such shorter period as
specified in the written option agreement, but in no event less than thirty
(30) days) after the date of such termination.
(ii) Disability of Optionee. In the event of termination of an
----------------------
Optionee's Continuous Status as an Employee, Director or Consultant as a
result of the Optionee's Disability, the Optionee may only exercise the
Option within twelve (12) months (or such shorter period as is specified in
the written option agreement, but in no event less than six (6) months)
from the date of such termination.
(iii) Death of Optionee. In the event of termination of an
-----------------
Optionee's Continuous Status as an Employee, Director or Consultant as a
result of the Optionee's death, the Option may only be exercised any time
within twelve (12) months (or such shorter period as is specified in the
written option agreement, but in no event less than six (6) months)
following the date of death by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance.
(iv) Limitations. Each Option shall, during the limited exercise
-----------
period under this Section 8(d), be exercisable only as to the Shares for
which the Option is exercisable on the date of the Optionee's death or
termination of service with the Company. Under no circumstances shall any
Option become exercisable under this Section 8(d) after the Option
Termination Date. Upon the earlier of the expiration of such limited
exercise period or the Option Termination Date, the Option shall terminate
and cease to be exercisable.
(v) Immediate Termination. Should (A) the Optionee's Continuous
---------------------
Status as an Employee, Director or Consultant be terminated for misconduct
(including, but not limited to, any act of dishonesty, willful misconduct,
fraud or embezzlement) or (B) the Optionee make any unauthorized use or
disclosure of confidential information or trade secrets of the Company or
any Parent or Subsidiary, then in any such event all
6
<PAGE>
outstanding Options granted to the Optionee under this Plan shall terminate
immediately and cease to be exercisable.
(e) Extensions. Notwithstanding the provisions covering the
----------
exercisability of Options following death or termination of service, as
described in Section 8(d), the Board may, in its sole discretion, with the
consent of the Optionee or the Optionee's estate (in the case of the death of
Optionee), extend the period of time during which the Option shall remain
exercisable, provided that in no event shall such extension go beyond the Option
Termination Date. In the case of Incentive Stock Options, extensions under this
Section 8(e) may result in loss of the favorable treatment accorded to incentive
stock options under the Code.
9. Restrictions on Grants of Options and Issuance of Shares.
--------------------------------------------------------
(a) Regulatory Approvals. No Shares shall be issued or delivered upon
--------------------
exercise of an Option unless and until there shall have been compliance with all
applicable requirements of the Securities Act of 1933, as amended, (the "1933
Act"), and any other requirement of law or of any regulatory body having
jurisdiction over such issuance and delivery. The inability of the Company to
obtain any required permits, authorizations or approvals necessary for the
lawful issuance and sale of any Shares hereunder on terms deemed reasonable by
the Board shall relieve the Company, the Board, and any Committee of any
liability in respect of the non-issuance or sale of such Shares as to which such
requisite permits, authorizations, or approvals shall not have been obtained.
(b) Representations and Warranties. As a condition to the granting or
------------------------------
exercise of any Option, the Board may require the person receiving or exercising
such Option to make any representation and/or warranty to the Company as may be
required (or deemed appropriate by the Board, in its discretion) under any
applicable law or regulation, including but not limited to a representation that
the Option and/or Shares are being acquired only for investment and without any
present intention to sell or distribute such Option and/or Shares, if such a
representation is required under the 1933 Act or any other applicable law, rule,
or regulation.
(c) Shareholder Approval. The exercise of Options under the Plan also
--------------------
is conditioned on approval of the Plan by the Company's Shareholders within
twelve (12) months of adoption of the Plan by the Board, and no Option shall be
exercisable hereunder unless and until the Plan has been so approved.
10. Option Adjustments.
------------------
(a) Change in Capitalization. If the outstanding shares of Common
------------------------
Stock of the Company are increased, decreased, changed into or exchanged for a
different number or kind of shares of the Company through reorganization,
recapitalization, reclassification, stock dividend, stock split or reverse stock
split, upon authorization by the Board an appropriate and proportionate
adjustment shall be made in the number or kind of shares, and the per-share
option price thereof, which may be issued in the aggregate and to any individual
Optionees under the Plan upon exercise of Options granted under the Plan;
provided, however, that no such
7
<PAGE>
adjustment need be made if, upon the advice of counsel, the Board determines
that such adjustment may result in the receipt of federal taxable income to
holders of Options granted under the Plan or the holders of Common Stock or
other classes of the Company's securities.
(b) Corporate Reorganizations. Upon the occurrence of a Terminating
-------------------------
Transaction, as of the effective date of such Terminating Transaction, the Plan
and any then outstanding Options (whether or not vested) shall terminate unless
(i) provision is made in writing in connection with such transaction for the
continuance of the Plan and for the assumption of such Options, or for the
substitution for such Options of new options covering the securities of a
successor corporation or an affiliate thereof, with appropriate adjustments as
to the number and kind of securities and exercise prices, in which event the
Plan and such outstanding Options shall continue or be replaced, as the case may
be, in the manner and under the terms so provided; or (ii) the Board otherwise
shall provide in writing for such adjustments as it deems appropriate in the
terms and conditions of the then-outstanding Options (whether or not vested),
including without limitation providing for the cancellation of Options and their
automatic conversion into the right to receive the securities or other
properties which a holder of the Shares underlying such Options would have been
entitled to receive upon such Terminating Transaction had such Shares been
issued and outstanding (net of the appropriate option exercise prices). If,
pursuant to the foregoing provisions of this paragraph (b), the Plan and the
Options shall terminate by reason of the occurrence of a Terminating Transaction
without provision for any of the action(s) described in clause (i) or (ii)
hereof, then any Optionee holding outstanding Options shall have the right, at
such time immediately prior to the consummation of the Terminating Transaction
as the Board shall designate, to exercise his or her Options to the full extent
not theretofore exercised, including any portion which has not yet become
exercisable.
11. Option Agreement. The terms and conditions of Options granted under
----------------
the Plan shall be evidenced by a written option agreement executed by the
Company and the person to whom the Option is granted. Each option agreement
shall incorporate the Plan by reference and shall include such provisions as are
determined to be necessary or appropriate by the Board.
12. Limitations on Incentive Stock Options. In the event that the
--------------------------------------
aggregate Fair Market Value of Shares (determined as of the date of grant of the
Option covering such Shares) with respect to which Incentive Stock Options are
exercisable for the first time by an Employee during any calendar year under
this Plan and any other plan of the Company exceeds $100,000, Options with
respect to and to the extent of such excess shall be treated as Nonstatutory
Stock Options. This Section 12 shall be applied by taking Options which are
intended to be Incentive Stock Options into account in the order in which they
were granted.
13. Amendment or Termination of the Plans.
-------------------------------------
(a) Board Authority. The Board may amend, suspend, alter, or
---------------
terminate the Plan at any time. To the extent necessary or desirable to comply
with Rule 16b-3 of the Exchange Act, the Code or any other applicable law or
regulation, the Company may obtain
8
<PAGE>
shareholder approval of any amendment to the Plan only in such a manner and to
such a degree as required under applicable law.
(b) Limitation on Board Authority. Furthermore, the Plan may not,
-----------------------------
without the approval of the shareholders, be amended in any manner that would
cause Incentive Stock Options issued hereunder to fail to qualify as Incentive
Stock Options as defined in Section 422(b) of the Code. Notwithstanding the
foregoing, no amendment, suspension or termination of the Plan shall adversely
affect Options granted on or prior to the date thereof, as evidenced by the
execution of an option agreement by both the Company and the Optionee, without
the consent of such Optionee.
(c) Contingent Grants Based on Amendments. Options may be granted in
-------------------------------------
reliance on and consistent with any amendment adopted by the Board and which is
necessary to enable such Options to be granted under the Plan, even though such
amendment requires future shareholder approval; provided, however, that any such
contingent Option by its terms may not be exercised prior to shareholder
approval of such amendment, and provided further, that in the event shareholder
approval is not obtained within twelve (12) months of the date of grant of such
contingent Option, then such contingent Option shall be deemed cancelled and no
longer outstanding.
14. Options Not Transferable. Options granted under this Plan may not be
------------------------
sold, pledged, hypothecated, assigned, encumbered, gifted or otherwise
transferred or alienated in any manner, either voluntarily or involuntarily by
operation of law, other than by will or the laws of descent or distribution, and
may be exercised during the lifetime of an Optionee only by such Optionee.
15. No Rights in Shares Before Issuance and Delivery. Neither the
------------------------------------------------
Optionee, his or her estate nor his or her transferees by will or the laws of
descent and distribution shall be, or have any rights or privileges of, a
shareholder of the Company with respect to any Shares issuable upon exercise of
the Option unless and until certificates representing such Shares shall have
been issued and delivered notwithstanding exercise of the Option. No adjustment
will be made for a dividend or other rights where the record date is prior to
the date such stock certificates are issued, except as provided in Section 10.
16. Taxes. The Board shall make such provisions and take such steps as it
-----
deems necessary or appropriate for the withholding of any federal, state, local
and other tax required by law to be withheld with respect to the grant or
exercise of an Option under the Plan, including, without limitation, the
deduction of the amount of any such withholding tax from any compensation or
other amounts payable to an Optionee by the Company, or requiring an Optionee
(or the Optionee's beneficiary or legal representative) as a condition of
granting or exercising an Option to pay to the Company any amount required to be
withheld, or to execute such other documents as the Board deems necessary or
desirable in connection with the satisfaction of any applicable withholding
obligation. In the discretion of the Board, upon exercise of a Nonstatutory
Stock Option, the Optionee may request the Company to withhold from the Shares
to be issued upon such exercise that number of Shares (based on the Fair
9
<PAGE>
Market Value of the Shares as of the day notice of exercise is received by the
Company) that would satisfy any tax withholding requirement.
