<PAGE>
As filed with the Securities and Exchange Commission on December 9, 1998
Registration No. 333-35249
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
AMENDMENT NO. 2
TO
FORM S-1
ON
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
____________________
PROSOFT I-NET SOLUTIONS, INC.
(Exact Name of Registrant as Specified in Its Charter)
3001 Bee Caves Road, Suite 100
Austin, Texas 78746
(512) 328-6140
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Executive Offices)
Nevada 8243 87-0448639
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
JERRELL M. BAIRD
Chief Executive Officer
Prosoft I-Net Solutions, Inc.
3001 Bee Caves Road, Suite 100
Austin, Texas 78746
(512) 328-6140
(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. [_]
Pursuant to Rule 429 of the Securities Act of 1933, the Prospectus contained
herein is a combined Prospectus relating to securities registered hereby and
under Registration Statement No. 333-11247 and Registration Statement No. 333-
28993.
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>
================================================================================
____________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Class Amount Maximum Maximum Amount of
of Securities to be Offering Price Aggregate Registration
to be Registered Registered Per Share(1) Offering Price(1) Fee(2)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.001 per share(3) 3,719,496 $2.375 $8,833,803 $2,606.00
===============================================================================================
</TABLE>
(1) Calculated pursuant to Rule 457(c) on the basis of the last trade price of
the Company's Common Stock on December 7, 1998, as reported by the NASDAQ
SmallCap Market.
(2) This registration fee relates to an increase of 3,719,496 shares in the
number of securities being registered by this pre-effective amendment. A
filing fee of $6,458 was previously paid with the initial filing of this
Registration Statement registering 1,894,258 shares and an additional
filing fee of $3,042 was previously paid with an amendment to this
Registration Statement registering an additional 902,305 shares.
(3) An additional 3,387,291 shares of Common Stock to be sold by stockholders
(including 379,747 shares issuable upon exercise of outstanding Common
Stock purchase warrants) have been registered under an earlier Registration
Statement on Form S-1 (File No. 333-11247, filing fee paid $22,192.75)
which was initially declared effective by the Securities and Exchange
Commission ("SEC") on November 27, 1996, and an additional 595,664 shares
of Common Stock to be sold by stockholders have been registered under
another Registration Statement on Form S-1 (File No. 333-28993, filing fee
paid $1,174) which was initially declared effective by the SEC on July 2,
1997. Both of these Registration Statements are being amended by filing of
this Registration Statement pursuant to Rule 429. Accordingly, all three
Registration Statements use the Prospectus that is a part of this
Registration Statement.
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>
8,212,004 Shares
PROSOFT I-NET SOLUTIONS, INC.
Common Stock
Shares of common stock of Prosoft I-Net Solutions, Inc. are being offered
by this Prospectus. The Shares being offered include 4,310,755 presently
outstanding shares, 1,894,999 shares which are issuable upon exercise of
outstanding common stock purchase warrants and 2,006,250 shares which are
issuable upon conversion of outstanding convertible promissory notes. The Shares
will be sold from time to time by the Selling Stockholders named in this
Prospectus through public or private transactions, on or off the Nasdaq SmallCap
Market, at prevailing market prices, or at privately negotiated prices. We will
not receive any of the proceeds from the sale of the Shares, other than the
exercise price of any common stock purchase warrants which are exercised.
The Common Stock is traded on the Nasdaq SmallCap Market under the symbol
"POSO." The closing bid price of the Common Stock was $_________ on
______________, 1998.
______________________________
Investing in the Common Stock Involves a High Degree of Risk. You Should
Purchase Shares Only if You Can Afford a Complete Loss. See "Risk Factors"
beginning on Page 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
Prospectus dated _____________, 1998
1
<PAGE>
ABOUT THIS PROSPECTUS
This Prospectus is part of a Registration Statement that we filed with the
Securities and Exchange Commission (the "SEC"). The Prospectus relates to
8,212,004 shares (the "Shares") of our common stock ("Common Stock") which the
selling stockholders named in this Prospectus (the "Selling Stockholders") may
sell from time to time. We will not receive any of the proceeds from such
sales.
The Shares have not been registered under the securities laws of any state
or other jurisdiction as of the date of this Prospectus. Brokers or dealers
should confirm the existence and exemption from registration or effectuate such
registration in connection with any offer and sale of the Shares.
TABLE OF CONTENTS
PAGE
----
Risk Factors.............................................................. 3
Where You Can Find More Information....................................... 6
Forward-Looking Statements................................................ 8
About Prosoft I-Net Solutions, Inc. ...................................... 8
The Offering.............................................................. 9
Use of Proceeds........................................................... 9
Selling Stockholders...................................................... 10
Plan of Distribution...................................................... 13
Legal Matters............................................................. 15
Experts................................................................... 15
2
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS, TOGETHER WITH THE OTHER
INFORMATION IN THIS PROSPECTUS, BEFORE BUYING ANY SHARES. YOU SHOULD ALSO BE
AWARE OF CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS THAT DO NOT RELATE TO
HISTORICAL RESULTS OR FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING
STATEMENTS, SUCH AS STATEMENTS OF OUR STRATEGIES, PLANS, OBJECTIVES,
EXPECTATIONS AND INTENTIONS, INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS.
Expectation of Continuing Losses
We have a limited operating history, which makes it difficult to predict
our future operating results. However, we expect to continue incurring losses
on a quarterly basis through at least the second quarter of our fiscal year
ending July 31, 1999. We have incurred net losses of approximately $40 million
from our inception in December 5, 1995 through July 31, 1998. For the year
ended July 31, 1998, we incurred a net loss of $16,525,123. Our ability to
generate significant revenues in the future is subject to uncertainty. In order
to achieve profitability, we must increase our revenues. We can not assure you
that we will be able to increase revenues or achieve profitability.
Future Capital Requirements and Uncertainty of Future Funding
Since our inception, we have been dependent on outside financing to fund
our growth. We have raised approximately $43 million from the private placement
of our Common Stock since our inception and incurred losses of approximately $40
million. We began realizing increasing revenues in late fiscal 1998 due to our
sales reorganization and refocusing efforts. This shift in our business
strategy should result in a reduction in overhead expenses and, if revenues
continue to grow as demonstrated in fiscal 1998, we hope to reach quarterly
profitability in the second half of fiscal 1999. We also expect to receive
proceeds of approximately $1 million in a private placement of our common stock,
$2 million in a private placement of convertible debt securities and a $3.5
million asset-based line of credit during the second quarter of fiscal 1999. We
believe that our existing resources, along with these financings, will be
sufficient to meet our needs for working capital expenditures through at least
fiscal 1999. If we do not achieve profitability and generate positive cash flow
as anticipated, or if we are unable to obtain these financings, our ability to
continue as a going concern will be jeopardized.
Intense Competition in Training Market
We face substantial competition in the training market. Competition in the
Internet/intranet training market is intense, rapidly changing and affected by
the rapidly evolving nature of the Internet/intranet industry. A number of
other companies offer products and services similar to ours, and additional new
competitors may emerge in the near future. Many of our existing competitors
have substantially greater capital resources, technical expertise, marketing
experience, research and development status, established customers and
facilities than we do. As a result, there is a risk that we
3
<PAGE>
will not be able to successfully compete with existing and future competitors
which would adversely affect our financial performance.
Rapid Technological Changes
In our industry, technology advances rapidly and industry standards change
frequently. To remain competitive and achieve profitability, we must
continually enhance our existing products and services and promptly introduce
new products, services and technologies to meet the changing demands of our
customers. Our failure to respond to technological changes quickly will
adversely affect our financial performance.
Market Overhang
Future sales of our Common Stock could depress the market price of our
Common Stock. In addition, the perception that such sales will occur could also
adversely effect the price. Under this Prospectus, the selling stockholders may
sell up to 8,212,004 shares (or approximately 49.2% of the shares of Common
Stock currently outstanding). Any such sales, or even the market perception
that such sales could be made, may depress the price of the Common Stock.
Volatility of Stock Price
Our Common Stock has experienced substantial price volatility and such
volatility may continue to occur in the future. Additionally, the stock market
from time to time experiences significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. These broad
market fluctuations may also adversely effect the market price of our Common
Stock. In addition to such broad market fluctuations, factors such as the
following may have a significant effect on the market price of our Common Stock:
. Fluctuations in our operating results.
. The perception by others of our ability to obtain any necessary new
financing.
. Limited trading market for our Common Stock.
. Announcements of new ventures or products and services by us or our
competitors.
No Foreseeable Dividends
We have never paid cash dividends and we do not anticipate paying any cash
dividends in the foreseeable future. We intend to retain future earnings for
reinvestment in our business. Any future determination to pay cash dividends
will be at the discretion of our Board of Directors and will be dependent upon
our financial condition, results of operations, capital requirements and such
other factors as the Board of Directors deems relevant.
4
<PAGE>
Certain Anti-Takeover Provisions
Our Bylaws contain certain provisions that may discourage other persons
from attempting to acquire control of us. These provisions include, but are not
limited to:
. A staggered Board of Directors.
. The elimination of the right of stockholders to act by written consent
without a meeting, except unanimously.
. The establishment of advance notice requirements for director
nominations and actions to be taken at annual meetings.
Such provisions, as well as the provisions of Section 203 of the
Delaware General Corporation Law (to which we are subject), could impede a
merger, consolidation, takeover or other business combination involving us or
discourage a potential acquiror from making a tender offer or otherwise
attempting to take control of us. In certain circumstances, the fact that
corporate devices are in place that will inhibit or discourage takeover attempts
could reduce the market value of our Common Stock.
5
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Federal securities law requires us to file information with the SEC
concerning our business and operations. We file annual, quarterly and special
reports, proxy statements and other information with the SEC. You can read and
copy these documents at the public reference facility maintained by the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. You
can also copy and inspect such reports, proxy statements and other information
at the following regional offices of the SEC:
New York Regional Office Chicago Regional Office
7 World Trade Center Citicorp Center
Suite 1300 500 West Madison Street
New York, NY 10048 Suite 1400
Chicago, IL 60661
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to the public on the SEC's
web site at http://www.sec.gov. You can also inspect our reports, proxy
-------------------
statements and other information at the offices of the Nasdaq Stock Market.
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information that we incorporate by
reference is considered to be part of this Prospectus, and later information
that we file with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934:
. Annual Report on Form 10-K for the fiscal year ended July 31, 1998
(including information specifically incorporated by reference into our
Form 10-K from our Proxy Statement for our 1998 Annual Meeting of
Stockholders);
. The description of our Common Stock contained in the Registration
Statement on Form 8-A dated October 11, 1996.
This Prospectus is part of three Registration Statements we filed with the
SEC (Nos. 333-11247, 333-28993 and 333-35249). You may request a free copy of
any of the above filings by writing or calling:
Investor Relations
Prosoft I-Net Solutions, Inc.
2333 North Broadway, Suite 300
Santa Ana, California 92706
(714) 953-1200, ext. 375
6
<PAGE>
You should rely only on the information incorporated by reference or
provided in this Prospectus or any supplement to this Prospectus. We have not
authorized anyone else to provide you with different information. The Selling
Stockholders should not make an offer of these Shares in any state where the
offer is not permitted. You should not assume that the information in this
Prospectus or any supplement to this Prospectus is accurate as of any date other
than the date on the cover page of this Prospectus or any supplement.
7
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus, including the documents incorporated by reference in this
Prospectus, contain forward-looking statements which reflected our views at the
time the documents were filed regarding future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties
which could cause actual results to differ materially from historical results or
the results we expected at the time of filing. The words "believe," "expect,"
"anticipate" and similar expressions identify forward-looking statements, which
speak only as of the dates on which they were made. We undertake no obligation
to publicly update or revise any forward-looking statements, whether it is as
a result of new information, future events or otherwise. You should not unduly
rely on these forward-looking statements.
ABOUT PROSOFT I-NET SOLUTIONS, INC.
We provide comprehensive Internet skills training courses, Internet skills
certification programs and instructors to teach the training courses and
certification. We offer more than 50 instructor-led Internet skills courses
ranging from 1-day end-user workshops to 10-day certification programs. Our
Certified Internet Webmaster Program creates the professional skills required to
develop and implement e-business solutions in the Internet age. Our
certification testing program is administered worldwide by testing leader Sylvan
Prometric. We also sell our courseware to Authorized Training Center Resellers.
We originally incorporated in Nevada in March 1985 as Tel-Fed, Inc. Our
business was initially operated as a sole proprietorship (the "Proprietorship")
beginning in February 1995. In December 1995, ProSoft Development Corp., a
California corporation ("Old ProSoft") was incorporated and acquired the
business from the Proprietorship effective January 1, 1996. In March 1996, we
entered into a reorganization (the "Reorganization") with Old ProSoft and the
Old ProSoft shareholders. In the Reorganization, we issued shares of our Common
Stock to the Old ProSoft shareholders in exchange for their shares of Old
ProSoft and changed our name to ProSoft Development, Inc. As a result, Old
ProSoft became our wholly-owned subsidiary. From our incorporation until the
Reorganization, we had no significant operations. We changed our name to
Prosoft I-Net Solutions, Inc. in October 1996 and have announced plans to change
our name again to "prosofttraining.com."
Under applicable accounting rules, for financial statement purposes, we are
required to account for the Reorganization as an acquisition of us by Old
ProSoft, with the additional shares held by our prior shareholders reflected as
a recapitalization of Old ProSoft. As a result, the consolidated financial
statements incorporated by reference in this Prospectus for Prosoft I-Net
Solutions, Inc. reflect, for the period prior to the Reorganization, the
operations of Old ProSoft. Financial statements of the Proprietorship are also
incorporated by reference herein. Our executive offices are located at 3001 Bee
Caves Road, Suite 100, Austin, Texas 78746, and our telephone number is (512)
328-6140.
8
<PAGE>
THE OFFERING
Common Stock Offered by the Selling
Stockholders........................ 8,212,004 shares(1)
Common Stock to be outstanding after
this Offering....................... 16,704,623 shares(1)(2)
Use of Proceeds..................... Other than the exercise price of the
common stock purchase warrants
("Warrants") which are exercisable, we
will receive none of the proceeds from the
sale of shares by the Selling
Stockholders. We would receive gross
proceeds of approximately $3,000,000 if
all of the Warrants are exercised. Any
proceeds we receive will be utilized for
working capital and general corporate
purposes.
NASDAQ SmallCap Symbol.............. POSO
____________________
(1) Includes 1,894,999 shares issuable upon exercise of the Warrants and
2,006,250 shares issuable upon conversion of outstanding convertible
promissory notes.
(2) Does not include 2,189,508 shares reserved for issuance upon the exercise
of outstanding stock options.
USE OF PROCEEDS
Other than the exercise price of such of the Warrants as may be exercised,
we 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 they will choose to exercise all or
any of their Warrants. The gross proceeds to us in the event that all of the
Warrants are exercised would be approximately $3,000,000. Proceeds we receive,
if any, will be utilized for working capital and general corporate purposes.
9
<PAGE>
SELLING STOCKHOLDERS
All of the Shares offered by this Prospectus are being offered by the
Selling Stockholders for their own respective accounts. Substantially all of
the Selling Stockholders purchased their Shares in private placement investments
in us or Old Prosoft. The following table sets forth certain information as of
December 8, 1998, with respect to the Selling Stockholders:
<TABLE>
<CAPTION>
Shares Shares Shares
Name of Selling Stockholder Beneficially Owned Covered Beneficially Owned
- -------------------------------------------------------- Prior to By after the
Offering Prospectus Offering(1)
-------- ---------- -----------
<S> <C> <C> <C>
Anderson, Erik T. 2,688 2,688 0
Baco, Raymundo C. 3,840 3,840 0
Baird, Jerrell M. (2) 215,500 112,500 103,000(3)
Betlem Service Corporation 9,524 9,524 0
Brown, David H. 70,000 70,000 0
Bussell, Mark 55,000 55,000 0
Bustin & Co. 12,750 12,750 0
Calamitous L.C. 15,000 15,000 0
Charles Schwab and Company
FBO Matthew Linsey 56,250 56,250 0
Clark Fork Medical Associates, P.C. 401(K)
Profit Sharing Plan 2,000 2,000 0
Clark Fork Medical Assn. Trust 22,500 22,500 0
Common Sense Partners 14,286 14,286 0
Corbin, Brooks A.(4) 121,833(5) 2,333 119,500(3)
Cranshire Capital, L.P. 328,869 328,869 0
D'Ambrosio, Louis J. 56,250 56,250 0
Davis, Anne T. 14,413 14,413 0
Davis, Gart D. 102,955 102,955 0
DiSanto, Frank J. 57,142 57,142 0
DLJSC FBO Franklin Coffey 40,000 40,000 0
Dorton, David 15,000 15,000 0
Eagle Growth Limited Partnership 225,000 225,000 0
Ebbets Field 281,250 281,250 0
F&S Partnership 25,000 25,000 0
Fidelity Management Trust Co. FBO
Donald Holcomb IRA 50,000 50,000 0
Fidelity Management Trust Co. FBO
John Ryan IRA 25,000 25,000 0
Fidelity Management Trust Co. FBO
David I. Perl IRA(6) 10,000 10,000 0
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Shares Shares Shares
Name of Selling Stockholder Beneficially Owned Covered Beneficially Owned
- -------------------------------------------------------- Prior to By after the
Offering Prospectus Offering(1)
-------- ---------- -----------
<S> <C> <C> <C>
Fliege, James Ritchie 28,125 28,125 0
Franklin, William I. 109,250 109,250 0
Fuller, Joyce 25,000 25,000 0
Geary Partners 83,367 83,367 0
General Electric Pension Trust, Trustees 408,164 408,164 0
Geren, Preston M. III, Trustee 106,250 106,250 0
Gladstein, Gary 56,250 56,250 0
Glenn E. White Trust 19,048 19,048 0
Gramm, Colton 28,125 28,125 0
Hartman, Douglas 755,921 70,000 685,921(7)
Investor Contacts Ltd. 60,000 60,000 0
JMB/FEB Partners 10,417 10,417 0
J.M. Bryan Family Trust 10,416 10,416 0
Judkins, Bary 5,000 5,000
Ketcher, Frederick 56,250 56,250 0
Keyway Investments Limited 76,200 76,200 0
Khaled, Michael E. 234,800(5) 25,000 209,800(8)
King, Bradley J. 2,688 2,688 0
Korn, Jeffrey G. (9) 53,000 20,000 33,000(3)
Lukoff, Jonathon 5,607(5) 5,607 0
McDivitt, Kathleen 2,688 2,688 0
Mock, David 130,700(5) 120,000 10,700(3)
Montesi, Terry 84,375 84,375 0
Morgan Guaranty Trust Company of New York, as 214,744 214,744 0
Investment Manager for the Alfred F. Sloan
Foundation (Multi-Market Account) (10)
Morgan Guaranty Trust Company of New York, as 214,744 214,744 0
Trustee of the Multi-Market Special Investment Trust
Fund of Morgan Guaranty Trust Company of
New York (10)
Morgan Guaranty Trust Company of New York, as 1,040,959 1,040,959 0
Trustee of the Commingled Pension Trust Fund
(Multi-Market Special Investment Fund II) of Morgan
Guaranty Trust Company of New York (10)
Morgan Guaranty Trust Company of New York, as 605,297 605,297 0
Trustee of the Commingled Pension Trust Fund
(Multi-Market Special Investment Fund 1) of Morgan
Guaranty Trust Company of New York (10)
Morning Star Partners 17,000 17,000 0
Olafson, Gregory 100,000(5) 55,000 45,000(3)
Pabrai, Tina 196,896 124,312 72,584(3)
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Shares Shares Shares
Name of Selling Stockholder Beneficially Owned Covered Beneficially Owned
- -------------------------------------------------------- Prior to By after the
Offering Prospectus Offering(1)
-------- ---------- -----------
<S> <C> <C> <C>
Pabrai, Uday Om(11) 207,931 135,346 72,585(5)
PAL Employer Services, Inc. 8,000 8,000 0
Peninsula Fund L.P. 202,083 202,083 0
Peterson, Melvin D. 5,000 5,000 0
Presidio Partners 283,367 283,367 0
Quota Rabbico N.V.-Shapiro 168,750 168,750 0
Redmond, Richard & Diana 20,000 20,000 0
Richardson, Eric W. (12) 153,166(5) 2,666 150,500(3)
Richardson, William E. (13) 123,750(5) 25,000 98,750(3)
Ropar LLC 30,000 30,000 0
Rousseau, Darren A. 1,120 1,120 0
Ruenitz & Associates 28,125 28,125 0
Schmidt Family Trust 20,000 20,000 0
Service Master Company Limited Partnership 142,857 142,857 0
Service Master Venture Fund, LLC 562,500 562,500 0
Shapiro, Steven 22,500 22,500 0
Siegfried & Jenson 401K Plan
FBO Michael R. Richman 5,000 5,000 0
Siegfried & Jenson 401K Plan
FBO Ned Siegfried 10,000 10,000 0
Siegel, Richard 28,125 28,125
Slawson, Steve 3,000 3,000 0
SunAmerica Small Company Growth Fund 333,300 333,300 0
Travelers Indemnity Co. 285,714 285,714 0
Trimble, Kelly 148,450(5) 56,250 92,200(3)
Turnbow Investment Co. L.C. 5,625 5,625 0
Turnbow, Lynn 191,250 191,250 0
Vanderhoof, Clark D. 10,000 10,000 0
Vanderhoof, Michael D. 309,490(5) 112,500 196,990(14)
VanZandt, Glorida 22,500 22,500 0
Whittal Company Limited 19,100 19,100 0
Williams, David R. 10,000 10,000 0
Wilson, D. Ross 10,000 10,000 0
WWW Internet Fund 162,500 162,500 0
---------- ---------- ----------
9,715,258(15) 8,212,004(16) 1,712,361
========== ========== ==========
</TABLE>
____________________
(1) Assumes that each Selling Stockholder sells all of the Shares to which
this Prospectus relates.
12
<PAGE>
(2) Mr. Baird is Chairman of the Board and Chief Executive Officer of the
Company.
(3) Represents less than 1% of our shares after this offering.
(4) Mr. Corbin is a former officer of the Company.
(5) These Selling Stockholders have agreed generally not to sell, under this
Prospectus, more than 1% of their respective Shares held as of November
27, 1996 for each month that elapses after that date unless our consent is
obtained.
(6) Mr. Perl is Chief Operating Officer of the Company.
(7) Represents 4.1% of our shares after this offering.
(8) Represents 1.3% of our shares after this offering.
(9) Mr. Korn is a Director of the Company.
(10) J.P. Morgan & Co., Incorporated is the ultimate parent of the trustee of
each of these stockholders.
(11) Mr. Pabrai is Vice Chairman and Chief Technology Officer of the Company.
(12) Mr. Eric Richardson is a former officer of the Company.
(13) Mr. William Richardson is a former member of the Board of Directors of the
Company.
(14) Represents 1.2% of our shares after this offering.
(15) Includes 402,916 shares subject to currently exercisable options,
1,894,999 shares subject to currently exercisable warrants and 2,006,250
shares issuable upon conversion of promissory notes of the Company.
(16) Includes 1,894,999 shares subject to currently exercisable warrants and
2,006,250 shares issuable upon conversion of promissory notes of the
Company.
PLAN OF DISTRIBUTION
We are registering the Shares on behalf of the Selling Stockholders. As
used in this Prospectus, the term "Selling Stockholder" includes donees and
pledgees selling Shares received from a named Selling Stockholder after the date
of this Prospectus. All costs, expenses and fees in connection with the
registration of the Shares offered hereby will be borne by us. The Selling
Stockholders will pay any brokerage commissions or similar selling expenses
attributable to the sale of the Shares. The Selling Stockholders may effect
sales of Shares from time to time in one or more types of transactions (which
may include block transactions) on the Nasdaq SmallCap Market, in negotiated
transactions, through put or call options transactions relating to the Shares,
through short sales of Shares, or a combination of such methods of sale, at
market prices prevailing at the time of sale, or at negotiated prices. These
transactions may involve brokers or dealers.
The Selling Stockholders may effect such transactions by selling Shares
directly to purchasers or to or through broker-dealers, which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders or the
purchasers of the Shares for whom such broker-dealers may act as agents or to
whom they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
The Selling Stockholders and any broker-dealers that act in connection
with the sale of Shares might be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act of 1933 (the "Securities Act"), and any
commissions received by such broker-dealers and any profit on
13
<PAGE>
the resale of the Shares sold by them while acting as principals might be deemed
to be underwriting discounts or commissions under the Securities Act. We have
agreed to indemnify each Selling Stockholder against certain liabilities,
including liabilities arising under the Securities Act. The Selling Stockholders
may agree to indemnify any agent, dealer or broker-dealer that participates in
transactions involving sales of the Shares against certain liabilities,
including liabilities arising under the Securities Act.
The Selling Stockholders will be subject to the prospectus delivery
requirements of the Securities Act because they may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act. We
have informed the Selling Stockholders that the anti-manipulative provisions of
Regulation M promulgated under the Securities Exchange Act of 1934 may apply to
their sales in the market.
Selling Stockholders also may resell all or a portion of the Shares in
open market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of Rule 144.
Upon notification to us by a Selling Stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of Shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, a supplement to this
Prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing (i) the name of each such Selling Stockholder and of
the participating broker-dealers, (ii) the number of Shares involved, (iii) the
price at which such Shares were sold, (iv) the commissions paid or discounts or
concessions allowed to such broker-dealers, where applicable, (v) that such
broker-dealers did not conduct any investigation to verify the information set
out or incorporated by reference in this Prospectus and (vi) other facts
material to the transaction. In addition, upon notification to us by a Selling
Stockholder that a donee or pledgee intends to sell more than 500 Shares, a
supplement to this Prospectus will be filed.
14
<PAGE>
LEGAL MATTERS
Eric W. Richardson, our former General Counsel, has passed upon the
validity of the issuance of the Shares offered hereby. As of December 1, 1998,
Mr. Richardson beneficially owned 153,166 shares of our Common Stock.
EXPERTS
The consolidated financial statements of Prosoft I-Net Solutions, Inc. as
of July 31, 1998, and for the year ended July 31, 1998, appearing in our Annual
Report on Form 10-K for the year ended July 31, 1998, have been audited by Grant
Thornton, LLP, Independent Auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements as of July 31, 1997, and for the year ended July 31, 1997
and the period from December 8, 1995 (date of incorporation) to July 31, 1996,
included in our Annual Report on Form 10-K for the year ended July 31, 1998, as
set forth in their report, which is incorporated in this prospectus by
reference. Our consolidated financial statements are incorporated by reference
in reliance on their report, given on their authority 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 our Annual Report on Form 10-K for the year
ended July 31, 1998, have been audited by Kelly & Company, independent auditors,
as set forth in their report thereon included therein and incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
15
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered. All of the amounts
shown are estimates, except the Securities and Exchange Commission registration
and NASDAQ filing fees.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 9,500
Accounting fees and expenses.................................... $ 14,500
Blue sky fees and expenses (including counsel fees)............. $ 2,000
Other legal fees and legal expenses............................. $ 20,000
Miscellaneous expenses.......................................... $ 1,000
----------
Total........................................................ $ 47,000
</TABLE>
Item 15. 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 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.
II-1
<PAGE>
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 16. Exhibits and Financial Statement Schedules.
(a) Index of Exhibits
Exhibit
No. Description of Exhibits
- ------- ----------------------------------------------------------------------
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. Filed as Exhibit 2 to the Company's Registration
Statement on Form S-1 (No. 333-11247) ("Registration Statement No.
333-11247") and incorporated herein by reference.*
3.1 Restated Articles of Incorporation of the Company, as amended. Filed
as Exhibit 3.1 to Registration Statement No. 333-11247 and
incorporated herein by reference.*
3.2 Amended and Restated Bylaws of the Company. Filed as Exhibit 3.2 to
Registration Statement No. 333-11247 and incorporated herein by
reference.*
4 Specimen Stock Certificate. Filed as Exhibit 4 to Registration
Statement No. 333-11247 and incorporated herein by reference.*
5 Opinion of Eric W. Richardson.*
II-2
<PAGE>
Exhibit
No. Description of Exhibits
- -------- ----------------------------------------------------------------------
10.1 Pro-Soft Development Corp. 1996 Stock Option Plan. Filed as Exhibit
10.1 to Registration Statement No. 333-11247 and incorporated herein
by reference.*
10.2 Prosoft I-Net Solutions, Inc. Amended 1996 Stock Option Plan. Filed
as Exhibit 10.2 to Registration Statement No. 333-11247 and
incorporated herein by reference.*
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. Filed as Exhibit 10.3 to Registration
Statement No. 333-11247 and incorporated herein by reference.*
10.4 Form of Registration and Lock-Up Agreement dated September __, 1996
between the Company and certain of the Selling Stockholders. Filed as
Exhibit 10.5 to Registration Statement No. 333-11247 and incorporated
herein by reference.*
10.5 Form of Indemnification Agreement between the Company and its
Directors and Officers. Filed as Exhibit 10.13 to Registration
Statement No. 333-11247 and incorporated herein by reference.*
10.6 Office Building Lease dated as of December 16, 1996 between COSCAN
California Limited Partnership and the Company. Filed as Exhibit 10
to the Company's Report on Form 10-Q for the quarter ended January
31, 1997 and incorporated herein by reference.*
10.7 Form of Subscription Agreement, entered into in February through
April 1997, between the Company and various investors. Filed as
Exhibit 10.16 to Registration Statement No. 333-11247 and
incorporated herein by reference.*
10.8 Registration Rights Agreement dated as of March 13, 1997 among the
Company and various investors. Filed as Exhibit 10.17 to Registration
Statement No. 333-11247 and incorporated herein by reference.*
10.9 Subscription Agreement between the Company and General Electric
Pension Trust dated April 4, 1997. Filed as Exhibit 10.18 to
Registration Statement No. 333-11247 and incorporated herein by
reference.*
10.10 Escrow Agreement among the Company, General Electric Pension Trust
and State Street Bank and Trust dated April 4, 1997. Filed as Exhibit
10.19 to Registration Statement No. 333-11247 and incorporated herein
by reference.*
10.11 Secured Promissory Note dated April 9, 1997 in favor of the Company.
Filed as Exhibit 10.20 to Registration Statement No. 333-11247 and
incorporated herein by reference.*
10.12 Form of Subscription Agreement, entered into in November 1997 between
the Company and various investors.
II-3
<PAGE>
Exhibit
No. Description of Exhibits
- ------- ----------------------------------------------------------------------
10.13 Registration Rights Agreement dated as of November 12, 1997 among the
Company and various investors.
10.14 Stock Purchase Agreement dated as of January 1, 1998 by and between
the Company and Uday O. Pabrai with respect to all outstanding
capital stock of Net Guru Technologies, Inc. Filed as Exhibit 2.1 to
the Company's Current Report on Form 8-K dated January 1, 1998 and
incorporated herein by reference.
10.15 Employment Agreement dated January 1, 1998 between the Company and
Uday O. Pabrai. Filed as Exhibit 10.1 to the Company's Current Report
on Form 8-K dated January 1, 1998 and incorporated herein by
reference.
10.16 Promissory Note dated June 18, 1998, made by Uday Pabrai in favor of
the Company. Filed as Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the year ending July 31, 1998 and incorporated herein
by reference.
10.17 Consulting Agreement dated April 30, 1998, between Investment
Transaction, LLC and the Company. Filed as Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the year ending July 31,
1998 and incorporated herein by reference.
10.18 Form of Stock Purchase Agreement dated as of November 18, 1998 by and
among the Company and various investors.
10.19 Note and Warrant Purchase Agreement dated as of December 2, 1998 by
and among the Company and various investors.
10.20 Registration Rights Agreement dated as of December 2, 1998 among the
Company and various investors.
21 Subsidiaries of the Company. Filed as Exhibit 21 to the Company's
Annual Report on Form 10-K for the year ending July 31, 1998 and
incorporated herein by reference.
23.1 Consent of Grant Thornton LLP, Independent Auditors
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Kelly & Co., Independent Auditors
23.4 Consent of Eric W. Richardson (included in the opinion filed as
Exhibit 5).*
24 Power of Attorney (included on signature page).
_______________
* Previously filed
II-4
<PAGE>
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually, or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement; notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum Offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) (230.424(b) of this Chapter) if, in the
aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate Offering price
set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the
securities offered therein, and the Offering of such securities at
that time shall be deemed to be the initial bona fide Offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
Insofar as indemnification for liabilities arising from the Securities Act
of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to
II-5
<PAGE>
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.
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 Austin, State of Texas on
the 8th day of December, 1998.
PROSOFT I-NET SOLUTIONS, INC.
By: /s/ Jerrell M. Baird
---------------------------------------
Jerrell M. Baird,
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Kimberly
V. Johnston and Jerrell M. Baird 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
(including Registration Statements Nos. 333-11247 and 333-28993 which are
amended hereby), 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.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed below by the following persons on
behalf of the Company in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ Jerrell M. Baird Chief Executive Officer and December 8, 1998
- ----------------------------- Chairman of the Board
Jerrell M. Baird (Principal Executive Officer)
/s/ Uday O. Pabrai Vice Chairman and Director December 8, 1998
- -----------------------------
Uday O. Pabrai
II-6
<PAGE>
/s/ Kimberly V. Johnston Chief Financial Officer December 8, 1998
- ----------------------------- (Principal Financial and
Kimberly V. Johnston Accounting Officer)
/s/ Richard J. Groeneweg Director December 8, 1998
- -----------------------------
Richard J. Groeneweg
/s/ Jeffrey G. Korn Director December 8, 1998
- -----------------------------
Jeffrey G. Korn
/s/ Andrew Stallman Director December 8, 1998
- -----------------------------
Andrew Stallman
II-7
<PAGE>
Exhibit 10.12
SUBSCRIPTION AGREEMENT
----------------------
COMMON STOCK
Prosoft I-Net Solutions, Inc.
2333 North Broadway
Suite 300
Santa Ana, CA 92706
The undersigned hereby subscribes to become a shareholder in Prosoft
I-Net Solutions, Inc., a Nevada corporation (the "Company"), and to purchase the
number of shares of Common Stock of the Company (the "Shares") indicated below.
The Company is concurrently offering shares to the undersigned and a limited
number of other investors under the terms set forth in this Agreement (the
"Offering").
The undersigned acknowledges that any questions regarding this
document or the subscription should be directed to: ____________________________
________________________________________________________________________________
1. Subscription. Subject to the terms and conditions hereof, (i)
------------
the undersigned hereby irrevocably agrees to purchase the Shares set forth on
the signature page hereof at the purchase price of $10.50 per Share and to
tender the cash purchase price set forth on the signature page hereof by means
of a check (cashiers, certified or personal), money order or wire transfer
payable to Prosoft I-Net Solutions, Inc. upon acceptance of the undersigned's
subscription by the Company in accordance with the provisions hereof and (ii)
the Company hereby agrees, upon such acceptance, to sell the Shares to the
undersigned in accordance with the provisions hereof.
2. Representations and Warranties. The undersigned represents and
------------------------------
warrants to the Company as of the date hereof as follows:
(a) The undersigned has received and read and understands the
Company's Annual Report on Form 10-K for the year ending July 31, 1997 (the
"Form 10-K"), which contains important information relating to the Company and
has relied solely on the Form 10-K; the undersigned has not relied on any oral
representations or oral information furnished to the undersigned in connection
with the purchase of the Shares.
(b) The undersigned has had the opportunity to seek from the
Company or its representatives, and has received from such parties, all
information deemed necessary by the undersigned to evaluate the merits and risks
of an investment in the Company. The undersigned has had the opportunity to
verify the accuracy of the information contained in the Form 10-K and to seek
investment, tax or legal counsel prior to investing in the Company.
(c) The undersigned understands that, except as provided in
Section 5 below, the Shares will not be registered for sale under the Securities
Act of 1933, as amended (the "1933 Act"), or registered or qualified under any
state securities laws in reliance upon
<PAGE>
exemptions from such registration and qualification, and that such
exemptions depend in large part on the undersigned's representations and
warranties herein.
(d) The undersigned, if a corporation, partnership, trust or other
entity, is authorized and duly empowered to purchase and hold the Shares, has
its principal place of business at the address set forth on the signature page
and has not been formed for the specific purpose of acquiring the Shares.
(e) The Shares are being purchased for the account specified on the
signature page hereof, for investment and not with a view to resale or
distribution to any person, corporation or other entity. The undersigned also
understands that there will not be any public market for the sale of such
Shares.
(f) The undersigned has such knowledge and experience in financial and
business matters that will enable the undersigned to utilize the information
made available to it in connection with this investment to evaluate the merits
and risks of an investment in the Company.
(g) The undersigned is able to bear the economic risks related to a
purchase of Shares (i.e., the undersigned is able to afford a complete loss of
the Shares the undersigned is subscribing to purchase). The undersigned has made
other investments of a similar nature and, by reason of the undersigned's
business and financial experience, has acquired the capacity to protect its own
interests in investments of this nature. The undersigned has carefully reviewed
the Form 10-K, and has made its own examination of the investment, as well as
the accounting and tax aspects of this transaction, and will depend on the
advice of its own counsel and accountants.
(h) The undersigned recognizes that the Shares involve a high degree
of risk, including those special risks referred to or set forth in the Form
10-K.
(i) The undersigned is both (A) an "accredited investor" within the
meaning of Rule 501 of Regulation D as promulgated under the 1933 Act, and (B) a
"qualified institutional buyer" within the meaning of Rule 144A promulgated
under the 1933 Act.
(j) All information which the undersigned has provided to the Company,
including, but not limited to, the undersigned's financial position and
knowledge of financial and business matters, is true, correct and complete as of
the date of execution of this Subscription Agreement. The undersigned
understands that the Company will rely to a material degree upon the
representations contained herein.
(k) The undersigned is 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.
<PAGE>
(l) The undersigned understands 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 either a registration or an exemption therefrom.
(m) The undersigned further represents and warrants to the Company
that, with respect to each source of funds to be used by it to purchase Shares
hereunder (each being referred to as the "Source"), at least one of the
following statements is and shall be accurate as of the date hereof:
(i) the Source is not the assets of any "plan" (as such term is
defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended
(the "Code")) subject to Section 4975 of the Code, or any "employee benefit
plan" (as such term is-defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) subject to Section 406 of ERISA
(each such plan and employee benefit plan, being referred to as a "Benefit
Plan") or otherwise out of "plan assets" within the meaning of United States
Department of Labor regulation Section 2510.3-101, 29 CFR 2510.3-101;
(ii) the Source is the assets of a "governmental plan" (as such
term is defined in Section 3(32) of ERISA);
(iii) the undersigned is an insurance company and the Source is
the assets of its general asset account and the conditions set forth in Sections
I(a) and IV of Prohibited Transaction Class Exemption ("PTCE") 95-60 have been
satisfied with respect to the undersigned's purchase of the Shares;
(iv) the undersigned is an insurance company and the Source is the
assets of an insurance company pooled separate account within the meaning of
PTCE 90-1 issued by the United States Department of Labor and either (x) no
Benefit Plan has assets in such separate account which exceed or are expected to
exceed 10% of the total assets of such separate account as of the date hereof
(for purposes of this clause (iv), all Benefit Plans maintained by the same
employer or employee organization are deemed to be a single plan), or (y) the
undersigned has disclosed to the Company in writing prior to the date hereof the
identity of each Benefit Plan whose assets in such separate account exceed or
are expected to exceed 10% of the total assets of such separate account as of
the date hereof;
(v) the undersigned is a bank and the Source is assets of a
collective investment fund as defined in Section IV(e) of PTCE 91-38 and either
(x) no Benefit Plan has assets in such collective investment fund which exceed
or are expected to exceed 10% of the total assets of such collective investment
fund as of the date hereof (for purposes of this clause (v), all Benefit Plans
maintained by the same employer or employee organization are deemed to be a
single plan), or (y) the undersigned has disclosed to the Company in writing
prior to the date hereof the identity of each Benefit Plan whose assets in such
collective investment fund exceed or are expected to exceed 10% of the total
assets of such collective investment fund as of the date hereof;
<PAGE>
(vi) the Source is assets of an "investment fund" managed by a
"qualified professional asset manager" or "QPAM" (as such terms are defined in
Part V of PTCE 84-14), and the conditions set forth in Sections I(c), (d), (e)
and (g) of PTCE 84-14 have been satisfied, and the identity of such QPAM and the
names of all Benefit Plans whose assets are included in such investment fund
(other than, in the case of a collective investment fund described in the clause
(v) above, any Benefit Plan the identity of which is not required to be
disclosed to the Company pursuant to clause (v) above) have been identified in
writing to the Company prior to the date hereof pursuant to this clause (vi); or
(vii) the Source is assets of a Benefit Plan or a separate account
comprised of Benefit Plans, which Benefit Plans have been identified in writing
to the company prior to the date hereof pursuant to this clause (vii).
3. Indemnification.
---------------
(a) The undersigned hereby indemnifies the Company, its affiliates and
its agents and holds them harmless from and against any and all loss, damage,
liability or expense, including costs and reasonable attorney's fees, incurred
by the Company (or its affiliates or agents) by reason of or in connection with
any misrepresentation made by the undersigned, any breach of any of the
undersigned's warranties, or failure of the undersigned to fulfill any covenants
or agreements under this Subscription Agreement; provided, however, that,
notwithstanding anything to the contrary herein, in no event shall the
undersigned be liable hereunder to the Company, its affiliates and its agents or
any other party for special, incidental, consequential or punitive damages,
including without limitation loss of profits sustained or claimed. This
Subscription Agreement and the representations and warranties contained herein
shall survive the undersigned's purchase of the Shares.
(b) The Company hereby indemnifies the undersigned, its affiliates,
directors, officers, agents and employees and holds them harmless from and
against any and all loss, damage, liability or expense, including costs and
reasonable attorneys' fees, incurred by the undersigned (or its affiliates,
directors, officers, agents and employees) by reason of or in connection with
any misrepresentation made by the Company, any breach of any of the Company's
warranties, or failure of the Company to fulfill any covenants or agreements
under this Subscription Agreement. This Subscription Agreement and the
representations and warranties contained herein shall survive the Company's
issuance of the Shares.
4. Acceptance or Rejection of Subscription. The parties hereto agree
---------------------------------------
that:
(a) the Company reserves the right to reject the undersigned's
subscription, in whole or in part, at the sole discretion of the Company for any
reason;
(b) the undersigned's subscription will be accepted or rejected within
15 days from receipt and will be effective only upon acceptance by the Company;
and
<PAGE>
(c) upon acceptance of the undersigned's subscription by the Company,
(i) the undersigned's subscription will be irrevocable, (ii) the obligations of
the undersigned and the Company hereunder to purchase and sell the Shares,
respectively, will become effective immediately thereafter and (iii) the Company
will deliver the Shares to the undersigned against payment therefor within 15
days from the Company's receipt of this Subscription Agreement.
5. Registration Rights. The Company hereby grants to the undersigned the
-------------------
registration rights provided in the Registration Rights Agreement attached
hereto as Exhibit 1.
6. Antidilution Protection.
-----------------------
(a) If at any time after the date of this subscription agreement and
prior to the earlier of: (i) the occurrence of a firmly underwritten public
offering of the Company's Common Stock pursuant to an effective registration
statement filed by the Company with the Securities and Exchange Commission with
gross proceeds of at least $25 million; or (ii) such time as all of the Shares
held by the undersigned may immediately be sold under Rule 144 during any 90-day
period, the Company sells or issues shares of capital stock or options, rights
or warrants entitling the holders thereof to subscribe for or purchase shares of
capital stock in a Financing (as defined below) at a purchase price less than
$10.50 per share (as adjusted to reflect any increase or decrease or change into
or exchange for a different number or kind of shares or other securities of the
Company by reason of any recapitalization, reclassification, stock split-up,
combination of shares, exchange of shares, stock dividend or other distribution
payable in capital stock, or other increase or decrease in such shares effected
without receipt of consideration by the Company), the undersigned will receive
additional shares of Common Stock under this Subscription Agreement so that the
total number of Shares received by the undersigned under this Subscription
Agreement (after taking into account that additional issuance) equals the total
purchase price paid by the undersigned divided by the Adjusted Price (as defined
----------
below).
(b) For purposes of this Section, the following definitions shall
apply:
(1) "Adjusted Price" shall mean (i) with respect to the issuance
of equity securities, the price per share determined by multiplying the Existing
Price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such Financing plus the number of
shares of Common Stock which the aggregate consideration received by the company
in such Financing would have purchased at the Existing Price, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such Financing plus the number of shares actually issued in
such Financing and (ii) with respect to the issuance of options, rights or
warrants entitling the holders thereof to subscribe for or purchase shares of
equity securities, the price per share determined by multiplying the Existing
Price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such Financing plus the number of
shares of Common Stock which the aggregate consideration received by the Company
in such Financing (including both the issue price of the options, rights or
warrants and the exercise price thereof) would have purchased at the Existing
Price, and the denominator of
<PAGE>
which shall be the number of shares of Common stock outstanding immediately
prior to such Financing plus the number of shares such holders of options,
rights and warrants would own if they exercised the options, rights or warrants
received by them in the Financing. For the purposes of the foregoing
calculation, the number of shares of Common Stock outstanding immediately prior
to such Financing shall be calculated on a fully diluted basis, as if all
outstanding warrants or options to purchase Common Stock had been fully
exercised immediately prior to such Financing as of such date, but shall not
include shares of Common Stock held in the treasury of the Company.
(2) "Existing Price" shall initially mean the purchase price per
share paid by the undersigned (as adjusted to reflect any increase or decrease
or change into or exchange for a different number or kind of shares or other
securities of the Company by reason of any recapitalization, reclassification,
stock split-up, combination of shares, exchange of shares, stock dividend or
other distribution payable in capital stock, or other increase or decrease in
such shares effected without receipt of consideration by the Company), and after
any adjustments pursuant to this Section, shall mean the then current Adjusted
Price.
(3) "Financing" shall mean any issuances of equity securities or
options, rights or warrants entitling the holders thereof to subscribe for or
purchase equity securities by the Company for cash or any other form of
consideration, but shall not include (i) the issuance of shares or options to
employees, directors or consultants of the Company to the extent that all such
issuances pursuant to this subclause (i) do not result in the issuance to
employees, directors or consultants of the Company, at a price per share less
than $10.50 (as adjusted to reflect any increase or decrease or change into or
exchange for a different number or kind of shares or other securities of the
Company by reason of any recapitalization, reclassification, stock split-up,
combination of shares, exchange of shares, stock dividend or other distribution
payable in capital stock, or other increase or decrease in such shares effected
without receipt of consideration by the Company), of a number of shares (and/or
options, rights or warrants to buy a number of shares) in excess of 10% of the
outstanding shares of Common Stock in the aggregate immediately after the
consummation of the offering, or (ii) the issuance of shares upon exercise of
outstanding warrants or options described in the Form 10-K.
7. Representations, Warranties and Covenants of the Company. By accepting
--------------------------------------------------------
this subscription, the Company hereby represents and warrants to, and covenants
with, the undersigned as follows:
(a) Organization. The Company is duly organized, validly existing and
------------
in good standing under the laws of the State of Nevada. The Company has full
power and authority to own, lease and operate its properties and to conduct its
business as currently conducted and is registered or qualified to do business
and is in good standing in each jurisdiction in which it owns or leases property
or transacts business and where the failure to be so qualified would have a
material adverse effect upon the business, financial condition, prospects,
properties or operations of the Company.