17. Legends on Options and Stock Certificates. Each option agreement and
-----------------------------------------
each certificate representing Shares acquired upon exercise of an Option shall
be endorsed with all legends, if any, required by applicable federal and state
securities laws to be placed on the option agreement and/or the certificate.
The determination of which legends, if any, shall be placed upon option
agreements and/or the certificates representing Shares shall be made by the
Board in its sole discretion and such decision shall be final and binding.
18. Availability of Plan and Financial Statements. A copy of this Plan
---------------------------------------------
shall be delivered to the Secretary of the Company and shall be shown by the
Secretary to any eligible person making reasonable inquiry concerning the Plan.
The Company shall also provide Optionees with financial statements of the
Company at least annually.
19. Applicable Law. This Plan shall be governed by and construed in
--------------
accordance with the laws of the State of California.
10
<PAGE>
EXHIBIT 10.2
PROSOFT DEVELOPMENT, INC.
(a Nevada corporation)
<PAGE>
EXHIBIT 10.2
PROSOFT DEVELOPMENT, INC.
1996 STOCK OPTION PLAN
1. Purpose. The purposes of this Plan are to attract and retain the best
-------
available personnel for positions of substantial responsibility, to provide
additional incentive to the Employees, Directors and Consultants of the Company
and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Board and as reflected in
the terms of the written option agreement.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Committee" shall mean the Committee appointed by the Board of
---------
Directors in accordance with paragraph (b) of Section 3 of the Plan, if one is
appointed.
(d) "Common Stock" shall mean the Common Stock of the Company.
------------
(e) "Company" shall mean ProSoft Development, Inc., a Nevada
-------
corporation.
(f) "Consultant" shall mean any person who is engaged by the Company
----------
or any Parent or Subsidiary to render consulting services and is compensated for
such consulting services, including compensation through Options granted under
this Plan; provided that the term Consultant shall not include Directors who are
not compensated for their services or are paid only a director's fee by the
Company.
(g) "Continuous Status as an Employee, Director or Consultant" shall
--------------------------------------------------------
mean the absence of any interruption or termination of service as an Employee,
Director or Consultant (as the case may be). Continuous Status as an Employee,
Director or Consultant shall not be considered interrupted in the case of sick
leave, military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than 90 days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
(h) "Director" shall mean a member of the Board.
--------
(i) "Disability" shall mean a total and permanent disability as that
----------
term is defined in Section 22(e)(3) of the Code.
<PAGE>
(j) "Disinterested Person" shall have the meaning set forth in Rule
--------------------
16b-3 and shall mean a Director who has not, during the one-year period prior to
the date he or she is appointed to the Committee or during the period he or she
is on the Committee, received an option grant or stock issuance under this Plan
or any other stock plan of the Company or any Parent or Subsidiary of the
Company, other than as permitted by Rule 16b-3; provided, however, if Rule 16b-3
is amended after the effective date of this Plan, "Disinterested Person" shall
have the meaning set forth in such amended Rule 16b-3.
(k) "Employee" shall mean any person, including officers and
--------
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" shall mean: (i) if Shares are exchange-traded
-----------------
or traded on the NASDAQ National Market System ("NMS"), the closing sale or last
sale price per share of the Shares; (ii) if Shares are regularly traded in any
over-the-counter market other than NMS, the average of the bid and asked prices
per share of the Shares; and (iii) if Shares are not traded as described in (i)
and (ii) of this Section 2(m), the per share fair market value of the Shares as
determined in good faith by the Board on such basis as the Board in its sole
discretion shall choose. Fair Market Value as of a given date with respect to
subparagraphs (i), (ii) and (iii) shall be determined as of the close of
business on the day prior to the date of determination, or if no trading in the
Shares takes place on such date, on the next preceding trading day on which
there has been such trading.
(n) "Incentive Stock Option" shall mean an Option intended to qualify
----------------------
as an incentive stock option within the meaning of Section 422(b) of the Code.
(o) "Nonstatutory Stock Option" shall mean an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(p) "Option" shall mean a stock option granted pursuant to the Plan.
------
(q) "Optionee" shall mean an Employee, Director or Consultant who
--------
receives an Option.
(r) "Option Termination Date" shall mean the date of expiration of the
-----------------------
term of such Option as set forth in the written option agreement.
(s) "Parent" shall mean a "parent corporation", whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
(t) "Plan" shall mean this ProSoft Development, Inc. 1996 Stock Option
----
Plan.
2
<PAGE>
(u) "Restricted Shareholder" shall mean an Optionee who, at the time
----------------------
the Option is granted, owns stock representing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary of the Company.
(v) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
----------
and Exchange Commission under the Exchange Act, as such rule may be amended from
time to time.
(w) "Share" shall mean a share of the Common Stock, as adjusted in
-----
accordance with Section 10 of the Plan.
(x) "Subsidiary" shall mean a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
(y) "Terminating Transaction" shall mean any of the following events:
-----------------------
(a) the dissolution or liquidation of the Company; (b) a reorganization, merger
or consolidation of the Company with one or more other corporations (except with
respect to a transaction, the purpose of which is to change the domicile or name
of the Company), as a result of which the Company goes out of existence or
becomes a subsidiary of another corporation (which shall be deemed to have
occurred if another corporation shall own, directly or indirectly, fifty percent
(50%) or more of the aggregate voting power of all outstanding equity securities
of the Company); or (c) a sale of all or substantially all of the Company's
assets.
3. Administration.
--------------
(a) The Plan shall be administered by the Board, which shall have sole
authority in its absolute discretion, subject to the terms of Section 3(b)
herein, (i) to determine which Employees, Directors and Consultants shall
receive Options, (ii) subject to the express provisions of the Plan, to
determine the time when Options shall be granted, the number of Shares subject
to the Options, the exercise prices, and the terms and conditions of Options
other than those terms and conditions fixed under the Plan, and (iii) to
interpret the provisions of the Plan and any Option granted under the Plan. The
Board shall adopt by resolution such rules and regulations as may be required to
carry out the purposes of the Plan and shall have authority to do everything
necessary or appropriate to administer the Plan. All decisions, determinations
and interpretations of the Board shall be final and binding on all Optionees.
(b) The Board may delegate administration of the Plan to a Committee
of no less than two Directors, each of which shall be Disinterested Persons
unless the Board expressly declares that it does not require the Plan to comply
with the requirements of Rule 16b-3. The Board may from time to time remove
members from, or add members to, the Committee, and vacancies on the Committee
shall be filled by the Board. Furthermore, the Board at any time by resolution
may abolish the Committee and revest in the Board the administration of the
Plan. (For purposes of this Plan document, the term "Board" shall mean the
Committee to the extent that the Board's powers have been delegated to the
Committee.)
3
<PAGE>
4. Eligibility.
-----------
(a) Incentive Stock Options may be granted only to Employees who
render services which contribute to the Company. Nonstatutory Stock Options may
be granted only to Employees, Directors or Consultants who render services which
contribute to the Company.
(b) The Plan shall not confer upon any Optionee any right to continue
as an Employee, Director or Consultant of the Company, nor shall it interfere in
any way with an Optionee's right or the Company's right to terminate Optionee's
employment or relationship as a Director or Consultant at any time, with or
without cause.
(c) The determination as to whether an Employee, Director or
Consultant is eligible to receive Options hereunder shall be made by the Board
in its sole discretion, and the decision of the Board shall be binding and
final.
5. Number of Shares. The maximum aggregate number of Shares which may be
----------------
optioned and sold under this Plan is 750,000 Shares of authorized but unissued
Common Stock of the Company. No Employee, Director or Consultant shall receive
Options for more than 250,000 shares over any one-year period. In the event
that Options granted under the Plan shall terminate or expire without being
exercised, in whole or in part, the Shares subject to such unexercised Options
may again be optioned and sold under this Plan.
6. Term of the Plan. The Plan shall be effective as of March 26, 1996,
----------------
and shall continue in effect until March 25, 2006, unless terminated earlier.
7. Exercise Price and Consideration.
--------------------------------
(a) The per Share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board in
its sole discretion, but shall be subject to the following:
(i) for an Option granted to a Restricted Shareholder, the per
Share exercise price shall be no less than 110% of the Fair Market Value
per Share on the date of grant;
(ii) for a Nonstatutory Stock Option granted to any Employee,
Director or Consultant (other than a Restricted Shareholder), the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share
on the date of grant; and
(iii) for an Incentive Stock Option granted to any Employee
(other than a Restricted Shareholder), the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of
grant.
4
<PAGE>
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option shall consist of full payment in cash or cash equivalents
or, with the consent of the Board, one of the alternative forms specified below:
(i) full payment in shares of Common Stock (duly endorsed for
transfer to the Company) held by the Optionee for the requisite period
necessary to avoid a charge to the Company's earnings for financial
reporting purposes and valued at Fair Market Value on the date of delivery;
or
(ii) full payment through a combination of cash or cash
equivalents and shares of Common Stock (duly endorsed for transfer to the
Company) held by the Optionee for the requisite period necessary to avoid a
charge to the Company's earnings for financial reporting purposes and
valued at Fair Market Value on the date of delivery; or
(iii) full payment effected through a broker-dealer sale and
remittance procedure pursuant to which the Optionee (A) shall provide
irrevocable written instructions to a designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the Company, out of
the sale proceeds available on the settlement date, sufficient funds to
cover the aggregate option price payable for the purchased Shares plus all
applicable Federal and State income and employment taxes required to be
withheld by the Company by reason of such purchase and (B) shall provide
written directives to the Company to deliver the certificates for the
purchased Shares directly to such brokerage firm in order to complete the
sale transaction; or
(iv) any other legal consideration that may be acceptable to
the Board.