<PAGE>
(b) Due Authorization. The Company has all requisite power and
-----------------
authority to execute, deliver and perform its obligations under this
Subscription Agreement, and this Subscription Agreement has been duly authorized
and validly executed and delivered by the Company and constitutes a valid and
binding agreement of the Company enforceable against the Company in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and except as enforceability may be subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(c) Non-Contravention. The execution and delivery of this
-----------------
Subscription Agreement, the issuance and sale of the Shares to be sold by the
Company hereunder, and the consummation of the transactions contemplated hereby
will not conflict with or constitute a violation of, or default (with the
passage of time or otherwise) under, any material agreement or instrument to
which the Company is a party or by which it is bound or the Articles of
Incorporation (the "Charter") or the Bylaws of the Company nor result in the
creation or imposition of any lien, encumbrance, claim, security interest or
restriction whatsoever upon any of the material properties or assets of the
Company or an acceleration of indebtedness pursuant to any obligation, agreement
or condition contained in any material bond, debenture, note or any other
evidence of indebtedness or any material indenture, mortgage, deed of trust or
any other agreement or instrument to which the Company is a party or by which
the Company is bound or to which any of the property or assets of the Company is
subject, nor conflict with, or result in a violation of, any law, administrative
regulation, ordinance or order of any court or governmental agency, arbitration
panel or authority applicable to the Company. No consent, approval,
authorization or other order of, or registration, qualification or filing with,
any regulatory body, administrative agency, or other governmental body in the
United States is required for the valid issuance and sale of the Shares to be
sold pursuant to this Agreement (other than such as have been made or obtained).
(d) Capitalization. The authorized and outstanding capital stock of
--------------
the Company and rights to acquire capital stock of the Company are as set forth
in the Form 10-K. Except as set forth in the Form 10-K, there are no outstanding
shares of, or rights to acquire shares of, capital stock of the Company. The
Shares have been duly authorized, and when issued and paid for in accordance
with the terms of this Agreement, will be validly issued, fully paid and
nonassessable.
(e) Legal Proceedings. There is no legal or governmental proceeding
-----------------
pending or, to the knowledge of the Company, threatened or contemplated to which
the Company is or may be a party or of which the business or property of the
Company is or may be subject that, if adversely determined, would have a
material adverse effect upon the business, financial condition, prospects,
properties or operations of the Company.
(f) No Violations. The Company is not in violation of its Charter or
-------------
Bylaws, in violation of any law, administrative regulation, ordinance or order
of any court or governmental agency, arbitration panel or authority (including
without limitation any law, regulation or order relating to ERISA) applicable to
the Company, which violation, individually
<PAGE>
or in the aggregate, would have a material adverse effect on the business
or financial condition of the Company, or in default in any material
respect in the performance of any obligation, agreement or condition
contained in any bond, debenture, note or any other evidence of
indebtedness in any indenture, mortgage, deed of trust or any other
agreement or instrument to which the Company is a party or by which the
Company is bound or by which the properties of the Company are bound or
affected, and there exists no condition which, with the passage of time or
the giving of notice or both, would constitute a material default under any
such document or instrument or result in the imposition of any material
penalty or the acceleration of any indebtedness.
(g) Government Permits, Etc. The Company has all necessary
------------------------
franchises, licenses, certificates and other authorizations from any foreign,
federal, state or local government or governmental agency, department, or body
that are currently necessary for the operation of the business of the Company as
currently conducted, the absence of which would have a material effect on the
business or operations of the Company.
(h) Financial Statements. The financial statements of the Company and
--------------------
the related notes contained in the Form 10-K present fairly the financial
position of the Company as of the dates indicated therein and its results of
operations for the period therein specified, were prepared in accordance with
generally accepted accounting principles and are true, correct and complete in
all respects.
(i) No Material Adverse Change. Except as described in the Form 10-K,
--------------------------
since July 31, 1997, the Company has not incurred any material liabilities or
obligations, direct or contingent, other than in the ordinary course of
business, and there has not been any material adverse change in its business,
financial condition, prospects, properties or results of operations.
(j) Form 10-K. The Form 10-K does not contain any untrue statement of
---------
a material fact nor does it omit to state a material fact necessary to make the
statements made therein not misleading.
(k) Offers of Shares. Neither the Company nor anyone acting on its
----------------
behalf has offered the Shares or any similar securities to, or solicited any
offer to purchase the same from, or otherwise approached or negotiated in
respect thereof with, any person, or has taken any other action, which in all
cases mentioned above would require the registration of the Shares under Section
5 of the 1933 Act or under the registration and qualification provisions of any
securities or "blue sky" law of any applicable jurisdiction.
(l) Contingent Liabilities. The Company does not have any contingent
----------------------
liabilities that would be material to the Company that are not provided for or
disclosed in the financial statements that are included in the Form 10-K.
<PAGE>
(m) Transaction with Affiliates. All of the Company's
---------------------------
transactions and relationships with affiliates are on fair and reasonable terms
comparable to those that would be obtained in an arm's-length transaction
between unrelated third parties.
(n) Fees and Commissions. No broker's or finder's fee or
--------------------
commission will be payable by the Company with respect to the issuance and sale
of the Shares or the transactions contemplated hereby, and the Company shall
hold the undersigned harmless from any claim, demand or liability for any such
broker's or finder's fees or commission alleged to have been incurred in
connection herewith.
(o) Investment Company Act. The Company is not and, after giving
----------------------
effect to the offering and sale of the Shares and the application of the
proceeds thereof, will not be an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended (the "Investment Company Act").
The Company is not directly or indirectly controlled by or acting on behalf of
any person which is an "investment company" as such term is defined in the
Investment Company Act.
(p) ERISA. (i) Assuming the accuracy of the representation set
-----
forth in Section 2(m), the execution and delivery of the Subscription Agreement
and the issue and purchase of the Shares hereunder will not, as of the date
hereof, involve any transaction that is prohibited under Section 406(a)(1) of
ERISA or which is a "prohibited transaction" as defined in Section 4975(c)(1) of
the Code, in either case for which a statutory or administrative exemption is
not available.
(ii) The Company does not maintain, contribute to or have any
liability with respect to any Plan or Multiemployer Plan.
(iii) The Company has no ERISA Affiliates.
(iv) The Company is not a party to any collective bargaining
agreement.
For purposes of this Section, the following terms shall be defined as stated
below:
"ERISA Affiliate" means each trade or business (whether or not
incorporated) which, together with the Company, is treated as a single employer
under Title IV of ERISA or Section 414 of the Code.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which the Company, any of its subsidiaries or any
ERISA Affiliate is then making or accruing an obligation to make contributions
or has within any of the preceding five plan years made or accrued an obligation
to make contributions, including for these purposes any person which ceased to
be an ERISA Affiliate during such five-year period.
"Plan" means an employee benefit plan, other than a Multiemployer
Plan, which is subject to Title IV of ERISA or subject to the minimum funding
standards under Section 412
<PAGE>
of the Code or Section 302 of ERISA, and either (i) is maintained for employees
of the Company, any of its subsidiaries or any ERISA Affiliate or in which any
such employees participate or to which contributions are made by the Company,
any of its subsidiaries or any ERISA Affiliate, or (ii) has at any time within
the preceding five years been maintained for employees of the Company, any of
its subsidiaries or any ERISA Affiliate or any person which was at such time an
ERISA Affiliate or in which any such employees participated at such time, or
(iii) with respect to which the Company, any of its subsidiaries or any ERISA
Affiliate could be subjected to any liability under Title IV of ERISA (including
without limitation Section 4069 of ERISA) in the event that such plan has been
or were to be terminated.
8. Acceptance. Execution and delivery of this Subscription
----------
Agreement shall constitute an irrevocable offer to purchase the Shares
indicated, which offer may be accepted or rejected by the Company in its sole
discretion for any cause or for no cause. Acceptance of this offer by the
Company shall be indicated by the execution hereof by an officer of the Company
and delivery of the Shares to the undersigned against payment therefor within 15
days from the Company's receipt of this Subscription Agreement.
9. Binding Agreement. The parties hereto agree that, upon
-----------------
acceptance hereof by the Company, they may not cancel, terminate or revoke this
Subscription Agreement or any agreement made by them hereunder, and that, upon
acceptance hereof by the Company, this Subscription Agreement shall be binding
upon the successors and assigns of the parties hereto.
10. Incorporation by Reference. The statement of the number of
--------------------------
Shares subscribed and related information set forth on the signature page are
incorporated as integral terms of this Subscription Agreement.
11. Other Agreements. The Company hereby represents and warrants
----------------
that it has not entered into or agreed to any agreement with any other purchaser
of stock in the offering that confers rights or benefits more favorable than the
rights and benefits conferred upon the undersigned hereunder. The Company shall
not enter into any agreement with any other purchaser of stock in the offering
that shall confer rights or benefits more favorable than the rights and benefits
conferred upon the undersigned, unless, in each case, the undersigned has been
notified in writing and been provided with a copy of such proposed agreement at
least 15 days prior to the effective date of such agreement and has been given
the opportunity to receive the rights and benefits in such agreement as of the
date of such agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement on the date set forth on the signature page.
The undersigned desires to take title in the Shares as follows (check
one):
____ (a) Trust (Trustee(s) must sign on Page 12);
____ (b) Partnership (general partner(s) must sign on Page 13);
____ (c) Corporation (authorized officer must sign on Page 14).
The exact spelling of name under which title to the Shares shall be
taken is (please print):
________________________________________________________________________________
The exact location (including account number and receiving person, if
applicable) for delivery of common stock: _____________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE
FOR TRUST INVESTORS
-------------------
Total Shares subscribed: #___________________ $________________________
_____________________________________________
Name of Trust (Please print or type)
_____________________________________________
Name of Trustee (Please print or type)
_____________________________________________
Date Trust was formed
By:__________________________________________
Trustee's Signature
Taxpayer Identification Number:______________
Trustee's Address ___________________________
___________________________________
___________________________________
Attention: ________________________
Executed at ___________________________, this ___ day of __________, 1997.
SUBSCRIPTION ACCEPTED:
PROSOFT I-NET SOLUTIONS, INC.,
a Nevada corporation
By:__________________________________________
Printed Name
and Title:_________________________
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE
FOR PARTNERSHIP INVESTORS
-------------------------
Total Shares subscribed: #_____________________ $________________________
_______________________________________________
Name of Partnership (Please print or type)
_______________________________________________
Name of General Partner (Please print or type)
By: _______________________________________
Signature of a General Partner
_______________________________________________
Name of General Partner (Please print or type)
By: _______________________________________
Signature of Additional General Partner
(if required by partnership agreement)
Taxpayer Identification Number:________________
Partnership's Address _________________________
____________________________________
____________________________________
Mailing Address (if different) ________________
____________________________________
____________________________________
Attention: _________________________
Executed at ___________________________, this ___ day of _______________, 1997.
SUBSCRIPTION ACCEPTED:
PROSOFT I-NET SOLUTIONS, INC.,
a Nevada corporation
By:____________________________________________
Printed Name
and Title:__________________________
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE
FOR CORPORATE INVESTORS
-----------------------
Total Shares subscribed: #______________________________ $___________________
_________________________________________________________
Name of Corporation (Please print or type)
_________________________________________________________
Name and Title of Authorized Agent (Please print or type)
By: __________________________________________________
Signature of Authorized Agent
Title: __________________________________________________
Taxpayer Identification Number:__________________________
Corporation's Address ___________________________________
______________________________________________
______________________________________________
Mailing Address (if different) __________________________
______________________________________________
______________________________________________
Attention: ___________________________________
Executed at ___________________________, this ___ day of _______________, 1997.
SUBSCRIPTION ACCEPTED:
PROSOFT I-NET SOLUTIONS, INC.,
a Nevada corporation
By:______________________________________________________
Printed Name
and Title:____________________________________
<PAGE>
EXHIBIT 10.13
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of November 12, 1997, by and
among Prosoft I-Net Solutions, Inc., a Nevada corporation (the "Company"), and
the Persons set forth on Schedule I attached hereto (the "Investors").
The Investors intend to purchase shares of the Company's Common Stock
pursuant to separate subscription agreements between the Company and each of the
Investors. The execution and delivery of this Agreement is a condition to the
Investors' purchase of the Common Stock. Capitalized terms used herein shall
have the meanings set forth in Section 9 below.
NOW, THEREFORE, the parties hereto, in consideration of the foregoing, the
mutual covenants and agreements hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, agree as follows:
1. REGISTRATION STATEMENTS.
(a) Shelf Registration. (i) The Company shall, on or before December 12,
1997, prepare and file with the Commission under the Securities Act a
Registration Statement with respect to the Registrable Securities, and shall use
its best efforts to cause such Registration Statement to be declared effective
at the earliest practicable date. The Company shall, subject to Sections
1(a)(v) and (vi), ensure the availability of a Prospectus meeting the
requirements of section 10(a) of the Securities Act and shall take any and all
other actions necessary in order to ensure the ability of the holders of the
Registrable Securities to effect a resale of their Registrable Securities, for
such period as the Company is obligated to maintain the effectiveness of a
Registration Statement pursuant to Section 1(a)(ii).
(ii) The Company shall use its best efforts to cause any such
Registration Statement described in Section 1(a)(i) to remain effective (or, if
required by applicable law, to cause another Registration Statement with respect
to the Registrable Securities to become and remain effective) until the earlier
to occur of: (i) such time as all the Registrable Securities have been sold by
the Investors and (ii) such time as all the Registrable Securities held by the
Investors could be sold under Rule 144 of the Securities Act during any 90-day
period.
(iii) Each holder of Registrable Securities agrees by acquisition of
such Registrable Securities to give at least five Business Days, prior notice to
the Company of any intended distribution of Registrable Securities under any
Registration Statement described in Section 1(a)(i), which notice shall specify
the date on which such holder intends to begin such distribution.
(iv) As soon as possible after the date notice is provided pursuant to
Section 1(a)(iii), and in any event within five Business Days of such date, the
Company shall, subject to Sections 1(a)(v) and 1(a)(vi): (A) file such
amendments to the Registration Statement and the
<PAGE>
Prospectus, file such documents as may be required to be incorporated by
reference in any of such documents, and take all other actions as may be
necessary to ensure to the holders of Registrable Securities the ability to
effect the public resale of their Registrable Securities for a period of at
least 90 days following the date set forth in such notice (including without
limitation taking any actions necessary to ensure the availability of a
Prospectus meeting the requirements of Section 10(a) of the Securities Act), (B)
provide each holder of Registrable Securities copies of any documents prepared
pursuant to Section 1(a)(iv)(A), and (C) inform each holder of Registrable
Securities that the Company has complied with the obligations in Section
1(a)(iv)(A) and that such holder may sell such holder's Registrable Securities.
(v) The Company may suspend the effectiveness of any Registration
Statement filed pursuant to this Section 1(a) if, in its reasonable judgment,
(A) maintaining the effectiveness of such Registration Statement at such time
would adversely affect a proposed financing, reorganization or recapitalization,
or pending negotiations relating to a merger, consolidation, acquisition or
similar transaction, or otherwise adversely affect the Company; or (B) financial
statements meeting the requirements of Regulation S-X are not available at such
time because of any such pending proposal or negotiations; provided, however,
that the right of the Company pursuant to this subsection (v) to suspend the
effectiveness of the Registration Statement shall not extend for more than 90
days; and provided, further, that the Company shall give to each holder of
Registrable Securities prior written notice of such suspension.
(vi) No holder of Registrable Securities shall distribute its
Registrable Securities in an underwritten offering pursuant to a Registration
Statement filed pursuant to this Section 1(a) unless the holders of Registrable
Securities then constituting greater than 40% of the Registrable Securities have
given notice to the Company of their request for an Underwritten Offering. If a
request for an Underwritten offering is made pursuant to this Section 1(a) by
less than all of the holders of Registrable Securities, the Company shall
promptly give notice of such request to all other holders of Registrable
Securities; and each of such holders shall have the right, by giving written
notice to the Company promptly (and in any event within 10 days after such
notice is given by the Company), to join in such request and to have included in
the Underwritten offering such number of Registrable Securities as such holder
shall specify in such notice.
(b) Incidental Registration. (i) In addition to and independent of the
rights afforded by Section 1(a), prior to filing with the Commission any
Registration Statement (on Form S-1 or Form S-3 or any general form for the
registration of securities now or hereafter adopted comparable to either of such
Forms as now in effect (other than a Registration Statement on Form S-4 or Form
S-8 or any successor form to such Forms)), daring the period from and including
September 13, 1997 to but excluding March 13, 2000, with respect to any
underwritten public offering of the Company's equity securities or any
securities convertible into or exchangeable or exercisable for such equity
securities, the Company shall notify each Significant investor Group of such
proposed filing and the price at which the shares are expected to be offered
pursuant thereto. Any such significant Investor Group wishing to have any of
its
2
<PAGE>
members' Registrable Securities included in such Registration Statement shall
promptly (and in any event within 30 days after such notice is given by the
Company) give written notice to the Company requesting registration of such
members' Registrable securities, specifying the member(s) whose Registrable
Securities are requested to be registered, specifying the number of Registrable
Securities requested to be registered by each such member and describing the
proposed method of disposition thereof, and specifying the number of Registrable
Securities which each such member of such Significant Investor Group wishes to
dispose of pursuant to such Underwritten Offering; provided, that no Significant
Investor Group shall be permitted to register more than one-half of the
Registrable Securities held by the members of such Significant Investor Group.
(ii) At any time prior to the time that a Registration Statement as to
which notice has been-given by the Company pursuant to this Section 1(b) has
been filed by the Company or, if filed, has been declared effective, the Company
may determine not to file, or may withdraw, such Registration Statement, in
either of which events the Company shall have no obligation pursuant to this
Section 1(b) to register any Registrable Securities in connection with such
proposed Registration Statement.
(c) Underwritten Offerings. In connection with any Underwritten offering
as to which notice is given by the Company pursuant to Section 1(b) or if the
proposed method of disposition of Registrable Securities selected by the holders
of Registrable Securities under Section 1(a) is to be an Underwritten offering:
(i) the Company shall request the underwriter(s) participating in such
offering to purchase and sell all Registrable Securities the disposition of
which pursuant to such Underwritten offering shall have been requested by the
holders thereof in notices given pursuant to Section 1(a) or l(b);
(ii) each holder of Registrable Securities giving a notice pursuant to
Section 1(a) or l(b) agrees, by the giving of such notice, that if the
underwriter(s) desire(s) to purchase any of the requested Registrable Securities
by such holder to be purchased, such holder shall sell such Registrable
Securities to such underwriter(s) pursuant to an underwriting agreement to be
entered into by and among the Company, the underwriter(s), such holder and any
other holders of securities of the Company participating in such Underwritten
Offering, unless, upon written notice to the Company and the managing
underwriter given at least five days prior to the date that the Registration
Statement with respect to such offering is proposed to become effective, such
holder withdraws its Registrable Securities from such Underwritten offering;
provided, however, that if the Registration Statement is amended in any way,
including without limitation amendments to the pricing information therein, or
requires recirculation for any reason, which such amendment or recirculation
results in a later proposed effective date of the Registration Statement, then
such holder of Registrable Securities shall be permitted to withdraw its
Registrable Securities from such Underwritten offering upon written notice to
the Company and the managing underwriter given at least five days prior to such
later proposed effective date.
3
<PAGE>
(iii) if the underwriter(s) elect(s) to purchase less than all
securities (including Registrable Securities) which it is requested to purchase
in connection with such offering, the Company shall use its best efforts to
cause purchases, if any, by such underwriter(s), (A) if such Underwritten
offering is the result of a request for registration pursuant to Section 1(a),
first, of securities to be offered for the account of Persons other than the
Company requested by each such holder pursuant to Section 1(a) to be included in
the Underwritten offering, to be made pro rata according to the number of
Registrable Securities requested by each such holder to be included in the
Underwritten Offering, and, second, of securities to be offered for the account
of the Company and (B) if such Underwritten offering is the result of a
registration contemplated under Section 1(b), first, of securities to be offered
for the account of the Company, and, second, of securities to be offered for the
account of Persons other than the Company, to be made pro rata according to the
number of securities requested by each such holder to be included in the
Underwritten offering;
(iv) if pursuant to Section 1(c)(iii), any of the Registrable
Securities requested by holders of Registrable Securities to be disposed of
pursuant to any Underwritten offering shall not have been purchased by the
underwriter(s) thereunder, then such holders of Registrable Securities shall
have the right to distribute their remaining Registrable Securities in a
subsequent Underwritten offering conducted in accordance with the provisions
hereof.
(d) Restrictions on Sale of Securities by Holder. Each holder of
Registrable Securities agrees, upon the written request of the Company or the
underwriter(s) in connection with the first Underwritten offering, not to sell,
sell short, grant an option to buy, or otherwise dispose of shares of the
Company's Common Stock for a period of 120 days after the closing date of such
Underwritten Offering, to the extent timely so requested in writing by the
Company or such underwriter(s); provided, however, that nothing in this Section
l(d) shall be construed as to limit in any way the incidental registration
rights of any Significant Investor Group as described in Section 1(b).
The foregoing provision shall not apply to any holder of Registrable
Securities if such holder is prevented by applicable statute, regulation or
preexisting fiduciary duty from entering into any such agreement.
(e) Restrictions on Sale of Securities by the Company. The Company agrees
not to effect any public or private offer, sale or distribution of its equity
securities or any security convertible into or exchangeable or exercisable for
such equity security, including a sale pursuant to Regulation D under the
Securities Act, during the 10-day period prior to, and during the 90-day period
(or such longer period, not exceeding 180 days, as is required by the
underwriter(s)) beginning on, the closing date of each Underwritten Offering
permitted pursuant to Section 7 or for such period as may be reasonably required
by the underwriter(s) in such Underwritten Offering, to the extent timely and
reasonably so requested in writing by the underwriter(s) (except as part of such
registration, if permitted, or pursuant to registrations on
4
<PAGE>
Form S-4 or Form S-8 or any successor form to such Forms or pursuant to an
issuance of Common Stock of the Company where such Common Stock is exempted from
the Securities Act pursuant to Section 3(a)(10) thereof); provided, however,
that a private offer, sale or distribution of such securities shall be permitted
with the consent of the holders of a majority of the Registrable Securities
owned by the Investors to be disposed of in such Underwritten offering, which
consent shall not be unreasonably withheld. Without limitation, the withholding
of such consent by the holders of Registrable Securities shall be deemed to be
reasonable if (A) such holders determine in good faith that the private offer,
sale or distribution of such securities proposed to be made by the Company would
have a material adverse effect on such Underwritten offering and (B) such
withholding would not have a Material Adverse Effect.
(f) Amendments. Upon the occurrence of any event that would cause any
Registration Statement (i) to contain a material misstatement or omission or
(ii) not to be effective and usable for resale of Registrable Securities during
the period that such Registration Statement is required to be effective and
usable, the Company shall promptly file an amendment to the Registration
Statement, in the case of clause (i), correcting any such misstatement or
omission, and in the case of either clause (i) or (ii), using its best efforts
to cause such amendment to be declared effective and such Registration Statement
to become usable as soon as practicable thereafter.