8. Exercise of Options.
-------------------
(a) Vesting of Options. Any Option granted hereunder shall be
------------------
exercisable at such times and under such conditions as determined by the Board,
including performance criteria with respect to the Company and/or the Optionee,
and as shall be permissible under the terms of the Plan, except that any Option
granted hereunder to an employee who is not an officer or director shall be
exercisable at a rate of at least 20% per year over five (5) years from the date
of grant.
(b) Procedure for Exercise. An Option may be exercised at any time as
----------------------
to all or any portions of the Shares as to which it is then exercisable, except
that an Option may not be exercised for a fraction of a Share and shall be
subject to any provision in the written option agreement governing the minimum
number of Shares as to which the Option may be exercised. An Option shall be
deemed to be exercised when written notice of such exercise has been given to
the Company in accordance with the terms of the Option by the person entitled to
exercise the Option and full payment for the Shares with respect to which the
Option is exercised has been received by the Company. Full payment may, as
authorized by the Board, consist of any consideration and method of payment
allowable under Section 7(b) of the Plan.
5
<PAGE>
(c) Termination of Options. All installments of an Option shall
----------------------
expire and terminate on such date(s) as the Board shall determine, but in no
event later than ten (10) years from the date such Option was granted (except
that an Incentive Stock Option granted to a Restricted Shareholder shall by its
terms not be exercisable after the expiration of five (5) years from the date
such Option was granted).
(d) Death or Termination of Service of Optionee. The following
-------------------------------------------
provisions shall govern the exercise period applicable to any Options held by an
Optionee at the time of his or her death or termination of service with the
Company or any Parent or Subsidiary of the Company:
(i) Termination of Continuous Status as an Employee, Director or
------------------------------------------------------------
Consultant. In the event of termination of an Optionee's Continuous Status
----------
as an Employee, Director or Consultant (as the case may be) for any reason
other than Optionee's death or Disability, such Optionee may only exercise
the Option within three (3) months (or such shorter period as specified in
the written option agreement, but in no event less than thirty (30) days)
after the date of such termination.
(ii) Disability of Optionee. In the event of termination of an
----------------------
Optionee's Continuous Status as an Employee, Director or Consultant as a
result of the Optionee's Disability, the Optionee may only exercise the
Option within twelve (12) months (or such shorter period as is specified in
the written option agreement, but in no event less than six (6) months)
from the date of such termination.
(iii) Death of Optionee. In the event of termination of an
-----------------
Optionee's Continuous Status as an Employee, Director or Consultant as a
result of the Optionee's death, the Option may only be exercised any time
within twelve (12) months (or such shorter period as is specified in the
written option agreement, but in no event less than six (6) months)
following the date of death by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance.
(iv) Limitations. Each Option shall, during the limited exercise
-----------
period under this Section 8(d), be exercisable only as to the Shares for
which the Option is exercisable on the date of the Optionee's death or
termination of service with the Company. Under no circumstances shall any
Option become exercisable under this Section 8(d) after the Option
Termination Date. Upon the earlier of the expiration of such limited
exercise period or the Option Termination Date, the Option shall terminate
and cease to be exercisable.
(v) Immediate Termination. Should (A) the Optionee's Continuous
---------------------
Status as an Employee, Director or Consultant be terminated for misconduct
(including, but not limited to, any act of dishonesty, willful misconduct,
fraud or embezzlement) or (B) the Optionee make any unauthorized use or
disclosure of confidential information or trade secrets of the Company or
any Parent or Subsidiary, then in any such event all
6
<PAGE>
outstanding Options granted to the Optionee under this Plan shall terminate
immediately and cease to be exercisable.
(e) Extensions. Notwithstanding the provisions covering the
----------
exercisability of Options following death or termination of service, as
described in Section 8(d), the Board may, in its sole discretion, with the
consent of the Optionee or the Optionee's estate (in the case of the death of
Optionee), extend the period of time during which the Option shall remain
exercisable, provided that in no event shall such extension go beyond the Option
Termination Date. In the case of Incentive Stock Options, extensions under this
Section 8(e) may result in loss of the favorable treatment accorded to incentive
stock options under the Code.
9. Restrictions on Grants of Options and Issuance of Shares.
--------------------------------------------------------
(a) Regulatory Approvals. No Shares shall be issued or delivered upon
--------------------
exercise of an Option unless and until there shall have been compliance with all
applicable requirements of the Securities Act of 1933, as amended, (the "1933
Act"), and any other requirement of law or of any regulatory body having
jurisdiction over such issuance and delivery. The inability of the Company to
obtain any required permits, authorizations or approvals necessary for the
lawful issuance and sale of any Shares hereunder on terms deemed reasonable by
the Board shall relieve the Company, the Board, and any Committee of any
liability in respect of the non-issuance or sale of such Shares as to which such
requisite permits, authorizations, or approvals shall not have been obtained.
(b) Representations and Warranties. As a condition to the granting or
------------------------------
exercise of any Option, the Board may require the person receiving or exercising
such Option to make any representation and/or warranty to the Company as may be
required (or deemed appropriate by the Board, in its discretion) under any
applicable law or regulation, including but not limited to a representation that
the Option and/or Shares are being acquired only for investment and without any
present intention to sell or distribute such Option and/or Shares, if such a
representation is required under the 1933 Act or any other applicable law, rule,
or regulation.
(c) Shareholder Approval. The exercise of Options under the Plan also
--------------------
is conditioned on approval of the Plan by the Company's Shareholders within
twelve (12) months of adoption of the Plan by the Board, and no Option shall be
exercisable hereunder unless and until the Plan has been so approved.
10. Option Adjustments.
------------------
(a) Change in Capitalization. If the outstanding shares of Common
------------------------
Stock of the Company are increased, decreased, changed into or exchanged for a
different number or kind of shares of the Company through reorganization,
recapitalization, reclassification, stock dividend, stock split or reverse stock
split, upon authorization by the Board an appropriate and proportionate
adjustment shall be made in the number or kind of shares, and the per-share
option price thereof, which may be issued in the aggregate and to any individual
Optionees under the Plan upon exercise of Options granted under the Plan;
provided, however, that no such
7
<PAGE>
adjustment need be made if, upon the advice of counsel, the Board determines
that such adjustment may result in the receipt of federal taxable income to
holders of Options granted under the Plan or the holders of Common Stock or
other classes of the Company's securities.
(b) Corporate Reorganizations. Upon the occurrence of a Terminating
-------------------------
Transaction, as of the effective date of such Terminating Transaction, the Plan
and any then outstanding Options (whether or not vested) shall terminate unless
(i) provision is made in writing in connection with such transaction for the
continuance of the Plan and for the assumption of such Options, or for the
substitution for such Options of new options covering the securities of a
successor corporation or an affiliate thereof, with appropriate adjustments as
to the number and kind of securities and exercise prices, in which event the
Plan and such outstanding Options shall continue or be replaced, as the case may
be, in the manner and under the terms so provided; or (ii) the Board otherwise
shall provide in writing for such adjustments as it deems appropriate in the
terms and conditions of the then-outstanding Options (whether or not vested),
including without limitation providing for the cancellation of Options and their
automatic conversion into the right to receive the securities or other
properties which a holder of the Shares underlying such Options would have been
entitled to receive upon such Terminating Transaction had such Shares been
issued and outstanding (net of the appropriate option exercise prices). If,
pursuant to the foregoing provisions of this paragraph (b), the Plan and the
Options shall terminate by reason of the occurrence of a Terminating Transaction
without provision for any of the action(s) described in clause (i) or (ii)
hereof, then any Optionee holding outstanding Options shall have the right, at
such time immediately prior to the consummation of the Terminating Transaction
as the Board shall designate, to exercise his or her Options to the full extent
not theretofore exercised, including any portion which has not yet become
exercisable.
11. Option Agreement. The terms and conditions of Options granted under
----------------
the Plan shall be evidenced by a written option agreement executed by the
Company and the person to whom the Option is granted. Each option agreement
shall incorporate the Plan by reference and shall include such provisions as are
determined to be necessary or appropriate by the Board.
12. Limitations on Incentive Stock Options. In the event that the
--------------------------------------
aggregate Fair Market Value of Shares (determined as of the date of grant of the
Option covering such Shares) with respect to which Incentive Stock Options are
exercisable for the first time by an Employee during any calendar year under
this Plan and any other plan of the Company exceeds $100,000, Options with
respect to and to the extent of such excess shall be treated as Nonstatutory
Stock Options. This Section 12 shall be applied by taking Options which are
intended to be Incentive Stock Options into account in the order in which they
were granted.
13. Amendment or Termination of the Plans.
-------------------------------------
(a) Board Authority. The Board may amend, suspend, alter, or
---------------
terminate the Plan at any time. To the extent necessary or desirable to comply
with Rule 16b-3 of the Exchange Act, the Code or any other applicable law or
regulation, the Company may obtain
8
<PAGE>
shareholder approval of any amendment to the Plan only in such a manner and to
such a degree as required under applicable law.
(b) Limitation on Board Authority. Furthermore, the Plan may not,
-----------------------------
without the approval of the shareholders, be amended in any manner that would
cause Incentive Stock Options issued hereunder to fail to qualify as Incentive
Stock Options as defined in Section 422(b) of the Code. Notwithstanding the
foregoing, no amendment, suspension or termination of the Plan shall adversely
affect Options granted on or prior to the date thereof, as evidenced by the
execution of an option agreement by both the Company and the Optionee, without
the consent of such Optionee.
(c) Contingent Grants Based on Amendments. Options may be granted in
-------------------------------------
reliance on and consistent with any amendment adopted by the Board and which is
necessary to enable such Options to be granted under the Plan, even though such
amendment requires future shareholder approval; provided, however, that any such
contingent Option by its terms may not be exercised prior to shareholder
approval of such amendment, and provided further, that in the event shareholder
approval is not obtained within twelve (12) months of the date of grant of such
contingent Option, then such contingent Option shall be deemed cancelled and no
longer outstanding.
14. Options Not Transferable. Options granted under this Plan may not be
------------------------
sold, pledged, hypothecated, assigned, encumbered, gifted or otherwise
transferred or alienated in any manner, either voluntarily or involuntarily by
operation of law, other than by will or the laws of descent or distribution, and
may be exercised during the lifetime of an Optionee only by such Optionee.
15. No Rights in Shares Before Issuance and Delivery. Neither the
------------------------------------------------
Optionee, his or her estate nor his or her transferees by will or the laws of
descent and distribution shall be, or have any rights or privileges of, a
shareholder of the Company with respect to any Shares issuable upon exercise of
the Option unless and until certificates representing such Shares shall have
been issued and delivered notwithstanding exercise of the Option. No adjustment
will be made for a dividend or other rights where the record date is prior to
the date such stock certificates are issued, except as provided in Section 10.
16. Taxes. The Board shall make such provisions and take such steps as it
-----
deems necessary or appropriate for the withholding of any federal, state, local
and other tax required by law to be withheld with respect to the grant or
exercise of an Option under the Plan, including, without limitation, the
deduction of the amount of any such withholding tax from any compensation or
other amounts payable to an Optionee by the Company, or requiring an Optionee
(or the Optionee's beneficiary or legal representative) as a condition of
granting or exercising an Option to pay to the Company any amount required to be
withheld, or to execute such other documents as the Board deems necessary or
desirable in connection with the satisfaction of any applicable withholding
obligation. In the discretion of the Board, upon exercise of a Nonstatutory
Stock Option, the Optionee may request the Company to withhold from the Shares
to be issued upon such exercise that number of Shares (based on the Fair
9
<PAGE>
Market Value of the Shares as of the day notice of exercise is received by the
Company) that would satisfy any tax withholding requirement.
17. Legends on Options and Stock Certificates. Each option agreement and
-----------------------------------------
each certificate representing Shares acquired upon exercise of an Option shall
be endorsed with all legends, if any, required by applicable federal and state
securities laws to be placed on the option agreement and/or the certificate.
The determination of which legends, if any, shall be placed upon option
agreements and/or the certificates representing Shares shall be made by the
Board in its sole discretion and such decision shall be final and binding.
18. Availability of Plan and Financial Statements. A copy of this Plan
---------------------------------------------
shall be delivered to the Secretary of the Company and shall be shown by the
Secretary to any eligible person making reasonable inquiry concerning the Plan.
The Company shall also provide Optionees with financial statements of the
Company at least annually.
19. Applicable Law. This Plan shall be governed by and construed in
--------------
accordance with the laws of the State of California.
10
<PAGE>
EXHIBIT 10.3
STOCK AND WARRANT PURCHASE AGREEMENT
This STOCK AND WARRANT PURCHASE AGREEMENT (this "Agreement") is
entered into as of April 15, 1996 by and among ProSoft Development, Inc., a
Nevada corporation (the "Company"), Donald L. Danks, Keith D. Freadhoff and
Douglas Hartman (collectively, the "Major Shareholders"), and the persons listed
on Schedule 1 hereto (collectively, the "Purchasers" and individually, a
"Purchaser").
R E C I T A L S
---------------
A. The Company is in the process of acquiring 100% of the
outstanding capital stock of Pro-Soft Development Corp. ("Pro-Soft California"),
a California corporation engaged in the business of training individuals in
advanced computer technology (the "Business"), and is seeking equity financing
to finance the growth of the Business. The acquisition of Pro-Soft California
(the "Acquisition") is being effected through an Agreement and Plan of
Reorganization involving the Company, Pro-Soft California and the shareholders
of Pro-Soft California.
B. The Major Shareholders will be the principal shareholders of the
Company upon completion of the acquisition of Pro-Soft California.
C. Each of the Purchasers desires to make an equity investment in
the Company on the terms and conditions set forth in this Agreement.
A G R E E M E N T
-----------------
In consideration of the foregoing recitals and the mutual promises and
covenants contained in this Agreement, the parties to this Agreement agree as
follows:
1. Purchase and Sale of Shares. Upon the terms and subject to the
---------------------------
conditions contained herein, the Company hereby sells to each Purchaser, and
each Purchaser, severally, and not jointly, hereby purchases from the Company,
the number of shares (the "Shares") of Common Stock specified on the signature
page to this Agreement, at a purchase price of $3.50 per share.
2. Issue and Sale of Warrants. The Company shall issue and sell to
--------------------------
each Purchaser in connection with each purchase of Shares a Warrant representing
the right to purchase, for a price (the "Exercise Price") of $5.00 per share,
the number of shares of Common Stock equal to .3333 shares for every share
purchased by such Purchaser, rounded upward to next whole share in the case of
any fractional share, for a total of 402,500 shares of Common Stock. Each
Purchaser agrees to purchase such Warrants concurrently with each purchase of
Shares made by it. The purchase price for each Warrant shall be equal to the
product of $0.001 multiplied by the number of shares initially issuable upon
exercise of such Warrant. Each of the
<PAGE>
Warrants shall be substantially in the form of Exhibit A to this Agreement.
3. Representations and Warranties of the Company. The Company
---------------------------------------------
hereby represents and warrants to the Purchasers as follows:
(a) Organization. The Company (i) is a corporation duly
------------
organized, validly existing and in good standing under the laws of the State of
Nevada and (ii) has all requisite power and authority to carry on its business,
to own and hold its properties and assets, to enter into and perform this
Agreement and to issue and carry out the provisions of the Warrants.
(b) Authorization. The execution, delivery and performance by
-------------
the Company of this Agreement and the Warrants have been duly and validly
authorized by the Company's Board of Directors and no authorization or approval
of the Company's shareholders is required in connection therewith. This
Agreement and the Warrants constitute the legal, valid and binding obligations
of the Company and each is enforceable against the Company in accordance with
its respective terms, except as such enforcement may be limited by bankruptcy,
insolvency and other similar laws affecting the enforcement of creditors' rights
generally.
(c) No Conflict. The execution, delivery and performance by the
-----------
Company of this Agreement and the issuance of the Warrants: (i) will not
conflict with, result in a breach of or constitute a default under any contract,
agreement, indenture, loan or credit agreement, deed of trust, mortgage, lease,
security agreement or other arrangement to which the Company is a party or by
which the Company or any of its properties or assets is bound or affected; (ii)
will not cause the Company to violate or contravene any provision of its
Articles of Incorporation or Bylaws; or (iii) require any authorization,
consent, approval, permit, exemption or other action by or notice to any court
or administrative or governmental body pursuant to the Articles of Incorporation
or Bylaws of the Company, any law, statute, rule or regulation to which the
Company is subject or any agreement, instrument, order, judgment or decree to
which the Company is subject.
(d) Shares. All of the shares of Common Stock issuable under
------
this Agreement have been duly authorized and reserved for issuance and, upon
payment therefor and issuance thereof in accordance with the terms of this
Agreement, will be duly authorized, validly issued, fully paid and
nonassessable.
(e) Warrant Shares. All of the shares of Common Stock issuable
--------------
upon exercise of the Warrants have been duly authorized and reserved for
issuance and, upon payment thereon and issuance thereof in accordance with the
terms of the Warrants, will be duly authorized, validly issued, fully paid and
nonassessable.
2
<PAGE>
(f) Capitalization. The authorized capital stock of the Company
--------------
consists of 10,000,000 shares of Common Stock, and the Company has no authority
to issue any other capital stock or security. Upon completion of the
Acquisition, a total of 5,113,250 shares of Common Stock will have been issued
and such shares will be duly authorized, validly issued, fully paid and
nonassessable. Except as provided in this Agreement and the Company's Articles
of Incorporation, there are no outstanding preemptive, conversion or other
rights, subscriptions, options, warrants, calls, contracts, demands,
commitments, convertible or exchangeable securities or other instruments,
agreements or arrangements of any character or nature whatever issued by or
binding upon the Company for the purchase or acquisition of any shares of its
capital stock, other than (i) outstanding warrants to purchase an aggregate of
1,037,500 shares of Common Stock, and (ii) options granted or to be granted to
employees and consultants of the Company under the Company's stock option plan
to be implemented.
4. Rights of First Refusal.
------------------------
4.1 Right of First Refusal on Sales by Major Shareholders. The
-----------------------------------------------------
Major Shareholders agree as follows:
- ------------------------------------
(a) In the event that any Major Shareholder desires to
sell, transfer or dispose of any shares in the Company in any manner whatsoever
during such Shareholder's lifetime, that Shareholder shall first offer to sell
those shares to the Purchasers by giving them written notice to that effect.
The notice shall specify the number of shares proposed to be transferred, the
party proposing to receive such shares and the consideration to be given in
exchange therefor, and shall be given in the manner prescribed by Section 9
hereof. The Purchasers shall have the option for 30 days after that
notification to purchase all of the shares offered for sale. Each Purchaser
shall have the right to purchase the shares offered for sale pro rata in
accordance with the number of Shares owned by each of them, unless otherwise
agreed among them.