2. REGISTRATION PROCEDURES.
In connection with any Registration Statement and subject to the provisions
of Section I the Company shall use its best efforts to effect such registration
to permit the sale of the Registrable Securities being sold in accordance with
the intended method or methods of distribution thereof, and pursuant thereto the
Company shall as expeditiously as possible:
(a) prepare and file with the Commission a Registration Statement relating
to the registration on any appropriate form under the Securities Act, which form
shall be available for the sale of the Registrable Securities being sold in
accordance with the intended method or methods of distribution thereof and shall
include all financial statements required by the Commission to be filed
therewith (including, if required by the Securities Act or any regulation
thereunder, financial statements of any Subsidiary of the Company which shall
have guaranteed any indebtedness of the Company), cooperate and assist in any
filings required to be made with the NASD and use its best efforts to cause such
Registration Statement to become effective and approved by such governmental
agencies or authorities as may be necessary to enable the selling holders to
consummate the disposition of such Registrable securities; provided, that before
filing a Registration Statement or any Prospectus, or any amendments or
supplements thereto, the Company shall (i) furnish to the holders of the
Registrable Securities and the underwriter(s), if any, copies of all such
documents proposed to be filed, which documents shall be subject to the review
of such holders and (ii) make the Company's representative available for
discussion of such documents; and provided, further, the Company shall not file
any Registration Statement or amendment thereto or any Prospectus or any
supplement thereto to which either the holders of a
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majority of Registrable Securities owned by the Investors and covered by such
Registration Statement or the underwriter(s), if any, shall reasonably object
within 10 Business Days after the receipt thereof. For purposes of the preceding
proviso, an objection made by a holder of the Registrable Securities or an
underwriter, if any, shall be deemed to be reasonable if, including without
limitation, the Registration Statement, amendment, Prospectus or supplement, as
applicable, as filed or proposed to be filed, contains a material misstatement
or omission;
(b) prepare and file with the Commission such amendments and post-effective
amendments to the Registration Statement as may be necessary to keep the
Registration Statement effective for the applicable period set forth in Section
1; in the case of any Registration Statement filed pursuant to Rule 415 under
the Securities Act, cause the Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
under the Securities Act, and to comply fully with the applicable provisions of
Rules 424 and 430A under the Securities Act in a timely manner, and to comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable period
in accordance with the intended method or methods of distribution by the sellers
thereof set forth in such Registration Statement or supplement to the
Prospectus;
(c) if requested by the holders of a majority of the Registrable Securities
owned by Investors and being sold in an Underwritten Offering or the
underwriter(s) thereof, promptly incorporate in a Prospectus, Prospectus
supplement or post-effective amendment such information as such underwriter(s)
and the holders of a majority of the Registrable Securities being sold agree
should be included therein relating to the plan of distribution of the
Registrable Securities, including, without limitation, information with respect
to the number of Registrable Securities being sold to such underwriter(s), the
purchase price being paid therefor and with respect to any other terms of the
offering of the Registrable Securities to be sold in such offering; and make any
required filings of such Prospectus, Prospectus supplement or post-effective
amendment as soon as practicable after the Company is notified of the matters to
be incorporated in such Prospectus, Prospectus supplement or post-effective
amendment;
(d) advise the underwriter(s), if any, and holders of the Registrable
Securities promptly and, if requested by such Persons, confirm such advice in
writing:
(i) when the Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to the Registration Statement or any
post-effective amendment thereto, when the same has become effective;
(ii) of any request by the commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information relating thereto;
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(iii) if at any time the representations and warranties of the
Company contemplated by clause (1)(i) below cease to be true and correct;
(iv) of the existence of any fact and the happening of any event that
makes any statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto, or any document incorporated by
reference therein untrue, or that requires the making of any additions to or
changes in the Registration Statement or the Prospectus in order to make the
statements therein not misleading; and
(v) of the issuance by the Commission of any stop order or other order
suspending the effectiveness of the Registration Statement, or any order issued
by any state securities commission or other regulatory authority suspending the
qualification or exemption from qualification of such Registrable Securities
under state securities or "blue sky" laws. If at any time the Company shall
receive any such stop order suspending the effectiveness of the Registration
Statement, or any such order from a state securities commission or other
regulatory authority, the Company shall use its best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time.
(e) furnish to each holder of the Registrable Securities and each of the
underwriter(s), if any, without charge, at least one complete conformed copy of
the Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference therein and
all exhibits (including exhibits incorporated therein by reference);
(f) deliver to each holder of the Registrable Securities and each of the
underwriter(s), if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons may reasonably request; the company consents to the use of the
Prospectus and any amendment or supplement thereto by each of the holders of the
Registrable Securities and each of the underwriter(s), if any, in connection
with the offering and the sale of the Registrable Securities covered by the
Prospectus or any amendment or supplement thereto;
(g) prior to any public offering of Registrable Securities, cooperate with
the holders of the Registrable Securities, the underwriter(s), if any, and their
respective counsel in connection with the registration and qualification of the
Registrable Securities under the securities or "blue sky" laws of such
jurisdictions as the holders of the Registrable Securities or underwriter(s) may
reasonably request and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by the Registration Statement;
(h) cooperate with the holders of the Registrable Securities and the
underwriter(s), if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities being sold without bearing any
restrictive legends; and enable such Registrable
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<PAGE>
Securities to be in such denominations and registered in such names as such
holders or the underwriter(s), if any, may request at least two Business Days
prior to any sale of Registrable Securities made by such underwriter(s);
(i) use its best efforts to cause the Registrable Securities covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the seller or
sellers thereof or the underwriter(s), if any, to consummate the disposition of
such Registrable Securities;
(j) if any fact or event contemplated by clause (d)(iv) above shall exist
or have occurred, prepare a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of Registrable Securities, the Prospectus will not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading;
(k) provide a transfer agent and registrar (if the Company does not already
have such an agent) and CUSIP number for all Registrable Securities not later
than the effective date of the Registration Statement;
(l) enter into such agreements (including an underwriting agreement) and
take all such other actions in connection therewith as may be reasonably
required in order to expedite or facilitate the disposition of the Registrable
Securities pursuant to the Registration Statement, and in connection with any
such underwriting agreement entered into by the Company:
(i) make such representations and warranties to the holders of the
Registrable Securities and the underwriter(s), in form, substance and scope as
are customarily made by issuers to underwriters in primary underwritten
offerings;
(ii) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the underwriter(s) and the holders of the Registrable Securities
being sold), addressed to the underwriter(s) covering the matters customarily
covered in opinions requested in underwritten offerings and such other matters
as may reasonably be requested by such holders and underwriters; and use its
best efforts to have such opinions addressed to each such selling holder;
(iii) obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants, addressed to the
underwriters, such letters to he in customary form and covering matters of the
type customarily covered in "cold comfort" letters to underwriters in connection
with primary underwritten offerings; and use its best efforts to have such
letters and updates addressed to each selling holder of Registrable Securities;
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<PAGE>
(iv) set forth in full or incorporate by reference in the underwriting
agreement the indemnification provisions and procedures of Section 4 with
respect to all parties to be indemnified pursuant to said Section; and
(v) deliver such documents and certificates as may be reasonably
requested by the holders of the Registrable Securities being sold or the
underwriter(s) of such Underwritten Offering to evidence compliance with
subclause (i) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company pursuant
to this clause (1).
The above shall be done at each closing under such underwriting or
similar agreement, as and to the extent required thereunder;
(m) make available for inspection by a representative of the holders of the
Registrable Securities, any underwriter participating in any disposition
pursuant to the Registration Statement, and any attorney, accountant or other
professional retained by such holders or any of the underwriters, all financial
and other records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such holder, underwriter, attorney,
accountant or other professional in connection with such Registration Statement
subsequent to the filing thereof and prior to its effectiveness, except that the
aforementioned advisors may be required to sign a reasonably acceptable
confidentiality agreement;
(n) otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission, and make generally available to the holders of
the Registrable Securities, as soon as practicable, a consolidated earnings
statement (which need not be audited) for the 12-month period (A) commencing at
the end of any fiscal quarter in which Registrable Securities are sold to
underwriters in a firm or best efforts Underwritten Offering or (B) if not sold
to underwriters in such an offering, beginning with the first month of the
Company's first fiscal quarter commencing after the effective date of the
Registration Statement;
(o) use its best efforts to cause all Registrable Securities to be listed
on each securities exchange, if any, on which equity securities issued by the
Company are then listed; and
(p) use its best efforts to take all other steps necessary to effect the
registration of the Registrable Securities contemplated hereby.
Each holder of the Registrable Securities as to which any Registration
Statement is being effected agrees to furnish promptly to the Company all
information reasonably known to such holder to be necessary to make the
information previously furnished to the Company by such holder not materially
misleading.
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Each holder of the Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
existence of any fact of the kind described in Section 2(d)(iv), or notice of a
stop order or suspension described in Section 2(d)(v), such holder shall
forthwith discontinue disposition of Registrable Securities and cease to use the
Prospectus in use under such Registration Statement. The Company shall, as
promptly as practicable, provide each holder with copies of the supplemented or
amended Prospectus contemplated by Section 2(j), or advise the holders in
writing that the use of the Prospectus may be resumed, and provide each holder
with copies of any additional or supplemental filings which are incorporated by
reference in the Prospectus. If so directed by the Company, each such holder
shall deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such holder's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
3. REGISTRATION EXPENSES.
(a) All expenses incident to the Company's performance of or compliance
with this Agreement shall be borne by the Company, regardless of whether a
Registration Statement becomes effective, including without limitation:
(i) all registration and filing fees and expenses (including
filings made with the NASD);
(ii) fees and expenses of compliance with federal securities and
state "blue sky" or securities laws;
(iii) expenses of printing (including printing certificates for the
Registrable Securities and Prospectuses), messenger and delivery services and
telephone;
(iv) in connection with any Underwritten Offering, fees and
disbursements of counsel for the Company and one counsel for the holders of the
Registrable Securities (subject to the provisions of Section 3(b));
(v) all application and filing fees in connection with listing the
Registrable Securities on a national securities exchange or automated quotation
system pursuant to the requirements hereof;
(vi) all fees and disbursements of independent certified public
accountants of the Company (including the expenses of any special audit and
"cold comfort" letters required by or incident to such performance);
(vii) any reasonable out-of-pocket expenses of the holders of the
Registrable Securities (or the agents who manage their accounts); and
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(viii) such other reasonable and customary expenses as may be, at
such time (A) associated with underwritten offerings and (B) customarily borne
by the issuer.
The Company shall, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, rating
agency fees and the fees and expenses of any Person, including special experts,
retained by the Company.
(b) In connection with any underwritten offering, the Company shall
reimburse the holders of the Registrable Securities for the reasonable fees and
disbursements of not more than one counsel chosen by the holders of a majority
of the Registrable Securities covered by such Registration Statement.
Notwithstanding the provisions of this Section 3, each holder shall pay
registration expenses if and to the extent required by applicable law.
4. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each holder of the
Registrable Securities and each Person, if any, who controls such holder within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act from and against any and all losses, claims, damages, liabilities and
expenses (including, without limiting the foregoing but subject to Section 4(c),
the reasonable legal and other expenses incurred in connection with any action,
suit or proceeding or any claim asserted) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except insofar as such losses,
claims, damages, liabilities or expenses are caused directly by an untrue
statement or omission contained in information relating to such holder,
furnished in writing to the Company by or on behalf of such holder expressly for
use therein. In connection with any Underwritten offering permitted by Section
7, the Company shall also indemnify underwriters, if any, selling brokers,
dealer managers and similar securities industry professionals participating in
the distribution, their officers and directors and each Person who controls such
Persons (within the meaning of the Securities Act and the Exchange Act) to the
same extent as provided above with respect to the indemnification of the
holders, if requested in connection with any Registration Statement.
(b) As a condition to the inclusion of its Registrable Securities in any
Registration Statement pursuant to this Agreement, each holder thereof shall
furnish to the Company in writing, promptly after receipt of a request therefor,
such information as the Company may reasonably request for use in connection
with any Registration Statement, Prospectus or preliminary prospectus (including
such completed and executed questionnaires as the Company may reasonably
request) and agrees to indemnify and hold harmless, severally and not jointly,
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the Company and its directors, its officers who sign such Registration
Statement, and any Person controlling the Company within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act to the same extent as
the indemnity from the Company to each holder and Persons controlling such
holder, but only with reference to information relating specifically to such
holder furnished in writing by or on behalf of such holder expressly for use in
such Registration Statement or the Prospectus or any preliminary prospectus
included therein, and of which none of the Company, its directors, officers or
Affiliates has any actual or constructive knowledge independent of such holder;
provided, however, that such holder of Registrable Securities shall not be
liable in any such case to the extent that the holder has furnished in writing
to the Company prior to the filing of any such Registration Statement,
Prospectus or preliminary prospectus information expressly for use in such
Registration Statement, Prospectus or preliminary prospectus which corrected or
made not misleading information previously furnished to the Company, and the
Company failed to include such information therein. In case any action shall be
brought against the Company, any of its directors, any such officer, or any such
controlling Person based on the Registration Statement, the Prospectus or any
preliminary prospectus and in respect of which indemnity may be sought against
one or more of the holders, such holders shall have the rights and duties given
to the Company by Section 4(c) (except that if the Company as provided in
Section 4(c) shall have assumed the defense thereof such holders shall not be
required to do so, but may employ separate counsel therein and participate in
the defense thereof but the fees and expenses of such counsel shall be at such
holder's expense) and the Company and its directors, any such officers, and any
such controlling Person shall have the rights and duties given to the holders by
Section 4(c). In no event shall the liability of any selling holder hereunder be
greater than the net proceeds (i.e., proceeds net of underwriting discounts,
fees, commissions and any other expenses payable by such selling holder)
received by such holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation.
(c) In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought against any current or
former holder of the Registrable Securities or any Person controlling such
holder, with respect to which indemnity may be sought against the Company
pursuant to section 4(a), such holder or such Person controlling such holder
shall promptly notify the company in writing and the Company shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
such holder and payment of all fees and expenses relating thereto. Such holder
and such Persons controlling such holder shall have the right to employ separate
counsel in any such action or proceeding and participate in the defense thereof,
but the fees and expenses of such counsel shall be at such holder's expense
unless (i) the employment of such counsel has been specifically authorized in
writing by the Company, which authorization shall not be unreasonably withheld,
(ii) the Company has not assumed the defense and employed counsel reasonably
satisfactory to such holder within 15 days after notice of any such action or
proceeding, or (iii) the named parties to any such action or proceeding
(including any impleaded parties) include both such holder or any Person
controlling such holder and the Company and such holder or any Person
controlling such holder shall have been advised by such counsel that there may
be one or more
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legal defenses available to such holder or Person controlling such holder that
are different from or additional to those available to the Company and, in the
reasonable opinion of such counsel, could not be asserted by the Company's
counsel without creating a conflict of interest (in which case the Company shall
not have the right to assume the defense of such action or proceeding on behalf
of such holder or controlling Person, it being understood, however, that the
Company shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys (in addition to all
local counsel which is necessary, in the good faith opinion of both counsel for
the indemnifying party and counsel for the indemnified party in order to
adequately represent the indemnified parties) for all such holders and
controlling Persons, which firm shall be designated in writing by the holders of
a majority of the Registrable Securities currently or formerly held by such
holders and that all such fees and expenses shall be reimbursed as they are
incurred upon written request and presentation of invoices). The Company shall
not be liable for any settlement of any such action effected without the written
consent of the Company (which consent shall not be unreasonably withheld), but
if settled with the written consent of the Company or if there is a final
judgment for the plaintiff, the Company agrees to indemnify and hold harmless
such holder and all Persons controlling such holder from and against any loss or
liability by reason of such settlement or judgment. The Company shall not,
without the prior written consent of the holder, effect any settlement of any
pending or threatened proceeding in respect of which any holder or any Person
controlling such holder is a party and indemnity has been sought hereunder by
such holder or any Person controlling such holder unless such settlement
includes an unconditional release of such holder or such controlling Person from
all liability on claims that are the subject matter of such proceeding.
(d) If the indemnification provided for in this Section 4 is unavailable to
an indemnified party under paragraphs (a), (b) or (c) hereof in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company on
the one hand and the holders of the Registrable Securities on the other hand
from the original sale by the Company of the Registrable Securities, or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and such holders on the other hand in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative fault of the Company on the one hand and such holders on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Company on the one hand or
by such holders on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by an indemnified party as a result of the
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losses, claims, damages, liabilities or expenses shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim.
(e) The Company and the holders of the Registrable Securities agree that it
would not be just and equitable if contribution pursuant to this Section 4 were
determined by a pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to in subsection
(d) above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities and expenses referred to in subsection (d)
above shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding any other provision of this Agreement, no holder of
the Registrable Securities shall be required to contribute an amount greater
than the net proceeds received by such holder with respect to the sale of
Registrable Securities giving rise to any indemnification or contribution
obligation under this Section 4. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
5. RULE 144A. The Company hereby agrees with each holder of the
Registrable Securities for so long as any of the Registrable Securities remain
outstanding and during any period in which the Company is not subject to Section
13 or 15(d) of the Exchange Act, to make available to any beneficial owner of
Registrable Securities in connection with any sale thereof and any prospective
purchaser of such Registrable Securities from such beneficial owner, the
information required by Rule 144A(d)(4) under the Securities Act.
6. RULE 144. The Company agrees with each holder of Registrable
Securities to:
(a) comply with the requirements of Rule 144(c) under the Securities Act
with respect to current public information about the Company;
(b) use its best efforts to file with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act (at any time it is subject to such reporting requirements); and
(c) furnish to any holder of Registrable Securities upon request (i) a
written statement by the Company as to its compliance with the requirements of
said Rule 144(c) and the reporting requirements of the Securities Act and the
Exchange Act (at any time it is subject to such reporting requirements), (ii) a
copy of the most recent annual or quarterly report of the Company, and (iii)
such other reports and documents of the Company as such holder may reasonably
request to avail itself of any similar rule or regulation of the Commission
allowing it to sell any such securities without registration.
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7. PARTICIPATION IN UNDERWRITTEN OFFERINGS. No holder of the Registrable
Securities may participate in any Underwritten Offering hereunder unless such
holder (a) agrees to sell such holder's Registrable Securities on the basis
provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements; provided, that no holder of Registrable Securities included in any
Underwritten Offering shall be required to make any representations or
warranties to the Company or the underwriter(s) other than representations and
warranties regarding such holder and such holder's intended method of
distribution.
8. SELECTION OF UNDERWRITERS. In any Underwritten Offering of Registrable
Securities requested pursuant to Section 1(a), the investment banker(s) and
manager(s) that will administer the offering shall be selected by the holders of
a majority of the Registrable Securities with respect to which the request for
an Underwritten Offering was made under Section 1(a); provided, that, in either
case, such investment banker(s) and manager(s) must be reasonably acceptable to
the Company; and provided, further, that non-acceptance by the Company shall be
deemed reasonable if, inter alia, such investment banker(s) and manager(s) are
not of national stature and the Company's non-acceptance is on the basis that
such investment banker(s) and manager(s) are not of national stature; and
provided, further, that non-acceptance by the Company shall not be deemed
reasonable if, inter alia, such non-acceptance is on the basis that the Company
has entered into any agreement or contract (which agreement or contract the
Company entered into without the consent of the holders of a majority of the
Registrable Securities included in such offering) giving to specific investment
banker(s) and/or manager(s) the right to administer an Underwritten Offering.
9. INTERPRETATION OF AGREEMENT; DEFINITIONS.
(a) Definitions. Unless the context otherwise requires, the terms
hereinafter set forth when used herein shall have the following meanings and the
following definitions shall be equally applicable to both the singular and
plural forms of any of the terms herein defined.
"AFFILIATE" means, as to any Person, a Person which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with, the first Person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
stock, through an investment advisory or other fiduciary arrangement, by
contract or otherwise.
"AGREEMENT" means this Registration Rights Agreement and all Schedules
hereto.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day on
which banks in New York are required by law to close or are customarily closed.
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"COMMISSION" means the Securities and Exchange Commission as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Exchange Act, then the Person performing
such duties at such time.
"COMMON STOCK" means any stock of any class of the Company which has no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the Company
and which is not subject to redemption by the Company.
"COMPANY" has the meaning assigned in the first paragraph of this
Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"INVESTORS" means, collectively, the Persons listed on Schedule I, and any
successors or permitted assignees of any of their rights hereunder that hold
Registrable Securities.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the business,
assets, operations, prospects, liabilities or condition (financial or otherwise)
of the Company and its Subsidiaries, taken as a whole.
"NASD" means National Association of Securities Dealers, Inc.
"OFFERING" means the November 1997 offering of up to $10,000,000 of shares
of Common Stock to the Investors under the terms set forth in separate
subscription agreements between the Company and each of the Investors.
"PERSON" means an individual, partnership, corporation, trust or
unincorporated organization, and a government or agency or political subdivision
thereof.
"PROSPECTUS" means the prospectus included in a Registration Statement, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
"REGISTRABLE SECURITIES" means all shares of Common Stock purchased in the
Offering held at the relevant time by an Investor. As to any particular
securities, such securities will cease to be Registrable Securities when (i)
they have been transferred in a public offering registered under the Securities
Act, (ii) they have been transferred in a sale made through a broker, dealer or
market-maker pursuant to Rule 144 under the Securities Act or (iii) the holder
thereof is able to sell all of such securities under Rule 144 under the
Securities Act during any 90-day period.
16
<PAGE>
"REGISTRATION STATEMENT" means any registration statement of the Company
relating to the registration for resale of Registrable Securities, including any
registration statement filed pursuant to the provisions of this Agreement,
including the Prospectus included therein, all amendments and supplements
thereto (including post-effective amendments) and all exhibits and material
incorporated by reference therein.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SIDE ARRANGEMENT" has the meaning assigned in Section 10(c).
"SIGNIFICANT INVESTOR GROUP" means any group of Investors that are
Affiliates and that collectively purchased at least 500,000 shares of Common
Stock in the Offering.
"UNDERWRITTEN OFFERING" means a registration in which securities of the
Company are sold to an underwriter for reoffering to the public.
(b) Accounting Principles. Where the character or amount of any asset or
liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, the same shall be done in accordance with the
generally accepted accounting principles in effect from time to time, to the
extent applicable, except where such principles are inconsistent with the
express requirements of this Agreement including without limitation the
definitions set out in Section 9.
(c) Directly or Indirectly. Where any provision in this Agreement refers
to action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether the action in question is
taken directly or indirectly by such Person.
10. MISCELLANEOUS.
(a) Remedies. Each holder of the Registrable Securities, in addition to
being entitled to exercise all rights provided herein, and granted by law,
including recovery of damages, shall be entitled to specific performance of its
rights under this Agreement. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
the provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company shall not, on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to such holders of the Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's
securities under any other agreements.
17
<PAGE>
(c) Comparable Agreements. The Company hereby represents and warrants that
it has not entered into or agreed to any side letter or similar arrangement or
other agreement with any other holder or prospective holder of any securities of
the Company providing for registration rights with respect to the securities of
the Company that confers rights or benefits more favorable than the rights and
benefits conferred upon the holders of the Registrable Securities hereunder
(such a letter, arrangement or agreement, whether or not it confers such more
favorable rights or benefits, a "Side Arrangement"). The Company shall not
enter into any Side Arrangement with any holder or prospective holder of any
securities of the Company that shall confer rights or benefits more favorable
than the rights and benefits conferred upon the holders of the Registrable
Securities hereunder, unless, in each case, each of the holders of the
Registrable Securities have been notified in writing and been provided with a
copy of such a proposed Side Arrangement at least 20 Business Days prior to the
effective date of such Side Arrangement and have been given the opportunity to
receive the rights and benefits in such Side Arrangement as of the date of such
Side Arrangement.
(d) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given without the written consent of the Company and each of the Investors.
(e) Notices. All notices, demands and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, telex, telecopier, or any courier guaranteeing overnight delivery.
Such notices, demands and other communications will be sent to any Investor at
the address indicated on Schedule I, to any other holder of Registrable
Securities at such holder's address of record appearing on the Company's books
and to the Company at the address indicated below:
Prosoft I-Net Solutions, Inc.
2333 North Broadway
Suite 300
Santa Ana, CA 92706
Attention: President
Telecopier: (714) 953-1200
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party. All
such notices, demands and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; upon receipt, if
mailed postage prepaid; when answered back, if telexed; when receipt is
acknowledged, if telecopied; or at the time delivered, if delivered by an air
courier guaranteeing overnight delivery.