(b) If all of the offered shares are not purchased by the
Purchasers before the expiration of the time period above, the offering Major
Shareholder shall be under no obligation to transfer any of the offered shares
to the Purchasers, but may dispose of those shares to the same proposed
transferee within 30 days after the expiration of such time period, except that
he shall not transfer any of such shares upon terms more favorable to the
transferee than those described in the notice to the Purchasers.
4.2 Right of First Refusal on Sales by the Company.
-----------------------------------------------
(a) If the Company determines to issue any additional shares
of its capital stock, or warrants, options, rights or other securities
convertible into its capital stock (collectively, the "Equity Securities") from
and after the date of this Agreement, the Company shall first give each of the
Purchasers the right to purchase such Equity Securities by delivering to them a
written offer which shall state the price and other terms and conditions of the
proposed issuance. The Purchasers as a group shall have the right to purchase up
to 75% of the Equity
3
<PAGE>
Securities offered. If the Company proposes to issue the Equity Securities for
consideration other than solely cash and/or promissory notes, the offer to the
Purchasers shall, to the extent of such consideration, permit such holders to
pay in lieu thereof cash equal to the fair market value of such consideration,
and the offer shall state the Company's estimate of such fair market value. The
Board of Directors shall fix the period of the offer which shall be a minimum of
20 days or such longer period as is necessary to determine the fair market value
of the consideration referred to in the preceding sentence.
(b) A Purchaser may accept an offer only by giving written
notice to the Company before the offer expires that the Purchaser has accepted
the offer to purchase some or all of the securities offered (the "Accepted
Securities"); provided, however, that each Purchaser shall have the right to
purchase its portion of the 75% of Equity Securities pro rata in accordance with
the number of Shares owned by each of them, unless otherwise agreed by them.
Notwithstanding the foregoing, any such Purchaser may, at the time it
accepts the offer, subscribe to purchase any or all securities offered
("Oversubscription Securities") which may be available as a result of the
rejection, or partial rejection, of the offer by other Purchasers. Promptly
following the expiration of the offer, the Company shall allocate the securities
subscribed for among the Purchasers accepting or partially accepting the offer
(the "Subscribing Holders"), pro rata, based upon their respective holdings as
aforesaid, and shall by written notice (the "Acceptance Notice") advise all
Subscribing Holders of the number or amount of securities allocated to each of
the Subscribing Holders. Within 10 days following receipt of the Acceptance
Notice, each of the Subscribing Holders shall deliver to the Company payment in
full for the Accepted Securities purchased by it against delivery by the Company
by each Subscribing Holder of a certificate or certificates evidencing the
Accepted Securities purchased by it.
To the extent the offer is not subscribed in full by the Purchasers,
the Company may, for a period of 90 days thereafter, issue and sell the
unaccepted securities, or any of them, at the same price, and upon the other
terms and conditions specified in such offer, to any person or persons.
(c) Notwithstanding the provisions of this Section 4.2, the
Company shall not be required to first offer the Equity Securities to Purchasers
if the Company proposes to issue Common Stock, or nontransferable options to
purchase Common Stock, for cash only, to its officers or employees, or officers
or employees of any of its subsidiaries, or to outside consultants or
contractors in connection with services performed for the Company, pursuant to
employment or compensation plans or other arrangements approved by the Company's
Board of Directors.
4.3 Termination of Rights. The rights of first refusal under
---------------------
this Section 4 shall terminate upon the first sale of Common Stock of the
Company to the public in a firm commitment underwritten public offering pursuant
to a registration statement filed with, and declared effective by, the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act") and involving net proceeds to the Company of at least $5,000,000 (a
4
<PAGE>
"Qualified Public Offering").
5. Other Agreements.
-----------------
5.1 [Intentionally Omitted].
-----------------------
5.2 Board Representation. Until the closing of a Qualified
--------------------
Public Offering, the Company and the Major Shareholders shall use their best
efforts to cause and maintain the election to the Board of Directors of a
representative mutually agreed upon by the Company and the holders of a majority
in interest of the Shares to fill one of the seats to be elected by the holders
of the Common Stock.
6. Restrictions on Transfer and Purchaser Representations. In
------------------------------------------------------
acquiring the Common Stock, any Warrants and any shares of Common Stock issuable
upon exercise of the Warrants (collectively, the "Securities"), each Purchaser
makes the following representations, warranties and agreements:
(a) Such Purchaser understands that the Securities will be
issued by the Company without registration under the Securities Act of 1933, as
amended ("Act"), and without qualification and/or registration under applicable
state securities laws pursuant to specific exemptions from registration and/or
qualification contained in the Act and in applicable state securities laws.
Such Purchaser understands that the foregoing exemptions depend upon, among
other things, the bona fide nature of his investment intent as expressed herein.
(b) Each Purchaser agrees that none of the Securities, nor any
interest in the Securities, will be sold, transferred, or otherwise disposed of
by him without registration and/or qualification under the Act or applicable
state securities laws unless such Purchaser first demonstrates to the
satisfaction of the Company that specific exemptions from such registration and
qualification requirements are available with respect to such resale or
disposition or provides the Company an opinion of counsel satisfactory to the
Company that a contemplated transfer may be made without violation of the Act or
applicable state securities laws.
(c) Each Purchaser represents and warrants to the Company the
following:
(i) Such Purchaser is acquiring the Securities for
investment purposes only, for such Purchaser's own account, and not as
nominee or agent for any other person, and not with a view to, or for
resale in connection with, any distribution thereof within the meaning of
the Act.
(ii) Such Lender has been furnished with and carefully
read the following documents regarding the Company, Pro-Soft California and
the Acquisition:
(A) Pro-Soft California Private Placement Memorandum
dated December 11, 1995;
5
<PAGE>
(B) Proxy materials of Tel-Fed, Inc. (the prior name of the
Company) dated March 16, 1996;
(C) Agreement and Plan of Reorganization by and among the
Company, Pro-Soft California and the Pro-Soft California shareholders;
(D) Professional Development Institute Concept Paper dated
March 3, 1996;
(E) Financial statements of Tel-Fed, Inc. at and for the
periods ended December 31, 1995 and 1994;
(F) Financial statements of Pro-Soft California as of
January 1, 1996 and financial statements of its predecessor,
Professional Development Institute, a sole proprietorship, as of
December 31, 1995 and for the period February 1, 1995 to December 31,
1995; and
(G) Pro-Soft diligence book.
(iii) Such Purchaser has received all the information he
considers necessary or appropriate to evaluate the risks and merits of an
investment in the Company, and has had an opportunity to discuss the
Company's business, management, financial affairs and prospects with the
Company's management.
(iv) Such Purchaser is an "accredited investor" within the
meaning of Rule 501 of Regulation D promulgated under the Act.
(v) Such Purchaser is able to bear the economic risks related
to a purchase of the Securities. Such Purchaser either has a pre-existing
personal or business relationship with the Company or any of its officers,
directors of controlling persons, or by reason of such Purchaser's business
or financial experience or the business or financial experience of his
professional advisor who is unaffiliated with and who is not compensated by
the Company or any affiliated or selling agent of the Company, directly or
indirectly, has the capacity to protect his own interests in connection
with the subject transactions.
(d) Each Purchaser acknowledges that the Securities to be issued
to him will contain a legend which prohibits an offer to transfer or a transfer
of all or any portion of the Securities unless the Securities are registered
under the Act or unless an exemption from registration is available with respect
to such resale or disposition.
7. Severability. In the event any provision of this Agreement
------------
shall finally be determined to be unlawful, such provision shall be deemed to be
severed from this Agreement
6
<PAGE>
and every other provision of this Agreement shall remain in full force and
effect.
8. Attorneys' Fees. In the event any action in law or equity,
---------------
arbitration or other proceeding is brought for the enforcement of this Agreement
or in connection with any of the provisions of this Agreement, the prevailing
party or parties shall be entitled to its attorneys' fees and other costs
reasonably incurred in such action or proceeding.
9. Notices. Any notice to be given hereunder shall be given (except
-------
as otherwise expressly set forth herein) by registered or certified mail,
postage prepaid, by cable, telex or facsimile, or may be delivered by hand or by
messenger and shall be deemed to have been received as follows: if given by
registered or certified mail, five business days after posting; if given by
cable, two business days after dispatch; if given by telex or facsimile, one
business day after dispatch; and if delivered by hand or by messenger and
receipted for by or on behalf of the party to whom the notice is directed, at
the time of such delivery. Any notice shall be sent to the address given in the
signature blocks of this Agreement or to such other address as the relevant
party may notify to the other.
10. Entire Agreement. This Agreement and the exhibits hereto contain
----------------
all of the agreements between the parties with respect to the matters contained
herein and supersedes all prior written or oral and all contemporaneous oral
agreements or understandings between the parties pertaining to any such matters.
No provision of this Agreement may be amended or added to except by an agreement
in writing signed by the parties to this Agreement or their respective
successors in interest and expressly stating that it is an amendment of this
Agreement.
11. Controlling Law. This Agreement shall be governed by, interpreted
---------------
under, and construed and enforced in accordance with the laws of the
State of California applicable to agreements made and to be performed wholly
within the State of California. In the event a judicial proceeding is
necessary, the sole forum for resolving disputes arising under or relating to
this Agreement shall be the Municipal and Superior Courts for the County of
Orange, California, and all related appellate courts and the parties hereby
consent to the jurisdiction of such courts, and that venue shall be in Orange
County, California.
7
<PAGE>
12. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be an original but all of which shall constitute one and the
same instrument.