(f) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of the Investors,
including without limitation
18
<PAGE>
and without the need for an express assignment, Affiliates of the Investors;
provided, however, that this Agreement shall not inure to the benefit of or be
binding upon transferees of the Investors that are not Affiliates of the
Investors and do not hold at least 25,000 shares of Common Stock. In addition,
whether or not any express assignment has been made, the provisions of this
Agreement which are for the benefit of the Investors are also for the benefit
of, and enforceable by, any subsequent holder of Registrable Securities that is
either an Affiliate of an Investor or a holder of at least 25,000 shares of
Common Stock.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Governing Law. THE CORPORATE LAW OF THE STATE OF NEVADA SHALL
GOVERN ALL ISSUES AND QUESTIONS CONCERNING THE RELATIVE RIGHTS AND OBLIGATIONS
OF THE COMPANY AND ITS STOCKHOLDERS. ALL OTHER ISSUES AND QUESTIONS CONCERNING
THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND
THE EXHIBITS AND SCHEDULES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAW PRINCIPLES THEREOF, EXCEPT SECTION 5-1401 OF THE NEW YORK
GENERAL OBLIGATIONS LAW.
(i) Severability. Should any part of this Agreement for any reason be
declared invalid, such decision shall not affect the validity of any remaining
portion, which remaining portion shall remain in force and effect as if this
Agreement had been executed with the invalid portion thereof eliminated and it
is hereby declared the intention of the parties hereto that they would have
executed the remaining portion of this Agreement without including therein any
such part, parts, or portion which may, for any reason, be hereafter declared
invalid.
(j) Submission to Jurisdiction. THE COMPANY HEREBY CONSENTS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW
YORK, STATE OF NEW YORK, WITH RESPECT TO ALL ACTIONS OR PROCEEDINGS RELATING TO
THIS AGREEMENT, AND THE COMPANY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED ON
IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY PROCEEDING IN ANY
SUCH COURT AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND
CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY MAIL OR MESSENGER DIRECTED
TO IT AT THE ADDRESS OF THE COMPANY SET FORTH IN SECTION 10(E) ABOVE, AND THAT
SERVICE SO MADE, SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL
RECEIPT AND FIVE BUSINESS DAYS AFTER THE SAME
19
<PAGE>
SHALL HAVE BEEN POSTED TO THE COMPANY'S ADDRESS, AS THE CASE MAY BE, IN
ACCORDANCE HEREWITH. THE COMPANY AGREES THAT A FINAL JUDGMENT IN ANY SUCH
ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT (IF SUCH A PROCEDURE IS AVAILABLE UNDER
APPLICABLE LAW) OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING CONTAINED IN
THIS SECTION SHALL AFFECT THE RIGHT OF ANY INVESTOR TO SERVE LEGAL PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO BRING ANY ACTION OR PROCEEDING IN THE
COURTS OF ANY JURISDICTION AGAINST THE COMPANY OR TO ENFORCE A JUDGMENT OBTAINED
IN THE COURTS OF ANY OTHER JURISDICTION.
(k) Captions. The descriptive headings of the various Sections or
parts of this Agreement are for convenience only and shall not affect the
meaning or construction of any of the provisions hereof.
(1) Waiver of Jury Trial. EACH OF THE COMPANY AND THE INVESTORS
WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR
DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT,
DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN
CONNECTION HEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH
THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED
BEFORE A COURT AND NOT BEFORE A JURY.
(m) Effectiveness of Agreement. This Agreement shall become effective
upon execution by the Company and delivery hereof by the Company to at least one
Investor and the execution by such Investor and delivery hereof by such Investor
to the Company, notwithstanding the fact that any other potential Investors
listed in Schedule I have not so executed and delivered this Agreement.
(n) Final Agreement. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
20
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, or caused this Agreement to be duly executed on its behalf, as of the
date first written above.
PROSOFT I-NET SOLUTIONS, INC.
By:
-------------------------------
Name:
Title:
[Signatures of Investors are contained in Schedule I.]
21
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
----------
INVESTORS
---------
SHARES OF
NAME AND SIGNATURE ADDRESS COMMON STOCK
<S> <C> <C>
Morgan Guaranty Trust Company of New Morgan Guaranty Trust Company of New York 200,000
York, as Trustee of the Commingled 522 Fifth Avenue
Pension Trust Fund (Multi-Market New York, NY 10036
Special Investment Fund I) of Morgan Attn: Ms. Anne Mancuso
Guaranty Trust Company of New York Telecopier: (212) 837-9046
By:___________________________ with a copy to:
Name:
Title: J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, NY 10036
Attn: Mr. Kurt J. Wolfgruber
Telecopier: (212) 837-2651
Morgan Guaranty Trust Company of New Morgan Guaranty Trust Company of New York 225,000
York, as Trustee of the Commingled 522 Fifth Avenue
Pension Trust Fund (Multi-Market New York, NY 10036
Special Investment Fund II) of Morgan Attn: Ms. Anne Mancuso
Guaranty Trust Company of New York Telecopier: (212) 837-9046
By:___________________________ with a copy to:
Name:
Title: J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, NY 10036
Attn: Mr. Kurt J. Wolfgruber
Telecopier: (212) 837-2651
Morgan Guaranty Trust Company of New Morgan Guaranty Trust Company of New York 37,500
York, as Trustee of the Multi-Market 522 Fifth Avenue
Special Investment Trust Fund of Morgan New York, NY 10036
Guaranty Trust Company of New York Attn: Ms. Anne Mancuso
Telecopier: (212) 837-9046
By:___________________________
Name: with a copy to:
Title:
J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, NY 10036
Attn: Mr. Kurt J. Wolfgruber
Telecopier: (212) 837-2651
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Morgan Guaranty Trust Company of New Morgan Guaranty Trust Company of New York 37,500
York, as Investment Manager and Agent 522 Fifth Avenue
for the Alfred P. Sloan Foundation New York, NY 10036
(Multi-Market Account) Attn: Ms. Anne Mancuso
Telecopier: (212) 837-9046
By:___________________________
Name: with a copy to:
Title:
J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, NY 10036
Attn: Mr. Kurt J. Wolfgruber
Telecopier: (212) 837-2651
</TABLE>
23
<PAGE>
EXHIBIT 10.18
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
November 18, 1998 by and among Prosoft I-Net Solutions, Inc., a Nevada
corporation (the "Company"), and the persons or entities listed on Schedule 1
hereto (collectively, the "Purchasers" and individually, a "Purchaser"). Each
of the Purchasers desires to make an investment in the Company on the terms and
conditions set forth in this Agreement.
In consideration of 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 of the Company specified on
the signature page to this Agreement, at a purchase price of $1.00 per share.
2. 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.
(b) Authorization. The execution, delivery and performance by
-------------
the Company of this Agreement 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 constitutes 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: (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,
1
<PAGE>
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) Warrants Stock. All of the shares of Common Stock issuable
--------------
under this Agreement have been duly authorized and reserved for issuance and,
upon payment thereon and issuance thereof in accordance with the terms of this
Agreement, will be duly authorized, validly issued, fully paid and
nonassessable.
(e) Full Disclosure. No statement by Company contained in this
---------------
Agreement or any other instrument or document given by Company in connection
with this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary, in light of the circumstances under which it
was made, in order to make the statements herein or therein not misleading.
3. Restrictions on Transfer and Purchaser Representations. In
------------------------------------------------------
acquiring the Shares, each Purchaser makes the following representations,
warranties and agreements:
(a) Such Purchaser understands that the Shares 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 Shares, nor any
interest in the Shares, 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 Shares 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 Purchaser has been furnished with and carefully
read the following documents regarding the Company:
2
<PAGE>
(A) The Company's Annual Report on Form 10-K for the
year ended July 31, 1997, as filed with the Securities and Exchange
Commission ("SEC");
(B) The Company's Quarterly Reports on Form 10-Q, as
amended, for the quarters ended October 31, 1997, January 31, 1998 and
April 30, 1998, as filed with the SEC;
(C) The Company's Current Reports on Form 8-K, as
amended, dated December 23, 1997, January 1, 1998 and April 6, 1998, as
filed with the SEC; and
(D) The Company's draft Annual Report on Form 10-K for
the year ended July 31, 1998.
(iii) Such Purchaser has received all the information he
considers necessary or appropriate to evaluate the risks and merits of an
investment in the Shares, 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. All
information which such Purchaser has provided to the Company including, but
not limited to, the information contained in the investor questionnaire
delivered in connection herewith, is complete and accurate and may be
relied upon by the Company.
(v) Such Purchaser is able to bear the economic risks
related to a purchase of the Shares. 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 Shares 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 Shares unless the Shares are registered under the Act
or unless an exemption from registration is available with respect to such
resale or disposition.
4. Registration Rights. The Company hereby grants to each Purchaser
-------------------
the following rights covering the registration with the Securities and Exchange
Commission ("SEC") of any Shares issued hereunder:
3
<PAGE>
(a) On or before the first to occur of (i) the Company filing
with the SEC any Registration Statement on Form S-1 or Form S-3 after the date
of this Agreement, or (ii) 90 days after the date of purchase of the Shares by
such Purchaser, 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 effective within 90 days after filing and to remain
effective until the earlier of (i) 24 months from the date of purchase of the
Shares by such Purchaser or (ii) such times as all Shares held by such Purchaser
could be sold under Rule 144 of the Act.
(b) In connection with the registration described in this Section
4, the Company agrees to take all action necessary to facilitate the sale by
each Purchaser of his Shares, including furnishing to each Purchaser such number
of prospectuses reasonably required by such Purchaser to dispose of his Shares,
using its best efforts to register or qualify the Shares under the 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 4 for a
period greater than is required to complete the marketing arrangements with
respect to the Shares in such Filings, and in no event for a period greater than
the period set forth in Section 4(a).
(c) With respect to the inclusion of Shares in a registration
statement pursuant to this Section 4, all fees, costs and expenses of and
incidental to such inclusion shall be borne by the Company; provided, however,
that each Purchaser 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 such Purchaser (other than counsel also retained by the Company).
(d) Each Purchaser shall be entitled to customary indemnification
and rights of contribution relating to the registration of the Shares.
(e) Each Purchaser shall furnish to the Company such information
regarding such Purchaser and the distribution proposed by such Purchaser 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 4.
(f) The registration rights pursuant to this Section 4 shall
terminate as to a Purchaser on such date as all Shares held by that Purchaser
may immediately be sold under Rule 144 during any 90-day period.
5. 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 and every other provision of this Agreement shall
remain in full force and effect.
4
<PAGE>
6. 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.
7. 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.
8. Entire Agreement; Amendment. 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.
9. Controlling Law. This Agreement shall be governed by,
---------------
interpreted under, and construed and enforced in accordance with the laws of the
State of Texas applicable to agreements made and to be performed wholly within
the State of Texas. In the event a judicial proceeding is necessary, the sole
forum for resolving disputes arising under or relating to this Agreement shall
be the applicable courts in Austin, Texas, and all related appellate courts, and
the parties hereby consent to the jurisdiction of such courts, and that venue
shall be in Austin, Texas.
5
<PAGE>
10. 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 I-Net Solutions, Inc., a Nevada corporation
By: _____________________________________________
Name: _____________________________________________
Address: 3001 Bee Caves Rd., Suite 100
Austin, Texas 78746
The foregoing Agreement is hereby accepted as of the date first
written above.
Name of Purchaser: ________________________________
Authorized Signature: ________________________________
Amount of Investment: _____ shares of Common Stock at $___ per share for
an aggregate purchase price of $_______________
Exact Name in which Shares
are to be Issued: ________________________________
Address: ________________________________
________________________________
________________________________
6
<PAGE>
EXHIBIT 10.19
NOTE AND WARRANT PURCHASE AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT (this "Agreement") is entered
into as of December 2, 1998 by and among Prosoft I-Net Solutions, Inc., a Nevada
corporation (the "Borrower"), and the persons or entities listed on Schedule 1
hereto (collectively, the "Lenders").
R E C I T A L S
- - - - - - - -
A. The Borrower desires to borrow up to $2,000,000 from the Lenders
in order to meet its needs for additional working capital.
B. Each of the Lenders desires to make a loan (a "Loan") by
purchasing a convertible promissory note in the amount set forth opposite its
name on Schedule 1 hereto (a "Note") to be issued by the Borrower in
substantially the form of Exhibit A hereto in the principal amount of such
Lender's Loan.
C. In consideration of the making of the Loans by the Lenders, the
Borrower desires to sell and issue to the Lenders warrants ("Warrants") in
substantially the form of Exhibit B hereto entitling the holder to purchase
shares of its Common Stock ("Common Stock"), as provided 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. Loans. Upon the terms and subject to the conditions contained
-----
herein, each of the Lenders hereby agrees to make a Loan to the Borrower in the
amount indicated opposite such Lender's name on Schedule 1 hereto, and the
Borrower agrees to issue and sell to each Lender a Note in the principal amount
of such Loan. The Notes shall bear simple interest at a rate per annum equal to
13%, payable quarterly in arrears in either (i) cash or (ii) at the option of
Borrower, cash and up to 50% in shares of Common Stock. For purposes of such
interest payments, the Common Stock will be valued at the average closing bid
price per share for the Common Stock for the five (5) business days prior to the
due date for the interest payment. The Notes shall provide for no principal
payments until November 30, 2003, at which time all unpaid principal and accrued
but unpaid interest shall be due and payable. The Borrower shall have the right
to prepay without penalty all or any part of the unpaid balance of the Notes at
any time; provided, however, Borrower shall give each Lender thirty (30) days'
prior written notice of any prepayment and the Note shall remain convertible as
set forth below during that period and prior to prepayment.
1
<PAGE>
2. Conversion.
----------
(a) Optional Conversion of Notes. The principal amount of each of the
----------------------------
Notes shall be convertible at any time, or from time to time, at the option of
the holder thereof, into shares of Common Stock at a conversion price of $1.60
per share (the average closing bid price per share of the Common Stock for the
five (5) business days prior to the date of the letter of commitment from the
Lenders). Any Lender wishing to convert his Note shall notify the Borrower in
writing and shall designate that portion of the principal amount of his Note,
excluding accrued but unpaid interest, which he elects to convert. Not later
than ten (10) business days after delivery of such notice, Lender shall
surrender his Note in exchange for the shares of Common Stock into which his
Note is being converted, and shall also receive cash or a combination of cash
plus Common Stock pursuant to Section 1, equal to all accrued but unpaid
interest on such converted amount to the date of conversion. If less than all
of a Note is being converted, Borrower shall return a new Note to the Lender on
the same terms and conditions and in the amount of the non-converted portion of
the original Note.
(b) Adjustments to Conversion Price.
-------------------------------
(i) The conversion price and the number of shares of Common
Stock to be issued upon conversion of the Notes shall be adjusted as follows:
(A) If at any time after the date hereof the number of shares of
Common Stock outstanding is increased by a stock dividend payable in shares of
Common Stock or by a subdivision or split-up of shares of Common Stock, then, on
the record date of such stock dividend, subdivision, or split-up, the conversion
price shall be appropriately decreased in proportion to such increase of
outstanding shares.
(B) If at any time after the date hereof the number of shares of
Common Stock outstanding is decreased by a reverse stock split or other
combination of the outstanding shares of Common Stock, then, on the effective
date of such reverse stock split or other combination, the conversion price
shall be appropriately increased in proportion to such decrease in outstanding
shares.
(ii) All calculations under this Section 2(b) shall be made to
the nearest cent or to the nearest one-hundredth (1/100) of a share, as the case
may be. No fractional shares of Common Stock shall be issued upon conversion of
the Notes. Any fractional shares of Common Stock which might otherwise be
issued upon conversion of the Notes shall be rounded to the nearest whole share
(with one-half rounded up).
(iii) If at any time or from time to time there is a capital
reorganization or any merger of the Borrower with or into any other corporation
or corporations or a sale of all or substantially all of the assets of the
Borrower to any other person or any voluntary or involuntary liquidation,
dissolution or winding up of the Borrower (any such transaction referred to
herein as a
2
<PAGE>
"Reorganization") involving the Common Stock then, as a part of such
Reorganization, provision shall be made so that holders of the Notes shall
thereafter be entitled to receive, upon conversion of the Notes, the number of
shares of stock or other securities or property of the Borrower or of the
successor corporation resulting from such Reorganization to which a holder of
Common Stock deliverable upon conversion of the Notes would have been entitled
on such Reorganization. In any such case, appropriate adjustment shall be made
in the application of the provisions of this Section 2(b) with respect to the
rights of holder after such Reorganization to the end that the provisions of
this Section 2(b) (including adjustments of the conversion price then in effect)
shall be applicable after that event and be as nearly equivalent to the
provisions hereof as may be practicable.
(iv) (A) If at any time, or from time to time after the closing
of the transactions contemplated by this Agreement, the Borrower issues or
sells, or is deemed by the express provisions of this Section 2(b)(iv) to have
issued or sold, additional shares of Common Stock in a Financing (as defined
below), for a price less than the then Current Market Price (as defined below),
then and in each such case the then existing conversion price shall be reduced
as of the opening of business on the date of such issue or sale (or such deemed
issue or sale) to the Adjusted Price (as defined below).
(B) For purposes of this Section 2(b)(iv), the following
definitions shall apply:
(I) "Adjusted Price" shall mean (i) with respect to the
issuance of equity securities, the price per share determined by multiplying the
existing conversion price by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such Financing
plus the number of shares of Common Stock which the aggregate consideration
received by the Company in such Financing would have purchased at the existing
conversion price, and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to such Financing plus the number of
shares actually issued in such Financing and (ii) with respect to the issuance
of options, rights or warrants entitling the holders thereof to subscribe for or
purchase shares of equity securities, the price per share determined by
multiplying the existing conversion price by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such Financing plus the number of shares of Common Stock which the aggregate
consideration received by the Borrower in such Financing (including both the
issue price of the options, rights or warrants and the exercise price thereof)
would have purchased at the existing conversion price, and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such Financing plus the number of shares such holders of options,
rights and warrants would own if they exercised the options, rights or warrants
received by them in the Financing. For the purposes of the foregoing
calculation, the number of shares of Common Stock outstanding immediately prior
to such Financing shall be calculated on a fully diluted basis, as if all
outstanding warrants or options to purchase Common Stock had been fully
exercised immediately prior to such Financing as of such date, but shall not
include shares of Common Stock held in the treasury of the Borrower.
3
<PAGE>
(II) "Financing" shall mean any issuances of equity
securities or options, rights or warrants entitling the holders thereof to
subscribe for or purchase equity securities by the Borrower for cash or any
other form of consideration, but shall not include (i) the issuance of shares or
options to employees, directors or consultants of the Borrower to the extent
that all such issuances pursuant to this subclause (i) do not result in the
issuance to employees, directors or consultants of the Borrower, at a price per
share less than the then Current Market Price, of a number of shares (and/or
options, rights or warrants to buy a number of shares) in excess of 10% of the
outstanding shares of Common Stock in the aggregate as of the date of this
Agreement, or (ii) the issuance of shares upon exercise of outstanding warrants
or options described in the Form 10-K (as defined below).
(III) "Current Market Price" shall mean (i) if the
Common Stock is exchange-traded or traded on the NASDAQ National Market System
("NMS"), the closing sale or last sale price per share of the Common Stock, (ii)
if the security is regularly traded in any over-the-counter market other than
NMS, the closing bid price per share of the Common Stock, and (iii) if the
security is not traded as described in clause (i) or (ii), the per share fair
market value of the security as determined in good faith by the Borrower's Board
of Directors. Current Market Price as of a given date with respect to clauses
(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 security takes place
on such date, on the next preceding trading day on which there has been such
trading.
(C) For the purpose of making any adjustment required under
this Section 2(b)(iv), the consideration received by the Borrower for any issue
or sale of securities shall (i) to the extent it consists of cash, be computed
at the aggregate sales price paid in cash, (ii) to the extent it consists of
property other than cash, be computed at the fair value of the property as
determined in good faith by the Board of Directors of the Borrower, or (iii) if
additional shares of Common Stock, other securities of the Borrower convertible
into Common Stock ("Convertible Securities") or rights or options to purchase
either additional shares of Common Stock or Convertible Securities are issued or
sold together with other assets of the Borrower, for consideration which covers
both, be computed as the portion of the consideration so received that may be
reasonably determined in good faith by the Board of Directors of the Borrower to
be allocable to such additional shares of Common Stock, Convertible Securities
or rights or options; provided, however, if the Lenders reasonably disagree with
any determination by the Board of Directors pursuant to this subsection, and
such disagreement cannot be resolved by the parties within thirty (30) days, the
Borrower shall select one independent appraiser, the Lenders shall select
another independent appraiser and the two appraisers shall jointly select a
third independent appraiser. The third appraiser shall then make its own
determination regarding the disputed determination and such appraiser's final
determination shall be binding on the parties. The costs of such appraiser shall
be split equally between the Borrower and the Lenders.
(D) For the purpose of the adjustment required under this
Section 2(b)(iv), if the Borrower issues or sells Convertible Securities, then
in each such case, the Borrower
4
<PAGE>
shall be deemed to have issued at the time of issuance of such Convertible
Securities the maximum number of additional shares of Common Stock (determined
without regard to adjustment provisions similar to those contained in this
Section 2) issuable upon exercise or conversion thereof and to have received as
consideration for the issuance of such shares an amount equal to the total
amount of the consideration, if any, received by the Borrower for the issuance
of such Convertible Securities, plus, the minimum amount of consideration, if
any, payable to the Borrower upon conversion (other than by cancellation of
liabilities or obligations evidenced by such Convertible Securities). No further
adjustment of the conversion price, adjusted upon the issuance of such
Convertible Securities, shall be made as a result of the actual issuance of
additional shares of Common Stock upon exercise of such Convertible Securities;
provided, however, that if such Convertible Securities shall expire prior to
exercise thereof, then the conversion price shall be readjusted to a conversion
price equal to that price which would have existed had the expired Convertible
Securities never existed.
(E) For the purpose of the adjustments required under this
Section 2(b)(iv), if the Borrower issues or sells any rights or options for the
purchase of Convertible Securities, then in each such case the Borrower shall be
deemed to have issued at the time of the issuance of such rights or options the
maximum number of additional shares of Common Stock (determined without regard
to adjustment provisions similar to those contained in this Section 2) issuable
upon conversion of the total amount of Convertible Securities covered by such
rights or options and to have received as consideration for the issuance of such
additional shares of Common Stock an amount equal to the amount of
consideration, if any, received by the Borrower for the issuance of such rights
or options, plus the minimum amounts of consideration, if any, payable to the
Borrower upon the exercise of such rights or options plus the minimum amount of
consideration, if any, payable to the Borrower (other than by cancellation of
liabilities or obligations evidenced by such Convertible Securities) upon
exercise of the conversion or purchase rights of such Convertible Securities. No
further adjustment of the conversion price, adjusted upon the issuance of such
rights or options, shall be made as a result of the actual issuance of the
Convertible Securities upon the exercise of such rights or options or upon the
actual issuance of additional shares of Common Stock upon exercise of the
conversion or purchase rights of such Convertible Securities; provided, however,
that if such right or option to purchase Convertible Securities shall expire
prior to exercise thereof, or if such Convertible Securities shall expire prior
to the exercise thereof, the conversion price shall be readjusted to a
conversion price equal to that price which would have existed had the expired
rights or options to purchase Convertible Securities or such Convertible
Securities never existed.
(v) Upon any adjustments of the conversion price or the amount or
kind of securities or other property issuable upon conversion of the Notes, the
Borrower shall prepare and mail to the holder thereof a certificate setting
forth the event requiring the adjustment, the amount of the adjustment, the
method by which the adjustment was calculated, and (after giving effect to the
adjustment) the conversion price. Any disagreement between the Borrower and the
Lenders regarding such adjustment shall be resolved pursuant to the process set
forth in Section 2(b)(iv)(C) above.
5
<PAGE>
(c) Mandatory Conversion.
--------------------
(i) Within thirty (30) days after the occurrence of a Mandatory
Conversion Event (as defined below), the Borrower may, in its discretion, force
the mandatory conversion of all or any part of the then outstanding Notes by
delivery of written notice to that effect to each of the Noteholders. Not later
than ten (10) business days after delivery of such notice, Lender shall
surrender his Note in exchange for the shares of Common Stock into which his
Note is being converted, and shall also receive cash or a combination of cash
plus Common Stock pursuant to Section 1, equal to all accrued but unpaid
interest on such converted amount to the date of conversion. If less than all
of a Note is being converted, Borrower shall return a new Note to the Lender on
the same terms and conditions and in the amount of the non-converted portion of
the original Note. Any conversion under this Section of less than all of the
then outstanding Notes shall be done pro rata among the Notes based on the
original principal amounts of the Notes.
(ii) For purposes of this Section, a "Mandatory Conversion Event"
shall occur each time the Current Market Price of the Common Stock equals or
exceeds the Trigger Price for twenty (20) out of any thirty (30) consecutive
trading days during the applicable Measurement Period, as follows:
<TABLE>
<CAPTION>
Measurement Period Trigger Price
------------------ -------------
<S> <C>
Prior to December 1, 1999 $6.50
December 1, 1999 through November 30, 2000 $7.00
After November 30, 2000 $7.50
</TABLE>
3. Issue and Sale of Warrants. The Borrower shall issue and sell to each
--------------------------
Lender in connection with each Loan a ten-year Warrant representing the right to
purchase, for a price (the "Exercise Price") of $1.10 per share, the number of
shares of Common Stock equal to one share for every $2.00 in principal amount of
the Loan made by such Lender. Each Lender agrees to purchase such a Warrant
concurrently with each Loan made by it. The purchase price for each Warrant
shall be equal to the product of $0.01 multiplied by the number of shares
initially issuable upon exercise of such Warrant. Concurrently with each Loan
made by a Lender, the Borrower shall execute and deliver to such Lender a
Warrant representing the right to purchase the number of shares of Common Stock
determined in accordance with the first sentence of this Section 3, and such
Lender shall promptly pay the Borrower the purchase price of such Warrant
determined in accordance with this Section 3 or such purchase price shall be
credited against interest payable to the Lender on his Note.
4. Representations and Warranties of the Borrower. The Borrower hereby
----------------------------------------------
represents and warrants to the Lenders as follows:
6
<PAGE>
(a) Organization. The Borrower is duly organized, validly existing
------------
and in good standing under the laws of the State of Nevada. The Borrower has
full power and authority to own, lease and operate its properties and to conduct
its business as currently conducted and is registered or qualified to do
business and is in good standing in each jurisdiction in which it owns or leases
property or transacts business and where the failure to be so qualified would
have a material adverse effect upon the business, financial condition,
prospects, properties or operations of the Borrower.
(b) Due Authorization. The Borrower has all requisite power and
-----------------
authority to execute, deliver and perform its obligations under this Agreement,
the Notes and the Warrants, and this Agreement, the Notes and the Warrants have
been duly authorized and validly executed and delivered by the Borrower and
constitute valid and binding agreements of the Borrower and each is enforceable
against the Borrower in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally and except as enforceability
may be subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(c) Non-Contravention. The execution and delivery of this Agreement,
-----------------
the issuance and sale of the Note and Warrants to be sold by the Borrower
hereunder, and the consummation of the transactions contemplated hereby will not
conflict with or constitute a violation of, or default (with the passage of time
or otherwise) under, any material agreement or instrument to which the Borrower
is a party or by which it is bound or the Articles of Incorporation (the
"Charter") or the Bylaws of the Borrower nor result in the creation or
imposition of any lien, encumbrance, claim, security interest or restriction
whatsoever upon any of the material properties or assets of the Borrower or an
acceleration of indebtedness pursuant to any obligation, agreement or condition
contained in any material bond, debenture, note or any other evidence of
indebtedness or any material indenture, mortgage, deed of trust or any other
agreement or instrument to which the Borrower is a party or by which the
Borrower is bound or to which any of the property or assets of the Borrower is
subject, nor conflict with, or result in a violation of, any law, administrative
regulation, ordinance or order of any court or governmental agency, arbitration
panel or authority applicable to the Borrower. No consent, approval,
authorization or other order of, or registration, qualification or filing with,
any regulatory body, administrative agency, or other governmental body in the
United States is required for the valid issuance and sale of the Notes and
Warrants to be sold pursuant to this Agreement (other than such as have been
made or obtained).
(d) Conversion Stock. All of the shares of Common Stock issuable upon
----------------
conversion of the Notes have been duly authorized and reserved for issuance and,
upon payment therefor and issuance thereof in accordance with the terms of the
Notes, will be duly authorized, validly issued, fully paid and nonassessable.
(e) Warrants Stock. 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.
7
<PAGE>
(f) Capitalization. The authorized and outstanding capital stock of
--------------
the Borrower and rights to acquire capital stock of the Borrower are as set
forth in the Form 10-K. Except as set forth in the Form 10-K, there are no
outstanding shares of, or rights to acquire shares of, capital stock of the
Borrower.
(g) Legal Proceedings. There is no legal or governmental proceeding
-----------------
pending or, to the knowledge of the Borrower, threatened or contemplated to
which the Borrower is or may be a party or of which the business or property of
the Borrower is or may be subject that, if adversely determined, would have a
material adverse effect upon the business, financial condition, prospects,
properties or operations of the Borrower.
(h) No Violations. The Borrower is not in violation of its Charter or
-------------
Bylaws, in violation of any law, administrative regulation, ordinance or order
of any court or governmental agency, arbitration panel or authority (including
without limitation any law, regulation or order relating to ERISA) applicable to
the Borrower, which violation, individually or in the aggregate, would have a
material adverse effect on the business or financial condition of the Borrower,
or in default in any material respect in the performance of any obligation,
agreement or condition contained in any bond, debenture, note or any other
evidence of indebtedness in any indenture, mortgage, deed of trust or any other
agreement or instrument to which the Borrower is a party or by which the
Borrower is bound or by which the properties of the Borrower are bound or
affected, and there exists no condition which, with the passage of time or the
giving of notice or both, would constitute a material default under any such
document or instrument or result in the imposition of any material penalty or
the acceleration of any indebtedness.
(i) Government Permits, Etc. The Borrower has all necessary
------------------------
franchises, licenses, certificates and other authorizations from any foreign,
federal, state or local government or governmental agency, department, or body
that are currently necessary for the operation of the business of the Borrower
as currently conducted, the absence of which would have a material effect on the
business or operations of the Borrower.
(j) Financial Statements. The financial statements of the Borrower
--------------------
and the related notes contained in the Form 10-K present fairly the financial
position of the Borrower as of the dates indicated therein and its results of
operations for the period therein specified, were prepared in accordance with
generally accepted accounting principles and are true, correct and complete in
all respects.
(k) No Material Adverse Change. Except as described in the Form 10-K,
--------------------------
since July 31, 1998, the Borrower has not incurred any material liabilities or
obligations, direct or contingent, other than in the ordinary course of
business, and there has not been any material adverse change in its business,
financial condition, prospects, properties or results of operations.
8
<PAGE>
(l) Form 10-K. The Form 10-K does not contain any untrue statement of
---------
a material fact nor does it omit to state a material fact necessary to make the
statements made therein not misleading.
(m) Offers of Shares. Neither the Borrower nor anyone acting on its
----------------
behalf has offered the Notes or Warrants or any similar securities to, or
solicited any offer to purchase the same from, or otherwise approached or
negotiated in respect thereof with, any person, or has taken any other action,
which in all cases mentioned above would require the registration of the
Securities under Section 5 of the Securities Act of 1933, as amended (the "1933
Act") or under the registration and qualification provisions of any securities
or "blue sky" law of any applicable jurisdiction.
(n) Contingent Liabilities. The Borrower does not have any contingent
----------------------
liabilities that would be material to the Borrower that are not provided for or
disclosed in the financial statements that are included in the Form 10-K.
(o) Transaction with Affiliates. All of the Borrower's transactions
---------------------------
and relationships with affiliates are on fair and reasonable terms comparable to
those that would be obtained in an arm's-length transaction between unrelated
third parties.
(p) Fees and Commissions. No broker's or finder's fee or commission
--------------------
will be payable by the Borrower with respect to the issuance and sale of the
Notes and Warrants or the transactions contemplated hereby, and the Borrower
shall hold such Lender harmless from any claim, demand or liability for any such
broker's or finder's fees or commission alleged to have been incurred in
connection herewith.
(q) Investment Company Act. The Borrower is not and, after giving
----------------------
effect to the offering and sale of the Securities and the application of the
proceeds thereof, will not be an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended (the "Investment Borrower Act").
The Borrower is not directly or indirectly controlled by or acting on behalf of
any person which is an "investment company" as such term is defined in the
Investment Company Act.
(r) ERISA. Assuming the accuracy of the representation set forth in
-----
Section 2(o), the execution and delivery of this Agreement and the issue and
purchase of the Notes and Warrants hereunder will not, as of the date hereof,
involve any transaction that is prohibited under Section 406(a)(1) the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or which is a
"prohibited transaction" as defined in Section 4975(c)(1) of the Internal
Revenue Code of 1986, as amended (the "Code"), in either case for which a
statutory or administrative exemption is not available.
(i) The Borrower does not maintain, contribute to or have any
liability with respect to any Plan or Multiemployer Plan.
9
<PAGE>
(ii) The Borrower has no ERISA Affiliates.
(iii) The Borrower is not a party to any collective bargaining
agreement.
For purposes of this Section, the following terms shall be defined as stated
below:
"ERISA Affiliate" means each trade or business (whether or not
incorporated) which, together with the Borrower, is treated as a single employer
under Title IV of ERISA or Section 414 of the Code.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which the Borrower, any of its subsidiaries or
any ERISA Affiliate is then making or accruing an obligation to make
contributions or has within any of the preceding five plan years made or accrued
an obligation to make contributions, including for these purposes any person
which ceased to be an ERISA Affiliate during such five-year period.
"Plan" means an employee benefit plan, other than a Multiemployer
Plan, which is subject to Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code or Section 302 of ERISA, and either (i)
is maintained for employees of the Borrower, any of its subsidiaries or any
ERISA Affiliate or in which any such employees participate or to which
contributions are made by the Borrower, any of its subsidiaries or any ERISA
Affiliate, or (ii) has at any time within the preceding five years been
maintained for employees of the Borrower, any of its subsidiaries or any ERISA
Affiliate or any person which was at such time an ERISA Affiliate or in which
any such employees participated at such time, or (iii) with respect to which the
Borrower, any of its subsidiaries or any ERISA Affiliate could be subjected to
any liability under Title IV of ERISA (including without limitation Section 4069
of ERISA) in the event that such plan has been or were to be terminated.
5. Affirmative Covenants of the Borrower. The Borrower makes the
-------------------------------------
following covenants to each of the Lenders, upon which the Lenders are relying
in entering into this Agreement and which shall survive until the Notes are
repaid in full or converted:
(a) Reports. Borrower shall provide said Lender with (i) unaudited
-------
financial statements within forty-five (45) days of the end of each of the
Borrower's first three fiscal quarters; (ii) audited financial statements within
ninety (90) days of the end of the Borrower's fiscal year or, if no audited
financial statements are prepared, unaudited financial statements within that
same time period.
(b) Compliance with Laws. The Borrower shall comply in all material
--------------------
respects with all applicable statutes, rules, regulations and orders of and all
applicable restrictions imposed by all governmental authorities related to the
conduct of its business and the ownership of its property (including, without
limitation, applicable statutes, rules, regulations, orders and restrictions
relating to environmental, safety and other similar standards or controls)
unless the failure to so
10
<PAGE>
comply would not have a material adverse effect on the business or condition
(financial or otherwise) of the Borrower.
(c) Insurance. The Borrower shall maintain, with financially sound
---------
and reputable insurers, insurance with respect to its properties and business
against loss or damage of the kinds customarily insured against by owners of
established reputation engaged in the same or similar business and similarly
situated, in such amounts and by such methods as shall be customary for such
owners and deemed adequate by the Borrower.
(d) Litigation. The Borrower shall promptly notify each of the
----------
Lenders of any material litigation or legal proceedings initiated against the
Borrower or any violation or potential violation of any representation, warranty
or covenant under this Agreement or the Notes. For the purpose of this Section
5(d) materiality shall be any contingent liability in excess of $100,000.
6. Negative Covenants of the Borrower. The Borrower makes the
----------------------------------
following negative covenants to each Lender, upon which each Lender is relying
in entering into this Agreement and which shall survive until the Notes are
repaid in full or converted. After the closing of the transactions contemplated
by this Agreement, without the written consent of the holders of the majority of
principal amount of the then outstanding Notes:
(a) Mergers; Reorganizations. The Borrower shall not become a party
------------------------
to a merger or consolidation with any other person, corporation, business trust,
partnership or entity ("Person"), nor will the Borrower acquire all or
substantially all of the assets or securities of any Person, nor will the
Borrower sell, lease or otherwise dispose of all or a substantial part of its
assets.
(b) Distributions and Redemptions. The Borrower shall not apply any
-----------------------------
sum to the payment of any dividend or other distribution on any share of the
capital stock of the Borrower or make any loans or advances to any person or
entity or redeem any securities of the Borrower.
(c) Limitation on Future Indebtedness. The Borrower shall not incur
---------------------------------
any new indebtedness (contingent or otherwise), except for: (i) an accounts
receivable line of credit up to the greater of $2,000,000 or 70% of eligible
accounts receivable; (ii) purchase money indebtedness incurred in the ordinary
course of business up to $750,000 in principal amount in the aggregate; (iii)
unsecured obligations incurred, currently payable and paid by the Borrower in
the ordinary course of business; (iv) indebtedness approved in writing by the
holders of a majority in aggregate principal amount of the Notes; and (v)
indebtedness subordinated to the Loans made by the Lenders. Borrower shall not
permit or agree to any extension, compromise or settlement or make any material
change, modification or settlement of any account of the Borrower which would
adversely affect Borrower.
(d) No Liens. The Borrower shall not, except in the ordinary course
--------
of business, sell, encumber, pledge, mortgage, grant a security interest in,
assign, hypothecate or otherwise obligate any of the Borrower's assets, or
permit any lien, charge, security interest, abstract of
11
<PAGE>
judgment or any other encumbrance on any of its assets, except in connection
with the incurrence of indebtedness permitted by Section 6(c).
(e) No Related Party Agreement. The Borrower shall not enter into or
--------------------------
become a party to any transaction with any affiliate, shareholder, officer or
director of the Borrower, except employment and consulting agreements entered
into in the ordinary course of business on commercially reasonable terms.
(f) No Violation. The Borrower shall not cause or permit any
------------
violation of any representation, warranty or covenant under this Agreement or
the Notes or cause or permit any action that could result in a violation of any
representation, warranty or covenant under this Agreement or the Notes, or
violate or take any action which is likely to result or will result in the
violation of any contract or agreement by which the Borrower is bound.
7. Restrictions on Transfer and Lender Representations. In
---------------------------------------------------
acquiring the Note, any Warrants, any shares of Stock issued as interest
payments on the Notes, and any shares of Common Stock issuable upon exercise of
the Warrants (collectively, the "Securities"), each Lender makes the following
representations, warranties and agreements:
(a) Such Lender has received and read and understands the Company's
Annual Report on Form 10-K for the year ending July 31, 1998 (the "Form 10-K"),
which contains important information relating to the Borrower and has relied
solely on the Form 10-K; such Lender has not relied on any oral representations
or oral information furnished to such Lender in connection with the purchase of
the Securities.
(b) Such Lender has had the opportunity to seek from the Borrower or
its representatives, and has received from such parties, all information deemed
necessary by such Lender to evaluate the merits and risks of an investment in
the Borrower. Such Lender has had the opportunity to verify the accuracy of the
information contained in the Form 10-K and to seek investment, tax or legal
counsel prior to investing in the Borrower.
(c) Such Lender understands that, except as provided in Section 8
below, the Securities 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 such Lender's representations and warranties herein.
(d) Such Lender, if a corporation, partnership, trust or other entity,
is authorized and duly empowered to purchase and hold the Securities, has its
principal place of business at the address set forth on the signature page and
has not been formed for the specific purpose of acquiring the Securities.
(e) The Securities are being purchased for the account specified on
the signature page hereof, for investment and not with a view to resale or
distribution to any person, corporation
12
<PAGE>
or other entity. Such Lender also understands that there will not be any public
market for the sale of such Shares.
(f) Such Lender has such knowledge and experience in financial and
business matters that will enable such Lender to utilize the information made
available to it in connection with this investment to evaluate the merits and
risks of an investment in the Borrower.
(g) Such Lender is able to bear the economic risks related to a
purchase of Shares (i.e., such Lender is able to afford a complete loss of the
Securities such Lender is subscribing to purchase). Such Lender has made other
investments of a similar nature and, by reason of such Lender's business and
financial experience, has acquired the capacity to protect its own interests in
investments of this nature. Such Lender has carefully reviewed the Form 10-K,
and has made its own examination of the investment, as well as the accounting
and tax aspects of this transaction, and will depend on the advice of its own
counsel and accountants.
(h) Such Lender recognizes that the Securities involve a high degree
of risk, including those special risks referred to or set forth in the Form 10-
K.
(i) Such Lender is an "accredited investor" within the meaning of Rule
501 of Regulation D as promulgated under the 1933 Act.
(j) All information which such Lender has provided to the Borrower,
including, but not limited to, such Lender's financial position and knowledge of
financial and business matters, is true, correct and complete as of the date of
execution of this Agreement. Such Lender understands that the Borrower will
rely to a material degree upon the representations contained herein.
(k) Such Lender is 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 Securities.
(l) Such Lender understands that the Securities 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 either a registration or an exemption therefrom, and that the
Securities will contain a legend to that effect.
(m) Such Lender further represents and warrants to the Borrower that,
with respect to each source of funds to be used by it to purchase Shares
hereunder (each being referred to as the "Source"), at least one of the
following statements is and shall be accurate as of the date hereof:
(i) the Source is not the assets of any "plan" (as such term is
defined in Section 4975(e)(1) of the Code) subject to Section 4975 of the Code,
or any "employee benefit plan" (as such term is defined in Section 3(3) of
ERISA) subject to Section 406 of ERISA (each such plan
13
<PAGE>
and employee benefit plan, being referred to as a "Benefit Plan") or otherwise
out of "plan assets" within the meaning of United States Department of Labor
regulation Section 2510.3-101, 29 CFR 2510.3-101;
(ii) the Source is the assets of a "governmental plan" (as such
term is defined in Section 3(32) of ERISA);
(iii) such Lender is an insurance company and the Source is the
assets of its general asset account and the conditions set forth in Sections
I(a) and IV of Prohibited Transaction Class Exemption ("PTCE") 95-60 have been
satisfied with respect to such Lender's purchase of the Securities;
(iv) such Lender is an insurance company and the Source is the
assets of an insurance company pooled separate account within the meaning of
PTCE 90-1 issued by the United States Department of Labor and either (x) no
Benefit Plan has assets in such separate account which exceed or are expected to
exceed 10% of the total assets of such separate account as of the date hereof
(for purposes of this clause (iv), all Benefit Plans maintained by the same
employer or employee organization are deemed to be a single plan), or (y) such
Lender has disclosed to the Borrower in writing prior to the date hereof the
identity of each Benefit Plan whose assets in such separate account exceed or
are expected to exceed 10% of the total assets of such separate account as of
the date hereof;
(v) such Lender is a bank and the Source is assets of a
collective investment fund as defined in Section IV(e) of PTCE 91-38 and either
(x) no Benefit Plan has assets in such collective investment fund which exceed
or are expected to exceed 10% of the total assets of such collective investment
fund as of the date hereof (for purposes of this clause (v), all Benefit Plans
maintained by the same employer or employee organization are deemed to be a
single plan), or (y) such Lender has disclosed to the Borrower in writing prior
to the date hereof the identity of each Benefit Plan whose assets in such
collective investment fund exceed or are expected to exceed 10% of the total
assets of such collective investment fund as of the date hereof;
(vi) the Source is assets of an " investment fund" managed by a
"qualified professional asset manager" or "QPAM" (as such terms are defined in
Part V of PTCE 84-14), and the conditions set forth in Sections I(c), (d), (e)
and (g) of PTCE 84-14 have been satisfied, and the identity of such QPAM and the
names of all Benefit Plans whose assets are included in such investment fund
(other than, in the case of a collective investment fund described in the clause
(v) above, any Benefit Plan the identity of which is not required to be
disclosed to the Borrower pursuant to clause (v) above) have been identified in
writing to the Borrower prior to the date hereof pursuant to this clause (vi);
or
(vii) the Source is assets of a Benefit Plan or a separate
account comprised of Benefit Plans, which Benefit Plans have been identified in
writing to the Borrower prior to the date hereof pursuant to this clause (vii).
14
<PAGE>
8. Registration Rights. The Borrower hereby grants to the Lenders
-------------------
the registration rights provided in the Registration Rights Agreement attached
hereto as Exhibit C.
9. Board Representation. As a condition to its investment,
--------------------
ServiceMaster Venture Fund, LLC ("ServiceMaster Ventures") will be entitled to
designate a representative to the Board of Directors of the Borrower and the
Borrower agrees to appoint such representative to the Board. The Borrower
agrees to pay such representative's reasonable out-of-pocket expenses in
connection with attendance at Board of Directors or committee meetings.
10. Restriction on Transfer. Each Lender hereby agrees that it shall
-----------------------
not transfer any of the Securities to any person or entity who competes,
directly or indirectly, with the Borrower, without the prior written consent of
the Borrower.
11. Default.
-------
(a) Events of Default. The occurrence of any of the following events
-----------------
shall be an event of default under this Agreement and the Notes ("Events of
Default"):
(i) A default in payment of any principal of or interest on the
Notes which remains uncured for a period of more than five (5) business days;
(ii) If default shall be made in the due and punctual payment,
after applicable cure periods, of indebtedness of the Borrower of $200,000 or
more, other than the Notes;
(iii) If default shall be made in the due and punctual
performance or observance of any non-payment term, condition or covenant
contained in this Agreement or the Notes and such default continues unremedied
for a period of thirty (30) days after written notice to the Borrower by any
Lender, or if any representation or warranty of the Borrower contained in this
Agreement is untrue or inaccurate in any material respect as of the date on
which such representation or warranty is made;
(iv) If the Borrower ceases to carry on business on a regular
basis or enters into an agreement to sell substantially all of its assets or an
agreement whereby it merges into, consolidates with or is acquired by any other
business entity;
(v) If the Borrower: (i) becomes unable to pay its debts
generally as they become due; (ii) files a petition in bankruptcy or a petition
to take advantage of any insolvency act or other act for the relief or aid of
debtors; (iii) makes an assignment for the benefit of its creditors; (iv)
consents to or acquiesces in the appointment of a receiver, liquidator or
trustee of itself or of the whole or any part of its properties and assets; (v)
files a petition or answer seeking for itself reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under the
federal bankruptcy laws or any other applicable law; (vi) has a petition in
bankruptcy filed
15
<PAGE>
against it and such proceeding continues undismissed or unstayed for sixty (60)
days; or (vii) is served with a three day notice to quit any of its leasehold
premises, which notice is not discharged or contested in good faith by
appropriate proceedings prior to the initiation of an unlawful detainer suit
against the Borrower;
(vi) If a court of competent jurisdiction shall enter an order,
judgment or decree appointing, without the consent or acquiescence of the
Borrower, as a receiver, liquidator or trustee of the Borrower, or of the whole
or any substantial part of its properties and assets, or approving a petition
filed against it seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under the federal bankruptcy laws or
any other applicable law, and such order, judgement or decree shall remain
unvacated or not set aside or unstayed for an aggregate of 30 days, whether or
not consecutive, from the date of the entry thereof;
(vii) If, under the provisions of any other law for the relief or
aid of debtors, any court of competent jurisdiction shall assume custody or
control of the Borrower or the whole or any substantial part of its operations
and assets and such custody and control shall remain unterminated or unstayed
for an aggregate of 30 days, whether or not consecutive, from the date of
assumption of such custody or control; or
Upon an Event of Default, at the option of any holder of a Note, the
Note, together with the interest charges accrued thereon, shall become
immediately due and payable in cash.