"Company"
ProSoft Development, Inc., a Nevada corporation
By:
-------------------------------------------
Name:
-------------------------------------------
Address: 7100 Knott Avenue
Buena Park, CA 90620
The undersigned hereby subscribes for Common Stock and Warrants under
the terms and conditions of the foregoing agreement as follows:
Name of Purchaser:
----------------------------------------------------
Authorized Signature:
----------------------------------------------------
Amount of Investment: __________ shares of Common Stock at $3.50 per share
for an aggregate purchase price of $__________
Exact Name in which Common
Stock and Warrants are to
be Issued:
----------------------------------------------------
Address:
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
8
<PAGE>
EXHIBIT 10.4
SUBSCRIPTION AGREEMENT
----------------------
COMMON STOCK
ProSoft Development, Inc.
7100 Knott Avenue
Buena Park, CA 90620
1. Subscription. The undersigned hereby subscribes to become a
------------
shareholder in ProSoft Development, Inc., a Nevada corporation (the "Company"),
and to purchase the number of shares of Common Stock of the Company (the
"Shares") indicated below in accordance with the terms and conditions of the
Private Placement Memorandum dated June 25, 1996 including the Exhibits attached
thereto (the "Memorandum"), which relates to the offering of the Shares of the
Company (the "Offering"). I understand that the minimum investment is $25,000
to be paid by check or wire transfer in an amount equal to the purchase price of
the Shares subscribed for, with any check made payable to "ProSoft Development,
Inc."
2. Representations and Warranties. The undersigned represents and
------------------------------
warrants to the Company as follows:
(a) I have received and read and I understand the Memorandum and each of
the Exhibits to the Memorandum which contain important information relating to
the Company and the Offering and have relied solely on those documents; no oral
representations have been made or oral information furnished to the undersigned
in connection with the purchase of the Shares which were in any way inconsistent
with the Memorandum.
(b) I have, or my Purchaser Representative, as defined in Regulation D
under the Securities Act of 1933, as amended (the "1933 Act") has, had the
opportunity to seek from the Company or its representatives, and have received
from such parties, all information deemed necessary by the undersigned to
evaluate the merits and risks of the Offering. I have, or my Purchaser
Representative has, had the opportunity to verify the accuracy of the
information contained in the Memorandum and to seek investment, tax or legal
counsel prior to investing in the Company.
(c) I understand that the Shares will not be registered for sale under
the 1933 Act or registered or qualified under any state securities laws in
reliance upon exemptions from such registration and qualification, and that such
exemptions depend in large part on my representations and warranties herein.
(d) If I am acting in a representative capacity for a corporation,
partnership, trust or other entity, or as agent for any person or entity, I have
full authority to execute this Subscription Agreement in such capacity.
1
<PAGE>
(e) The Shares are being purchased for my own account for investment and
not with a view to resale or distribution to any person, corporation or other
entity. I also understand that there will not be any public market for the sale
of such Shares.
(f) I, together with my Purchaser Representative, if applicable, have
such knowledge and experience in financial and business matters that will enable
me to utilize the information made available to me in connection with this
Offering to evaluate the merits and risks of the Offering.
(g) I am able to bear the economic risks related to a purchase of Shares
(i.e., I am able to afford a complete loss of the Shares I am subscribing to
---
purchase). I have made other investments of a similar nature and, by reason of
my business and financial experience or the business and financial experience of
those persons I have retained to advise me with respect to my investment in the
Shares, have acquired the capacity to protect my own interests in investments of
this nature. I have carefully reviewed the Memorandum, and have made my own
examination of the investment, as well as the accounting and tax aspects of this
transaction, and will depend on the advice of my own counsel and accountants,
and I agree that the Company has no responsibility with respect to such matters
or such advice.
(h) I have adequate means of providing for my current needs and possible
personal contingencies. I have no need for liquidity of the Shares subscribed to
be purchased hereby and have no reason to anticipate any change in my personal
circumstances, financial or otherwise, which might cause or require any sale or
distribution of such Shares subscribed to be purchased.
(i) I recognize that the Shares involve a high degree of risk including
those special risks set forth under the caption "Risk Factors" in the
Memorandum.
(j) I satisfy subparagraphs (1) - (3) of the requirements set forth
under the caption "Investor Suitability Requirements" in the Memorandum.
(k) All information which I have provided to the Company including, but
not limited to, my financial position and my knowledge of financial and business
matters is true, correct and complete as of the date of execution of this
Subscription Agreement. I understand that the Company will rely to a material
degree upon the representations contained herein.
(l) I understand that I will not be able to cancel, terminate or revoke
this Subscription Agreement and it will survive my death or disability, if I am
an individual.
(m) I am aware that no federal or state agency has made any finding or
determination as to the fairness of investment in, nor any recommendation or
endorsement of, the Shares.
(n) I understand that the Shares are subject to restrictions on
transferability and resale and may not be transferred or resold except as
permitted under the 1933 Act and applicable state securities laws, pursuant to
registration or exemption therefrom.
2
<PAGE>
3. Indemnification. I hereby indemnify the Company, its affiliates and
---------------
its agents and hold them harmless from and against any and all loss, damage,
liability or expense, including costs and reasonable attorneys' fees, incurred
by the Company (or its affiliates or agents) by reason of or in connection with
any misrepresentation made by me, any breach of any of my warranties, or my
failure to fulfill any of my covenants or agreements under this Subscription
Agreement. This Subscription Agreement and the representations and warranties
contained herein shall survive my purchase of the Shares and shall be binding
upon my heirs, executors, administrators, successors and assigns.
4. Acceptance or Rejection of Subscription. The undersigned understands
---------------------------------------
that:
(a) the Company reserves the right to reject my subscription, in whole
or in part, at the sole discretion of the Company for any reason;
(b) my subscription will be accepted or rejected within 15 days from
receipt and will be effective only upon acceptance by the Company; and
(c) upon acceptance of my subscription by the Company, my subscription
will be irrevocable.
5. Registration Rights. The Company hereby grants to the undersigned the
-------------------
following rights covering the registration with the Securities and Exchange
Commission of the Shares subscribed for by the undersigned.
(a) On or before August 31, 1996, the Company shall prepare and file a
registration statement covering the Shares and shall use its best efforts to
cause such registration statement to become and remain effective until the
earlier of (i) 24 months from the date of purchase or (ii) such time as all
Shares could be sold under Rule 144 of the 1933 Act.
(b) In connection with the registration described in this Section 5,
the Company agrees to take all action necessary to facilitate the sale by the
undersigned of the Shares, including furnishing to the undersigned such number
of prospectuses reasonably required by the undersigned to dispose of his Shares,
using its best efforts to register or qualify the Shares under the 1933 Act and
applicable blue sky laws (such action being herein called a "Filing" or the
"Filing") and delivering underwriting agreements and other documents customarily
delivered by issuers in connection with public offerings. The Company shall not
be required to ensure the availability of a prospectus meeting the requirements
of the Act in connection with any Filings made pursuant to this Section 5 for a
period greater than is required to complete the marketing arrangements with
respect to the securities in such Filings, and in no event for a period greater
than the period set forth in Section 5(a).
(c) With respect to the inclusion of Shares in a registration statement
pursuant to this Section 5, all fees, costs and expenses of and incidental to
such inclusion shall be borne by the Company; provided, however, that the
undersigned shall bear his or its pro rata share of the underwriting discounts
and commissions and shall bear any fees and disbursements of counsel retained by
the undersigned (other than counsel also retained by the Company).
3
<PAGE>
(d) The undersigned shall be entitled to customary indemnification and
rights of contribution relating to the registration of the Shares.
(e) The undersigned shall furnish to the Company such information
regarding the undersigned and the distribution proposed by the undersigned as
the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Section 5.
(f) The registration rights pursuant to this Section 5 shall terminate
on such date as all Shares held by the undersigned may immediately be sold under
Rule 144 during any 90-day period.
6. Number of Shares. The undersigned hereby subscribes for Shares as
----------------
follows:
_______________ Shares at $10.00 per Share for an aggregate purchase
price of $_______________ (Minimum purchase 2,500 Shares, $25,000).
I HAVE RECEIVED PRIVATE PLACEMENT MEMORANDUM #___________
DATED JUNE 25, 1996. __________.
(Initials)
Executed this ___ day of ____________, 1996, at ___________________________.
(City) (State)
TYPE OF OWNERSHIP Check one:
-----------------
<TABLE>
<S> <C>
____ INDIVIDUAL OWNERSHIP ____ COMMUNITY PROPERTY (one
(One signature required) signature required if interest
held in one name, i.e., managing
spouse; two signatures required
if interest held in both names)
____ JOINT TENANTS WITH RIGHT OF ____ TENANTS IN COMMON (both or all
SURVIVORSHIP (both or all parties must sign)
parties must sign)
____ PARTNERSHIP (Please include a ____ CORPORATION (Please include
copy of the Statement of certified Corporate Resolution
Partnership Agreement authorizing signature)
authorizing signature)
____ TRUST (Please include a copy ____ OTHER:__________________________
of the trustee's powers under
the Trust Agreement authorizing
investment)
</TABLE>
4
<PAGE>
Please print the exact name(s) in which the Shares are to be held.
The undersigned hereby represents that he, she or it has read this entire
Subscription Agreement and the Memorandum dated June 25, 1996.
- -------------------------------- --------------------------------
Investor #1 Signature Investor #2 Signature
- -------------------------------- --------------------------------
Investor #1 Print or Type Name Investor #2 Print or Type Name
- -------------------------------- --------------------------------
Telephone Number (Business) Telephone Number (Business)
- -------------------------------- --------------------------------
Telephone Number (Residence) Telephone Number (Residence)
- -------------------------------- --------------------------------
Social Security or Tax I.D. No. Social Security or Tax I.D. No.