(b) Suits for Enforcement. In case any one or more Events of Default
---------------------
shall have occurred and be continuing, a Lender or the holder of a Note may
proceed to protect and enforce its right by suit in equity or action at law,
whether for the specific performance of any term contained in this Agreement or
in the Note or for an injunction against any breach of any such term or in aid
of the exercise of any power granted in this Agreement or in the Note, or may
proceed to enforce the payment of the Note or to enforce any other legal or
equitable right of the holder of the Note, or may take any one or more of such
actions.
(c) Remedies Cumulative. No right, power or remedy conferred
-------------------
hereunder or upon any holder of a Note shall be exclusive, and such right, power
or remedy shall be cumulative and in addition to every other right, power or
remedy, whether conferred hereby or by the Note or now or hereafter available at
law or in equity or by statute or otherwise.
(d) Remedies Not Waived. No course of dealing between the Borrower
-------------------
and the Lenders or the holders of the Notes, and no delay in exercising any
right, power or remedy conferred hereby or by the Notes or now or hereafter
existing at law or in equity or by statute, or otherwise, shall operate as a
waiver of or otherwise prejudice any such right, power or remedy.
12. Expenses. The Borrower agrees to pay all reasonable out-of-
--------
pocket expenses (including the reimbursement of the reasonable fees of one
counsel) of ServiceMaster Ventures and
16
<PAGE>
its affiliates incurred in connection with the preparation, negotiation,
execution and delivery of this Agreement, and any amendment or waiver with
respect thereto.
13. 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 and every other provision of this Agreement shall
remain in full force and effect.
14. 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.
15. 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.
16. Entire Agreement; Amendment. 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 Borrower and holders of at least
a majority in principal amount of the then outstanding Notes.
17. Controlling Law. This Agreement shall be governed by,
---------------
interpreted under, and construed and enforced in accordance with the laws of the
State of Texas applicable to agreements made and to be performed wholly within
the State of Texas. In the event a judicial proceeding is necessary, the sole
forum for resolving disputes arising under or relating to this Agreement, the
Notes or the Warrants shall be the applicable courts in Austin, Texas, and all
related appellate courts, and the parties hereby consent to the jurisdiction of
such courts, and that venue shall be in Austin, Texas.
17
<PAGE>
18. 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.
"Borrower"
Prosoft I-Net Solutions, Inc., a Nevada corporation
By:
-------------------------------------------
Name:
-----------------------------------------
Address: 3001 Bee Caves Rd., Suite 100
Austin, Texas 78746
The foregoing Agreement is hereby accepted as of the date first
written above.
Name of Lender:
----------------------------------
Authorized Signature:
----------------------------------
Amount of Loan: $
---------------------------------
Exact Name in which Note and
Warrants are to be Issued: ----------------------------------
Address:
----------------------------------
----------------------------------
----------------------------------
18
<PAGE>
Schedule 1
----------
Lenders
-------
<PAGE>
EXHIBIT A
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAS BEEN
TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO THE DISTRIBUTION
THEREOF, AND THIS NOTE MAY NOT BE SOLD OR TRANSFERRED UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING IT OR THE BORROWER
RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO THE BORROWER STATING THAT SUCH
SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT.
CONVERTIBLE PROMISSORY NOTE
Payee: ________________, 1998
Address:
Principal Amount: $
FOR VALUE RECEIVED, Prosoft I-Net Solutions, Inc., a Nevada
corporation ("Maker"), hereby promises to pay on or before the Maturity Date (as
defined below) to payee above named, or order (the "Payee"), at the address set
forth above, or such other place(s) as the Payee shall from time to time
designate, the principal sum set forth above. This Note is issued pursuant to
that certain Note and Warrant Purchase Agreement dated as of ___________, 1998
(the "Agreement") by and among Maker and the persons listed on Schedule 1
thereto and is subject to and entitled to the benefits of the Agreement. All
capitalized terms not otherwise defined herein shall have the meaning set forth
in the Agreement.
Maker shall pay simple interest on the unpaid principal amount of this
Note at the rate of 13% per annum during the entire term of the Note. Maker
will pay interest quarterly in arrears on January 31, April 30, July 31 and
October 31 of each year, or if any such day is not a business day, on the next
business day. All unpaid principal and any accrued interest on this Note shall
be due and payable on November 30, 2003 (the "Maturity Date").
All principal, or any portion thereof, on this Note is convertible, at
the option of the Holder, into shares of Common Stock of Maker, all as provided
in the Agreement. In addition, this Note is subject to mandatory conversion, at
the option of Maker, upon the occurrence of certain events as provided in the
Agreement. Maker agrees that Payee shall be entitled to the registration rights
set forth in the Registration Rights Agreement with respect to any shares of
Common Stock of Maker received upon conversion of this Note.
A-1
<PAGE>
Payment of principal and interest shall be made in lawful money of the
United States of America. Maker shall have the right to prepay without penalty
all or any part of the unpaid balance of this Note at any time; provided that
Maker shall give the Holder at least ten (10) days' prior written notice of such
prepayment and the Holder shall continue to have the right to convert this Note
during such ten-day period. Payments shall be applied first against the accrued
interest and then against outstanding principal. Payment shall be considered to
have been timely made if received by Payee within five (5) business days
following the due date. Notwithstanding the foregoing, Maker, in its
discretion, may elect to pay up to fifty percent (50%) of accrued interest in
shares of Common Stock of Maker. For purposes of such interest payments in
shares of Common Stock, the Common Stock will be valued at the average closing
bid price per share for the Common Stock of Maker for the five (5) business days
prior to the due date for the interest payment, based on the prices reported by
the Nasdaq SmallCap Market or the closing prices reported by any successor
market on which the Common Stock is traded.
Notwithstanding anything in this Note to the contrary, the entire
unpaid principal amount of this Note, together with all accrued but unpaid
interest thereon and other unpaid charges hereunder, will become immediately all
due and payable without further notice at the option of Payee upon the
occurrence of an Event of Default (as defined in the Agreement).
In the event that legal proceedings are instituted to collect any
amount due under this Note, Maker agrees to pay all costs of collection thereof,
including reasonable attorney's fees, whether or not suit or action is commenced
to enforce payment of this Note. Presentment for payment, demand, notice of
dishonor and protest and notice of protest and non-payment are hereby waived by
Maker.
Subject to certain exceptions, this Note may be amended with the
consent of the holders of at least a majority in principal amount of the then
outstanding Notes, and any existing default (except a payment default) may be
waived with the consent of holders of at least two-thirds (2/3) in principal
amount of the then outstanding Notes. Without the consent of any noteholder,
this Note may be amended to cure any ambiguity, defect or inconsistency, or to
make any change that does not adversely affect the rights of the Holder.
This Note will be interpreted in accordance with the laws of the State
of Texas, including all matters of construction, validity, performance and
enforcement, without giving effect to the principles of conflict of laws.
All rights, remedies, and undertakings, obligations, options,
covenants, conditions and agreements contained in this Note and the Agreement
are cumulative and no one of them will be exclusive of any other. Any notice to
any party concerning this Note will be delivered as set forth in the Agreement.
The Note may not be changed, modified, amended or terminated orally.
In the event that this Note shall require the payment of interest in
excess of the maximum amount permissible under applicable law, Maker's
obligations hereunder shall automatically and retroactively be deemed reduced to
the highest maximum amount permissible
A-2
<PAGE>
under applicable law. In the event Payee receives as interest an amount that
would exceed such maximum applicable rate, the amount of any excess interest
shall not be applied to the payment of interest hereunder, but shall
automatically and retroactively be applied to the reduction of the unpaid
principal balance due hereunder. In the event and to the extent such excess
amount of interest exceeds the outstanding unpaid principal balance hereunder,
any such excess amount shall be immediately returned to Maker by Payee.
"MAKER"
Prosoft I-Net Solutions, Inc.,
a Nevada corporation
By: __________________________________
A-3
<PAGE>
EXHIBIT B
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THE WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 ("ACT"), AND
THIS WARRANT CANNOT BE SOLD OR TRANSFERRED AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF THIS WARRANT CANNOT BE SOLD OR TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT RELATED THERETO OR AN OPINION OF
COUNSEL SATISFACTORY TO THE BORROWER ISSUING THIS WARRANT THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE ACT.
Warrant No. 98-_______________ ___________ Shares
(Subject to Adjustment)
COMMON STOCK PURCHASE WARRANT
___________, 1998
This certifies that, for value received, ____________________________
("Warrantholder") is entitled to subscribe for and purchase from Prosoft I-Net
Solutions, Inc., a Nevada corporation ("Borrower"), __________ shares of the
Borrower's Common Stock, $.001 par value ("Common Stock"), at the price of $1.10
per share ("Exercise Price") at any time from the date hereof to and including
November 30, 2008 ("Expiration Date"), subject to the terms and conditions
stated herein. The Warrant is issued pursuant to that certain Note and Warrant
Purchase Agreement dated as of ____________, 1998 (the "Agreement") by and among
the Borrower and certain lenders, including Warrantholder.
1. Exercise of Warrant. The rights represented by this Warrant may
-------------------
be exercised in whole or in part by the holder hereof by the surrender of this
Warrant and delivery of an executed Subscription Agreement in the form attached
hereto as Exhibit A to the Borrower at its principal executive office, or such
other place as the Borrower shall designate in writing, at any time or times
prior to the Expiration Date, accompanied by payment for the Common Stock so
subscribed for in cash or certified bank or cashier's checks.
2. Investment Representation. Warrantholder by accepting this
-------------------------
Warrant represents that the Warrant is acquired for Warrantholder's own account
for investment purposes and not with a view to any offering or distribution and
that Warrantholder has no present intention of selling or otherwise disposing of
the Warrant or the underlying shares of Common Stock in violation of applicable
securities laws. Upon exercise, Warrantholder will confirm, in respect of
securities obtained upon such exercise, that Warrantholder is acquiring such
securities for his or its own account and not with a view to any offering or
distribution in violation of applicable securities laws. Warrantholder
acknowledges that the certificate(s) representing the Common Stock issued upon
exercise of this Warrant shall be endorsed with the legend set forth on this
Warrant and all other
B-1
<PAGE>
legends, if any, required by applicable federal and state securities laws to be
placed on the certificate(s).
3. Validity of Common Stock. The Borrower warrants and agrees that
------------------------
all shares of Common Stock which may be issued upon the exercise of this Warrant
will, upon issuance, be validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof. The
Borrower further warrants and agrees that during the period within which this
Warrant may be exercised, the Borrower will at all times have authorized and
reserved a sufficient number of shares of Common Stock to provide for the
exercise of this Warrant.
4. Adjustments. The number of shares of Common Stock for which
-----------
Warrantholder is entitled to subscribe and purchase from the Borrower pursuant
to this Warrant and the Exercise Price for such shares shall be subject to
adjustment from time to time only as follows:
(a) Adjustments for Stock Splits and Combinations. If the Borrower
---------------------------------------------
at any time or from time to time after the date hereof effects a subdivision of
the outstanding Common Stock, the number of shares of Common Stock for which
Warrantholder is entitled to subscribe and purchase from the Borrower upon
exercise of this Warrant shall be proportionately increased and the Exercise
Price then in effect immediately before the subdivision shall be proportionately
decreased, and conversely, if the Borrower at any time or from time to time
after the date hereof combines the outstanding shares of Common Stock, the
number of shares of Common Stock for which Warrantholder is entitled to
subscribe and purchase from the Borrower shall be proportionately decreased and
the Exercise Price then in effect immediately before the subdivision shall be
proportionately increased. Any adjustment under this subsection shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(b) Adjustments for Certain Dividends and Distributions. In the
---------------------------------------------------
event the Borrower at any time or from time to time after the date hereof makes,
or fixes a record date for the determination of holders of Common Stock entitled
to receive, a dividend or other distribution payable in additional shares of
Common Stock, then and in each such event the number of shares of Common Stock
for which Warrantholder is entitled to subscribe and purchase from the Borrower
upon exercise of this Warrant shall be proportionately increased and the
Exercise Price then in effect shall be proportionately decreased as of the time
of such issuance or, in the event such a record date is fixed, as of the close
of business on such record date; provided, however, that if such record date is
fixed and such dividend is not fully paid or if such distribution is not fully
made on the date fixed therefor, the number of shares of Common Stock for which
Warrantholder is entitled to subscribe and purchase from the Borrower and the
Exercise Price therefor shall be recomputed accordingly as of the close of
business on such record date and thereafter the number of shares of Common Stock
then issuable on exercise of this Warrant and the Exercise Price therefor shall
be adjusted pursuant to this subsection as of the time of actual payment of such
dividends or distributions.
(c) Adjustment for Reclassification, Exchange and Substitution. If
----------------------------------------------------------
the Common Stock issuable upon the exercise of this Warrant is changed into the
same or a different number of
B-2
<PAGE>
shares of any class or classes of stock, whether by reclassification,
recapitalization or otherwise (other than pursuant to a Terminating Transaction
as described in Section 5), then and in any such event Warrantholder shall have
the right thereafter to purchase the kind and amount of stock and other
securities and property receivable upon such reclassification, recapitalization
or other change, by holders of the number of shares of Common Stock which might
have been purchased upon exercise of this Warrant immediately prior to such
reclassification, recapitalization or change, all subject to further adjustment
as provided herein.
(d) Notice of Adjustments. Upon any adjustments of the Exercise
---------------------
Price or the amount or kind of securities or other property issuable upon
exercise of this Warrant, then and in each case the Borrower shall give written
notice of such adjustment to the holder of this Warrant, which notice shall
state the Exercise Price resulting from such adjustment and the amount and kind
of securities purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
(e) Notice of Record Date. In the event of (i) any taking by the
---------------------
Borrower of a record of the holders of any class of Common Stock for the purpose
of determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any capital transaction that the Borrower proposes
to effect requiring adjustments pursuant to this Section 4 ("Capital
Transaction"), the Borrower shall mail to Warrantholder at least twenty (20)
days prior to the date specified therein, a notice specifying (1) the date on
which any such record is to be taken for the purpose of such dividend or
distribution and a description of such dividend or distribution, (2) the date on
which any such Capital Transaction is expected to become effective, and (3) the
time, if any, that is to be fixed, as to when the holders of record of Common
Stock shall be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such Capital Transaction.
5. Early Expiration of Warrant.
---------------------------
(a) Upon the occurrence of a Terminating Transaction (as defined in
paragraph (b) below), as of the effective date of such Terminating Transaction
this Warrant shall terminate unless (i) the Board of Directors of the Borrower
("Board") otherwise shall provide in writing for the continuance of this Warrant
or for the substitution for the Warrant of a new Warrant 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
Warrant 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 Warrant including without limitation providing for the
cancellation of the Warrant and its automatic conversion into the right to
receive the securities or other properties which a holder of Common Stock
underlying the Warrant would have been entitled to receive (net of the
appropriate exercise price) upon such Terminating Transaction had such Warrant
been exercised immediately prior to the effective date of the Terminating
Transaction. In all cases, the nature and extent of adjustments under this
Section 5 shall be determined by the Board
B-3
<PAGE>
in good faith, and any such determination as to what adjustments shall be made,
and the extent thereof, shall be final, binding and conclusive.
(b) For purposes of this Section 5, the term "Terminating
Transaction" shall mean any of the following events: (a) the dissolution or
liquidation of the Borrower; (b) a reorganization, merger, or consolidation of
the Borrower with one or more entities (except with respect to a transaction,
the purpose of which is to change the domicile of the Borrower), as a result of
which the Borrower goes out of existence or becomes a subsidiary of another
entity (which shall be deemed to have occurred if another entity or group of
entities acting in concert shall own, directly or indirectly, more than 50% of
the aggregate voting power of all outstanding equity securities of the
Borrower); or (c) a sale of all or substantially all of the Borrower's assets.
(c) In case at any time the Borrower shall propose to enter into a
Terminating Transaction, then, in each one or more of said cases, the Borrower
shall give to the holder of this Warrant at least twenty (20) days' prior
written notice of (i) the date on which the books of the Borrower shall close or
a record shall be taken for purposes of ascertaining which shareholders will be
entitled to vote on such Terminating Transaction; (ii) the date on which the
vote shall be taken concerning such Terminating Transaction; and (iii) the date
on which such Terminating Transaction is to be effective. Such notice shall
also specify the date as of which the holders of Common Stock of record shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon the Terminating Transaction.
6. Transfer of Warrant. This Warrant may be transferred, sold,
-------------------
assigned or hypothecated, only pursuant to a valid and effective registration
statement or if the Borrower has received from counsel to the Borrower a written
opinion to the effect that registration of the Warrant or the Common Stock
underlying the Warrant is not necessary in connection with such transfer, sale,
assignment or hypothecation. Any such assignment shall be effected by
Warrantholder by (i) executing the form of assignment at the end hereof; (ii)
surrendering the Warrant for cancellation at the office or agency of the
Borrower referred to in Section 1 hereof, accompanied by the opinion of counsel
satisfactory to the Borrower referred to above; and (iii) delivery to the
Borrower of a statement by the transferee holder (in a form acceptable to the
Borrower and its counsel) that such Warrant is being acquired by such holder for
investment and not with a view to its distribution or resale; whereupon the
Borrower shall issue, in the name or names specified by the holder (including
Warrantholder) new Warrants representing in the aggregate rights to purchase the
same number of Shares as are purchasable under the Warrant surrendered. The
term "Warrantholder" shall be deemed to include any person to whom this Warrant
is transferred in accordance with the terms herein.
7. Registration Rights. The Borrower hereby grants to Warrantholder
-------------------
the rights provided in the Registration Rights Agreement attached to the
Agreement with respect to shares of Common Stock issued to the Warrantholder
hereunder.
B-4
<PAGE>
8. Miscellaneous Matters.
---------------------
(a) As used herein, the term "Common Stock" shall mean the Borrower's
presently authorized Common Stock, $.001 par value, and stock of any other class
into which such presently authorized Common Stock may hereafter have been
converted.
(b) As used herein, the word "person" shall mean an individual or
entity.
(c) This Warrant and the name and address of the Warrantholder may be
registered in a Warrant Register that is kept at the principal office of the
Borrower, and the Borrower may treat the holder so registered as the owner of
this Warrant for all purposes.
(d) This Warrant shall not entitle the holder hereof to any voting
rights or other rights as a stockholder of the Borrower, or to any other rights
whatsoever except the rights herein expressed, and no cash dividend paid out of
earnings or surplus or interest shall be payable or accrue in respect of this
Warrant or the interest represented hereby or the Securities which may be
subscribed for and purchased hereunder until and unless and except to the extent
that the rights represented by this Warrant shall be exercised.
(e) This Warrant shall be governed by and interpreted in accordance
with the internal laws, and not the law of conflicts, of the State of Texas.
(f) All notices under this Warrant shall be given as set forth in the
Agreement and, with respect to Warrantholder, to the address of Warrantholder
registered on the books of the Borrower.
(g) Section 14 of the Agreement, relating to attorneys' fees, shall
be specifically incorporated by reference into this Warrant.
(h) This Warrant may be amended by the consent of the Borrower and
the holders of at least a majority of all remaining outstanding warrants issued
under the Agreement, provided that no such change may shorten the time of
exercise or increase the exercise price of this Warrant without the consent of
Warrantholder.
Prosoft I-Net Solutions, Inc.,
a Nevada corporation
By: ____________________________________
B-5
<PAGE>
EXHIBIT A
SUBSCRIPTION AGREEMENT
___________________, 19___
To: Prosoft I-Net Solutions, Inc.
The undersigned, pursuant to the provisions set forth in Warrant No.
__________, hereby agrees to subscribe for and purchase _____________ shares of
the Common Stock covered by such Warrant, and makes payment herewith in full for
such Common Stock at the Exercise Price.
Signature: __________________________ Printed Name
and Title: _______________________________________
Address: _________________________________________
____________________________________________
____________________________________________
__________
ASSIGNMENT
FOR VALUE RECEIVED ____________________________ hereby sells, assigns
and transfers all of the rights of the undersigned under Warrant No.
_______________, with respect to the number of shares of Common Stock covered
thereby set forth below unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
________________ _____________________ _____________
_____________________
Dated: ____________________, 19____.
Signature: _________________ Printed Name
and Title: ______________________________
Address: ________________________________
___________________________________
___________________________________
<PAGE>
EXHIBIT 10.20
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of December 2, 1998, by
and among Prosoft I-Net Solutions, Inc., a Nevada corporation (the "Company"),
and the Persons set forth on Schedule I attached hereto (the "Investors").
The Investors intend to purchase convertible promissory notes (the
"Notes") of the Company pursuant to a Note and Warrant Purchase Agreement dated
as of December 2, 1998. The Notes are convertible into shares of Common Stock
of the Company. The execution and delivery of this Agreement is a condition to
the Investors' purchase of the Notes. Capitalized terms used herein shall have
the meanings set forth in Section 8 below.
NOW, THEREFORE, the parties hereto, in consideration of the foregoing,
the mutual covenants and agreements hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, agree as follows:
1. REGISTRATION STATEMENTS.
-----------------------
(a) Shelf Registration.
------------------
(i) The Company shall, on or before January 31, 1999, prepare
and file with the Commission under the Securities Act a Registration Statement
with respect to the Registrable Securities, and shall use its best efforts to
cause such Registration Statement to be declared effective at the earliest
practicable date. The Company shall, subject to Section 1(a)(v), ensure the
availability of a Prospectus meeting the requirements of Section 10(a) of the
Securities Act and shall take any and all other actions necessary in order to
ensure the ability of the holders of the Registrable Securities to effect a
resale of their Registrable Securities, for such period as the Company is
obligated to maintain the effectiveness of a Registration Statement pursuant to
Section 1(a)(ii).
(ii) The Company shall use its best efforts to cause any such
Registration Statement described in Section 1(a)(i) to remain effective (or, if
required by applicable law, to cause another Registration Statement with respect
to the Registrable Securities to become and remain effective) until the earlier
to occur of: (i) such time as all the Registrable Securities have been sold by
the Investors and (ii) such time as all the Registrable Securities held by the
Investors could be sold under Rule 144 of the Securities Act during any 90-day
period.
(iii) Each holder of Registrable Securities agrees by acquisition
of such Registrable Securities to give at least five Business Days' prior notice
to the Company of any intended distribution of Registrable Securities under any
Registration Statement described in Section 1(a)(i), which notice shall specify
the date on which such holder intends to begin such distribution.
<PAGE>
(iv) As soon as possible after the date notice is provided
pursuant to Section 1(a)(iii), and in any event within five Business Days of
such date, the Company shall, subject to Section 1(a)(v):
(A) file such amendments to the Registration Statement and the
Prospectus, file such documents as may be required to be incorporated by
reference in any of such documents, and take all other actions as may be
necessary to ensure to the holders of Registrable Securities the ability to
effect the public resale of their Registrable Securities for a period of at
least 90 days following the date set forth in such notice (including without
limitation taking any actions necessary to ensure the availability of a
Prospectus meeting the requirements of Section 10(a) of the Securities Act), (B)
provide each holder of Registrable Securities copies of any documents prepared
pursuant to Section 1(a)(iv)(A), and (C) inform each holder of Registrable
Securities that the Company has complied with the obligations in Section
1(a)(iv)(A) and that such holder may sell such holder's Registrable Securities.
(v) The Company may suspend the effectiveness of any
Registration Statement filed pursuant to this Section 1(a) if, in its reasonable
judgment, (A) maintaining the effectiveness of such Registration Statement at
such time would adversely affect a proposed financing, reorganization or
recapitalization, or pending negotiations relating to a merger, consolidation,
acquisition or similar transaction, or otherwise adversely affect the Company;
or (B) financial statements meeting the requirements of Regulation S-X are not
available at such time because of any such pending proposal or negotiations;
provided, however, that the right of the Company pursuant to this subSection (v)
to suspend the effectiveness of the Registration Statement shall not extend for
more than 90days; and provided, further, that the Company shall give to each
holder of Registrable Securities prior written notice of such suspension.