- -------------------------------- --------------------------------
Street Address Street Address
- -------------------------------- --------------------------------
City State Zip City State Zip
SUBSCRIPTION ACCEPTED:
ProSoft Development, Inc., a Nevada corporation
By: _____________________________
Printed Name
and Title:___________________
5
<PAGE>
EXHIBIT 10.12
PROMISSORY NOTE Dated July 3, 1996
FOR VALUE RECEIVED, the undersigned, Keith Freadhoff, an individual,
promises to pay to the order of ProSoft Development, Inc., a Nevada corporation,
the sum of Nine Thousand Five Hundred Dollars ($9,500), payable plus interest
thereon at the rate of 10% per annum or the maximum rate allowed by law,
whichever is less, on the unpaid balance beginning January 1, 1996.
The entire sum of principal and accrued interest shall be fully payable upon
demand, the termination of Keith Freadhoff (the "Borrower") from the employment
with ProSoft Development, Inc. or the registration or exercising of ProSoft
stock options for Keith Freadhoff.
In the event of default, the undersigned borrower agrees to pay all
reasonable attorney's fees and costs of collection and to submit any dispute to
binding arbitration before JAMS ("Judicial Arbitration Mediation Services") in
Orange County, California.
Signed and effective July 3, 1996
By: /s/ Keith Freadhoff
------------------------
Keith Freadhoff
<PAGE>
PROMISSORY NOTE Dated July 31, 1996
FOR VALUE RECEIVED, the undersigned, Keith Freadhoff, an individual,
promises to pay to the order of ProSoft Development, Inc., a Nevada corporation,
the sum of Seventy One Thousand Five Hundred Fifty three and 79/100 Dollars
($71,553.79), payable plus interest thereon at the rate of 10% per annum or the
maximum rate allowed by law, whichever is less, on the unpaid balance beginning
August 1, 1996.
The entire sum of principal and accrued interest shall be fully payable
upon demand, the termination of Keith Freadhoff (the "Borrower") from the
employment with ProSoft Development, Inc. or the registration or exercising of
ProSoft stock options for Keith Freadhoff.
In the event of default, the undersigned borrower agrees to pay all
reasonable attorney's fees and costs of collection and to submit any dispute to
binding arbitration before JAMS ("Judicial Arbitration Mediation Services") in
Orange County, California.
Signed and effective July 31, 1996
By: /s/ Keith Freadhoff
----------------------------------
Keith Freadhoff
<PAGE>
EXHIBIT 10.13
F O R M
PROSOFT DEVELOPMENT, INC.
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT (the "Agreement") is made as of this ____ day of
July, 1995, by and between PROSOFT DEVELOPMENT, INC., a Nevada corporation (the
"Company"), and ____________________ (the "Indemnitee").
A. The Indemnitee is currently serving as ____________________ of the
Company and in such capacity renders valuable services to the Company.
B. The Company has investigated whether additional protective measures are
warranted to protect adequately its directors and officers against various legal
risks and potential liabilities to which such individuals are subject due to
their position with the Company and has concluded that additional protective
measures are warranted.
C. In order to induce and encourage highly experienced and capable persons
such as the Indemnitee to continue to serve as officers and directors, the Board
of Directors has determined, after due consideration, that this Agreement is not
only reasonable and prudent, but necessary to promote and ensure the best
interests of the Company and its stockholders.
NOW, THEREFORE, in consideration of the continued services of the
Indemnitee and as an inducement to the Indemnitee to continue to serve as
____________________, the Company and the Indemnitee do hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have
-----------
the meanings set forth below:
(a) "Proceeding" shall mean any threatened, pending or completed action,
suit or proceeding, whether brought in the name of the Company or otherwise and
whether of a civil, criminal, administrative or investigative nature, by reason
of the fact that the Indemnitee is or was an officer and/or a director of the
Company, or is or was serving at the request of the Company as director,
officer, employee or agent of any other corporation, partnership, joint venture,
trust or other enterprise, whether or not he is serving in such capacity at the
time any liability or Expense is incurred for which indemnification or
advancement of Expenses is to be provided under this Agreement.
(b) "Expenses" means, all costs, charges and expenses incurred in
connection with a Proceeding, including, without limitation, attorneys' fees,
disbursements and retainers, accounting and witness fees, travel and deposition
costs, expenses of investigations, judicial or administrative proceedings or
appeals, and any expenses of establishing a right to indemnification pursuant to
this Agreement or otherwise, including reasonable compensation for
<PAGE>
time spent by the Indemnitee in connection with the investigation, defense or
appeal of a Proceeding or action for indemnification for which he is not
otherwise compensated by the Company or any third party; provided, however, that
-------- -------
the term "Expenses" includes only those costs, charges and expenses incurred
with the Company's consent, which consent shall not be unreasonably withheld;
and provided further, that the term "Expenses" does not include the amount of
-------- -------
damages, judgments, amounts paid in settlement, fines, penalties or excise taxes
under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
actually levied against the Indemnitee or paid by or on behalf of the
Indemnitee.
2. AGREEMENT TO SERVE. The Indemnitee agrees to continue to serve as an
------------------
officer of the Company at the will of the Company for so long as Indemnitee is
duly elected or appointed or until such time as Indemnitee tenders a resignation
in writing or is terminated, as an officer by the Company. Nothing in this
Agreement shall be construed to create any right in Indemnitee to continued
service as an officer of the Company.
3. INDEMNIFICATION IN THIRD PARTY ACTIONS. The Company shall indemnify the
--------------------------------------
Indemnitee in accordance with the provisions of this Section 3 if the Indemnitee
is a party to or threatened to be made a party to or otherwise involved in any
Proceeding (other than a Proceeding by or in the right of the Company to procure
a judgment in its favor), by reason of the fact that the Indemnitee is or was an
officer and/or a director of the Company or is or was serving at the request of
the Company as a director, officer, employee or agent of any other corporation,
partnership, joint venture, trust or other enterprise, against all Expenses,
damages, judgments, amounts paid in settlement, fines, penalties and ERISA
excise taxes actually and reasonably incurred by the Indemnitee in connection
with the defense or settlement of such Proceeding, to the fullest extent
permitted by Nevada law; provided that any settlement shall be approved in
--------
writing by the Company.
4. INDEMNIFICATION IN PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The
------------------------------------------------- --------------
Company shall indemnify the Indemnitee in accordance with the provisions of this
Section 4 if the Indemnitee is a party to or threatened to be made a party to or
otherwise involved in any Proceeding by or in the right of the Company to
procure a judgment in its favor by reason of the fact that the Indemnitee is or
was an officer and/or a director of the Company, or is or was serving at the
request of the Company as a director, officer, employee or agent of another
enterprise, against all Expenses actually and reasonably incurred by Indemnitee
in connection with the defense or settlement of such Proceeding, to the fullest
extent permitted by Nevada law.
5. CONCLUSIVE PRESUMPTION REGARDING STANDARD OF CONDUCT. The Indemnitee
----------------------------------------------------
shall be conclusively presumed to have met the relevant standards of conduct
required by Nevada law for indemnification pursuant to this Agreement, unless a
determination is made that the Indemnitee has not met such standards by (i) the
Board of Directors of the Company by a majority vote of a quorum thereof
consisting of directors who were not parties to such Proceeding, (ii) the
stockholders of the Company by majority vote, or (iii) in a written opinion of
independent legal counsel, the selection of whom has been approved by the
Indemnitee in writing.
2
<PAGE>
6. INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY. Notwithstanding any
-----------------------------------------------
other provision of this Agreement, to the extent that the Indemnitee has been
successful on the merits or otherwise in defense of any Proceeding or in defense
of any claim, issue or matter therein, including the dismissal of a Proceeding
without prejudice, the Indemnitee shall be indemnified against all Expenses
incurred in connection therewith to the fullest extent permitted by Nevada law.
7. ADVANCES OF EXPENSES. The Expenses incurred by the Indemnitee in any
--------------------
Proceeding shall be paid promptly by the Company in advance of the final
disposition of the Proceeding at the written request of the Indemnitee to the
fullest extent permitted by Nevada law; provided that the Indemnitee shall
--------
undertake in writing to repay such amount to the extent that it is ultimately
determined that the Indemnitee is not entitled to indemnification by the
Company.
8. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, damages, judgments, amounts paid in settlement, fines,
penalties or ERISA excise taxes actually and reasonably incurred by Indemnitee
in the investigation, defense, appeal or settlement of any Proceeding but not,
however, for the total amount thereof, the Company shall nevertheless indemnify
the Indemnitee for the portion of such Expenses, damages, judgments, amounts
paid in settlement, fines, penalties or ERISA excise taxes to which the
Indemnitee is entitled.
9. INDEMNIFICATION PROCEDURE; DETERMINATION OF RIGHT TO INDEMNIFICATION.
--------------------------------------------------------------------
(a) Promptly after receipt by the Indemnitee of notice of the commencement
of any Proceeding with respect to which the Indemnitee intends to claim
indemnification pursuant to this Agreement, the Indemnitee will notify the
Company of the commencement thereof. The omission to so notify the Company will
not relieve the Company from any liability which it may have to the Indemnitee
under this Agreement or otherwise.
(b) If a claim under this Agreement is not paid by or on behalf of the
Company within 30 days of receipt of written notice thereof, Indemnitee may at
any time thereafter bring suit in any court of competent jurisdiction against
the Company to enforce the right to indemnification provided by this Agreement.
It shall be a defense to any such action (other than an action brought to
enforce a claim for Expenses incurred in defending any Proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Company) that the Indemnitee has failed to meet the
standard of conduct that makes it permissible under Nevada law for the Company
to indemnify the Indemnitee for the amount claimed. The burden of proving by
clear and convincing evidence that indemnification or advancement of Expenses
are not appropriate shall be on the Company. The failure of the directors or
stockholders of the Company or independent legal counsel to have made a
determination prior to the commencement of such Proceeding that indemnification
or advancement of Expenses are proper in the circumstances because the
Indemnitee has met the applicable standard of conduct shall not be a defense to
the action or create a presumption that the Indemnitee has not met the
applicable standard of conduct.
3
<PAGE>
(c) The Indemnitee's Expenses incurred in connection with any action
concerning Indemnitee's right to indemnification or advancement of Expenses in
whole or in part pursuant to this Agreement shall also be indemnified by the
Company regardless of the outcome of such action, unless a court of competent
jurisdiction determines that each of the material claims made by the Indemnitee
in such action was not made in good faith or was frivolous.
(d) With respect to any Proceeding for which indemnification is requested,
the Company will be entitled to participate therein at its own expense and,
except as otherwise provided below, to the extent that it may wish, the Company
may assume the defense thereof, with counsel satisfactory to the Indemnitee.
After notice from the Company to the Indemnitee of its election to assume the
defense of a Proceeding, the Company will not be liable to the Indemnitee under
this Agreement for any Expenses subsequently incurred by the Indemnitee in
connection with the defense thereof, other than reasonable costs of
investigation or as otherwise provided below. The Company shall not settle any
Proceeding in any manner which would impose any penalty or limitation on the
Indemnitee without the Indemnitee's written consent. The Indemnitee shall have
the right to employ counsel in any Proceeding, but the Expenses of such counsel
incurred after notice from the Company of its assumption of the defense thereof
shall be at the expense of the Indemnitee, unless (i) the employment of counsel
by the Indemnitee has been authorized by the Company, (ii) the Indemnitee shall
have reasonably concluded that there may be a conflict of interest between the
Company and the Indemnitee in the conduct of the defense of a Proceeding, or
(iii) the Company shall not in fact have employed counsel to assume the defense
of a Proceeding, in each of which cases the Expenses of the Indemnitee's counsel
shall be at the expense of the Company. The Company shall not be entitled to
assume the defense of any Proceeding brought by or on behalf of the Company or
as to which the Indemnitee has concluded that there may be a conflict of
interest between the Company and the Indemnitee.
10. LIMITATIONS ON INDEMNIFICATION. No payments pursuant to this Agreement
------------------------------
shall be made by the Company:
(a) to indemnify or advance Expenses to the Indemnitee with respect to
actions initiated or brought voluntarily by the Indemnitee and not by way of
defense except with respect to actions brought to establish or enforce a right
to indemnification under this Agreement or any other statute or law or otherwise
as required under Nevada law, but such indemnification or advancement of
Expenses may be provided by the Company in specific cases if approved by the
Board of Directors by a majority vote of a quorum thereof consisting of
directors who are not parties to such action;
(b) to indemnify the Indemnitee for any Expenses, damages, judgments,
amounts paid in settlement, fines, penalties or ERISA excise taxes for which
payment is actually made to the Indemnitee under a valid and collectible
insurance policy, except in respect of any excess beyond the amount paid under
such insurance;
4
<PAGE>
(c) to indemnify the Indemnitee for any Expenses, damages, judgments,
amounts paid in settlement, fines, penalties or ERISA excise taxes for which the
Indemnitee has been or is indemnified by the Company otherwise than pursuant to
this Agreement;
(d) to indemnify the Indemnitee for any Expenses, damages, judgments,
amounts paid in settlement, fines, penalties or ERISA excise taxes resulting
from Indemnitee's conduct which is finally adjudicated by a court of competent
jurisdiction (i) to have been knowingly fraudulent or a knowing violation of
law, or (ii) to have involved intentional misconduct on the part of the
Indemnitee; or
(e) if a court of competent jurisdiction shall enter a final order, decree
or judgment to the effect that such indemnification or advancement of Expenses
hereunder is unlawful under the circumstances.
11. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification and
---------------------------------------
advancement of Expenses provided by this Agreement shall not be deemed to limit
or preclude any other rights to which the Indemnitee may be entitled under the
Articles of Incorporation, the Bylaws, any agreement, any vote of stockholders
or disinterested directors, Nevada law, or otherwise, both as to action in
Indemnitee's official capacity and as to action in any other capacity on behalf
of the Company while holding such office.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and
----------------------
shall inure to the benefit of (i) the Indemnitee and Indemnitee's heirs,
personal representatives, executors, administrators and assigns and (ii) the
Company and its successors and assigns, including any transferee of all or
substantially all of the Company's assets and any successor or assign of the
Company by merger or by operation of law.
13. SEPARABILITY. Each provision of this Agreement is a separate and
------------
distinct agreement and independent of the other, so that if any provision hereof
shall be held to be invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. To the extent required, any provision of this Agreement may
be modified by a court of competent jurisdiction to preserve its validity and to
provide the Indemnitee with the broadest possible indemnification and
advancement of Expenses permitted under Nevada law. If this Agreement or any
portion thereof is invalidated on any ground by any court of competent
jurisdiction, then the Company shall nevertheless indemnify Indemnitee as to
Expenses, damages, judgments, amounts paid in settlement, fines, penalties or
ERISA excise taxes with respect to any Proceeding to the full extent permitted
by any applicable portion of this Agreement that shall not have been invalidated
or by any applicable provision of Nevada law or the law of any other
jurisdiction.
14. HEADINGS. The Headings used herein are for convenience only and shall
--------
not be used in construing or interpreting any provision of the Agreement.
15. GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Nevada.
5
<PAGE>
16. AMENDMENTS AND WAIVERS. No amendment, waiver, modification, termination
----------------------
or cancellation of this Agreement shall be effective unless in writing and
signed by the party against whom enforcement is sought. The indemnification
rights afforded to the Indemnitee hereby are contract rights and may not be
diminished, eliminated or otherwise affected by amendments to the Company's
Articles of Incorporation, Bylaws or agreements, including any directors' and
officers' liability insurance policies, whether the alleged actions or conduct
giving rise to indemnification hereunder arose before or after any such
amendment. No waiver of any provision of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof, whether or not similar,
nor shall any waiver constitute a continuing waiver.
17. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
party and delivered to the other.
18. NOTICES. All notices and communications shall be in writing and shall
-------
be deemed duly given on the date of delivery if personally delivered or the date
of receipt or refusal indicated on the return receipt if sent by first class
mail, postage prepaid, registered or certified, return receipt requested, to the
following addresses, unless notice of a change of address in duly given by one
party to the other, in which case notices shall be sent to such changed address:
If to the Company:
ProSoft Development, Inc.
7100 Knott Avenue
Buena Park, CA 90620
Attention: ____________________
If to Indemnitee:
____________________
____________________
____________________
____________________
19. SUBROGATION. In the event of any payment under this Agreement to or on
-----------
behalf of the Indemnitee, the Company shall be subrogated to the extent of such
payment to all of the rights of recovery of the Indemnitee against any person,
firm, corporation or other entity (other than the Company) and the Indemnitee
shall execute all papers requested by the Company and shall do any and all
things that may be necessary or desirable to secure such rights for the Company,
including the execution of such documents necessary or desirable to enable the
Company to effectively bring suit to enforce such rights.
6
<PAGE>
20. SUBJECT MATTER AND PARTIES. The intended purpose of this Agreement is
--------------------------
to provide for indemnification and advancement of Expenses, and this Agreement
is not intended to affect any other aspect of any relationship between the
Indemnitee and the Company and is not intended to and shall not create any
rights in any person as a third party beneficiary hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"INDEMNITEE"
-----------------------------------
------------------
"COMPANY"
PROSOFT DEVELOPMENT, INC., a Nevada
corporation
By:
--------------------------------
Its:
-------------------------------
7
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
- ---------------------------
Pro-Soft Development Corp., a California corporation
<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 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
August 28, 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 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
August 28, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF PROSOFT DEVELOPMENT, INC. AS OF JULY 31, 1995 AND FOR
THE PERIOD DECEMBER 8, 1995 (DATE OF INCORPORATION) TO JULY 31, 1996, AND ITS
PREDECESSOR, PROFESSIONAL DEVELOPMENT INSTITUTE, AS OF DECEMBER 31, 1995 AND FOR
THE PERIOD FEBRUARY 1, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1995, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 11-MOS 7-MOS
<FISCAL-YEAR-END> DEC-31-1995 JUL-31-1996
<PERIOD-START> FEB-01-1995 DEC-08-1995
<PERIOD-END> DEC-31-1995 JUL-31-1996
<CASH> 420 6,466,460
<SECURITIES> 0 0
<RECEIVABLES> 89,487 766,405
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 89,907 7,630,057
<PP&E> 635,874 1,612,888
<DEPRECIATION> 29,861 245,455
<TOTAL-ASSETS> 765,990 8,997,490
<CURRENT-LIABILITIES> 651,792 865,229
<BONDS> 0 0
0 0
0 0
<COMMON> 0 10,397,352
<OTHER-SE> (194,473) (9,500)
<TOTAL-LIABILITY-AND-EQUITY> 765,990 8,997,490
<SALES> 0 0
<TOTAL-REVENUES> 77,477 907,772
<CGS> 0 0
<TOTAL-COSTS> 60,526 698,725
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 20,126 67,961
<INCOME-PRETAX> (604,326) (2,692,323)
<INCOME-TAX> 0 800
<INCOME-CONTINUING> (604,326) (2,693,123)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (604,326) (2,693,123)
<EPS-PRIMARY> 0 (0.54)
<EPS-DILUTED> 0 0
</TABLE>