(b) Amendments. Upon the occurrence of any event that would cause any
-----------
Registration Statement (i) to contain a material misstatement or omission or
(ii) not to be effective and usable for resale of Registrable Securities during
the period that such Registration Statement is required to be effective and
usable, the Company shall promptly file an amendment to the Registration
Statement, in the case of clause (i), correcting any such misstatement or
omission, and in the case of either clause (i) or (ii), using its best efforts
to cause such amendment to be declared effective and such Registration Statement
to become usable as soon as practicable thereafter.
2. REGISTRATION PROCEDURES.
-----------------------
In connection with any Registration Statement and subject to the
provisions of Section 1 the Company shall use its best efforts to effect such
registration to permit the sale of the Registrable Securities being sold in
accordance with the intended method or methods of distribution thereof, and
pursuant thereto the Company shall as expeditiously as possible:
2
<PAGE>
(a) prepare and file with the Commission a Registration Statement
relating to the registration on any appropriate form under the Securities Act,
which form shall be available for the sale of the Registrable Securities being
sold in accordance with the intended method or methods of distribution thereof
and shall include all financial statements required by the Commission to be
filed therewith (including, if required by the Securities Act or any regulation
thereunder, financial statements of any Subsidiary of the Company which shall
have guaranteed any indebtedness of the Company), cooperate and assist in any
filings required to be made with the NASD and use its best efforts to cause such
registration Statement to become effective and approved by such governmental
agencies or authorities as may be necessary to enable the selling holders to
consummate the disposition of such Registrable Securities;
(b) prepare and file with the Commission such amendments and post-
effective amendments to the Registration Statement as may be necessary to keep
the Registration Statement effective for the applicable period set forth in
Section1; in the case of any Registration Statement filed pursuant to Rule 415
under the Securities Act, cause the Prospectus to be supplemented by any
required Prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424under the Securities Act, and to comply fully with the applicable
provisions of Rules 424 and 430A under the Securities Act in a timely manner,
and to comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement during the
applicable period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Registration Statement or
supplement to the Prospectus;
(c) advise the holders of the Registrable Securities promptly and, if
requested by such Persons, confirm such advice in writing:
(i) when the Prospectus or any Prospectus supplement or post-
effective amendment has been filed, and, with respect to the Registration
Statement or any post-effective amendment thereto, when the same has become
effective;
(ii) of the existence of any fact and the happening of any event
that makes any statement of a material fact made in the Registration Statement,
the Prospectus, any amendment or supplement thereto, or any document
incorporated by reference therein untrue, or that requires the making of any
additions to or changes in the Registration Statement or the Prospectus in order
to make the statements therein not misleading; and
(iii) of the issuance by the Commission of any stop order or
other order suspending the effectiveness of the Registration Statement, or any
order issued by any state securities commission or other regulatory authority
suspending the qualification or exemption from qualification of such Registrable
Securities under state securities or "blue sky" laws. If at any time the Company
shall receive any such stop order suspending the effectiveness of the
Registration Statement, or any such order from a state securities commission or
other regulatory authority, the Company shall use its best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time.
3
<PAGE>
(d) deliver to each holder of the Registrable Securities, without
charge, as many copies of the Prospectus and any amendment or supplement thereto
as such Persons may reasonably request; the Company consents to the use of the
Prospectus and any amendment or supplement thereto by each of the holders of the
Registrable Securities in connection with the offering and the sale of the
Registrable Securities covered by the Prospectus or any amendment or supplement
thereto;
(e) prior to any public offering of Registrable Securities, cooperate
with the holders of the Registrable Securities and their respective counsel in
connection with the registration and qualification of the Registrable Securities
under the securities or "blue sky" laws of such jurisdictions as the holders of
the Registrable Securities may reasonably request and do any and all other acts
or things necessary or advisable to enable the disposition in such jurisdictions
of the Registrable Securities covered by the Registration Statement;
(f) use its best efforts to cause the Registrable Securities covered
by the Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the seller or
sellers thereof to consummate the disposition of such Registrable Securities;
(g) if any fact or event contemplated by clause (c)(ii) above shall
exist or have occurred, prepare a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of Registrable Securities, the Prospectus will not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading;
(h) provide a transfer agent and registrar (if the Company does not
already have such an agent) and CUSIP number for all Registrable Securities not
later than the effective date of the Registration Statement;
(i) make available for inspection by a representative of the holders
of the Registrable Securities, and any attorney, accountant or other
professional retained by such holders, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such holder, attorney, accountant or other professional in
connection with such Registration Statement subsequent to the filing thereof and
prior to its effectiveness, except that the aforementioned advisors may be
required to sign a reasonably acceptable confidentiality agreement;
(j) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission;
4
<PAGE>
(k) use its best efforts to cause all Registrable Securities to be
listed on each securities exchange, if any, on which equity securities issued by
the Company are then listed; and
(l) use its best efforts to take all other steps necessary to effect
the registration of the Registrable Securities contemplated hereby.
Each holder of the Registrable Securities as to which any Registration
Statement is being effected agrees to furnish promptly to the Company all
information reasonably known to such holder to be necessary to make the
information previously furnished to the Company by such holder not materially
misleading.
Each holder of the Registrable Securities agrees by acquisition of
such Registrable Securities that, upon receipt of any notice from the Company of
the existence of any fact of the kind described in Section 2(c)(ii), or notice
of a stop order or suspension described in Section 2(c)(iii), such holder shall
forthwith discontinue disposition of Registrable Securities and cease to use the
Prospectus in use under such Registration Statement. The Company shall, as
promptly as practicable, provide each holder with copies of the supplemented or
amended Prospectus contemplated by Section 2(g), or advise the holders in
writing that the use of the Prospectus may be resumed, and provide each holder
with copies of any additional or supplemental filings which are incorporated by
reference in the Prospectus. If so directed by the Company, each such holder
shall deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such holder's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
3. REGISTRATION EXPENSES. All expenses incident to the Company's
---------------------
performance of or compliance with this Agreement shall be borne by the Company,
regardless of whether a Registration Statement becomes effective, including
without limitation:
(a) all registration and filing fees and expenses (including filings
made with the NASD);
(b) fees and expenses of compliance with federal securities and state
"blue sky" or securities laws;
(c) expenses of printing (including printing certificates for the
Registrable Securities and Prospectuses), messenger and delivery services and
telephone;
(d) all application and filing fees in connection with listing the
Registrable Securities on a national securities exchange or automated quotation
system pursuant to the requirements hereof;
5
<PAGE>
(e) all fees and disbursements of independent certified public
accountants of the Company (including the expenses of any special audit and"cold
comfort" letters required by or incident to such performance); and
(f) any reasonable out-of-pocket expenses of the holders of the
Registrable Securities (or the agents who manage their accounts).
The Company shall, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, rating agency fees and the fees and expenses of any Person, including
special experts, retained by the Company.
4. INDEMNIFICATION.
---------------
(a) The Company agrees to indemnify and hold harmless each holder of
the Registrable Securities and each Person, if any, who controls such holder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages, liabilities
and expenses (including, without limiting the foregoing but subject to Section
4(c),the reasonable legal and other expenses incurred in connection with any
action, suit or proceeding or any claim asserted) arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except insofar as such losses,
claims, damages, liabilities or expenses are caused directly by an untrue
statement or omission contained in information relating to such holder,
furnished in writing to the Company by or on behalf of such holder expressly for
use therein. In connection with any Underwritten Offering permitted by Section
7, the Company shall also indemnify underwriters, if any, selling brokers,
dealer managers and similar securities industry professionals participating in
the distribution, their officers and directors and each Person who controls such
Persons (within the meaning of the Securities Act and the Exchange Act) to the
same extent as provided above with respect to the indemnification of the
holders, if requested in connection with any Registration Statement.
(b) As a condition to the inclusion of its Registrable Securities in
any Registration Statement pursuant to this Agreement, each holder thereof shall
furnish to the Company in writing, promptly after receipt of a request therefor,
such information as the Company may reasonably request for use in connection
with any Registration Statement, Prospectus or preliminary prospectus (including
such completed and executed questionnaires as the Company may reasonably
request) and agrees to indemnify and hold harmless, severally and not jointly,
the Company and its directors, its officers who sign such Registration
Statement, and any Person controlling the Company within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act to the same extent
6
<PAGE>
as the indemnity from the Company to each holder and Persons controlling such
holder, but only with reference to information relating specifically to such
holder furnished in writing by or on behalf of such holder expressly for use in
such Registration Statement or the Prospectus or any preliminary prospectus
included therein, and of which none of the Company, its directors, officers or
Affiliates has any actual or constructive knowledge independent of such holder;
provided, however, that such holder of Registrable Securities shall not be
liable in any such case to the extent that the holder has furnished in writing
to the Company prior to the filing of any such Registration Statement,
Prospectus or preliminary prospectus information expressly for use in such
Registration Statement, Prospectus or preliminary prospectus which corrected or
made not misleading information previously furnished to the Company, and the
Company failed to include such information therein. In case any action shall be
brought against the Company, any of its directors, any such officer, or any such
controlling Person based on the Registration Statement, the Prospectus or any
preliminary prospectus and in respect of which indemnity may be sought against
one or more of the holders, such holders shall have the rights and duties given
to the Company by Section 4(c) (except that if the Company as provided in
Section 4(c) shall have assumed the defense thereof such holders shall not be
required to do so, but may employ separate counsel therein and participate in
the defense thereof but the fees and expenses of such counsel shall be at such
holder's expense) and the Company and its directors, any such officers, and any
such controlling Person shall have the rights and duties given to the holders by
Section 4(c). In no event shall the liability of any selling holder hereunder be
greater than the net proceeds (i.e., proceeds net of underwriting discounts,
fees, commissions and any other expenses payable by such selling holder)received
by such holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought against any current or
former holder of the Registrable Securities or any Person controlling such
holder, with respect to which indemnity may be sought against the Company
pursuant to Section 4(a), such holder or such Person controlling such holder
shall promptly notify the Company in writing and the Company shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
such holder and payment of all fees and expenses relating thereto. Such holder
and such Persons controlling such holder shall have the right to employ separate
counsel in any such action or proceeding and participate in the defense thereof,
but the fees and expenses of such counsel shall be at such holder's expense
unless (i) the employment of such counsel has been specifically authorized in
writing by the Company, which authorization shall not be unreasonably withheld,
(ii) the Company has not assumed the defense and employed counsel reasonably
satisfactory to such holder within 15 days after notice of any such action or
proceeding, or (iii) the named parties to any such action or proceeding
(including any impleaded parties) include both such holder or any Person
controlling such holder and the Company and such holder or any Person
controlling such holder shall have been advised by such counsel that there maybe
one or more legal defenses available to such holder or Person controlling such
holder that are different from or additional to those available to the Company
and, in the reasonable opinion of such counsel, could not be asserted by the
Company's counsel without creating a conflict of interest (in which case the
Company shall not have the right to assume the defense of such action or
proceeding on behalf of such holder or controlling Person, it being understood,
however, that the
7
<PAGE>
Company shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys (in addition to all
local counsel which is necessary, in the good faith opinion of both counsel for
the indemnifying party and counsel for the indemnified party in order to
adequately represent the indemnified parties) for all such holders and
controlling Persons, which firm shall be designated in writing by the holders of
a majority of the Registrable Securities currently or formerly held by such
holders and that all such fees and expenses shall be reimbursed as they are
incurred upon written request and presentation of invoices). The Company shall
not be liable for any settlement of any such action effected without the written
consent of the Company (which consent shall not be unreasonably withheld), but
if settled with the written consent of the Company or if there is a final
judgment for the plaintiff, the Company agrees to indemnify and hold harmless
such holder and all Persons controlling such holder from and against any loss or
liability by reason of such settlement or judgment. The Company shall not,
without the prior written consent of the holder, effect any settlement of any
pending or threatened proceeding in respect of which any holder or any Person
controlling such holder is a party and indemnity has been sought hereunder by
such holder or any Person controlling such holder unless such settlement
includes an unconditional release of such holder or such controlling Person from
all liability on claims that are the subject matter of such proceeding.
(d) If the indemnification provided for in this Section 4 is
unavailable to an indemnified party under paragraphs (a), (b) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities and expenses (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand and the holders of the Registrable Securities on the
other hand from the original sale by the Company of the Registrable Securities,
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and such holders on the other hand in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative fault of the Company on the one hand and such holders on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Company on the one hand or
by such holders on the other hand and the parties' relative intent,
knowledge,access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or expenses shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.
8
<PAGE>
(e) The Company and the holders of the Registrable Securities agree
that it would not be just and equitable if contribution pursuant to this Section
4 were determined by a pro rata allocation or by any other method of allocation
that does not take account of the equitable considerations referred to in
subsection(d) above. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities and expenses referred to in
subsection(d) above shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating any claim or defending any such action,
suit or proceeding. Notwithstanding any other provision of this Agreement, no
holder of the Registrable Securities shall be required to contribute an amount
greater than the net proceeds received by such holder with respect to the sale
of Registrable Securities giving rise to any indemnification or contribution
obligation under this Section 4. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act)shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
5. RULE 144A. The Company hereby agrees with each holder of the
---------
Registrable Securities for so long as any of the Registrable Securities remain
outstanding and during any period in which the Company is not subject to
Section13 or 15(d) of the Exchange Act, to make available to any beneficial
owner of Registrable Securities in connection with any sale thereof and any
prospective purchaser of such Registrable Securities from such beneficial owner,
the information required by Rule 144A(d)(4) under the Securities Act.
6. RULE 144. The Company agrees with each holder of Registrable
--------
Securities to:
(a) comply with the requirements of Rule 144(c) under the Securities
Act with respect to current public information about the Company;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time it is subject to such reporting
requirements); and
(c) furnish to any holder of Registrable Securities upon request (i) a
written statement by the Company as to its compliance with the requirements of
said Rule 144(c) and the reporting requirements of the Securities Act and the
Exchange Act (at any time it is subject to such reporting requirements), (ii) a
copy of the most recent annual or quarterly report of the Company, and (iii)such
other reports and documents of the Company as such holder may reasonably request
to avail itself of any similar rule or regulation of the Commission allowing it
to sell any such securities without registration.
7. PARTICIPATION IN UNDERWRITTEN OFFERINGS. No holder of the
---------------------------------------
Registrable Securities may participate in any Underwritten Offering hereunder
unless such holder (a) agrees to sell such holder's Registrable Securities on
the basis provided in any underwriting arrangements approved by the Persons
entitled hereunder to approve such arrangements and (b)
9
<PAGE>
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements; provided, that no holder of Registrable
Securities included in any Underwritten Offering shall be required to make any
representations or warranties to the Company other than representations and
warranties regarding such holder and such holder's intended method of
distribution.
8. INTERPRETATION OF AGREEMENT; DEFINITIONS.
----------------------------------------
(a) Definitions. Unless the context otherwise requires, the terms
-----------
hereinafter set forth when used herein shall have the following meanings and the
following definitions shall be equally applicable to both the singular and
plural forms of any of the terms herein defined.
"AFFILIATE" means, as to any Person, a Person which directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, the first Person. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting stock, through an investment advisory or other fiduciary
arrangement, by contract or otherwise.
"AGREEMENT" means this Registration Rights Agreement and all Schedules
hereto.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other
day on which banks in New York are required by law to close or are customarily
closed.
"COMMISSION" means the Securities and Exchange Commission as from time
to time constituted, created under the Exchange Act, or, if at any time after
the execution of this instrument such Commission is not existing and performing
the duties now assigned to it under the Exchange Act, then the Person performing
such duties at such time.
"COMMON STOCK" means any stock of any class of the Company which has
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the Company
and which is not subject to redemption by the Company.
"COMPANY" has the meaning assigned in the first paragraph of this
Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"INVESTORS" means, collectively, the Persons listed on Schedule I, and
any successors or permitted assignees of any of their rights hereunder that hold
Registrable Securities.
"NASD" means National Association of Securities Dealers, Inc.
10
<PAGE>
"NOTES" means the convertible promissory notes of the Company issued
pursuant to the Note and Warrant Purchase Agreement dated as of December 2,
1998, by and among the Company and the Investors.
"OFFERING" means the November 1997 offering of up to $10,000,000 of
shares of Common Stock to the Investors under the terms set forth in separate
subscription agreements between the Company and each of the Investors.
"PERSON" means an individual, partnership, corporation, trust or
unincorporated organization, and a government or agency or political subdivision
thereof.
"PROSPECTUS" means the prospectus included in a Registration
Statement, as amended or supplemented by any prospectus supplement and by all
other amendments thereto, including post-effective amendments, and all material
incorporated by reference into such Prospectus.
"REGISTRABLE SECURITIES" means all shares of Common Stock issued or
issuable upon conversion of the Notes and held at the relevant time by an
Investor. As to any particular securities, such securities will cease to be
Registrable Securities when (i)they have been transferred in a public offering
registered under the Securities Act, (ii) they have been transferred in a sale
made through a broker, dealer or market-maker pursuant to Rule 144 under the
Securities Act or (iii) the holder thereof is able to sell all of such
securities under Rule 144 under the Securities Act during any 90-day period.
"REGISTRATION STATEMENT" means any registration statement of the
Company relating to the registration for resale of Registrable Securities,
including any registration statement filed pursuant to the provisions of this
Agreement, including the Prospectus included therein, all amendments and
supplements thereto (including post-effective amendments) and all exhibits and
material incorporated by reference therein.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"UNDERWRITTEN OFFERING" means a registration in which securities of
the Company are sold to an underwriter for reoffering to the public.
(b) Accounting Principles. Where the character or amount of any asset
---------------------
or liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, the same shall be done in accordance with the
generally accepted accounting principles in effect from time to time, to the
extent applicable, except where such principles are inconsistent with the
express requirements of this Agreement including without limitation the
definitions set out in Section 8.
11
<PAGE>
(c) Directly or Indirectly. Where any provision in this Agreement
----------------------
refer to action to be taken by any Person, or which such Person is prohibited
from taking, such provision shall be applicable whether the action in question
is taken directly or indirectly by such Person.
9. MISCELLANEOUS.
-------------
(a) Remedies. Each holder of the Registrable Securities, in addition
--------
to being entitled to exercise all rights provided herein, and granted by law,
including recovery of damages, shall be entitled to specific performance of its
rights under this Agreement. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
the provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company shall not, on or after
--------------------------
the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to such holders of the
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the holders hereunder do not in any
way conflict with and are not inconsistent with the rights granted to the
holders of the Company's securities under any other agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given without the written consent of the Company and each of the
Investors.
(d) Notices. All notices, demands and other communications provided
-------
for or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery. Such notices, demands and other communications will be sent to any
Investor at the address indicated on Schedule I, to any other holder of
Registrable Securities at such holder's address of record appearing on the
Company's books and to the Company at the address indicated below:
Prosoft I-Net Solutions, Inc.
3001 Bee Caves Rd., Suite 100
Austin, TX 78746
Attention: President
Telecopier: (512) 328-5237
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party. All
such notices, demands and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; upon receipt, if
mailed postage prepaid; when answered back, if telexed; when receipt is
acknowledged, if telecopied; or at the time delivered, if delivered by an air
courier guaranteeing overnight delivery.
12
<PAGE>
(e) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and permitted assigns of the Investors,
including without limitation and without the need for an express assignment,
Affiliates of the Investors; provided, however, that this Agreement shall not
inure to the benefit of or be binding upon transferees of the Investors that are
not Affiliates of the Investors and do not hold at least 25,000 shares of Common
Stock. In addition, whether or not any express assignment has been made, the
provisions of this Agreement which are for the benefit of the Investors are also
for the benefit of, and enforceable by, any subsequent holder of Registrable
Securities that is either an Affiliate of an Investor or a holder of at least
25,000 shares of Common Stock.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Governing Law. THE CORPORATE LAW OF THE STATE OF NEVADA SHALL
-------------
GOVERN ALL ISSUES AND QUESTIONS CONCERNING THE RELATIVE RIGHTS AND OBLIGATIONS
OF THE COMPANY AND ITS STOCKHOLDERS. ALL OTHER ISSUES AND QUESTIONS CONCERNING
THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND
THE EXHIBITS AND SCHEDULES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAW PRINCIPLES THEREOF.
(h) Severability. Should any part of this Agreement for any reason be
------------
declared invalid, such decision shall not affect the validity of any remaining
portion, which remaining portion shall remain in force and effect as if this
Agreement had been executed with the invalid portion thereof eliminated and it
is hereby declared the intention of the parties hereto that they would have
executed the remaining portion of this Agreement without including therein any
such part, parts, or portion which may, for any reason, be hereafter declared
invalid.
(i) Captions. The descriptive headings of the various Sections or
---------
parts of this Agreement are for convenience only and shall not affect the
meaning or construction of any of the provisions hereof.
(j) Waiver of Jury Trial. EACH OF THE COMPANY AND THE INVESTORS
--------------------
WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR
DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT,
DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN
CONNECTION HEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH
THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED
BEFORE A COURT AND NOT BEFORE A JURY.
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<PAGE>
(k) Effectiveness of Agreement. This Agreement shall become effective
--------------------------
upon execution by the Company and delivery hereof by the Company to at least one
Investor and the execution by such Investor and delivery hereof by such Investor
to the Company, notwithstanding the fact that any other potential Investors
listed in Schedule I have not so executed and delivered this Agreement.
(l) Final Agreement. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
---------------
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, or caused this Agreement to be duly executed on its behalf, as of the
date first written.
PROSOFT I-NET SOLUTIONS, INC., a Nevada
corporation
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
[Signatures of Investors are contained in Schedule I]
14
<PAGE>
SCHEDULE I
INVESTORS
Name:___________________________________________________________________________
Authorized Signature:___________________________________________________________
Amount of Notes:________________________________________________________________
Schedule I
<PAGE>
Exhibit 23.1
Consent of Grant Thornton LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Amendment to Form S-3 Registration Statement (No. 333-35249) and related
Prospectus of Prosoft I-Net Solutions, Inc. for the registration of 5,911,059
shares of its common stock and the Post-Effective Amendment on Form S-3 to
Registration Statements on Form S-1 (Nos. 333-11247 and 333-28993) for the
registration of an aggregate of 3,982,955 shares of its common stock and to the
incorporation by reference therein of our report dated September 11, 1998
(November 12, 1998), with respect to the consolidated financial statements of
Prosoft I-Net Solutions, Inc. as of and for the year ended July 31, 1998,
included in its Annual Report (Form 10-K) for the year ended July 31, 1998,
filed with the Securities and Exchange Commission.
Grant Thornton LLP
Dallas, Texas
December 7, 1998
<PAGE>
Exhibit 23.2
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Amendment to Form S-3 Registration Statement (No. 333-35249) and related
Prospectus of Prosoft I-Net Solutions, Inc. for the registration of 5,911,059
shares of its common stock and the Post-Effective Amendment on Form S-3 to
Registration Statements (Form S-1 No. 333-11247 and 333-28993) for the
registration of an aggregate of 3,982,955 shares of its common stock and to the
incorporation by reference therein of our report dated October 24, 1997, with
respect to the consolidated financial statements of Prosoft I-Net Solutions,
Inc. as of July 31, 1997 and 1996, and for the year ended July 31, 1997 and the
period from December 8, 1995 (date of incorporation) to July 31, 1996, included
in its Annual Report (Form 10-K) for the year ended July 31, 1998, filed with
the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Orange County, California
December 7, 1998
<PAGE>
Exhibit 23.3
CONSENT OF KELLY & COMPANY, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Amendment to Form S-3 Registration Statement (No. 333-35249) and related
Prospectus of Prosoft I-Net Solutions, Inc. for the registration of 5,911,059
shares of its common stock and the Post-Effective Amendment on Form S-3 to
Registration Statements on Form S-1 (Nos. 333-11247 and 333-28993) for the
registration of an aggregate of 3,982,955 shares of its common stock and to the
incorporation by reference therein of our report dated March 8, 1996, with
respect to the financial statements of Professional Development Institute (a
sole proprietorship) included in the Annual Report (Form 10-K) of Prosoft I-Net
Solutions, Inc. for the year ended July 31, 1998, filed with the Securities and
Exchange Commission.
Kelly & Company
Newport Beach, California
December 8, 1998
